São Paulo, March 25, 2013 - GOL Linhas Aéreas Inteligentes S.A. (BM&FBOVESPA: GOLL4 e NYSE: GOL), (S&P: B, Fitch: B+, Moody’s: B3), the largest low-cost and low-fare airline in Latin America, announces its results for the fourth quarter of 2012 (4Q12). All the information herein is presented in accordance with International Financial Reporting Standards (IFRS) and in Brazilian Reais (R$), and all comparisons are with the fourth quarter of 2011 (4Q11).

4Q12 HIGHLIGHTS

Message from Management

GOL’s 2012 financial results reflect the challenging scenario of the national aviation industry over the last two years due to the 18% annual increase in fuel prices, the 17% depreciation of the real against the dollar, the more than 30% increase in airport fees and exceptionally modest GDP growth.

As a consequence, GOL recorded an adjusted operating loss of R$708.9 million, with a negative operating margin of 8.7% and a net loss of R$1.5 billion. The increase in fuel expense of R$680 million represented about 95% of the adjusted operating loss.

GOL has adapted itself decisively in terms of domestic supply, reducing capacity by 5.4% in 2012, compared to an initial forecast of 2%. The main factors to determinate annual domestic supply were the slowdown in Brazilian GDP growth, the exchange rate and the increase in fuel prices. The Company will maintain this approach in 2013.  

Part of the results of this policy can be seen in GOL’s annual results, as we can see in the variation of the annual domestic load factor, which increased by 1.8 percentage points, contributing to the 3.6% upturn in annual revenue per available seat-kilometer (PRASK) in 2012. If we look at the numbers for the second half of the year only, when the strategy was more firmly applied, the domestic load factor grew by 4.0 percentage points and PRASK moved up by 6% over the same period in 2011.

The Company trimmed its workforce by around 15% in 2012 in order to adapt to the market’s new growth pattern, which was a fundamental factor in controlling costs. Even with a scenario of supply reduction and devaluation of the Real against the dollar, CASK excluding fuel costs and the period adjustments grew by only 4.3% over 2011, despite the 17% devaluation of the real, reduced supply and higher fares.

Due to decisions to strengthen liquidity contributed with GOL to survive the industry turbulence and ended the year with total cash (cash and cash equivalents, financial investments and short and long-term restricted cash) of around R$1.6 billion, equivalent to 20% of net revenue in the last twelve months.

Despite the adjustment in the workforce, GOL was the most reliable airline in the market, with an average annual punctuality ratio of 94%. Another highlight was the continuous increase in the use of remote check-in facilities (smartphones, internet and totems), which reached 50%, 12.0 percentage points higher than in December 2011.

In 2012, the Company also introduced more client options, exemplified by the special seats on the Rio-São Paulo shuttle, the new flights to Miami, Orlando and Santo Domingo and the expansion of on-board sales, which are currently present on 50% of flights. GOL also became more flexible in regard to authorization to anticipate flights at airports, an important convenience for business travelers.

Also in 2012, the Company achieved its goal of turning Smiles into an independent company (Smiles S.A.), ready for an IPO. At the same time, it launched several new products that further strengthened the program, including Smiles Shopping, the purchase of miles, the new redemption platform for flights with international partner airlines, exclusives flights, a new pricing dynamic, new partnerships, among others.

Smiles S.A. is awaiting approval from the CVM in order to proceed with the IPO and GOL believes that the separation of the business units will add more value to the group.

The Brazilian civil aviation industry also underwent significant changes in 2012 in terms of regulation and organization. The newly-created Brazilian Airline Association (ABEAR) helped get airlines included in the payroll tax exemption program and successfully lobbied for the cancelation of the increase in the navigation fee, which would have wiped out the gains from the exemption. ABEAR has already secured some important victories and continues to play an active role in discussions over the future development of civil aviation in Brazil.

The year’s most important trend was the rationalization of domestic seat supply, a crucial initiative for the construction of a more sustainable environment. As a result, in 4Q12 the national aviation industry reduced supply in months with high seasonality. In 2012 as a whole, the industry’s domestic supply edged up by only 2.7%, an exceptionally modest increase in comparison with previous years.

