FULL TEXT OF CVM INSTRUCTION NO. 247, OF MARCH 27, 1996, WITH THE AMENDMENTS INTRODUCED BY CVM INSTRUCTIONS NO. 269/97, 285/98, 464/08 AND 469/08.

Provides for the evaluation of investments in affiliated and controlled companies and for the procedures for preparing and disclosing consolidated financial statements, to fully comply with the Fundamental Accounting Principles, amends and consolidates CVM Instructions No. 01, of April 27, 1978, No. 15, of November 3, 1980, No. 30, of January 17, 1984, and Article 2 of CVM Instruction No. 170, of January 3, 1992, and takes other measures.

THE PRESIDENT OF THE SECURITIES AND EXCHANGE COMMISSION - CVM makes public that the Collegiate Body, in a session held on 22.03.96, based on the provisions of item "c" of paragraph III of Article 248, the sole paragraph of Article 249 and the sole paragraph of Article 291 of Law No. 6.404, of December 15, 1976, and on items I, II and IV of the sole paragraph of Article 22 of Law No. 6.385, of December 7, 1976,

RESOLVED:

ON THE EQUITY METHOD

Art. 1. The permanent investment of an open company in affiliated companies, their equivalents, and in controlled companies, located in the country and abroad, must be evaluated by the equity method, observing the provisions of this Instruction.

Sole Paragraph. Equity method corresponds to the value of the investment determined by applying the percentage of participation in the share capital to the net equity of each affiliated, equivalent, and controlled company.

ON AFFILIATED AND CONTROLLED COMPANIES

Art. 2. Affiliated companies are considered those societies when one participates with 10% (ten percent) or more of the share capital of the other, without controlling it.

Sole Paragraph. The following are equivalent to affiliated companies, for the purposes of this Instruction:

a) societies when one participates indirectly with 10% (ten percent) or more of the voting capital of the other, without controlling it;

b) societies when one participates directly with 10% (ten percent) or more of the voting capital of the other, without controlling it, regardless of the percentage of participation in the total capital.

Art. 3. A controlled company is considered, for the purposes of this Instruction:

I - a society in which the investor, directly or indirectly, is the holder of shareholder rights that ensure, permanently:

a) predominance in social deliberations; and

b) the power to elect or remove the majority of administrators.

II - a branch, agency, subsidiary, dependency, or representation office abroad, whenever their respective assets and liabilities are not included in the accounting of the investor, due to specific regulation; and

III - a society in which the permanent shareholder rights, provided for in items "a" and "b" of item I of this article, are under common control or are exercised through the existence of a voting agreement, regardless of its percentage of participation in the voting capital.

Sole Paragraph. A wholly-owned subsidiary is also considered controlled, with the investor being the sole shareholder.

ON THE DETERMINATION OF THE RELEVANCE OF THE INVESTMENT

Art. 4. The investment is considered relevant:

I - when the book value of the investment in each affiliated company is equal to or greater than 10% (ten percent) of the net equity of the investor; or

II - when the book value of the investments in controlled and affiliated companies, considered in their entirety, is equal to or greater than 15% (fifteen percent) of the net equity of the investor.

Paragraph 1. The book value of the investment in an affiliated and controlled company covers the acquisition cost plus the equity method and the unamortized goodwill, minus the unamortized discount and the provision for losses.

Paragraph 2. For the determination of the percentages referred to in items I and II of this article, the amount of the investor's credits against its affiliated and controlled companies shall be added to the book value of the investment.

• Article revoked by CVM Instruction No. 469, of May 2, 2008.

ON THE INVESTMENTS TO BE EVALUATED BY THE EQUITY METHOD

Art. 5. The following shall be evaluated by the equity method:

I - the investment in each controlled company; and

II - the relevant investment in each affiliated and/or its equivalent company, when the investor has influence on the administration or when the percentage of participation, direct or indirect, of the investor, represents 20% (twenty percent) or more of the share capital of the affiliated company.

I - the investment in each direct or indirect controlled company;

II - the investment in each affiliated company or its equivalent, when the investor has significant influence on the administration or when the percentage of participation, direct or indirect, of the investor represents 20% (twenty percent) or more of the voting capital; and

III – the investment in other societies that are part of the same group or are under common control.

