Provided by MZ Data Products
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 6-K
 
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the month of April, 2007

(Commission File No. 001-32221) ,
 

 
GOL LINHAS AÉREAS INTELIGENTES S.A.
(Exact name of registrant as specified in its charter)
 
GOL INTELLIGENT AIRLINES INC.
(Translation of Registrant's name into English)
 


Rua Gomes de Carvalho 1,629
Vila Olímpia
05457-006 São Paulo, São Paulo
Federative Republic of Brazil
(Address of Regristrant's principal executive offices)



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

Form 20-F ___X___ Form 40-F ______

Indicate by check mark whether the registrant by furnishing the
information contained in this Form 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, indicated below the file number assigned to the
registrant in connection with Rule 12g3-2(b):


 
  Unaudited Condensed Consolidated Interim 
  Financial Statements under U.S. GAAP 
   
  GOL Linhas Aéreas Inteligentes S.A. 
   
  March 31, 2007 and December 31, 2006, with Report 
  of Independent Registered Public Accounting Firm 

 



GOL LINHAS AÉREAS INTELIGENTES S.A.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

     March 31, 2007 and 2006
(In thousands of Brazilian Reais)

Contents

Report of Independent Registered Public Accounting Firm  F - 3 
Condensed Consolidated Balance Sheets as of March 31, 2007 (Unaudited) and December 31, 2006  F - 4 
Condensed Consolidated Statements of Income for the three-month periods ended March 31, 2007 and 2006 (Unaudited) F - 6 
Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2007 and 2006 (Unaudited) F - 7 
Condensed Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the three-month period ended March 31, 2007 (Unaudited) F - 8 
Notes to Condensed Consolidated Financial Statements (Unaudited) – March 31, 2006  F - 9 


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders’ of
Gol Linhas Aéreas Inteligentes S.A.

We have reviewed the condensed consolidated balance sheet of Gol Linhas Aéras Inteligentes S.A. and subsidiaries as of March 31, 2007 and the related condensed consolidated statements of income and cash flows for the three-month periods ended March 31, 2007 and 2006 and the condensed consolidated statements of shareholders’ equity and comprehensive income for the three-month period ended March 31, 2007. These financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical review procedures to financial data, and making inquires 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 a 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 auditing standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Gol Linhas Aéreas Inteligentes S.A. and subsidiaries as of December 31, 2006, and the related consolidated statements of income, cash flows, shareholders equity and comprehensive income for the year then ended not presented herein, and in our report dated January 29, 2007, 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 December 31, 2006 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

ERNST & YOUNG
Auditores Independentes S.S.

Maria Helena Pettersson
Partner

São Paulo, Brazil
April 19, 2007

F - 3


Table of Contents

     GOL LINHAS AÉREAS INTELIGENTES S.A.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of Brazilian Reais)

    March 31, 2007    December 31, 2006 
    (Unaudited)      
       
ASSETS             
 
CURRENT ASSETS             
   Cash and cash equivalents     R$  618,509         R$  280,977 
   Short-term investments      1,343,808      1,425,369 
   Receivables, less allowance             
        (2007 – R$ 13,483; 2006 – R$ 10,366)     645,417      659,306 
   Inventories      123,262      75,165 
   Deposits with lessors      257,638      232,960 
   Recoverable taxes      57,721      60,396 
   Prepaid expenses      71,377      64,496 
   Other      10,066      12,654 
         
                       Total current assets      3,127,798      2,811,323 
 
PROPERTY AND EQUIPMENT             
   Pre-delivery deposits      554,817      436,911 
   Flight equipment      729,043      660,861 
   Other      132,741      129,260 
         
      1,416,601      1,227,032 
   Accumulated depreciation      (165,945)     (147,809)
         
                       Property and equipment, net      1,250,656      1,079,223 
 
OTHER ASSETS             
   Deposits with lessors      307,106      304,875 
   Other      72,731      63,033 
         
                       Total other assets      379,837      367,908 
 
 
 
 
         
TOTAL ASSETS    R$  4,758,291    R$  4,258,454 
         

See accompanying notes to condensed consolidated financial statements

F - 4


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     GOL LINHAS AÉREAS INTELIGENTES S.A.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of Brazilian Reais)

    March 31, 2007    December 31, 2006 
       (Unaudited)      
       
LIABILITIES AND SHAREHOLDERS’ EQUITY             
 
CURRENT LIABILITIES             
   Short-term borrowings     R$  176,120         R$  128,304 
   Current portion of long-term debt      43,775      41,298 
   Accounts payable      106,082      124,110 
   Salaries, wages and benefits      104,456      87,821 
   Sales tax and landing fees      106,254      139,394 
   Air traffic liability      243,884      335,268 
   Dividends payable      72,537      42,961 
   Deferred gains on sale and leaseback transactions      7,172      10,128 
   Deferred income taxes, net      8,355     
   Other      66,101      91,062 
         