In order to achieve RASK growth of at least 10% and resume positive operating margins in 2013, GOL has announced a reduction in domestic supply of between 8% and 10% in the first half and around 7% for the year as a whole, both of which in 12-month terms. The Company remains focused on executing its domestic market supply rationalization strategy.

Future challenges will only be overcome with the help of our employees (the “Team of Eagles”), without whom our success story would not have been possible.

Paulo Sérgio Kakinoff

CEO of GOL Linhas Aéreas Inteligentes S.A.                                                                            

2012 was an important year for the development of Smiles. Today, the loyalty program is a subsidiary of GOL (Smiles S.A.), with an independent management team. The Company’s Board of Directors also approved the initiation of pre-IPO preparatory procedures and Smiles S.A. is currently awaiting approval of its registration as a publicly-held company by the Brazilian Securities and Exchange Commission (CVM).

Smiles closed the year with a series of important initiatives designed to popularize the loyalty program in Brazil:

	Smiles Shopping: an online platform for exchanging mileage points for products and services. The new platform provides clients with access to around 300,000 products and services options through several partners, in addition to traditional air tickets.
	Purchase of mileage points: an entirely new product in the Brazilian market, it offers yet another option to program members, who can now purchase miles to supplement their existing miles and exchange them for air tickets and/or other products and services from Smiles partners.
	New partners: Smiles formed another nationwide partnership with a large retail chain, Camisaria Colombo, and entered into an association with the Premmia Relationship Program of Petrobras Distribuidora S.A., Brazil’s largest gas station chain.
	Online redemption platform: this platform facilitates mileage redemption, including with international partners, and is undoubtedly an important step toward strengthening the program.
	Increased benefits: GOL announced a partnership between SMILES and Delta Airlines’ SkyMiles relationship program, which will provide clients with frequent exclusive benefits at airports and during flights. The benefits for SMILES Diamond clients include priority check-in and boarding on Delta flights, as well as access to the Delta Sky Clubs in Atlanta, New York (JFK) and Detroit. Similarly, Delta’s Diamond, Platinum and Gold Elite members can enjoy the same benefits as SMILES Diamond members on GOL flights and have access to VIP rooms in Guarulhos Airport in São Paulo and Galeão International Airport in Rio de Janeiro.

Aviation Market: Industry

   National Civil Aviation Agency (ANAC) figures

Domestic aviation industry supply fell by 5.1% over 4Q11, while demand increased by 5.3%, resulting in a 7.5 p.p. year-over-year upturn in the load factor. The 4Q12 traffic figures reflect the industry’s current trend of controlling domestic supply through the main airlines, in response to the new cost level, as well as the sluggish growth of Brazil’s economy.

The graph below shows the industry’s recent domestic supply addition trends due to the new level of growth in recent years. 

Aviation Market: GOL 

    *Pro-forma Webjet figures in 2011; National Civil Aviation Agency (ANAC) figures

Domestic Market

Supply on GOL’s domestic route network fell by 15.5% over 4Q11, chiefly due to the resize of the route network, as a consequence of the removal of Webjet´s aircraft from the operating fleet.

Domestic demand dropped by 9.1%, mainly due to the above-mentioned reduction in supply. As a result of this strategy, the domestic load factor increased by 5.0 p.p., from 65.7%, in 4Q11, to 70.7% in the 4Q12.

International Market

International supply  grew by 3.2% year-over-year, chiefly due to the new daily flights to Santo Domingo, Miami and Orlando, which began in December 2012.

International demand moved up by 1.6%, also due to the new international routes.

Load Factor

As a result of the above, the total load factor climbed by 4.4 p.p. to 69.7%, from 65.3% in 4Q11.

The graph* below shows new load factor growth trends following the adjustment to GOL’s domestic route network in March 2012.  

The following graph shows the increase in passenger revenue per available seat kilometer (PRASK) since GOL implemented its supply adjustment, in March 2012, owing to the gradual maximization of the load factor and increase in yield, both in year-over-year terms.

Main Operating Indicators

1.Excludes additional expenses in 4Q12 (for more details, see the “Operating Result” section).
2.Source: Central Bank
3.Bloomberg 
4.Expenses with fuel/ liters consumed

Income Statement in IFRS (R$ thousand)

As of 4Q12, the Company began reconciling EBIT and EBITDA as per CVM Instruction 527. In order to visualize the reconciliation see the “Operating Result” section. We also show the reconciliation of EBITDAR, given its importance as a specific aviation industry indicator.