• Wording given by CVM Instruction No. 469, of May 2, 2008.

Sole Paragraph. The following shall be considered examples of evidence of influence on the administration of the affiliated company:

a) participation in its social deliberations, including the existence of common administrators;

b) power to elect or remove one or more of its administrators;

c) significant volume of transactions, including the provision of technical assistance or essential technical information for the activities of the investor;

d) significant technological and/or economic-financial dependence;

e) permanent receipt of detailed accounting information, as well as investment plans; or

f) common use of material, technological, or human resources.

Art. 6. The investment in affiliated and controlled companies with effective and clear evidence of loss of continuity of their operations or in the case where they are operating under severe long-term restrictions that significantly impair their ability to transfer resources to the investor shall cease to be evaluated by the equity method, without prejudice to the provisions of Article 12.

Art. 7. The investment in an affiliated and controlled company whose sale by the investor, in the near future, has effective and clear evidence of realization, shall continue to be evaluated by the equity method until the base date considered for the sale.

Art. 8. The investment in an affiliated company that, due to a reduction in the book value of the investment, ceases to be relevant, shall continue to be evaluated by the equity method, provided that this reduction is not considered of a permanent nature, and all its effects shall be evidenced, separately, in an explanatory note.

Sole Paragraph. In the event of discontinuation of the investment, mainly those provided for in Articles 6 and 7, the balances of the revaluation reserves constituted by the investor shall be reversed against the respective book value of the investment.

• Article revoked by CVM Instruction No. 469, of May 2, 2008.

ON THE PROCEDURES FOR EVALUATING INVESTMENTS BY THE EQUITY METHOD

Art. 9. The value of the investment, by the equity method, shall be obtained through the following calculation:

I - by applying the percentage of participation in the share capital to the value of the net equity of the affiliated and controlled company; and

II - by subtracting, from the amount referred to in item I, the unrealized profits, as defined in paragraph 1 of this article, net of fiscal effects.

Paragraph 1. For the purposes of item II of this article, unrealized profits shall be considered those resulting from transactions with the investor or with other affiliated and controlled companies, when:

a) the profit is included in the result of an affiliated and controlled company and corresponds to inclusion in the acquisition cost of assets of any nature in the balance sheet of the investor; or

b) the profit is included in the result of an affiliated and controlled company and corresponds to inclusion in the acquisition cost of assets of any nature in the balance sheet of other affiliated and controlled companies.

Paragraph 2. Losses resulting from transactions with the investor, affiliated, and controlled companies shall not be eliminated in the calculation of the equity method.

Paragraph 3. Profits and losses, as well as revenues and expenses resulting from transactions that have simultaneously and fully generated opposite effects in the result accounts of the affiliated and controlled companies, shall not be excluded for the purpose of calculating the value of the investment.

Art. 10. For the purposes of the provisions of Article 9, the net equity of the affiliated and controlled company shall be determined based on the financial statements raised on the same date as the financial statements of the investor.

Paragraph 1. In the impossibility of complying with the provisions of the caput of this article, the use of financial statements of the affiliated and controlled company in a maximum lag period of up to 60 (sixty) days before the date of the financial statements of the investor is admitted.

Paragraph 2. The period of coverage of the financial statements of the affiliated and controlled company shall be identical to that of the investor, regardless of their respective closing dates.

Paragraph 3. The use of non-identical periods is admitted, in cases where this fact represents an improvement in the quality of the information produced, with the change evidenced in an explanatory note.

Art. 11. For the determination of the value of the equity method, the investor shall:

I - eliminate the effects resulting from the diversity of accounting criteria, especially regarding investments abroad;

II - exclude the amount corresponding to reciprocal participations;

III - recognize the effects resulting from relevant events occurring in the interim period, in the case of financial statements raised on different dates; and

IV - recognize the effects resulting from classes of shares with the right to fixed preferential dividend, cumulative dividend, and differentiation in profit participation.

ON PERMANENT LOSSES IN INVESTMENTS EVALUATED BY THE EQUITY METHOD

Art. 12. The investor shall constitute a provision for coverage of:

I - actual losses, due to:

a) - events that result in losses not provided for by the affiliated and controlled companies in their financial statements; or

b) formal or operational liability to cover a deficit liability.

