EX-1 3 e852739.txt INTERIM FINANCIAL STATEMENTS Exhibit 1 (A free translation of the original report in Portuguese on financial statements prepared in conformity with accounting principles determined by Brazilian corporate legislation) BRASKEM S.A. INTERIM FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 2002 AND REPORT OF INDEPENDENT ACCOUNTANTS ON LIMITED REVIEW (A free translation of the original report in Portuguese) REPORT OF INDEPENDENT ACCOUNTANTS ON LIMITED REVIEW October 31, 2002 To the Board of Directors and Shareholders Braskem S.A. 1 We have carried out limited reviews of the financial information included in the Quarterly Information of Braskem S.A. related to the quarters and periods ended September 30, 2002 and June 30, 2002. This interim financial information is the responsibility of the Company's management. The limited reviews of the Quarterly Information related to the quarters and periods ended September 30, 2002 and June 30, 2002 of Politeno Industria e Comercio S.A. (jointly-controlled company) and Petroflex Industria e Comercio S.A. (affiliate), the investments in which represents 1.57% and 2.54%, respectively, of the total assets of the Company, were conducted by other independent accountants, and our report, insofar as it relates to the amounts of these investments and the profit originated from them, is based solely on the reports of the other independent accountants. 2 Our review was performed in accordance with standards established by the Institute of Independent Auditors of Brazil (IBRACON) and the Brazilian Federal Accounting Council (CFC), and mainly comprised: (a) inquiries of and discussion with officials responsible for accounting, financial and operating areas of the Company with regard to the principal criteria adopted for the preparation of the Quarterly Information, and (b) a review of the significant information and of the subsequent events which have, or could have, significant effects on the Company's financial position and operations. 3 As mentioned in Note 1(a) to the Quarterly Information, the Extraordinary General Meeting on August 16, 2002 approved the merger into the Company of the net assets of 52114 Participacoes S.A. and OPP Produtos Petroquimicos S.A. in the context of the operational and corporate restructuring process of COPENE - Petroquimica do Nordeste S.A., for the purpose of creating Braskem S.A.. The aforementioned companies were merged into the Company based on their respective shareholders' equity balances as of May 31, 2002, based on reports issued by independent experts. In accordance with the Merger and Justification Protocol, the variations in the balances of assets and liabilities of the merged companies between May 31, 2002 and the effective merger date of August 16, 2002 were recorded directly in the Company. Nevertheless, the variations for the period from June 1, 2002 to June 30, 2002, were recorded in the Company's accounting records in the third quarter of 2002. As a consequence, the loss for the quarter ended September 30, 2002 is overstated by R$ 303,291 thousand. 2 October 31, 2002 Braskem S.A. 4 Based on our limited reviews and on the limited review reports issued by the other independent accountants, and except for the matter mentioned in paragraph 3, we are not aware of any material modification that should be made to the Quarterly Information referred to in the first paragraph for it to be in conformity with the accounting principles determined by the Brazilian Corporate Law applicable to the preparation of the Quarterly Information, consistent with the regulations of the Brazilian Securities Commission (CVM). 5 The statements of operations for the quarters and periods ended September 30 and June 30, 2001, which are presented for comparative purposes, were reviewed by other independent accountants, whose report, dated November 6, 2001, included exception paragraphs because the financial statements of certain jointly controlled companies, the investments in which represented 2.71% of the total assets of the Company as of September 30, 2001, had not been reviewed by other independent accountants, and because the Company deferred the foreign exchange loss, overstating the net income for the nine month period ended September 30, 2001 by R$156,217 thousand. Their report also included an emphasis paragraph about the Company's legal challenge of the constitutionality of the Social Contribution tax on profit. 6 As mentioned in Note11(a) to the Quarterly Information, a lawsuit has been filed by the tax authorities against the Company and certain subsidiary companies, which is intended to overturn a higher court decision which removed their obligation to pay the Social Contribution on Net Income (enacted by Law 7,689/88), which they have not paid since 1989. The outcome of this matter cannot presently be determined. In addition to this lawsuit, as mentioned in Note 11 to the Quarterly Information, the Company's subsidiaries are party to other judicial and administrative processes of a tax, civil and labor nature, including the lawsuit regarding the validity of clause 4 of the Collective Labor Agreement, from which management does not expect significant losses in excess of the amounts already accrued for these matters. The Company's Quarterly Information does not include a provision for losses from an eventual unfavorable outcome to the Social Contribution and clause 4 lawsuits. 7 As mentioned in Note 1(a) to the Quarterly Information, the Company is conducting a comprehensive operating and corporate restructuring process, as part of the restructuring process of the Brazilian petrochemical industry, in order to provide for an adequate capital structure and more profitability, competitiveness and scale. The continuation of this process has affected and may continue to affect the economic situation and/or corporate structure of the Company and its subsidiaries. 8 The Company is an integral part of the group of companies which compose the Braskem Group and has entered into significant commercial and financial transactions with its shareholders, subsidiaries and other companies of the Group, which are carried out under the conditions described in Note 5 to the financial statements. 3 October 31, 2002 Braskem S.A. 9 As mentioned in Note 1(a) to the Quarterly Information, the Company recognized goodwill balances on the acquisition of investments, which are being amortized in accordance with the period of return based on the expected future profitability of the investees and the useful lives of their fixed assets, as defined in independent appraisal reports and management's financial projections. The continued recording of these goodwill balances and the methods for recording their amortization in future financial statements depend on the realization of the projected cash flows, income and expenses used by the appraisers in determining the future profitability of the investees. 10 As mentioned in Note 1(a) to the Quarterly Information, as of September 30, 2002, the Company's current liabilities exceed its current assets by the amount R$ 905,426 thousand (R$1,958,516 thousand consolidated). Additional long term financial resources will be needed to resolve its current liabilities. Management's and the shareholders' plans to provide for an adequate capital structure are described in Note 1(a). PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5 "S" BA Marco Aurelio de Castro e Melo Felipe Edmond Ayoub Partner Director Contador CRC 1SP153070/O-3 "S" BA Contador CRC 1SP187402/O-4 "S" BA 4 (A free translation of the original in Portuguese prepared in conformity with accounting principles determined by Brazilian corporate legislation) BRASKEM S.A. BALANCE SHEETS AS OF SEPTEMBER 30, 2002 AND JUNE 30, 2002 (Unaudited) (In thousands of Brazilian reais) A S S E T S
September 30, 2002 June 30, 2002 ------------------ ------------- CURRENT ASSETS: Cash and banks 21,907 16,286 Temporary cash investment 19,733 45,547 Trade accounts receivable 319,629 278,702 Notes and marketable securities 6,152 18,077 Notes receivable 15,389 24,208 Subsidiaries Inventories 294,792 203,770 Recoverable taxes 142,284 145,213 Prepaid expenses 3,765 8,733 Other receivables 26,515 13,957 --------- --------- Total current assets 850,166 754,493 --------- --------- NONCURRENT ASSETS: Notes receivable 85,851 85,044 Advances for capital increase 4,957 4,849 Related parties 586,711 329,644 Recoverable taxes 118,615 122,855 Judicial deposits 11,074 10,196 Deferred income tax 136,319 136,319 Other 902 957 --------- --------- Total noncurrent assets 944,429 689,864 --------- --------- PERMANENT ASSETS: Investments- Subsidiaries 4,678,994 1,509,488 Jointly controlled entities 599,915 150,979 --------- --------- 5,278,909 1,660,467 Other 64,271 64,271 --------- --------- Total 5,343,180 1,724,738 Property, plant and equipment 2,182,799 2,159,124 Deferred charges 356,430 361,920 --------- --------- Total permanent assets 7,882,409 4,245,782 --------- --------- Total assets 9,677,004 5,690,139 ========= =========
The accompanying condensed notes are an integral part of these financial statements. 5 (A free translation of the original in Portuguese prepared in conformity with accounting principles determined by Brazilian corporate legislation) BRASKEM S.A. BRASKEM S.A. BALANCE SHEETS AS OF SEPTEMBER 30, 2002 AND JUNE 30, 2002 (Unaudited) (In thousands of Brazilian reais) LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------