Net Revenue (R$ million)

Net revenue came to R$2,119.5mn in 4Q12, 5.1% down on the R$2,233.5mn reported in 4Q11,  chiefly due to the 14.1% reduction in supply, due to the removal of Webjet´s aircrafts from the operating fleet in November 2012. RASK grew by 10.5% year-over-year, chiefly due to the domestic supply rationalization strategy  adopted by the Company as of the end of 1Q12.

 *Webjet’s figures as of October 3, 2011.

Nominal net passenger revenue totaled R$1,873.7mn, 6.2% down on the R$1,998.0mn recorded in 4Q11, due to the reduction of supply in the period. Net passenger revenue per ASK (PRASK) moved up by 9.2%, thanks to the efforts to maximize the load factor, which moved up by 4.4 p.p., combined with a 2.3% upturn in  yield. For the eleventh consecutive month since the adoption of this strategy, PRASK posted a month-on-month increase, according to the latest figures (February’s traffic release). In the second half of 2012, when the flight rationalization strategy adopted at the end of March was strengthening, PRASK increased by 6% over the same period in 2011, fueled by the 4.0 p.p. period upturn in the domestic load factor and the 0.6% increase in yield. Ancillary revenue totaled R$245.8mn, 4.4% up on the R$235.5mn reported in 4Q11 due to: (i) the upturn of around 30% in revenue from no show and ticket cancellations; (ii) the approximate 2.5% increase in cargo revenue, and (iii) the 145% upturn in revenue from on-board sales, which are now present on 50% of GOL’s flights. These increases were partially offset by the 14.1% period reduction in supply. Ancillary revenue per ASK grew by 21.5%.

 Operating Expenses

Operating expenses were R$2,477.1mn in 4Q12, 9.2% up on the R$2,267.4mn posted in 4Q11. Total CASK came to 20.05 cents (R$), 27.2% up year-over-year, while CASK ex-fuel climbed by 32.9% to 12.40 cents (R$).   In 4Q12, GOL incurred additional expenses of R$197mn from the winding up of Webjet’s operations, non-cash expenses regarding impairment of assets and expenses from logistics and the reallocation of passengers due to the discontinuation of Webjet’s activities. For more details see the Operating Result section of this report

Excluding these additional costs, total operating expenses remained flat over 4Q11, while total CASK increased by 17.1% to 18.46 cents (R$) and CASK ex-fuel moved up by 16.0%. to 10.90 cents (R$).

Aircraft fuel costs per ASK totaled 7.56 cents (R$), 18.7% up over 4Q11, chiefly due to the fact that jet fuel prices remained high throughout the quarter, 21% more than in the same period last year. This was partially offset by the period decline of around 16% in fuel consumption due to reduced supply. Fuel expenses accounted for around 38% of total consolidated expenses in 4Q12, versus 40% in 4Q11.

Salaries, wages and benefits per ASK came to 3.14 cents (R$), virtually flat in relation to 4Q11. The normalization in this line’s growth was due to the Company’s decision to resize its workforce to maintain its disciplined business plan. GOL closed the quarter with 17,676 employees, 14% down on the 20,525 recorded at the end of 4Q11. The workforce at the close of 2012 still included Webjet’s 850 employees, who were laid off and reinstated at a later date, due to a court order issued before the end of the year.

Aircraft rent per ASK stood at 1.35 cents (R$), 24.5% up on 4Q11, due to the 14% period depreciation of the real against the dollar, given that these expenses are dollar-pegged, combined with the lower cost dilution between the periods due to the 14.1% year-over-year decline in ASK. These expenses were partially offset by the lower number of aircraft under operational leasing contracts  (96 in 4Q12, versus 101 in 4Q11).

Sales and marketing expenses per ASK totaled 0.98 cents (R$) in 4Q12, 8.6% up on 4Q11, chiefly due to additional expenses  from GOL’s sales advertising campaign and expenses related to the purchase of miles from international partners (13.0% more than 2011), partially offset by the period decline in sales volume.