II - potential losses, estimated due to:

a) tendency of the investment to perish;

b) high risk of suspension of operations of affiliated and controlled companies;

c) events that may predict partial or total loss of the book value of the investment or of the amount of credits against the affiliated and controlled companies; or

d) coverage of guarantees, sureties, bonds, mortgages, or pledges granted, in favor of affiliated and controlled companies, regarding obligations due or payable when characterized by the inability to pay by the controlled or affiliated company.

Paragraph 1. Regardless of the provision in letter “b” of item I, a provision for losses must also be constituted when there is a deficit liability and there is a clear intention of the investor to maintain its financial support to the investee.

Paragraph 2. The provision for losses shall be presented in the permanent assets as a deduction and up to the limit of the book value of the investment to which it refers, with the excess presented in a specific account in the liabilities.

ON GOODWILL OR DISCOUNT IN THE ACQUISITION OF INVESTMENTS EVALUATED BY THE EQUITY METHOD

Art. 13. For accounting purposes, the acquisition cost of an investment in an affiliated and controlled company shall be broken down, and the values resulting from this breakdown shall be accounted for in separate sub-accounts:

I - equity method based on financial statements prepared in accordance with Article 10; and

II - goodwill or discount in the acquisition or subscription, represented by the difference upwards or downwards, respectively, between the acquisition cost of the investment and the equity method.

Art. 14. The goodwill or discount calculated at the time of the acquisition or subscription of the investment shall be accounted for with indication of the economic basis that determined it.

Paragraph 1. The goodwill or discount resulting from the difference between the market value of part or all of the assets of the affiliated and controlled company and their respective book value, shall be amortized in proportion to the extent that the asset is realized in the affiliated and controlled company, by depreciation, amortization, depletion, or write-off due to alienation or perishing of these assets or the investment.

Paragraph 2. The goodwill or discount resulting from the expectation of future results shall be amortized within the term and to the extent of the projections that determined it or by write-off due to alienation or perishing of the investment.

§ 2. The goodwill or discount resulting from the difference between the price paid in the acquisition of the investment and the market value of the assets and liabilities of the affiliated or controlled company, referred to in the previous paragraph, shall be amortized as follows:

a) the goodwill or discount resulting from the expectation of future results – within the term, extent, and proportion of the projected results, or by write-off due to alienation or perishing of the investment, with the projected results being subject to annual verification, so that the criteria used for amortization are revised or the full write-off of the goodwill is recorded; and

b) the goodwill resulting from the acquisition of the right to exploration, concession, or permission delegated by the Public Power – within the estimated or contracted period of use, validity, or loss of economic substance, or by write-off due to alienation or perishing of the investment.

• Wording given by CVM Instruction No. 285, of July 31, 1998

Paragraph 3. In the case of the goodwill referred to in the previous paragraph, the maximum term for amortization shall not exceed 10 (ten) years.

§ 3. The maximum term for amortization of the goodwill provided for in letter “a” of the previous paragraph shall not exceed ten years.

• Wording given by CVM Instruction No. 285, of July 31, 1998

Paragraph 4. When there is a discount not justified by the economic foundations provided for in paragraphs 1 and 2, its amortization may only be accounted for in the event of write-off due to alienation or perishing of the investment.

Paragraph 5. The goodwill not justified by the economic foundations, provided for in paragraphs 1 and 2, must be recognized immediately as a loss, in the result of the period, clarifying in an explanatory note the reasons for its existence.

Art. 15. In the preparation of the investor's balance sheet, the unamortized balance of the goodwill or discount shall be presented in the permanent assets, added to or reduced from, respectively, the equity method of the investment to which it refers.

ON THE DIFFERENCE RESULTING FROM THE EVALUATION BASED ON THE EQUITY METHOD

Art. 16. The difference verified, at the end of each period, in the value of the investment evaluated by the equity method, shall be appropriated by the investor as:

I - operating revenue or expense, when it corresponds to:

a) an increase or decrease in the net equity of the affiliated and controlled company, due to the determination of net profit or loss in the period or that corresponds to actual gains or losses due to the existence of capital reserves or adjustments of previous periods; and

b) exchange variation of investment in an affiliated and controlled company abroad.