September 30, 2002 June 30, 2002 ------------------ ------------- CURRENT LIABILITIES: Bank loans 1,044,554 675,600 Foreign notes payable 14,168 533 Debentures 40,992 Suppliers 595,411 378,993 Taxes payable 60,880 52,429 Dividends 827 880 Other payable 39,752 44,552 ----------- --------- Total current liabilities 1,755,592 1,193,979 ----------- --------- LONG-TERM LIABILITIES: Bank loans 1,718,935 1,425,839 Foreign notes payable 584,235 426,660 Debentures 1,274,003 637,923 Provision for loss in investees 975,077 2,514 Related parties 2,431,379 91,748 Suppliers 53,479 44,243 Pension plan 53,753 53,753 ----------- --------- Total long-term liabilities 7,090,861 2,682,680 ----------- --------- SHAREHOLDERS' EQUITY: Updated capital 1,845,399 1,201,589 Capital reserves 717,822 717,822 Income reserves 97,684 97,684 Retained earnings (1,830,354) (203,615) ----------- --------- Total shareholders' equity 830,551 1,813,480 ----------- --------- Total liabilities and shareholders' equity 9,677,004 5,690,139 =========== =========
The accompanying condensed notes are an integral part of these financial statements. 6 (A free translation of the original in Portuguese prepared in conformity with accounting principles determined by Brazilian corporate legislation) BRASKEM S.A. BRASKEM S.A. STATEMENTS OF OPERATIONS FOR THE PERIODS ENDED SEPTEMBER 30, 2002 AND 2001 (Unaudited) (In thousands of Brazilian reais)
07/01/2002 01/01/2002 07/01/2001 01/01/2001 until until until until 09/30/2002 09/30/2002 09/30/2001 09/30/2001 ---------- ---------- ---------- ---------- GROSS SALES 1,270,506 2,881,141 953,354 2,973,908 DEDUCTIONS FROM SALES (244,058) (593,733) (216,691) (644,016) ---------- ---------- ---------- ---------- Net sales 1,026,448 2,287,408 736,663 2,329,892 COST OF SALES (847,219) (1,948,292) (652,662) (1,995,510) ---------- ---------- ---------- ---------- Gross profit 179,229 339,116 84,001 334,382 OPERATING (EXPENSES) INCOME: Selling (16,110) (33,760) (14,605) (42,486) General and administrative (36,128) (73,184) (18,840) (50,603) Financial expenses (902,285) (1,456,715) (40,791) (296,502) Financial income 167,655 247,474 79,113 193,569 Other operating income (expenses) - net (61,988) (79,717) (4,221) (15,891) ---------- ---------- ---------- ---------- Total (848,856) (1,395,902) 656 (211,913) EQUITY IN INCOME OF SUBSIDIARIES AND AFFILIATES (957,157) (915,173) (18,771) (8,539) ---------- ---------- ---------- ---------- INCOME (LOSS) FROM OPERATIONS (1,626,784) (1,971,959) 65,886 113,930 NONOPERATING (INCOME) EXPENSES, NET 8 (47,205) (9,158) (9,625) ---------- ---------- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAX (1,626,776) (2,019,164) 56,728 104,305 BENEFIT (PROVISION) FOR INCOME TAX: Provision for income tax and social contribution (404) 10,418 (413) Deferred income tax 57,638 (33,288) (32,480) ---------- ---------- ---------- Total benefit (provision) for income tax 57,234 (22,870) (32,893) ---------- ---------- ---------- Net income (loss) (1,626,776) (1,961,930) 33,858 71,412 ========== ========== ========== ========== NUMBER OF OUTSTANDING SHARES (THOUSANDS) 3,343,693 3,343,693 1,737,796 1,737,796 ========== ========== ========== ========== NET INCOME (LOSS) PER THOUSAND SHARES - in whole reais (0.48652) (0.58676) 0.01948 0.04109 ========== ========== ========== ==========
The accompanying condensed notes are an integral part of these financial statements. 7 (A free translation of the original in Portuguese prepared in conformity with accounting principles determined by Brazilian corporate legislation) BRASKEM S.A. 1. OPERATIONS (a) The Company's main activities are the manufacturing, trade, importing and exporting of chemical and petrochemical products and fuels, as well as the production of steam, water, compressed air and electric power, which are supplied to the companies making up the Camacari Petrochemical Complex in Bahia, Brazil, as well as service rendering for the same companies. The Company also maintains investments in other companies, either as partner or shareholder and is engaged in the manufacturing, distribution, trade, import and export of gasoline; diesel oil; liquefied petroleum gas (LPG) and other petroleum by-products. In the light of the corporate restructuring described in this Note, the Extraordinary General Meeting, on August 16, 2002, among other matters, approved the alteration of the Company's name to Braskem S.A.. (b) As of September 30, 2002 the Company presented negative working capital in the amount of R$905,426 thousand (R$1,962,081 thousand consolidated). The consolidated balance sheet includes R$1,348 million related to advances to export contracts and advances of foreign clients of Braskem and its subsidiaries that will be amortized with future exports. Its may be considerate that almost seventy percent of these loans are indexed to the US dollar exchange rate which close on September 30, 2002 at R$3.8949. As of October 31, 2002 this rate was R$3.645, representing a 6.4% decrease, resulting in a reduction of the loan balances in the amount of R$580 millions. For the reduction of the working capital demand, the Company's management and its subsidiaries depend on: 1) own cash generation; 2) the postponement of the payment dates of its main supplier obligations; 3) funding related to export flows and; 4) the postponement of the maturity of loans through new long term borrowings, including transactions in the conclusion phase in the amount of R$650 million. (c) Corporate Restructuring (i) Auction The Mariani and the Odebrecht Groups, through Nova Camacari Participacoes S.A., were the winners of the auction of the so-called Economico S.A. Empreendimentos Assets (ESAE Assets), held in the city of Sao Paulo on July 25, 2001. As a result, Nova Camacari acquired control of Norquisa, which, in turn, was Company's parent company. In order to maximize the value of the ESAE Assets in the auction, the Brazilian Central Bank, as Liquidator of Banco Economico (ESAE's controlling shareholdes), structured the so-called Protocol Group (Economico, Mariani and Odebrecht Groups) to sell the ESAE Assets jointly with a block of assets of the members of the Protocol Group, which included their respective shareholdings in Norquisa. The Brazilian Central Bank then announced two auctions for the sale of the package of shareholdings, in December 2000 and March 2001, both of which were inconclusive. The 3rd auction had as its objective the sale of 100% of the ESAE Assets for the minimum price of R$785,000 thousand. The winner of the 3rd auction, upon buying ESAE, was obliged to respect the tag-along rights of the remaining members of the Protocol Group and the shareholders' agreement of Copene Participacoes (the new name of Conepar - Companhia Nordeste de Participacoes). As a result, under the rules of the 3rd auction, Nova Camacari acquired, through the exercise of the tag along right of sale, 31.92% and 11.76% of Copene Participacoes' capital, held indirectly by the Odebrecht and Mariani Groups, and by BNDESPAR, respectively, and now holds 100% of Copene Participacoes' capital. Furthermore, through the exercise of the tag-along rights held by companies controlled by the Odebrecht and Mariani Groups, Nova Camacari acquired 100% of the capital of Proppet S.A. 8 For the acquisition of the Copene Participacoes stock held by BNDESPAR, a purchase option agreement was reached with Nova Camacari, which offered a bank certificate of deposit in the amount of R$164,000 as guarantee of its purchase intention. The purchase option was called by the Company on September 27, 2001 (see comments in this Note (viii)). Copene Participacoes, in turn, controls Polialden Petroquimica S.A. (66.67% of voting capital and 42.64% of total capital) and has a significant shareholding in Politeno S.A. Industria e Comercio (35.00% of voting capital and 30.99% of total capital), both of which are second-generation operational companies which produce thermoplastic resins. (ii) Cost of Investments With the amounts paid in the 3rd auction and those resulting from the exercise of the rights of joint sale ("tag-along"), and subsequent capital subscription in Proppet S.A., a premium of R$ 1,288,941 thousand was recorded on these acquisitions, as set out below:
% total In thousands of reais Assets capital Sellers Amount Investment Premium ------------------------------------- --------- ------------------------ ------------- -------------- ---------- ESAE (1) 100.00 Banco Economico 785,000 87,570 697,430 Rights of joint sale (tag-along)- Intercapital (1), (2) 100.00 Nova Odequi/Pronor/CBP 444,980 47,720 397,260 Proppet 100.00 Nova Odequi/Nitrocarbono 51,136 51,136 ------------- ----------- ---------- Total paid 1,281,116 135,290 1,145,826 ============= =========== ========== Copene Participacoes shares (3) 11.76 BNDESPAR 167,770 24,655 143,115 ------------- ----------- ---------- Total amount 1,448,886 159,945 1,288,941 ============= =========== ==========
