MTOR-2011.12.31-10K/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-K/A (Amendment no. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 2, 2011
Commission file number 1-15983
__________________________________
MERITOR, INC.
(Exact name of registrant as specified in its charter) 
Indiana
 
38-3354643
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
2135 West Maple Road 
Troy, Michigan
 
48084-7186
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (248) 435-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class
 
Name of each exchange on which registered
Common Stock, $1 Par Value
 
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
x
 
No
¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
¨
 
No
x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
x
 
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding twelve months (or for such shorter period that the registrant was required to submit and post such files).
Yes
x
 
No
¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer
x
 
 
Accelerated filer
¨
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
 
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).       
Yes
¨
 
No
x
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant on March 30, 2012 (the last business day of the most recently completed second fiscal quarter) was approximately $765,333,392.
 
96,487,135 shares of the registrant’s Common Stock, par value $1 per share, were outstanding on April 1, 2012.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Proxy Statement for the Annual Meeting of Shareowners of the registrant held on January 26, 2012 is incorporated by reference into Part III of the Annual Report on Form 10-K for the fiscal year ended October 2, 2011.



EXPLANATORY NOTE - AMENDMENT

Meritor, Inc. (the “company” or “Meritor”) is filing this Form 10-K/A to include in its Annual Report on Form 10-K for the fiscal year ended October 2, 2011 (the “Annual Report”), pursuant to Rule 3-09 of Regulation S-X under the Securities Exchange Act of 1934, financial statements and related notes of Master Sistemas Automotivos Ltda. (“MSA”) and Suspensys Sistemas Automotivos Ltda. (“SSA”), unconsolidated joint ventures incorporated in Brazil in which the company owns an interest. Meritor owns a 49% interest in MSA (directly) and a 50% interest in SSA (through both direct and indirect interests).
Rule 3-09 of Regulation S-X provides that if a 50% or less owned person accounted for by the equity method meets the first or third condition of the significant subsidiary tests set forth in Rule 1-02(w), substituting 20% for 10%, separate financial statements for such 50% or less owned person shall be filed. Such statements are required to be audited only in the years in which such person met such test.
Both MSA and SSA met such test for Meritor’s fiscal years 2011 and 2010 and did not meet such test for Meritor’s fiscal year 2009. Normally, therefore, under Rule 3-09 of Regulation S-X, the company would be required to file MSA’s and SSA’s audited financial statements for the fiscal years ended December 31, 2011 and 2010 (“2011” and “2010”) and to file unaudited financial statements for the fiscal year ended December 31, 2009 (“2009”).
Effective January 1, 2009, Brazil adopted International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The financial statements of MSA and SSA for 2011, 2010 and 2009 have been prepared in accordance with IFRS as issued by the IASB. As a result of the adoption of IFRS in 2009, MSA and SSA financial statements for 2009 have been audited.
Since the financial statement of MSA and SSA are presented in accordance with IFRS as issued by the IASB, reconciliations between local GAAP and U.S. GAAP are not required pursuant to SEC Release numbers 33-8879 and 34-57026 and have been omitted.
Item 15 is the only portion of the Annual Report being supplemented or amended by this Form 10-K/A. Additionally, in connection with the filing of this Form 10-K/A and pursuant to SEC rules, Meritor is including currently dated certifications. This Form 10-K/A does not otherwise update any exhibits as originally filed and does not otherwise reflect events occurring after the original filing date of the Annual Report. Accordingly, this Form 10-K/A should be read in conjunction with Meritor’s filings with the SEC subsequent to the filing of the Annual Report.

2


PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) Financial Statements, Financial Statement Schedules and Exhibits.
(1) Financial Statements.
Meritor
The following financial statements and related notes were filed as part of the Annual Report filed with the SEC on November 23, 2011 (all financial statements listed below are those of the company and its consolidated subsidiaries):
Consolidated Statement of Operations, years ended September 30, 2011, 2010 and 2009.
Consolidated Balance Sheet, September 30, 2011 and 2010.
Consolidated Statement of Cash Flows, years ended September 30, 2011, 2010 and 2009.
Consolidated Statement of Shareowners' Equity (Deficit) and Comprehensive Loss, years ended September 30, 2011, 2010 and 2009.
Notes to Consolidated Financial Statements.
Report of Independent Registered Public Accounting Firm.
Master Sistemas Automotivos Ltda.
The following financial statements and related notes of Master Sistemas Automotivos Ltda. are included in this Amendment No. 1 on Form 10-K/A pursuant to Rule 3-09 of Regulation S-X:
Balance Sheets, December 31, 2011, 2010 and 2009.
Statements of Income, Comprehensive Income, Changes in Shareholders’ Equity, and Cash Flows, years ended December 31, 2011, 2010 and 2009.
Independent Auditors’ Report.
Suspensys Sistemas Automotivos Ltda.
The following financial statements and related notes of Suspensys Sistemas Automotivos Ltda. are included in this Amendment No. 1 on Form 10-K/A pursuant to Rule 3-09 of Regulation S-X:
Balance Sheets, December 31, 2011, 2010 and 2009.
Statements of Income, Comprehensive Income, Changes in Shareholders’ Equity, and Cash Flows, years ended December 31, 2011, 2010 and 2009.
Independent Auditors’ Report.

3





Master Sistemas Automotivos Ltda.

Financial Statements
For the Years
Ended December 31, 2011, 2010 and 2009 and Independent Auditor’s Report





4

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholders of
Master Sistemas Automotivos Ltda.
Caxias do Sul, RS

We have audited the accompanying balance sheets of Master Sistemas Automotivos Ltda. (the “Company”), a company incorporated in Brazil, as of December 31, 2011, 2010 and 2009 and the related statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2011, 2010 and 2009 and the results of its operations and its cash flows for the years then ended in conformity with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

May 30, 2012


/s/ DELOITTE TOUCHE TOHMATSU
DELOITTE TOUCHE TOHMATSU
Auditores Independentes


5

MASTER SISTEMAS AUTOMOTIVOS LTDA.
BALANCE SHEETS AS OF DECEMBER 31, 2011, 2010 AND 2009
(In thousands of Brazilian reais - R$)
ASSETS
 
Note
 
12/31/2011
 
12/31/2010
 
12/31/2009
CURRENT ASSETS
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
4

 
108,055

 
105,273

 
58,080

Trade receivables
 
5

 
56,257

 
38,306

 
30,820

Recoverable taxes
 
6

 
3,822

 
1,464

 
3,254

Inventories
 
7

 
49,919

 
30,368

 
24,130

Dividends and interest on capital receivable
 
12

 
5,489

 
14,437

 
2,219

Prepaid expenses
 
 
 
342

 
133

 
153

Other receivables
 
 
 
2,282

 
1,627

 
559

Total current assets
 
 
 
226,166

 
191,608

 
119,215

NON-CURRENT ASSETS
 
 
 
 
 
 
 
 
Amounts due from parent company
 
12

 
44

 
96

 
354

Recoverable taxes
 
6

 
1,590

 
1,634

 
3,056

Retirement benefit plan
 
13

 
441

 
371

 
249

Escrow deposits
 
 
 
204

 
198

 
198

Investments:
 
 
 
 
 
 
 
 
  Investment in associate
 
8

 
146,126

 
120,002

 
96,851

  Other investments
 
 
 
26

 
25

 
25

Total investments
 
 
 
146,152

 
120,027

 
96,876

Property, plant and equipment
 
9

 
89,597

 
84,146

 
83,785

Intangible assets
 
10

 
10,177

 
4,418

 
344

Total non-current assets
 
 
 
248,205

 
210,890

 
184,862

TOTAL ASSETS
 
 
 
474,371

 
402,498

 
304,077

 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Note
 
12/31/2011

 
12/31/2010

 
12/31/2009

CURRENT LIABILITIES
 
 
 
 
 
 
 
 
Trade payables
 
 
 
23,942

 
11,213

 
8,780

Borrowings and financing
 
11

 
43,040

 
8,600

 
10,793

Taxes and contributions payable
 
 
 
4,546

 
2,226

 
2,152

Salaries payable
 
 
 
1,669

 
1,113

 
874

Accrued vacation and related charges
 
 
 
5,550

 
3,671

 
2,513

Dividends and interest on capital payable
 
17

 
11,850

 
22,021

 
4,930

Employee and management profit sharing
 
 
 
4,913

 
3,888

 
2,781

Advances from customers
 
 
 
46

 
295

 
294

Amounts due to related parties
 
12

 
150

 
151

 
—

Other payables
 
 
 
2,336

 
1,009

 
761

Total current liabilities
 
 
 
98,042

 
54,187

 
33,878

NON-CURRENT LIABILITIES
 
 
 
 
 
 
 
 
Borrowings and financing
 
11

 
62,504

 
74,444

 
51,308

Amounts due to related parties
 
12

 
1,054

 
1,205

 
1,043

Reserve for contingencies
 
14

 
690

 
443

 
—

Contributions payable
 
 
 
3,107

 
3,129

 
2,301

Deferred taxes
 
20

 
2,305

 
4,019

 
5,110

Other payables
 
 
 
93

 
520

 
594

Total long-term payables
 
 
 
69,753

 
83,760

 
60,356

SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
Capital
 
16

 
160,000

 
105,000

 
105,000

Earnings reserve
 
 
 
129,216

 
139,805

 
83,787

Retained earnings
 
 
 
17,360

 
19,746

 
21,056

Total shareholders' equity
 
 
 
306,576

 
264,551

 
209,843

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
474,371

 
402,498

 
304,077

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

6

MASTER SISTEMAS AUTOMOTIVOS LTDA.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(In thousands of Brazilian reais - R$)
 
Note
 
2011
 
2010
 
2009
NET OPERATING REVENUE
18

 
524,030

 
431,166

 
272,553

COST OF SALES AND SERVICES
19

 
(422,807
)
 
(347,602
)
 
(226,144
)
GROSS PROFIT
 
 
101,223

 
83,564

 
46,409

 
 
 
 
 
 
 
 
OPERATING INCOME (EXPENSES)
 
 
 
 
 
 
 
Selling expenses
19

 
(18,706
)
 
(14,520
)
 
(9,206
)
General and administrative expenses
19

 
(15,213
)
 
(10,623
)
 
(7,677
)
Equity in associate
8

 
52,946

 
43,316

 
27,296

Other operating expenses, net
19

 
(7,264
)
 
(5,655
)
 
(4,256
)
 
 
 
11,763

 
12,518

 
6,157

OPERATING PROFIT BEFORE FINANCE INCOME (COSTS)
 
 
112,986

 
96,082

 
52,566

 
 
 
 
 
 
 
 
FINANCE INCOME (COSTS)
 
 
 
 
 
 
 
Finance income
21

 
17,073

 
11,282

 
6,922

Finance costs
21

 
(6,441
)
 
(5,387
)
 
(4,556
)
Foreign exchange gains
21

 
596

 
96

 
4,069

 
 
 
11,228

 
5,991

 
6,435

PROFIT BEFORE INCOME TAX AND SOCIAL CONTRIBUTION
 
 
124,214

 
102,073

 
59,001

 
 
 
 
 
 
 
 
INCOME TAX AND SOCIAL CONTRIBUTION
 
 
 
 
 
 
 
Current
20

 
(21,394
)
 
(16,467
)
 
(6,291
)
Deferred
20

 
1,713

 
1,107

 
(962
)
NET PROFIT FOR THE YEAR
 
 
104,533

 
86,713

 
51,748


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


7

MASTER SISTEMAS AUTOMOTIVOS LTDA.
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(In thousands of Brazilian reais - R$)
 
2011
 
2010
 
2009
NET PROFIT FOR THE YEAR
104,533

 
86,713

 
51,748

 
 
 
 
 
 
OTHER COMPREHENSIVE INCOME
 
 
 
 
 
Actuarial gains (losses) on retirement benefit plan
(1
)
 
46

 
244

Deferred income tax and social contribution on other comprehensive income
1

 
(16
)
 
(83
)
Other comprehensive income (loss) of associate accounted for under the equity method of accounting
—

 
32

 
149

 
—

 
62

 
310

COMPREHENSIVE INCOME FOR THE YEAR
104,533

 
86,775

 
52,058


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

8

MASTER SISTEMAS AUTOMOTIVOS LTDA.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(In thousands of Brazilian reais - R$)
 
Note
 
Capital
 
Earnings
reserve
 
Retained
earnings
 
Total
BALANCES AT JANUARY 01, 2009
 
 
105,000

 
73,921

 
22,129

 
201,050

 
 
 
 
 
 
 
 
 
 
Net profit for the year
 
 
—

 
—

 
51,748

 
51,748

Other comprehensive income
 
 
—

 
—

 
310

 
310

Comprehensive income for the year
 
 
—

 
—

 
52,058

 
52,058

Interest on capital
17
 
—

 
—

 
(10,358
)
 
(10,358
)
Payments of dividends
17
 
—

 
(21,107
)
 
(11,800
)
 
(32,907
)
Earnings reserve
 
 
—

 
30,973

 
(30,973
)
 
—

BALANCES AT DECEMBER 31, 2009
 
 
105,000

 
83,787

 
21,056

 
209,843

 
 
 
 
 
 
 
 
 
 
Net profit for the year
 
 
—

 
—

 
86,713

 
86,713

Other comprehensive income
 
 
—

 
—

 
62

 
62

Comprehensive income for the year
 
 
—

 
—

 
86,775

 
86,775

Interest on capital
17
 
—

 
—

 
(10,990
)
 
(10,990
)
Payments of dividends
17
 
—

 
(8,400
)
 
(12,677
)
 
(21,077
)
Earnings reserve
 
 
—

 
64,418

 
(64,418
)
 
—

BALANCES AT DECEMBER 31, 2010
 
 
105,000

 
139,805

 
19,746

 
264,551

 
 
 
 
 
 
 
 
 
 
Net profit for the year
 
 
—

 
—

 
104,533

 
104,533

Comprehensive income for the year
 
 
—

 
—

 
104,533

 
104,533

Capital increase
16

 
55,000

 
(55,000
)
 
—

 
—

Payment of dividends
17

 
—

 
—

 
(27,088
)
 
(27,088
)
Interest on capital
17

 
—

 
—

 
(13,943
)
 
(13,943
)
Supplementary dividends
17

 
—

 
(21,477
)
 
—

 
(21,477
)
Earnings reserve
 
 
—

 
65,888

 
(65,888
)
 
—

BALANCES AT DECEMBER 31, 2011
 
 
160,000

 
129,216

 
17,360

 
306,576


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

9

MASTER SISTEMAS AUTOMOTIVOS LTDA.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(In thousands of Brazilian reais - R$)
 
Note
 
2011
 
2010
 
2009
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
 
Profit before income tax and social contribution
 
 
124,214

 
102,073

 
59,001

Adjustments to reconcile profit before income tax and social contribution to cash generated by operating activities:
 
 
 
 
 
 
 
Proceeds from sale of property, plant and equipment
 
 
288

 
45

 
4

Depreciation of property, plant and equipment
9
 
8,916

 
8,317

 
7,963

Amortization of intangible assets
10
 
109

 
135

 
157

Exchange differences on borrowings
 
 
4,025

 
7,002

 
(4,896
)
Share of profits of associate
8
 
(52,946
)
 
(43,316
)
 
(27,296
)
Changes in assets and liabilities
 
 
 
 
 
 
 
Decrease (increase) in other receivables
 
 
(17,952
)
 
(7,486
)
 
3,542

Decrease (increase) in inventories
 
 
(19,551
)
 
(6,238
)
 
5,585

Decrease (increase) in other receivables
 
 
(2,682
)
 
1,886

 
5,313

Increase in trade payables
 
 
12,729

 
2,433

 
1,540

Increase in payables and provisions
 
 
6,861

 
3,343

 
1,769

Redemption of investments
 
 
—

 
—

 
32,222

Income tax and social contribution paid
 
 
(21,394
)
 
(16,466
)
 
(6,291
)
Dividends and interest on capital received
 
 
34,801

 
7,215

 
24,930

Interest paid on borrowings
 
 
(4,691
)
 
(3,552
)
 
(3,775
)
Net cash generated by operating activities
 
 
72,727

 
55,391

 
99,768

 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
Purchase of property, plant and equipment
9
 
(14,658
)
 
(8,725
)
 
(7,190
)
Purchase of intangible assets
10
 
(5,868
)
 
(4,208
)
 
(30
)
Net cash used in investing activities
 
 
(20,526
)
 
(12,933
)
 
(7,220
)
 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
 
 
Payment of dividends and interest on capital
 
 
(70,585
)
 
(13,328
)
 
(51,099
)
Borrowings from related parties
 
 
(94
)
 
570

 
(864
)
Third-party borrowings
 
 
29,917

 
27,987

 
37,379

Repayment of borrowings and financing
 
 
(8,657
)
 
(10,494
)
 
(32,870
)
Net cash provided by (used in) used in financing activities
 
 
(49,419
)
 
4,735

 
(47,454
)
 
 
 
 
 
 
 
 
NET INCREASE IN CASH AND CASH EQUIVALENTS
 
 
2,782

 
47,193

 
45,094

Cash and cash equivalents at the beginning of the year
4

 
105,273

 
58,080

 
12,986

Cash and cash equivalents at the end of the year
4

 
108,055

 
105,273

 
58,080


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


10

MASTER SISTEMAS AUTOMOTIVOS LTDA.

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
1.
GENERAL INFORMATION

Master Sistemas Automotivos Ltda. (“Company”) is a limited liability company established in Brazil with its head office and principal place of business at Rua Atílio Andreazza 3520, in Caxias do Sul, RS, and is a jointly controlled entity of Randon S.A. Implementos e Participações (“Randon”) and Meritor do Brasil Sistemas Automotivos Ltda. (“Meritor”) whereby Randon owns 51% and Meritor owns 49%. The Company was incorporated on April 24, 1986, having started its operations in April 1987, and is engaged in the development, manufacture, sale, assembly, distribution, import and export of movement control systems for buses, trailers and trucks and their parts and components.

The Company holds a 53.177% interest in Suspensys Sistemas Automotivos Ltda. (“Suspensys”), which has its registered office and principal place of business in Caxias do Sul, RS and is engaged in the manufacture and sale of air and mechanical suspension systems for trucks, buses and trailers, axles for trailers, third axles, hubs and drums for trucks, buses and trailers, and the provision of technical assistance services for its products.

Although the Company has a 53.177% equity interest in Suspensys, the Company does not have voting control due to the following factors:

▪
Suspensys is jointly controlled as there is an agreement between Suspensys shareholders’ (the Company, Randon and Meritor) that Suspensys’ Consultative Board (i.e., governing body) is comprised of six members, which makes the significant decisions associated with Suspensys’ operations. Three members of the consultative board are elected by Randon and the other three by Meritor and all decisions need to be agreed by at least four board members.
▪
In accordance with the articles of association, each matter discussed in Suspensys’ shareholders meeting are approved by at least 80% of the shareholders.

2.
PRESENTATION OF FINANCIAL STATEMENTS

The Company’s Financial Statements for the years ended on December 31, 2011, 2010 and 2009 have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by International Accounting Standards Board (IASB).

The Company adopted all rules, revision of rules, and interpretations issued by IASB and that are applicable for the year ended on December 31, 2011.

The summary of the principal accounting policies adopted by the Company is detailed in note 3.

The financial statements were approved by the Company’s executive committee and authorized for issue on May 28, 2012.

3.
SIGNIFICANT ACCOUNTING POLICIES

3.1
Basis of preparation

The financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

3.2
Functional and presentation currency

The financial statements are presented in thousands of reais, which is the Company’s functional currency. All financial information presented in thousands of reais was rounded to the closest number.




11

3.3
Critical accounting judgments and key estimates and assumptions

In the application of accounting policies, Management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Significant assets and liabilities subject to these estimates and assumptions include the residual value and useful lives of property, plant and equipment, the allowance for doubtful debts, impairment of inventories, the realization of deferred taxes, and the provision for labor and social security risks. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revision affects only that period. Actual results may differ from these estimates due to uncertainties inherent in such estimates.

3.4
Revenue recognition

Revenue is recognized on an accrual basis.

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.

Revenue from the sale of goods is recognized when all the following conditions are satisfied:

•
the Company has transferred to the buyer the significant risks and rewards of ownership of the goods;
•
the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
•
the amount of revenue can be measured reliably;
•
it is probable that the economic benefits associated with the transaction will flow to the Company; and
•
the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Specifically, revenue from the sale of goods is recognized when goods are delivered and legal title is passed.

3.5
Foreign currencies

In preparing the Company’s financial statements, transactions in currencies other than the Company’s functional currency are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date.

Exchange differences on monetary items are recognized in profit or loss in the period in which they arise.

3.6
Current and non-current assets

•Cash and cash equivalents

Include cash on hand and in banks and short-term investments redeemable in up to 90 days from the investment date. Short-term investments are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These investments are carried at cost plus yield accrued through the end of the reporting period, which approximates their fair values.

•Trade receivables

Trade receivables are recognized at the billed amount, including the related taxes and reduced to their present value at the end of the reporting period, when applicable.

Allowances for doubtful debts are recognized based on estimated irrecoverable amounts determined by reference to the Company’s past default experience and an analysis of the debtor’s current financial position.



12


•Inventories

Inventories are stated at the lower of cost and net realizable value. Costs of inventories are determined under the weighted average cost method. Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

The allowances for slow-moving or obsolete inventories are recognized when considered necessary by Management.

•Investments in associates

An associate is an entity over which the Company has significant influence and that does not qualify as a subsidiary or a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The profit or loss, assets, and liabilities of associates are included in the financial statements by the equity method of accounting. Under the equity method of accounting, investments in associates are initially recognized at cost and subsequently adjusted for purposes of recognition of the Company’s share in profit or loss and other comprehensive income of an associate. When the Company’s share of losses of an associate exceeds its interest in the associate (including any long-term investment which, in substance, is included in the Company’s net investment in the associate), the Company discontinues recognizing its share of further losses. Further losses are recognized only to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of the associate.

When the Company’s subsidiary conducts a transaction with an associate, the resulting profits or losses are recognized only proportionately to the interests held in the associate not related to the Company.