I - operating revenue or expense, when it corresponds to an increase or decrease in the net equity of the affiliated and controlled company, due to the determination of net profit or loss in the period or that corresponds to actual gains or losses due to the existence of capital reserves or adjustments of previous periods;

II - non-operating revenue or expense, when it corresponds to events that result in the variation of the percentage of participation in the share capital of the affiliated and controlled company;

III - application in the amortization of goodwill due to the increase in net equity from the revaluation of assets that gave rise to it; and

III - application in the amortization of goodwill due to the increase in net equity from the revaluation of assets that gave rise to it; and

IV - revaluation reserve when it corresponds to an increase in net equity from the revaluation of assets in the affiliated and controlled company, except for the provisions of the previous item.

IV - revaluation reserve when it corresponds to an increase in net equity from the revaluation of assets in the affiliated and controlled company, except for the provisions of the previous item; and

• Item revoked by CVM Instruction No. 469, of May 2, 2008.

V - in the Accumulated Conversion Adjustment account, directly in its net equity, when it corresponds to an adjustment of the same nature in the net equity of the controlled or affiliated company with investment abroad, due to the exchange variations referred to in the CVM regulation in force.

• Item included by CVM Instruction No. 464, of January 29, 2008

Sole Paragraph. Notwithstanding the provisions of Article 12, the negative result of the equity method shall have as its limit the book value of the investment, as defined in paragraph 1 of Article 4 of this Instruction.

• Article with wording given by CVM Instruction No. 464, of January 29, 2008

Sole Paragraph. Notwithstanding the provisions of Art. 12, the negative equity method result shall have as its limit the book value of the investment, which comprises the acquisition cost plus the equity method, the unamortized goodwill and discount, and the provision for losses.

• Wording given by CVM Instruction No. 469, of May 2, 2008.

ON THE RESERVE OF PROFITS TO BE REALIZED AND ON DIVIDENDS AND BONUSES IN SHARES RECEIVED BY THE INVESTOR

Art. 17. For the purposes of constituting the reserve of profits to be realized, only the positive net result of the equity method on the set of investments, determined in accordance with items I and II, of Article 16, may be considered as profit to be realized.

Art. 18. Bonuses received without cost by the investor, whether by issuance of new shares or by increase in the nominal value of the shares, shall not be subject to accounting in the investment account in the affiliated and controlled company.

Sole Paragraph. As a consequence of the provision in the caput of this article, the corresponding portion that has been allocated to the reserve of profits to be realized, referred to in Article 17, shall be reversed to the account of accumulated profits or losses.

Art. 19. The portion reversed from the reserve of profits to be realized to the account of accumulated profits or losses, if not absorbed by losses, shall be considered in the calculation, separately, of the mandatory dividend in the period in which the reversal is made. The excess may be allocated to:

I - capital increase;

II - distribution of dividend; and

III - constitution of other profit reserves, including retention justified in accumulated profits, or absorption of the period's loss, subject to legal requirements.

ON THE EXPLANATORY NOTES

Art. 20. The explanatory notes accompanying the financial statements must contain precise information about the affiliated and controlled companies, indicating, at minimum:

I - name of the affiliated and controlled company, the number, species, and class of shares or capital quotas held by the investor, the percentage of participation in the share capital and voting capital, and the trading price on the stock exchange, if any;

II - net equity, net profit or loss of the period, as well as the amount of proposed or paid dividends, relating to the same period;

III - credits and obligations between the investor and the affiliated and controlled companies, specifying terms, financial charges, and guarantees;

IV - guarantees, sureties, bonds, mortgages, or pledges granted in favor of affiliated or controlled companies;

V - revenues and expenses in transactions between the investor and the affiliated and controlled companies;

VI - individualized amount of the adjustment, in the result and net equity, resulting from the evaluation of the book value of the investment by the equity method, as well as the book balance of each investment at the end of the period;

VII - calculation memory of the individualized amount of the adjustment, when this does not result solely from the application of the percentage of participation in the share capital on the results of the investee, if relevant;

VIII - basis and foundation adopted for the constitution and amortization of goodwill or discount and unamortized amounts, as well as criteria, discount rate, and terms used in the projection of results;

IX - conditions established in a shareholders' agreement regarding influence on administration and profit distribution, evidencing the numbers relating to cases where the proportion of voting power is different from the proportion of participation in the voting share capital, direct or indirect;

X - existing reciprocal participations; and

XI - effects on assets, liabilities, net equity, and result resulting from discontinued investments (Articles 6 and 7).