Landing fees per ASK came to 1.10 cents (R$), 40.0% up on 4Q11, due to the negative impact of the new fee calculation methodology introduced by Infraero (increase in landing and navigation assistance fees), together with the impact of the 14% average depreciation of the real against the dollar on costs related to the Company’s international operations.

Aircraft and traffic servicing expenses per ASK increased by 15.6% over 4Q11 to 1.13 cents (R$), chiefly due to the 14% average depreciation of the real against the dollar and additional expenses with legal consulting and advisory services related to the Smiles project. This result was partially offset by the 15.3% decrease in landings between the periods.

Maintenance, materials and repairs per ASK stood at 1.35 cents (R$), 43.8% up on 4Q11, chiefly due to the increase in the number of engine removals between the periods, combined with the 14% average depreciation of the real against the dollar, given that most maintenance expenses are dollar-pegged. These costs were partially offset by the reduced cost of engine overhauls due to the agreement between GOL and Delta Techops.

Depreciation and amortization per ASK increased by 38.1% over 4Q11 to 1.19 cents (R$), due to the upturn in the depreciation of estimated aircraft reconfiguration costs which will be incurred when the aircraft are returned, and costs from improvements related to major engine maintenance established in the contracts.

Other operating expenses per ASK moved up by 208% over 4Q11 to 2.24 cents (R$), chiefly due to the provisioning of R$140mn for the winding up of Webjet’s activities and non-cash expenses from the period revaluation of assets (for more details see the Operating Result section of this report). Both entries will result in economic benefits for the Company in 2013.

  Operating Result

The 4Q12 consolidated operating result (EBIT) was a negative R$357.6, with a negative operating margin of 16.9%, versus the negative R$33.9mn and negative margin of 1.5% recorded in 4Q11. Excluding the additional entries in the period, the 4Q12 adjusted operating loss came to a negative R$160.9mn with a negative margin of 7.6%.

Annual EBIT was a negative R$905.6mn, with a negative margin of 10.3%. Excluding the additional entries, the 2012 adjusted operating loss amounted to a negative R$708.9mn, with a negative margin of 8.7%, 95% of which, or R$680 million, due to the increase in the jet fuel price.

Despite the negative results, GOL reacted to this scenario and reduced domestic supply 5.4% in the year, aiming to adjust its structure to the new growth pattern. The first results from these measures were achieved in the second half of 2012. The domestic load factor grew by 4.4 p.p. and PRASK increased by 6%. In the final months, this indicator recorded double-digit year-over-year growth. GOL believes that this strategy will enable the recovery of operating margins in the short term.  

As of 4Q12, the Company began reconciling EBIT and EBITDA in accordance with CVM Instruction 527, where: EBIT = net loss (income) plus income and social contribution taxes and the net financial result; and EBITDA = net loss (income) plus income and social contribution taxes, the net financial result and depreciation and amortization.

We also show the reconciliation of EBITDAR, given its importance as a specific aviation industry indicator, where: EBITDAR = net loss (income) plus income and social contribution taxes, the net financial result, depreciation and amortization, and aircraft operational leasing expenses.

Also in accordance with Instruction 527, GOL opted to use ADJUSTED EBIT, EBITDA and EBITDAR in the belief that adjusting for provisions for the winding up of Webjet’s operations and impairment losses gives a better understanding of the Company’s operating result.

On December 31, 2012, the Company revalued the Varig brand under the new perspectives related to the economic benefits generated by its future use. As a result, the Company recognized provisions for impairment totaling R$56.8 million.

As announced to the market in a Material Fact dated November 23, 2012, the Company recognized provisions for additional expenses of R$140mn incurred by GOL and Webjet from the winding up of the latter’s operations. These entries refer to additional costs with personnel, the maintenance and devolution of aircraft, logistics and the reallocation of Webjet’s passengers.

*R$124 million of additional provisions (note 11 of the financial statements) and other additional expenses related to logistics and passenger re-accommodation due to the end of Webjet’s Operations.