•Property, plant and equipment

Carried at cost of acquisition, formation or construction, less accumulated depreciation and accumulated impairment losses. Properties in the course of construction are carried at cost. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Company's accounting policy (note 3.9). Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Land is not depreciated. For the other classes of property, plant and equipment, depreciation is calculated using the straight-line method at the rates mentioned in note 9, which take into consideration the estimated useful lives of assets. The estimated useful life and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of a property and equipment item is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

•Intangible assets

Intangible assets with finite useful lives that are acquired separately are carried at cost, less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

An intangible asset is derecognized on disposal or when no future economic benefits are expected from use. Gain or loss arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in profit or loss when the asset is derecognized.


13



3.7
Impairment of tangible and intangible assets

At the end of each reporting period (or earlier when the need is identified), the Company reviews the carrying amount of its tangible and intangible assets to determine where there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

When an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, as long as the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years/periods. A reversal of an impairment loss is recognized immediately in profit or loss.

3.8
Discount to present value

Monetary assets and liabilities are discounted to present value when the effect is considered material in relation to the financial statements taken as a whole. The discount to present value is calculated based on an interest rate that reflects the timing and risk of each transaction.

Trade receivables are discounted to present value with a corresponding entry in sales revenue in the statement of income, and the difference between the present value of a transaction and the face value of the billing is considered as financial income and will be recognized based on the amortized cost and the effective long-term rate of the transaction.

The discount to present value of purchases is recorded in “trade payables” and “inventories”, and its realization has a corresponding entry in line item “financial expenses” over the term of their suppliers.

3.9
Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets.

Income on investments earned on the short-term investment of funds of specific borrowings not yet spent on the qualifying assets is deducted from the borrowing costs eligible for capitalization.

All other borrowing costs are recognized in profit or loss in the year in which they are incurred.

3.10
Retirement benefit plan

The Company is the sponsor of a defined contribution plan with minimum guaranteed benefits and the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each reporting period. Actuarial gains and losses are immediately recognized in equity (in line item ‘Carrying value adjustments’) according to the available option in paragraph 93A IAS 19 - Employee Benefits.






14

3.11
Financial instruments

(a)Classification and measurement

The classification depends on the purpose for which the financial assets and liabilities were acquired or contracted. The Company’s management classifies its financial assets and liabilities at the time of initial contracting.

Loans and receivables measured at amortized cost
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including trade receivables and cash and cash equivalents) are measured at amortized cost using the effective interest method, less any impairment.

Financial liabilities measured at amortized cost
Borrowings are initially recognized, upon receipt of funds, net of transaction costs. They are subsequently measured at amortized cost. The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument.

3.12
Provisions

A provision is recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation.

Provisions for the expected cost of warranty obligations are recognized at the date of sale of the relevant products, at Management's best estimate of the expenditure required to settle the Company's obligation.


3.13
Tax incentive (FUNDOPEM)

Government grants are recognized when there is reasonable assurance that the Company will comply with the conditions attaching to them and that the grants will be received.

Subsidized loans, directly or indirectly provided by the Government, obtained at interest rates lower than market, are treated as government grants, measured at the difference between the amounts raised and the fair value of the borrowing calculated using market interest rates.

3.14
Income tax and social contribution

Current taxes
The provision for income and social contribution is based on the taxable profit for the year. Taxable profit differs from profit as reported in the statement of income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The provision for income tax and social contribution is calculated based on rates prevailing at the end of the reporting period (15% plus a 10% surtax on taxable profit exceeding R$ 20 per month for Income Tax and 9% on taxable profit for Social Contribution on Net Profit).

Deferred taxes
Deferred taxes are recognized on temporary differences at the end of each annual reporting period between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

15


The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred taxes for the period
Current and deferred taxes are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, current and deferred taxes are also recognized in other comprehensive income or directly in equity, respectively.

3.15
Standards, interpretations and amendments to existing standards effective at December 31, 2011 which did not have a material impact on the Company’s financial statements.
Standard
Main requirements
Effective date
Improvements to IFRSs – 2010
Amendments to several standards.
Effective for annual periods beginning on or after January 1, 2011
Amendments to IFRS 1
Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters
Effective for annual periods beginning on or after July 1, 2010
Amendments to IAS 24
Related-party disclosures
Effective for annual periods beginning on or after January 1, 2011
Amendments to IFRIC 14
Prepayments of a minimum funding requirement
Effective for annual periods beginning on or after January 1, 2011
Amendments to IAS 32
Classification of rights issues
Effective for annual periods beginning on or after February 1, 2010
IFRIC 19
Extinguishing financial liabilities with equity instruments
Effective for annual periods beginning on or after July 1, 2010

3.16
Standards, interpretations and amendments to existing standards not yet effective and which were not early adopted by the Company

The following standards and amendments to existing standards have been issued by the IASB, and are mandatory for annual periods beginning on or after July 1, 2011. The Company is currently evaluating the impact, if any, of the new requirements on its consolidated financial statements resulting from these standards:


16

Standard
Main requirements
Effective date
IFRS 9 (as amended in 2010)
Financial instruments
Effective for annual periods beginning on or after January 1, 2015
Amendments to IFRS 1
Removal of fixed dates for first-time adopters

Effective for annual periods beginning on or after July 1, 2011
Amendments to IFRS 7
Disclosures - transfers of financial assets
Effective for annual periods beginning on or after July 1, 2011
Amendments to IAS 12
Deferred taxes - recovery of the underlying assets when an asset is measured using the fair value model in IAS 40
Effective for annual periods beginning on or after January 1, 2012
IAS 28 (revised in 2011) Investments in Associates and Joint Ventures
Revision of IAS 28 to include the amendments introduced by IFRSs 10, 11 and 12.
Effective for annual periods beginning on or after January 1, 2013
IAS 27 (revised in 2011) Separate Financial Statements
IAS 27 requirements related to consolidated financial statements are replaced by IFRS 10. The requirements for separate financial statements are maintained.
Effective for annual periods beginning on or after January 1, 2013
IFRS 10 Consolidated Financial Statements
Replaces the IAS 27 requirements applicable to consolidated financial statements and SIC 12. IFRS 10 provides a single consolidation model that identifies control as the basis for consolidation for all types of entities.
Effective for annual periods beginning on or after January 1, 2013
IFRS 11 Joint Arrangements
Eliminates the proportionate consolidation model for jointly controlled entities and maintains equity method model only. It also eliminates the concept of ‘jointly controlled assets’ and maintains only ‘jointly controlled operations’ and ‘jointly controlled entities’.
Effective for annual periods beginning on or after January 1, 2013
IFRS 12 Disclosure of Interests in Other Entities
Expands the current disclosure requirements in respect of entities, whether or not consolidated, where the entities have influence.
Effective for annual periods beginning on or after January 1, 2013
IFRS 13 Fair Value Measurement
Replaces and consolidates in a single standard all the guidance and requirements in respect of fair value measurement contained in other IFRSs. IFRS 13 defines fair value and provides guidance on how to measure fair value and requirements for disclosure relating to fair value measurement. However, it does not introduce any new requirement or amendment with respect to items to be measured at fair value, which remain as originally issued.
Effective for annual periods beginning on or after January 1, 2013

Amendments to IAS 19 Employee Benefits
Eliminates the corridor approach and requires recognition of actuarial gains and losses as other comprehensive income for pension plans and other long-term benefits in profit or loss, when earned or incurred, among other changes.
Effective for annual periods beginning on or after January 1, 2013
Amendments to IFRS 7
Introduces the requirement that information regarding offset financial assets be disclosed.
Effective for annual periods beginning on or after January 1, 2013
Amendments to IAS 32
Clarifies aspects and requirements regarding the offset of financial assets.
Effective for annual periods beginning on or after January 1, 2014
Amendments to IAS 1 Presentation of Financial Statements
Introduces the requirement that all items recognized in other comprehensive income be separated into and totaled as items that are and items that are not subsequently reclassified to profit or loss.
Effective for annual periods beginning on or after July 1, 2012
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine
Clarifies the requirements to account for costs associated to the removal of surface mining waste, including when such stripping costs shall be recognized as an asset, how the asset is initially recognized, and subsequent measurements.
Effective for annual periods beginning on or after January 1, 2013


17

4.
CASH AND CASH EQUIVALENTS

Short-term investments refer to bank certificates of deposit (CDBs), linked to the variation of the interbank certificates of deposit rate (CDI). The yield on these short-term investments is as follows:
 
12/31/2011
 
12/31/2010
 
12/31/2009
 
 
 
 
 
 
Cash and banks
1,971

 
412

 
467

Cash in transit
2,751

 
1,708

 
—

Short-term investments:
 
 
 
 
 
CDB - 75.00% to 97.49% of CDI
2,006

 
—

 
—

CDB - 97.50% to 99.99% of CDI
64

 
87

 
33

CDB - 100.00% to 100.99% of CDI
3,465

 
25,309

 
10,079

CDB - 101.00% to 101.99% of CDI
—

 
—

 
1,547

CDB - 102.00% to 102.99% of CDI
36,643

 
—

 
521

CDB - 103.00% to 103.99% of CDI
5,531

 
6,413

 
9,475

CDB - 104.00% to 104.99% of CDI
2,565

 
35,927

 
30,540

CDB - 105.00% to 105.99% of CDI
46,016

 
35,417

 
5,418

CDB - 106.00% to 106.99% of CDI
7,043

 
—

 
—

 
103,333

 
103,153

 
57,613

Total
108,055

 
105,273

 
58,080


5.
TRADE RECEIVABLES

Trade receivables are as follows:
 
12/31/2011
 
12/31/2010
 
12/31/2009
Trade receivables from third parties – domestic
32,555

 
23,313

 
19,437

Trade receivables from third parties – foreign
1,814

 
49

 
748

Trade receivables from related parties – domestic
14,829

 
11,066

 
3,994

Trade receivables from related parties – foreign
7,059

 
3,878

 
6,641

Total
56,257

 
38,306

 
30,820


Trade receivables include amounts that are past due at the end of the reporting period for which the Company has not recognized an allowance for doubtful debts because there has not been a significant change in credit quality and the amounts are still considered recoverable, through negotiation with customers. The aging of past-due trade receivables for which no allowance for doubtful debts was recognized is as follows:
 
12/31/2011
 
12/31/2010
 
12/31/2009
1 to 30 days
16,815

 
4,231

 
6,157

31 to 60 days
1,302

 
1,400

 
455
61 to 90 days
739

 
281

 
617

91 to 180 days
512

 
477

 
345

Over 180 days
67

 
128

 
324

Past-due amounts
19,435

 
6,517

 
7,898

Current amounts
36,822

 
31,789

 
22,922

Total
56,257

 
38,306

 
30,820



18

To determine whether or not trade receivables are recoverable, the Company takes into consideration any change in the customer’s creditworthiness from the date the credit was originally granted to the end of the reporting period. The credit risk concentration is limited because the customer base is comprehensive and there is no relationship between customers. The Company does not hold any collateral or other credit enhancement over these receivables.

6.
RECOVERABLE TAXES

Recoverable taxes are as follows:
 
12/31/2011

 
12/31/2010

 
12/31/2009

 
 
 
 
 
 
Federal VAT (IPI)
286

 
59

 
66

State VAT (ICMS)
2,782

 
781

 
1,442

ICMS on purchases of property, plant and equipment
280

 
1,153

 
2,747

Tax on revenue (PIS)
282

 
—

 
21

PIS on purchases of property, plant and equipment
83

 
197

 
343

Tax on revenue (COFINS)
1,317

 
—

 
112

COFINS on purchases of property, plant and equipment
382

 
908

 
1,579

Total
5,412

 
3,098

 
6,310

 
 
 
 
 
 
Current
3,822

 
1,464

 
3,254

Non-current
1,590

 
1,634

 
3,056


Recoverable taxes in non-current assets comprise ICMS, PIS and COFINS on purchases of property, plant and equipment for which the realization, pursuant to current relevant legislation, occurs in 48 monthly installments. Of the ICMS balance, R$ 699 at December 31, 2009 refers to the purchase of ICMS credit balance from Randon S/A and will be offset pursuant to the schedule prepared by the Rio Grande do Sul State Finance Department. There are no balances at December 31, 2010 and 2011.

7.
INVENTORIES

Inventories comprise:
 
12/31/2011

 
12/31/2010

 
12/31/2009

Finished products
7,636

 
3,812

 
1,413

Work in process
11,449

 
9,585

 
6,372

Raw materials
27,478

 
13,673

 
13,677

Inventories in transit
875

 
1,266

 
1,176

Advances to suppliers
558

 
121

 
245

Imports in transit
1,923

 
1,911

 
1,247

Total
49,919

 
30,368

 
24,130


The cost of inventories recognized as expenses during the year related to continuing operations was R$ 422,807 (R$ 347,602 for the year ended December 31, 2010 and R$ 226,144 for the year ended December 31, 2009).

Management expects that these inventories will be recovered in a period shorter than twelve (12) months.




19

8.
INVESTMENTS – INVESTMENT IN ASSOCIATE

The movement in investment in associate Suspensys Sistemas Automotivos Ltda. is as follows:

 
12/31/2011
 
12/31/2010
 
12/31/2009
Opening balance
120,002

 
96,851

 
85,456

Interest on capital receivable
(6,457
)
 
(5,100
)
 
(4,592
)
Reversal of dividends
—

 
—

 
1,216

Dividends receivable
—

 
(10,102
)
 
—

Dividends received
(20,363
)
 
(4,995
)
 
(12,674
)
Equity in associate (a)
52,946

 
43,316

 
27,296

Other comprehensive income
(2
)
 
32

 
149

Closing balance
146,126

 
120,002

 
96,851


(a)As established in the associate agreement and ratified by the shareholders in the minutes of meeting for approval of the profit allocation, Randon S.A. – Implementos e Participações, also shareholder of Suspensys, is entitled to receive disproportionate dividends, in an amount corresponding to the Fundopem tax benefit received by Suspensys (which amounted R$ 11,763 in 2010 and R$ 13,013 in 2009), which was a VAT reduction received by Suspensys until October, 2010 (when the benefit expired).

The Company adjusted net income of each year to eliminate the impact of the tax incentive as detailed below:
 
12/31/2011
 
12/31/2010
 
12/31/2009
Suspensys’ net income
99,566

 
93,218

 
64,345

(Less) Disproportional dividend to Randon related to tax incentive
—

 
(11,763
)
 
(13,013
)
Basis for equity method
99,566

 
81,455

 
51,332

Master ownership on Suspensys
53.177
%
 
53.177
%
 
53.177
%
Equity in associate for the year
52,946

 
43,316

 
27,296


The summarized financial information on Suspensys Sistemas Automotivos is as follows:
 
12/31/2011
 
12/31/2010
 
12/31/2009
ASSETS
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
Cash and cash equivalents
132,773

 
177,575

 
112,087

Trade receivables
141,114

 
90,027

 
71,776

Inventories
72,272

 
53,292

 
53,217

Other current assets
10,170

 
6,078

 
12,388

Total current assets
356,329

 
326,972

 
249,468

 
 
 
 
 
 
NON-CURRENT ASSETS
 
 
 
 
 
Property, plant and equipment
134,610

 
124,714

 
121,405

Other non-current assets
17,062

 
8,265

 
4,049

Total non-current assets
151,672

 
132,979

 
125,454

Total assets
508,001

 
459,951

 
374,922


20

 
12/31/2011
 
12/31/2010
 
12/31/2009
LIABILITIES
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
Trade payables
52,139

 
35,654

 
48,915

Borrowings and financing
49,528

 
15,702

 
11,138

Dividends and interest on capital
10,321

 
37,022

 
4,174

Other current liabilities
32,888

 
26,042

 
18,355

Total current liabilities
144,876

 
114,420

 
82,582

NON-CURRENT LIABILITIES
 
 
 
 
 
Borrowings and financing
78,104

 
105,985

 
89,360

Deferred taxes
5,650

 
7,116

 
8,605

Other non-current liabilities
4,580

 
6,765

 
5,382

Total non-current liabilities
88,334

 
119,866

 
103,347

SHAREHOLDERS’ EQUITY
274,791

 
225,665

 
188,993

Total liabilities and shareholders’ equity
508,001

 
459,951

 
374,922

 
2011
 
2010
 
2009
INCOME STATEMENT
 
 
 
 
 
Net operating revenue
1,168,437

 
1,011,273

 
643,835

Cost of sales
(957,958
)
 
(839,460
)
 
(539,112
)
 
 
 
 
 
 
GROSS PROFIT
210,479

 
171,813

 
104,723

Operating expenses, net
(86,085
)
 
(53,646
)
 
(25,858
)
Finance income, net
15,953

 
5,924

 
2,787

PROFIT BEFORE TAXES
140,347

 
124,091

 
81,652

Income tax and social contribution
(40,781
)
 
(30,873
)
 
(17,307
)
NET PROFIT FOR THE YEAR
99,566

 
93,218

 
64,345


9.
PROPERTY, PLANT AND EQUIPMENT

 
12/31/2011
 
12/31/2010
 
12/31/2009
Cost
168,301

 
159,274

 
152,191

Accumulated depreciation
(78,704
)
 
(75,128
)
 
(68,406
)
 
89,597

 
84,146

 
83,785



21

 
Annual
depreciation
rate (%)
 
12/31/2011
 
12/31/2010
 
12/31/2009
 
 
Cost
 
Accumulated
depreciation
 
Net
 
Net
 

Net
 
 
 
 
 
 
 
 
 
 
 
 
Land
—
%
 
4,400

 
—

 
4,400

 
4,400

 
4,400

Buildings
1.69
%
 
28,015

 
(5,289
)
 
22,726

 
21,640

 
19,959

Machinery, equip. and molds
7.28
%
 
124,125

 
(69,076
)
 
55,049

 
52,406

 
55,549

Furniture and fixtures
9.53
%
 
6,162

 
(2,439
)
 
3,723

 
3,035

 
1,562

Vehicles
8.46
%
 
1,835

 
(1,219
)
 
616

 
767

 
937

Computer equipment
19.75
%
 
1,442

 
(681
)
 
761

 
358

 
273

Advances to suppliers
—
%
 
—

 
—

 
—

 
21

 
137

Property, plant and equipment in progress
—
%
 
2,322

 
—

 
2,322

 
1,519

 
968

Total
 
 
168,301

 
(78,704
)
 
89,597

 
84,146

 
83,785


a)
Movement in cost
 
Balances at
 
 
 
 
 
 
 
Balances at
 
1/1/2009
 
Additions
 
Disposals
 
Transfers
 
12/31/2009
 
 
 
 
 
 
 
 
 
 
Land
4,400

 
—

 
—

 
—

 
4,400

Buildings
16,026

 
456

 
—

 
7,910

 
24,392

Machinery, equip. and molds
110,121

 
2,966

 
(12
)
 
2,407

 
115,482

Furniture and fixtures
3,084

 
283

 
—

 
13

 
3,380

Vehicles
2,190

 
44

 
—

 
—

 
2,234

Computer equipment
1,117

 
81

 
—

 
—

 
1,198

Advances to suppliers
614

 
73

 
—

 
(550
)
 
137

Property, plant and equipment in progress
7,461

 
3,287

 
—

 
(9,780
)
 
968

Total
145,013

 
7,190

 
(12
)
 
—

 
152,191


22

 
Balance at
01/01/2010
 
Additions
 
Disposals
 
Transfers
 
Balance at
12/31/2010
 
 
 
 
 
 
 
 
 
 
Land
4,400

 
—

 
—

 
—

 
4,400

Buildings
24,392

 
667

 
—

 
1,422

 
26,481

Machinery, equip. and molds
115,482

 
4,033

 
(1,370
)
 
166

 
118,311

Furniture and fixtures
3,380

 
1,735

 
(41
)
 
221

 
5,295

Vehicles
2,234

 
95

 
(185
)
 
(231
)
 
1,913

Computer equipment
1,198

 
182

 
(46
)
 
—

 
1,334

Advances to suppliers
137

 
—

 
—

 
(116
)
 
21

Property, plant and equipment in progress
968

 
2,013

 
—

 
(1,462
)
 
1,519

Total
152,191

 
8,725

 
(1,642
)
 
—

 
159,274

 
 
 
 
 
 
 
 
 
 
 
Balance at
01/01/2011
 
Additions
 
Disposals
 
Transfers
 
Balance at
12/31/2011
 
 
 
 
 
 
 
 
 
 
Land
4,400

 
—

 
—

 
—

 
4,400

Buildings
26,481

 
1,015

 
—

 
519

 
28,015

Machinery, equip. and molds
118,311

 
9,461

 
(4,759
)
 
1,112

 
124,125

Furniture and fixtures
5,295

 
1,206

 
(303
)
 
(36
)
 
6,162

Vehicles
1,913

 
32

 
(110
)
 
—

 
1,835

Computer equipment
1,334

 
567

 
(459
)
 
—

 
1,442

Advances to suppliers
21

 
—

 
—

 
(21
)
 
—

Property, plant and equipment in progress (*)
1,519

 
2,377

 
—

 
(1,574
)
 
2,322

Total
159,274

 
14,658

 
(5,631
)
 
—

 
168,301

* The amount of R$ 2,322 recognized in property, plant and equipment in progress refers to a machine that after being installed will be lent to Endosul Pintura Automotiva Ltda. under a free-lease agreement.

b)
Movement in accumulated depreciation
 
Balances at
 
 
 
 
 
 
 
Balances at
 
1/1/2009
 
Additions
 
Disposals
 
Transfers
 
12/31/2009
 
 
 
 
 
 
 
 
 
 
Buildings
(4,164
)
 
(269
)
 
—

 
—

 
(4,433
)
Machinery, equip. and molds
(52,737
)
 
(7,205
)
 
9

 
—

 
(59,933
)
Furniture and fixtures
(1,544
)
 
(274
)
 
—

 
—

 
(1,818
)
Vehicles
(1,158
)
 
(139
)
 
—

 
—

 
(1,297
)
Computer equipment
(849
)
 
(76
)
 
—

 
—

 
(925
)
Total
(60,452
)
 
(7,963
)
 
9

 
—

 
(68,406
)

23

 
Balance at 01/01/2010
 
Additions
 
Disposals
 
Transfers
 
Balance at 12/31/2010
 
 
 
 
 
 
 
 
 
 
Buildings
(4,433
)
 
(408
)
 
—

 
—

 
(4,841
)
Machinery, equip. and molds
(59,933
)
 
(7,324
)
 
1,352

 
—

 
(65,905
)
Furniture and fixtures
(1,818
)
 
(371
)
 
38

 
(109
)
 
(2,260
)
Vehicles
(1,297
)
 
(118
)
 
160

 
109

 
(1,146
)
Computer equipment
(925
)
 
(96
)
 
45

 
—

 
(976
)
Total
(68,406
)
 
(8,317
)
 
1,595

 
—

 
(75,128
)
 
 
 
 
 
 
 
 
 
 
 
Balance at 01/01/2011
 
Additions
 
Disposals
 
Transfers
 
Balance at 12/31/2011
 
 
 
 
 
 
 
 
 
 
Buildings
(4,841
)
 
(451
)
 
—

 
3

 
(5,289
)
Machinery, equip. and molds
(65,905
)
 
(7,737
)
 
4,595

 
(29
)
 
(69,076
)
Furniture and fixtures
(2,260
)
 
(481
)
 
276

 
26

 
(2,439
)
Vehicles
(1,146
)
 
(96
)
 
23

 
—

 
(1,219
)
Computer equipment
(976
)
 
(151
)
 
446

 
—

 
(681
)
Total
(75,128
)
 
(8,916
)
 
5,340

 
—

 
(78,704
)
c)
Assets pledged as collateral

Machinery and equipment in the residual values of R$ 930 and R$ 1,360 (R$ 911 and R$ 1,048 in 2010) were pledged as collateral for the financing from the National Bank for Economic and Social Development (BNDES), by the Company and its associate Suspensys Sistemas Automotivos Ltda., respectively.