(1) ESAE and Intercapital held, respectively, 56.31% and 31.92% of Copene Participacoes' total capital. (2) Minimum values calculated in proportion to the ESAE value. (3) Transaction concluded on September 27, 2001. The premiums paid were recorded as goodwill, are based on the future profitability of the underlying companies, and will be amortized on the straight line basis over ten years, as from August 1, 2001, in accordance with the yearly projections of future profitability set out in the appraisal report issued by independent appraisers, as mentioned in item (vi) of this Note. The amortization may be revised periodically according to changes in circumstances. The goodwill paid on the acquisition made on September 27, 2001, from BNDESPAR is being amortized as from October 1st, 2001. (iii) Funding of the purchase price The immediate principal funding of the payment of the consideration for the assets acquired in the auction or otherwise in connection with the auction of the ESAE Assets was through bridge loans to Nova Camacari from Banco ABN Amro Real S.A. ("ABN AMRO") and Citibank S.A. ("Citibank"), and subsequently with ING Bank N.V., in the total amount of R$1,201,363 thousand. This funding ended on December 28, 2001 and was substituted on the same date by the 10th issue of debentures, in the amount of R$625,000 thousand, and also by Export Prepayments of US$250,000 thousand. The remaining funds, R$226,562 thousand, were obtained through a Private Financing Instrument from companies within the controlling groups with remuneration based on the same terms as those of the Bridge Loan, i.e., the lower of 25.16% per year or 108.5% of the interbank certificate of deposit (CDI) rate. 9 (iv) Non-operational Assets Within the context of the 3rd auction, Odebrecht Quimica ("Odequi") acquired 23.69% of the common shares of Norquisa held indirectly by Polialden for R$241,942 thousand. This amount is proportional to the consideration arising from the exercise of the rights of joint sale (tag-along) by Trikem and Pronor paid on demand in cash. The sale of these shares resulted in a gain of R$141,825 thousand by Polialden. This transaction eliminated the potential cross-shareholdings between the Company and Nova Camacari that could have arisen upon Nova Camacari's subsequent purchase by the Company. It also substituted non-operating assets of Nova Camacari (shares in Norquisa) with cash available for funding of operations. (v) Acquisition of Nova Camacari by the Company Based on the authorization by the Company's Administrative Council on July 24, 2001, the Company acquired Nova Camacari after the 3rd Auction for the symbolic amount of R$100 (one hundred reais), giving rise to negative goodwill of R$45,949 thousand on the acquisition. With this transaction, the Company acquired assets which Nova Camacari had previously acquired in the context of the ESAE Auction, as well as the respective funding, in the amount of R$1,417,512 thousand. The amount paid for the acquisition of those investments is supported by the economic and financial appraisal reports of independent experts. The purchase of these assets (Northeast Assets) by the Company was approved by the aforementioned Company Administrative Council meeting on July 24, 2001. The terms of approval stipulated that, after the Company acquired Nova Camacari, a first class investment bank would independently appraise the cost of Nova Camacari for the purposes of adjusting the price paid by the Company, if applicable. The selected bank, Unibanco, prepared its appraisal using the same projections of resin and raw material prices and of macroeconomic indicators used in the formulation of the discount rate used in the independent appraisals of Nova Camacari. The remaining hypotheses and the methodology used to obtain the discount rate were selected by the bank. This appraisal presented a result compatible with the other appraisals, and was approved during the Company's Administrative Council meeting on December, 18, 2001. (vi) Upstream mergers On September 13, 2001, the Company publicly announced the terms, conditions and justifications for the corporate restructuring which it intended to carry out including the upstream merger of Nova Camacari, Intercapital and Proppet into the Company. The mergers were based on the book values of their respective Shareholders' Equity balances as attested to by qualified experts. The Stockholders' Extraordinary General Meeting of September 28, 2001, approved the complete merger. The reports of the qualified experts show the net assets of Nova Camacari, Intercapital and Proppet in accordance with accounting principles determined by Brazilian corporate legislation, based on their Balance Sheets as of August 31, 2001, as set out below: 10
In thousands of R$ --------------------------------------------------- Nova Camacari Intercapital Proppet -------------- -------------- -------------- ASSETS: Current 166,793 1 47,783 Noncurrent 3,430 Permanent assets- Investment- Cost 184,775 66,922 1,918 Goodwill 1,136,507 Property, plant and equipment 181,409 Deferred charges 21,468 15,265 -------------- ------------- -------------- 1,509,543 66,923 249,805 ============== ============= ============== Less- LIABILITIES: Current 1,494,854 125,486 Long-term liabilities 124,304 -------------- -------------- -------------- Net assets to be merged into Copene 14,689 66,923 15 ============== ============= ==============
No goodwill or negative goodwill resulted from the mergers because they were carried out at book values as of August 31, 2001. The assets merged into the Company included Nova Camacari's goodwill arising from the shareholdings acquired in the auction of July 25, 2001. This goodwill, in the total amount of R$1,270,073 thousand, net of the amortization of R$18,868 thousand, relates to Nova Camacari's shareholdings in ESAE, Intercapital and Proppet. On August 31, 2001 Nova Camacari had subscribed and paid in capital in Proppet S.A. in the total amount of R$27,616 thousand, recognizing goodwill of R$27,601 thousand as a result. As discussed in item (ii) of this Note, the economic basis of this goodwill is the future profitability of the operations of the companies acquired. Based on current tax legislation, this goodwill is expected to generate income tax benefits with a present value in local currency equivalent to US$50.1 million (R$195,135 thousand on September 30, 2002). These mergers were the first phase of a wider restructuring which, in the future, will result in the merger of other companies into the Company. The present value of expected cost savings and tax benefits resulting from the operational and tax synergies of this restructuring is estimated at the local currency equivalent of US$317.6 million (approximately R$1,237,020 thousand on September 30, 2002 - information not reviewed by independent accountants), which will have a favorable impact on the Company's future profits. 11 (vii) Acquisition of Copene Participacoes' shares Continuing the corporate restructuring process mentioned above, on September 27, 2001, Nova Camacari and BNDES Participacoes S.A. - BNDESPAR signed a Guaranteed Contract for Purchase and Sale of Shares. This contract provided for the acquisition of 1,000,000,000 (one billion) class "B" preferred nominative shares of Copene Participacoes, for the total price of R$163,997 thousand calculated on July 27, 2001, which, monetarily restated up to September 27, 2001, totaled R$167,770 thousand, including R$143,115 thousand of goodwill. The principal amount of the debt arising from this contract will be paid to BNDESPAR in a single installment, on August 15, 2006. Interest will accrue on this debt at the Long Term Interest Rate (TJLP) set by the Central Bank, plus a 4% per year spread. BNDESPAR has the option of converting the credit related to this contract, at the due date, into class "A" preferred stock of the Company. (viii) Formation of Braskem S.A. The Company announced on July 29,2002, that the Administrative Council, by unanimous deliberation, had called an Extraordinary General Meeting, which was held on August 16, 2002, and approved (a) the merger of the petrochemical and chemical assets belonging to Odebrecht and Mariani Groups (the "Odebrecht/Mariani Assets"), comprising OPP Produtos Petroquimicos S.A. (98.39% ownership) and 52114 Participacoes S.A. (100% ownership). The mergers occurred as of May 31, 2002. 52114 Participacoes S.A is a holding company which has a single investment of 92.29% of the total capital of Nitrocarbono S.A.; (b) the alteration of the name of COPENE to Braskem S.A. and (c) the modification of the by-laws to grant tag-along rights to all common and preferred shareholders upon an eventual sale of the Company's control. After the mergers' approval by the Extraordinary General Meeting mentioned above, the Company's paid-in capital increased from R$1,201,589 thousand to R$1,845,398 thousand, through the issue of 579,397,986 new common shares and 1,026,498,803 class "A" preferred shares. As established in the Merger and Justification Protocol, these mergers were performed through the exchange of Odebrecht/Mariani Assets' shares for new shares issued by the Company, based on economic appraisal reports of the involved companies, prepared by a first class investment bank. The net assets of the merged companies OPP Produtos Petroquimicos S.A. ("OPP PP") and 52114 Participacoes S.A. ("52114"), in accordance with the appraisal reports as of May 31, 2002, are presented as follows: 12
THOUSANDS OF R$ ----------------------------- OPP PP 52114 --------- ---------- ASSETS Current 393 Noncurrent 60,207 Permanent Investments 5.193.854 60.913 --------- ---------- 5.254.454 60.913 ========= ========== Less LIABILITIES Current 27.759 Long term 4.648.800 --------- ---------- Merged net assets 582.895 60.913 ========= ========== - Net assets variation between May 31 and August 16, 2002 (349,668) (7,622)
