FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Report of Foreign Issuer

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934


For the month of August 2009

Commission File Number: 1-33659

COSAN LIMITED
(Translation of registrant’s name into English)

Av. Juscelino Kubitschek, 1726 – 6th floor
São Paulo, SP 04543-000 Brazil
(Address of principal executive offices)


Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F
X
  
Form 40-F
  

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes
    
No
X

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes
    
No
X

Indicate by check mark whether by furnishing the information contained in this Form, the Registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

Yes
    
No
X

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A


 
 
COSAN LIMITED

Item
    
1.
   Cosan Limited Condensed Consolidated Financial Statements for the three-month periods ended June 30, 2009 and July 31, 2008
2.
  
Cosan S.A. Indústria e Comércio Condensed Consolidated Financial Statements for the three-month periods ended June 30, 2009 and July 31, 2008
     
 
 

 
SIGNATURES

 
Pursuant to the requirements 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.
 

 
   
COSAN LIMITED
  
       
       
Date:
August 25, 2009
  
By:
/s/ Marcelo Eduardo Martins
  
       
Name:
Marcelo Eduardo Martins
  
       
Title:
Chief Financial and Investor Relations Officer
  
 

 
 

Item 1











Cosan Limited

Condensed Consolidated Financial Statements

For the three-month periods ended June 30, 2009 and July 31, 2008



 
 
COSAN LIMITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



CONTENTS


Report of independent registered public accounting firm
1
   
Condensed consolidated balance sheets
2
Condensed consolidated statements of operations
4
Condensed consolidated statements of shareholders’ equity and comprehensive income (loss)
5
Condensed consolidated statements of cash flows
6
Notes to the condensed consolidated financial statements
7









Report of independent registered public accounting firm

To the Board of Directors and Shareholders of
Cosan Limited
 
We have reviewed the condensed consolidated balance sheet of Cosan Limited and subsidiaries as of June 30, 2009, the related condensed consolidated statements of operations and cash flows for the three-month periods ended June 30, 2009 and July 31, 2008 and the condensed consolidated statement of shareholders’ equity and comprehensive income (loss) for the three-month period ended June 30, 2009. These financial statements are the responsibility of the Company's management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as whole. Accordingly, we do not express such an opinion.
 
Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Cosan Limited and subsidiaries as of March 31, 2009, and the related consolidated statements of operations, shareholders’ equity and cash flows for the eleven-month period then ended not presented herein and in our report dated June 19, 2009, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 2009, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

São Paulo, August 20, 2009

ERNST & YOUNG
Auditores Independentes S.S.
CRC 2SP015199/O-8



Luiz Carlos Nannini
Accountant CRC 1SP171638/O-7
 
 
1

 
COSAN LIMITED

Condensed consolidated balance sheets
June 30, 2009 and March 31, 2009
(In thousands of U.S. dollars, except share data)


   
(Unaudited)
June 30, 2009
    
March 31, 2009
  
Assets
            
Current assets:
            
Cash and cash equivalents
     676,260       508,784  
Restricted cash
     20,540       5,078  
Derivative financial instruments
     44,369       7,352  
Trade accounts receivable, less allowances: June 30, 2009 – $29,935; March 31, 2009 – $21,241
     300,080       258,863  
Inventories
     589,220       477,792  
Advances to suppliers
     200,813       88,991  
Taxes recoverable
     153,231       114,641  
Other current assets
     69,003       65,956  
      2,053,516       1,527,457  
                 
Property, plant, and equipment, net
     3,178,056       2,271,828  
Goodwill
     1,464,157       888,793  
Intangible assets, net
     240,460       230,741  
Accounts receivable from Federal Government
     167,267       139,700  
Judicial deposits
     90,743       73,975  
Other non-current assets
     400,929       288,608  
      5,541,612       3,893,645  
Total assets
     7,595,128       5,421,102  



2
 

   
(Unaudited)
June 30, 2009
    
March 31, 2009
  
Liabilities and shareholders’ equity
            
Current liabilities:
            
Trade accounts payable
     339,804       197,220  
Taxes payable
     92,939       69,042  
Salaries payable
     78,040       40,237  
Current portion of long-term debt
     582,896       781,664  
Derivative financial instruments
     50,653       28,894  
Other liabilities
     87,140       47,641  
      1,231,472       1,164,698  
Long-term liabilities:
                
Long-term debt
     2,249,140       1,251,095  
Estimated liability for legal proceedings and labor claims
     607,547       497,648  
Taxes payable
     184,651       151,476  
Deferred income taxes
     83,980       40,377  
Other long-term liabilities
     213,175       175,043  
      3,338,493       2,115,639  
                 
Shareholders’ equity:
                
Common shares class A1, $.01 par value. 1,000,000,000 shares authorized; 174,355,341  shares issued and outstanding
     1,743       1,743  
Common shares class B1, $.01 par value. 96,332,044 shares authorized, issued and outstanding
     963       963  
Common shares class B2, $.01 par value. 92,554,316 shares authorized
     -       -  
Additional paid-in capital
     1,964,722       1,926,733  
Accumulated other comprehensive loss
     (13,117 )     (243,607 )
Retained earnings (accumulated losses)
     33,026       (89,595 )
Equity attributable to shareholders of Cosan Ltd
     1,987,337       1,596,237  
Equity attributable to noncontrolling interests
     1,037,826       544,528  
Total shareholders’ equity
     3,025,163       2,140,765  
Total liabilities and shareholders’ equity
     7,595,128       5,421,102  


See accompanying notes to condensed consolidated financial statements.
 
 
3

COSAN LIMITED

Condensed consolidated statements of operations
Three-month periods ended June 30, 2009 and July 31, 2008
(In thousands of U.S. dollars, except share data)
(Unaudited)


   
June 30,
2009
    
July 31, 2008
  
Net sales
     1,720,270       394,022  
Cost of goods sold
     (1,561,430 )     (398,937 )
Gross profit (loss)
     158,840       (4,915 )
Selling expenses
     (102,072 )     (53,024 )
General and administrative expenses
     (7,903 )     (36,278 )
Operating income (loss)
     48,865       (94,217 )
Other income (expenses):
                
Financial income
     153,262       70,880  
Financial expenses
     62,472       (44,351 )
Other
     (7,927 )     (3,503 )
                 
Income (loss) before income taxes and equity in income (loss) of affiliates
     256,672       (71,191 )
Income taxes (expense) benefit
     (76,543 )     23,153  
                 
Income (loss) before equity in income of affiliates
     180,129       (48,038 )
Equity in income (loss) of affiliates
     (1,713 )     99  
                 
Net income (loss)
     178,416       (47,939 )
Less net loss (income) attributable to noncontrolling interests
     (55,795 )     18,623  
Net income (loss) attributable to Cosan Ltd
     122,621       (29,316 )
                 
Per-share amounts attributable to Cosan Ltd
                
Earnings (loss) from continuing operations
                
Basic and diluted
     0.50       (0.14 )
                 
Weighted number of shares outstanding
                
Basic and diluted
     246,868,311       207,637,788  


See accompanying notes to condensed consolidated financial statements.

4

COSAN LIMITED

Condensed consolidated statements of shareholders’ equity and comprehensive income
Three-month period ended June 30, 2009
(In thousands of U.S. dollars, except share data)
(Unaudited)

 
   
Common stock
                                
   
Common number of class A
shares
    
Common number of class B shares
    
Common amount of class A shares
    
Common amount of class B shares
    
Additional
paid-in capital
    
 
Retained earnings
    
Accumulated other comprehensive income
    
 
Noncontrolling interests
    
 
 
Total
  
Balances at March 31, 2009
     174,355,341       96,332,044       1,743       963       1,926,733       (89,595 )     (243,607 )     544,528       2,140,765  
                                                                         
Acquisition of Teaçu
     -       -       -       -       41,340       -       -       86,954       128,294  
Issuance of subsidiary shares to non controlling interest
     -       -       -       -       9,840       -       (1,735 )     246,123       254,228  
Acquisition of non-controlling interest in subsidiary
     -       -       -       -       (14,324 )     -       -       (9,273 )     (23,597 )
Stock compensation
     -       -       -       -       1,133       -       -       582       1,715  
Net income
     -       -       -       -       -       122,621       -       55,801       178,422  
Pension plan
     -       -       -       -       -       -       (28 )     (14 )     (42 )
Currency translation adjustment
     -       -       -       -       -       -       232,253       113,125       345,378  
Total comprehensive loss
                                                                     523,758  
                                                                         
Balances at June 30, 2009
     174,355,341       96,332,044       1,743       963       1,964,722       33,026       (13,117 )     1,037,826       3,025,163  


See accompanying notes to condensed consolidated financial statements.

5
 
COSAN LIMITED

Condensed consolidated statements of cash flows
Three-month period ended June 30, 2009 and July 31, 2008
(In thousands of U.S. dollars)
(Unaudited)

   
June 30,
2009
    
July 31,
2008
  
Cash flow from operating activities:
            
Net (loss) income attributable to Cosan Limited
     122,621       (29,316 )
Adjustments to reconcile net income to cash provided by operating activities:
                
Depreciation and amortization
     99,330       112,283  
Deferred income and social contribution taxes
     66,627       (31,575 )
Interest, monetary and exchange variation
     (136,329 )     (14,464 )
Net loss (income) attributable to noncontrolling interests
     55,795       (18,623 )
Others
     12,219       9,220  
Decrease/increase in operating assets and liabilities
                
Trade accounts receivable, net
     56,541       63,926  
Inventories
     88,423       (213,951 )
Advances to suppliers
     (38,804 )     (16,815 )
Taxes receivable
     5,326       5,225  
Trade accounts payable
     24,065       90,101  
Derivative financial instruments
     (16,246 )     11,340  
Taxes payable
     (29,270 )     (7,948 )
Other assets and liabilities, net
     27,669       10,975  
Net cash provided by (used in) operating activities
     337,967       (29,622 )
                 
Cash flows from investing activities:
                
Restricted cash
     (14,516 )     109  
Marketable securities
     -       (202,401 )
Cash received from sales of permanent assets
     60,325       -  
Acquisition of investment
     (2,050 )     -  
Acquisition of property, plant and equipment
     (226,994 )     (169,295 )
Acquisitions, net of cash acquired
     32,045       -  
Others
     -       808  
Net cash used in investing activities
     (151,190 )     (370,779 )
                 
Cash flows from financing activities:
                
Related parties
     (62,184 )     -  
Additions of long-term debts
     88,593       -  
Payments of long-term debts
     (69,222 )     (39,844 )
Net cash used in financing activities
     (42,813 )     (39,844 )
Effect of exchange rate changes on cash and cash equivalents
     23,512       458,126  
Net increase (decrease) in cash and cash equivalents
     167,476       17,881  
Cash and cash equivalents at beginning of year
     508,784       68,377  
Cash and cash equivalents at end of year
     676,260       86,258  
                 
Supplemental cash flow information
                
Cash paid during the year for:
                
Interest
     22,063       34,709  
Income tax
     18,287       -  


See accompanying notes to condensed consolidated financial statements.
 
 
6
 
COSAN LIMITED

Notes to the condensed consolidated financial statements
(In thousands of U.S. dollars, unless otherwise stated)

 
1.
Operations

Cosan Limited (“Cosan” and “the Company”) was incorporated in Bermuda as an exempted company on April 30, 2007. In connection with its incorporation, Cosan Limited issued 1,000 shares of common stock for US$10.00 to Mr. Rubens Ometto Silveira Mello, who indirectly controls Cosan S.A. Indústria e Comércio and its subsidiaries (“Cosan S.A.”).

The companies included in the consolidated financial statements have as their primary activity the production of ethanol and sugar, and the marketing and distribution of fuel and lubricants in Brazil. They are constantly pursuing opportunities to capitalize on the growing demand for ethanol and sugar in the world. They are focused on increasing production capacity through expansion of existing facilities, development of greenfield projects and, as opportunities present themselves, acquisitions.

Cosan S.A. was the predecessor to Cosan and was the primary operating business in the consolidated group prior to a reorganization in August, 2007. In contemplation of an initial public offering on August 1, 2007, Aguassanta Participações S.A. and Usina Costa Pinto S.A. Açúcar e Álcool, controlling shareholders of Cosan S.A. and both indirectly controlled by Mr. Rubens Ometto Silveira Mello, the controlling shareholder, contributed their common shares of Cosan S.A. to Cosan in exchange for 96,332,044 of our class B1 common shares. The common shares contributed to the Company by Aguassanta Participações S.A. and Usina Costa Pinto S.A. Açúcar e Álcool consisted of 96,332,044 common shares of Cosan, representing 51.0% of Cosan S.A. outstanding common shares. As a result of this reorganization Cosan Ltd. became the controlling shareholder of Cosan S.A.. The reorganization was accounted for as a reorganization of companies under common control in a manner similar to a pooling of interests.

On August 17, 2007, the Company concluded its global offering of 111,678,000 class A common shares which resulted in gross proceeds in the amount of US$1,171,027. As a result of the global offering, Cosan’s shares are traded on the New York Stock Exchange (NYSE) and on the São Paulo Stock Exchange (Bovespa) by BDR (Brazilian Depositary Receipts).

The costs directly attributable to the offering were charged against the gross proceeds of the offering in a total amount of US$52,594. Therefore the net proceeds related to the IPO totaled US$1,118,433.