10.
INTANGIBLE ASSETS

 
Annual amortization rate
 


Balance at 01/01/2009
 
Additions
 
Balance at 12/31/2009
 
Additions
 
Balance at
12/31/2010
 
Additions
 
Balance at 12/31/2011
Software:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost
20
%
 
1,263

 
30

 
1,293

 
54

 
1,347

 
5

 
1,352

Accumulated amortization
 
 
(792
)
 
(157
)
 
(949
)
 
(135
)
 
(1,083
)
 
(109
)
 
(1,192
)
 
 
 
471

 
(127
)
 
344

 
(81
)
 
264

 
(104
)
 
160

Intangible assets in progress
 
 
—

 
—

 
—

 
4,154

 
4,154

 
5,863

 
10,017

 
 
 
471

 
(127
)
 
344

 
4,073

 
4,418

 
5,759

 
10,177


Intangible assets refer to software licenses and other expenses on the implementation of the Company’s new integrated management system (ERP), which was rolled-out in January 2012.

11.
BORROWINGS AND FINANCING

The purpose of the financing was the installation of plants, development of quality processes, import financing, and financing of imported machines. The financing was obtained from several Financial Institutions by means of funds raised by these institutions with the National Bank for Economic and Social Development (BNDES).




24

Borrowings and financing are as follows:
Type:
Annual financial charges
 
Payment frequency
 
Final maturity
 
12/31/2011
 
12/31/2010
 
12/31/2009
Working capital / exports
 
 
 
 
 
 
 
 
 
 
 
Advance of forex contract (ACC)
US dollar plus 2.90%
 
Monthly
 
09/2012
 
3,752

 
—

 
—

Bank Credit Note – Exin
4.50% to 9%
 
Monthly
 
11/2013
 
78,519

 
60,580

 
32,595

Financing
 
 
 
 
 
 
 
 
 
 
 
BNDES financing
TJLP plus 2.5% to 5%
 
Monthly
 
04/2013
 
6,973

 
12,202

 
18,377

FINEP
4% plus the amount exceeding 6% of TJLP
 
Monthly
 
12/2011
 
—

 
1,919

 
4,413

FINAME
4% to 5.5% plus the amount exceeding 6% of TJLP
 
Monthly
 
01/2011
 
—

 
12

 
495

FINAME
UMBNES (foreign currencies) plus 4%
 
Monthly
 
10/2010
 
—

 
—

 
144

FININP
US dollar plus LIBOR + 1% to 4.4%
 
Quarterly
 
12/2013
 
1,239

 
1,928

 
2,881

BNDES financing
US dollar plus 2.5% p.a.
 
Monthly
 
04/2013
 
653

 
1,011

 
1,508

FUNDOPEM – ICMS (a)
IPCA plus 3%
 
Monthly
 
02/2021
 
14,408

 
5,392

 
1,688

Total
 
 
 
 
 
 
105,544

 
83,044

 
62,101

 
 
 
 
 
 
 
 
 
 
 
 
Current
 
 
 
 
 
 
43,040

 
8,600

 
10,793

Non-current
 
 
 
 
 
 
62,504

 
74,444

 
51,308


The maturities of the long-term portions of the financing are as follows:
Maturity
12/31/2011
 
12/31/2010
 
12/31/2009
 
 
 
 
 
 
2011
—

 
—

 
8,479

2012
—

 
38,844

 
38,910

2013
48,226

 
30,327

 
2,400

2014
310

 
283

 
225

2015
1,033

 
679

 
226

2016
1,907

 
—

 
1,068

2017
1,921

 
—

 
—

2018 and thereafter
9,107

 
4,311

 
—

Total
62,504

 
74,444

 
51,308


(a)
FUNDOPEM – ICMS

Refers to ICMS tax incentives granted to the Company through financing of 60% of the ICMS due every month. This incentive is calculated on a monthly basis and is contingent to the generation of direct and indirect jobs, investments made, and the fulfillment of contractual obligations with Banco do Estado do Rio Grande do Sul and Caixa Estadual S.A. – Agência de Fomento (State Development Bank).

The incentive amounts are subject to charges at the effective rates of 3.00% per year or 0.246627% per month, plus adjustment for inflation calculated based on the monthly fluctuation of the IPCA/IBGE (consumer price index) or another index defined by the Steering Committee of FUNDOPEM/RS.


25

The benefit period started in December 2006 and ends in May 2014, and disbursements for Company use totaled 1,479,042.54 FUNDOPEM-RS incentive units (equivalent to R$ 25,129 at December 31, 2011 and R$ 23,487 at December 31, 2010). Up to December 31, 2011, the Company utilized R$ 14,408. The benefit has a grace period of 51 months and settlement is scheduled in 90 months after the end of the grace period, ending February 2021.

12.
RELATED-PARTY TRANSACTIONS

The transactions and balances with related parties are as follows:
 
Randon Group (*)
Meritor Group (**)
Total
Balance sheet
12/31/2011

12/31/2010

12/31/2009

12/31/2011

12/31/2010

12/31/2009

12/31/2011

12/31/2010

12/31/2009

Trade receivables
5,098

1,521

2,080

16,790

13,423

8,555

21,888

14,944

10,635

Dividends and interest on capital receivable
5,489

14,437

2,219

—

—

—

5,489

14,437

2,219

Amounts due from parent company
44

96

354

—

—

—

44

96

354

Other receivables
52

255

243

—

—

—

52

255

243

Trade payables
1,557

217

550

1,048

216

211

2,605

433

761

Dividends and interest on capital payable
6,043

11,230

2,515

5,807

10,791

2,415

11,850

22,021

4,930

Amounts due to related parties - current
150

151

—

—

—

—

150

151

—

Amounts due to related parties - non-current
1,054

1,205

1,043

—

—

—

1,054

1,205

1,043

 
 
 
 
 
 
 
 
 
 
Statement of income for the year
2,011

2,010

2,009

2,011

2,010

2,009

2,011

2,010

2,009

Sales of goods
111,393

92,312

55,613

153,669

118,183

38,865

265,062

210,495

94,478

Rental income
276

256

56

—

—

—

276

256

56

Purchases of products and services
48,205

29,231

18,541

4,227

3,708

3,889

52,432

32,939

22,430

Commission expenses
601

291

262

—

—

—

601

291

262

Administrative expenses
6,059

4,234

2,599

—

—

—

6,059

4,234

2,599

(*) Includes:
Randon S.A. Implementos e Participações (parent), Fras-Le S.A., Fras-Le Argentina S.A., Fras-Le Andina Comercio y Representacion Ltda., Jost Brasil Sistemas Automotivos Ltda., Randon Implementos para Transporte Ltda., Randon Argentina, Suspensys Sistemas Automotivos Ltda., Castertech Fundição e Tecnologia Ltda. and Banco Randon.
(**) Includes:
Meritor do Brasil Sistemas Automotivos Ltda., Meritor Automotive Inc., Meritor Heavy Vehicle Systems LLC., Meritor HVS Ltd, ArvinMeritor Qri,Meritor Inc., Meritor CVS, Meritor Frankfurt, and Sisamex Sistemas Automotrices.

Master is the co-guarantor of vendor financing contracts, limited to R$ 10,000 for transactions conducted between Company customers and Banco Randon. As at December 31, 2011, there is no balance regarding these transactions.

Trading transactions
Trading transactions carried out with related parties follow specific prices and terms established in the associate agreement between the parties.

Administrative expenses
Refer to administrative advisory services (corporate activities) provided by Randon to the Company.

Management compensation
Management compensation and profit sharing totaled R$ 1,102 in 2011 (R$ 1,116 in 2010 and R$ 834 in 2009).


26

Borrowings from officers and managers are recorded in ‘Other payables’, current, and total R$ 910 at December 31, 2011 (R$ 384 - current and R$ 256 - non-current at December 31, 2010 and R$ 362 – current and R$ 390 non-current at December 31, 2009). These balances are adjusted using financial market rates (“DI-extra” as released by the Brazilian Association of Financial and Capital Markets Entities, or Anbima). Related borrowing costs totaled R$ 119 in 2011, R$ 57 in 2010 and R$ 85 in 2009.

13.
RETIREMENT BENEFIT PLAN

The Company is the co-sponsor of the pension fund RANDONPREV, together with other Random companies, whose benefit plan is a defined contribution plan under the financial capitalization regime, with some supplementations of benefits for employees, not covered by the defined benefits. This minimum benefit is defined based on a percentage of the nominal salary per annum worked for the Company, credited in a lump sum at the beneficiary’s account with RANDONPREV. The latest valuation of the plan assets and of the present value of the benefit was performed at December 31, 2011, using the projected unit credit method and the determined balance of R$ 441 at December 31, 2011 (R$ 371 at December 31, 2010, R$ 249 at December 31, 2009), corresponding to the Company’s benefit, is recorded in assets.

14.
PROVISION FOR TAX, SOCIAL SECURITY AND LABOR RISKS

The position of the provision for contingent liabilities at December 31, 2011 is as follows:
Nature of
contingent liability
 
Likelihood of loss
 
Probable
 
Possible
 
 
 
 
 
Tax
 
—

 
15,293

Social security
 
425

 
1,536

Labor
 
265

 
140

Total
 
690

 
16,969


Changes in provision:
Nature of provision
Opening balance 12/31/2010
 
Increase in provision
 
Closing balance 12/31/2011
 
 
 
 
 
 
Labor
110
 
155
 
265
Social security
333
 
92
 
425
Total
443
 
247
 
690

The Company is also a party to administrative proceedings for which, based on the opinion of its legal counsel and in conformity with accounting practices adopted in Brazil, no provision for tax and social security risks was recognized since they were classified as possible or remote likelihood of loss. The main lawsuits are as follows:

Tax
a)
IPI presumed credit - Refers to notices issued by the Federal Revenue Office in the total amount of R$ 1,476, through which the tax authorities denied the Company’s request for refund of presumed credit and required the payment of the corresponding tax. The amount includes principal, fine and interest.

b)
Income tax, social contribution and withholding income tax - assessment notices issued by the Brazilian Federal Revenue Service totaling R$ 5,331 (as adjusted), collecting these taxes on regular payments made to Company agents abroad as agency commission of sales and services. The related proceedings are being handled at the administrative level.

c)
PIS and COFINS – voluntary appeal requesting the judgment of the Noncompliance Claim regarding the offset of PIS and COFINS credits since the merits of such Noncompliance Claim has not been judged by the courts. Adjusted amount: R$ 763.

27


d)
Administrative proceeding challenging an assessment notice collecting PIS-imports, COFINS-imports, Federal VAT (IPI), and import duties (II), plus fine for alleged noncompliance of Drawback Award Acts, totaling R$ 1,396.

e)
Disallowance of ICMS presumed credit on purchase of steel –refers to assessment notices issued by the Rio Grande do Sul State Department of Finance totaling R$ 6,328, through which this tax authority confirmed the award of the tax benefit in an amount higher than permitted by the law. The amount includes principal, fine and interest.

Social security
a)
Refers to INSS assessment notices totaling R$ 1,536 for the nonpayment of payroll taxes on the profit sharing bonuses paid to employee.

15.
FINANCIAL INSTRUMENTS

The estimated fair values of the Company's financial assets and liabilities were determined based on available market information and appropriate valuation techniques. However, considerable judgment was required in interpreting market data to produce the most adequate estimate of the fair value. As a consequence, the following estimates do not necessarily indicate the amounts that could be realized in a current exchange market. The use of different market methodologies may have a material effect on the estimated fair values.

These instruments are managed by means of operating strategies aimed at liquidity, profitability and security. The control policy consists in ongoing monitoring of contracted rates against market rates. The Company does not make speculative investments in derivatives or any other risk assets.

Balance breakdown

The carrying amounts and fair values of financial instruments (carried at amortized cost) included in the balance sheet are identified below:
 
12/31/2011
 
12/31/2010
 
12/31/2009
 
Carrying
amount
 
Carrying
amount
 
Carrying
amount
Description
 
 
 
 
 
Cash and cash equivalents
108,055

 
105,273

 
58,080

Trade receivables
56,257

 
38,306

 
30,820

Trade payables
23,942

 
11,213

 
8,780

Borrowings and financing
 
 
 
 
 
In local currency
99,900

 
80,105

 
57,568

In foreign currency
5,644

 
2,939

 
4,533

Amounts due to related parties
1,204

 
1,356

 
1,043


Financial instruments that are recognized in the financial statements at their amortized cost are substantially similar to the amounts that would be obtained if they were traded in the market. However, as they do not have an active market, there can be variations if the Company decides to settle them in advance.

The cost of financial instruments approximates fair value, so the disclosure of levels 1, 2 and 3 are not applicable.

•Limitations

The fair values were estimated at the end of the reporting period, based on “relevant market information”. Any changes in assumptions may significantly affect the presented estimates.

28


•Financial risk management

The Company is exposed to the following risks associated to the utilization of its financial instruments:

i.
credit risk
ii.
foreign exchange rate risk
iii.
interest rate risk
iv.
price risk
v.
liquidity risk

The Company, through its Parent Company, has a Currency Hedge Policy, prepared by the Planning and Finance Committee and approved by the Executive Officers. The purpose of the policy is to standardize the procedures of the group Companies, in order to define responsibilities and limits in transactions involving currency hedge, reducing the effects of foreign currency exchange rates on the inflows in foreign currency projected by the cash flow, without speculative purposes.

The basis used is the cash flow in foreign currency projected monthly for the following twelve months, based on the Strategic Plan projections or on the current expectation of each group company. If considered necessary, the instruments used are conservative and previously approved by the same committee. For the years ended December 31, 2011, 2010 and 2009, the Company did not enter into any transactions involving derivative financial instruments.

a.
Credit risk

The Company's sales policies are contingent on the credit policies defined by Management and are intended to minimize possible problems arising from the default of its customers. This objective is achieved by Management by means of a strict selection of the customer portfolio, which considers the ability to pay (credit analysis). A customer’s creditworthiness is assessed based on an internal credit rating system. Outstanding trade receivables are frequently monitored. The need for an allowance for impairment losses is analyzed at the end of each reporting period on an individual basis, for the major customers. Additionally, receivables lower that the allowance are collective tested.

Sales concentration:
In the year ended December 31, 2011, four costumers individually accounted for more than 10% of sales, with shares of 27.9% (26.2% in 2010 and 29.0% in 2009), 12.6% (11.8% in 2010 and 9.9% in 2009), 12.0% (13.2% in 2010 and 13.2% in 2009) and 14.3% (15.3% in 2010 and 14.7% in 2009) of net revenue each, equivalent to R$ 146 million (R$ 113 million in 2010 and R$ 79 million in 2009) R$66 million (R$ 51 million in 2010 and R$ 27 million in 2009), R$ 63 million (R$ 57 million in 2010 and R$ 36 million in 2009) and R$ 75 million (R$ 66 million in 2010 and R$ 40 million in 2009). This last amount refers to a related party. Other Company sales in the domestic and foreign markets are diluted and there is no sales concentration in a percentage above 10% for any other customer.

b.
Foreign exchange rate risk

The Company’s results are exposed to significant fluctuations due to the effects of the exchange rate volatility on assets and liabilities denominated in foreign currencies, mainly the US dollar, which closed the year with a positive fluctuation of 12.58% (negative fluctuation of 4.31% in 2010 and 25.49% in 2009).

The Company is exposed to the currency risk (foreign exchange risk) on sales, purchases and borrowings that are denominated in a currency other than the Company’s functional currency, the Brazilian real.

The Company’s net exposure to foreign exchange rate risk is as follows:

 
12/31/2011
 
12/31/2010
 
12/31/2009
A. Borrowings/financing
(5,644
)
 
(2,939
)
 
(4,533
)
B. Trade payables
(1,344
)
 
(461
)
 
(1,148
)
C. Trade receivables
8,873

 
4,727

 
7,389

D. Net exposure (A+B+C)
1,885

 
1,327

 
1,708



29

A 2% appreciation of the real against the US dollar at December 31, 2011 would have increased equity and profit by R$ 38 (R$ 27 in 2010 and R$ 34 in 2009). This analysis is based on the foreign currency exchange rate fluctuation that the Company considered as reasonably possible at the end of the reporting period. The analysis assumes that all other variables, especially interest rates, remain constant.

Any depreciation of the real against the US dollar at December 31, 2011 would have the opposite effect, assuming that all other variables would remain constant.

c.
Interest rate risk

The Company’s result is exposed to significant fluctuations due to borrowings and financing contracted at floating interest rates.

The Company does not have derivative financial instruments to manage its exposure to interest rates.

Pursuant to its financial policies, the Company has not entered into any transactions involving financial instruments for speculative purposes.

A 1% increase in annual interest rates would have increased the Company’s borrowings and financing balance by R$ 1,055 at December 31, 2011 (R$ 830 at December 31, 2010 and R$ 621 at December 31, 2009).

This analysis assumes that all other variables that could impact this carrying amount remain constant. Any decrease in the interest rates by the same percentage would have the opposite effect, assuming that all other variables would remain constant.

The interest rates on the Company’s borrowings and financing are disclosed in note 11 – Borrowings and Financing.

d.
Price risk

Arises from the possibility of fluctuations in the market prices of products sold or produced by the Company and of other inputs used in the production process. These price fluctuations may cause substantial changes in the Company’s revenues and costs. In order to mitigate these risks, the Company conducts an ongoing monitoring of local and foreign markets, seeking to anticipate price movements. The Company has not contracted any financial instruments to hedge against fluctuations in its raw materials’ prices.

e.
Liquidity risk

The table below details the remaining contractual maturity of the Company’s liabilities and the contractual amortization periods. The table was prepared using the undiscounted cash flows of the financial liabilities based on the nearest date on which the Company can be required to make the related payment. The table includes interest and principal cash flows. As the interest flows refer to floating rates, the undiscounted value was obtained based on the interest curves at the end of the reporting period. Contractual maturity is based on the first date the Company can be required to pay the related obligations.

Description
Up to 1 month
 
From 1 to
3 months
 
From 3
months
to 1 year
 
From 1 to
5 years
 
Over 5 years
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Trade payables
21,484

 
2,397

 
61

 
—

 
—

 
23,942

Borrowings and financing
525

 
1,429

 
41,088

 
53,396

 
9,106

 
105,544

Interest to be incurred on borrowings and financing
50

 
1,073

 
3,077

 
3,313

 
729

 
8,242

Dividends and interest on capital
—

 
11,850

 
—

 
—

 
—

 
11,850

Total
22,059

 
16,749

 
44,226

 
56,709

 
9,835

 
149,578



30

16.
CAPITAL

Subscribed capital is represented by 160,000 quotas in the total amount o R$ 160,000 (R$ 105,000 in 2010 and 2009).

On August 1, 2011, Master’s shareholders and officers approved a capital increase with the capitalization of the earnings reserve amounting to R$ 55,000, with the issuance of 55,000,000 shares of R$ 1.00 each, the capital is distributed as follows among the shareholders:
Shareholder
R$
 
%
 
 
 
 
Randon S.A. Implementos e Participações
81,600

 
51
Arvinmeritor do Brasil Sistemas Automotivos Ltda.
78,400

 
49
Total
160,000

 
100

17.
DIVIDENDS AND INTEREST ON CAPITAL

Dividends
Of the profit for the year, the articles of association establish the distribution of 25% of such profit as mandatory dividend. After excluding the amounts already paid as interest on capital during the year, R$ 12,677 was accrued in 2010 (R$ 11,800 in 2009).

In addition to the mandatory minimum dividend (calculated considering the amounts already paid as interest on capital during the year), in 2010 the Company’s shareholders approved the distribution of R$ 8,400 as dividends from prior years (R$ 21,107 in 2009).

The Annual and Extraordinary shareholders’ Meeting held on April 15, 2011 approved the dividend distribution proposal and interest on capital and dividends totaling R$ 45,144 were paid on May 30, 2011, as follows:
Interest on capital accrued at 12/31/2010 (gross of IRRF):
R$10,990
Minimum dividends prescribed by Company bylaws accrued at 12/31/2010:
R$12,677
Supplementary dividends:
R$21,477
Total paid on May 30, 2011
R$45,144

The shareholders’ meeting held on August 19, 2011 approved the early distribution of dividends, based on retained earnings through June 30, 2011, totaling R$ 27,088, paid on September 15, 2011.

Interest on Capital
The Company recorded for the year ended December 31, 2011 interest on capital of R$ 13,943 (R$ 10,990 for the year ended December 31, 2010 and R$ 10,358 in 2009), using as a basis the TJLP for the period January-December of each year, applied to equity, considering the higher of 50% of the profit for the year before income tax or 50% of the retained earnings.