**For more details on impairment adjustment, see note 18 to the financial statements.

Hedge Result

The Company makes use of hedge accounting to record some of its derivative instruments. In 4Q12, the Company recorded net income from hedge operations of R$14.8mn

*OCI (Other Comprehensive Income) or Statement of Comprehensive Income is a transitional account where positive and negative fair value adjustments of future operations are booked, designated for effective cash flow hedge. The purpose is to state income as close to the Company’s reality as possible. As the results from operations occur in their respective accrual periods, they are incorporated into the Company's income. GOL records the fair value of hedges due in future periods that aims to cash flow protection.

Of this total, R$9.9mn was recognized in the operating result and R$4.9mn in the financial result (for more details, see the Financial Result section).

Fuel: fuel consumption hedge transactions, which are effected through crude oil and its by-products (WTI, Brent and heating oil) generated gains of R$21.4mn in the quarter.

Foreign Exchange: foreign exchange hedge transactions designed to protect the Company’s cash flow generated losses of R$5.6mn, which were booked under the financial result.

Interest: swap transactions to protect cash flow from aircraft leasing against an increase in interest rates generated a net expense of R$1.0mn, which was booked under the financial result.

The table below shows the nominal value of derivatives contracted as a hedge against future expenses, the derivatives’ average contracted rate and the percentages of hedged fuel exposure on an accrual basis on December 31, 2012:

*Weighted average of derivative strike prices.

** On 12/31/2012, the exchange rate was R$2.0435 / US$1.00.

All the financial instruments used for hedging purposes this quarter consisted of Brent and WTI options, Libor interest rate swaps and dollar futures.  GOL focuses on simplified derivative structures, aiming to reduce its operating risks and ensure as much compliance as possible with the targets established in its annual budget.

Financial Result

The 4Q12 net financial result was an expense of R$128.0mn, 82.1% higher than the R$70.3mn expense recorded in 4Q11.

Interest expense totaled R$118.9mn, 7.9% down over 4Q11, chiefly due to the decline in the CDI interbank rate, which reduced interest on CDI-indexed debt, such as the 4th and 5th debenture issues. This expense was partially offset by period funding operations and by the 9% depreciation in the end-of-period US$/R$ exchange rate

The exchange variation generated an expense of R$18.1mn in 4Q12, 6.0% less than the R$19.3mn recorded in 4Q11, due to the reduced volatility of the exchange rate in 4Q12/3Q12 (+0.6%) versus 4Q11/3Q11 (+1.2%), given that most of the Company’s debt is foreign-currency-denominated (70% in 4Q12).

Financial revenue came to R$17.7mn in 4Q12, 56.3% down on the R$40.6mn posted in 4Q11, primarily due to the lower volume of cash invested in the period and the reduction in the benchmark interest rate (SELIC), given that most of the Company’s cash investments are pegged to the CDI.

Other financial expenses fell by 29.1% to R$13.5mn from R$19.0mn in 4Q11, mainly due to a 50% reduction in financial expenses from Webjet, a non-operating subsidiary of GOL since November 2012.

Income Tax

Income tax represented revenue of R$38.4mn in 4Q12, versus a gain of R$158.4mn in 4Q11. The difference was due to the reversal of tax loss carryforwards in VRG in 4Q11.

* Includes Webjet’s figures since October 3, 2011.

Net Income (Loss)

GOL posted a net loss of R$447.1mn in 4Q12, with a negative net margin of 21.1%, versus net income of R$54.3mn and a margin of 2.4% in 4Q11.

Balance Sheet: Liquidity

Cash, cash equivalents, financial investments and short and long-term restricted cash closed the quarter at R$1,585.1mn, 32.5% down on 4Q11, primarily due to the year-over-year decline in LTM cash generation and the period upturn in property, plant and equipment (CAPEX).

GOL maintained its strong cash position, with total cash representing around 20% of LTM revenue and 0.9x obligations due in the next 12 months (1.5x in 4Q11 and 3.1x in 3Q12). The reduction over the previous quarter was mainly due to the reclassification of the amounts related to the 4th and 5th debenture issues to the short term, as described below in the “Balance Sheet: Indebtedness” section. Excluding this reclassification due to the waiver in February 2013 (and in March 2012 for December 2011), this indicator stood at 2.5x and 5.1x in 4Q12 and 4Q11 respectively.   Short-term receivables consist mostly of ticket sales via credit card and accounts receivable from travel agencies and cargo transportation. At the end of 4Q12, these receivables totaled R$325.7mn, 8% less  than the R$354.1mn reported in 4Q11, essentially due to the period reduction in sales volume given the 14.1% reduction in seat supply.