7
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
 

1.
Operations (Continued)

On April 23, 2008, Cosan S.A. entered into an agreement with ExxonMobil International Holding B.V., or “Exxon”, for the acquisition of 100% of the outstanding shares of Esso Brasileira de Petróleo Ltda. and its subsidiaries (“Essobrás”), a distributor and seller of fuels and producer and seller of lubricants and specialty petroleum products of ExxonMobil in Brazil. On December 1, 2008 the Company completed the acquisition.  On January 16, 2009 the Company changed the corporate name of Essobrás to Cosan Combustíveis e Lubrificantes S.A. (“Cosan CL”).

On July 17, 2008, the Board Director’s approved the modification of the end of fiscal year from April 30 to March 31 of each year. Therefore the income statement and cash flow information presented in these financial statements lack comparison to the prior period represented by the three-month period ended July 31, 2008.

On August 28, 2008, Cosan S.A. announced the incorporation of a new affiliate named Radar Propriedades Agrícolas S.A. (“Radar”), which engages in farm real estate investments in Brazil by identifying and acquiring rural properties likely to experience an increase in value and acquiring them for later leasing and/or sale. The initial capital contribution was US$185,000, of which US$35,000 was invested by Cosan (18.92%) and US$150,000 by another shareholder (81.08%). Pursuant to a subscription agreement, the parties have committed to an additional capital contribution equal to the U.S. dollar equivalent of the Brazilian real amounts initially contributed, which will be undertaken when the initial capital contribution is approximately 50% invested.

On April 09, 2009, the Company entered into an agreement with Rezende Barbosa S.A. Administração e Participações (“Rezende Barbosa”) to acquire 100% of the outstanding shares of Teaçu Armazéns Gerais S.A. (“Teaçu”). Teaçu operates a port terminal concession in the city of Santos. See further discussion regarding this acquisition at Note 3.

On June 17, 2009, Cosanpar Participações S.A. (“Cosanpar”), a wholly-owned subsidiary of Cosan S.A. sold its equity interest in Jacta Participações S.A. (“Jacta”), a distributor of aviation fuel that was acquired in the Essobrás acquisition, to Shell Brasil Ltda. for US$59,234 cash. The results of operations of Jacta were recorded in the fuel distribution segment. The carrying value of the net assets sold was US$40,084, which resulted in a gain net of taxes of US$19,150.
 
8
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
 

1.
Operations (Continued)

On June 18, 2009, Cosan S.A. entered into an agreement with Rezende Barbosa to acquire 100% of the outstanding shares of Curupay S.A. Participações (“Curupay”).  The principal investment of Curupay was 100% of the outstanding shares of Nova América S.A. Agroenergia (“Nova América”). Nova América is a producer of sugar, ethanol and energy co-generation which also operates in trading and logistics. See further discussion regarding this acquisition at Note 3.


2.
Presentation of the consolidated financial statements

a.
Basis of reporting for interim financial statements

In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s results for the periods presented. Interim results for the three-month period ended June 30, 2009, are not necessarily indicative of the results that may be expected for the fiscal year.

The unaudited condensed consolidated financial statements include the accounts of Cosan Limited and its subsidiaries. All significant intercompany transactions have been eliminated.

These Financial Statements should be read in conjunction with Cosan Ltd`s annual financial statements for the fiscal year ended March 31, 2009.

The accounts of Cosan are maintained in U.S. Dollars and the accounts of its subsidiaries are maintained in Brazilian reais, which have been translated into U.S. dollars in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 52 “Foreign Currency Translation”.

The exchange rate of the Brazilian real (R$) to the US$ was R$1.9516=US$ 1.00 at June 30, 2009 and R$2.3152=US$1.00 at March 31, 2009.

In May 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 165, Subsequent Events, which established general accounting standards and disclosure for subsequent events. The Company adopted SFAS No. 165 during the quarter ended June 30, 2009. In accordance with SFAS No. 165, the Company has evaluated subsequent events through August 20, 2009, the date the financial statements were issued.

9
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

2.
Presentation of the consolidated financial statements (Continued)

b.
Use of estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates. These estimates and assumptions are reviewed and updated regularly to reflect recent experience.

c.
Recently issued accounting standards

Noncontrolling Interests

Effective April 1, 2009, the Company adopted SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51, which changed the accounting for and the reporting of an entity’s minority ownership.  Such minority ownership, previously referred to as minority interest, is now referred to as noncontrolling interests. The adoption of SFAS No. 160 resulted in the reclassification of amounts previously attributable to minority interest and classified in the mezzanine outside of shareholders’ equity, to a separate component of stockholders’ equity titled “Noncontrolling Interests” in the accompanying condensed consolidated balance sheets and statement of changes in equity. 

Additionally, net income and comprehensive income attributable to noncontrolling interests are shown separately from consolidated net income and comprehensive income in the accompanying condensed consolidated statements of operations and statements of changes in equity. Prior period financial statements have been reclassified to conform to the current year presentation as required by SFAS No. 160.
 
10
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

2.
Presentation of the consolidated financial statements (Continued)

c.
Recently issued accounting standards (Continued)

New Accounting Pronouncements

The following accounting standards have been issued, but as of June 30, 2009 are not yet effective for and have not been adopted by the Company:

SFAS No. 166, Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140 (“SFAS No. 166”)

In June 2009, the FASB issued SFAS No. 166, which removes the concept of a qualifying special-purpose entity (“QSPE”) from SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities-a replacement of FASB Statement No. 125. The QSPE concept had initially been established to facilitate off-balance sheet treatment for certain securitizations. SFAS No. 166 also removes the exception from applying FASB Interpretation (“FIN”) No. 46(R), Consolidation of Variable Interest Entities (“FIN No. 46(R)”), to QSPEs. SFAS No. 166 is effective for fiscal years beginning after November 15, 2009, or January 1, 2010 for Cosan. The Company does not believe the adoption of SFAS No. 166 will have a material impact on its financial statements.

SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS No. 167”)

In June 2009, the FASB issued SFAS No. 167, which amends FIN 46(R) to among other things, require an entity to qualitatively rather than quantitatively assess the determination of the primary beneficiary of a variable interest entity (“VIE”). This determination should be based on whether the entity has 1) the power to direct matters that most significantly impact the activities of the VIE and 2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Other key changes include: the requirement for an ongoing reconsideration of the primary beneficiary, the criteria for determining whether service provider or decision maker contracts are variable interests, the consideration of kick-out and removal rights in determining whether an entity is a VIE, the types of events that trigger the reassessment of whether an entity is a VIE and the expansion of the disclosures previously required under FASB Staff Position (“FSP”) FAS 140-4 and FIN 46(R), Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.  The Company does not believe the adoption of FAS No. 166 will have a material impact on its financial statements.
 
11
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
 

2.
Presentation of the consolidated financial statements (Continued)

c.
Recently issued accounting standards (Continued)

New Accounting Pronouncements (Continued)

SFAS No. 168, FASB Codification and the Hierarchy of GAAP (“SFAS No. 168”)

In June 2009, the FASB issued SFAS No. 168, which identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. GAAP. SFAS No. 168 replaces SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles, and establishes the FASB Accounting Standards Codification (“the Codification”) as the single source of authoritative guidance recognized by the FASB. Under the Codification, all guidance carries an equal level of authority. SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009, or the quarter ending September 30, 2009 for the Company.

3.
Acquisitions

a.
 Teaçu Armazéns Gerais S.A.

On April 9, 2009, Cosan S.A. Indústria e Comércio, through its 90% owned subsidiary, Copsapar Participações S.A., which owns 100% of Novo Rumo Logística S.A. (“Novo Rumo”), acquired 100% of the outstanding shares of Teaçu Armazéns Gerais S.A. (“Teaçu”) from Rezende Barbosa S.A. Administração e Participações (“Rezende Barbosa”) for $52,985 cash and issuance of 90,736,131 shares of Novo Rumo, equivalent to 28.82% of its share capital. Teaçu holds a port concession in the city of Santos and operates a terminal dedicated to exporting sugar and other agricultural products. This acquisition combines the Santos port operations previously held separately by Cosan S.A. and Teaçu.

As a result of this transaction, Cosan S.A. reduced its indirect share ownership in Novo Rumo to 64.06%.

The acquisition-date fair value of the consideration transferred totaled $150,501, which consisted of the following:

Cash
     52,985  
Common stock at estimated fair value
     97,516  
Total
     150,501  
 
 
12
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

3.
Acquisitions (Continued)

a.
Teaçu Armazéns Gerais S.A. (Continued)

The fair value of the 90,736,131 common shares issued was provisionally determined at the acquisition date and is being reviewed by our advisors in order to finalize the purchase price.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The company is in the process of obtaining third-party valuations of certain intangible assets; thus, the provisional measurements of intangible assets, goodwill and deferred income tax assets are subject to change.

Description
      
Property, plant and equipment
     40,224  
Inventories
     973  
Other assets
     29,012  
Long-term debt including current installments
     (18,780 )
Trade accounts payable
     (361 )
Estimated liability for legal proceedings and labor claims
     (976 )
Other liabilities
     (1,922 )
Net assets acquired
     48,170  
Provisional purchase price, net of cash acquired
     150,222  
Goodwill
     102,052  

The provisional goodwill of $102,052 arising from the acquisition, which will be substantially deductible for tax purposes, consists largely of the synergies and economies of scale expected from combining the port operations of Cosan S.A. and Teaçu.  The provisional goodwill was assigned to the sugar segment.

The amounts of Teaçu’s revenue and earnings included in Cosan S.A.’s consolidated income statement for the quarter ended July 31, 2008, and the revenue and earnings of the combined entity had the acquisition date been May 1, 2008, are:

   
Revenue
    
Earnings
  
Actual from April 9, 2009 – June 30, 2009 (*)
     8,217       1,713  
Supplemental pro forma from May 1, 2008 – July 31, 2008
     400,266       (30,768 )

(*) Revenues and earning represent the full quarter ended June 30, 2009.
 
 
13
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

3.
Acquisitions (Continued)

b.
Curupay S.A. Participações

On June 18, 2009, Cosan S.A. acquired 100% of the outstanding shares of Curupay S.A. Participações from Rezende Barbosa, through the issuance of 44,300,389 ordinary shares valued at $7.25 per share (market value at the acquisition date) and a total purchase price of US$321,087.  The assets acquired include the non-controlling interest in Novo Rumo representing 28.82% of its outstanding shares which were issued in the Teaçu acquisition, and 100% of the outstanding shares of two operating companies, Nova América S.A. Trading and Nova América S.A. Agroenergia (collectively referred to as “Nova América”). Nova América is a producer of sugar, ethanol and energy co-generation and also operates in trading and logistics.

With the acquisition of the noncontrolling interest of Novo Rumo, Cosan S.A. increased its share ownership in Novo Rumo to 92.88%. This transaction was a change in ownership interest without a loss of control and accounted for as a transaction in shareholders’ equity.

The following table summarizes the assets acquired and liabilities assumed in relation to Nova América.  These amounts are preliminary as third-party valuations of certain intangible assets, fixed assets and other assets and liabilities are currently in process.

Description
      
Property, plant and equipment
     370,651  
Noncontrolling interest in Novo Rumo
     62,476  
Inventories
     63,572  
Account receivables
     62,377  
Other assets
     251,267  
Long-term debt including current installments
     (606,118 )
Trade accounts payable
     (81,563 )
Related parties
     (16,591 )
Estimated liability for legal proceedings and labor claims
     (7,009 )
Taxes and contributions payable
     (28,821 )
Other liabilities
     (66,155 )
Net assets acquired
     4,086  
Purchase price, net of cash acquired
     294,605  
Goodwill
     290,519  

The provisional goodwill of $290,519 arising from the acquisition consists largely of the synergies and economies of scale expected from combining the ethanol and sugar operations of Cosan S.A. and Nova America.  US$207,285 of the provisional goodwill was assigned to the sugar segment and US$83,234 was assigned to the ethanol segment.
 
 
14
 
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

3.
Acquisitions (Continued)

b.
Curupay S.A. Participações (Continued)

The amounts of Nova America’s revenue and earnings included in Cosan S.A.’s consolidated income statement for the quarter ended July 31, 2008, and the revenue and earnings of the combined entity had the acquisition date been May 1, 2008, are:

   
Revenue
    
Earnings
  
Actual from June 18, 2009 – June 30, 2009
     42,256       845  
Supplemental pro forma from April 1, 2009 – June 30, 2009
     1,813,213       117,418  
Supplemental pro forma from May 1, 2008 – July 31, 2008
     570,531       (41,022 )

 
 
15
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

4.
Derivative financial instruments

Cosan enters into derivative financial instruments with various counterparties and uses derivatives to manage the overall exposures related to sugar price variations in the international market, interest rate and exchange rate variation. The instruments are commodity futures contracts, forward currency agreements, interest rate and foreign exchange swap contracts, and option contracts. Cosan recognizes all derivatives on the balance sheet at fair value.

The following table summarizes the notional value of derivative financial instruments as well as the related amounts recorded in balance sheet accounts:

   
Notional amounts
    
Carrying value asset (liability)
  
   
June 30, 2009
    
March 31, 2009
    
June 30, 2009
    
March 31, 2009
  
Commodities derivatives
                        
   Future contracts:
                        
      Purchase Commitments
     20,612       61       1,984       (4 )
      Sell commitments
     132,578       182,943       (14,247 )     4,163  
      Swap agreements
     5,968       -       602       -  
                                 
   Options:
                                
      Purchased
     133,936       -       14,826       -  
      Written
     253,506       64,366       (35,100 )     (2,906 )
                                 
Foreign exchange derivatives
                                
   Forward contracts:
                                
      Purchase commitments
     50,328       -       164       -  
      Sale commitments
     725,318       184,653       2,319       (23,035 )
      Swap agreements
     292,427       246,501       (1,306 )     (2,949 )
                                 
Future contracts:
                                
      Sale commitments
     121,444       372,230       7,888       3,189  
                                 
Options
                                
      Purchased
     275,735       -       16,586       -  
                                 
Total assets
                     44,369       7,352  
Total liabilities
                     (50,653 )     (28,894 )

When quoted market prices were not available, fair values were based on estimates using discounted cash flows or other valuation techniques.