ON CONSOLIDATED FINANCIAL STATEMENTS

ON THE DUTY TO PREPARE AND DISCLOSE CONSOLIDATED FINANCIAL STATEMENTS

Art. 21. At the end of each fiscal year, consolidated financial statements must be prepared by:

I - an open company that has investment in controlled companies, including jointly controlled companies referred to in Article 32 of this Instruction; and

II - a holding company of a group of companies that includes an open company.

Art. 22. Consolidated financial statements comprise the consolidated balance sheet, the consolidated statement of the result of the period, and the consolidated statement of the sources and applications of resources, complemented by explanatory notes and other analytical tables necessary to clarify the consolidated financial situation and results.

EXCLUSION OF CONTROLLED ENTITIES FROM CONSOLIDATED FINANCIAL STATEMENTS

Art. 23. Controlled companies may be excluded from consolidated financial statements, without prior authorization from the CVM, if they meet the following conditions:

I - with effective and clear evidence of loss of continuity and whose assets are evaluated, or not, at liquidation values; or

II - whose sale by the investor, in the near future, has effective and clear evidence of realization duly formalized.

Paragraph 1. In special justified cases, controlled companies may also be excluded from consolidation, with prior authorization from the Securities and Exchange Commission (Comissão de Valores Mobiliários), if their inclusion, at the CVM's discretion, does not represent a relevant change in the consolidated economic unit or if it would distort that economic unit.

§1º The Securities and Exchange Commission may, in special cases and upon prior request, authorize the exclusion of one or more controlled companies from consolidated financial statements.

• Wording given by CVM Instruction No. 269, of December 1, 1997.

Paragraph 2. In the consolidated balance sheet, the book value of the investment in the controlled company excluded from consolidation shall be evaluated using the equity method.

Paragraph 3. The exclusion from consolidated financial statements of a controlled company whose operations are of a nature different from those of the investor or other controlled companies shall not be considered justified.

ON THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

Art. 24. For the preparation of consolidated financial statements, the investor shall observe, in addition to the provisions of Article 10, the following procedures:

I - exclude the balances of any asset and liability accounts arising from transactions between the companies included in the consolidation;

II - eliminate unrealized profit included in the result or equity of the controlling company and corresponding to inclusion in the balance sheet of the controlled company.

III - eliminate from the result the tax charges corresponding to the unrealized profit, presenting them as current/long-term receivables - deferred taxes, in the consolidated balance sheet.

Sole Paragraph. In the process of consolidating financial statements, no compensation of any assets or liabilities by deduction of other liabilities or assets may be made, unless there is a right of set-off and the set-off represents the expectation regarding the realization of the asset and the settlement of the liability.

Art. 25. The participation of non-controlling shareholders in the equity of controlled companies shall be highlighted in a separate group in the consolidated balance sheet, immediately before equity.

Art. 26. The amount corresponding to goodwill or discount arising from the acquisition/subscription of a controlled company, not excluded under item I of Article 24, shall:

I - when resulting from the difference provided for in paragraph 1 of Article 14, be disclosed as an addition or correction to the account used by the controlled company to record the specified asset; and

II - when resulting from the difference provided for in paragraph 2 of Article 14:

a) be disclosed in a highlighted item in non-current assets, when it represents goodwill; and

b) be disclosed in an appropriate account of results for future periods, when it represents a discount.

Art. 27. The portion corresponding to the loss provision constituted in the investor must be deducted from the balance of the controlled company's account that gave rise to the constitution of the provision, or presented as a payable liability, when it represents an expectation of conversion into payability.

Art. 28. For the preparation of the consolidated statement of the result of the period, the investor shall:

I - include the results of controlled companies acquired or sold during the fiscal year, based on the date of their respective registration or derecognition in their permanent investments; and

II - exclude all revenues and expenses arising from transactions between the investor and the controlled companies, as well as among them.

Art. 29. The participation of non-controlling shareholders in the net profit or loss of the period of controlled companies shall be highlighted and presented, respectively, as a deduction or addition to the consolidated net profit or loss.