                       Total current liabilities      934,736      1,000,346 
 
NON-CURRENT LIABILITIES             
   Long-term debt      1,431,434      949,006 
   Deferred income taxes, net      34,349      28,064 
   Deferred gains on sale and leaseback transactions      49,375      48,219 
   Other      49,045      27,661 
         
      1,564,203      1,052,950 
 
SHAREHOLDERS’ EQUITY             
   Preferred shares, no par value; 88,621,497 and             
           88,615,674 issued and outstanding in 2007 and             
           2006, respectively      848,536      846,125 
   Common shares, no par value; 107,590,792 issued             
           and outstanding in 2007 and 2006      41,500      41,500 
   Additional paid-in capital      35,844      35,430 
   Appropriated retained earnings      39,577      39,577 
   Unappropriated retained earnings      1,289,915      1,246,848 
   Accumulated other comprehensive income      3,980      (4,322)
         
                       Total shareholders’ equity      2,259,352      2,205,158 
 
         
TOTAL LIABILITIES AND SHAREHOLDERS’             
EQUITY     R$  4,758,291    R$  4,258,454 
         

See accompanying notes to condensed consolidated financial statements

F - 5


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GOL LINHAS AÉREAS INTELIGENTES S.A.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands of Brazilian Reais, except per share amounts)

    Three-Months ended March 31, 
   
 
    2007    2006 
         
 
NET OPERATING REVENUES             
   Passenger    R$  975,361    R$  829,858 
   Cargo and Other      65,911      33,158 
         
                       Total net operating revenues      1,041,272      863,016 
 
OPERATING EXPENSES             
   Aircraft fuel      361,298      254,306 
   Salaries, wages and benefits      132,065      81,484 
   Aircraft rent      95,331      66,487 
   Sales and marketing      76,555      99,330 
   Landing fees      54,972      30,341 
   Aircraft and traffic servicing      57,888      31,621 
   Maintenance materials and repairs      46,248      26,115 
   Depreciation      28,546      12,529 
   Other      63,309      36,968 
         
                       Total operating expenses      916,212      639,181 
 
OPERATING INCOME      125,060      223,835 
 
OTHER INCOME (EXPENSE)            
   Interest expense      (27,024)     (3,263)
   Capitalized interest      4,617      3,350 
   Interest and investment income      88,606      33,972 
   Other expenses, net      (31,558)     (9,264)
         
                       Total other income      34,641      24,795 
 
INCOME BEFORE INCOME TAXES      159,701      248,630 
 
   Income taxes      (43,119)     (68,840)
         
NET INCOME    R$  116,582    R$  179,790 
         
 
EARNINGS PER COMMON AND PREFERRED SHARE:             
 
Basic    R$  0.59    R$  0.92 
Diluted    R$  0.59    R$  0.92 

See accompanying notes to condensed consolidated financial statements.

F - 6


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GOL LINHAS AÉREAS INTELIGENTES S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands of Brazilian Reais)

    Three months ended March 31, 
     
    2007    2006 
         
CASH FLOWS FROM OPERATING ACTIVITIES             
Net income    R$  116,582    R$  179,790 
   Adjustments to reconcile net income to net cash provided by             
      operating activities:             
               Depreciation      28,546      12,529 
               Deferred income taxes      (1,800)     (6,830)
               Allowance for doubtful accounts receivable      3,117      740 
               Capitalized interest      (4,617)     3,350 
               Changes in operating assets and liabilities:             
                       Receivables      10,772      (15,005)
                       Inventories      (48,097)     2,644 
                       Accounts payable and other accrued liabilities      (18,028)    
                       Deposits with lessors      (33,730)     (22,658)
                       Air traffic liability      (91,384)     (32,258)
                       Dividends payable      29,576      (43,470)
                       Other, net      (16,758)     14,967 
         
Net cash provided by (used in) operating activities      (25,821)     93,799 
 
CASH FLOWS FROM INVESTING ACTIVITIES             
   Deposits for aircraft leasing contracts      6,821      (6,207)
   Acquisition of property and equipment      (82,073)     (40,047)
   Pre-delivery deposits      (113,289)     (62,856)
   Change in available-for-sale securities, net      81,561      (13,221)
         
Net cash used in investing activities      (106,980)     (122,331)
 