16
 
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

5.
Inventories

   
June 30, 2009
    
March 31, 2009
  
Finished goods:
            
Sugar
     139,308       47,195  
Ethanol
     76,129       86,809  
Lubricants
     35,385       38,852  
Fuel (Gasoline, Diesel and Ethanol)
     79,636       74,582  
Others
     3,351       6,674  
      333,809       254,112  
 Annual maintenance cost of growing crops
     170,718       167,576  
Others
     84,693       56,104  
      589,220       477,792  


6.
Long-term debt

Long-term debt is summarized as follows:

 
 
 
Index
  
Average annual interest rate
    
June 30,
2009
    
March 31, 2009
  
Resolution No. 2471 (PESA)
IGP-M
     3.95 %     255,246       215,572  
 
Corn price
     12.50 %     66       59  
Senior notes due 2009
US Dollar
     9.0 %     36,422       37,386  
Senior notes due 2017
US Dollar
     7.0 %     411,589       405,389  
IFC
US Dollar
     7.44 %     50,637       49,362  
Perpetual notes
US Dollar
     8.25 %     455,303       456,463  
BNDES
TJLP
     2.61 %     184,521       99,561  
Floating rate notes
Libor
     2.8 %     151,130       151,207  
Promissory notes
DI
     3.00 %     613,941       501,888  
Note export credit
DI
     3.90 %     175,869       -  
Debentures
DI
     3.30 %     80,841       -  
Credit Notes
DI
     5.60 %     111,092       -  
Pre-payments
US Dollar
     2.00 %     62,171       -  
Others
Various
  
Various
       239,208       115,872  
                2,828,036       2,032,759  
Current liability
               (582,896 )     (781,664 )
Long-term debt
               2,249,140       1,251,095  
 
 
17

 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
 
 
 
6.
Long-term debt (Continued)

Long-term debt has the following scheduled maturities:

2011
     839,558  
2012
     73,334  
2013
     54,798  
2014
     23,339  
2015
     24,313  
2016
     18,938  
2017
     418,434  
2018 and thereafter
     796,426  
      2,249,140  

Resolution No. 2471 - Special Agricultural Financing Program (Programa Especial de Saneamento de Ativos), or PESA

To extend the repayment period of debts incurred by Brazilian agricultural producers, the Brazilian government passed Law 9.138 followed by Central Bank Resolution 2,471, which, together, formed the PESA program.  PESA offered certain agricultural producers with certain types of debt the opportunity to acquire Brazilian treasury bills (“CTNs”) in an effort to restructure their agricultural debt. The face value of the Brazilian treasury bills was the equivalent of the value of the restructured debt and was for a term of 20 years.

The acquisition price was calculated by the present value, discounted at a rate of 12% per year or at the equivalent of 10.4% of its face value. The CTNs were deposited as a guarantee with a financial institution and cannot be renegotiated until the outstanding balance is paid in full. The outstanding balance associated with the principal is adjusted in accordance with the IGP-M until the expiration of the restructuring term, which is also 20 years, at which point the debt will be discharged in exchange for the CTNs. Because the CTNs will have the same face value as the outstanding balance at the end of the term, it will not be necessary to incur additional debt to pay PESA debt.

On July 31, 2003, the Central Bank issued Resolution 3,114, authorizing the reduction of up to five percentage points of PESA related interest rates, effectively lowering the above-mentioned rates to 3%, 4% and 5%, respectively. The CTNs held by Cosan S.A. as of June 30, 2009 and March 31, 2009 amounted to US$91,717 and US$113,877, respectively, and are classified as Other non-current assets.

18
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

 
6.
Long-term debt (Continued)

Senior notes due 2017

On January 26, 2007, Cosan Finance Limited, an indirect subsidiary of the Company, issued US$400,000 of senior notes in the international capital markets. These senior notes, listed on the Luxembourg Stock Exchange, mature in November 2017 and bear interest at a rate of 7% per annum, payable semi-annually. The senior notes are guaranteed by Cosan S.A., and its subsidiary, Usina da Barra.

Perpetual notes

On January 24 and February 10, 2006, Cosan S.A. issued perpetual notes which are listed on the Luxembourg Stock Exchange - EURO MTF. These notes bear interest at a rate of 8.25% per year, payable quarterly on May 15, August 15, November 15 and February 15 of each year, beginning May 15, 2006.

These notes may, at the discretion of Cosan, be redeemed on any interest payment date subsequent to February 15, 2011. The notes are guaranteed by Cosan S.A. and by Usina da Barra.

Promissory Notes

On November 17, 2008, the Company issued one series of 44 registered promissory notes for US$613,941. The notes which are due in one year, will bear interest, due at maturity, at the average rates of DI - Interbank Deposits plus 3%.

On June 25, 2009 the Company signed a Stand-by Facility, which extended the maturity date from November 12, 2009 to November 12, 2010. Management intends to pay US$161,150 before November 12, 2009.  Therefore, the remaining balance of US$452,791 was reclassified to long term debt as management intends to utilize the stand by facility to settle this remaining balance on a long-term basis.

The notes are secured by a guarantee from Mr. Rubens Ometto Silveira Mello (Controlling Shareholder) and collateralized by a chattel mortgage to be established for the units of interest issued by Cosan CL which are or may be held by the Company.

 
19
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

6.
Long-term debt (Continued)

Covenants

Cosan and its subsidiaries are subject to certain restrictive covenants related to their indebtedness, including the following: limitation on transactions with shareholders and affiliated companies; limitation on payment of dividends and other payments affecting subsidiaries; and limitation on guarantees granted on assets.

Also, the Company and its subsidiaries are subject to other financial restrictive covenants, as follows:

- net debt/EBTIDA ratio must be less than 3.5 to 1;
- current asset/current liability ratio equal or higher than 1.3; and
- long-term indebtedness/shareholders´ equity ratio must be lower than 1.3.

At June 30, 2009, Cosan was in compliance with all debt covenants.


7.
Related parties

   
June 30, 2009
    
March 31, 2009
  
Cosan Combustíveis e Lubrificantes S.A.
     -       -  
Nova América S.A. - Agroenergia
     -       13,123  
Rezende Barbosa S.A. Administração e Participações
     82,255       -  
Vertical UK LLP
     7,668       11,597  
Others
     7,068       -  
      96,991       24,720  
Current (*)
     (18,508 )     (24,720 )
Noncurrent (*)
     78,483       -  
(*) included in other current and noncurrent assets or liabilities captions.
 
 
20
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

7.
Related parties (Continued)

   
Consolidated
  
   
04/01/09 a 06/30/09
    
05/01/08a 07/31/08
  
Transactions involving assets
            
Remittance of financial resources, net of receipts, credit assignments and advances
     (38,781 )     (25,308 )
Sale of finished goods, materials and services (1)
     146,986       44,843  
Purchase of finished goods, materials and services (1)
     (146,986 )     (44,843 )
Sale of finished goods, materials and services to related parties
     35,386       18,747  
Addition by incorporation
     71,061       -  
Financial income
     -       -  
      67,666       (6,561 )

(1)
Consists of operations carried out between Cosan’s direct and indirect subsidiaries included in the consolidation.

The purchase and sale transactions are carried out at prices and under conditions similar to those existing in the market.

The receivable from Rezende Barbosa S.A. Administração e Participações is related to credits assumed by Rezende Barbosa, in connection with the acquisition of Nova América and intercompany loans at the interest rate equivalent to 100% of CDI.
 
The amount receivable from the affiliate Vertical UK LLP, located in British Virgin Islands, refers to ethanol trading, whith average maturity date of 30 days.
During the quarter Cosan S.A. executed lease contracts with Radar to formalize land leases that were already in existence, with an average lease term of 19 years. Total lease expense in the quarter was US$1,984.


8.
Estimated liability for legal proceedings and labor claims and commitments

   
June 30, 2009
    
March 31, 2009
  
Tax contingencies
     527,337       430,342  
Civil and labor contingencies
     80,210       67,306  
      607,547       497,648  
 

 
21
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

8.
Estimated liability for legal proceedings and labor claims and commitments (Continued)

Cosan and its subsidiaries are parties in various ongoing labor claims, civil and tax proceedings in Brazil arising in the normal course of its business. Respective provisions for contingencies were recorded considering those cases in which the likelihood of loss has been rated as probable. Management believes resolution of these disputes will have no effect significantly different than the estimated amounts accrued.

Judicial deposits recorded by Cosan under other non-current assets, in the balance sheets, amounting to US$90,743 at June 30, 2009 (US$73,975 at March 31, 2009) have been made for certain of these suits. Judicial deposits are restricted assets of Cosan placed on deposit with the court and held in judicial escrow pending legal resolution of the related legal proceedings. Judicial deposits include US$66,601 related to exposures of Cosan CL prior to its acquisition by Cosan. If the Company prevails in the defense of these exposures, these related judicial deposits must be refunded to the seller.

The major tax contingencies as of June 30, 2009 and March 31, 2009 are described as follows:

   
June 30 2009
    
March 31, 2009
  
Credit premium – IPI
     139,988       116,256  
PIS and Cofins
     75,053       62,556  
IPI credits
     48,067       40,049  
Contribution to IAA
     43,894       36,672  
IPI – Federal VAT
     28,348       23,626  
ICMS credits
     24,508       19,966  
Compensation with Finsocial
     85,171       70,693  
Other
     82,308       60,524  
      527,337       430,342  

On May 27, 2009, the paragraph 1st and 3rd of Law No 9718/98 that regulated the collection of PIS and Cofins (federal tax contributions) on exchange variation and other financial income was revoked by Law No 11941/09. The Company is evaluating its ongoing judicial demands related to the legal obligations not paid related to the increase in the calculation basis of PIS and Cofins. Once the absence of errors or flaws in the ongoing demands is confirmed, the Company will revaluate the maintenance of the provision for the respective legal obligations in its financial statements.

22
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

8.
Estimated liability for legal proceedings and labor claims and commitments (Continued)

In addition to the aforementioned claims, Cosan and its subsidiaries are involved in other contingent liabilities relating to tax, civil and labor claims and environmental matters, which have not been recorded, considering their current stage and the likelihood of favorable outcomes. These claims are broken down as follows:

   
June 30, 2009
    
March 31, 2009
  
IPI Premium Credit (RP 67/98)
     81,524       68,039  
Withholding Income Tax
     83,521       69,730  
ICMS – State VAT
     92,065       77,052  
IAA - Sugar and Ethanol Institute
     37,692       31,610  
IPI - Federal Value-added tax
     71,724       32,683  
INSS
     1,076       795  
PIS and COFINS
     29,094       15,529  
Civil and labor
     119,600       94,599  
Other
     58,642       34,851  
      574,938       424,888  

The subsidiary Usina da Barra has several indemnification suits filed against the Federal Government. The suits relate to product prices that did not conform to the reality of the market, which were mandatorily established at the time the sector was under the Government‘s control.

In connection with one of these suits, a final and unappealable decision in the amount of US$149,121 was rendered in September 2006 in favor of Usina de Barra. This has been recorded as a gain in the statement of operations. Since the recorded amount is substantially composed of interest and monetary restatement, it was recorded in Financial income and in a non-current receivable on the balance sheet. In connection with the settlement process, the form of payment is being determined.

The Company is expecting to finalize the payment terms within three years which will result in the amount being received over a ten year period. The amount is subject to interest and inflation adjustment by an official index. Lawyers fees in the amount of US$18,783 relating to this suit have been recorded in General and administrative expenses in 2007 and remain unpaid at June 30, 2009.

At June 30, 2009, these amounts totaled US$167,267 and US$20,072 (US$139,700 and US$16,764 at March 31, 2009), corresponding to related suit and lawyers’ fees, respectively.
 
 
23
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

 
9.
Income taxes

Cosan Ltd. is incorporated in Bermuda which has no income taxes.  The following relates to Brazilian income taxes of Cosan S.A. and its subsidiaries.

Cosan S.A. and its subsidiaries file income tax returns in the Brazilian federal jurisdiction. These subsidiaries are no longer subject to Brazilian federal income tax examinations by tax authorities for years before December 31, 2003. Additionally, Cosan S.A. has not been under a Brazilian Internal Revenue Service (IRS) income tax examination for 2003 through 2008.

Cosan accounts for unrecognized tax benefits in accordance with FASB Interpretation No. 48 Accounting for Uncertainly in Income Taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits in the estimated liability for legal proceedings,and labor claims, is as follows:

Balance at March 31, 2009
     53,995  
Accrued interest on unrecognized tax benefit
     952  
Effect of foreign currency translation
     10,060  
Balance at June 30, 2009 (*)
     65,007  
(*) Recorded as taxes payable (non-current)

It is possible that the amount of unrecognized tax benefits will change in the next twelve months, however, an estimate of the range of the possible change cannot be made at this time due to the long time to reach a settlement agreement or decision with the taxing authorities.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.