As provided for by the tax law, the amount recognized as interest on capital was fully deducted in the calculation of income tax and social contribution, and the tax benefit from this deduction was R$ 4,741 (R$ 3,738 for the year ended December 31, 2010 and R$ 3,522 in 2009). For purposes of conformity of the presentation of the financial statements, such interest was treated as dividends and disclosed as a reduction of retained earnings in equity, and the tax benefit as a reduction of expenses on current income tax and social contribution.

The interest on capital amounts credited to shareholders are subject to 15% withholding income tax (IRRF) and the net amount payable to shareholders is disclosed in line item ‘Interest on capital payable’ and possible income tax not withheld is recognized in line item ‘Taxes payable’.

Additionally, the Company recognized finance income related to interest on capital receivable from subsidiary Suspensys Sistemas Automotivos Ltda., totaling R$ 6,457 (R$ 5,100 for the year ended December 31, 2010 and R$ 4,592 in 2009), which for purposes of disclosure and compliance with accounting principles, was reclassified from line item ‘Finance income’ to “Investments”, in non-current assets.


31

18.
NET OPERATING REVENUE

The reconciliation between the revenue recognized for tax purposes and the revenue presented in the income statement for the year is as follows:
 
2011
 
2010
 
2009
Gross revenue for tax purposes
681,985

 
559,508

 
355,792

Taxes on sales
(150,560
)
 
(123,614
)
 
(80,025
)
Sales returns
(2,136
)
 
(984
)
 
(872
)
Discount to present value on installment sales
(5,259
)
 
(3,744
)
 
(2,342
)
Net revenue recognized in the statement of income
524,030

 
431,166

 
272,553


19.
EXPENSES BY NATURE

As required by corporate law, the Company is required to present the statement of income by function. Therefore, the analysis of operating expenses by nature is as follows:
 
2011
 
2010
 
2009
Raw materials and auxiliary materials
328,256

 
274,454

 
177,796

Depreciation and amortization
9,025

 
8,452

 
8,120

Personnel
69,693

 
43,968

 
28,990

Freight
12,364

 
9,583

 
4,941

Costs of outside services
16,912

 
11,307

 
7,702

Asset upkeep costs
10,775

 
8,419

 
3,848

Other expenses
16,965

 
22,217

 
15,886

Total
463,990

 
378,400

 
247,283


These expenses were classified as follows in the statement of income (presented by function):
 
2011
 
2010
 
2009
Cost of sales and services
422,807

 
347,602

 
226,144

Selling expenses
18,706

 
14,520

 
9,206

General and administrative expenses
15,213

 
10,623

 
7,677

Other operating expenses, net
7,264

 
5,655

 
4,256

Total
463,990

 
378,400

 
247,283



32

20.
INCOME TAX AND SOCIAL CONTRIBUTION

Income tax and social contribution expense
The income tax (IRPJ) and social contribution (CSLL) expense for the years ended December 31 is reconciled at statutory rates, as follows:
 
2011
 
2010
 
2009
 
IRPJ/CSLL
 
IRPJ/CSLL
 
IRPJ/CSLL
Profit before income tax
 
 
 
 
 
and social contribution
124,214

 
102,073

 
59,001

Applicable rate
34
%
 
34
%
 
34
%
Income tax and social contribution
 
 
 
 
 
at nominal rates
42,233

 
34,704

 
20,060

Effect of taxes on:
 
 
 
 
 
Interest on capital expense (*)
(4,741
)
 
(3,737
)
 
(3,521
)
Interest on capital income (*)
2,195

 
1,734

 
1,561

Equity in associate
(18,002
)
 
(14,727
)
 
(9,281
)
Other
(1,219
)
 
(2,012
)
 
(1,259
)
 
(21,767
)
 
(18,742
)
 
(12,500
)
 
 
 
 
 
 
Income tax and social contribution
 
 
 
 
 
before deductions
20,466

 
15,962

 
7,560

Income tax deductions and other adjustments
(785
)
 
(602
)
 
(307
)
Income tax and social contribution expense
19,681

 
15,360

 
7,253

 
 
 
 
 
 
Current income tax and social contribution
21,394

 
16,467

 
6,291

Deferred income tax and social contribution
(1,713
)
 
(1,107
)
 
962

* See note 17, Interest on Capital.





























33

Analysis of deferred income tax and social contribution
 
12/31/2011
 
12/31/2010
 
12/31/2009
Temporary differences
Temporary differences
 
Deferred taxes
 
Temporary differences
 
Deferred taxes
 
Temporary differences
 
Deferred taxes
 
 
 
 
 
 
 
 
 
 
 
 
Accrued profit sharing
4,913

 
1,670

 
3,887

 
1,322

 
2,781

 
946

Provision for warranty claims
866

 
294

 
146

 
49

 
146

 
49

Provision for tax and social security risks
690

 
235

 
443

 
151

 
—

 
—

Provision for collective bargaining
152

 
52

 
115

 
39

 
63

 
21

Provision for employee termination
126

 
43

 
282

 
96

 
220

 
75

Deferred asset recorded for tax purposes
285

 
97

 
609

 
207

 
609

 
207

Other temporary additions
1,736

 
590

 
414

 
141

 
171

 
58

Total assets
 
 
2,981

 
 
 
2,005

 
 
 
1,356

 
 
 
 
 
 
 
 
 
 
 
 
Incentive depreciation, Law 11774
(2,106
)
 
(526
)
 
(2,279
)
 
(570
)
 
(1,256
)
 
(315
)
Deemed cost of property, plant and equipment
(13,558
)
 
(4,610
)
 
(15,681
)
 
(5,331
)
 
(17,857
)
 
(6,071
)
Retirement benefit plan
(441
)
 
(150
)
 
(361
)
 
(123
)
 
(238
)
 
(80
)
Total liabilities
 
 
(5,286
)
 
 
 
(6,024
)
 
 
 
(6,466
)
Deferred income tax and contribution – net
 
 
2,305

 
 
 
4,019

 
 
 
5,110


The Company offsets deferred tax assets and deferred tax liabilities because it related to income taxes levied by the same tax authority on the Company. The Company understands such presentation reflects better financial position as a standalone legal entity.

Movement in deferred income tax and social contribution:

Temporary differences
Balances at
1/1/2009
 
Recognized in income for the year
 
Recognized in other comprehensive income
 
Balances at
12/31/2009
Allowance for inventory losses
812

 
(812
)
 
—

 
—

Accrued profit sharing
—

 
946

 
—

 
946

Derivative transactions
1,491

 
(1,491
)
 
—

 
—

Provision for warranty claims
22

 
27

 
—

 
49

Provision for collective bargaining
15

 
6

 
—

 
21

Provision for employee termination
75

 
—

 
—

 
75

Deferred asset recorded for tax purposes
320

 
(113
)
 
—

 
207

Other temporary additions
16

 
42

 
—

 
58

 
2,751

 
(1,395
)
 
—

 
1,356

 
 
 
 
 
 
 
 
Incentive depreciation Law 11774
—

 
(315
)
 
—

 
(315
)
Cost attributed to property, plant and equipment
(6,816
)
 
745

 
—

 
(6,071
)
Retirement benefit plan
—

 
3

 
(83
)
 
(80
)
 
(6,816
)
 
433

 
(83
)
 
(6,466
)
Total recognized in the year
 
 
(962
)
 
(83
)
 
 


34

Temporary differences
Balance at 01/01/2010
 
Recognized
in profit for
the year
 
Recognized in
other
comprehensive
income
 
Balance at 12/31/2010
 
 
 
 
 
 
 
 
Accrued profit sharing
946

 
376

 
—

 
1,322

Provision for warranty claims
49

 
—

 
—

 
49

Provision for tax and social security risks
—

 
151

 
—

 
151

Provision for collective bargaining
21

 
18

 
—

 
39

Provision for employee termination
75

 
21

 
—

 
96

Deferred asset recorded for tax purposes
207

 
—

 
—

 
207

Other temporary additions
58

 
83

 
—

 
141

 
1,356

 
649

 
—

 
2,005

 
 
 
 
 
 
 
 
Incentive depreciation, Law 11774
(315
)
 
(255
)
 
—

 
(570
)
Deemed cost of property, plant and equipment
(6,071
)
 
740

 
—

 
(5,331
)
Retirement benefit plan
(80
)
 
(27
)
 
(16
)
 
(123
)
 
(6,466
)
 
458

 
(16
)
 
(6,024
)
Total recognized in the year
 
 
1,107

 
(16
)
 
 
Temporary differences
Balance at 01/01/2011
 
Recognized
in profit for
the year
 
Recognized in
other
comprehensive
income
 
Balance at 12/31/2011
Accrued profit sharing
1,322

 
348

 
—

 
1,670

Provision for warranty claims
49

 
245

 
—

 
294

Provision for tax and social security risks
151

 
84

 
—

 
235

Provision for collective bargaining
39

 
13

 
—

 
52

Provision for employee termination
96

 
(53
)
 
—

 
43

Deferred asset recorded for tax purposes
207

 
(110
)
 
—

 
97

Other temporary additions
141

 
449

 
—

 
590

 
2,005

 
976

 
—

 
2,981

 
 
 
 
 
 
 
 
Incentive depreciation, Law 11774
(570
)
 
44

 
—

 
(526
)
Deemed cost of property, plant and equipment
(5,331
)
 
721

 
—

 
(4,610
)
Retirement benefit plan
(123
)
 
(28
)
 
1

 
(150
)
 
(6,024
)
 
737

 
1

 
5,286

Total recognized in the year
 
 
1,713

 
1

 
 
















35

21.
FINANCE INCOME (EXPENSES)

Finance income (expenses) for the years ended December 31 are as follows:
 
2011
 
2010
 
2009
Finance income
 
 
 
 
 
Interest on short-term investments
11,670

 
7,211

 
4,374

Interest received and discounts obtained
238
 
409
 
168
Discount to present value of trade receivables
5,165

 
3,662

 
2,380

 
17,073

 
11,282

 
6,922

Finance expenses
 
 
 
 
 
Interest on borrowings and financing
(4,691
)
 
(3,572
)
 
(3,320
)
Bank expenses
(337
)
 
(949
)
 
(760
)
Discount to present value of trade payables
(1,413
)
 
(866
)
 
(476
)
 
(6,441
)
 
(5,387
)
 
(4,556
)
Foreign exchange differences
 
 
 
 
 
Exchange gains on items classified in liabilities
4,619

 
3,728

 
8,653

Exchange losses on items classified in assets
(4,023
)
 
(3,632
)
 
(4,584
)
 
596
 
96
 
4,069

Finance income (expenses), net
11,228

 
5,991

 
6,435






Suspensys Sistemas Automotivos Ltda.

Financial Statements
For the Years Ended
December 31, 2011, 2010 and 2009, and Independent Auditor’s Report






37

INDEPENDENT AUDITOR’S REPORT

To the Board of Directors and Shareholders of
Suspensys Sistemas Automotivos Ltda.
Caxias do Sul, RS

We have audited the accompanying balance sheets of Suspensys Sistemas Automotivos Ltda. (the “Company”), a company incorporated in Brazil, as of December 31, 2011, 2010 and 2009 and the related statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2011, 2010 and 2009 and the results of its operations and its cash flows for the years then ended in conformity with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

May 30, 2012


/s/ DELOITTE TOUCHE TOHMATSU
DELOITTE TOUCHE TOHMATSU
Auditores Independentes


38

SUSPENSYS SISTEMAS AUTOMOTIVOS LTDA.
BALANCE SHEETS AS OF DECEMBER 31, 2011, 2010 AND 2009
(In thousands of Brazilian reais - R$)
ASSETS
 
Note
 
12/31/2011
 
12/31/2010
 
12/31/2009
CURRENT ASSETS
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
4
 
132,773

 
177,575

 
112,087

Trade receivables
 
5
 
141,114

 
90,027

 
71,776

Recoverable taxes
 
6
 
7,797

 
4,310

 
11,252

Inventories
 
7
 
72,272

 
53,292

 
53,217

Amounts due from parent company
 
11
 
62

 
369

 
368

Other receivables
 
 
 
2,311

 
1,399

 
768

Total current assets
 
 
 
356,329

 
326,972

 
249,468

NON-CURRENT ASSETS
 
 
 
 
 
 
 
 
Amounts due from related parties
 
11
 
52

 
114

 
485

Recoverable taxes
 
6
 
1,606

 
1,046

 
2,302

Retirement benefit plan
 
21
 
761

 
657

 
435

Other receivables
 
 
 
83

 
56

 
58

Property, plant and equipment
 
8
 
134,610

 
124,714

 
121,405

Intangible assets
 
9
 
14,560

 
6,392

 
769

Total non-current assets
 
 
 
151,672

 
132,979

 
125,454

TOTAL ASSETS
 
 
 
508,001

 
459,951

 
374,922

 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Note
 
12/31/2011

 
12/31/2010

 
12/31/2009

CURRENT LIABILITIES
 
 
 
 
 
 
 
 
Trade payables
 
13
 
52,139

 
35,654

 
48,915

Borrowings and financing
 
10
 
49,528

 
15,702

 
11,138

Advances from customers
 
 
 
1,048

 
1,404

 
361

Taxes and contributions payable
 
 
 
5,096

 
6,622

 
3,183

Salaries payable
 
 
 
1,837

 
1,240

 
1,678

Accrued vacation and related charges
 
 
 
7,895

 
5,788

 
4,772

Dividends and interest on capital payable
 
11 / 16
 
10,321

 
37,022

 
4,174

Employee and management profit sharing
 
 
 
8,874

 
7,673

 
4,939

Amounts due to related parties (intragroup loans)
 
11 / 13
 
4,942

 
—

 
—

Other payables
 
 
 
3,196

 
3,315

 
3,422

Total current liabilities
 
 
 
144,876

 
114,420

 
82,582

NON-CURRENT LIABILITIES
 
 
 
 
 
 
 
 
Borrowings and financing
 
10
 
78,104

 
105,985

 
89,360

Provision for tax, social security and labor risks
 
12
 
782

 
150

 
141

Contributions payable
 
 
 
3,717

 
2,887

 
1,999

Deferred taxes
 
19
 
5,650

 
7,116

 
8,605

Other payables
 
 
 
81

 
3,728

 
3,242

Total non-current liabilities
 
 
 
88,334

 
119,866

 
103,347

SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
Capital
 
14
 
110,000

 
71,291

 
71,291

Capital reserve
 
15
 
—

 
36,354

 
24,591

Earnings reserve
 
 
 
149,329

 
100,709

 
75,046

Retained earnings
 
 
 
15,462

 
17,311

 
18,065

Total shareholders' equity
 
 
 
274,791

 
225,665

 
188,993

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
508,001

 
459,951

 
374,922

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

39

SUSPENSYS SISTEMAS AUTOMOTIVOS LTDA.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(In thousands of Brazilian reais - R$)
 
Note
 
2011
 
2010
 
2009
NET OPERATING REVENUE
17
 
1,168,437

 
1,011,273

 
643,835

COST OF SALES AND SERVICES
18
 
(957,958
)
 
(839,460
)
 
(539,112
)
GROSS PROFIT
 
 
210,479

 
171,813

 
104,723

 
 
 
 
 
 
 
 
OPERATING INCOME (EXPENSES)
 
 
 
 
 
 
 
Selling expenses
18
 
(50,215
)
 
(34,721
)
 
(20,944
)
General and administrative expenses
18
 
(22,763
)
 
(19,498
)
 
(13,241
)
Tax incentive - Fundopem
15
 
—

 
11,763

 
13,013

Other operating (expenses)/income, net
18
 
(13,107
)
 
(11,190
)
 
(4,686
)
 
 
 
(86,085
)
 
(53,646
)
 
(25,858
)
OPERATING PROFIT BEFORE FINANCE INCOME (COSTS)
 
 
124,394

 
118,167

 
78,865

 
 
 
 
 
 
 
 
FINANCE INCOME (EXPENSES)
 
 
 
 
 
 
 
Finance income
20
 
30,027

 
19,144

 
10,880

Finance expenses
20
 
(14,713
)
 
(12,835
)
 
(7,805
)
Foreign exchange gains/(loss)
20
 
639

 
(385
)
 
(288
)
 
 
 
15,953

 
5,924

 
2,787

PROFIT BEFORE INCOME TAX AND SOCIAL CONTRIBUTION
 
 
140,347

 
124,091

 
81,652

 
 
 
 
 
 
 
 
INCOME TAX AND SOCIAL CONTRIBUTION
 
 
 
 
 
 
 
Current
19
 
(42,246
)
 
(32,393
)
 
(16,212
)
Deferred
19
 
1,465

 
1,520

 
(1,095
)
NET PROFIT FOR THE YEAR
 
 
99,566

 
93,218

 
64,345


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

40

SUSPENSYS SISTEMAS AUTOMOTIVOS LTDA.
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(In thousands of Brazilian reais - R$)
 
2011
 
2010
 
2009
NET PROFIT FOR THE YEAR
99,566

 
93,218

 
64,345

 
 
 
 
 
 
OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
Actuarial gains (losses) on retirement benefit plan
(4
)
 
92

 
426

Deferred income tax and social contribution on other comprehensive income
1

 
(31
)
 
(145
)
 
(3
)
 
61

 
281

COMPREHENSIVE INCOME FOR THE YEAR
99,563

 
93,279

 
64,626


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


41

SUSPENSYS SISTEMAS AUTOMOTIVOS LTDA.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(In thousands of Brazilian reais - R$)
 
 
 
 
 
Capital
reserve
 
 
 
 
 
 
 
Note
 
Capital
 
Tax incentives
reserve
 
Earnings
reserve
 
Retained
earnings
 
Total
BALANCES AT JANUARY 1, 2009
 
 
71,291

 
11,578

 
62,737

 
18,782

 
164,388

 
 
 
 
 
 
 
 
 
 
 
 
Net profit for the year
 
 
—

 
—

 
—

 
64,345

 
64,345

Other comprehensive income
 
 
—

 
—

 
—

 
281

 
281

Total comprehensive income
 
 
—

 
—

 
—

 
64,626

 
64,626

Reversal of dividends proposed in 2008
 
 
—

 
—

 
2,289

 
—

 
2,289

Tax incentive - Fundopem
15
 
—

 
13,013

 
—

 
(13,013
)
 
—

Interest on capital
16
 
—

 
—

 
—

 
(8,635
)
 
(8,635
)
Dividends on earnings reserve
16
 
—

 
—

 
(10,300
)
 
—

 
(10,300
)
Disproportionate dividends for Randon
16
 
—

 
—

 
(2,183
)
 
(7,657
)
 
(9,840
)
Dividends paid on profit for the year
16
 
—

 
—

 
—

 
(13,535
)
 
(13,535
)
Earnings reserve
 
 
—

 
—

 
22,503

 
(22,503
)
 
—

BALANCES AT DECEMBER 31, 2009
 
 
71,291

 
24,591

 
75,046

 
18,065

 
188,993

 
 
 
 
 
 
 
 
 
 
 
 
Net profit for the year
 
 
—

 
—

 
—

 
93,218

 
93,218

Other comprehensive income
 
 
—

 
—

 
—

 
61

 
61

Total comprehensive income
 
 
—

 
—

 
—

 
93,279

 
93,279

Tax incentive - Fundopem
15
 
—

 
11,763

 
—

 
(11,763
)
 
—

Interest on capital
16
 
—

 
—

 
—

 
(9,591
)
 
(9,591
)
Dividends on earnings reserve
16
 
—

 
—

 
(9,396
)
 
—

 
(9,396
)
Disproportionate dividends for Randon
16
 
—

 
—

 
(8,750
)
 
(9,874
)
 
(18,624
)
Dividends paid on profit for the year
16
 
—

 
—

 
—

 
(18,996
)
 
(18,996
)
Earnings reserve
 
 
—

 
—

 
43,809

 
(43,809
)
 
—

BALANCES AT DECEMBER 31, 2010
 
 
71,291

 
36,354

 
100,709

 
17,311

 
225,665

 
 
 
 
 
 
 
 
 
 
 
 
Net profit for the year
 
 
—

 
—

 
—

 
99,566

 
99,566

Other comprehensive income
 
 
—

 
—

 
—

 
(3
)
 
(3
)
Total comprehensive income
 
 
—

 
—

 
—

 
99,563

 
99,563

Capital increase
14/15
 
38,709

 
(36,354
)
 
(2,355
)
 
—

 
—

Dividends on earnings reserve
16
 
—

 
—

 
(13,214
)
 
—

 
(13,214
)
Dividends paid on profit for the year
16
 
—

 
—

 
—

 
(25,080
)
 
(25,080
)
Interest on capital
16
 
—

 
—

 
—

 
(12,143
)
 
(12,143
)
Earnings reserve
 
 
—

 
—

 
64,189

 
(64,189
)
 
—

BALANCES AT DECEMBER 31, 2011
 
 
110,000

 
—

 
149,329

 
15,462

 
274,791


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


42

SUSPENSYS SISTEMAS AUTOMOTIVOS LTDA.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(In thousands of Brazilian reais - R$)
 
Note
 
2011
 
2010
 
2009
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
 
Profit before income tax and social contribution
 
 
140,347

 
124,091

 
81,652

Adjustments to reconcile profit before income tax and social contribution
 
 
 
 
 
 
 
to cash generated by operating activities:
 
 
 
 
 
 
 
Depreciation of property, plant and equipment
8
 
15,703

 
15,055

 
13,381

Amortization of intangible assets
9
 
310

 
294

 
284

Gain from sale of property, plant and equipment items
 
 
146

 
27

 
8

Provisions
 
 
(1,268
)
 
927

 
(358
)
Exchanges differences on borrowings and financing
 
 
1,728

 
(139
)
 
(1,755
)
Interest and charges allocated to borrowings and financing
 
 
6,782

 
7,239

 
4,653

Changes in assets and liabilities
 
 
 
 
 
 
 
Increase in trade receivables
 
 
(51,806
)
 
(18,251
)
 
(4,803
)
Increase in inventories
 
 
(16,526
)
 
(75
)
 
(976
)
(Increase)/decrease in other receivables
 
 
(4,641
)
 
7,438

 
5,602

Increase in trade payables
 
 
16,485

 
(13,261
)
 
27,527

Increase in other payables
 
 
21

 
4,243

 
2,573

Income tax and social contribution paid
 
 
(39,951
)
 
(29,935
)
 
(11,408
)
Interest paid on financing
 
 
(7,278
)
 
(6,830
)
 
(4,752
)
Net cash generated by operating activities
 
 
60,052

 
90,823

 
111,628

 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
Purchase of property, plant and equipment
8
 
(25,744
)
 
(18,391
)
 
(16,502
)
Purchase of intangible assets
9
 
(8,478
)
 
(5,917
)
 
(53
)
Investments
 
 
(29
)
 
—

 
—

Net cash used in investing activities
 
 
(34,251
)
 
(24,308
)
 
(16,555
)
 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
 
 
Payment of dividends
16
 
(67,165
)
 
(18,144
)
 
(52,877
)
Payment of interest on capital
16
 
(8,152
)
 
(4,173
)
 
(8,421
)
Repayment of financing
 
 
(13,928
)
 
(10,214
)
 
(24,443
)
Borrowings from third-parties
 
 
18,642

 
31,133

 
69,000

Borrowings from related parties
 
 
—

 
371

 
394

Net cash used in financing activities
 
 
(70,603
)
 
(1,027
)
 
(16,347
)
 
 
 
 
 
 
 
 
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
 
 
(44,802
)
 
65,488

 
78,726

Cash and cash equivalents at the beginning of the year
4
 
177,575

 
112,087

 
33,361

Cash and cash equivalents at the end of the year
4
 
132,773

 
177,575

 
112,087


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

43

SUSPENSYS SISTEMAS AUTOMOTIVOS LTDA.