CASH FLOWS FROM FINANCING ACTIVITIES             
   Short-term borrowings      6,518      50,443 
   Proceeds from issuance of long-term debt      526,203     
   Dividends paid      (73,515)    
   Other, net      11,127      8,638 
         
Net cash provided by financing activities      470,333      59,081 
 
NET INCREASE IN CASH AND CASH EQUIVALENTS      337,532      30,549 
 
   Cash and cash equivalents at beginning of the period      280,977      106,347 
         
   Cash and cash equivalents at end of the period    R$  618,509    R$  136,896 
         
 
Supplemental disclosure of cash flow information             
   Interest paid    R$  27,024    R$  3,263 
   Income taxes paid    R$  28,630    R$  76,809 
 
Non cash investing activities             
   Accrued capitalized interest    R$  (4,617)   R$  3,350 

See accompanying notes to condensed consolidated financial statements.

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GOL LINHAS AÉREAS INTELIGENTES S.A.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(In thousands of Brazilian Reais, except for share information)

  Common Shares  Preferred Shares      Retained Earnings  Accumulated
 other
 comprehensive
 income 
 
             
          Additional   paid in   capital         
          Deferred
compensation 
     
  Shares  Amount  Shares  Amount  Appropriated  Unapropriated  Total 
                     
Balance at December 31, 2006  107,590,792  R$ 41,500  88,615,674  R$ 846,125  R$ 39,275  R$ (3,845) R$ 39,577  R$ 1,246,848  R$ (4,322) R$ 2,205,158 
    Comprehensive income:                     
      Net income  116,582  116,582 
      Changes in fair value of derivative instruments, net                     
         of taxes  8,302  8,302 
                     
      Total comprehensive income  124,884 
   Paid-in subscribed capital  5,823  2,411  2,411 
   Deferred compensation  (15) 15 
   Amortization of deferred compensation  414  414 
   Dividends payable and interest on shareholders’ equity  (73,515) (73,515)
                     
Balance at March 31, 2007 (Unaudited) 107,590,792  R$ 41,500  88,621,497  R$ 848,536  R$ 39,260  R$ (3,416) R$ 39,577  R$ 1,289,915  R$ 3,980  R$ 2,259,352 
                     

See accompanying notes to condensed consolidated financial statements.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Brazilian Reais)

1. Business Overview

Acquisition. On March 28, 2007, the Company through GTI S.A., a wholly-owned subsidiary of Gol Linhas Aéreas Inteligentes, concluded an agreement for the acquisition of the total share capital of VRG Linhas Aéreas S.A. (“VRG”, airline that operates the VARIG brand) from VarigLog and Volo, the controlling shareholders of VRG. The total consideration for the shares of VRG is US$ 275 million, consisting of US$ 98 million of cash and 6,049,185 non-voting (PN) shares issued by the Company, with various sale restrictions for up to 30 months. The Company also assumed R$ 100 million (US$ 48 million) of debentures issued by VRG. Also on March 28, 2007, the Company increased the capital of GTI S.A. in the amount of R$62,148 (US$30,000), corresponding to 62,148,000 ordinary and preferred shares subscribed on October 26, 2004 at the price of R$ 1.00 per share, as part of the payment to VarigLog and Volo. The acquisition of VRG is conditioned on approvals from the Nacional Civil Aviation Agency (ANAC) and the Brazilian Antitrust Agency (CADE). See Note 13.

2. Summary of Significant Accounting Policies

Basis of presentation. These financial statements were prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting (USGAAP), using Brazilian Reais as the functional and reporting currency. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, the 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. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from these estimates.

Consolidated quarterly information includes accounts of Gol Linhas Aéreas Inteligentes S.A. and of its wholly-owned subsidiaries Gol Transportes Aéreos S.A. (GTA), GTI S.A., GAC Inc. and Gol Finance. All significant intercompany balances have been eliminated.

The exchange rates at March 31, 2007 and March 31, 2006 were R$ 2.0504 and R$ 2.1724, respectively per U.S. Dollar. The average exchange rates for the first quarter of 2007 and 2006 were R$ 2.1085 and R$ 2.1974 respectively (these rates provided for reference purposes). The accounting principles adopted under USGAAP differ in certain respects from accounting principles generally accepted in Brazil (“Brazilian GAAP”), which the Company uses to prepare its statutory financial statements.

The results of the three-month period ended March 31, 2007 are not necessarily indicative of the results that might be expected for the full year ending December 31, 2007. The balance sheet at December 31, 2006 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended December 31, 2006.