According to the Merger and Justification Protocol, the effects of the shareholders' equity variation between the date of the appraisal report, May, 31, 2002, and the date of the Extraordinary General Meeting, August, 16, 2002, were recorded in the Company's result, in the amount of R$ 357.290 thousand. The balance sheets of the merged companies included the following amounts of goodwill: In OPP PP, R$1,935,406 thousand, which is directly related to future profitability and the appreciation of the fixed assets of the subsidiaries of Odebrecht Quimica S.A. (OPP Quimica e Trikem), as defined in appraisal reports issued by independent experts. These goodwill amounts as of the date of the merger are presented as follows: ECONOMIC BASIS THOUSANDS AMORTIZATION OF R$ CRITERION Appreciation of fixed assets 1,603,812 Remaining economic useful lives of fixed assets Future profitability of the investees 331,594 10 years In 52114 Participacoes S.A., the goodwill amounting to R$56,611 thousand directly related to the appreciation of the fixed assets of the subsidiary Nitrocarbono S.A.. The Company and its subsidiaries may be economically and/or structurally affected by the outcome of this process. 2. SIGNIFICANT ACCOUNTING POLICIES The Quarterly Information - ITR was prepared in accordance with principles determined by Brazilian Corporation Law, and also in compliance with the standards and procedures determined by the Brazilian Securities Commission (CVM). In the preparation of the financial statements, it is necessary to use estimates to record certain assets, liabilities and other transactions. The accounting information of the Company and its subsidiaries includes, therefore, various estimates regarding the selection of the useful lives of property, plant and equipment and provisions for contingencies, income tax and other similar provisions. 13 The preparation of the Quarterly Information - ITR takes into consideration the following aspects: (a) DETERMINATION OF RESULTS Results are determined on the accrual basis of accounting. The provision for income tax, when due, is recorded including the tax incentive amounts, with the amounts related to tax exemption and reduction recorded as capital reserve. As from the third quarter of 2002, the Company started to record freight expenses on sales as "Deduction from sales", based on the fact that these expenses are included in the billed amount but passed on directly to the freight companies. Freight expenses amounted to R$21,220 thousand and R$12,221 thousand for the periods ended September 30 and June 30, 2002, respectively. (In 2001 freight expenses amounted to R$16,162 thousand for the periods ended September 30 and R$5,730 thousand for June 30, and were recorded as "Selling Expenses"). (b) CURRENT ASSETS AND LONG TERM RECEIVABLES Financial investments and marketable securities are shown at cost, including accrued income up to the balance sheet date, and adjusted by a provision for loss, when applicable. Inventories are stated at average purchase or production cost, which is lower than replacement cost or realizable value. Imports in transit are stated at the accumulated cost of each import. The other assets are shown at realizable values, including, where applicable, accrued income and monetary variations, or at cost in the case of prepaid expenses. (c) PERMANENT ASSETS These assets are stated at cost including restatements through December 31, 1995 and take the following into consideration: o Investments in subsidiary and associated companies are accounted for on the equity method, plus unamortized goodwill. o Property, plant and equipment are shown at cost, and as from 1997 include capitalized interest incurred during the expansion of production capacity of the plants. o Depreciation of property, plant and equipment is recorded on the straight-line method at the annual rates varying from 3.3% to 20%. o Amortization of deferred charges is recorded over a period from 2.5 to 10 years as from the time benefits begin to accrue. (c) CURRENT AND LONG TERM LIABILITIES These liabilities are stated at known or estimated amounts, including accrued charges and monetary correction, when applicable. The provision for loss in subsidiaries is recorded based on the negative net assets (unsecured liabilities) of these companies. It is accrued under the caption long term liabilities and expensed as operating income (expense). 14 (e) CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements were prepared in accordance with Brazilian Corporate Legislation and CVM instructions, and include the financial statements of the Company and its subsidiaries and jointly-owned subsidiary in which it has direct or indirect control, as shown below:
SHAREHOLDING BRASKEM'S DIRECT SHAREHOLDINGS COUNTRY IN TOTAL CAPITAL (%) ---------------------------------------------------------------------------- -------------------- ------------------------- SUBSIDIARIES Copene Monomeros Especiais S.A. ("Monomeros") Brazil 87.24 Tegal Terminal de Gases Ltda. ("Tegal") Brazil 82.00 CPN Incorporated Ltd. ("CPN Inc.") United States 100.00 CPN Distribuidora de Combustiveis Ltda. ("CPN Distribuidora") Brazil 100.00 Copene Participacoes S.A. ("Copene Participacoes") (*) Brazil 43.69 ESAE - Economico S.A. Empreendimentos ("ESAE") Brazil 100.00 Proppet Overseas Ltd. ("Proppet Overseas") Bahamas 100.00 Nitrocarbono S.A. ("Nitrocarbono") Brazil 92.29 Odequi Investments Ltd. ("OIL") Bahamas 100.00 Odequi Overseas Inc. ("OVERSEAS") Cayman Islands 100.00 Odebrecht Quimica S.A. ("Odequi") (***) Brazil 98.39 OPP Produtos Petroquimicos S.A. ("OPP PP") Brazil 100.00 52114 Participacoes S.A. ("52114") Brazil 92.29 JOINTLY CONTROLLED Cetrel S.A. Empresa de Protecao Ambiental ("Cetrel") Brazil 18.46 Codeverde Companhia de Desenvolvimento Rio Verde ("CODEVERDE") Brazil 35.42 Norcell S.A. ("Norcell") Brazil 88.42 COPESUL - Companhia Petroquimica do Sul ("COPESUL") * Brazil 20.67
(*) The investments in COPESUL were proportionally consolidated under CVM Instruction 247/96. (**) In the consolidated financial statements, the total participation in the capital of Copene Participacoes through the subsidiary ESAE is 100%. (***) In the consolidated financial statements, the total participation in the capital of Odequi through the subsidiary OVERSEAS is 100%. 15 The direct or indirect holdings of the subsidiary Odebrecht Quimica included in the consolidation are as follows:
SHAREHOLDING BRASKEM'S DIRECT SHAREHOLDINGS COUNTRY IN TOTAL CAPITAL (%) ---------------------------------------------------------------------------- -------------------- ------------------------- ODEBRECHT QUIMICA S.A.'S SUBSIDIARIES OPP Quimica S.A. (*) Brazil 81.28 OPP QUIMICA S.A.'S SUBSIDIARIES Trikem S.A. ("Trikem") Brazil 38.09 OPP Finance Ltd. ("OPP Finance") Cayman Islands 100.00 OQPA - Administracao e Participacoes Ltda. ("OQPA") Brazil 100.00 CPP - Companhia Petroquimica Paulista ("CPP") Brazil 90.71 OPP Resinas S.A. ("OPP Resinas") Brazil 100.00 Lantana Trading Co. Inc. ("Lantana") Bahamas 100.00 OPE Investimentos S.A. ("OPE Investimentos") (**) Brazil 94.89 Investimentos Petroquimicos Ltda. ("IPL") Brazil 100.00 PSA Trading AVV ("PSA") Aruba 100.00 TRIKEM S.A.'S SUBSIDIARIES Companhia Alagoas Industrial - CINAL ("CINAL") Brazil 47.60 CPC Cayman Ltd. ("CPC Cayman") Cayman Islands 100.00 TRK Brasil Trust S.A. ("TRK") Brazil 99.50 Odebrecht Mineracao e Metalurgia Ltda ( "OMML") Brazil 99.99
(*) In the consolidated financial statements, the total participation in the capital of OPP Quimica through the subsidiaries Odequi and OIL is 100%. (**) In the consolidated financial statements, the total participation in the capital of OPE Investimentos thrrough the subsidiary OVERSEAS is 100%. In the consolidated financial statements, the investments in subsidiaries and the equity in the results of subsidiaries, as well as the intercompany assets and liabilities, were eliminated. Minority interest in subsidiaries has been segregated in the balance sheet. For a better presentation of the consolidated financial statements, the reciprocal shareholdings between the companies of the group were reclassified as treasury stock. These holdings arose from the corporate restructuring described in Note 1(c). The reconciliation between parent company and consolidated shareholders' equity and the result of the nine-month period ended as of September 30, 2002 is as follows:
THOUSANDS OF R$ --------------------------------- SHAREHOLDERS' RESULT OF EQUITY THE PERIOD --------------------------------- Parent company 830,551 (1,961,930) ------------- ---------- Gains on sales of shareholdings to group companies (37,790) (37,790) Reciprocal shareholding classified as treasury stock (13,110) ------------- ---------- Consolidated 779,651 (1,999,720) ============= ==========
16 3. TRADE ACCOUNTS RECEIVABLE
THOUSANDS OF R$ --------------------------- 09/30/02 06/30/02 --------- --------- Clients Domestic market 245,961 230,352 International market 124,264 48,539 Discounted trade receivable (49,822) (189) Allowance for doubtful accounts (774) --------- --------- In current assets 319,629 278,702 ========= =========
Some of the Company's customers finance their purchase of petrochemicals through "vendor" arrangements. On September 30, 2002 the related amount totaled R$151,906 thousand (R$111,019 thousand on June 30,2002). 4. INVENTORIES
THOUSANDS OF R$ --------------------------- 09/30/02 06/30/02 --------- --------- Clients Finished goods 109,939 65,097 Work in progress 10,096 12,852 Raw material, production inputs and packaging 77,009 47,550 Advances to suppliers 47,838 22,428 Warehouse 49,910 55,843 ------- -------- Total 294,792 203,770 ======= =======
17 5. RELATED PARTIES
THOUSANDS OF R$ ASSETS LIABILITIES CURRENT NONCURRENT CURRENT TRADE ACCOUNTS NOTES NOTES RELATED NOTES RECEIVABLE RECEIVABLE RECEIVABLE PARTIES SUPPLIERS PAYABLE -------------- ---------- ---------- ---------- --------- ------- SUBSIDIARIES Monomeros 357 2,262 Tegal(*) 1,925 892 CPN Inc. 118,196 448,112 CPN Distribuidora Proppet Overseas 2,705 Nitrocarbono 7,284 14,959 Odequi 5,462 Polialden 9,482 8,722 3,466 OPP Quimica 76,231 60,207 Trikem 92,854 15,389 85,851 133 JOINTLY CONTROLLED Cetrel (*) 2,825 CODEVERDE (*) 190 Politeno 24,578 AFFILIATE Petroflex Industria e Comercio S.A. ("Petroflex") 20,386 RELATED Petrobras Petroleo Brasileiro S.A. ("Petrobras") 23,896 386,453 Petrobras Distribuidora S.A. 1,049 COPENER - Copene Energetica S.A. 1,830 Others (*) 17 ------------ ---------- ---------- ---------- --------- ------- SEPTEMBER 30, 2002 328,982 15,389 85,851 591,668 388,527 5,296 ============ ========== ========== ========== ========= ======= JUNE 30, 2002 171,620 24,208 85,044 334,493 270,502 5,103 ============ ========== ========== ========== ========= =======