10.
Shareholders’ equity

a.
Capital

As of June 30, 2009, Cosan Limited’s share capital consists of:

 
Shareholder
  
Class A shares
and/or BDRs
    
%
    
Class B shares
    
%
  
Queluz Holding Limited
     11,111,111       6.37       66,321,766       68.85  
Usina Costa Pinto S.A. Açúcar e Álcool
     -       -       30,010,278       31.15  
Aguassanta Participaçơes S.A.
     5,000,000       2.87       -       -  
Gávea Funds
     33,333,333       19.12       -       -  
Others
     124,910,897       71.64       -       -  
Total
     174,355,341       100.00       96,332,044       100.00  
 
 
24

 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
 

10.
Shareholders’ equity (Continued)

As a result of the acquisition of Curupay through the issuance of 44,300,389 new common shares by Cosan S.A. (note 3), the Company recorded changes in ownership interest. The purpose of the following schedule is to disclose the effects of changes in Cosan Ltd.’s ownership interest in its subsidiary on Cosan S.A.’s equity

   
Three- months period ended
  
   
June 30,
    
July, 31
  
   
2009
    
2008
  
Net income (loss) attributable to Cosan Ltd.
     122,621       (29,316 )
Transfers to the noncontrolling interest:
                
Increase in Cosan Ltd’s additional paid-in capital for sale of 44,300,389 Cosan S.A. common shares
     9,840       -  
Net transfers to noncontrolling interest
     9,840       -  
                 
Change from net income attributable to Cosan Ltd and transfers to noncontrolling interest
     132,461       (29,316 )


11.
Deferred gain on sale of investments in subsidiaries

Agrícola Ponte Alta S.A. is a subsidiary whose principal assets are land used for the growing of sugarcane for Cosan S.A. On December 15, 2008, the shareholders approved a partial spin-off of the assets of Ponte Alta and created four new subsidiaries.  Agricultural land was then transferred from Ponte Alta to each of the entities. On December 30, 2008, two of the entities, Nova Agrícola Ponte Alta S.A. and Terras da Ponte Alta S.A. were sold to Radar, an affiliate company accounted for by the equity method. The selling price was fair value, US$123,596, which resulted in a gain of US$47,080. This gain has previously been deferred since there were no lease contracts executed for the land, which was being used by Cosan S.A. for a monthly fee.  During the current period the lease contracts were executed, and the gain is being amortized to profit and loss over the 19 year average term of the leases.

During the three-month period ended June 30, 2009, the Company has amortized a gain of US$812 related to this sale-leaseback transaction.
 
 
25
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

12.
Share-based compensation

In the ordinary and extraordinary general meeting held on August 30, 2005, the guidelines for the outlining and structuring of a stock option plan for Cosan S.A. officers and employees were approved, thus authorizing the issue of up to 5% of shares comprising Cosan S.A.’s share capital. This stock option plan was outlined to attract and retain services rendered by officers and key employees, offering them the opportunity to become shareholders of Cosan S.A. On September 22, 2005, Cosan S.A.’s board of directors approved the distribution of stock options corresponding to 4,302,780 common shares to be issued or purchased by Cosan S.A. related to 3.25% of the share capital at the time, authorized by the annual/extraordinary meeting. The remaining 1.75% remains to be distributed. On September 22, 2005, the officers and key employees were informed regarding the key terms and conditions of the share-based compensation arrangement.

According to the market value on the date of issuance, the exercise price is US$2.64 (two dollars and sixty four cents) per share which does not include any discount. The exercise price was calculated before the valuation mentioned above based on an expected private equity deal which did not occur. Options may be exercised after a one-year vesting period starting November 18, 2005, at the maximum percentage of 25% per year of the total stock options offered by Cosan S.A. The options for each 25% have a five-year period to be exercised.

On September 11, 2007, the board of directors approved an additional distribution of stock options, in connection with the stock option plan mentioned above, corresponding to 450,000 common shares to be issued or purchased by Cosan S.A.
related to 0.24% of the share capital at September 22, 2005. The remaining 1.51% may still be distributed.

The exercise of options may be settled only through issuance of new common shares or treasury shares.

The employees that leave Cosan S.A. before the vesting period will forfeit 100% of their rights. However, if the employment is terminated by Cosan S.A. without cause, the employees will have right to exercise 100% of their options of that particular year plus the right to exercise 50% of the options of the following year.

26
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

12.
Share-based compensation (Continued)

The fair value of share-based awards was estimated using a binominal model with the following assumptions:

   
Options granted on September 22, 2005
    
Options granted on September 11, 2007
  
Grant price - in U.S. dollars
     3.13       3.13  
Expected life (in years)
     7.5       7.5  
Interest rate
     14.52 %     9.34 %
Volatility
     34.00 %     46.45 %
Dividend yield
     1.25 %     1.47 %
Weighted-average fair value at grant date - in U.S. dollars
     6.32       9.32  

As of June 30, 2009, the amount of US$3,330 related to the unrecognized compensation cost related to stock options is expected to be recognized in 15 months. Cosan S.A. currently has 343,139 common shares in treasury.

As of June 30, 2009 there were 1,470,832 options outstanding with a weighted-average exercise price of US$3.13.

27
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

 
13.
Fair value measurements

Effective May 1, 2008, Cosan adopted SFAS 157, Fair Value Measurements, for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis. SFAS 157 establishes a new framework for measuring fair value and expands related disclosures. Broadly, the SFAS 157 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. SFAS 157 establishes market or observable inputs as the preferred source of values, followed by assumptions based on hypothetical transactions in the absence of market inputs.

The valuation techniques required by SFAS 157 are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 - Quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 - Significant inputs to the valuation model are unobservable.

The following section describes the valuation methodologies Cosan uses to measure different financial instruments at fair value.

Marketable securities

When quoted market prices are unobservable, we use other relevant information including market interest rate curves. These investments are included in Level 2 and primarily comprise fixed-income securities, which are debt securities issued by highly rated financial institutions indexed in reais with Inter Deposit Rates (CDI).

28
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
 

13.
Fair value measurements (Continued)

Derivatives

Cosan uses closing prices for derivatives included in Level 1, which are traded either on exchanges or liquid over-the-counter markets.

The remainder of the derivatives portfolio is valued using internal models, most of which are primarily based on market observable inputs including interest rate curves and both forward and spot prices for currencies and commodities. Derivative assets and liabilities included in Level 2 primarily represent interest rate swaps, foreign currency swaps and commodity forward contracts.

The following table presents our assets and liabilities measured at fair value on a recurring basis at June 30, 2009.

   
Level 1
    
Level 2
    
Total
  
Assets
                  
Derivatives
     14,826       29,543       44,369  
Total
     14,826       29,543       44,369  
                         
Liabilities
                        
Derivatives
     35,100       15,553       50,653  
Total
     35,100       15,553       50,653  


14.
Segment information

a.
Segment information

The following information about segments is based upon information used by Cosan’s senior management to assess the performance of operating segments and decide on the allocation of resources. Cosan’s reportable segments are business units in Brazil that target different industry segments. Each reportable segment is managed separately because of the need to specifically address customer needs in these different industries. Cosan has four segments: sugar, ethanol, fuel distribution and others group. The operations of these segments are based solely in Brazil.
 
 
29
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

14.
Segment information (Continued)

a.
Segment information (Continued)

The sugar segment mainly operates and produces a broad variety of sugar products, including raw (also known as very high polarization - VHP sugar), organic, crystal and refined sugars, and sells these products to a wide range of customers in Brazil and abroad. Cosan exports the majority of the sugar produced through international commodity trading companies. Cosan’s domestic customers include wholesale distributors, food manufacturers and retail supermarkets, through which it sells its “Da Barra” branded products.

The ethanol segment substantially produces and sells fuel ethanol, both hydrous and anhydrous (which has a lower water content than hydrous ethanol) and industrial ethanol. Cosan’s principal ethanol product is fuel ethanol, which is used both as an automotive fuel and as an additive in gasoline, and is mainly sold in the domestic market by fuel distribution companies. Consumption of hydrous ethanol in Brazil is increasing as a result of the introduction of flex fuel vehicles that can run on either gasoline or ethanol (or a combination of both) to the Brazilian market in 2003. In addition, Cosan sells liquid and gel ethanol products used mainly in the production of paint and cosmetics and alcoholic beverages for industrial clients in various sectors.

With the acquisition of Cosan CL a new fuel distribution segment has been created. The fuel distribution segment is engaged in the distribution in Brazil of oil products, ethanol, lubricants and aviation fuel as well as the operation of convenience stores. The network to which the fuel distribution segment distributes such products is comprised of more than 1,500 service stations.

The accounting policies underlying the financial information provided for the segments are based on Brazilian GAAP as Cosan is the operating subsidiary of Cosan S.A.. We evaluate segment performance based on information generated from the statutory accounting records.

Others segment is comprised by selling cogeneration of electricity, diesel and corporate activities.

No asset information is provided by reportable segment due to the fact that the majority of the assets used in production of sugar and ethanol are the same.
 
 
30
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

 
14.
Segment information (Continued)

a.
Segment information (Continued)

Measurement of segment profit or loss and segment assets

Cosan S.A. evaluates performance and allocates resources based on return on capital and profitable growth. The primary measurement used by management to measure the financial performance of Cosan S.A. is adjusted EBIT (earnings before interest and taxes excluding special items such as impairment and restructuring, integration costs, one-time gains or losses on sales of assets, acquisition, and other items similar in nature). The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.

   
June 30,
2009
    
July 31,
2008
  
Net sales — Brazilian GAAP
            
Sugar
     313,887       216,973  
Ethanol
     220,260       148,884  
Fuel distribution
     1,137,569       -  
Others
     47,716       27,941  
Total
     1,719,432       393,798  
                 
Reconciling items to U.S. GAAP
                
Sugar
     1,026       224  
Fuel distribution
     (188 )     -  
Total
     838       224  
Total net sales
     1,720,270       394,022  
 

 
31
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

 
14.
Segment information (Continued)

a.
Segment information (Continued)

Measurement of segment profit or loss and segment assets (Continued)

   
June 30,
2009
    
July 31,
2008
  
Segment operating income (loss) - Brazilian GAAP
            
Sugar
     (1,631 )     (59,413 )
Ethanol
     (1,201 )     (40,768 )
Fuel distribution
     36,516       -  
Others
     (265 )     (7,651 )
Operating income (loss) — Brazilian GAAP
     33,419       (107,832 )
                 
Reconciling items to U.S. GAAP
                
 Depreciation and amortization expenses
                
    Sugar
     (10,242 )     5,580  
    Ethanol
     (7,541 )     3,828  
    Fuel distribution
     (998 )     -  
    Others
     (1,664 )     718  
      (20,445 )     10,126  
                 
Other adjustments
                
    Sugar
     (4,917 )     2,023  
    Ethanol
     (3,619 )     1,235  
    Fuel distribution
     45,226       -  
    Others
     (799 )     231  
Total sugar
     (16,790 )     (51,810 )
Total ethanol
     (12,361 )     (35,705 )
Fuel distribution
     80,744       -  
Total others
     (2,728 )     (6,702 )
Operating income (loss) — U.S. GAAP
     48,865       (94,217 )

 
 
32

 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
 
 
14.
Segment information (Continued)

b.
Sales by principal customers

Sugar

The following table sets forth the amount of sugar that we sold to our principal customers during the three-month period ended June 30, 2009 and July 31, 2008 as a percentage of either domestic or international sales of sugar:

Market
  
 
Customer
  
June 30,
2009
  
July 31,
2008
International
  
Sucres et Denrées
  
33%
    
13%
  
   
Cargill International S.A.
  
13%
    
-
 
   
Coimex Trading Ltd
  
8%
    
4%
 
   
Ceval International Limited
  
6%
    
-
  
   
Fluxo - Cane Overseas Ltd
  
5%
    
34%
  
   
Tate & Lyle International
  
5%
    
9%
  

Ethanol

The following table sets forth the amount of ethanol that we sold to our principal customers during the three-month period ended June 30, 2009 and July 31, 2008 as a percentage of either domestic or international sales of ethanol:

Market
  
 
Customer
  
June 30,
2009
  
July 31,
2008
International
  
Kolmar Petrochemicals
  
9%
    
-
  
   
Morgan Stanley Capital Group Inc.
  
8%
    
9%
 
   
Vertical UK LLP
  
7%
    
10%
 
   
Sekab Biofuels & Chemicals
  
3%
    
3%
  
   
Vitol Inc.
  
-
    
5%
  
   
Bauche Energy S.A.
  
-
    
2%
  
       
 
   
 
 
         
 
  
 
 
Domestic
  
Shell Brasil Ltda.
  
18%
 
  
21%
 
   
Petrobrás Distribuidora S.A.
  
13%
 
  
8%
 
   
Euro Petróleo do Brasil Ltda.
  
8%
 
  
13%
 
   
Cia Brasileira de Petróleo Ipiranga
  
7%
 
  
4%
  
   
Alesat Combustíveis S.A.
  
5%
    
4%
  

The following table sets forth the amount of fuel distribution that we sold to our principal customers during the three-month period ended June 30, 2009 as a percentage of either domestic or international sales of fuel distribution:
 
 
33
 
 
COSAN LIMITED

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)

14.
Segment information (Continued)

b.
Sales by principal customers (Continued)

Fuel distribution

Market
  
 
Customer
  
June 30,
2009
  
July 31,
2008
Domestic
  
Tam Linhas Aéreas S.A.
  
2.2%
  
-
   
All – América Latina Logística Malha Sul S.A.
  
2.0%
  
-
   
Mime Distribuidora de Petróleo Ltda.
  
1.6%
  
-
   
Auto Posto Túlio Ltda.
  
