Statement of Sources and Uses of Funds DOAR - 30096

Up to 12/31/2007, the Statement of Sources and Uses of Funds (DOAR) was required for public as well as closed-capital companies with net equity, on the date of the balance sheet, above BRL 1,000,000.00 (this limit was updated by Statute No. 9,457/97). DOAR indicates changes to the financial position of the company. Financing is represented by the origin of resources, and investments by resource allocations, considering that here resources do not simply mean money, or availabilities, as it encompasses a broader concept representing Net Working Capital, as defined by law. Statute 11,638/2007 extinguished DOAR on 1/1/2007, so that only accounting statements closed until 12/31/2007 require it.

FORM OF PRESENTATION

DOAR indicates changes to the company's financial status, highlighting:

1 - the origin of resources, grouped in:

a) fiscal year profits plus depreciation, amortization or depletion, adjusted for variation results of future fiscal years.

b) realization of capital stock and payments to capital reserves;

c) third party resources from increase of long-term liabilities, from reduction of long-term assets and of disposal of investments and rights of fixed assets;

 2 - uses of funds, grouped in:

a) dividends distributed;

b) acquisition of rights of fixed assets;

c) increase of long-term realizable assets, of investments and of deferred assets;

d) reduction in long-term liabilities;

3 - the excess or insufficiency of the origins of funds in relation their uses, representing net working capital increase or reduction;

4 - balances at the start and end of the period, of current assets and liabilities, the sum of net working capital and its increase or reduction in the period.

SOURCES OF FUNDS

Net Working Capital increases represent sources of funds, the most common of which are:

a) the operations themselves, when revenues (which generate net working capital inflows) of the fiscal year are greater than expenses; that is, result from net profits, exclusively calculated from the regular operations of the company.

Thus, if profits exist, we have an origin of resources. If a loss, we have a use of funds;

b) of stockholders, through capital increases they have paid up in the fiscal year, given that these resources increased company availabilities and, consequently, its net working capital;

c) of third-parties, through long-term loans taken out by the company, as well as of resources from the sale of Fixed Assets to third-parties, or of transforming Long-term Receivables into Current Assets.

Short-term loans taken out and payable are not regarded as sources of funds for the purposes of this example, because they do not affect Net Working Capital. In this case there is an increase of availability and, at the same time, of Current Liabilities.

Depreciation, amortization or depletion, as they represent a recovery of funds, must be added to the net profit calculated in the period, for purposes of preparing a statement of the origins and uses of funds.

USES OF FUNDS

Uses of funds are represented by the reduction of Net Working Capital between the start and the end of a given period.

The most common uses of funds that affect Net Working Capital are:

1) Non-current Assets

Once you acquire goods for Fixed Assets, permanent investments or use of funds in Deferred Assets, such events represent the use of funds and, consequently, cause a negative net variation of Net Working Capital.

2) Reduction in Long-term Liabilities

The amortization of long-term loans means, in principle, a reduction of long-term liabilities and represents a use of funds. On the other hand, the taking out of new financing is an origin of resources.

Since the concept of resources is Net Working Capital, the mere transfer of a loan balance from Long-term Liabilities to Current Liabilities, as it expires in the following fiscal year, represents a use of funds, because it has reduced Net Working Capital.

c) Dividend Payouts:

Dividend payments to stockholders represent a use of funds, reflecting a negative variation of Net Working Capital.

NET WORKING CAPITAL

NET WORKING CAPITAL is the difference between current assets (cash and equivalents, accounts receivable, stocks and expenses paid in advance) and current liabilities (suppliers, accounts payable and other charges of the following exercise) on a given date.

When Current Assets exceed Current Liabilities, we have our own Net Working Capital.

When Current Assets is lower than Current Liabilities, we have a Net Working Capital that is negative or owned by third parties.

TRANSACTIONS THAT DO NOT AFFECT NET WORKING CAPITAL

Besides the origins and uses of funds listed before, there are countless transaction types that do not affect Net Working Capital, but are simultaneously represented as origins and uses, such as:

a) acquisition of Fixed Assets (Investments or fixed assets) payable Long-Term. In this case, there is a use of funds for the increase of Fixed Assets and, at the same time, a source by the financing obtained by adding to Long-term Liabilities in the period, as if an influx of funds had been used immediately;

b) conversion of long-term loans into capital, if there is a source of funds by the increase of capital and, simultaneously, a use of funds by the reduction of Long-term Liabilities, as if a capital influx had been used to clear the debt;

c) capital integrated into Fixed Assets, a situation also without effect upon Net Working Capital, but represented in the source (increase of capital) and use of funds (Fixed Assets received), as if this movement of funds had occurred.

d) sale of assets from Fixed Assets receivable long-term, operation also to be stated at the source, as if the sale value has been received and, in its use, as if the loan had been made for long-term receipt;

e) depreciation, amortization and depletion. Such values, entered as expenses of the fiscal year, reduce the result, but do not reduce net working capital. They represent a reduction in Fixed Assets and Net Equity, but do not change the values of Current Assets and Liabilities. Thus, the value of these items recorded in the year must be added to Net Profit to calculate the actual value of resources generated by the operations themselves;

f) variation in future earnings represents profits that, by the accrual system, belong to future fiscal periods. However, they have already affected Net Working Capital; that is, if the balance of Future Earnings has increased in the period, it means the company has already received it, increasing Net Working Capital, but without registering it as revenue, so that it is not part of the year's profits. Thus, as this receipt originates from company operations, it must be added to the result of the fiscal year. If the balance of this group is reduced, it must be subtracted from Net Profit;

g) profit or loss registered by the equity method, for investments in related or controlled companies. This result, which affects the investor's profits, does not affect its Net Working Capital. Thus, when calculating the source of funds of the operations, this value must be either deducted from or added to Net Profit, whether it is a revenue or expense, respectively.

h) adjustments of previous fiscal years. These adjustments are directly registered in the account of Accrued Profits and Losses, hence not affecting the year's Net Profit. In this case, the adjustments are made in the starting balances of the balance sheet, in accounts to which it refers, as if they had already been registered in previous years, so that the sources and uses of funds of the year will already be purged from this effect;

i) indexation of long-term liabilities. These expenses affect profits, but reduce NET EQUITY and increase Long-term Receivables, not affecting Net Working Capital. Hence, they must also be added to Net Profit for the fiscal year.

OCCURRENCE OF LOSS

The consumption of Net Working Capital by an operation is a use of funds. As such, the statement must present it in the group of uses of funds, as the first item of the group.

This occurs when the company is operating at a loss. However, if the company has a loss, but due to the aforementioned adjustments, the operations themselves present a source of funds (profit), the loss and its adjustments must be presented in the grouping of sources of funds.

If a company has a profit, but the adjustments have highlighted a use of funds (loss), the profit and its adjustments must be presented in the grouping of uses of funds.

PREPARATION OF STATEMENT OF SOURCES AND USES OF FUNDS

1st step: to obtain the ending balance, after all adjustments, on the closing date of fiscal period, as well as of the closing balance of previous period.

2nd step: to calculate the balance variations of accounts, that is, the net difference between them. Groups of Long-term Liabilities, Future Earnings and Net Equity, as creditors, must be indicated as negative.

3rd step: analysis of composition of variations occurred in each of the accounts.

EXAMPLE:

STATEMENT OF SOURCES AND USES OF FUNDS
FISCAL YEAR ENDED IN 12.31.2003 (in BRL):

Statement of Net Working Capital Increase (in BRL):