For further information, refer to the consolidated financial statements for the year ended December 31, 2006 and footnotes thereto included in the Company’s financial statements filed with the SEC.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Brazilian Reais)

3. Deposits with Lessors

Deposits with lessors include aircraft and engine maintenance deposits, security deposits for aircraft leasing contracts and other deposits which will be used to compensate the lessors for other lease related costs when due. Following is the composition of the balance:

        December 31, 
    March 31, 2007    2006 
     
Aircraft and engine maintenance deposits    298,010    263,647 
Security deposits    33,963    40,787 
Other deposits    232,771    233,401 
     
    564,744    537,835 
     
Short-term    (257,638)   (232,960)
     
Long-term    307,106    304,875 
     

Maintenance deposits made in the first quarter of 2007 and 2006 were R$ 34,360 and R$ 30,118, respectively. There were no maintenance deposits reimbursed to the Company for maintenance events during the first quarters of 2007 and 2006.

4. Short-term Borrowings

At March 31, 2007, the Company had ten revolving lines of credit with five financial institutions allowing for combined borrowings up to R$ 432,000. One of the credit lines is secured by promissory notes and allows for borrowings up to R$ 300,000. At March 31, 2007 and December 31, 2006, there were R$176,120 (US$ 85,895) and R$ 128,304 (US$ 60,011) outstanding borrowings under these facilities, respectively.

The weighted average annual interest rate for these reais-based short-term borrowings at March 31, 2007 and December 31, 2006 was 11.6% and 15.5%, respectively.

5. Long-term Debt

    March 31, 2007    December 31, 2006 
     
 
Foreign currency:         
           5.39 %  Bank loan   123,500    128,304 
           7.24 % IFC loan    97,589    107,150 
           7.50 % Senior notes    463,522   
           8.75 % Perpetual notes    412,020    436,902 
     
    1,096,631    672,356 
Local currency:         
           9.15 % BNDES loan    61,449    54,626 
 
Capital leases (note 8)   273,354    222,024 
     
Long-term debt    1,431,434    949,006 
     

In March 2007, the Company’s wholly-owned subsidiary Gol Finance issued R$ 463,545 (US$ 225,000) 7.50% Senior Notes due 2017. At March 31, 2007, there was outstanding R$ 463,522 in the long-term and R$ 773 in the short-term under this facility.

The following table provides a summary of our principal payments of long-term debt obligations at March 31:

                        Beyond     
(in R$ 000)   2009    2010    2011    2012    2013     2013    Total 
               
Long-term debt                             
       obligations (1)   145,881     31,318     30,626     30,687     26,225       481,323     746,060 
(1) The long-term debt obligations do not include the perpetual notes.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Brazilian Reais)

6. Transactions with Related Parties

The Company has an exclusive bus transportation agreement with related companies Breda Transportes e Serviços S.A. and Expresso União Ltda. During the first quarter of 2007 and 2006, the Company paid R$ 1,360 and R$ 104 (R$ 615 and R$ 91) to these companies, respectively.

The Company also has a five-year office space lease agreement with Áurea Administração e Participações S.A. (expiring on March 31, 2008) for the lease of headquarters located at Rua Tamoios, 246 in São Paulo. The lease agreement provides for monthly payments, adjusted by the IGP-M inflation index. During both the first quarters of 2007 and 2006, the Company paid R$ 88 to this company.

The payments to and from the related parties are in the normal course of business and were based on prevailing market rates.

7. Shareholders’ Equity

Brazilian corporations are allowed to attribute interest on shareholder’s equity. The calculation is based on the shareholder’s equity amounts as stated in the statutory accounting records and the interest rate applied may not exceed the long term interest rate (“TJLP”) determined by the Brazilian Central Bank (6.50% p.a. for the first quarter of 2007). For the quarter ended March 31, 2007, the Company’s statutory consolidated financial statements presented a net profit of R$ 91,578 (R$160,678 in 2006). The Company accrued a total of R$ 73,716 of interim dividends payable represented by R$ 33,608 of interest on stockholder’s equity and R$ 40,108 of dividends for payment in the second quarter of 2007, which is included in current liabilities.

8. Leases

During the first quarter of 2007, the Company has entered into one lease agreement for one aircraft which is classified as capital leases under the provisions of SFAS No. 13, “Accounting For Leases”. The Company had six aircraft classified as capital leases at March 31, 2007. The capital lease agreements are typically for a term of twelve years and for two aircraft the present value of the minimum lease payments exceed 90% of their fair market value at the inception of the lease and for the remaining four aircraft, the Company has bargain purchase options to buy them at the end of the lease term. The carrying value of aircraft under capital lease arrangements included in property and equipment totaled R$ 306,180 as of March 31, 2007. Amortization of aircraft under capital lease arrangements is included in depreciation and amortization expense.