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
1.
OPERATIONS

Suspensys Sistemas Automotivos Ltda. (the “Company”) is a limited liability company established in Brazil with its head office and principal place of business at Avenida Abramo Randon, 1262, Caxias do Sul, RS, and is a jointly controlled entity of Randon S.A. Implementos e Participações (“Randon”) and Meritor Inc. (“Meritor”). The Company started its operations on October 1, 2002 and is primarily engaged in the manufacture and sale of air and mechanical suspension systems for trucks, buses and trailers, trailer axles, third axles, hubs and drums for trucks, buses and trailers, and the provision of technical assistance services for its products.

2.
PRESENTATION OF FINANCIAL STATEMENTS

The Company’s Financial Statements for the years ended on December 31, 2011, 2010 and 2009 have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by International Accounting Standards Board (IASB).

The Company adopted all rules, revision of rules, and interpretations issued by IASB and that are applicable for the year ended on December 31, 2011.

The summary of the principal accounting policies adopted by the Company is detailed in note 3.

The financial statements were approved by the Company’s Board of Directors and authorized for issuance on May 28, 2012.

3.
SIGNIFICANT ACCOUNTING POLICIES

3.1
Basis of preparation

The financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

3.2
Functional and presentation currency

The financial statements are presented in thousands of reais, which is the Company’s functional currency. All financial information presented in thousands of reais was rounded to the closest number.

3.3
Critical accounting judgments and key estimates and assumptions

In the application of accounting policies, Management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Significant assets and liabilities subject to these estimates and assumptions include the residual value and useful lives of property, plant and equipment, the allowance for doubtful debts, impairment of inventories, the realization of deferred taxes, and the provision for labor and social security risks. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revision affects only that period or also subsequent periods. Actual results may differ from these estimates due to uncertainties inherent in such estimates.

3.4
Revenue recognition

Revenue is recognized on an accrual basis.

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.



44

Revenue from the sale of goods is recognized when all the following conditions are satisfied:

•
the Company has transferred to the buyer the significant risks and rewards of ownership of the goods;
•
the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
•
the amount of revenue can be measured reliably;
•
it is probable that the economic benefits associated with the transaction will flow to the Company; and
•
the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Specifically, revenue from the sale of goods is recognized when goods are delivered and legal title is passed.

3.5
Foreign currencies

In preparing the Company’s financial statements, transactions in currencies other than the Company’s functional currency are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date.

Exchange differences on monetary items are recognized in profit or loss in the period in which they arise.

3.6
Current and non-current assets

•
Cash and cash equivalents

Include cash on hand and in banks and short-term investments redeemable in up to 90 days from the investment date. Short-term investments are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These investments are carried at cost plus yield accrued through the end of the reporting period, which approximates their fair values.

•
Trade receivables

Trade receivables are recognized at the billed amount, including the related taxes and reduced to their present value at the end of the reporting period, when applicable.

Allowances for doubtful debts are recognized based on estimated irrecoverable amounts determined by reference to the Company’s past default experience and an analysis of the debtor’s current financial position.

•
Inventories

Inventories are stated at the lower of cost and net realizable value. Costs of inventories are determined under the weighted average cost method. Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

The allowances for slow-moving or obsolete inventories are recognized when considered necessary by Management.

•
Property, plant and equipment

Carried at cost of acquisition, formation or construction, less accumulated depreciation and accumulated impairment losses.

Properties in the course of construction are carried at cost. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Company's accounting policy (note 3.9). Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Land is not depreciated. For the other classes of property, plant and equipment, depreciation is calculated using the straight-line method at the rates mentioned in note 8, which take into consideration the estimated useful lives of assets. The estimated useful life and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

45


An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of a property and equipment item is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

•
Intangible assets

Intangible assets with finite useful lives that are acquired separately are carried at cost, less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

An intangible asset is derecognized on disposal or when no future economic benefits are expected from use. Gain or loss arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in profit or loss when the asset is derecognized.

3.7
Impairment of tangible and intangible assets

At the end of each reporting period (or earlier when the need is identified), the Company reviews the carrying amount of its tangible and intangible assets to determine where there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

When an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, as long as the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years/periods. A reversal of an impairment loss is recognized immediately in profit or loss.

3.8
Discount to present value

Monetary assets and liabilities are discounted to present value when the effect is considered material in relation to the financial statements taken as a whole. The discount to present value is calculated based on an interest rate that reflects the timing and risk of each transaction.

Trade receivables are discounted to present value with a corresponding entry in sales revenue in the statement of income, and the difference between the present value of a transaction and the face value of the billing is considered as financial income and will be recognized based on the amortized cost and the effective long-term rate of the transaction.

The discount to present value of purchases is recorded in “trade payables” and “inventories”, and its realization has a corresponding entry in line item “financial expenses” over the term of their suppliers.

3.9 Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets.

Income on investments earned on the short-term investment of funds of specific borrowings not yet spent on the qualifying assets is deducted from the borrowing costs eligible for capitalization.

46


All other borrowing costs are recognized in profit or loss in the year in which they are incurred.

3.10 Retirement Benefit Plan

The Company is the sponsor of a defined contribution plan with minimum guaranteed benefits and the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each reporting period. Actuarial gains and losses are immediately recognized in equity (in line item ‘Retained earnings’) according to the available option in paragraph 93A of IAS 19 - Employee Benefits.

3.11 Financial instruments

Classification and measurement
The classification depends on the purpose for which the financial assets and liabilities were acquired or contracted. The Company’s management classifies its financial assets and liabilities at the time of initial contracting.

Loans and receivables measured at amortized cost
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including trade receivables and cash and cash equivalents) are measured at amortized cost using the effective interest method, less any impairment.

Financial liabilities measured at amortized cost
Borrowings are initially recognized, upon receipt of funds, net of transaction costs. They are subsequently measured at amortized cost. The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument.

3.12 Provisions

A provision is recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation.

Provisions for the expected cost of warranty obligations are recognized at the date of sale of the relevant products, at Management's best estimate of the expenditure required to settle the Company's obligation.

3.13 Tax incentive (FUNDOPEM)

Subsidized loans, directly or indirectly provided by the Government, obtained at interest rates lower than market, are treated as government grants, measured at the difference between the amounts raised and the fair value of the borrowing calculated using market interest rates.

3.14 Income tax and social contribution

Current taxes
The provision for income tax and social contribution is based on the taxable profit for the year. Taxable profit differs from profit as reported in the statement of income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The provision for income tax and social contribution is calculated based on rates prevailing at the end of the reporting period (15% plus a 10% surtax on taxable profit exceeding R$20 per month for Income Tax and 9% on taxable profit for Social Contribution on Net Profit).


47

Deferred taxes
Deferred taxes are recognized on temporary differences at the end of each annual reporting period between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred taxes for the period
Current and deferred taxes are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, current and deferred taxes are also recognized in other comprehensive income or directly in equity, respectively

3.15 Standards, interpretations and amendments to existing standards effective at December 31, 2011 which did not have a material impact on the Company’s financial statements.

Standard
Main requirements
Effective date
Improvements to IFRSs - 2010
Amendments to several standards.
Effective for annual periods beginning on or after January 1, 2011
Amendments to IFRS 1
Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters
Effective for annual periods beginning on or after July 1, 2010
Amendments to IAS 24
Related-party disclosures
Effective for annual periods beginning on or after January 1, 2011
Amendments to IFRIC 14
Prepayments of a minimum funding requirement
Effective for annual periods beginning on or after January 1, 2011
Amendments to IAS 32
Classification of rights issues
Effective for annual periods beginning on or after February 1, 2010
IFRIC 19
Extinguishing financial liabilities with equity instruments
Effective for annual periods beginning on or after July 1, 2010

3.16 Standards, interpretations and amendments to existing standards not yet effective and which were not early adopted by the Company

The following standards and amendments to existing standards have been issued by the IASB, and are mandatory for annual periods beginning on or after July 1, 2011. The Company is currently evaluating the impact, if any, of the new requirements on its consolidated financial statements resulting from these standards:

Standard
Main requirements
Effective date
IFRS 9 (as amended in 2010)
Financial instruments
Effective for annual periods beginning on or after January 1, 2015
Amendments to IFRS 1
Removal of fixed dates for first-time adopters
Effective for annual periods beginning on or after July 1, 2011

Amendments to IFRS 7
Disclosures - transfers of financial assets
Effective for annual periods beginning on or after July 1, 2011

48

Amendments to IAS 12
Deferred taxes - recovery of the underlying assets when an asset is measured using the fair value model in IAS 40
Effective for annual periods beginning on or after January 1, 2012
IAS 28 (revised in 2011) Investments in Associates and Joint Ventures
Revision of IAS 28 to include the amendments introduced by IFRSs 10, 11 and 12.
Effective for annual periods beginning on or after January 1, 2013
IAS 27 (revised in 2011) Separate Financial Statements
IAS 27 requirements related to consolidated financial statements are replaced by IFRS 10.The requirements for separate financial statements are maintained.
Effective for annual periods beginning on or after January 1, 2013
IFRS 10 Consolidated Financial Statements
Replaces the IAS 27 requirements applicable to consolidated financial statements and SIC 12.IFRS 10 provides a single consolidation model that identifies control as the basis for consolidation for all types of entities.
Effective for annual periods beginning on or after January 1, 2013
IFRS 11 Joint Arrangements

Eliminates the proportionate consolidation model for jointly controlled entities and maintains equity method model only. It also eliminates the concept of ‘jointly controlled assets’ and maintains only ‘jointly controlled operations’ and ‘jointly controlled entities’.
Effective for annual periods beginning on or after January 1, 2013
IFRS 12 Disclosure of Interests in Other Entities
Expands the current disclosure requirements in respect of entities, whether or not consolidated, where the entities have influence.
Effective for annual periods beginning on or after January 1, 2013
IFRS 13 Fair Value Measurement
Replaces and consolidates in a single standard all the guidance and requirements in respect of fair value measurement contained in other IFRSs. IFRS 13 defines fair value and provides guidance on how to measure fair value and requirements for disclosure relating to fair value measurement. However, it does not introduce any new requirement or amendment with respect to items to be measured at fair value, which remain as originally issued.
Effective for annual periods beginning on or after January 1, 2013

Amendments to IAS 19 Employee Benefits

Eliminates the corridor approach and requires recognition of actuarial gains and losses as other comprehensive income for pension plans and other long-term benefits in profit or loss, when earned or incurred, among other changes.
Effective for annual periods beginning on or after January 1, 2013
Amendments to IFRS 7
Introduces the requirement that information regarding offset financial assets be disclosed.
Effective for annual periods beginning on or after January 1, 2013
Amendments to IAS 32
Clarifies aspects and requirements regarding the offset of financial assets.
Effective for annual periods beginning on or after January 1, 2014
Amendments to IAS 1 Presentation of Financial Statements
Introduces the requirement that all items recognized in other comprehensive income be separated into and totaled as items that are and items that are not subsequently reclassified to profit or loss.
Effective for annual periods beginning on or after July 1, 2012
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine
Clarifies the requirements to account for costs associated to the removal of surface mining waste, including when such stripping costs shall be recognized as an asset, how the asset is initially recognized, and subsequent measurements.
Effective for annual periods beginning on or after January 1, 2013


49

4.
CASH AND CASH EQUIVALENTS
Short-term investments refer to bank certificates of deposit (CDBs), linked to the variation of interbank certificates of deposit rate (CDI). The yield on these short-term investments is as follows:
 
12/31/2011
 
12/31/2010
 
12/31/2009
 
 
 
 
 
 
Cash and banks
2,135

 
1,814

 
14,205

Short-term investments:
 
 
 
 
 
CDB - 75.00% of CDI
19,534

 
—

 
—

CDB - 99.50% of CDI
—

 
5,739

 
8,528

CDB - 100.00% of CDI
64,456

 
126,971

 
51,151

CDB - 100.50% of CDI
23,097

 
15,122

 
10,448

CDB - 100.55% of CDI
8,617

 
12,992

 
27,755

CDB - 100.80% of CDI
1,078

 
—

 
—

CDB - 101.00% of CDI
5,810

 
3,146

 
—

CDB - 101.80% of CDI
1,030

 
—

 
—

CDB - 102.50% of CDI
7,016

 
6,270

 
—

CDB - 104.00% of CDI
—

 
5,521

 
—

 
130,638

 
175,761

 
97,882

Total
132,773

 
177,575

 
112,087


5.
TRADE RECEIVABLES

Trade receivables are as follows:
 
12/31/2011
 
12/31/2010
 
12/31/2009
Trade receivables from third parties –– domestic
121,179

 
75,609

 
64,674

Trade receivables from third parties –– foreign
1,497

 
291

 
651

Trade receivables from related parties –– domestic
15,025

 
11,335

 
3,226

Trade receivables from related parties –– foreign
4,533

 
3,194

 
3,434

 
142,234

 
90,429

 
71,985

Discount to present value
(582
)
 
(250
)
 
(209
)
Allowance for doubtful debts
(538
)
 
(152
)
 
—

Total
141,114

 
90,027

 
71,776


Trade receivables include amounts that are past due at the end of the reporting period for which the Company has not recognized an allowance for doubtful debts because there has not been a significant change in credit quality and the amounts are still considered recoverable, through negotiation with customers. The aging of past-due trade receivables is as follows:
 
12/31/2011
 
12/31/2010
 
12/31/2009
1 to 30 days
28,991

 
12,282

 
7,497

31 to 60 days
3,990

 
2,016

 
636

61 to 90 days
1,960

 
844

 
1,892

91 to 180 days
3,663

 
1,837

 
54

Over 180 days
2,725

 
33

 
2

Past-due amounts
41,329

 
17,012

 
10,081

Current amounts
100,905

 
73,417

 
61,904

Discount to present value
(582
)
 
(250
)
 
(209
)
Allowance for doubtful debts
(538
)
 
(152
)
 
—

Total
141,114

 
90,027

 
71,776


50




Movement in the allowance for doubtful debts in the year was as follows:
 
2011
 
2010
 
2009
Opening balance
(152
)
 
—

 
—

Allowance increase
(386
)
 
(152
)
 
—

Closing balance
(538
)
 
(152
)
 
—


Movement in the discount to present value of trade receivables in the year was as follows:
 
2011
 
2010
 
2009
Opening balance
(250
)
 
(209
)
 
(288
)
Increase
(332
)
 
(41
)
 
79

Closing balance
(582
)
 
(250
)
 
(209
)

To determine whether or not trade receivables are recoverable, the Company takes into consideration any change in the customer’s creditworthiness from the date the credit was originally granted to the end of the reporting period. The credit risk concentration is limited because the customer base is comprehensive and there is no relationship between customers. The Company does not hold any collateral or other credit enhancement over these receivables.

6.
RECOVERABLE TAXES

Recoverable taxes are as follows:
 
12/31/2011
 
12/31/2010
 
12/31/2009
Federal VAT (IPI)
4,402

 
1,217

 
1,526

State VAT (ICMS)
2,293

 
2,266

 
7,003

Corporate income tax (IRPJ and social contribution on net profit (CSLL)
—

 
—

 
188

ICMS on purchases of property, plant and equipment
2,374

 
1,319

 
2,905

PIS on purchases of property, plant and equipment
60

 
99

 
340

COFINS on purchases of property, plant and equipment
274

 
455

 
1,592

Total
9,403

 
5,356

 
13,554

 
 
 
 
 
 
Current
7,797

 
4,310

 
11,252

Non-current
1,606

 
1,046

 
2,302


Recoverable taxes in non-current assets comprise ICMS, PIS and COFINS on purchases of property, plant and equipment for which the realization occurs pursuant to current relevant legislation. Of the ICMS balance, at December 31, 2010 R$ 950 and R$ 5,423 at December 31, 2009 refers to the purchase of ICMS credit balance from Randon S.A. Implementos e Participações and will be offset pursuant to the schedule prepared by the Rio Grande do Sul State Finance Department. There are no balances at December 31, 2011.


51

7.
INVENTORIES

Inventories comprise:
 
12/31/2011
 
12/31/2010
 
12/31/2009
 
 
 
 
 
 
Finished products
6,095

 
2,608

 
4,216

Work in process
17,605

 
21,364

 
18,612

Raw materials
35,113

 
27,715

 
30,740

Advances to suppliers
129

 
70

 
31

Allowance for inventory losses (a)
(152
)
 
(2,606
)
 
(384
)
Imports in transit
13,482

 
4,141

 
2
Total
72,272

 
53,292

 
53,217


(a)
The amount of the allowance for inventory losses refers to probable losses arising on the adjustment of inventories to their realizable amounts. Movement in this allowance were as follows:
 
2011
 
2010
 
2009
 
 
 
 
 
 
Opening balance
(2,606
)
 
(384
)
 
(296
)
Increase
—

 
(2,222
)
 
(88
)
Write-down of inventory
2,454

 
—

 
—

Closing balance
(152
)
 
(2,606
)
 
(384
)

The cost of inventories recognized as expenses during the year related to continuing operations was R$ 957,958 (R$ 839,460 for the year ended December 31, 2010 and R$ 539,112 for the year ended December 31, 2009).

Management expects that these inventories will be recovered in a period shorter than twelve (12) months.

8.
PROPERTY, PLANT AND EQUIPMENT

 
12/31/2011
 
12/31/2010
 
12/31/2009
Cost
250,863

 
226,117

 
207,805

Accumulated depreciation
(116,253
)
 
(101,403
)
 
(86,400
)
 
134,610

 
124,714

 
121,405


 
Annual
depreciation
rate (%)
 
2011
 
2010
 
2009
 
 
Cost
 
Accumulated depreciation
 
Net
 

Net
 

Net
 
 
 
 
 
 
 
 
 
 
 
 
Land
 
 
8,071

 
—

 
8,071

 
8,071

 
8,071

Buildings
1.44%
 
40,095

 
(6,282
)
 
33,813

 
33,953

 
32,836

Machinery and equipment
9.9%
 
180,594

 
(100,119
)
 
80,475

 
74,487

 
71,385

Molds and dies
14.13%
 
15,484

 
(7,253
)
 
8,231

 
5,934

 
6,077

Furniture and fixtures
9.03%
 
1,667

 
(760
)
 
907

 
765

 
794

Vehicles
9.29%
 
1,308

 
(396
)
 
912

 
210

 
183

Computer equipment
24.8%
 
2,301

 
(1,443
)
 
858

 
505

 
401

Advances to suppliers
 
 
577

 
—

 
577

 
—

 
97

Property, plant and equipment in progress
 
 
766

 
—

 
766

 
789

 
1,561

Total
 
 
250,863

 
(116,253
)
 
134,610

 
124,714

 
121,405


52


a)
Movement in cost
 
Balance at 01/01/2009
 
Additions
 
Disposals
 
Transfers
 
Balances at
12/31/2009
 
 
 
 
 
 
 
 
 
 
Land
8,071

 
—

 
—

 
—

 
8,071

Buildings
23,323

 
1,415

 
—

 
12,490

 
37,228

Machinery and equipment
131,802

 
6,719

 
(439
)
 
9,199

 
147,281

Molds and dies
7,934

 
2,304

 
—

 
—

 
10,238

Furniture and fixtures
1,218

 
121

 
—

 
—

 
1,339

Vehicles
550

 
20

 
—

 
—

 
570

Computer equipment
1,336

 
84

 
—

 
—

 
1,420

Advances to suppliers
1,909

 
5

 
—

 
(1,817
)
 
97

Property, plant and equipment in progress
15,599

 
5,834

 
—

 
(19,872
)
 
1,561

Total
191,742

 
16,502

 
(439
)
 
—

 
207,805


 
Balance at 01/01/2010
 
Additions
 
Disposals
 
Transfers
 
Balances at
12/31/2010
 
 
 
 
 
 
 
 
 
 
Land
8,071

 
—

 
—

 
—

 
8,071

Buildings
37,228

 
807

 
—

 
1,225

 
39,260

Machinery and equipment
147,281

 
11,340

 
—

 
3,966

 
162,587

Molds and dies
10,238

 
1,240

 
(37
)
 
150

 
11,591

Furniture and fixtures
1,339

 
61

 
—

 
14

 
1,414

Vehicles
570

 
107

 
(36
)
 
—

 
641

Computer equipment
1,420

 
301

 
(6
)
 
49

 
1,764

Advances to suppliers
97

 
384

 
—

 
(32
)
 
449

Property, plant and equipment in progress
1,561

 
4,151

 
—

 
(5,372
)
 
340

Total
207,805

 
18,391

 
(79
)
 