1.2%
  
-
   
Posto Iccar Ltda.
  
0.6%
  
-


15.
Subsequent events

Capital increase at Cosan S.A.

In the meeting of the Board of Directors of Cosan S.A. held on July 15, 2009, the shareholders unanimously approved a capital increase by R$708 through the issuance of 224,819 new registered uncertificated common shares with no par value, in connection with the “Company’s Stock Option Plan” and with the exercise of such option by the eligible executives, at the issuance price of R$3.15 by share, set on the terms of the stock option plan. In connection with the issuance of the new shares, the Cosan S.A.’s capital comprised 372,810,092 registered uncertificated common shares with no par value.

Senior Notes due in 2014

On August 4, 2009 the subsidiary CCL Finance Limited issued Senior Notes in the foreign market in accordance with “Regulations S and 144A” for US$350,000, which are subject to interest of 9.5% p.a. The notes are guaranteed by Cosan CL.

 
 
34
 
 
Item 2






Cosan S.A. Indústria e Comércio

Condensed Consolidated Financial Statements

For the three-month periods ended June 30, 2009 and July 31, 2008


 
 

 
COSAN S.A. INDÚSTRIA E COMÉRCIO

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


 
CONTENTS

 
Report of independent registered public accounting firm
1
   
Condensed consolidated balance sheets
2
Condensed consolidated statements of operations
4
Condensed consolidated statements of shareholders’ equity and comprehensive income (loss)
5
Condensed consolidated statements of cash flows
6
Notes to the condensed consolidated financial statements
7



 


Report of independent registered public accounting firm

To the Board of Directors and Shareholders of
Cosan S.A. Indústria e Comércio

We have reviewed the condensed consolidated balance sheet of Cosan S.A. Indústria e Comércio and subsidiaries as of June 30, 2008, the related condensed consolidated statements of operations and cash flows for the three-month periods ended June 30, 2009 and July 31, 2008 and the condensed consolidated statement of shareholders’ equity and comprehensive income (loss) for the three-month period ended June 30, 2009. These financial statements are the responsibility of the Company's management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Cosan S.A. Indústria e Comércio and subsidiaries as of March 31, 2009, and the related consolidated statements of operations, shareholders’ equity and cash flows for the eleven-month period then ended not presented herein and in our report dated June 19, 2009, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 2009, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

São Paulo, August 20, 2009

ERNST & YOUNG
Auditores Independentes S.S.
CRC 2SP015199/O-8
 

Luiz Carlos Nannini
Accountant CRC 1SP171638/O-7
 
 
 
1

 
COSAN S.A. INDÚSTRIA E COMÉRCIO

Condensed consolidated balance sheets
June 30, 2009 and March 31, 2009
(In thousands of U.S. dollars, except share data)


   
(Unaudited)
June 30,
    
March 31,
  
   
2009
    
2009
  
Assets
            
Current assets:
            
Cash and cash equivalents
     478,028       310,710  
Restricted cash
     20,540       5,078  
Derivative financial instruments
     44,369       7,352  
Trade accounts receivable, less allowances: June 30, 2009 – $29,935; march 31, 2009 – $21,241
     300,080       258,863  
Inventories
     589,221       477,793  
Advances to suppliers
     200,813       88,991  
Recoverable taxes
     153,231       114,641  
Other current assets
     69,003       62,145  
      1,855,285       1,325,573  
                 
Property, plant, and equipment, net
     3,022,421       2,114,188  
Goodwill
     1,379,628       803,270  
Intangible assets, net
     238,673       228,950  
Accounts receivable from federal government
     167,267       139,700  
Judicial deposits
     90,743       73,975  
Other non-current assets
     385,655       277,028  
      5,284,388       3,637,111  
                 
                 
Total assets
     7,139,673       4,962,684  
 

2


   
(Unaudited)
June 30,
    
March 31,
  
   
2009
    
2009
  
Liabilities and shareholders’ equity
            
Current liabilities:
            
   Trade accounts payable
     339,594       197,009  
   Taxes payable
     93,191       69,273  
   Salaries payable
     78,040       40,237  
   Current portion of long-term debt
     581,199       630,260  
   Derivative financial instruments
     50,653       28,894  
   Other liabilities
     87,412       47,946  
      1,230,089       1,013,619  
                 
Long-term liabilities:
                
Long-term debt
     2,095,704       1,246,994  
Estimated liability for legal proceedings and labor claims
     607,547       497,648  
Taxes payable
     182,731       149,621  
Due to Cosan Limited
     175,000       175,000  
Deferred income taxes
     83,980       40,377  
Other long-term liabilities
     154,985       116,429  
      3,299,947       2,226,069  
                 
Shareholders’ equity
                
Cosan shareholders’ equity:
                
   Common stock, no par value. Authorized 372,585,273 shares; issued and outstanding 372,585,273 in June 30, 2009 and 328,284,884 shares in March 31, 2009
     2,115,294       1,945,741  
   Common stock warrants
     25,273       25,273  
   Additional paid-in capital
     352,890       167,610  
   Accumulated other comprehensive income (loss)
     59,082       (280,888 )
   Treasury stock
     (1,979 )     (1,979 )
   Retained earnings (losses)
     38,915       (146,099 )
Equity attributable to shareholders of Cosan
     2,589,475       1,709,658  
Equity attributable to noncontrolling interests
     20,162       13,338  
Total shareholders’ equity
     2,609,637       1,722,996  
Total liabilities and shareholders' equity
     7,139,673       4,962,684  


See accompanying notes to condensed consolidated financial statements.
 
 
3

 
COSAN S.A. INDÚSTRIA E COMÉRCIO

Condensed consolidated statements of operations
Three-month period ended June 30, 2009 and July 31, 2008
(In thousands of U.S. dollars, except share data)
(Unaudited)

   
June 30,
    
July 31,
  
   
2009
    
2008
  
Net sales
     1,720,270       394,022  
Cost of goods sold
     (1,560,626 )     (397,637 )
Gross profit (loss)
     159,644       (3,615 )
Selling expenses
     (102,072 )     (53,024 )
General and administrative expenses
     (7,660 )     (36,172 )
Operating income (loss)
     49,912       (92,811 )
Other income (expenses):
                
Financial income
     151,409       67,707  
Financial expenses
     66,133       (44,311 )
Other
     (7,921 )     (3,503 )
Income (loss) before income taxes and equity in income (loss) of affiliates
     259,533       (72,918 )
Income taxes benefit (expense)
     (76,543 )     23,153  
Income (loss) before equity in income (loss) of affiliates
     182,990       (49,765 )
Equity income (loss) of affiliates
     (1,713 )     99  
                 
Net (loss) income
     181,277       (49,666 )
Less net loss attributable to noncontrolling interests
     3,737       235  
Net income (loss) attributable to Cosan
     185,014       (49,431 )
                 
Per-share amounts attributable to Cosan
                
Net Income (loss)
                
Basic
     0.58       (0.20 )
Diluted
     0.57       *  
                 
Weighted number of shares outstanding
                
Basic
     313,845,887       243,707,386  
Diluted **
     315,396,031       243,707,386  

* Antidilutive
** Adjusted for the effect of dilutive stock options

See accompanying notes to condensed consolidated financial statements.
 

 
4

COSAN S.A. INDÚSTRIA E COMÉRCIO

Condensed consolidated statements of shareholders’ equity and comprehensive income (loss)
Three-month period ended June 30, 2009
(In thousands of U.S. dollars, except share data)
(Unaudited)


                                 
Retained
    
Accumulated
              
   
Common stock
    
Treasury stock
    
Common stock
    
Additional
    
earnings
    
other
    
Non
    
Total
  
                           
warrants
    
paid-in
    
(accumulated
    
comprehensive
    
controlling
    
shareholders
  
   
shares
    
amount
    
shares
    
amount
    
number
    
amount
    
capital
    
loss)
    
income (loss)
    
interest
    
equity
  
Balances at March 31, 2009
     328,284,884       1,945,741       343,139       (1,979 )     55,000,000       25,273       167,610       (146,099 )     (280,888 )     13,338       1,722,996  
                                                                                         
Acquisition of Teaçu
     -       -       -       -       -       -       60,009       -       -       68,285       128,294  
Issuance of common shares in business combination
     44,300,389       169,553       -       -       -       -       123,557       -       -       (62,476 )     230,634  
Share based compensation
     -       -       -       -       -       -       1,714       -       -       -       1,715  
Pension plan
     -       -       -       -       -       -       -       -       (42 )     -       (42 )
Net income
     -       -       -       -       -       -       -       185,014       -       (3,737 )     181,277  
Currency translation adjustment
     -       -       -       -       -       -       -       -       340,011       4,752       344,763  
Total comprehensive income
                                                                                     526,040  
                                                                                         
Balances at June 30, 2009
     372,585,273       2,115,294       343,139       (1,979 )     55,000,000       25,273       352,890       38,915       59,082       20,162       2,609,637  


See accompanying notes to condensed consolidated financial statements.
 
 
 
5

 
COSAN S.A. INDÚSTRIA E COMÉRCIO

Condensed consolidated statements of cash flows
Three-month period ended June 30, 2009 and July 31, 2008
(In thousands of U.S. dollars)
(Unaudited)
 
   
June 30,
    
July 31,
  
   
2009
    
2008
  
Cash flow from operating activities
            
Net (loss) income for the year attributable to Cosan
     185,014       (49,431 )
Adjustments to reconcile net income to cash provided by operating activities:
                
Depreciation and amortization
     100,134       110,235  
Deferred income and social contribution taxes
     65,989       (31,575 )
Interest, monetary and exchange variation
     (136,300 )     (14,763 )
Others
     (31,095 )     9,770  
                 
Decrease/increase in operating assets and liabilities
                
Trade accounts receivable, net
     56,541       63,926  
Inventories
     88,423       (213,951 )
Advances to suppliers
     (38,804 )     (16,815 )
Taxes recoverable
     5,326       5,225  
Trade accounts payable
     24,065       89,763  
Derivative financial instruments
     (16,246 )     11,340  
Taxes payable
     (29,270 )     (7,948 )
Other assets and liabilities, net
     24,784       10,975  
Net cash provided by (used in) operating activities
     298,561       (33,249 )
                 
Cash flows from investing activities:
                
Restricted cash
     (14,516 )     109  
Marketable securities
     -       256,342  
Cash received from sales of noncurrent assets
     60,325       -  
Acquisition of investment
     (2,050 )     -  
Acquisition of property, plant and equipment
     (226,994 )     (169,295 )
Acquisitions, net of cash acquired
     32,045       808  
Net cash provided by (used in) investing activities
     (151,190 )     87,964  
                 
Cash flows from financing activities:
                
Related parties
     (62,184 )     -  
Additions of long-term debts
     88,593       -  
Payments of long-term debts
     (65,510 )     (39,844 )
Net cash provided by financing activities
     (39,101 )     (39,844 )
Effect of exchange rate changes on cash and
                
cash equivalents
     59,048       3,877  
Net increase (decrease) in cash and cash equivalents
     167,318       18,748  
Cash and cash equivalents at beginning of period
     310,710       38,832  
Cash and cash equivalents at end of period
     478,028       57,580  
                 
Supplemental cash flow information
                
Cash paid during the year for:
                
Interest
     22,063       34,709  
Income taxes
     18,287       -  


See accompanying notes to condensed consolidated financial statements.
 
 
6
 
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)
 
1.
Operations

Cosan S.A. Indústria e Comércio and subsidiaries (“Cosan” or “the Company”) is incorporated under the laws of the Federative Republic of Brazil. Cosan shares are traded on the São Paulo Stock Exchange (Bovespa).

Cosan Limited, a company incorporated in Bermuda, is the controlling shareholder of Cosan holding a 60.7% interest therein as of June 30, 2009 (69% as of March 31, 2009). The change in interest was related to the issuance of shares for the acquisition of Curupay S.A. Participações (Note 3). The class “A” common shares of Cosan Limited are traded in the New York Stock Exchange (NYSE) and Bovespa.

The companies included in the consolidated financial statements have as their primary activity the production of ethanol and sugar, and the marketing and distribution of fuel and lubricants in Brazil.

On April 23, 2008, the Company entered into an agreement with ExxonMobil International Holding B.V., or “Exxon”, for the acquisition of 100% of the outstanding shares of Esso Brasileira de Petróleo Ltda. and its subsidiaries (“Essobrás”), a distributor and seller of fuels and producer and seller of lubricants and specialty petroleum products of ExxonMobil in Brazil. On December 1, 2008 the Company completed the acquisition. On January 16, 2009 the Company changed the corporate name of Essobrás to Cosan Combustíveis e Lubrificantes S.A. (“Cosan CL”).

On August 29, 2008 the Company held an Annual and Special General Shareholders Meeting and unanimously approved the modification of the end of its fiscal year from April 30 to March 31 of each year. Therefore the income statement and cash flow information presented in these financial statements lack comparison to the prior period represented by the three-month period ended July 31, 2008.

On August 28, 2008, the Company announced the incorporation of a new affiliate named Radar Propriedades Agrícolas S.A. (“Radar”), which engages in farm real estate investments in Brazil by identifying and acquiring rural properties likely to experience an increase in value and acquiring them for later leasing and/or sale. The initial capital contribution was US$185,000, of which US$35,000 was invested by Cosan (18.92%) and US$150,000 by another shareholder (81.08%). Pursuant to a subscription agreement, the parties have committed to an additional capital contribution equal to the U.S. dollar equivalent of the Brazilian real amounts initially contributed, which will be undertaken when the initial capital contribution is approximately 50% invested.
 