Future minimum lease payments under capital leases with initial or remaining terms in excess of one year at March 31, 2007 were as follows:

    Thousands of R$    Thousands of US$ 
     
2008    42,271    20,616 
2009    42,271    20,616 
2010    42,271    20,616 
2011    42,271    20,616 
2012    42,884    20,915 
After 2012    217,783    106,215 
     
Total minimum lease payments    429,751    209,594 
Less: Amount representing interest    127,211    62,042 
     
Present value of net minimum lease payments    302,540    147,552 
Less current portion    29,186    14,234 
     
Long-term portion    273,354    133,318 
     

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GOL LINHAS AÉREAS INTELIGENTES S.A.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Brazilian Reais)

8. Leases (Continued)

The Company leases aircraft in operation, airport terminal space, other airport facilities, office space and other equipment. At March 31, 2007, the Company leased 61 aircraft under operating leases (as compared to 60 aircraft at December 31, 2006), with initial lease term expiration dates ranging from 2007 to 2018.

Future minimum lease payments under non-cancelable operating leases are denominated in US dollars. Such leases with initial or remaining terms in excess of one year at March 31, 2007 were as follows:

    Thousands of R$    Thousands of US$ 
     
    Aircraft    Other    Total    Aircraft    Other    Total 
             
2008    386,351    13,137    399,488    188,427    6,407    194,834 
2009    325,944    9,163    335,107    158,966    4,469    163,435 
2010    275,609    4,790    280,399    134,417    2,336    136,753 
2011    191,772    2,110    193,882    93,529    1,029    94,558 
2012    178,863      178,863    87,233      87,233 
After 2012    506,455      506,455    247,003      247,003 
             
Total minimum                         
Lease                         
payments    1,864,994    29,200    1,894,194    909,575    14,241    923,816 
             

During the first quarter of 2007 the Company received two Boeing 737-800 aircraft.

9. Other Commitments

The following table provides a summary of our principal payments under aircraft purchase commitments and other obligations at March 31:

                        Beyond     
(in R$ 000)   2008    2009    2010    2011    2012    2012    Total 
               
Pre-delivery deposits (1)   221,704    297,973    346,345    281,053    67,163      1,214,238 
Aircraft purchase                             
      commitments (2)   2,044,610    1,546,451    1,886,268    2,374,736    1,990,118    1,096,361    10,938,544 
               
Total    2,266,314    1,844,424    2,232,613    2,655,789    2,057,281    1,096,361    12,152,782 
               

(1)     
The Company makes payments for aircraft acquisitions utilizing the proceeds from equity and debt financings, cash flow from operations, short and medium-term credit lines and supplier financing. Pre- delivery deposits refer to prepayments made based on the agreements entered into with Boeing Company for the purchase of Boeing 737-800 Next Generation aircraft.
 
(2)     
The Company has a purchase contract with Boeing for 109 Boeing 737-800 Next Generation aircraft, under which the Company currently has 75 firm orders and 34 purchase options. The firm orders have an approximate value of R$ 10,939 million (corresponding to approximately US$ 5,335 million) based on the aircraft list price (excluding contractual manufacturer’s discounts), including estimated amounts for contractual price escalations and pre-delivery deposits. Aircraft purchase commitments can be financed with long-term financing guaranteed by the U.S. Exim Bank (for approximately 85% of the total acquisition cost).

10. Financial Instruments and Concentration of Risk

At March 31, 2007 and December 31, 2006, the Company’s primary monetary assets were cash equivalents, short-term investments and assets related to aircraft leasing operations. The Company’s primary monetary liabilities are related to aircraft leasing operations. All monetary assets other than those related to aircraft leasing operations included in the balance sheet are stated at amounts that approximate their fair values.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Brazilian Reais)

10. Financial Instruments and Concentration of Risk (Continued)

Financial instruments that expose the Company to credit risk involve mainly cash equivalents, short-term investments and accounts receivable. Credit risk on cash equivalents and short term investments related to amounts invested with major financial institutions. Credit risk on accounts receivable relates to amounts receivable from the major international credit card companies. These receivables are short-term and the majority of them settle within 30 days.