—

 
226,117


 
Balance at 01/01/2011
 
Additions
 
Disposals
 
Transfers
 
Balance at 12/31/2011
Land
8,071

 
—

 
—

 
—

 
8,071

Buildings
39,260

 
835

 
—

 
—

 
40,095

Machinery and equipment
162,587

 
16,868

 
(588
)
 
1,727

 
180,594

Molds and dies
11,591

 
4,020

 
(127
)
 
—

 
15,484

Furniture and fixtures
1,414

 
254

 
—

 
(1
)
 
1,667

Vehicles
641

 
526

 
(183
)
 
324

 
1,308

Computer equipment
1,764

 
638

 
(100
)
 
(1
)
 
2,301

Advances to suppliers
449

 
1,585

 
—

 
(1,457
)
 
577

Property, plant and equipment in progress
340

 
1,018

 
—

 
(592
)
 
766

Total
226,117

 
25,744

 
(998
)
 
—

 
250,863


53


b)
Movement in accumulated depreciation
 
Balances at
1/01/2009
 
Additions
 
Disposals
 
Balances at
12/31/2009
Buildings
(3,831
)
 
(561
)
 
—

 
(4,392
)
Machinery and equipment
(65,263
)
 
(11,064
)
 
431

 
(75,896
)
Molds and dies
(2,801
)
 
(1,360
)
 
—

 
(4,161
)
Furniture and fixtures
(442
)
 
(103
)
 
—

 
(545
)
Vehicles
(319
)
 
(68
)
 
—

 
(387
)
Computer equipment
(794
)
 
(225
)
 
—

 
(1,019
)
Total
(73,450
)
 
(13,381
)
 
431

 
(86,400
)
 
 
 
 
 
 
 
 
 
Balances at
1/01/2010
 
Additions
 
Disposals
 
Balances at
12/31/2010
Buildings
(4,392
)
 
(915
)
 
—

 
(5,307
)
Machinery and equipment
(75,896
)
 
(12,204
)
 
—

 
(88,100
)
Molds and dies
(4,161
)
 
(1,497
)
 
1

 
(5,657
)
Furniture and fixtures
(545
)
 
(104
)
 
—

 
(649
)
Vehicles
(387
)
 
(78
)
 
34

 
(431
)
Computer equipment
(1,019
)
 
(257
)
 
17

 
(1,259
)
Total
(86,400
)
 
(15,055
)
 
52

 
(101,403
)
 
 
 
 
 
 
 
 
 
Balance at
1/01/2011
 
Additions
 
Disposals
 
Balance at
12/31/2011
Buildings
(5,307
)
 
(975
)
 
—

 
(6,282
)
Machinery and equipment
(88,100
)
 
(12,586
)
 
567

 
(100,119
)
Molds and dies
(5,657
)
 
(1,632
)
 
36

 
(7,253
)
Furniture and fixtures
(649
)
 
(111
)
 
—

 
(760
)
Vehicles
(431
)
 
(120
)
 
155

 
(396
)
Computer equipment
(1,259
)
 
(279
)
 
95

 
(1,443
)
Total
(101,403
)
 
(15,703
)
 
853

 
(116,253
)

54


9.
INTANGIBLE ASSETS
 
Annual
amortization
rate
 
Balance at
01/01/2009
 
Additions
 
Balance at
12/31/2009
 
Additions
 
Balance at
12/31/2010
 
Additions
 
Balance at
12/31/2011
Software:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs
15.4
%
 
2,392

 
53

 
2,445

 
102

 
2,547

 
180

 
2,727

Accumulated amortization
 
 
(1,392
)
 
(284
)
 
(1,676
)
 
(294
)
 
(1,970
)
 
(310
)
 
(2,280
)
 
 
 
1,000

 
(231
)
 
769

 
(192
)
 
577

 
(130
)
 
447

Intangible assets in progress
 
 
—

 
—

—

—

 
5,815

 
5,815

 
8,298

 
14,113

 
 
 
1,000

 
(231
)
 
769

 
5,623

 
6,392

 
8,168

 
14,560


Intangible assets refer to software licenses and other expenses on the implementation of the Company’s new integrated management system (ERP), which was rolled-out in January 2012.

10.
BORROWINGS AND FINANCING

Financing obtained was used to fund the construction of the Company’s manufacturing facilities, develop quality processes, finance exports and imports, and finance machinery imports. Financing was obtained from several financial institutions by means of funds raised by these institutions with the National Bank for Economic and Social Development (BNDES).

Type:
 
Financial
charges
 
Grace
period
 
Payment
frequency
 
Final
maturity
 

12/31/2011

 
12/31/2010
 
12/31/2009
Financing
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BNDES – subloan A/C
 
U.S. dollar (forex)+ 2.5% p.a.
 
 
 
Monthly
 
April/13

 
396

 
616

 
920

BNDES – subloan A/B
 
URTJLP + 4,5% p.a.
 
 
 
Monthly
 
—

 
—

 
—

 
7,724

BNDES – subloan B
 
URTJLP + 3% p.a.
 
 
 
Monthly
 
April/13

 
4,003

 
7,005

 
10,007

BNDES – subloan C
 
UMBND + 4,5% p.a.
 
 
 
Monthly
 
—

 
—

 
—

 
509

BNDES – subloan D
 
URTJLP + 2.5% p.a.
 
 
 
Monthly
 
April/13

 
243

 
425

 
607

BNDES – USD subloan
 
U.S. dollar (forex)+ 1.95% p.a.
 
 
 
Monthly
 
July/17

 
4,206

 
4,396

 
—

BNDES – BCDEF subloan
 
URTJLP + 4.5% p.a.
 
 
 
Monthly
 
July/17

 
36,037

 
43,501

 
30,801

BRADESCO – FINEP
 
TJLP + 0.50 p.a.
 
 
 
Monthly
 
Sept./14

 
6,890

 
9,453

 
12,018

BRADESCO – FINEP
 
5% p.a.
 
 
 
Monthly
 
Dec/18

 
11,607

 
3,859

 
—

BRADESCO – EXIM
 
TJLP + 5% p.a.
 
36 months
 
Bullet payment
 
Aug./12

 
33,313

 
33,260

 
33,208

BANCO DO BRASIL – EXIM
 
Spread 3% +
4.5% p.a.
 
36 months
 
Bullet payment
 
June/13

 
9,399

 
9,384

 
—

FUNDOPEM – ICMS
 
IPCA +3% p.a.
 
54 months
(a)
 
Monthly
(a)
 
Aug./23

 
21,538

 
9,237

 
3,367

 
 
 
 
 
 
 
 
 
 
 
 
 
Financing of imported machinery
 
 
 
 
 
 
 
 
 
 
 
 
FININP - Banco Bradesco
 
U.S. dollar (forex) + 7.38% p.a.
 
 
 
Quarterly
 
Dec/11

 
—

 
551

 
1,155

FININP – ABN
 
YEN (forex) + 2.9% p.a.
 
 
 
Quarterly
 
April/10

 
—

 
—

 
182

Total
 
 
 
 
 
 
 
 
 
127,632

 
121,687

 
100,498

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
 
 
 
 
 
 
 
 
49,528

 
15,702

 
11,138

Non-current
 
 
 
 
 
 
 
 
 
78,104

 
105,985

 
89,360


TJLP – Long-term Interest Rate
URTJLP – Long-term interest rate benchmark unit
IPCA – Extended Consumer Price Index

55


The maturities of the long-term portions of the financing are as follows:
Maturity
 
12/31/2011
 
12/31/2010
 
12/31/2009

2011
 
—

 
—

 
11,895

2012
 
—

 
47,540

 
45,462

2013
 
22,175

 
23,523

 
11,265

2014
 
10,877

 
11,745

 
8,543

2015
 
9,408

 
10,321

 
6,843

2016 and thereafter
 
35,644

 
12,856

 
5,352

Total
 
78,104

 
105,985

 
89,360


Financing from BNDES, Banco do Brasil and Bradesco are collateralized by bonds and a letter of guarantee of quotaholder Randon S.A. Implementos e Participações.

(a)FUNDOPEM - ICMS

Refers to ICMS tax incentives granted to the Company through financing of 60% of the ICMS due every month. This incentive is calculated on a monthly basis and is conditioned to the generation of direct and indirect jobs, investments made, and the fulfillment of contractual obligations with Banco do Estado do Rio Grande do Sul and Caixa Estadual S.A. – Agência de Fomento.

The incentive amounts are subject to levy at the effective rates of 3.00% per year or 0.246627% per month, plus adjustment for inflation calculated based on the monthly fluctuation of the IPCA/IBGE (consumer price index) or another index defined by the Managing Council of FUNDOPEM/RS.

The benefit period is for eight years, starting in December 2006 and ending in November 2014, and disbursements for Company use totaled 1,946,307.15 FUNDOPEM-RS incentive units (equivalent to R$31,003 at December 31, 2011). Up to December 31, 2011, the Company utilized 1,218,310.11 FUNDOPEM-RS incentive units (equivalent to R$ 19,406 at December 31, 2011). The benefit has a grace period of 54 months and settlement is scheduled in 96 months after the end of the grace period, ending May 21, 2019.

11.
RELATED-PARTY TRANSACTIONS

The transactions and balances with related parties are as follows:
 
Randon companies (*)
 
    Meritor companies(**)  
 
Total
Balance sheet
12/2011
 
12/2010
 
12/2009
 
12/2011
 
12/2010
 
12/2009
 
12/2011
 
12/2010
 
12/2009
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trade receivables
7,932

 
3,385

 
2,522

 
11,626

 
11,144

 
4,138

 
19,558

 
14,529

 
6,660

Short-term receivables
62

 
369

 
368

 
—

 
—

 
—

 
62

 
369

 
368

Long-term receivables
52

 
114

 
485

 
—

 
—

 
—

 
52

 
114

 
485

Commissions payable (other payables)
—

 
—

 
—

 
—

 
—

 
511

 
—

 
—

 
511

Trade payables
2,890

 
2,033

 
6,579

 
—

 
—

 
5

 
2,890

 
2,033

 
6,584

Dividends and interest on capital payable
7,850

 
28,158

 
3,175

 
2,471

 
8,864

 
999

 
10,321

 
37,022

 
4,174

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income statement for the year
2011
 
2010
 
2009
 
2011
 
2010
 
2009
 
2011
 
2010
 
2009
Sales of products and services
245,198

 
203,214

 
138,637

 
128,103

 
83,854

 
13,999

 
373,301

 
287,068

 
152,636

Purchases of products and services
140,829

 
99,820

 
51,400

 
—

 
—

 
—

 
140,829

 
99,820

 
51,400

Purchases with ICMS credits
1,107

 
5,304

 
3,035

 
—

 
—

 
—

 
1,107

 
5,304

 
3,035

Finance expenses
503

 
344

 
308

 
—

 
—

 
—

 
503

 
344

 
308

General and administrative expenses
11,581

 
10,103

 
5,078

 
—

 
—

 
—

 
11,581

 
10,103

 
5,078


56

(*) Includes: Randon S.A. Implementos e Participações, Fras-Le S.A., Fras-Le Argentina S.A., Jost Brasil Sistemas Automotivos Ltda., Randon Implementos para o Transporte, Randon Argentina, Castertech Fundição e Tecnologia Ltda., Master Sistemas Automotivos Ltda., Randon North America, Randon Adm. Consórcio, Randon Middle East, Randon Automotive Pty, Randon Investimentos, Randon Maghreb, Randon Brantech, Banco Randon, Fras Le Europe, Fras Le Mexico, Fras Le Andima, Fras Le North America, Fras Le Friction Mat. Pinghu, and Fras Le Africa Automotive.
(**) Includes: Meritor do Brasil Sistemas Automotivos Ltda., Meritor Automotive Inc., Meritor Heavy Vehicle Systems LLC., Meritor HVS Ltd, ArvinMeritor Qri, Meritor Inc. ArvinMeritor CVS, Meritor Frankfurt, and Sisamex Sistemas Automotrices.

Suspensys is the co-guarantor of vendor financing contracts, limited to R$ 20,000 for transactions conducted between Company customers and Banco Randon. As at December 31, 2011, there is no balance regarding these transactions.

Amounts due from and to Randon S.A. Implementos e Participações bear interest equivalent to DI-extra, a rate released by the Brazilian Association of Financial and Capital Markets Entities, or Anbima.

General and administrative expenses refer to the apportionment of corporate costs and administrative assistance services incurred by Randon S.A. Implementos e Participações.

Trading transactions
Trading transactions carried out with related parties follow specific prices and terms established in the joint venture agreement between the parties. The trading agreement takes into consideration the term, volume and specificity of the products acquired by the related parties, which are not comparable to those sold to unrelated parties.

Management compensation
Management compensation for the year ended December 31 is distributed as follows: nominal salary of R$ 1,324 in 2011 (R$ 1,068 in 2010 and R$ 910 in 2009) and profit sharing of R$ 1,536 in 2011 (R$ 959 in 2010 and R$ 1,164 in 2009).

Borrowings from officers and managers are disclosed in line item ‘Amounts due to related parties’ and total R$ 4,942 at December 31, 2011 (R$ 3,707 at December 31, 2010 and R$ 3,379 at December 31, 2009) .These balances are adjusted using the rate DI-extra, as released by the Brazilian Association of Financial and Capital Markets Entities, or Anbima. Related borrowing costs for the year, as disclosed in the statement of income, totaled R$ 503 in 2011, R$ 344 in 2010 and R$ 301 in 2009.

12.
PROVISION FOR TAX, SOCIAL SECURITY AND LABOR RISKS

The Company has challenged, through its legal counsel, labor lawsuits and civil and tax proceedings at the administrative and judicial levels. Based on the opinion of its legal counsel, the Company recognized a provision of R$ 782 to cover probable losses that might result from the outcome of these lawsuits.

The position of contingent liabilities at December 31, 2011 is as follows:
Nature of
contingent liability
 
Likelihood of loss
 
Probable
 
Possible
Tax
 
—

 
13,910

Labor
 
782

 
360

Social security
 
—

 
4,682

Total
 
782

 
18,952


Movement in provision:

Nature of provision
 

12/31/2009

 
Increase in provision
 

12/31/2010

 
Increase in provision
 

12/31/2011

Labor
 
141

 
9

 
150

 
632

 
782

Total
 
141

 
9

 
150

 
632

 
782


The Company is also a party to administrative proceedings for which, based on the opinion of its legal counsel and in conformity with IFRS, no provision was recorded since they were classified as possible likelihood of loss, as follows:


57

Tax

a)
State VAT (ICMS) – the Company received a tax assessment notice from the Rio Grande do Sul Department of Finance in the original amount of R$ 7,801 for alleged irregularity in the calculation of the ICMS relief benefit under the “FUNDOPEM/Nosso Emprego” program. The amount includes principal, fine and interest. On January 24, 2007, as a result of the motion to deny filed by the Company, the debt calculations were reperformed by the tax authorities. The amount of the matter under litigation was reduced in 2008, due to the judgment of the annulment action filed by the Company, and a new amount of R$ 2,277 was attributed, including fine and interest. On December 10, 2010, the tax authority converted the tax assessment penalty, initially typified as basic, equivalent to 60%, into a qualified penalty at the percentage of 120%, thus generating a supplementary tax assessment of R$ 415, totaling R$ 2,693.The Company filed an objection against said tax assessment notice on a timely basis.
b)
The Company was assessed in the inflation adjusted amount of R$ 7,678, for an alleged import duties (II) and Federal VAT (IPI) debt, for alleged noncompliance with award acts provided for by the Drawback special regime. Awaiting expert evidence.
c)
Disallowance of ICMS presumed credit on purchase of steel - refers to assessment notices issued by the Rio Grande do Sul State Department of Finance totaling R$ 3,539, through which this tax authority confirmed the award of the tax benefit in an amount higher than permitted by the law.

Labor

Several labor lawsuits mostly consisting of compensation claims.

Social security

The Company received INSS assessment notices for alleged nonpayment of social security taxes on profit sharing, against which the Company filed objections currently being at the judgment stage at the Federal Revenue Service, assessed as possible losses. The inflation adjusted amount under litigation of these assessments totals R$ 4,682.

13.
FINANCIAL INSTRUMENTS

The estimated fair values of the Company's financial assets and liabilities were determined based on available market information and appropriate valuation techniques. However, considerable judgment was required in interpreting market data to produce the most adequate estimate of the fair value. As a consequence, the following estimates do not necessarily indicate the amounts that could be realized in a current exchange market. The use of different market methodologies may have a material effect on the estimated fair values.

These instruments are managed by means of operating strategies aimed at liquidity, profitability and security. The control policy consists in ongoing monitoring of contracted rates against market rates. The Company does not make speculative investments in derivatives or any other risk assets.

Analysis of balances

The carrying amounts and fair values of financial instruments, all measured at the amortized cost, included in the balance sheet are identified below:
 
12/31/2011
 
12/31/2010
 
12/31/2009
Description
 
 
 
 
 
Cash equivalents
132,773

 
177,575

 
112,087

Trade receivables
141,114

 
90,027

 
71,776

Borrowings and financing:
 
 
 
 
 
In local currency
123,031

 
116,124

 
93,137

In foreign currency
4,602

 
5,563

 
7,361

Amounts due to related parties (intragroup loans)
4,942

 
3,707

 
3,379



58

Financial instruments that are recognized in the financial statements at their amortized cost are substantially similar to the amounts that would be obtained if they were traded in the market. However, as they do not have an active market, there can be variations if the Company decides to settle them in advance.

The cost of financial instruments approximates fair value, so the disclosure of levels 1, 2 and 3 are not applicable.

•
Financial risk management

The Company is exposed to the following risks associated to its operating and financing activities, including the utilization of its financial instruments:


i.
credit risk
ii.
foreign exchange rate risk
iii.
interest rate risk
iv.
price risk
v.
liquidity risk

The Company, through its Parent Company, has a Currency Hedge Policy, prepared by the Planning and Finance Committee and approved by the Executive Officers. The purpose of the policy is to standardize the procedures of the group Companies, in order to define responsibilities and limits in transactions involving currency hedge, reducing the effects of foreign currency exchange rates on the inflows in foreign currency projected by the cash flow, without speculative purposes.

The basis used is the cash flow in foreign currency projected monthly for the following twelve months, based on the Strategic Plan projections or on the current expectation of each group company. If considered necessary, the instruments used are conservative and previously approved by the same committee. For the years ended December 31, 2011, 2010 and 2009, the Company did not enter into any transactions involving derivative financial instruments.

a.
Credit risk

Credit risk arises from the possibility of a counterparty not fulfilling its obligation, which would cause financial loss. In the course of its operations, the Company is exposed to the credit risk as a result of its operating activities, arising mainly on trade receivables.

The Company's sales policies are contingent on the credit policies defined by Management and are intended to minimize possible problems arising from the default of its customers. This objective is achieved by Management by means of a strict selection of the customer portfolio, which considers the ability to pay (credit analysis). A customer’s creditworthiness is assessed based on an internal credit rating system. Outstanding trade receivables are frequently monitored. The need for an allowance for impairment losses is analyzed at the end of each reporting period on an individual basis, for the major customers. Additionally, receivables lower that the allowance are collective tested.

Sales concentration

In the year ended December 31, 2011, three costumers individually accounted for more than 10% of sales, with shares of 26.10% (25.68% in 2010 and 35.77% in 2009), 20.56% (19.44% in 2010 and 21.15% in 2009) and 10.68% (7.19% in 2010 and 0.91% in 2009) of net revenue each, equivalent to R$ 304,924 (R$ 259,718 in 2010 and R$ 230,309 in 2009), R$ 240,180 (R$ 196,618 in 2009 and R$ 136,156 in 2009) and R$ 124,732 (R$ 72,704 in 2010 and R$ 5,878 in 2009). These last two amounts refer to related parties. Other Company sales in the domestic and foreign markets are diluted and there is no sales concentration in a percentage above 10% for any other customer.

b.
Foreign exchange rate risk

The Company’s results are exposed to significant fluctuations due to the effects of the exchange rate volatility on assets and liabilities denominated in foreign currencies, mainly the US dollar, which closed the year with a positive fluctuation of 12.58% (negative fluctuation of 4.31% in 2010, 25.49% in 2009).


59

The Company is exposed to the currency risk (foreign exchange risk) on sales, purchases and borrowings that are denominated in a currency other than the Company’s functional currency, the Brazilian real.

The Company’s net exposure to foreign exchange rate risk at the end of the reporting period is as follows:

 
12/31/2011
12/31/2010
12/31/2009
 
 
 
 
A. Financing
(4,602
)
(5,563
)
(7,361
)
B. Trade and other receivables
6,030

7,993

4,527

C. Net exposure (A+B)
1,428

2,430

(2,834
)

A possible depreciation of the real against the US dollar by approximately 2% at December 31, 2011, would decrease profits by R$ 29 (R$ 49 in 2010 and R$ 57 in 2009). This analysis is based on the fluctuation of the foreign currency that the Company took into consideration for its strategic planning. The analysis assumes that all other variables, especially interest rates, remain constant.

Any appreciation of the real against the US dollar would have the opposite effect, assuming that all other variables would remain constant.

c.
Interest rate risk

The Company’s result is exposed to significant fluctuations due to borrowings and financing contracted at floating interest rates.

The Company does not have derivative financial instruments to manage its exposure to interest rates.

Pursuant to its financial policies, the Company has not entered into any transactions involving financial instruments for speculative purposes.

A 1% increase in annual interest rates would have increased the Company’s borrowings and financing balance by R$ 1,276 at December 31, 2011 (R$ 1,217 at December 31, 2010 and R$ 1,005 at December 31, 2009). This analysis assumes that all other variables that could impact this carrying amount remain constant. Any decrease in the interest rates by the same percentage would have the opposite effect, assuming that all other variables would remain constant.


d.
Price risk

Arises from the possibility of fluctuations in the market prices of products sold or produced by the Company and of other inputs used in the production process. These price fluctuations may cause substantial changes in the Company’s revenues and costs. In order to mitigate these risks, the Company conducts an ongoing monitoring of local and foreign markets, seeking to anticipate price movements. The Company has not contracted any financial instruments to hedge against fluctuations in its raw materials’ prices.

e.
Liquidity risk

The table below details the remaining contractual maturity of the Company’s liabilities and the contractual amortization periods. The table was prepared using the undiscounted cash flows of the financial liabilities based on the nearest date on which the Company can be required to make the related payment. The table includes interest and principal cash flows. As the interest flows refer to floating rates, the undiscounted value was obtained based on the interest curves at the end of the reporting period. Contractual maturity is based on the first date the Company can be required to pay the related obligations.


