| Material accounting policies, new accounting standards and new and not yet effective accounting standards | 4. Material accounting policies, new accounting standards and new and not yet effective accounting standards 4.1 New accounting standards adopted in 2023 Deferred tax related to assets and liabilities arising from a single transaction The Company has adopted Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12 The Company previously accounted for deferred tax on leases by applying the integrally linked approach, resulting in a similar outcome as under the amendments, expect that the deferred tax asset or liability was recognized on a net basis. Following the amendments, the Company has recognised a separate deferred tax asset in relation to its lease liabilities and a deferred tax liability in relation to its right of use assets. However, there was no impact on the statement of financial position because the balances qualify for offset under paragraph 74 12 23 Material accounting policy information The Company also adopted Disclosure of Accounting Policies (Amendments to IAS 1 2 The amendments require the disclosure of material, rather than significant, accounting policies. The amendments also provide guidance on the application of materiality to disclosure of accounting policies, assisting entities to provide useful, entity-specific accounting policy information that users need to understand other information in the financial statements. Management reviewed the accounting policies and made updates to the information disclosed in note 4.2 2022 Accounting standards issued but not yet effective
Below are presented the recent changes to the Accounting Standards that are required to be applied for annual periods beginning after January 1, 2024 and that are available for early adoption in annual periods beginning on January 1, 2023. However, the Company has not early adopted the following new or amended accounting standards in preparing these consolidated financial statements.
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Classification of liabilities as current or non-current and non-current liabilities with Covenants – Amendments to IAS 1 (January 1, 2024)
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Supplier Finance Arrangements – Amendments to IAS 7
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Lease Liability in a Sale and Leaseback – Amendments to IFRS16 (January 1, 2024)
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Lack of Exchangeability – Amendments to IAS 21 (January 1, 2025) The new and not yet effective accounting standards, when adopted, are not expected to have a material impact on these consolidated financial statements. 4.2 Material accounting policies The material accounting policies applied in the preparation of the Consolidated Financial Statements are presented below. These policies have been consistently applied in the periods presented herein. a. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, bank deposits and highly liquid short-term investments and have maturities of three months or less from the date of purchase and that are readily convertible into a known amount of cash and are subject to immaterial risk of change in value.
b. Financial Assets and Liabilities Classification Financial Assets’ classification depends on the entity’s business model for managing them and if their contractual cash flows represent solely payments of principal and interest. Based on this assessment Financial Assets are classified as measured: at amortized cost, at FVTOCI (fair value through other comprehensive income); or at FVTPL (fair value through profit or loss). A business model to manage financial assets refers to the way the Company manages its financial assets to generate cash flows, determining if the cash flows will occur through the collection of contractual cash flows at maturity date, through the sale of the financial asset, or both. The information considered in the business model evaluation includes the following:
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The policies and goals established for the portfolio of financial assets and feasibility of these policies. They include whether management’s strategy focuses on obtaining contractual interest income, maintaining a certain interest rate profile, matching the duration of financial assets with the duration of related liabilities, or expected cash outflows, or the realization of cash flows through the sale of assets.
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how the performance of the portfolio is evaluated and reported to the Company’s Management.
risks that affect the performance of the business model (and the financial assets held in that business model) and the way those risks are managed.
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how business managers are compensated - for example, if the compensation is based on the fair value of managed assets or on the contractual cash flows obtained; and
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the volume and timing of sales of financial assets in prior periods, the reasons for such sales and future sales expectations. For assessing whether contractual cash flows represent solely payments of principal and interest, “principal” is defined as the fair value of the financial asset upon initial recognition. “Interest” is defined as a consideration for cash at the time and for the credit risk associated with outstanding principal amount during a certain period and for other risks and base costs of loans (for example, liquidity risk and administrative costs), as well as for the profit margin. The Company considers the contractual terms of the instruments to evaluate whether the contractual cash flows are only payments of principal and interest. This includes evaluating whether the financial asset contains a contractual term that could change the timing or amount of the contractual cash flows so that it would not meet this condition. In making this evaluation, the Company considers the following:
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contingent events that change the amount or timing of cash flows.
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terms that may adjust the contractual rate, including variable rates.