The Company’s revenue is generated in Brazilian Reais (except for a small portion in Argentine Pesos, Bolivian Bolivianos, Chilean Pesos, Paraguay Guaranis, Peru Nuevos Soles and Uruguay Pesos from flights between Brazil, Argentina, Bolivia, Chile, Paraguay, Peru and Uruguay). However, its liabilities, particularly those related to aircraft leasing and acquisition, are US dollar-denominated. The Company’s currency exchange exposure at March 31, 2007 is as set forth below:

    March 31, 2007    December 31, 2006 
     
Assets         
   Cash and cash equivalents    1,260,264    788,136 
   Deposits with lessors    266,224    273,031 
   Aircraft and engine maintenance deposits    21,271    20,223 
   Other    46,197    15,405 
     
           Total assets    1,593,956    1,096,795 
 
Liabilities         
   Foreign suppliers    23,306    25,249 
   Others    33,636    63,167 
     
           Total liabilities    56,942    88,416 
     
   Exchange exposure    1,537,041    1,008,379 
     
   Exchange exposure in thousands of U.S. dollars    749,617    471,645 
     
 
Off-balance sheet transactions exposure         
   Operating Leases    1,894,194    1,948,607 
   Aircraft commitments    10,938,544    11,549,004 
     
           Total exchange exposure    14,369,752    14,505,990 
     
           Total exchange exposure in thousands of U.S.         
                    dollars    7,008,268    6,784,841 
     

The Company’s off-balance sheet exposure represents the future obligations related to operating lease contracts and aircraft purchase contracts.

The Company utilizes financial derivative instruments with first-tier banks for cash management purposes. The Company currently has synthetic fixed income options and swap agreements to obtain the Brazilian overnight deposit rate from fixed-rate or dollar-denominated investments.

a) Fuel

Airline operations are exposed to the effects of changes in the price of aircraft fuel. Aircraft fuel consumed in the first quarter of 2007 and 2006 represented approximately 39.5% and 39.8% of the Company’s operating expenses, respectively. To manage this risk, the Company periodically enters into crude oil option contracts and swap agreements. Because jet fuel is not traded on an organized futures exchange, liquidity for hedging is limited. However, the Company has found commodities for effective hedging of jet fuel costs. Historically, prices for crude oil are highly correlated to Brazilian jet fuel, making crude oil derivatives effective at offsetting jet fuel prices to provide short-term protection against a sharp increase in average fuel prices.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Brazilian Reais)

10. Financial Instruments and Concentration of Risk (Continued)

The following is a summary of the company’s fuel derivative contracts (in thousands, except as otherwise indicated):

    March 31,    December 31, 
    2007    2006 
         
Fair value of derivative instruments at the end of the quarter    R$  18,756    R$  (4,573)
Average remaining term (months)        
Hedged volume (barrels)     2,366,462      1,804,000 
 
Quarter ended March 31:      2007      2006 
         
Hedge effectiveness gains recognized in aircraft fuel expense         R$  628 
Hedge ineffectiveness net gains recognized in other income    R$  5,325     
Percentage of actual consumption hedged (during quarter)     87%      55% 

The Company utilizes financial derivative instruments as hedges to decrease its exposure to jet fuel price increases for short-term time frames. The Company currently has a combination of purchased call options, collar structures, and fixed price swap agreements in place to hedge approximately 60%, 25%, 25%, 10% and 10% of its jet fuel requirements for the second, third and fourth quarters 2007, and the first and second quarters of 2008, respectively, at average crude equivalent prices of approximately US$ 68.3, US$ 69.5, US$ 72.3, US$ 62.6 and US$ 62.9 per barrel, respectively.

The Company accounts for its fuel hedge derivative instruments as cash flow hedges under SFAS 133. Under SFAS 133, all derivatives designated as hedges that meet certain requirements are granted special hedge accounting treatment. Generally, utilizing the special hedge accounting, all periodic changes in fair value of the derivatives designated as hedges that are considered to be effective, as defined, are recorded in “Accumulated other comprehensive income” until the underlying jet fuel is consumed. When aircraft fuel is consumed and the related derivative contract settles, any gains or losses previously deferred in other comprehensive income are recognized as aircraft fuel expense. The Company is exposed to the risk that periodic changes will not be effective, as defined, or that the derivatives will no longer qualify for special hedge accounting. Ineffectiveness, as defined, results when the change in the total fair value of the derivative instrument does not equal 80-125% of the change in the value of the aircraft fuel being hedged or the change in value of the Company’s expected future cash outlay to purchase and consume jet fuel. To the extent that the periodic changes in the fair value of the derivatives are not effective, that ineffectiveness is recorded to “Other gains and losses” in the income statement. Likewise, if a hedge ceases to qualify for hedge accounting, those periodic changes in the fair value of derivative instruments are recorded to “Other gains and losses” in the income statement in the period of the change.