(*) Advances for future capital increase. 18
THOUSANDS OF R$ LIABILITIES TRANSACTIONS UTILITIES FINANCIAL AND FINANCIAL AND LONG TERM PRODUCTS AND RAW MONETARY MONETARY MATERIAL RELATED SALES/ PURCHASES/ RESTATEMENT RESTATEMENT SUPPLIERS PARTIES REVENUES EXPENSES REVENUES EXPENSES --------- ----------- --------- ---------- ------------- ------------- SUBSIDIARIES Monomeros 54,938 22,915 533 Tegal 5,553 CPN Inc. 235,374 9,692 CPN Distribuidora 986 Proppet Overseas 19 Nitrocarbono 71,128 1,106 90 149 Odequi (**) 2,281,736 Polialden 117,124 185 194 OPP Quimica 44,283 171,459 Trikem 816 197,138 1,584 9,463 JOINTLY CONTROLLED Cetrel 51 3,437 Politeno 327,554 AFFILIATE Petroflex 121,366 3,035 RELATED Petrobras 53,479 1,257,377 1,972 14,480 Petrobras Distribuidora S.A. 48,733 5,591 COPENER - Copene Energetica S.A. 48,601 --------- ----------- --------- ---------- ------------- ------------- SEPTEMBER 30, 2002 53,479 2,431,379 1,264,109 1,318,323 24,590 20,414 ========= =========== ========= ========== ============= ============= JUNE 30, 2002 44,243 91,748 1,099,906 775,888 20,478 12,000 ========= =========== ========= ========== ============= =============
(**) The amount presented as related parties in long term liabilities refers to notes payable. All trade transactions with related parties (sales of petrochemicals and utilities and purchases of raw material) are conducted under the same commercial conditions as those conducted with companies that are not related parties. The ethylene price results from the practice of margin sharing with the second generation companies. This practice consists of sharing the gross margin in proportion to the return on investments. The prices for the other products are defined based on many market factors, including international factors. The price of naphtha, Company's main raw material supplied by Petrobras, is negotiated between Petrobras and the first generation petrochemical companies, using the European market as a reference. The Company is also directly importing naphtha, corresponding to 30% of the total consumed volume. The price reference is the international market price (ARA). The sales have a 15-day average collection period. Up to the 14th day, the sales are considered as cash sales, and no financial changes are incurred. From the 15th day, the balances start bearing interest of 2% per month. The financial income and expenses, including monetary variations, are recorded based on contractual conditions. 19 (a) The related parties balance includes current account balances, and the main balances are summarized as follows:
THOUSANDS OF R$ --------------- BALANCE --------------- PARTICIPATING COMPANIES ANNUAL FINANCIAL CHARGES 09/30/02 06/30/02 ----------------------- ------------------------ -------- -------- SUBSIDIARIES NONCURRENT ASSETS ----------------- CPN Inc. Exchange variation + 8.35% 448,112 282,283 Nitrocarbono 100% of CDI 14,959 OPP Quimica 100% of CDI 60,207 Monomeros No financial charges 2,262 Proppet Overseas IGP-DI 2,705 2,545 Odequi 100% of CDI 5,462 Polialden 100% of CDI 8,722 LONG TERM LIABILITIES --------------------- Monomeros No financial charges 54,938 47,291 CPN Distribuidora No financial charges 986 986 OPP Quimica 100% of CDI 44,283 Trikem 100% of CDI 816 Odequi No financial charges 2,281,736
The amount of R$2,281,736 recorded as Long term liabilities refers to notes payable to the subsidiary Odequi. The liquidation of this amount depends on the schedule to be set by the parties. (b) The related parties balance includes intercompany balances, and the main balance is summarized as follows:
AFFILIATE THOUSANDS OF R$ --------------- NONCURRENT ASSETS ANNUAL FINANCIAL CHARGES 09/30/02 06/30/02 ----------------------- ------------------------ -------- -------- Petroflex 110% of CDI 20,386 21,613
20 6. RECOVERABLE TAXES The main recoverable taxes, which are monetarily restated based principally on the Joint Settlement Standard of the Brazilian Tax Agencies (SRF/COSIT/COSAR) No. 08 of June 27, 1997 for periods up to December 31, 1995 and thereafter based on the Special Liquidation and Custody System (SELIC) interest rate, comprise the following: THOUSANDS OF R$ ---------------------------------- 09/30/02 06/30/02 --------------- ---------------- Recoverable V.A.T. (*) 74,303 54,823 PIS - Lawsuit No. 2,445 and 2,449/88 43,117 8,870 IPI - Extemporaneous Credits 18,569 17,970 Presumed credits - IPI 27,178 19,300 Withholding income tax 79,640 78,974 ILL - years 1990 and 1991 46,596 45,751 Other 8,133 5,743 --------------- ---------------- 260,899 268,068 Less - Current (142,284) (145,213) --------------- ---------------- Non Current 118,615 122,855 =============== ================ (*) Not subject to monetary restatement. (a) PIS/IPI As of December 31, 2001, the Company recognized the amount of R$8,302 thousand as operating income based on a judicial decision res judicata regarding PIS (Social Integration Program contributions) and the applicability of Decree-Laws 2,445 and 2,449/88 obtained by CPN - Administracao de Bens e Imoveis Ltda., a former subsidiary which was merged into the Company in 2000. This balance as of September 30, 2002 totals R$8,870 thousand. As of March 31, 2002, considering the higher judicial decision of the Superior Court of Justice (STJ) regarding the unconstitutionality of Decree-Laws 2,445 and 2,449/88 and the definition of the basis of calculation and payment dates for PIS, as well as the preliminary decision in February 2002 favorable to the Company's positions, which recognized the right to offset its credits against current PIS/COFINS obligations, the Company recognized the total amount of R$45,249 thousand as other operating income. As of September 30, 2002, the balance had been totally offset (R$ 34,247 thousand as of June 30, 2002). As of December 31, 2001, the Company recognized under the caption "Other operating revenues" the extemporaneous credit related to federal excise tax (IPI) in the amount of R$16,830 thousand, related to Law 9,777/99, which allowed the offset of credits from raw-material and production inputs purchases. The restated amount as of September 30, 2002 amounts to R$18,569 thousand. 21 (b) FINSOCIAL On October 10, 1994, the Company obtained a favorable decision regarding this matter and the Federal Court allowed the Company to withdraw 75% of the Finsocial deposits previously paid into court for the period from November 1991 to March 1992. These deposits were withdrawn on October 13, 1994, in the amount of R$5,533 thousand. Most of the credits for the period October 1988 to October 1991 had been recognized in results of operations of years prior to 1999, under the caption Other Operating Income - Net. Considering that the Company had paid deposits into court for the Finsocial due on Value Added Tax (ICMS) (Note 8), despite the decision against it in that case, the Company requested the courts to offset the deposits against the remaining percentage of 0.5%, and this was done on June 11, 2001 in the amount of R$4,878 thousand. Guaranteed by a majority decision on Special Appeal in favor of the Company, issued on September 1, 1999 and taking into consideration the favorable pronouncement by the Finance Ministry, the Company offset these amounts against Cofins tax payable from January until April 2002. (c) TAX ON NET INCOME (ILL) In 1992, the Company requested a court injunction in order to assure the right of nonpayment of the ILL at the rate of 8% on the net income for the base periods 1989 to 1992. Based on the decision res judicata that declared Article 35 of Law No. 7,713 of December 22, 1988 unconstitutional, on July 23, 1997 the Company recovered the related deposits paid into court for the periods from August 1991 to March 1993 (base periods 1991 and 1992), in the total amount of R$7,244 thousand. Amounts relating to the base periods 1989 and 1990 were paid directly to the federal government and, therefore, gave rise to a claim for offsetting them against federal taxes or reimbursement in the amount of R$22,900 thousand, which was recognized in income for the year ended December 31,1997 in the caption Other Operating Income. This amount, restated to September 30, 2002, amounts to R$36,855 thousand, which has already been confirmed by a court-nominated expert accounting witness. The Company also has credits amounting to R$9,740 thousand following the merger with the subsidiary CEMAN - Central de Manutencao Ltda. on March 31, 1999. In order to obtain the resources as soon as the legal action is judged, the Company requested and obtained a court decision to treat the overpayments (R$ 36,855 thousand) as payments in lieu of PIS and Cofins deposits. These latter deposits as of September 30, 2002, amounted to R$28,155 thousand (Note 7). On March 6, 2002, the Federal Court of Appeals (TRF) recognized the Company's right to offset the paid amounts, monetarily restated as from the payment date, including the use of expunged inflation indexes and the SELIC rate. 22 7. DEPOSITS PAID INTO COURT Based on questions as to the legality and constitutionality of certain taxes, the Company has requested court injunctions against such taxation and has paid deposits into court for the related amounts. The main deposits, monetarily restated, are: THOUSANDS OF R$ ----------------------- 09/30/02 06/30/02 ---------- --------- PIS/Cofins - to be offset against ILL credits (*) 28,155 27,954 