Art. 30. The consolidated statement of the sources and applications of resources shall be prepared in a manner consistent with the content of this Instruction.

ON THE EXPLANATORY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Art. 31. The explanatory notes accompanying the consolidated financial statements must contain precise information about the controlled companies, indicating:

I - criteria adopted in consolidation and the reasons why the exclusion of a certain controlled company was carried out;

II - subsequent events to the closing date of the fiscal year that have, or may have, a relevant effect on the consolidated financial situation and future results;

III - effects, on the elements of consolidated equity and result, of the acquisition or sale of a controlled company during the fiscal year, as well as the insertion of a controlled company into the consolidation process, for the purpose of comparability of financial statements; and

IV - events that caused a difference between the amounts of equity and net profit or loss of the investor, in comparison with the corresponding amounts of consolidated equity and net profit or loss.

ON THE CONSOLIDATION OF FINANCIAL STATEMENTS OF JOINTLY CONTROLLED COMPANIES

Art. 32. The components of assets and liabilities, revenues and expenses of jointly controlled companies shall be aggregated to the consolidated financial statements of each investor, in proportion to their participation in their share capital.

Paragraph 1. A jointly controlled company is considered one in which no shareholder exercises, individually, the powers provided for in Article 3 of this Instruction.

Paragraph 2. In the case where one of the investor companies begins to exercise direct or indirect sole control over the jointly controlled company, the final controlling company shall begin to consolidate fully the elements of its equity.

Art. 33. In an explanatory note to the consolidated financial statements referred to in the previous article, the amount of the main groups of assets, liabilities, and results of jointly controlled companies shall also be disclosed, as well as the percentage of participation in each of them.

Art. 34. The provisions of Articles 23 to 31 apply to the preparation of consolidated financial statements of jointly controlled companies, insofar as they do not conflict with the norms provided for in Articles 32 and 33.

FINAL PROVISIONS

Art. 35. Consolidated financial statements and their explanatory notes shall be subject to examination and opinion by independent auditors.

Sole Paragraph. The audit referred to in the caput of this article shall include the examination of the financial statements of all controlled companies, open or closed, included in the consolidation, carried out by an auditor registered with this Commission.

Art. 36. Consolidated financial statements, as well as explanatory notes and analytical tables, referred to in this Instruction, form part, in each fiscal year, of the financial statements of the open controlling company or the holding company of a group of companies that includes an open company.

Art. 37. The open company affiliated with a group of companies must indicate, in an explanatory note to its financial statements, the body and, if possible, the date of publication of the consolidated financial statements of the holding company of the group of companies to which it is affiliated.

Art. 38. Initial adjustments, resulting from the changes introduced by this Instruction, shall be recorded as revenue or expense of equity method, in the non-operating result, with disclosure of the fact and the values involved in an explanatory note.

Paragraph 1. The provisions of the caput of this article also apply to investments that, by becoming relevant, begin to be evaluated by the equity method.

Paragraph 2. The provisions of this article shall not imply the restatement of individual or consolidated financial statements relating to the previous fiscal year.

Art. 39. Open companies shall keep in good order, for a period of 3 (three) years and by any adequate means, the custody of working papers and calculation memos related to the preparation of their consolidated financial statements.

Sole Paragraph. Non-compliance with the provisions of Articles 1, 21, 32, and 35 of this Instruction shall be considered a serious offense, for the purposes of Article 11 of Law No. 6.385, of December 7, 1976, entailing the application of penalties provided for in the relevant legislation.

Art. 40. All provisions regarding affiliated companies contained in this Instruction also apply to companies equated according to the definition contained in the sole paragraph of Article 2.

Art. 41. This Instruction enters into force on the date of its publication, applying to financial statements relating to fiscal years ending from December 1, 1996, when CVM Instructions No. 01, of April 27, 1978, No. 15, of November 3, 1980, No. 30, of January 17, 1984, Article 2 of CVM Instruction No. 170, of January 3, 1992, and other provisions to the contrary are revoked.

Sole Paragraph. Other CVM norms dealing with this matter are adapted to this Instruction.

Original signed by
FRANCISCO AUGUSTO DA COSTA E SILVA
President