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the prepayment and the extension of the term; and
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the terms that limit the access of the Company to cash flows from specific assets (for example, based on the performance of an asset). Due to their nature, as of December 31, 202 3 and 202 2 the Company’s financial assets are classified as “measured at amortized cost” , except for the Marketable securities and other i nvestments and interests in entities , which are classified as “measured at fair value through profit or loss” . Financial assets are not reclassified after initial recognition, unless the Company changes the business model for the management of financial assets, in which case all financial assets affected are reclassified on the first day of the reporting period subsequent to the change in the business model. Financial liabilities are classified as measured as amortized cost or at FVTPL. A financial liability is classified as measured at fair value through profit or loss if it is classified as held for trading if it is a derivative or assigned as such upon initial recognition. Due to their nature, as of December 31, 202 3 and 202 2 the Company’s financial liabilities are classified as “measured at amortized cost”. Initial Recognition and Subsequent Measurement Trade receivables are initially recognized on the date they were originated. All other financial assets and liabilities are initially recognized when the Company becomes a party to the instrument’s contractual provisions. A financial asset (unless it is trade receivable without a significant financing component) or a financial liability is initially measured at fair value, plus, for an item not measured at FVTPL (fair value through profit or loss), transaction costs which are directly attributable to its acquisition or issuance. A trade receivable without a significant financing component is initially measured at its transaction price. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in statements of profit or loss. Financial assets are derecognized when the rights to receive the cash flows expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership. Gains or losses arising from changes in the fair value of the “Financial assets at fair value through profit or loss”, as well as interest income accrued over “Assets measured at amortized cost”, are presented in statements of profit or loss under “Finance income” in the period in which they arise. The Company derecognizes a financial liability when its contractual obligations are discharged or canceled or expired. The Company also derecognizes a financial liability when the terms are modified, and the cash flows of the modified liability are substantially different. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in statements of profit or loss. Offsetting of financial assets and liabilities Financial assets and liabilities are offset, and the net amount presented in the Consolidated Statement of Financial Position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle them a net basis or realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty. Impairment of financial assets The Company assesses on a prospective basis the expected credit loss (“ECL”) associated with its financial asset instruments carried at amortized cost, with accruals and reversals recorded in the Statement of Profit or Loss . ECLs are based on the difference between the contractual cash flows due in accordance with the contractual terms and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate. The methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Company applied the simplified approach and calculated impairment losses based on lifetime expected credit losses as from their initial recognition, as described in n ote 10
c. Inventories Inventories are measured at the lower of cost and net realizable value. The method of valuation of inventories is the average cost. The cost of finished goods and work in progress comprises project costs, raw materials, publishing costs (e.g., direct labor, other direct costs and the related direct production costs). Editorial
costs incurred during the development phase of a new product are presented
within inventories as “work in progress,” as materials are substantially
revised annually. After the conclusion of its production and allocation in the
line of “finished product”, the sales of the product begins and any subsequent
costs incurred are recognized in profit or loss as “cost of goods sold and
services”, according to the accrual period on which the services are provided. If losses are not expected, the provision is reversed. Management periodically assesses whether obsolete inventories need to be destroyed. The Company also recognizes the right of return on its inventories. See n ote 3.2 (e ).
d. Property, Plant and Equipment Property, plant, and equipment is stated at historical cost less accumulated depreciation. Historical cost includes the cost of acquisition. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with these costs will flow to the Company, and they can be measured reliably. The carrying amount of the replaced items or parts is derecognized. All other repairs and maintenance are charged to statement of Profit or Loss during the financial period in which they are incurred. Depreciation of assets is calculated using the straight-line method to reduce their cost to their residual values over their estimated useful lives, as follows:
Years
Property, buildings and leasehold improvements
5-20
IT equipment
3-10
Furniture, equipment and fittings
3-10
Right of use assets
3-15 The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. The Company did not identify changes in the useful life on December 31, 20 2 3 and 202 2 . Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in statement of Profit or Loss when control of the asset is transferred. See n ote 1 3 .
e. Business Combination Acquisitions of businesses are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. Acquisition-related costs are expensed as incurred and included in general and administrative expenses. At the acquisition date, the identifiable assets acquired, and the liabilities assumed are recognized at their fair value at the acquisition date. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured, and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognized in statement of profit or loss. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as of that date. See Note 5
f. Intangible Assets and Goodwill The Company’s intangible assets are mostly comprised of software, trademarks, customer portfolio, platform content production, trade agreement, copyrights, and goodwill. Those items are further described below: Goodwill Goodwill arising on the acquisition of subsidiaries is measured as set out in n ote 1 4 . Software Computer software licenses purchased are capitalized based on the costs incurred to acquire and bring to use the specific software or to develop new functionalities to existing ones. Directly attributable costs that are capitalized as part of the software product / project include the software / project development employee costs and an appropriate portion of significant direct expenses. Other development costs and subsequent expenditures that do not meet these capitalization criteria (e.g. maintenance and on-going operations) are recognized as an expense as incurred. Development costs previously recorded as an expense are not recognized as an asset in a subsequent period. Software recognized as assets is amortized using straight-line method over its estimated useful lives, not greater than 5 years. The Company did not identify changes in the useful life on December 31, 202 3 and 202 2 . Trademarks Separately acquired trademarks are initially stated at historical cost. Trademarks acquired in a business combination are recognized at fair value at the acquisition date. Subsequently, trademarks are amortized to the end of their useful lives. Amortization is calculated using the straight-line method to allocate the cost of trademarks over their estimated useful lives of 20 to 30 on December 31, 20 2 3 and 202 2 . Customer portfolio Customer portfolios acquired in a business combination are recognized at fair value at the acquisition date. The contractual customer relationship has an estimated finite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method over the expected life of the customer relationship (from 12 to 13 years). The Company did not identify changes in the useful life on December 31, 202 3 and 202 2 . Platform content production Development expenditure with platform content is capitalized only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognized in profit or loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortization and any accumulated impairment losses. Amortization is calculated on the straight-line method over their estimated useful lives of 3 on December 31, 202 3 and 202 2 .