Education allowance and INSS 13,890 13,403 Cofins - to be offset against fines paid 6,475 6,429 Insurance of work accidents 10,518 9,533 Cofins on financial income 25,133 21,337 Other 6,848 6,362 ---------- --------- 91,019 85,018 Less - Provision for loss on above (79,945) (74,822) ---------- --------- 11,074 10,196 ========== ========= (*) Note 6 8. INVESTMENTS In 2001, the Administrative Council of the jointly controlled company Norcell S.A. decided to conduct an operational restructuring of the company and its subsidiaries Copener Florestal Ltda. and partnerships (SCP's), because of its conclusion that the pulp production project was unfeasible. The restructuring objectives are: o Operational focus on complying with the wood supply contracts in effect until December 2011, for which revenues are estimated at R$138,000 thousand as of September 30, 2002. o Maintenance of lands and forests. o Sale of land not useful for eucalyptus cultivation. o Sale of residual forests used only for production and energy generation. o Sale of equipment for used forest activities. In the light of the aforementioned facts, the realization of the assets related to intercompany loans, investments, property, plant and equipment and deferred charges depends on the success of the future stages of the restructuring process. The Company performed preliminary studies in order to recognize its assets at their realization values and, as a consequence, recorded a provision for possible loss in the amount of R$25,000 thousand. The main information regarding the investments in subsidiary, jointly controlled and affiliated companies is follows: 23 (a) INVESTMENT INFORMATION
QUANTITY OF OWNED SHAREHOLDING SHARES OR QUOTAS IN TOTAL CAPITAL (%) ------------------------------- ---------------------- 09/30/02 06/30/02 09/30/02 06/30/02 --------------- -------------- ---------- ---------- (PARENT COMPANY'S INVESTMENT INFORMATION SUBSIDIARIES Monomeros 683,393,147 683,393,147 87.24 87.24 Tegal 19,814,247 19,814,247 82.00 82.00 CPN Inc. 95,000 95,000 100.00 100.00 CPN Distribuidora 354,210 354,210 100.00 100.00 Copene Participacoes 3,713,338,554 3,713,338,554 43.69 43.69 ESAE 2,789,675,559 2,789,675,559 100.00 100.00 Proppet Overseas (*) 2 2 100.00 100.00 Nitrocarbono (**) 135,607,490 92.29 Odequi (**) 20,078,695 98.39 OIL (**) 5,000 100.00 Overseas (**) 1 100.00 JOINTLY CONTROLLED Cetrel 174,188 174,188 18.31 18.46 CODEVERDE (*) 9,372,047 9,372,047 35.42 35.42 Norcell (*) 93,377,672 93,377,672 88.42 88.42 COPESUL (**) 3,104,531,327 20.67 AFFILIATE Petroflex 141,597,478 141,597,478 20.12 20.12
THOUSANDS OF R$ ------------------------------------------------------------ ADJUSTED NET ADJUSTED SHAREHOLDERS' EQUITY INCOME (LOSS) (UNSECURED LIABILITIES) --------------------------- ------------------------------- 09/30/02 06/30/02 09/30/02 06/30/02 ------------- ------------- ------------ ----------------- (PARENT COMPANY'S INVESTMENT INFORMATION SUBSIDIARIES Monomeros 6,583 3,559 111,579 104,849 Tegal (5,053) (3,341) 33,399 35,110 CPN Inc. 51,383 13,253 115,776 60,279 CPN Distribuidora 3,542 3,542 Copene Participacoes 26,093 11,203 257,476 238,148 ESAE 14,675 6,313 144,682 133,813 Proppet Overseas (*) (80) (2,594) Nitrocarbono (**) (17,907) (1,469) Odequi (**) (830,693) 1,167,469 OIL (**) (274,321) (629,141) Overseas (**) 143,392 (341,986) JOINTLY CONTROLLED Cetrel (12,649) (7,174) 47,122 52,597 CODEVERDE (*) 40,354 40,354 Norcell (*) 9,098 9,126 157,275 157,303 COPESUL (**) (51,229) 931,901 AFFILIATE Petroflex 10,076 5,281 87,898 83,103
(*) Shareholders'equity at August 31, 2002. (**) Companies acquired as of August 16, 2002 through subsidiaries OPP PP and 52114 (see Note 1(c) (viii)). 24
QUANTITY OF OWNED SHAREHOLDING SHARES OR QUOTAS IN TOTAL CAPITAL (%) -------------------------------- ----------------------- 09/30/02 06/30/02 09/30/02 06/30/02 --------------- --------------- ---------- ----------- (ii) DIRECT AND INDIRECT SUBSIDIARIES' INVESTMENTS INFORMATION ODEBRECHT QUIMICA OPP Quimica 22,156,043,965 22,156,043,965 81.28 81.28 OPP QUIMICA PSA 600 600 100.00 100.00 OPE Investimentos 50,169,325 49,157,665 89.41 87.61 OQPA 153,602,096 153,602,096 100.00 100.00 CPP 4,666,298 4,666,298 90.71 90.71 Trikem 23,186,448,930 23,186,448,930 38.09 38.09 IPL 973 973 99.90 99.90 OPP Fincance 50,000 50,000 100.00 100.00 Copesul 450,651,504 450,651,504 3.00 3.00 TRIKEM CPC Cayman 900,000 900,000 100.00 100.00 CINAL 80,370,707 80,370,707 47.06 47.06 TRK Trust 2,000 2,000 99.50 99.50 OMML 147,060 147,060 99.99 99.99 ESAE Copene 638,221,526 638,221,526 56.31 56.31 Participacoes COPENE PARTICIPACOES Polialden 275,160,650 275,160,650 42.64 42.64 Politeno 5,253,713,595 5,253,713,595 30.99 30.99
THOUSANDS OF R$ --------------------------------------------------------- ADJUSTED NET ADJUSTED SHAREHOLDERS' EQUITY INCOME (LOSS) (UNSECURED LIABILITIES) ------------------------- ------------------------------ 09/30/02 06/30/02 09/30/02 06/30/02 ------------- ----------- ------------ ---------------- (ii) DIRECT AND INDIRECT SUBSIDIARIES' INVESTMENTS INFORMATION ODEBRECHT QUIMICA OPP Quimica (992,395) (528,952) (506,962) (506,962) OPP QUIMICA PSA 2 2 OPE Investimentos 1,293 (2,678) 121,266 117,295 OQPA 128,568 38,422 123,366 33,221 CPP 5,144 5,144 Trikem (516,446) (216,893) 244,049 543,601 IPL 12 12 OPP Fincance (23,859) (15,732) (35,678) (24,363) Copesul (51,229) (80,500) 931,901 854,256 TRIKEM CPC Cayman (7,243) 7,206 301,845 232,930 CINAL 490 525 77,646 77,411 TRK Trust (1,566) (1,202) (7,916) (7,552) OMML (881) (570) (7,107) (6,795) ESAE Copene 26,093 8,865 257,476 240,247 Participacoes COPENE PARTICIPACOES Polialden 37,239 14,185 396,803 370,216 Politeno 38,786 28,687 435,281 419,489
25
(b) INVESTMENT ACTIVITY NOVA CAMACARI MONOMEROS TEGAL CPNINC. ------------- ------------- ------------- ------------- As of December 31, 2001 (44,034) 95,623 28,113 38,362 Additions 3,274 Dividends (4,667) Equity adjustments 6,351 (3,999) 51,383 Amortization of (Goodwill)/Negative Goodwill 3,446 Exchange variation on foreign investments 26,031 ------------- ------------- ------------- ------------- Balance at the end of period (40,588) 97,307 27,388 115,776 ============= ============= ============= =============
THOUSANDS OF R$ ----------------------------------------------- SUBSIDIARIES ----------------------------------------------- 09/30/02 ----------------------------------------------- INTERCAPITAL CPN PARTICIPACOES COPENE DISTRIBUIDORA S.A. PARTICIPACOES -------------- -------------- -------------- As of December 31, 2001 3,542 380,708 238,667 Additions Dividends Equity adjustments 12,384 Amortization of (Goodwill)/Negative Goodwill (29,795) (10,734) Exchange variation on foreign investments -------------- -------------- -------------- Balance at the end of period 3,542 350,913 240,317 ============== ============== ==============
ESAE NITROCARBONO 52114 (**) OPP PP (**) ------------- --------------- --------------- ----------------- As of December 31, 2001 795,870 AdicoesAdditions 60,913 582,895 Dividends Write off due to merger (56,611) (233,227) Goodwill recording 56,611 Equity adjustments 15,914 (4,302) (349,668) Amortization of (Goodwill)/Negative Goodwill (52,307) Exchange variation on foreign investments ------------- --------------- --------------- ----------------- Balance at the end of period 759,477 56,611 ============= =============== =============== =================
THOUSANDS OF R$ -------------------------------------------- SUBSIDIARIES (CONTINUATION) -------------------------------------------- 09/30/02 06/30/02 ------------------------------ ------------ ODEQUI TOTAL TOTAL ------------ -------------- ------------ As of December 31, 2001 1,536,851 1,536,851 AdicoesAdditions 3,463,064(*) 4,110,146 3,274 Dividends (4,667) (4,667) Write off due to merger (289,838) Goodwill recording 56,611 Equity adjustments (378,938) (650,875) 24,959 Amortization of (Goodwill)/Negative Goodwill (15,875) (105,265) (59,593) Exchange variation 26,031 8,664 on foreign investments ------------ -------------- ------------ Balance at the end of period 3,068,251 4,678,994 1,509,488 ============ ============== ============
(*) This balance includes goodwill in the amount of R$1,935,406 thousand (see Note 1 (c) (viii)). (**) The amounts presented as equity adjustments refer to the shareholders' equity variation between the appraisal report date (05/31/02) and the effective merger date (08/16/02). 26
NORCELL CETREL CODEVERDE COPESUL ----------- ----------- ------------------ --------------- As of December 31, 2001 130,467 12,120 12,500 Additions 310 176,549 Goodwill recording 261,689 Provision for probable losses on investments (25,000) (3,595) Equity adjustments 8,596 (2,335) 14,566 Shareholding reduction (16) Amortization of (Goodwill)/Negative Goodwill (109) (3,520) ----------- ----------- ------------------ --------------- Balance at the end of period 114,063 9,676 9,199 449,284 =========== =========== ================== ===============
THOUSANDS OF R$ ---------------------------------- AFFILIATE AND JOINTLY CONTROLLED ---------------------------------- 09/30/02 06/30/02 ---------------------- ----------- PETROFLEX TOTAL TOTAL ---------- ---------- ----------- As of December 31, 2001 16,364 171,451 171,451 Additions 176,859 310 Goodwill recording 261,689 Provision for probable losses on investments (28,595) (28,595) Equity adjustments 2,031 22,858 8,361 Shareholding reduction (16) Amortization of (Goodwill)/Negative Goodwill (702) (4,331) (548) ---------- ---------- ----------- Balance at the end of period 17,693 599,915 150,979 ========== ========== ===========