 
7
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

1.
Operations (Continued)

On April 09, 2009, the Company entered into an agreement with Rezende Barbosa S.A. Administração e Participações (“Rezende Barbosa”) to acquire 100% of the outstanding shares of Teaçu Armazéns Gerais S.A. (“Teaçu”). Teaçu operates a port terminal concession in the city of Santos. See further discussion regarding this acquisition at Note 3.

 On June 17, 2009, Cosanpar Participações S.A. (“Cosanpar”), a wholly-owned subsidiary of Cosan sold its equity interest in Jacta Participações S.A. (“Jacta”), a distributor of aviation fuel that was acquired in the Essobrás acquisition, to Shell Brasil Ltda. for US$59,234 cash. The results of operations of Jacta were recorded in the fuel distribution segment. The carrying value of the net assets sold was US$40,084, which resulted in a gain net of taxes of US$19,150.

On June 18, 2009, the Company entered into an agreement with Rezende Barbosa to acquire 100% of the outstanding shares of Curupay S.A. Participações (“Curupay”).  The principal investment of Curupay was 100% of the outstanding shares of Nova América S.A. Agroenergia (“Nova América”). Nova América is a producer of sugar, ethanol and energy co-generation which also operates in trading and logistics. See further discussion regarding this acquisition at Note 3.


2.
Presentation of the consolidated financial statements

a.
Basis of reporting for interim financial statements

In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s results for the periods presented. Interim results for the three-month period ended June 30, 2009, are not necessarily indicative of the results that may be expected for the fiscal year.

The unaudited condensed consolidated financial statements include the accounts of Cosan and its subsidiaries. All significant intercompany transactions have been eliminated.

These financial statements should be read in conjunction with Cosan`s annual financial statements for the fiscal year ended March 31, 2009.

 
8
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

2.
Presentation of the consolidated financial statements (Continued)

a.
Basis of reporting for interim financial statements (Continued)

The accounts of Cosan and its subsidiaries are maintained in Brazilian reais, which is the functional currency.  The accounts have been translated into U.S. dollars in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 52.

The exchange rate of the Brazilian real (R$) to the US$ was R$1.9516=US$ 1.00 at June 30, 2009 and R$2.3152=US$1.00 at March 31, 2009.

In May 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 165, Subsequent Events, which established general accounting standards and disclosure for subsequent events. The Company adopted SFAS No. 165 during the quarter ended June 30, 2009. In accordance with SFAS No. 165, the Company has evaluated subsequent events through August 20, 2009, the date the financial statements were issued on.
b.
Use of estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates. These estimates and assumptions are reviewed and updated regularly to reflect recent experience.
c.
Recently issued accounting standards

Noncontrolling Interests

Effective April 1, 2009, the Company adopted SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51, which changed the accounting for and the reporting of an entity’s minority ownership.  Such minority ownership, previously referred to as minority interest, is now referred to as noncontrolling interests. The adoption of SFAS No. 160 resulted in the reclassification of amounts previously attributable to minority interest and classified in the mezzanine outside of shareholders’ equity, to a separate component of stockholders’ equity titled “Noncontrolling Interests” in the accompanying condensed consolidated balance sheets and statement of changes in equity. 
 

 
9
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)
 
2.
Presentation of the consolidated financial statements (Continued)

c.
Recently issued accounting standards (Continued)

Noncontrolling Interests (Continued)

Additionally, net income and comprehensive income attributable to noncontrolling interests are shown separately from consolidated net income and comprehensive income in the accompanying condensed consolidated statements of operations and statements of changes in equity. Prior period financial statements have been reclassified to conform to the current year presentation as required by SFAS No. 160.

New Accounting Pronouncements

The following accounting standards have been issued, but as of June 30, 2009 are not yet effective and have not been adopted by the Company.

SFAS No. 166, Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140 (“SFAS No. 166”)

In June 2009, the FASB issued SFAS No. 166, which removes the concept of a qualifying special-purpose entity (“QSPE”) from SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities-a replacement of FASB Statement No. 125. The QSPE concept had initially been established to facilitate off-balance sheet treatment for certain securitizations. SFAS No. 166 also removes the exception from applying FASB Interpretation (“FIN”) No. 46(R), Consolidation of Variable Interest Entities (“FIN No. 46(R)”), to QSPEs. SFAS No. 166 is effective for fiscal years beginning after November 15, 2009, or January 1, 2010 for Cosan. The Company does not believe the adoption of SFAS No. 166 will have a material impact on its financial statements.

 
10
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

2.
Presentation of the consolidated financial statements (Continued)

c.
Recently issued accounting standards (Continued)

New Accounting Pronouncements (Continued)

SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS No. 167”)

In June 2009, the FASB issued SFAS No. 167, which amends FIN 46(R) to among other things, require an entity to qualitatively rather than quantitatively assess the determination of the primary beneficiary of a variable interest entity (“VIE”). This determination should be based on whether the entity has 1) the power to direct matters that most significantly impact the activities of the VIE and 2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Other key changes include: the requirement for an ongoing reconsideration of the primary beneficiary, the criteria for determining whether service provider or decision maker contracts are variable interests, the consideration of kick-out and removal rights in determining whether an entity is a VIE, the types of events that trigger the reassessment of whether an entity is a VIE and the expansion of the disclosures previously required under FASB Staff Position (“FSP”) SFAS 140-4 and FIN 46(R), Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.  The Company does not believe the adoption of SFAS No. 166 will have a material impact on its financial statements.

SFAS No. 168, FASB Codification and the Hierarchy of GAAP (“SFAS No. 168”)

In June 2009, the FASB issued SFAS No. 168, which identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. GAAP. SFAS No. 168 replaces SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles, and establishes the FASB Accounting Standards Codification (“the Codification”) as the single source of authoritative guidance recognized by the FASB. Under the Codification, all guidance carries an equal level of authority. SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009, or the quarter ending September 30, 2009 for Cosan.
 
 
 
11
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

3.
Acquisitions

a. Teaçu Armazéns Gerais S.A.

On April 9, 2009, Cosan S.A. Indústria e Comércio, through its 90% owned subsidiary, Copsapar Participações S.A., which owns 100% of Novo Rumo Logística S.A. (“Novo Rumo”), acquired 100% of the outstanding shares of Teaçu Armazéns Gerais S.A. (“Teaçu”) from Rezende Barbosa S.A. Administração e Participações (“Rezende Barbosa”) for $52,985 cash and issuance of 90,736,131 shares of Novo Rumo, equivalent to 28.82% of its share capital. Teaçu holds a port concession in the city of Santos and operates a terminal dedicated to exporting sugar and other agricultural products. This acquisition combines the Santos port operations previously held separately by Cosan S.A. and Teaçu.

As a result of this transaction, Cosan S.A. reduced its indirect share ownership in Novo Rumo to 64.06%.

The acquisition-date fair value of the consideration transferred totaled $150,501, which consisted of the following:

Cash
     52,985  
Common stock at estimated fair value
     97,516  
Total
     150,501  

The fair value of the 90,736,131 common shares issued was provisionally determined at the acquisition date and is being reviewed by our advisors in order to finalize the purchase price.
 

 
12
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

3.
Acquisitions (Continued)

a. Teaçu Armazéns Gerais S.A. (Continued)

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The company is in the process of obtaining third-party valuations of certain intangible assets and fixed assets; thus, the provisional measurements of intangible assets, goodwill and deferred income tax assets are subject to change.

Description
      
Property, plant and equipment
     40,224  
Inventories
     973  
Other assets
     29,012  
Long-term debt including current installments
     (18,780 )
Trade accounts payable
     (361 )
Estimated liability for legal proceedings and labor claims
     (976 )
Other liabilities
     (1,922 )
Net assets acquired
     48,170  
Provisional purchase price, net of cash acquired
     150,222  
Goodwill
     102,052  

The provisional goodwill of $102,052 arising from the acquisition, which will be substantially deductible for tax purposes, consists largely of the synergies and economies of scale expected from combining the port operations of Cosan S.A. and Teaçu.  The provisional goodwill was assigned to the sugar segment.

The amounts of Teaçu’s revenue and earnings included in Cosan S.A.’s consolidated income statement for the quarter ended July 31, 2008, and the revenue and earnings of the combined entity had the acquisition date been May 1, 2008, are:

   
Revenue
    
Earnings
  
Actual from April 9, 2009 – June 30, 2009 (*)
     8,217       1,713  
Supplemental pro forma from May 1, 2008 – July 31, 2008
     400,266       (50,883 )

(*) Revenues and earning represent the full quarter ended June 30, 2009.


13
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)
 
3.
Acquisitions (Continued)

b. Curupay S.A. Participações

On June 18, 2009, Cosan S.A. acquired 100% of the outstanding shares of Curupay S.A. Participações from Rezende Barbosa, through the issuance of 44,300,389 ordinary shares valued at $7.25 per share (market value at the acquisition date) and a total purchase price of US$321,087.  The assets acquired include the non-controlling interest in Novo Rumo representing 28.82% of its outstanding shares which were issued in the Teaçu acquisition, and 100% of the outstanding shares of two operating companies, Nova América S.A. Trading and Nova América S.A. Agroenergia (collectively referred to as “Nova América”). Nova América is a producer of sugar, ethanol and energy co-generation and also operates in trading and logistics.

With the acquisition of the noncontrolling interest of Novo Rumo, Cosan S.A. increased its share ownership in Novo Rumo to 92.88%. This transaction was a change in ownership interest without a loss of control and accounted for as a transaction in shareholders’ equity.

The following table summarizes the assets acquired and liabilities assumed in relation to Nova América.  These amounts are preliminary as third-party valuations of certain intangible assets, fixed assets and other assets and liabilities are currently in process.

Description
      
Property, plant and equipment
     370,651  
Noncontrolling interest in Novo Rumo
     62,476  
Inventories
     63,572  
Account receivables
     62,377  
Other assets
     251,267  
Long-term debt including current installments
     (606,118 )
Trade accounts payable
     (81,563 )
Related parties
     (16,591 )
Estimated liability for legal proceedings and labor claims
     (7,009 )
Taxes and contributions payable
     (28,821 )
Other liabilities
     (66,155 )
Net assets acquired
     4,086  
Purchase price, net of cash acquired
     294,605  
Goodwill
     290,519  
 
 
14
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)
 
3.
Acquisitions (Continued)

b. Curupay S.A. Participações (Continued)

The provisional goodwill of $290,519 arising from the acquisition consists largely of the synergies and economies of scale expected from combining the ethanol and sugar operations of Cosan S.A. and Nova America.  US$207,285 of the provisional goodwill was assigned to the sugar segment and US$83,234 was assigned to the ethanol segment.

The amounts of Nova America’s revenue and earnings included in Cosan S.A.’s consolidated income statement for the quarter ended July 31, 2008, and the revenue and earnings of the combined entity had the acquisition date been May 1, 2008, are:

   
Revenue
    
Earnings
  
Actual from June 18, 2009 – June 30, 2009
     42,256       845  
Supplemental pro forma from April 1, 2009 – June 30, 2009
     1,813,213       179,136  
Supplemental pro forma from May 1, 2008 – July 31, 2008
     570,531       (61,137 )

 
 
15
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)
 
4.
Derivative financial instruments

Cosan enters into derivative financial instruments with various counterparties and uses derivatives to manage the overall exposures related to sugar price variations in the international market, interest rate and exchange rate variation. The instruments are commodity futures contracts, forward currency agreements, interest rate and foreign exchange swap contracts, and option contracts. Cosan recognizes all derivatives on the balance sheet at fair value.

The following table summarizes the notional value of derivative financial instruments as well as the related amounts recorded in balance sheet accounts:

   
Notional amounts
    
Carrying value asset (liability)
  
   
June 30, 2009
    
March 31, 2009
    
June 30, 2009
    
March 31, 2009
  
Commodities derivatives
                        
   Future contracts:
                        
      Purchase Commitments
     20,612       61       1,984       (4 )
      Sell commitments
     132,578       182,943       (14,247 )     4,163  
      Swap agreements
     5,968       -       602       -  
                                 
   Options:
                                
      Purchased
     133,936       -       14,826       -  
      Written
     253,506       64,366       (35,100 )     (2,906 )
                                 
Foreign exchange derivatives
                                
   Forward contracts:
                                
      Purchase Commitments
     50,328       -       164       -  
      Sale commitments
     725,318       184,653       2,319       (23,035 )
      Swap agreements
     292,427       246,501       (1,306 )     (2,949 )
                                 
Future contracts:
                                
      Sale commitments
     121,444       372,230       7,888       3,189  
                                 
Options
                                
      Purchased
     275,735       -       16,586       -  
                                 
Total assets
                     44,369       7,352  
Total liabilities
                     (50,653 )     (28,894 )

When quoted market prices were not available, fair values were based on estimates using discounted cash flows or other valuation techniques.
 