60

 
12/31/2011
Description
Up to 1 month
 
From 1 to 3 months
 
From 3 months to 1 year
 
From 1 to 5 years
 
Over 5 years
 
Total
Trade payables
51,854

 
277

 
7

 
1

 
—

 
52,139

Borrowings and financing
1,181

 
4,752

 
43,595

 
60,621

 
17,483

 
127,632

Interest to be incurred on borrowings and financing
413

 
1,609

 
3,734

 
9,341

 
1,318

 
16,415

Intragroup loans
4,942

 
—

 
—

 
—

 
—

 
4,942

Dividends and interest on capital
—

 
—

 
10,321

 
—

 
—

 
10,321


14.
CAPITAL

Subscribed capital is represented by 100,000 quotas in the total amount of R$ 110,000 (R$ 71,291 in 2010 and 2009), held as follows:
Shareholder
Shares
 
R$
 
%
Master Sistemas Automotivos Ltda.
53,177

 
58,495

 
53.177
Meritor Heavy Vehicle Systems, LLC.
23,942

 
26,336

 
23.942
Randon S.A. Implementos e Participações
22,881

 
25,169

 
22.881
Total
100,000

 
110,000

 
100

On August 1, 2011, the Company’s shareholders approved the 19th amendment to the Articles of Organization which increases capital to R$ 110,000 (without the issuance of new shares), by capitalizing R$ 36,354 from the tax incentives reserve and R$ 2,355 from the earnings reserve.


15.
TAX INCENTIVE RESERVES

Represented tax incentives received in 2010 (up to October 2010) and 2009, respectively, in the amounts of R$ 11,763 and R$ 13,013, under the FUNDOPEM/NOSSO EMPREGO program.

The amount of R$ 36,354 recognized in equity at December 31, 2010 refers to tax incentives obtained through October 2010 under the FUNDOPEM/NOSSO EMPREGO program. This ICMS relief benefit granted to the Company was calculated monthly and was contingent to the generation of direct and indirect jobs in the State of Rio Grande do Sul. The tax incentives received were recognized in profit for the year as they were received and allocated to a special account of equity. The benefit was discontinued in October 2010. On August 1, 2011, the Company’s shareholders decided to use this reserve to increase the Company’s capital as mentioned in note 14.

16.
DIVIDENDS AND INTEREST ON CAPITAL

Dividends

Of the remaining profit for the year, the articles of association establish the distribution of 33.3% of such profit as mandatory dividend. After excluding the amounts already paid as interest on capital during the year, R$ 18,996 was accrued in 2010 (R$ 13,535 in 2009).

In addition to the mandatory minimum dividend (calculated considering the amounts already paid as interest on capital during the year), in 2010 the Company’s shareholders approved the distribution of R$ 18,146 as dividends from prior years (R$ 10,300 in 2009).

The Shareholders’ Meeting held on April 15, 2011 approved the dividend distribution proposal and interest on capital and dividends for the year ended December 31, 2010 totaling R$ 51,675 were paid on May 30, 2011, as follows:

61

Interest on capital accrued at 12/31/2010:
R$9,591
Minimum dividends prescribed by Company bylaws accrued at 12/31/2010:
R$28,870
Supplementary dividends:
R$13,214
Total
R$51,675

The shareholders’ meeting held on August 19, 2011 approved the early distribution of dividends, based on retained earnings through June 30, 2011, totaling R$ 25,080, paid on September 15, 2011.

Interest on capital
The Company recorded for the year ended December 31, 2011 interest on capital of R$ 12,143 (R$ 9,591 for the year ended December 31, 2010 and R$ 8,635 for the year ended December 31, 2009), using as a basis the TJLP for the period January-December of each year, applied to equity, considering the higher of 50% of the profit for the year before income tax or 50% of the retained earnings.

As provided for by the tax law, the amount recognized as interest on capital was fully deducted in the calculation of income tax and social contribution, and the tax benefit from this deduction was R$ 4,131 (R$ 3,261 for the year ended December 31, 2010 and R$ 2,936 for the year ended December 31, 2009). For purposes of conformity of the presentation of the financial statements, such interest was treated as distribution of profits and disclosed as a reduction of retained earnings in equity, and the tax benefit as a reduction of expenses on current income tax and social contribution.

17.
NET OPERATING REVENUE

The reconciliation between the revenue recognized for tax purposes and the revenue presented in the income statement for the year is as follows:
 
2011
 
2010
 
2009
Gross revenue for tax purposes
1,557,378

 
1,331,628

 
863,207

Less:
 
 
 
 
 
Taxes on sales
(360,297
)
 
(303,666
)
 
(200,475
)
Sales returns
(17,177
)
 
(8,770
)
 
(13,263
)
Discount to present value on installment sales
(11,467
)
 
(7,919
)
 
(5,634
)
Net revenue recognized in the statement of income
1,168,437

 
1,011,273

 
643,835


18.
EXPENSES BY NATURE
As required by corporate law, the Company is required to present the statement of income by function. Therefore, the analysis of operating expenses by nature is as follows:
 
2011
 
2010
 
2009
Raw materials and auxiliary materials
819,847

 
714,656

 
447,922

Depreciation and amortization
16,013

 
15,349

 
13,665

Personnel
102,782

 
69,763

 
50,449

Production freight
5,402

 
4,383

 
2,855

Freight on sales
33,300

 
23,347

 
12,904

Costs of outside services
28,120

 
23,030

 
15,550

Repairs
15,504

 
15,495

 
10,863

Rentals
5,780

 
5,494

 
3,458

Electric power
4,707

 
4,014

 
2,525

Other expenses
12,588

 
29,338

 
17,792

Total
1,044,043

 
904,869

 
577,983


62

These expenses were classified as follows in the statement of income (presented by function):
 
2011
 
2010
 
2009
Cost of sales and services
957,958

 
839,460

 
539,112

Selling expenses
50,215

 
34,721

 
20,944

General and administrative expenses
22,763

 
19,498

 
13,241

Other operating expenses, net
13,107

 
11,190

 
4,686

Total
1,044,043

 
904,869

 
577,983


19.
INCOME TAX AND SOCIAL CONTRIBUTION

Income tax and social contribution expense
The income tax (IRPJ) and social contribution (CSLL) expense for the years ended December 31 is reconciled at statutory rates, as follows:
 
2011
 
2010
 
2009
Profit before income tax
 
 
 
 
 
and social contribution
140,347

 
124,091

 
81,652

Applicable rate
34
%
 
34
%
 
34
%
Income tax and social contribution at nominal rates
47,718

 
42,191

 
27,762

Effect of taxes on:
 
 
 
 
 
Interest on capital expense (*)
(4,131
)
 
(3,261
)
 
(2,936
)
Industrial development program
(2,225
)
 
(3,264
)
 
(2,529
)
Tax incentive – Fundopem
—

 
(4,000
)
 
(4,424
)
Other
768

 
310

 
(136
)
 
(5,588
)
 
(10,215
)
 
(10,025
)
 
 
 
 
 
 
Income tax and social contribution before deductions
42,130

 
31,976

 
17,737

Income tax deductions and other adjustments
(1,349
)
 
(1,103
)
 
(430
)
Income tax and social contribution expense
40,781

 
30,873

 
17,307

 
 
 
 
 
 
Current income tax and social contribution
42,246

 
32,393

 
16,212

Deferred income tax and social contribution
(1,465
)
 
(1,520
)
 
1,095

* See note 16, Interest on Capital


63

Analysis of deferred income tax and social contribution
 
12/31/2011
 
12/31/2010
 
12/31/2009
Temporary differences
Temporary differences
 
Deferred taxes
 
Temporary differences
 
Deferred taxes
 
Temporary differences
 
Deferred taxes
 
 
 
 
 
 
 
 
 
 
 
 
Accrued profit sharing:
 
 
 
 
 
 
 
 
 
 
 
- Employees
3,397

 
1,155

 
2,988

 
1,016

 
2,384

 
811

- Directors
1,794

 
161

 
1,680

 
151

 
939

 
85

- Officers
3,683

 
1,252

 
3,005

 
1,022

 
1,784

 
606

Provision for labor risks
782

 
266

 
150

 
51

 
136

 
46

Provision for warranty claims
1,885

 
641

 
2,135

 
726

 
1,689

 
574

Provision for employee termination
274

 
93

 
203

 
69

 
152

 
52

Deferred asset recorded for tax purposes
471

 
160

 
1,222

 
422

 
2,201

 
422

Other temporary additions
2,180

 
742

 
3,133

 
1,066

 
1,211

 
412
Total assets
 
 
4,470

 
 
 
4,523

 
 
 
3,008

 
 
 
 
 
 
 
 
 
 
 
 
Incentive depreciation, Law 11774
(8,306
)
 
(2,076
)
 
(10,720
)
 
(2,680
)
 
(6,491
)
 
(1,623
)
Deemed cost of property, plant and equipment
(22,914
)
 
(7,791
)
 
(25,712
)
 
(8,742
)
 
(28,964
)
 
(9,848
)
Retirement benefit plan
(743
)
 
(253
)
 
(639
)
 
(217
)
 
(417
)
 
(142
)
Total liabilities
 
 
(10,120
)
 
 
 
(11,639
)
 
 
 
(11,613
)
Deferred income tax and contribution – net
 
 
5,650

 
 
 
7,116

 
 
 
8,605



64



Movement in deferred income tax and social contribution
Temporary differences
Balances at 1/1/2011
 
Recognized in profit for the year
 
Recognized in other comprehensive income
 
Balances at 12/31/2011
Accrued profit sharing:
 
 
 
 
 
 
 
- Employees
1,016

 
139

 
—

 
1,155

- Directors
151

 
10

 
—

 
161

- Officers
1,022

 
230

 
—

 
1,252

Provision for tax, social security and labor risks
51

 
215

 
—

 
266

Provision for warranty claims
726

 
(85
)
 
—

 
641

Provision for employee termination
69

 
24

 
—

 
93

Deferred asset recorded for tax purposes
422

 
(262
)
 
—

 
160

Other temporary additions
1,066

 
(324
)
 
—

 
742

 
4,523

 
(53
)
 
—

 
4,470

Incentive depreciation, Law 11774
(2,680
)
 
604

 
—

 
(2,076
)
Deemed cost of property, plant and equipment
(8,742
)
 
951

 
—

 
(7,791
)
Retirement benefit plan
(217
)
 
(37
)
 
1

 
(253
)
 
(11,639
)
 
1,518

 
1

 
(10,120
)
Total recognized in the year
 
 
1,465

 
1

 
 
 
 
 
 
 
 
 
 
Temporary differences
Balances at 1/1/2010
 
Recognized in profit for the year
 
Recognized in other comprehensive income
 
Balances at 12/31/2010
 
 
 
 
 
 
 
 
Accrued profit sharing:
 
 
 
 
 
 
 
- Employees
811

 
205

 
—

 
1,016

- Directors
85

 
66

 
—

 
151

- Officers
606

 
416

 
—

 
1,022

Provision for tax, social security and labor risks
46

 
5

 
—

 
51

Provision for warranty claims
574

 
152

 
—

 
726

Provision for employee termination
52

 
17

 
—

 
69

Deferred asset recorded for tax purposes
422

 
—

 
—

 
422

Other temporary additions
412

 
654

 
—

 
1,066

 
3,008

 
1,515

 
 
 
4,523

Incentive depreciation, Law 11774
(1,623
)
 
(1,057
)
 
—

 
(2,680
)
Deemed cost of property, plant and equipment
(9,848
)
 
1,106

 
—

 
(8,742
)
Retirement benefit plan
(142
)
 
(44
)
 
(31
)
 
(217
)
 
(11,613
)
 
5

 
(31
)
 
(11,639
)
Total recognized in the year
 
 
1,520

 
(31
)
 
 

65

Temporary differences
Balances at
01/01/2009
 
Recognized
in profit
for the year
 
Recognized in other
comprehensive income
 
Balances at
12/31/2009
Accrued profit sharing:
 
 
 
 
 
 
 
- Employees
1,140

 
(329
)
 
—

 
811

- Directors
77

 
8

 
—

 
85

- Officers
833

 
(227
)
 
—

 
606

Reserve for contingencies
46

 
—

 
—

 
46

Provision for warranty claims
433

 
141

 
—

 
574

Provision for employee termination
52

 
—

 
—

 
52

Deferred asset recorded for tax purposes
794

 
(372
)
 
—

 
422

Other temporary additions
275

 
137

 
—

 
412

 
3,650

 
(642
)
 
—

 
3,008

Incentive depreciation Law 11774
—

 
(1,623
)
 
 
 
(1,623
)
Cost attributed to property, plant and equipment
(11,015
)
 
1,167

 
—

 
(9,848
)
Retirement benefit plan
—

 
3

 
(145
)
 
(142
)
 
(11,015
)
 
(453
)
 
(145
)
 
(11,613
)
Total recognized in the year
 
 
(1,095
)
 
(145
)
 
 

The Company offsets deferred tax assets and deferred tax liabilities because it related to income taxes levied by the same tax authority on the Company. The Company understands such presentation reflects better financial position as a standalone legal entity.

20.
FINANCE INCOME (EXPENSES)

Net finance income (expenses) for the years ended December 31 are as follows:
 
2011
 
2010
 
2009
Finance income
 
 
 
 
 
Interest on short-term investments
18,337

 
10,982

 
5,010

Interest received and discounts obtained
555

 
243

 
157

Discount to present value of trade receivables
11,135

 
7,919

 
5,713

 
30,027

 
19,144

 
10,880

Finance expenses
 
 
 
 
 
Interest on borrowings and financing
(8,820
)
 
(8,340
)
 
(5,491
)
Bank expenses
(129
)
 
(171
)
 
(124
)
Other
(586
)
 
(253
)
 
(218
)
Discount to present value of trade payables
(5,178
)
 
(4,071
)
 
(2,507
)
 
(14,713
)
 
(12,835
)
 
(8,340
)
Less: Borrowing costs capitalized to qualifying assets
—

 
—

 
535

Expense recognized in the income statement
(14,713
)
 
(12,835
)
 
(7,805
)
 
 
 
 
 
 
Foreign exchange differences
 
 
 
 
 
Exchange gains
3,417

 
2,652

 
2,828

Exchange losses
(2,778
)
 
(3,037
)
 
(3,116
)
 
639

 
(385
)
 
(288
)
Finance income (expenses), net
15,953

 
5,924

 
2,787


66


21.
RETIREMENT BENEFIT PLAN

The Company is the co-sponsor of the pension fund RANDONPREV, together with other Random companies, whose benefit plan is a defined contribution plan under the financial capitalization regime, with some benefit supplementations for employees, not covered by the defined contributions. This minimum benefit is defined based on a percentage of the nominal salary per annum worked for the Company, credited in a lump sum at the beneficiary’s account with RANDONPREV. The latest valuation of the plan assets and of the present value of the minimum benefit was performed at December 31, 2011, using the projected unit credit method and the determined balance of R$ 761 at December 31, 2011 (R$ 657 at December 31, 2010 and R$ 435 at December 31, 2009), corresponding to the Company’s benefit, is recorded in non-current assets.



(2) Financial Statement Schedule for the years ended September 30, 2011, 2010 and 2009. The following schedule was filed as part of the Annual Report filed with the SEC on November 23, 2011:

Schedule II - Valuation and Qualifying Accounts
    
Schedules not filed with this Annual Report on Form 10-K/A are omitted because of the absence of conditions under which they are required or because the information called for is shown in the financial statements or related notes.
 
(3) Exhibits
3-a
Restated Articles of Incorporation of Meritor, filed as Exhibit 4.01 to Meritor’s Registration Statement on Form S-4, as amended (Registration Statement No. 333-36448) ("Form S-4"), is incorporated by reference.
 
 
3-a-1
Articles of Amendment of Restated Articles of Incorporation of the Company filed as Exhibit 3-a-1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended April 3, 2011, in incorporated by reference.
 
 
3-b
By-laws of Meritor, filed as Exhibit 3 to Meritor's Quarterly Report on Form 10-Q for the quarterly period ended June 29, 2003 (File No. 1-15983), is incorporated by reference.
 
 
4-a
Indenture, dated as of April 1, 1998, between Meritor and The Bank of New York Mellon Trust Company (as successor to BNY Midwest Trust Company as successor to The Chase Manhattan Bank), as trustee, filed as Exhibit 4 to Meritor's Registration Statement on Form S-3 (Registration No. 333-49777), is incorporated by reference.
 
 
4-b
First Supplemental Indenture, dated as of July 7, 2000, to the Indenture, dated as of April 1, 1998, between Meritor and The Bank of New York Mellon Trust Company (as successor to BNY Midwest Trust Company as successor to The Chase Manhattan Bank), as trustee, filed as Exhibit 4-b-1 to Meritor's Annual Report on Form 10-K for the fiscal year ended September 30, 2000 (File No. 1-15983) (“2000 Form 10-K”), is incorporated herein by reference.
 
 
4-b-1
Third Supplemental Indenture, dated as of June 23, 2006, to the Indenture, dated as of April 1, 1998, between Meritor and The Bank of New York Mellon Trust Company, N.A. (as successor to BNY Midwest Trust Company as successor to The Chase Manhattan Bank), as trustee (including Subsidiary Guaranty dated as of June 23, 2006), filed as Exhibit 4.2 to Meritor’s Current Report on Form 8-K, dated June 23, 2006 and filed on June 27, 2006 (File No. 1-15983)(“June 23, 2006 Form 8-K”), is incorporated herein by reference.
 
 
4-b-2
Fourth Supplemental Indenture, dated as of March 3, 2010, to the Indenture, dated as of April 1, 1998, between Meritor and The Bank of New York Mellon Trust Company, N.A. (as successor to BNY Midwest Trust Company as successor to The Chase Manhattan Bank), as trustee (including form of the Company’s 10.625% Notes due 2018 and form of subsidiary guaranty), filed as Exhibit 4 to Meritor’s Form 8-K filed on March 3, 2010 is incorporated herein by reference.
 
 
4-c
Indenture dated as of July 3, 1990, as supplemented by a First Supplemental Indenture dated as of March 31, 1994, between Meritor and The Bank of New York Mellon Trust Company, N.A. (as successor to BNY Midwest Trust Company as successor to Harris Trust and Savings Bank), as trustee, filed as Exhibit 4-4 to Arvin's Registration Statement on Form S-3 (Registration No. 33-53087), is incorporated herein by reference.
 
 
4-c-1
Second Supplemental Indenture, dated as of July 7, 2000, to the Indenture dated as of July 3, 1990, between Meritor and The Bank of New York Mellon Trust Company, N.A. (as successor to BNY Midwest Trust Company as successor to Harris Trust and Savings Bank), as trustee, filed as Exhibit 4-c-1 to the 2000 Form 10-K, is incorporated herein by reference. 
 
 
4-c-2
Fourth Supplemental Indenture, dated as of June 23, 2006, to the Indenture, dated as of July 3, 1990, between Meritor and The Bank of New York Mellon Trust Company, N.A. (as successor to BNY Midwest Trust Company as successor to Harris Trust and Savings Bank), as trustee (including Subsidiary Guaranty dated as of June 23, 2006), filed as Exhibit 4.3 to the June 23, 2006 Form 8-K, is incorporated herein by reference.
 
 
4-d
Indenture, dated as of March 7, 2006, between Meritor and The Bank of New York Mellon Trust Company, N.A. (as successor to BNY Midwest Trust Company), as trustee, filed as Exhibit 4.1 to Meritor’s Current Report on Form 8-K, dated March 7, 2006 and filed on March 9, 2006 (File No. 1-15983), is incorporated herein by reference.
 
 

68

4-d-1
First Supplemental Indenture, dated as of June 23, 2006, to the Indenture, dated as of March 7, 2006, between Meritor and The Bank of New York Mellon Trust Company, N.A. (as successor to BNY Midwest Trust Company), as trustee (including Subsidiary Guaranty dated as of June 23, 2006), filed as Exhibit 4.1 to the June 23, 2006 Form 8-K, is incorporated herein by reference.
 
 
4-e
Indenture, dated as of February 8, 2007, between Meritor and The Bank of New York Mellon Trust Company, N.A.(as successor to The Bank of New York Trust Company, N.A.), as trustee (including form of Subsidiary Guaranty dated as of February 8, 2007), filed as Exhibit 4-a to Meritor’s Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2007 (File No. 1-15983), is incorporated herein by reference.
 
 
10-a
Credit Agreement, dated as of June 23, 2006, by and among Meritor, Meritor Finance Ireland, the institutions from time to time parties thereto as lenders, JP Morgan Chase Bank, National Association, as Administrative Agent, Citicorp North America, Inc. and UBS Securities LLC, as Syndication Agents, ABN AMRO Bank N.V., BNP Paribas and Lehman Commercial Paper Inc., as Documentation Agents, and J.P. Morgan Securities Inc. and Citigroup Global Markets, as Joint Lead Arrangers and Joint Book Runners, filed as Exhibit 10.1 to the June 23, 2006 Form 8-K, is incorporated herein by reference.
 
 
10-a-1
Subsidiary Guaranty, dated as of June 23, 2006, by and among the subsidiary guarantors and JPMorgan Chase Bank, National Association, as Administrative Agent, for the benefit of itself, the lenders and other holders of guaranteed obligations, filed as Exhibit 10.2 to the June 23, 2006 Form 8-K, is incorporated herein by reference.
 
 
10-a-2
Pledge and Security Agreement, dated as of June 23, 2006, by and among Meritor, the subsidiaries named therein and JPMorgan Chase Bank, National Association, as Administrative Agent, filed as Exhibit 10.3 to the June 23, 2006 Form 8-K, is incorporated by reference.
 
 
10-a-3
Amendment No. 1 to Credit Agreement, dated as of February 23, 2007, among Meritor, the financial institutions party thereto and JPMorgan Chase Bank, National Association, as Administrative Agent, filed as Exhibit 10 to the Current Report on Form 8-K dated and filed on February 23, 2007 (File No. 1-15983), is incorporated herein by reference.
 