(c) SUBSIDIARIES WITH UNSECURED LIABILITIES THOUSANDS OF R$ --------------------------------------------------------------------------- PROVISION FOR LOSS IN INVESTMENTS - LONG TERM LIABILITIES --------------------------------------------------------------------------- PROPPET OIL OVERSEAS NITROCARBONO OVERSEAS TOTAL ------------ ------------ --------------- -------------- -------------- As of December 31, 2001 2,514 2,514 Additions 390,607 268,769 1,356 660,732 Increase (reversal) of the provision From losses (earnings) of the period 142,835 (57,696) 80 85,219 Exchange variation on shareholders' 95,699 130,913 226,612 equity ------------ ------------ --------------- -------------- -------------- Balance at the end of period 629,141 341,986 1,356 2,594 975,077 ============ ============ =============== ============== ==============
27 9. DEBT
THOUSANDS OF R$ --------------------------------------------------------------------------------------- ANNUAL FINANCIAL CHARGES 09/30/02 06/30/02 ------------------------------------------------------- -------------- -------------- FOREIGN CURRENCY Advances on export contracts US$ Exchange variation+ interest from 6% to 10% 54,907 Eurobonds US$ Exchange variation + fixed interest of 9% 598,402 427,193 Working capital US$ Exchange variation+ floating interest of 2.00% over Libor and fixed interest from 2.88% to 6.50% 191,701 217,879 Fixed Capital US$ Exchange variation+ floating interest from 1.79% to 3.09% over Libor and fixed interest from 2.10% to 10.64% 1,790,484 1,384,019 Hedge through financial instruments (38,083) (4,806) NATIONAL CURRENCY Working capital Fixed interest from 0.15% to 13.25% + indexed monetary restatement (TJLP, IGPM and CDI) 348,512 97,932 Fixed capital BNDES Fixed interest from 4.0% to 11% + indexed monetary restatement (TJLP, IGPM and UMBNDES) 244,576 219,980 Other Fixed interest from 4.0% to 11% + indexed monetary restatement (TJLP) 171,393 186,435 -------------- -------------- 3,361,892 2,528,632 Less: Classified as current (1,058,722) (676,133) -------------- -------------- Long term debt 2,303,170 1,852,499 ============== ==============
28 The non-current amount matures as follows: THOUSANDS OF R$ ------------------------------------ 09/30/02 06/30/02 ---------------- ------------------ 2003 128,171 181,203 2004 603,474 464,849 2005 530,605 394,322 2006 438,228 371,160 2007 onwards 602,692 440,965 ---------------- ------------------ 2,303,170 1,852,499 ================ ================== Loans related to the acquisition of permanent assets are backed by pledges of property, plant and equipment, shares of stock and letters of guarantee from management and shareholders. Certain working capital financing is backed by letters of credit and bank guarantees. FOREIGN NOTES PAYABLE ("EUROBONDS") These notes in the amount of US$150,000 thousand, were issued exclusively on the international market, as approved by the Administrative Council meeting on June 18, 1997. They mature on June 25, 2007, and bear annual interest of 9.0% paid in semiannual installments in June and December of each year. As of May 25, 2002, the holders of Eurobonds with a total face value of US$ 134.3 million exercised a put option at the exercise price of 98.40%. All these repurchased notes were resold in the market. 10. DEBENTURES THOUSANDS OF R$ ---------------------------------------- 09/30/02 06/30/02 --------------------- ----------------- As of December 31, 2001 630,378 630,378 Addition (Merger of OPP PP) 609,779 Interest amortization (112,670) (39,822) Exchange variation 146,516 88,359 --------------------- ----------------- Balance at the end of period 1,274,003 678,915 Less: current balance (40,992) --------------------- ----------------- Long term balance 1,274,003 637,923 ===================== ================= 29 On October 1st, 2001, the Company realized the 10th issue of 6,250 nominative, registered, non-convertible debentures, with floating guarantee. The issue was totally subscribed and realized in two series, which had the following characteristics:
1ST SERIES 2ND SERIES ------------------------------- ------------------------------ Face value R$ 100 thousand R$ 100 thousand Quantity 4,108 2,142 Issue date October 1st, 2001 October 1st, 2001 Final maturity date October 1st, 2006 October 1st, 2006 First remuneration period- Duration 36 months after the issue date 36 months after the issue date Remuneration 110% of CDI 110% of CDI Payment frequency Semiannual, as from April 2002 Semiannual, as from April 2002
At the end of the first remuneration period on October 1st, 2004, the Company and the debenture-holders should renegotiate the terms for remuneration of the subsequent period. The Administrative Council will establish the terms and conditions of remuneration for the subsequent period. The Company is committed to acquire the debentures from those debenture-holders that disagree with the terms established by the Administrative Council for the following period. As deliberated by the Extraordinary General Meeting as of August 16, 2002, OPP Produtos Petroquimicos was merged into the Company, including its obligations under 59,185 debentures issued in a single issue. SINGLE ISSUE ------------------------------------------ Unit face value R$ 10,000 Quantity of notes 59,185 Issue date May 31, 2002 Maturity date July 31, 2007 Remuneration TJLP variation, when it is equal to or less than 6% p.a., plus 5.0 % p.y. These debentures are subordinated, and the amortization of the principal and interests, will only occur on their maturity date on July 31, 2007. There is no partial or total redemption clause allowing payments before this date. These debentures are convertible into shares at any time by the debenture-holders, as established in the deed. 30 11. LEGAL ACTIONS The Company is involved in several legal actions relating to tax, labor and civil issues arising from its normal operations. The major ongoing cases are described as follows: (a) SOCIAL CONTRIBUTION - LAW NO. 7,689/88 In 1992, court deposits of R$41,339 thousand were returned to the Company and subsidiaries pursuant to the decision of the 6th Federal Court, which decided in favor of the Company in its suit against the Federal Government relating to the Social Contribution on Net Income. However, in November 1993 the Federal Government filed a reversal action to revoke such decision. On October 18, 1994, the Federal Court of Appeals for the 1st Region decided the reversal action in favor of the Federal Government by a majority of only one vote. Consequently, in 1996 the Company filed a Special Appeal to the Superior Court of Justice (STJ), and an Extraordinary Appeal to the Federal Supreme Court (STF). The latter was not accepted and the Company filed a motion for review, which is pending the outcome of the decision by the STJ. According to the Company's lawyers, the Extraordinary Appeal will eventually be accepted and forwarded to the STF. On October 20, 1997, based on a majority vote, the Special Appeal was rejected. As a consequence, the Company interposed a Divergence Embargo, which was admitted on March 24, 1998 and not recognized by the Special Court on February 20, 2002, since the court accepted a procedural preliminary action brought by the Federal Government in response to the company's Special Appeal, which eliminated any further judgement regarding either the merit and other preliminaries. The decision was published on June 24, 2002. On July 1, 2002, the Company interposed a Declaration Embargo in order to question the various omissions and contradictions observed in this decision. This procedure may revert the result of the trial judgement in the STJ, without affecting the trial judgement of the Extraordinary Appeal by the STF. The lawyers who represent the Company, based on prior jurisprudence and on opinions issued by eminent legal counselors, believe that there are very good possibilities of success by the Company. Although the discussion is still sub-judice, the federal tax authorities imposed claims regarding the Social Contribution by issuing tax assessments against the Company. This procedure was contrary to renowned legal counselors' opinions consulted by the Company, which expressed that an unfavorable decision in this lawsuit will only affect the Company after the decision becomes res judicata . Tax enforcements related to the aforementioned tax were also filed. It is important to mention that the Company already obtained a judicial decision determining the cancellation of one of those charges, with the Judiciary recognizing that the procedure adopted by the Tax Authorities was improper. Based on the opinions of its legal counselors and legal precedents, the Company did not alter its corporate and tax procedures and has not accrued any amount as from the base year of 1992. 