Ineffectiveness is inherent in hedging jet fuel with derivative positions based in other crude oil related commodities, especially given the recent volatility in the prices of refined products. Due to the volatility in markets for crude oil and related products, the Company is unable to predict the amount of ineffectiveness each period, including the loss of hedge accounting, which could be determined on a derivative by derivative basis or in the aggregate. In specific instances, the Company has determined that specific hedges will not regain effectiveness in the time period remaining until settlement and therefore must discontinue special hedge accounting, as defined by SFAS 133. When this happens, any changes in fair value of the derivative instruments are marked to market through earnings in the period of change.

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GOL LINHAS AÉREAS INTELIGENTES S.A.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Brazilian Reais)

10. Financial Instruments and Concentration of Risk (Continued)

a) Fuel (Continued)

The Company continually looks for better and more accurate methodologies in forecasting future cash flows relating to its jet fuel hedging program. These estimates are used in the measurement of effectiveness for the Company’s fuel hedges, as required by SFAS 133. During second quarter 2006, the Company revised its method for forecasting future cash flows. Previously, the Company had estimated future cash flows using actual market forward prices of like commodities and adjusting for historical differences from the Company’s actual jet fuel purchase prices. The Company’s new methodology utilizes a statistical-based regression equation with data from market forward prices of like commodities, and will not have a material impact on the financial statements.

During the three months ended March 31, 2007, the Company recognized approximately R$2,730 (US$ 1,331) of additional net gains in Other (gains) losses, related to the ineffectiveness of its hedges and the loss of hedge accounting for certain hedges. Of this net total, approximately R$ 61 (US$ 30) was ineffectiveness expense and mark-to-market losses related to contracts that settled during first quarter of 2007. As of March 31, 2007 there was R$ 6,020 (US$2,936), net of taxes, on unrealized gains with jet fuel hedges recorded in “comprehensive income”. Also, there were derivative transactions not designated as hedges for which the change in fair value during the period was R$2,945 which was recorded in other expenses.

Outstanding financial derivative instruments expose the Company to credit loss in the event of nonperformance by the counterparties to the agreements. However, the Company does not expect any of its six counterparties to fail to meet their obligations. The amount of such credit exposure is generally the unrealized gain, if any, in such contracts. To manage credit risk, the Company selects counterparties based on credit assessments, limits overall exposure to any single counterparty and monitors the market position with each counterparty. The Company does not purchase or hold financial derivative instruments for trading purposes.

b) Exchange rates

The Company is exposed to the effects of changes in the USD exchange rate. Exchange exposure relates to amounts payable arising from USD-denominated and USD-linked expenses and payments. To manage this risk, the Company uses USD options and futures contracts.

The following is a summary of our foreign currency derivative contracts (in thousands, except as otherwise indicated):

    March 31,    December 31, 
    2007    2006 
         
Fair value of derivative instruments at the end of period    R$  4,310    R$  (275)
Longest remaining term (months)        
Hedged volume      261,500    R$  180,127 
 
Quarter ended March 31:      2007      2006 
         
Hedge effectiveness losses recognized in operating expenses        R$  (5.383)
Hedge ineffectiveness losses recognized in other expenses    R$  (6,596)   R$  (227)
Percentage of expenses hedged (during quarter)     50%      65% 

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GOL LINHAS AÉREAS INTELIGENTES S.A.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Brazilian Reais)

10. Financial Instruments and Concentration of Risk (Continued)

The Company utilizes financial derivative instruments as hedges to decrease its exposure to increases in the USD exchange rate. The Company has utilized financial derivative instruments for short-term time frames. The Company accounts for its foreign currency futures derivative instruments as cash flow hedges under SFAS 133. As of March 31, 2007 the unrealized loss with exchange rates recorded in “comprehensive income” was R$ 2,040, net of taxes.

While outstanding, these contracts are recorded at fair value on the balance sheet with the effective portion of the change in their fair value being reflected in other comprehensive income. Ineffectiveness, the extent to which the change in fair value of the financial derivatives exceeds the change in the fair value of the operating expenses being hedged, is recognized in other income (expense) immediately. When operating expenses are incurred and the related derivative contract settles, any gain or loss previously deferred in other comprehensive income is recognized in operating expenses.

c) Cash management

The Company utilizes financial derivative instruments for cash management purposes. The Company utilizes synthetic fixed income options and swaps to obtain the Brazilian overnight deposit rate from fixed-rate or dollar-denominated investments. The Company enters into synthetic fixed income option contracts with first-tier banks registered in the Brazilian CETIP clearing house. As of March 31, 2007, the total amount invested in synthetic fixed-income option contracts was R$ 78,982 with average term of 241 days. The Company utilizes swap agreements to change the remuneration of a portion of its short term investments to the Brazilian overnight deposit rate (“CDI”). As of March 31, 2006, the notional amount of fixed-rate swaps to CDI was R$ 75,000 with a fair value of R$ (520), and the notional amount of dollar-denominated swaps to CDI was R$ 183,667 with a fair value or R$ 5,636. The change in fair value of these swaps is recognized in interest income in the period of change.