 
16
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)
 
5.
Inventories

   
June 30, 2009
    
March 31, 2009
  
Finished goods:
            
Sugar
     139,308       47,195  
Ethanol
     76,129       86,809  
Lubricants
     35,385       38,852  
Fuel (Gasoline, Diesel and Ethanol)
     79,636       74,582  
Others
     3,351       6,674  
      333,809       254,112  
Annual maintenance cost of growing crops
     170,718       167,576  
Others
     84,694       56,105  
      589,221       477,793  


6.
Long-term debt

Long-term debt is summarized as follows:

 
 
 
Index
  
Average annual interest rate
    
June 30, 2009
    
March 31, 2009
  
Resolution No. 2471 (PESA)
IGP-M
     3.95 %     255,246       213,314  
 
Corn price
     12.50 %     66       56  
Senior notes due 2009
US Dollar
     9.0 %     36,422       37,343  
Senior notes due 2017
US Dollar
     7.0 %     411,589       404,589  
IFC
US Dollar
     7.44 %     50,637       49,379  
Perpetual notes
US Dollar
     8.25 %     455,303       455,304  
BNDES
TJLP
     2.61 %     184,521       99,561  
Promissory notes
DI
     3.00 %     613,941       501,888  
Note export credit
DI
     3.90 %     175,869       -  
Debentures
DI
     3.30 %     80,841       -  
Credit notes
DI
     5.60 %     111,092       -  
Pre-payments
US Dollar
     2,00 %     62,171       -  
Others
Various
  
Various
       239,205       115,820  
                2,676,903       1,877,254  
Current portion
               (581,199 )     (630,260 )
Long-term debt
               2,095,704       1,246,994  

 
17
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)
 
6.
Long-term debt (Continued)

Long-term debt has the following scheduled maturities:

2011
     689,192  
2012
     72,965  
2013
     54,431  
2014
     22,961  
2015
     23,937  
2016
     18,564  
2017
     418,075  
2018 and thereafter
     795,579  
      2,095,704  

Resolution No. 2471 - Special Agricultural Financing Program (Programa Especial de Saneamento de Ativos), or PESA

To extend the repayment period of debts incurred by Brazilian agricultural producers, the Brazilian government passed Law 9.138 followed by Central Bank Resolution 2,471, which, together, formed the PESA program.  PESA offered certain agricultural producers with certain types of debt the opportunity to acquire Brazilian treasury bills (“CTNs”) in an effort to restructure their agricultural debt. The face value of the Brazilian treasury bills was the equivalent of the value of the restructured debt and was for a term of 20 years.

The acquisition price was calculated by the present value, discounted at a rate of 12% per year or at the equivalent of 10.4% of its face value. The CTNs were deposited as a guarantee with a financial institution and cannot be renegotiated until the outstanding balance is paid in full. The outstanding balance associated with the principal is adjusted in accordance with the IGP-M until the expiration of the restructuring term, which is also 20 years, at which point the debt will be discharged in exchange for the CTNs. Because the CTNs will have the same face value as the outstanding balance at the end of the term, it will not be necessary to incur additional debt to pay PESA debt.
 

 
18
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)
 
 
6.
Long-term debt (Continued)

Resolution No. 2471 - Special Agricultural Financing Program (Programa Especial de Saneamento de Ativos), or PESA (Continued)

On July 31, 2003, the Central Bank issued Resolution 3,114, authorizing the reduction of up to five percentage points of PESA related interest rates, effectively lowering the above-mentioned rates to 3%, 4% and 5%, respectively. The CTNs held by Cosan as of June 30, 2009 and March 31, 2009 amounted to US$91,717 and US$113,877, respectively, and are classified as Other non-current assets.

Senior notes due 2017

On January 26, 2007, the wholly-owned subsidiary Cosan Finance Limited issued US$400,000 of senior notes in the international capital markets. These senior notes, listed on the Luxembourg Stock Exchange, mature in November 2017 and bear interest at a rate of 7% per annum, payable semi-annually. The senior notes are guaranteed by Cosan, and its subsidiary, Usina da Barra.

Perpetual notes

On January 24 and February 10, 2006, Cosan issued perpetual notes which are listed on the Luxembourg Stock Exchange - EURO MTF. These notes bear interest at a rate of 8.25% per year, payable quarterly on May 15, August 15, November 15 and February 15 of each year, beginning May 15, 2006.

These notes may, at the discretion of Cosan, be redeemed on any interest payment date subsequent to February 15, 2011. The notes are guaranteed by Cosan and by Usina da Barra.

Promissory Notes

On November 17, 2008, the Company issued one series of 44 registered promissory notes for US$613,941. The notes which are due in one year, will bear interest, due at maturity, at the average rates of DI - Interbank Deposits plus 3%.

On June 25, 2009 the Company signed a Stand-by Facility, which extended the maturity date from November 12, 2009 to November 12, 2010. Management intends to pay US$161,150 before November 12, 2009.  Therefore, the remaining balance of US$452,791 was reclassified to long term debt as management intends to utilize the stand by facility to settle this remaining balance on a long-term basis.
 
 
19
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

6.
Long-term debt (Continued)

Promissory Notes (Continued)

The notes are secured by a guarantee from Mr. Rubens Ometto Silveira Mello (Controlling Shareholder) and collateralized by a chattel mortgage to be established for the units of interest issued by Cosan CL which are or may be held by the Company.

Covenants

Cosan and its subsidiaries are subject to certain restrictive covenants related to their indebtedness, including the following: limitation on transactions with shareholders and affiliated companies; limitation on payment of dividends and other payments affecting subsidiaries; and limitation on guarantees granted on assets.

Also, the Company and its subsidiaries are subject to other financial restrictive covenants, as follows:

-     net debt/EBTIDA ratio must be less than 3.5 to 1;
-     current asset/current liability ratio equal or higher than 1.3; and
-     long-term indebtedness/shareholders´ equity ratio must be lower than 1.3.

At June 30, 2009, Cosan was in compliance with all debt covenants.
 

 
20
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

 
7.
Related parties

Cosan conducts some of its operations through various joint ventures and other partnership forms which are principally accounted for using the equity method.  The income statement includes the following amounts resulting from transactions with related parties:

   
June 30,
2009
    
March 31, 2009
  
Transactions involving assets
            
Cash received due to the sale of finished products and assets and services held, net of payments
     (38,781 )     (242,320 )
Sale of finished products and services
     146,986       122,381  
Purchase of finished products and services
     (146,986 )     -  
Sale of finished products and services in a subsidiary
     35,386       -  
Sale of real estate (land)
     -       13,967  
Sale of interest in a subsidiary (Note 11)
     -       123,649  
Added through acquisition of Nova América (Note 3)
     71,061       -  
                 
Transactions involving liabilities
                
Payment of financial resources, net of funding
     (1,809 )     -  
Due to Cosan Limited
     -       178,455  
Financial income
     (30,885 )     1,478  
Other
     -       (2,700 )

The purchase and sale of products are carried out at arm’s length and unrealized profit or losses with consolidated companies have been eliminated.

In addition, at March 31, 2009, the Company and its subsidiary Usina da Barra leased 35,000 hectares (unaudited) of land (37,599 hectares (unaudited) in 2008) from related companies under the same control as Cosan. These leases are carried out on an arm’s length basis, and the rent is calculated based on sugarcane tons per hectare, valued according to price established by CONSECANA (São Paulo State Council of Sugarcane, Sugar and Ethanol Producers).

A receivable of US$82,255 with Rezende Barbosa S.A. Administração e Participações related to credits assumed by Rezende Barbosa, in connection with the acquisition of Nova América and intercompany loans at the interest rate equivalent to 100% of CDI.

During the quarter the Company executed lease contracts with Radar to formalize land leases that were already in existence, with an average lease term of 19 years. Total lease expense in the quarter was US$1,984.
 
 
21
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

8.
Estimated liability for legal proceedings and labor claims and commitments

   
June 30,
2009
    
March 31, 2009
  
Tax contingencies
     527,337       430,342  
Civil and labor contingencies
     80,210       67,306  
      607,547       497,648  

Cosan and its subsidiaries are parties in various ongoing labor claims, civil and tax proceedings in Brazil arising in the normal course of its business. Respective provisions for contingencies were recorded considering those cases in which the likelihood of loss has been rated as probable. Management believes resolution of these disputes will have no effect significantly different than the estimated amounts accrued.

Judicial deposits recorded by Cosan under other non-current assets, in the balance sheets, amounting to US$90,743 at June 30, 2009 (US$73,975 at March 31, 2009) have been made for certain of these suits. Judicial deposits are restricted assets of Cosan placed on deposit with the court and held in judicial escrow pending legal resolution of the related legal proceedings. Judicial deposits include US$66,601 related to exposures of Cosan CL prior to its acquisition by Cosan. If the Company prevails in the defense of these exposures, these related judicial deposits must be refunded to the seller.

The major tax contingencies as of June 30, 2009 and March 31, 2009 are described as follows:

   
June 30, 2009
    
March 31, 2009
  
Credit premium – IPI
     139,988       116,256  
PIS and Cofins
     75,053       62,556  
IPI credits
     48,067       40,049  
Contribution to IAA
     43,894       36,672  
IPI – Federal VAT
     28,348       23,626  
ICMS credits
     24,508       19,966  
Compensation with Finsocial
     85,171       70,693  
Other
     82,308       60,524  
      527,337       430,342  
 

 
22
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

 
8.
Estimated liability for legal proceedings and labor claims and commitments (Continued)

On May 27, 2009, the paragraph 1st and 3rd of Law No 9718/98 that regulated the collection of PIS and Cofins (federal tax contributions) on exchange variation and other financial income was revoked by Law No 11941/09. The Company is evaluating its ongoing judicial demands related to the legal obligations not paid related to the increase in the calculation basis of PIS and Cofins. Once the absence of errors or flaws in the ongoing demands is confirmed, the Company will revaluate the maintenance of the provision for the respective legal obligations in its financial statements.

In addition to the aforementioned claims, Cosan and its subsidiaries are involved in other contingent liabilities relating to tax, civil and labor claims and environmental matters, which have not been recorded, considering their current stage and the likelihood of favorable outcomes. These claims are broken down as follows:

   
June 30,
2009
    
March 31, 2009
  
IPI Premium Credit (RP 67/98)
     81,524       68,039  
Withholding Income Tax
     83,521       69,730  
ICMS – State VAT
     92,065       77,052  
IAA - Sugar and Ethanol Institute
     37,692       31,610  
IPI - Federal Value-added tax
     71,724       32,683  
INSS
     1,076       795  
PIS and COFINS
     29,094       15,529  
Civil and labor
     119,600       94,599  
Other
     58,642       34,851  
      574,938       424,888  

The subsidiary Usina da Barra has several indemnification suits filed against the Federal Government. The suits relate to product prices that did not conform to the reality of the market, which were mandatorily established at the time the sector was under the Government‘s control.

 
23
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

8.
Estimated liability for legal proceedings and labor claims and commitments (Continued)

In connection with one of these suits, a final and unappealable decision in the amount of US$149,121 was rendered in September 2006 in favor of Usina de Barra. This has been recorded as a gain in the statement of operations. Since the recorded amount is substantially composed of interest and monetary restatement, it was recorded in Financial income and in a non-current receivable on the balance sheet. In connection with the settlement process, the form of payment is being determined.

The Company is expecting to finalize the payment terms within three years which will result in the amount being received over a ten year period. The amount is subject to interest and inflation adjustment by an official index. Lawyers fees in the amount of US$18,783 relating to this suit have been recorded in General and administrative expenses in 2007 and remain unpaid at June 30, 2009.

At June 30, 2009, these amounts totaled US$167,267 and US$20,072 (US$139,700 and US$16,764 at March 31, 2009), corresponding to related suit and lawyers’ fees, respectively.
 
9.
Income taxes

The Company and its subsidiaries file income tax returns in the Brazilian federal jurisdiction. These subsidiaries are no longer subject to Brazilian federal income tax examinations by tax authorities for years before December 31, 2003. Additionally, Cosan has not been under a Brazilian Internal Revenue Service (IRS) income tax examination for 2003 through 2008.

Cosan accounts for unrecognized tax benefits in accordance with FASB Interpretation No. 48 Accounting for Uncertainly in Income Taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits in the estimated liability for legal proceedings, and labor claims, is as follows

Balance at March 31, 2009
   53,995  
Accrued interest on unrecognized tax benefit
   952  
Effect of foreign currency translation
   10,060  
Balance at June 30, 2009 (*)
   65,007  
(*) Recorded as taxes payable (non-current)
 
 
24
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

9.
Income taxes (Continued)

It is possible that the amount of unrecognized tax benefits will change in the next twelve months, however, an estimate of the range of the possible change cannot be made at this time due to the long time to reach a settlement agreement or decision with the taxing authorities.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.


10.
Shareholders’ equity

On September 19, 2008, the board of directors approved a capital increase of US$456,084 through issuance of 55,000,000 previously unissued registered common shares without par value in a private subscription at an issuance price of US$8.29 each. The subscribers of each new share also received one Subscription Warrant (Warrant) which resulted in 55,000,000 Warrants being issued. Each Warrant grants its holder the right to subscribe 0.6 common shares, with the distribution of fractional shares not being permitted. Therefore, the Warrants issued permit the holders to purchase 33,000,000 shares.  The Warrants are valid from their issue date to December 31, 2009. The exercise price of each amount of Warrants which totals one share is US$8.29 per share. As of June 30, 2009, Warrants to purchase 33,000,000 shares of Common stock at US$8.29 per share were outstanding and expire on December 31, 2009.

October 22, 2008 was the deadline to exercise the right of capital subscription, approved in the meeting of the board of directors on September 19, 2008. Since a large number of the minority shareholders did not exercise their preemptive rights, Cosan Limited, the controlling shareholder, subscribed for and paid up 54,993,482 common shares valued at US$456,034, and the minority shareholders subscribed for and paid up 6,518 common shares, valued at US$50. As a result, Cosan Limited increased its holding of company’s common shares from 171,172,252 to 226,165,734. This increased their ownership percentage from 62.81% to 69.05% of the Company’s capital.