 
10-a-4
Amendment No. 2 to Credit Agreement, dated as of October 2, 2007, among Meritor, the financial institutions party thereto and JPMorgan Chase Bank, National Association, as Administrative Agent, filed as Exhibit 10 to the Current Report on Form 8-K dated October 2, 2007 and filed on October 3, 2007 (File No. 1-15983), is incorporated by reference.
 
 
10-a-5
Amendment No. 3 to Credit Agreement, dated as of October 26, 2007, among Meritor, the financial institutions party thereto and JPMorgan Chase Bank, National Association, as Administrative Agent, filed as Exhibit 10 to the Current Report on Form 8-K dated October 26, 2007 and filed on October 30, 2007 (File No. 1-15983), is incorporated herein by reference.
 
 
10-a-6
Amendment No. 4 to Credit Agreement, dated as of December 10, 2007, among Meritor, the financial institutions party thereto and JPMorgan Chase Bank, National Association, as Administrative Agent, filed as Exhibit 10 to the Current Report on Form 8-K filed on December 11, 2007 is incorporated herein by reference.
 
 
10-a-7
Amendment No. 5 to Credit Agreement, dated as of February 5, 2010, among Meritor, AFI, the financial institutions party thereto and JPMorgan Chase Bank, National Association, as Administrative Agent, filed as Exhibit 10a to Meritor’s Form 8-K filed on February 10, 2010 is incorporated herein by reference.
 
 
*10-b-1
1997 Long-Term Incentives Plan, as amended and restated, filed as Exhibit 10 to Meritor’s Current Report on Form 8-K dated and filed on April 20, 2005 (File No. 1-15983), is incorporated by reference.
 
 
*10-b-2
Form of Restricted Stock Agreement under the 1997 Long-Term Incentives Plan, filed as Exhibit 10-a-2 to Meritor’s Annual Report on Form 10-K for the fiscal year ended September 30, 1997 (File No. 1-13093), is incorporated herein by reference.
 
 
*10-b-3
Form of Option Agreement under the 1997 Long-Term Incentives Plan, filed as Exhibit 10(a) to Meritor's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998 (File No. 1-13093), is incorporated herein by reference.
 
 
*10-b-4
Form of Performance Share Agreement under the 1997 Long-Term Incentives Plan, filed as Exhibit 10-b to Meritor’s Current Report on Form 8-K, dated December 7, 2004 and filed on December 9, 2004 (File No. 1-15983), is incorporated herein by reference.
 
 
*10-b-5
Description of Performance Goals established in connection with 2009-2011 Cash Performance Plan under the 1997 Long-Term Incentives Plan, filed as Exhibit 10-a to Meritor’s Current Report on Form 8-K, dated December 9, 2008 (File No. 1-15983), is incorporated herein by reference.
 
 

69

*10-b-6
Description of Performance Goals for fiscal year 2012 established in connection with Cash Performance Plans under Long Term Incentive Plans, filed as Exhibit 10-b-6 to Meritor’s 2011 Form 10-K for the fiscal year ended October 2, 2011, is incorporated herein by reference.
 
 
*10-b-7
Description of Annual Incentive Goals established for fiscal year 2012 under the Incentive Compensation Plan, filed as Exhibit 10-b-7 to Meritor’s 2011 Form 10-K for the fiscal year ended October 2, 2011, is incorporated herein by reference.
 
 
*10-b-7a
Description of Performance Goals established in connection with 2010-2012 Cash Performance Plan, filed as Exhibit 10-b to Current Report on Form 8-K filed on November 12, 2009 is incorporated herein by reference.
 
 
*10-c
2007 Long-Term Incentive Plan, as amended, filed as Exhibit 10-a to Meritor’s Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2007 (File No. 1-15983), is incorporated herein by reference.
 
 
*10-c-1
Form of Restricted Stock Agreement under the 2007 Long-Term Incentive Plan, filed as Exhibit 10-c-1 to Meritor’s Annual Report on Form 10-K for the fiscal year ended September 30, 2007 is incorporated herein by reference.
 
 
*10-d
Description of Compensation of Non-Employee Directors, filed as Exhibit 10-d to Meritor’s 2011 Form 10-K for the fiscal year ended October 2, 2011, is incorporated herein by reference.
 
 
*10-e
2004 Directors Stock Plan, filed as Exhibit 10-a to Meritor’s Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2004 (File No. 1-15983), is incorporated herein by reference.
 
 
*10-e-1
Form of Restricted Share Unit Agreement under the 2004 Directors Stock Plan, filed as Exhibit 10-c-3 to Meritor’s Annual Report on Form 10-K for the fiscal year ended October 3, 2004 (File No. 1-15983), is incorporated herein by reference.
 
 
*10-e-2
Form of Restricted Stock Agreement under the 2004 Directors Stock Plan, filed as Exhibit 10-c-4 to Meritor’s Annual Report on Form 10-K for the fiscal year ended October 2, 2005 (Filed No. 1-15983), is incorporated herein by reference.
 
 
*10-e-3
Option Agreement under the 2007 Long-Term Incentive Plan between Meritor and Charles G. McClure filed as Exhibit 10-c to Meritor’s Quarterly report on Form 10-Q for the quarterly period ended June 30, 2008 is incorporated herein by reference.
 
 
*10-e-4
Restricted Stock Agreement under the 2007 Long-term Incentive Plan between Meritor and Charles G. McClure filed as Exhibit 10-d to Meritor’s Quarterly Report on form 10-Q for the quarterly period ended June 30, 2008 is incorporated herein by reference.
 
 
*10-e-5
Letter Agreement, dated January 15, 2011, with former executive officer filed as Exhibit 10 to Meritor’s Report on Form 8-K dated and filed August 5, 2011, is incorporated herein by reference.
 
 
*10-e-6
Form of Restricted Stock Unit Agreement for Employees under 2010 Long-Term Incentive Plan filed as Exhibit 10.2 to Meritor’s Report on Form 10-Q for the fiscal quarter ended January 3, 2009 is incorporated herein by reference.
 
 
*10-e-7
Form of Restricted Stock Unit Agreement for Employees under 2010 Long-Term Incentive Plan filed as Exhibit 10.3 to Meritor’s Report on Form 10-Q for the fiscal quarter ended January 3, 2009 is incorporated herein by reference.
 
 
*10-e-8
Form of Restricted Stock Unit Agreement for Employees under 2010 Long-Term Incentive Plan filed as Exhibit 10.4 to Meritor’s Report on Form 10-Q for the fiscal quarter ended January 3, 2009 is incorporated herein by reference.
 
 
*10-e-9
2010 Long-Term Incentive Plan, as amended and restated as of January 20, 2011, filed as Exhibit 10.d to Meritor’s Report on Form 10-Q for the fiscal quarter ended January 2, 2011 is incorporated herein by reference.
 
 
*10-f
Incentive Compensation Plan, as amended and restated, filed as Exhibit 10.6 to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2010, is incorporated herein by reference.
 
 
*10-f-1
Form of Deferred Share Agreement, filed as Exhibit 10-a to Meritor’s Quarterly Report on Form 10-Q for the quarterly period ended January 2, 2005 (File No. 1-15983), is incorporated herein by reference.
 
 
*10-g
Copy of resolution of the Board of Directors of Meritor, adopted on July 6, 2000, providing for its Deferred Compensation Policy for Non-Employee Directors, filed as Exhibit 10-f to the 2000 Form 10-K, is incorporated herein by reference.
 
 
*10-h
Deferred Compensation Plan, filed as Exhibit 10-e-1 to Meritor's Annual Report on Form 10-K for the fiscal year ended September 30, 1998 (File No. 1-13093), is incorporated by reference.
 
 

70

*10-i
1998 Stock Benefit Plan, as amended, filed as Exhibit (d)(2) to Meritor's Schedule TO, Amendment No. 3 (File No. 5-61023), is incorporated herein by reference.
 
 
*10-j
Employee Stock Benefit Plan, as amended, filed as Exhibit (d)(3) to Meritor’s Schedule TO, Amendment No. 3 (File No. 5-61023), is incorporated herein by reference. 
 
 
*10-k
1988 Stock Benefit Plan, as amended, filed as Exhibit 10 to Arvin's Quarterly Report on Form 10-Q for the quarterly period ended July 3, 1988, and as Exhibit 10(E) to Arvin's Quarterly Report on Form 10-Q for the quarterly period ended July 4, 1993 (File No. 1-302), is incorporated herein by reference.
 
 
10-l
Loan and Security Agreement dated as of September 8, 2009 among Meritor Receivables Corporation, Meritor, Inc., GMAC Commercial Finance LLC, and the Lenders from time to time party thereto (the "Loan Agreement"), dated September 8, 2009 and filed as exhibit 10a to Meritor’s Current Report on Form 8-K filed on September 10, 2009, is incorporated herein by reference.
 
 
10-l-1
First Amendment dated as of October 14, 2010 to the Loan Agreement dated as of September 8, 2009 by and among Meritor Receivables Corporation, Meritor, Inc., GMAC Commercial Finance LLC, and the Lenders from time to time party thereto (the “Loan Agreement”), dated September 8, 2009 and filed as exhibit 10a to the Current Report on Form 8-K filed on October 18, 2010 is incorporated herein by reference.
 
 
10-m
Third Amended and Restated Purchase and Sale Agreement dated as of September 8, 2009 (the "Purchase Agreement") among Meritor Receivables Corporation and Meritor Heavy Vehicle Braking Systems (U.S.A.), Inc. and Meritor Heavy Vehicle Systems LLC, filed as exhibit 10b to Meritor’s Current Report on Form 8-K, dated September 8, 2009 and filed on September 10, 2009, is incorporated herein by reference.
 
 
10-m-m
Second Amendment dated as of October 29, 2010 to Loan Agreement dated as of September 8, 2009, as amended, by and among Meritor, Inc., Meritor Receivables Corporation, the Lenders from time to time party thereto and, Ally Commercial Finance LLC (formerly, GMAC Commercial Finance LLC), as Administrative Agent filed as Exhibit 10a to the Current Report on Form 8-K, dated October 29, 2010 and filed on November 2, 2010 is incorporated herein by reference.
 
 
10-m-l
Third Amendment dated as of February 24, 2011 to Loan and Security Agreement among ArvinMeritor Receivables Corporation, the Company, the lenders from time to time a party thereto and Ally Commercial Finance LLC (formerly, GMAC Commercial Finance LLC), as agent and lender filed as exhibit 10 to Meritor’s Form 10-Q for the quarter ended April 3, 2011 is incorporated herein by reference.
 
 
10-m-2
First Amendment to Third Amended and Restated Purchase and Sale Agreement dated as of October 29, 2010 (the “Purchase Agreement”) among Meritor Receivables Corporation and Meritor Heavy Vehicle Braking Systems (U.S.A.), Inc. and Meritor Heavy Vehicles Systems LLC filed as exhibit 10b to the Current Report on Form 8-K, dated October 29, 2010 and filed on November 2, 2010 is incorporated herein by reference.
 
 
10-m-3
Amendment dated as of June 28, 2011 to Receivables Purchase Agreement dated as of October 29, 2010, by and among Meritor Heavy Vehicle Braking Systems (USA), Inc., Meritor Heavy Vehicle Systems, LLC and Meritor Aftermarket USA, LLC (formerly known as ArvinMeritor Mascot, LLC) as sellers, Viking Asset Purchaser No 7 IC, an incorporated cell of Viking Global Finance ICC, an incorporated cell company incorporated under the laws of Jersey, as purchaser, and Citicorp Trustee Company Limited, as programme trustee filed as exhibit 10-a to Meritor’s Form 10-Q for the quarter ended July 3, 2011 is incorporated herein by reference.
 
 
10-m-4
Receivables Purchase Agreement dated as of June 28, 2011, by and among Meritor HVS A.B., as seller, Viking Asset Purchaser No 7 IC, an incorporated cell of Viking Global Finance ICC, an incorporated cell company incorporated under the laws of Jersey, as purchaser, and Citicorp Trustee Company Limited, as programme trustee filed as exhibit 10-b to Meritor’s Form 10-Q for the quarter ended July 3, 2011 is incorporated herein by reference.
 
 
10-m-5
Receivables Purchase Agreement dated as of October 29, 2010, by and among ArvinMeritor Mascot, LLC, Meritor Heavy Vehicle Braking Systems (USA), Inc., Meritor Heavy Vehicle Systems, LLC, Viking Asset Purchaser No 7 IC, an incorporated cell of Viking Global Finance ICC, an incorporated cell company incorporated under the laws of Jersey, as purchaser, and Citicorp Trustee Company Limited, as programme trustee, filed as Exhibit 10-c to Meritor’s Current report on Form 8-K dated October 29, 2010 and filed November 2, 2010, is incorporated herein by reference.
 
 
10-m-6
First Amendment dated as of December 6, 2010 to Purchase and Sale Agreement dated as of August 3, 2010
among Meritor France (as Seller), Meritor, Inc. (as Seller Guarantor) and 81 Acquisition LLC (as Buyer), filed as Exhibit 10 to Meritor’s Form 8-K dated December 6, 2010 and filed December 8, 2010, is incorporated herein by reference.
 
 
10-m-7
Second Amendment dated as of January 3, 2011 to Purchase and Sale Agreement dated as of August 3, 2010 among Meritor France (as Seller), Meritor, Inc. (as Seller Guarantor) and Inteva Products Holding Coöperatieve U.A., as assignee of 81 Acquisition LLC (as Buyer), as amended, filed as Exhibit 10 to Meritor’s Form 8-K dated and filed on January 3, 2011, is incorporated herein by reference.
 
 

71

*10-n
Employment agreement between the company and Charles G. McClure, Jr., dated as of September 14, 2009, filed as Exhibit 10-n to Meritor’s Form 10-K for the fiscal year ended September 27, 2009 is incorporated herein by reference.
 
 
*10-o
Employment agreement dated May 13, 2011 between Meritor, Inc. and L. Cummins, filed as Exhibit 10 to Meritor’s Form 10-Q for the quarter ended July 3, 2011 is incorporated by reference.
 
 
*10-q
Employment agreement between Meritor, Inc. and Carsten J. Reinhardt, dated as of September 14, 2009 filed as Exhibit 10-q to Meritor’s Form 10-K for the fiscal year ended September 27, 2009 is incorporated herein by reference.
 
 
*10-r
Employment agreement, dated as of September 14, 2009, between Meritor, Inc. and Jeffrey A. Craig, filed as Exhibit 10-r to Meritor’s Form 10-K for the fiscal year ended September 27, 2009 is incorporated herein by reference.
 
 
*10-s
Employment agreement, dated as of September 14, 2009, between Meritor, Inc. and Vernon Baker filed as Exhibit 10-s to Meritor’s Form 10-K for the fiscal year ended September 27, 2009 is incorporated herein by reference.
 
 
*10-t
Employment agreement, dated as of September 14, 2009, between Meritor, Inc. and Mary Lehmann filed as Exhibit 10-t to Meritor’s Form 10-K for the fiscal year ended September 27, 2009, is incorporated herein by reference.
 
 
*10-u
Employment agreement, dated as of September 14, 2009, between Meritor, Inc. and Lin Cummins filed as Exhibit 10-u to Meritor’s Form 10-K for the fiscal year ended September 27, 2009 is incorporated herein by reference.
 
 
*10-v
Employment agreement, dated as of September 14, 2009, between Meritor, Inc. and Barbara Novak filed as Exhibit 10-v to Meritor’s Form 10-K for the fiscal year ended September 27, 2009 is incorporated herein by reference.
 
 
*10-w
Form of employment letter between Meritor, Inc. and its executives, filed as Exhibit 10-a to Meritor’s Current Report on Form 8-K, dated September 14, 2009 and filed on September 18, 2009 (File No. 1-15983), is incorporated by reference.
 
 
*10-w-1
Letter Agreement dated as of July 1, 2010 between Meritor and Larry Ott filed as Exhibit 10 to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 2010 is incorporated herein by reference.
 
 
*10-w-2
Employment Agreement between Meritor, Inc. and Larry Ott dated as of August 3, 2010 filed as Exhibit 10-1 to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 2010 is incorporated herein by reference.
 
 
*10-w-3
Employment Agreement between Meritor, Inc. and Timothy Bowes dated as of April 28, 2010 filed as Exhibit 10-1 to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 4, 2010 is incorporated herein by reference.
 
 
*10-w-4
Employment Agreement between Meritor, Inc. and Joseph Mejaly dated as of April 28, 2010 filed as Exhibit 10-2 to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 4, 2010 is incorporated herein by reference.
 
 
*10-w-5
Employment Agreement dated November 2, 2011 between Meritor, Inc. and Pedro Ferro filed as Exhibit 10-w-5 to Meritor’s Form 10-K for the fiscal year ended October 2, 2011 is incorporated herein by reference.
 
 
10-x
Receivables Purchase Agreement dated November 19, 2007 between Meritor CVS Axles France and Viking Asset Purchaser and CitiCorp Trustee Company Limited, filed as Exhibit 10-t to Meritor’s Report on Form 10-K for the fiscal year ended September 30, 2008 is incorporated herein by reference.
 
 
10-y
Receivables Purchase Agreement dated March 13, 2006 between Meritor HVS AB and Nordic Finance Limited and CitiCorp Trustee Company Limited filed as Exhibit 10-u to Meritor’s Report on Form 10-K for the fiscal year ended September 30, 2008 is incorporated herein by reference.
 
 
10-z
Amendment, dated July 25, 2007, to Receivables Purchase Agreement dated March 13, 2006 between Meritor HVS AB and Nordic Finance Limited and CitiCorp Trustee Company Limited filed as Exhibit 10-v to Meritor’s Report on Form 10-K for the fiscal year ended September 30, 2008 is incorporated herein by reference.
 
 
10-zz
Purchase and Sale Agreement dated August 4, 2009 among Meritor, Iochpe-Maxion, S.A. and the other parties listed therein, filed as Exhibit 10 to Meritor’s Report on Form 10-Q for the Quarter ended June 28, 2009 is incorporated by reference.
 
 
12
Computation of ratio of earnings to fixed charges, filed as Exhibit 12 to Meritor’s 2011 Form 10-K for the fiscal year ended October 2, 2011, is incorporated herein by reference.
 
 
21
List of subsidiaries of Meritor, Inc., filed as Exhibit 21 to Meritor’s 2011 Form 10-K for the fiscal year ended October 2, 2011, is incorporated herein by reference.

72

 
 
23-a
Consent of Vernon G. Baker, II, Esq., Senior Vice President and General Counsel, filed as Exhibit 23-a to Meritor’s 2011 Form 10-K for the fiscal year ended October 2, 2011, is incorporated herein by reference.
 
 
23-b
Consent of Deloitte & Touche LLP, independent registered public accounting firm, filed as Exhibit 23-b to Meritor’s 2011 Form 10-K for the fiscal year ended October 2, 2011, is incorporated herein by reference.
 
 
23-c
Consent of Bates White LLC, filed as Exhibit 23-c to Meritor’s 2011 Form 10-K for the fiscal year ended October 2, 2011, is incorporated herein by reference.
 
 
23-d
Consent of Deloitte Touche Tohmatsu Auditores Independentes relating to the financial statements of Master Sistemas Automotivos Ltda. # 
 
 
23-e
Consent of Deloitte Touche Tohmatsu Auditores Independentes relating to the financial statements of Suspensys Sistemas Automotivos Ltda. #
 
 
24
Power of Attorney authorizing certain persons to sign this Annual Report on Form 10-K on behalf of certain directors and officers Meritor, filed as Exhibit 24 to Meritor’s 2011 Form 10-K for the fiscal year ended October 2, 2011, is incorporated herein by reference.
 
 
31-a
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act. #
 
 
 31-b
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act. #
 
 
32-a
Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350. #
 
 
32-b
Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350. #
 
 
99-a
Commitment and Acceptance, dated as of March 31, 2011, by and among Meritor, Inc. (formerly known as ArvinMeritor, Inc.), ArvinMeritor Finance Ireland (together with Meritor, Inc. the “Borrowers”), Deutsche Bank AG New York Branch, as Accepting Lender and JPMorgan Chase Bank, National Association, as Administrative Agent relating to that certain Credit Agreement, dated as of June 23, 2006 (as amended by Amendment No.1, Amendment No. 2, Amendment No. 3, Amendment No. 4, and Amendment No. 5 thereto) among the Borrowers, each lender from time to time a party thereto, and JP Morgan Chase Bank, National Association, as administrative agent filed as exhibit 99-a to Meritor’s Form 10-Q for the quarter ended April 3, 2011 is incorporated herein by reference.
 
 
99-b
Commitment and Acceptance, dated as of April 13, 2011, by and among Meritor, Inc. (formerly known as ArvinMeritor, Inc.), ArvinMeritor Finance Ireland (together with Meritor, Inc. the “Borrowers”), The Huntington National Bank, as Accepting Lender and JPMorgan Chase Bank, National Association, as Administrative Agent relating to that certain Credit Agreement, dated as of June 23, 2006 (as amended by Amendment No.1, Amendment No. 2, Amendment No. 3, Amendment No. 4, Amendment No. 5 thereto and the Commitment and Acceptance dated as of March 31, 2011, relating to Deutsche Bank AG New York Branch becoming a Lender) among the Borrowers, each lender from time to time a party thereto, and JP Morgan Chase Bank, National Association, as administrative agent filed as exhibit 99-b to Meritor’s Form 10-Q for the quarter ended April 3, 2011 is incorporated herein by reference
 
 
99-c
Third Amendment dated as of May 9, 2011 to Credit Agreement dated as of November 18, 2010 among Meritor, Inc. (formerly named ArvinMeritor, Inc.), Citicorp USA, Inc., as administrative agent and issuing bank, the other lenders party thereto, and the Bank of New York Mellon, as paying agent filed as exhibit 99-a to Meritor’s Form 10-Q for the quarter ended July 3, 2011 is incorporated herein by reference.
*     Management contract or compensatory plan or arrangement.
# Filed herewith.

73


SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MERITOR, INC. 
 
 
 
By:
 
/s/ Jeffrey A. Craig
 
 
Jeffrey A. Craig
 
 
Senior Vice President and Chief Financial Officer

Date: June 21, 2012

74