g. Copyrights The Company accounts for different copyright agreements as follows:
i.
Copyrights are paid to the authors of the content included in the textbooks produced by the Company and are calculated based on agreed upon percentages of revenue or cash inflows related to the books sold, as defined in each contract. Payments are made on a monthly, quarterly, semi-annually, annually or hybrid basis. For these contracts the authors maintain the legal title of the copyrights. These copyrights are charged to the statement of profit or loss and other comprehensive income on an accrual basis when the products are sold.
ii. In some instances where the authors maintain the legal title of the copyrights, contracts require the prepayment of part or even the full down payment of forecasted sales before the authors start the production of the content. In such cases, copyrights are recognized as a “Prepayments” in the Consolidated Statement of Financial Position and charged to statements of Profit or Loss when the books are sold based on the related sales forecast. The Company reviews regularly the forecast sales to determine if an impairment is required.
iii. When the Company purchases permanently the legal title of the copyright from the authors, the amounts are capitalized in “Intangible Assets and Goodwill” as “Other intangible assets” and are amortized on the straight-line method over their estimated useful lives, which are not greater than 3 The Company did not identify changes in the useful life as of December 31, 202 3 and 202 2 .
h. Impairment of non-financial assets Assets that are subject
to depreciation or amortization are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognized when the asset’s carrying amount
exceeds its recoverable amount. The recoverable amount is the higher of an assets
fair value less costs to sell and its value in use. Assets that have an indefinite useful life, for example goodwill, are not subject to amortization and are tested annually for impairment. Goodwill impairment tests are undertaken annually or more frequently if events or changes in circumstances indicate potential impairment, at the end of each fiscal year. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable and independent cash inflows (Cash-generating units – CGU’s). For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the CGUs (or groups of CGUs) that is expected to benefit from the synergies of the combination. Non-financial assets, other than goodwill, that have been adjusted following impairment are subsequently reviewed for possible reversal of the impairment at each reporting date. The impairment of goodwill recognized in statement of profit or loss is not reversed. See n ote 5
i. Bonds and Financing The Bonds and financing are recognized initially at fair value, net of transaction costs incurred, and are subsequently carried at amortized cost. Any difference between the proceeds (net of transaction costs) and the total amount payable is recognized in consolidated profit and loss over the period of the bonds and financing using the effective interest rate method. Following initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest rate method. The Bonds and financing are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least twelve period to be prepared for its intended use or sale, are capitalized as part of the cost of that asset when it is probable that future economic benefits associated with the item will flow to the Company and the costs can be measured reliably. The other borrowing costs are recognized as finance costs in the period in which they are incurred. See Note 1 5 .
j. Suppliers (including Reverse Factoring) Suppliers are obligations to pay for goods or services that have been acquired in the ordinary course of business. They are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method.
Some of the Company’s domestic suppliers sell their products with extended payment terms and may subsequently transfer their receivables due by the Company to financial institutions without right of recourse, in a transaction characterized as “Reverse Factoring”. The Company charged interest over the payment term at a rate that is commensurate with its own credit risk being subsequently recorded as finance cost using the effective interest rate method. The operation does not affect the deadlines, prices and conditions previously agreed . The suppliers specifically related to Reverse Factoring are segregated in the n ote 1 6 . In addition, the effects of Reverse Factoring on Cash Flows are recognized in “Cash flow from operating activities ”.
k. Leases
i.
Right-of-use assets The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. The recognized right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life or the lease term, as most of the Company’ leases are related to property leases.
ii.
Lease liabilities At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating a lease, if the lease term reflects the Company exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. The accounting amount of the lease liabilities is remeasured if there is a change in the term of the lease, a change in fixed lease payments or a change in valuation to purchase the right-of-use asset.
iii.
Short-term leases and leases of low-value assets The Company applies the short-term lease recognition exemption to its short-term leases of properties (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease.
iv.