11. Income Taxes

The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”, on January 1, 2007. As a result of the implementation of Interpretation 48, there has been no impact on the liability for unrecognized tax benefits. Accordingly, there are no interest and penalties accrued related to unrecognized tax benefits. The Company will recognize interest in interest expense and penalties in operating expenses for future unrecognized tax benefits.

The reconciliation of the reported income tax and social contribution and the amount determined by applying the composite fiscal rate at March 31, 2007 and March 31, 2006, is as follows:

    Three-month period ended 
    March 31, 
   
    2007    2006 
     
Income before income taxes    159,701    248,630 
Nominal composite rate    34.0%    34.0% 
     
Income tax by the nominal rate    54,298    84,534 
Interest on stockholders’ equity    (11,427)   (12,033)
Other permanent differences    248    (3,661)
     
Income tax expense    43,119    68,840 
     
Effective rate    27.0%    27.7% 
     

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GOL LINHAS AÉREAS INTELIGENTES S.A.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Brazilian Reais)

12. Earnings per Share

The Company’s preferred shares are not entitled to receive any fixed dividends. Rather, the preferred shareholders are entitled to receive dividends per share in the same amount of the dividends per share paid to holders of the common shares. However, our preferred shares are entitled to receive distributions prior to holders of the common shares. Consequently, basic earnings per share are computed by dividing income by the weighted average number of all classes of shares outstanding during the year. Preferred shares are excluded during any loss period. The diluted preferred shares are computed including the executive employee stock options calculated using the treasury-stock method as they were granted at an exercise price less that the market price of the shares.

    Three-month period ended 
    March 31, 
   
    2007    2006 
     
Numerator         
Net income applicable to common and preferred shareholders for         
         basic and diluted earnings per share    116,582    179,790 
 
Denominator         
Weighted-average shares outstanding for basic earnings per share         
         (in thousands)   196,211    195,960 
 
Effect of dilutive securities:         
Executive stock options (in thousands)   60    200 
     
Adjusted weighted-average shares outstanding and assumed         
         conversions for diluted earnings per shares (in thousands)   196,271    196,160 
     

13. Subsequent Events

On April 4, 2007, the Company received approval from the National Civil Aviation Agency (ANAC) to complete the transfer of VRG to GTI S.A., a wholly-owned subsidiary of Gol Linhas Aéreas Inteligentes. With this authorization, the Company initiated execution of the plan developed for VRG, which will operate with its own brand (VARIG) and differentiated services, incorporating the low-cost business model of Gol Transportes Aéreos S.A.

On April 9, 2007, the Company’s Board of Directors approved a capital increase amounting to R$518,100 by means of the issuance of 8,519,979 preferred shares in order to meet the obligations assumed by its subsidiary GTI S.A. in connection with its acquisition of VRG’s capital ownership. When the Company agreed to acquire the capital stock of VRG, it agreed to pay a portion of the acquisition price with 6,049,185 preferred shares (representing approximately 3.1% of its total shares outstanding). According to Brazilian law, the issuance and transfer of preferred shares to Varig Logística S.A, the seller of VRG, triggers preemptive rights of the company’s existing shareholders. Of the total authorized issuance of 8,519,979 preferred shares, the company will transfer 6,049,185 preferred shares to Varig Logística S.A. The Company’s shareholders (other than Fundo de Investimento em Participações Asas, the Company’s principal shareholder) have the right to subscribe for 2,470,794 preferred shares (representing approximately 1.3% of the Company’s total shares outstanding). The Company voluntarily elected to register this rights offering with the Securities and Exchange Commission (SEC), in order to enable U.S. holders of its preferred shares and ADRs to participate in the rights offering.

On April 12, 2007, the Company increased the capital of GTI S.A. in the amount of R$138,264 (US$68,000), corresponding to 138,264,400 ordinary and preferred shares subscribed on October 26, 2004 at the price of R$ 1.00 per share, as part of the payment to VarigLog.

F - 17



 
SIGNATURE
 
 
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.

Date: April 19, 2007

 
GOL LINHAS AÉREAS INTELIGENTES S.A.
 
By:
/S/  Richard F. Lark, Jr.

 
Name:   Richard F. Lark, Jr.
Title:     Executive Vice President – Finance, Chief Financial Officer
 

 

FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates offuture economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will a ctually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.