Balance Sheet: Indebtedness

On December 31, 2012, the Company and its subsidiaries did not meet the minimum parameters established with Bradesco and Banco do Brasil for its 4th and 5th issue debentures. The Company therefore reclassified the long-term balance of these debentures to the short term in its financial statements, in order to comply with Brazilian and international accounting rules.

As already disclosed to the market, on February 1, 2013 the Annual Meeting of Debenture Holders resolved to grant a waiver in regard to non-compliance with the restrictive clauses, especially financial ratios and limits, contained in the indentures of the 4th and 5th debenture issues of VRG Linhas Aéreas S.A. (VRG), a Company subsidiary. Consequently,  the Company’s liquidity was unaffected by these obligations and the amounts related to these issues will once again be reclassified to the long term in the 1Q13 financial statements.

On December 31, 2012, the Company’s total loans and financings came to R$5,191.2mn, 4.0% up on 4Q11, chiefly due to: (i) the net effect of around R$100mn from period funding operations and the settlement of loans; and (ii) the 9% end-of-period depreciation of the real against the dollar (70% of debt is dollar-pegged). In relation to 3Q12, there was a decline of 1.3%, primarily due to the reduction of around R$40mn in period financing.

The current liquidity ratio (total cash plus receivables divided by current liabilities) stood at 0.4x in 4Q12 (versus 0.7x in 4Q11 and 0.6x in 3Q12). Excluding the reclassification of the debentures to the short term, this indicator came to 0.5x and 0.9x in 4Q12 and 4Q11, respectively. On December 31, 2012, the average maturity of the Company’s long-term debt, excluding the  perpetual bonds, was 6.5 years, with an average rate of 10.2% for local-currency debt and 6.7% for dollar-denominated debt.

The Company's total debt ended the quarter at R$5,191.2 million, compared to R$4,991.5 million in the 4Q11, an increase of only 4% against an increase of about 9% in the exchange rate of the period. If disregarded the exchange rate of the period, total debt would present a fall of 3%, whereas about 70% of the Company’s debt is denominated in foreign currency.

The Company closed the year with a leverage ratio (adjusted gross debt/EBITDAR) of 37.6x (21.3x excluding additional entries in 4Q12), versus 13.0x in 4Q11 and 17.7x in 3Q12. This indicator has moved up substantially in the last 12 months, mainly due to lower LTM EBITDAR generation, which came to R$1,535mn in 2010, R$656mn in 2011 and R$258mn in 2012 (R$455mn excluding additional costs of R$197mn in 4Q12). 

          * Includes additional entries of R$197mn in 4Q12

Financial Debt Amortization Schedule (R$mn)

The chart and table below show the amortization schedule of the Company’s loans and financings on December 31, 2012. The table considers amortizations of the amount related to the debentures in the short term due to non-compliance with the covenants (GOL obtained a waiver in February 2013, as described in the “Balance Sheet: Indebtedness” section). GOL remains committed to reducing its financial obligations over the next three years.

On February 7, 2013, the Company issued Senior Notes maturing in 2023, at 10.75% p.a. GOL intends to use the proceeds to pay debt due in the next three years and reinforce its working capital.

Main Financial Ratios

The table below shows the additional entries in 4Q12 totaling R$197mn, which had a negative impact on the EBITDAR ratios. Excluding these entries, the adjusted LTM gross and net debt/EBITDAR ratios came to 21.3x and 17.8x, respectively, in 4Q12.

*Financial commitments (gross debt + operational leasing contracts, in accordance with note 27 to the interim financial statements) less cash and cash equivalents and short-term investments; **Gross debt + LTM operational leasing expenses x 7; ***Adjusted gross debt less cash and cash equivalents, short-term financial investments and restricted cash. Certain variation calculations in this report may not match due to rounding.

Operational Fleet

The Company closed the quarter with an operational fleet of 125 Boeing 737-700 and 800 NG aircraft with an average age of 7.2 years, and a total fleet of 147 aircraft.