Determining the lease term of contracts with renewal options The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if reasonably certain to be exercised. The Company has the option, under some of its leases to lease the assets for additional terms. The Company applies judgment in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Company reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).
l. Provision for tax, civil and labor losses The provisions for risks related to lawsuits and administrative proceedings involving tax, civil and labor matters are recognized when ( i ) the Company has a present legal or constructive obligation as a result of past events; (ii) it is probable that an outflow of resources will be required to settle the obligation; and (iii) the amount can be reliably estimated. The likelihood of loss of judicial/administrative proceedings in which the Company appears as a defendant is assessed by Management on the financial statement dates. Provisions are recorded in an amount the Company believes it is adequate to cover probable losses, being determined by the expected future cash flows to settle the obligation that reflects current risks specific to the liability. The increase in the provision due to the time elapsed is recognized as interest expense. Penalties assessed on these proceedings are recognized in general and administrative expenses when incurred. See Note 2 2 .
m. Current and Deferred income tax and social contribution Taxes comprise current and deferred Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL), calculated on pre-tax profit basis. IRPJ and CSLL are calculated based on the nominal statutory rates of 25% and 9%, respectively, adjusted by non-taxable/nondeductible items provided for by law. Deferred income tax and social contribution are calculated on income tax and social contribution losses and other temporary differences in relation to the balances of assets and liabilities in the Statement of Financial Position. The deferred income tax and social contribution assets are fully accounted for, except when it is not probable that assets will be recovered by future taxable income. Current and deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when current and deferred tax assets and liabilities are related to the tax levied by the same tax authority on the taxable entity where there is an intention to settle the balances on a net basis. See Note 2 3 .
n. Employee Benefits The Company has the following employee benefits: Short-term employee benefits Obligations for short-term employee benefits are recognized as personnel expenses as the related service is rendered. The liability is recognized at the amount expected to be paid, if the Company has a legal or constructive obligation to pay this amount as a result of prior service rendered by the employee, and the obligation can be reliably estimated. The Company also provides its commercial team with commissions calculated considering existing sales and revenue targets that are periodically reviewed. These amounts are accrued in “Salaries and Social contributions” on a monthly basis based on the achievements of such goals, with payments generally being made twice a year. Since commissions are paid based on the annual sales of each contract, the Company elected to use the practical expedient to expense the costs as incurred. b. Pension Contributions The Company offered a defined contribution plan to its employees and once the contributions have been made, the Company has no additional payment obligation, and the costs are therefore recognized in the month in which the contribution is incurred ( i.e employees have rendered services entitling them to the right to receive those benefits), which is consistent with recognition of payroll expenses in statement of Profit or Loss. c. Share-based Payments The Company compensates part of its Management and some employees through share-based compensation by plans involving Restricted Share Units or “RSU” , and Performance Share Units, or “PSU” . The RSU and PSU plans are based on Company shares, through a fixed share price (market price) determined on the grant date which the Company has the obligation of delivering shares without cash settled payment. The Share based payment is divided in the following:
(i) Long Term Investment – “ILP” – Refers to RSU based compensation reserve in equity and the corresponding taxes under “Salaries and Contributions”. See Note 2 4 . 3 d. Termination benefits Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or whenever an employee accepts voluntary resignation in exchange for these benefits. The Company recognizes termination benefits at the earlier of the following dates: ( i ) when the Company can no longer withdraw the offer of those benefits; and (ii) when the entity recognizes costs for a restructuring and involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12
o. Shareholders’ Equity
i. Share Capital On December 31, 202 3 , the Company’s share capital was R$ 4,820,815, divided into 81,002,235 shares (excluding treasury shares), of which 64,436,093 are Class B shares held by Cogna Group and 16,566,142 are Class A common shares held by others.
ii. Capital reserve The breakdown of capital reserves is arising from share-based payment in the amount of R$ 89,627 on December 31, 202 3 , and R$ 80,531 on December 31,202 2 . S ee n ote 2 4 .
iii. Treasury shares On December 31, 202 3 the Company holds shares in treasury in the amount of R$ 59,525 (R$ 23,880 on December 31, 2022) , corresponding to 2,647,652 shares (1,000,000 shares on December 31, 2022). S ee n ote 2 4 . 4
p. Revenue Recognition The Company generates most of its revenue from the sale of textbooks (“publishing” when sold as standalone products or “PAR” when bundled as an educational platform) and learning systems in printed and digital formats to private schools through short-term transactions or term contracts with an average period from three Contents in printed and digital formats related to these textbooks and learnings systems are mostly the same, with minor supplements presented in digital format only. Therefore, revenue from educational contents is recognized when the Company delivers the content in printed and digital format. The Company also sells its products directly to students and parents through its e-commerce platform. Since the Company obtains control of the goods sold before they are transferred to its customers, the Company assessed the principal versus agent relationship and determined that it is a principal in the transaction. Therefore, revenue is recognized in a gross amount of consideration to which the Company is entitled in exchange for the specified goods transferred. Pursuant to the terms of the contracts with some customers, they are requi |