On March 6, 2009, the Board of Directors approved a capital increase of US$1,945 through issuance of 736,852 new common shares, with no par value, for purposes of meeting the needs of the Stock Option Plan, due to exercise of such options by qualifying executives.
 
 
25
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

10.
Shareholders’ equity (Continued)

On June 18, 2009, the shareholders approved a capital increase of US$169,533 through the issuance of 44,300,389 new common shares, with no par value, for purposes of the acquisition of Curupay. As part of this acquisition Cosan acquired noncontrolling interest at Novo Rumo in the amount of US$62,476, which has been accounted for as an equity transaction, with a dilution of noncontrolling interest. (Note 3).

As of June 30, 2009, the Company’s capital is represented by 372,585,273 registered book-entry common shares (328,284,884 as of March 31, 2009), with no par value.
 
11.
Deferred gain on sale of investments in subsidiaries

Agrícola Ponte Alta S.A. is a subsidiary whose principal assets are land used for the growing of sugarcane for Cosan. On December 15, 2008, the shareholders approved a partial spin-off of the assets of Ponte Alta and created four new subsidiaries.  Agricultural land was then transferred from Ponte Alta to each of the entities. On December 30, 2008, two of the entities, Nova Agrícola Ponte Alta S.A. and Terras da Ponte Alta S.A. were sold to Radar, an affiliate company accounted for by the equity method. The selling price was fair value, US$123,596, which resulted in a gain of US$47,080. This gain has previously been deferred since there were no lease contracts executed for the land, which was being used by Cosan for a monthly fee.  During the current period the lease contracts were executed, and the gain is being amortized to profit and loss over the 19 year average term of the leases.
 
During the three-month period ended June 30, 2009, the Company has amortized a gain of US$812 related to this sale-leaseback transaction.
 
 
26
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

12.
Share-based compensation

In the ordinary and extraordinary general meeting held on August 30, 2005, the guidelines for the outlining and structuring of a stock option plan for Cosan officers and employees were approved, thus authorizing the issue of up to 5% of shares comprising Cosan’s share capital. This stock option plan was outlined to attract and retain services rendered by officers and key employees, offering them the opportunity to become shareholders of Cosan. On September 22, 2005, Cosan’s board of directors approved the distribution of stock options corresponding to 4,302,780 common shares to be issued or purchased by Cosan related to 3.25% of the share capital at the time, authorized by the annual/extraordinary meeting. The remaining 1.75% remained to be distributed. On September 22, 2005, the officers and key employees were informed regarding the key terms and conditions of the share-based compensation arrangement.

According to the market value on the date of issuance, the exercise price is US$2.64 (two dollars and sixty four cents) per share which does not include any discount. The exercise price was calculated before the valuation mentioned above based on an expected private equity deal which did not occur. Options may be exercised after a one-year vesting period starting November 18, 2005, at the maximum percentage of 25% per year of the total stock options offered by Cosan. The options for each 25% have a five-year period to be exercised.

On September 11, 2007, the board of directors approved an additional distribution of stock options, in connection with the stock option plan mentioned above, corresponding to 450,000 common shares to be issued or purchased by Cosan related to 0.24% of the share capital at September 22, 2005. The remaining 1.51% may still be distributed.

The exercise of options may be settled only through issuance of new common shares or treasury shares.

The employees that leave Cosan before the vesting period will forfeit 100% of their rights. However, if the employment is terminated by Cosan without cause, the employees will have right to exercise 100% of their options of that particular year plus the right to exercise 50% of the options of the following year.
 
 
27
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

12.
Share-based compensation (Continued)

The fair value of share-based awards was estimated using a binominal model with the following assumptions:

   
Options granted on September 22, 2005
  
Options granted on September 11, 2007
Grant price - in U.S. dollars
  
3.13
  
3.13
Expected life (in years)
  
7.5
  
7.5
Interest rate
  
14.52%
  
9.34%
Volatility
  
34.00%
  
46.45%
Dividend yield
  
1.25%
  
1.47%
Weighted-average fair value at grant date - in U.S. dollars
  
6.32
  
9.32

As of June 30, 2009, the amount of US$3,330 related to the unrecognized compensation cost related to stock options is expected to be recognized in 15 months. Cosan currently has 343,139 common shares in treasury.

As of June 30, 2009 there were 1,470,832 options outstanding with a weighted-average exercise price of US$3.13.
 
13.
Fair value measurements

Effective May 1, 2008, Cosan adopted SFAS 157, Fair Value Measurements, for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis. SFAS 157 establishes a new framework for measuring fair value and expands related disclosures. Broadly, the SFAS 157 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. SFAS 157 establishes market or observable inputs as the preferred source of values, followed by assumptions based on hypothetical transactions in the absence of market inputs.

The valuation techniques required by SFAS 157 are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. These two types of inputs create the following fair value hierarchy:
 
 
28
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

13.
Fair value measurements (Continued)

Level 1 - Quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 - Significant inputs to the valuation model are unobservable.

The following section describes the valuation methodologies Cosan uses to measure different financial instruments at fair value.

Marketable securities

When quoted market prices are unobservable, we use other relevant information including market interest rate curves. These investments are included in Level 2 and primarily comprise fixed-income securities, which are debt securities issued by highly rated financial institutions indexed in reais with Inter Deposit Rates (CDI).

Derivatives
 
Cosan uses closing prices for derivatives included in Level 1, which are traded either on exchanges or liquid over-the-counter markets.
 
The remainder of the derivatives portfolio is valued using internal models, most of which are primarily based on market observable inputs including interest rate curves and both forward and spot prices for currencies and commodities. Derivative assets and liabilities included in Level 2 primarily represent interest rate swaps, foreign currency swaps and commodity forward contracts.

The following table presents our assets and liabilities measured at fair value on a recurring basis at June 30, 2009.

   
Level 1
    
Level 2
    
Total
  
Assets
                  
Derivatives
     14,826       29,543       44,369  
Total
     14,826       29,543       44,369  
                         
Liabilities
                        
Derivatives
     35,100       15,553       50,653  
Total
     35,100       15,553       50,653  
 
 
29
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

14.
Segment information

a. Segment information

The following information about segments is based upon information used by Cosan’s senior management to assess the performance of operating segments and decide on the allocation of resources. Cosan’s reportable segments are business units in Brazil that target different industry segments. Each reportable segment is managed separately because of the need to specifically address customer needs in these different industries. Cosan has four segments: sugar, ethanol, fuel distribution and others group. The operations of these segments are based solely in Brazil.

The sugar segment mainly operates and produces a broad variety of sugar products, including raw (also known as very high polarization - VHP sugar), organic, crystal and refined sugars, and sells these products to a wide range of customers in Brazil and abroad. Cosan exports the majority of the sugar produced through international commodity trading companies. Cosan’s domestic customers include wholesale distributors, food manufacturers and retail supermarkets, through which it sells its “Da Barra” branded products.

The ethanol segment substantially produces and sells fuel ethanol, both hydrous and anhydrous (which has a lower water content than hydrous ethanol) and industrial ethanol. Cosan’s principal ethanol product is fuel ethanol, which is used both as an automotive fuel and as an additive in gasoline, and is mainly sold in the domestic market by fuel distribution companies. Consumption of hydrous ethanol in Brazil is increasing as a result of the introduction of flex fuel vehicles that can run on either gasoline or ethanol (or a combination of both) to the Brazilian market in 2003. In addition, Cosan sells liquid and gel ethanol products used mainly in the production of paint and cosmetics and alcoholic beverages for industrial clients in various sectors.

With the acquisition of Cosan CL a new fuel distribution segment has been created. The fuel distribution segment is engaged in the distribution in Brazil of oil products, ethanol, lubricants and aviation fuel as well as the operation of convenience stores. The network to which the fuel distribution segment distributes such products is comprised of more than 1,500 service stations.

The accounting policies underlying the financial information provided for the segments are based on Brazilian GAAP as Cosan is the operating subsidiary of Cosan S.A.. We evaluate segment performance based on information generated from the statutory accounting records.
 
 
30
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

14.
Segment information (Continued)

a.  Segment information (Continued)

Others segment is comprised by selling cogeneration of electricity, diesel and corporate activities.

No asset information is provided by reportable segment due to the fact that the majority of the assets used in production of sugar and ethanol are the same.

Measurement of segment profit or loss and segment assets

Cosan S.A. evaluates performance and allocates resources based on return on capital and profitable growth. The primary measurement used by management to measure the financial performance of Cosan S.A. is adjusted EBIT (earnings before interest and taxes excluding special items such as impairment and restructuring, integration costs, one-time gains or losses on sales of assets, acquisition, and other items similar in nature). The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.

   
June 30,
2009
    
July 31,
2008
  
Net sales — Brazilian GAAP
            
Sugar
     313,887       216,973  
Ethanol
     220,260       148,884  
Fuel distribution
     1,137,569       -  
Others
     47,716       27,941  
Total
     1,719,432       393,798  
                 
Reconciling items to U.S. GAAP
                
Sugar
     1,026       224  
Fuel distribution
     (188 )     -  
Total
     838       224  
Total net sales
     1,720,270       394,022  
 
 
31
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

14.
Segment information (Continued)

a.  Segment information (Continued)

Measurement of segment profit or loss and segment assets (Continued)

   
June 30,
2009
    
July 31,
2008
  
Segment operating income (loss) – Brazilian GAAP
            
Sugar
     (1,642 )     (56,798 )
Ethanol
     (1,208 )     (38,974 )
Fuel distribution
     36,781       -  
Others
     (266 )     (7,314 )
Operating income (loss) — Brazilian GAAP
     33,665       (103,086 )
                 
Reconciling items to U.S. GAAP
                
Depreciation and amortization expenses
                
    Sugar
     (9,839 )     5,580  
    Ethanol
     (7,244 )     3,828  
    Fuel distribution
     (959 )     -  
    Others
     (1,597 )     718  
      (19,639 )     10,126  
                 
Other adjustments
                
    Sugar
     (4,917 )     182  
    Ethanol
     (3,620 )     (28 )
    Fuel distribution
     45,226       -  
    Others
     (803 )     (5 )
Total sugar
     (16,398 )     (51,036 )
Total ethanol
     (12,072 )     (35,174 )
Fuel distribution
     81,048       -  
Total others
     (2,666 )     (6,601 )
Operating income (loss) — U.S. GAAP
     49,912       (92,811 )
 

 
32
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

 
14.
Segment information (Continued)

b.  Sales by principal customers

Sugar

The following table sets forth the amount of sugar that we sold to our principal customers during the three-month period ended June 30, 2009 and July 31, 2008 as a percentage of either domestic or international sales of sugar:

Market
  
Customer
  
June 30, 2009
    
July 31,
2008
  
International
  
Sucres et Denrées
     33 %    
13
 %
   
Cargill International S.A.
     13 %     -  
   
Coimex Trading Ltd
     8 %     4 %
   
Ceval International Limited
     6 %     -  
   
Fluxo - Cane Overseas Ltd
     5 %     34 %
   
Tate & Lyle International
     5 %     9 %

Ethanol

The following table sets forth the amount of ethanol that we sold to our principal customers during the three-month period ended June 30, 2009 and July 31, 2008 as a percentage of either domestic or international sales of ethanol:

Market
  
Customer
  
June 30, 2009
    
July 31,
2008
  
International
  
Kolmar Petrochemicals
     9 %     -  
   
Morgan Stanley Capital Group Inc.
     8 %     9 %
   
Vertical UK LLP
     7 %     10 %
   
Sekab Biofuels & Chemicals
     3 %     3 %
   
Vitol Inc.
     -       5 %
   
Bauche Energy S.A.
     -       2 %
                     
Domestic
  
Shell Brasil Ltda.
     18 %     21 %
   
Petrobrás Distribuidora S.A.
     13 %     8 %
   
Euro Petróleo do Brasil Ltda.
     8 %     13 %
   
Cia Brasileira de Petróleo Ipiranga
     7 %     4 %
   
Alesat Combustíveis S.A.
     5 %     4 %

The following table sets forth the amount of fuel distribution that we sold to our principal customers during the three-month period ended June 30, 2009 as a percentage of either domestic or international sales of fuel distribution:
 

 
33
COSAN S.A. INDÚSTRIA E COMÉRCIO

Notes to the condensed consolidated financial statements (Continued)
(In thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

 
14.
Segment information (Continued)

b.  Sales by principal customers (Continued)

Fuel distribution

Market
  
 
Customer
  
June 30,
2009
    
July 31,
2008
  
Domestic
  
Tam Linhas Aéreas S.A.
     2.2 %     -  
   
All – América Latina Logística Malha Sul S.A.
     2.0 %     -  
   
Mime Distribuidora de Petróleo Ltda.
     1.6 %     -  
   
Auto Posto Túlio Ltda.
     1.2 %     -  
   
Posto Iccar Ltda.
     0.6 %     -  
 
15.
Subsequent events

Capital increase

In the meeting of the Board of Directors held on July 15, 2009, the shareholders unanimously approved a capital increase of R$708 through the issuance of 224,819 new registered uncertificated common shares with no par value, in connection with the “Company’s Stock Option Plan” and with the exercise of such option by the eligible executives, at the issuance price of R$3.15 by share, set on the terms of the stock option plan. In connection with the issuance of the new shares, the Company’s capital comprised 372,810,092 registered uncertificated common shares with no par value.

Senior Notes due in 2014

On August 4, 2009 the subsidiary CCL Finance Limited issued Senior Notes in the foreign market in accordance with “Regulations S and 144A” for US$350,000, which are subject to interest of 9.5% p.a. The notes are guaranteed by Cosan CL.
 

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