31 It is important to mention that the discussion regarding the above-mentioned legal action is solely limited to the constitutionality of the Law that established the Social Contribution on Net Income and does not include eventual retroactive effects originating from the decision. Should the Federal Government, after a possible decision unfavorable to the Company becomes res judicata, demand payment of the Social Contribution retroactively to the years prior to the date of the publication of the final decision on the reversal action, such action would be contrary to the expert legal opinions, and the exposure relating to the five years ended September 30, 2002, updated based on the SELIC interest rate, but excluding the fine for late payment, would be approximately R$101,453 thousand (R$92,485 thousand on September 30, 2001). (b) PIS/COFINS - LAW NO. 9,718/98 In February, 1999, the Federal Government made certain alterations to the tax legislation, including an increase in the basis of calculation of PIS and Cofins contributions. Considering the increase in the basis of calculation as unconstitutional, the Company filed a lawsuit against the National Treasury, requesting the right not to pay these taxes on the increased basis, and obtained a favorable preliminary injunction which requires court deposits of the amounts of Cofins in question but does not require deposits for PIS. The amounts related to the period ended September 30, 2002, updated based on the SELIC interest rate, are R$7,385 thousand for PIS and R$ 34,085 thousand for Cofins (R$4,425 thousand for PIS and R$20,422 thousand for Cofins on June 30, 2002), which are being charged to Operating Expenses. (c) CLAUSE 4 OF COLLECTIVE LABOR AGREEMENT On September 19, 2001, the Federal Supreme Court (STF) ruled in favor of the Extraordinary Appeal filed by the Petrochemical Workers Union of the State of Bahia (Sindicato Quimicos/Petroleiros), to which the Company's employees are affiliated, against the Syndicate of Chemical Manufacturers of Camacari, Candeias e Dias D'avila (Sinpeq), of which the Company is a member. This legal action questions whether clause 4 of the Labor Agreement signed by the parties takes precedence over economic policy law, specifically the so-called Collor Plan in 1990. Clause 4 determined that the workers' wages would be monetarily restated monthly by 90% of the Consumer Price Inflation Index (IPC). After a highly disputed decision, the second STF panel decided, by 3 votes to 2, that the Labor Agreement should prevail over the economic policy law. This is an isolated decision that is contrary to the understanding of various other STF panels and decisions in plenary sessions of the STF. The decision was published on April 19, 2002, and the Sinpeq has already interposed an Embargo Declaration, requesting a modification effect based on the fact that the decision was supported by an equivocated assumption. The decision does not specify the amounts involved in the lawsuit, thereby making any comment regarding the amount involved speculative and premature. Sinpeq's legal advisors, based on contrary jurisprudence and on opinions issued by an eminent legal counselor, believe that the ultimate outcome will be favorable to Sinpeq's members. In the light of the above and of the possibility of appeal, as well as the impossibility of measuring the amounts involved in the lawsuit, the Company did not change its position on the accounting for the case and consequently did not accrue any provision for losses, considering that the conditions for recording a provision are not sufficient. 32 (d) OTHER CLAIMS Other claims include claims for material and/or moral damages pending court judgement. The main claim related to shareholders' rights was decided against the Company and was the subject of a Reversal Action to revoke the decision. The Company obtained the right to postpone the settlement until a final decision on the Reversal Action. These claims involve obligations in the approximate amount of R$30,000 thousand. Additionally, the Company is party to a number of demands by employees, which represent claims in the total amount of approximately R$15,000 thousand as of September 30, 2002. Based on an evaluation of these claims and legal precedents performed by its legal advisors, management accrued the amount of R$2,898 thousand for probable losses related to these claims. 12. INSURANCE COVERAGE The Company has "All Risks" insurance coverage for losses caused by physical damages and by business interruption resulting from fire, explosion, machinery failure or electrical damages; 90% of the Company's insurance coverage is reinsured in the international reinsurance market. This insurance policy is effective from November 30, 2001 to November 30, 2002 and renewable at the end of the coverage period. The insured value at risk amounts to US$ 2.3 billion; however, the maximum amount of indemnities totals US$1.5 billion, with compulsory self-insurance for the first US$5 million of losses. Business interruption insurance coverage is also maintained to cover fixed expenses, including net financial expenses, up to US$279.6 million. This insurance was made to cover losses from stoppages over 60 days originating from physical damages or which create losses greater than US$20 million. 13. FINANCIAL INSTRUMENTS The Company uses financial instruments to manage the financial requirements of its operations, to supplement cash flow requirements, due to the volatility of market variables, and to manage its U.S. dollar denominated debt. Risk management is carried out by adopting financial market mechanisms which reduce the exposure of the assets and liabilities of the Companies, protecting its cash flow. (a) INVESTMENTS The market values of investments, the shares of which are traded in the stock exchange, were estimated based on the final market quotations on the Sao Paulo Stock Exchange, where most of the shares are traded. This estimate does not necessarily reflect the realizable value of a representative lot of shares. As of September 30, 2002, the market value of these shares held by the Company is R$ 140,739 thousand. (b) DERIVATIVES Since the Company operates in the international market, where it obtains funding for its operations and investments, it is exposed to market risks related to variations of foreign currency exchange rates and international interest rates. In order to be protected against the currency variations on the Company's bank loans expressed in U.S. Dollars, the Company, from 1997 until December 31, 2001, had managed the risk against devaluation of the Brazilian currency, whenever the debt was unrelated to the financing of exports of its products. U.S. Dollar bank loans linked to export sales had been considered as a natural protection, since they were effectively compensated by accounts receivable in the same currency. Because of the current world economic situation and because part of the funding necessary to liquidate the bridge loans is through prepaid export contracts, the Company decided to modify its hedge policy as from December 31, 2001. The current policy is to maintain coverage of principal and interest settlements maturing 33 within the next 12 months for (i) 60% of the total debt in U.S. dollars related to exports (trade finance), excluding Advances on Currency Contracts (ACCs) with remaining maturity of up to 6 months and Advance on Export Contracts (ACEs); and (ii) 75% of the total debt in U.S. dollars unrelated to exports (non-trade finance). The Company has various kinds of currency risk management instruments, some of them using available cash. The most common transaction using available cash adopted by the Company is debt assumption and foreign currency cash investments (certificates of deposit, international funds, time deposits and overnight funds) and options ("Put" and "Call"). The most common foreign currency risk management instruments without using available cash are swap transactions (exchange of U.S. dollar variation for Interbank Deposit Certificate (CDI) rate) and forwards. On September 30, 2002, the Company has pending currency swap and forward contracts with notional amounts of US$78,600 thousand and due dates between October 28, 2002 and May 19, 2003, which are intended to reduce the impact of an eventual devaluation of the Brazilian Real. These contracts are summarized as follows:
Unrealized Profit Financial (Loss) as of Contract Notional Amount Company's institution Due September 30, 2002 Financial Institution Date (US$ thousands) index index Date R$ thousands ------------------------------ ------------ ----------------- ----------------- -------------- -------------- -------------------- Swap Contracts- BBA Creditanstalt S.A. 10.31.01 50,000 EV + 5.99% p.a. 100% of CDI 10.28.02 32,869 ABN AMRO Bank. 09.24.02 9,000 -0.95% p.a., Pre EV 12.10.02 (1,090) ABN AMRO Bank. 08.13.02 5,000 EV + 10.00% p.a. 76.50% of CDI 02.10.03 992 ABN AMRO Bank. 06.21.02 5,600 EV + 6.50% p.a. 92% of CDI 05.19.03 2,835 Credit Suisse First Bank 09.11.02 9,000 EV. 100% of CDI 12.10.02 2,477 ----------- ------- Total 78,600 38,083 =========== ======= EV - Exchange variation of the US dollar.
14. AMERICAN DEPOSITARY RECEIPT (ADR) PROGRAM On October 20, 1998, the Company obtained a Level II registration with the U.S. Securities and Exchange Commission ("SEC") and on December 21,1998 started trading ADRs (American Depositary Receipts) on the New York Stock Exchange (NYSE) as follows: o Type of shares: preferred class "A". o Each ADR represents 50 (fifty) preferred "A" shares. o The shares are negotiated as ADRs, under the symbol "BAK" at the NYSE. o Depository Bank overseas: Citibank N.A. -New York branch. o Custodian bank in Brazil: Banco Itau S.A. 34 15. INCOME TAX (a) EXEMPTION On May 2, 2001, the Company filed with the Northeast Development Agency (SUDENE) a request for a 75% income tax rate reduction as from January 1, 2002 on profits from the sales of basic petrochemicals and utilities. The request is still under analysis. If the request is rejected, the Company may obtain a Declaration (constitutive report issued by the National Integration Ministry) authorizing the right of reduction of 37.5%, 25% and 12.5%, resulting in the rates of 15.62%, 18.75% and 21.87% for the calendar years of 2002 and 2003, from 2004 to 2008 and from 2009 to 2013, respectively. For sales of DMT (dimethyl terephthalate), the Company already has the Declaration that is applicable from January 1, 2001 until December 31, 2013 for the reduced rates of 15.62%, 18.75% and 21.87%. The benefits of the income tax exemption/reduction are credited to a Capital Reserve with a corresponding charge to the income statement. (b) DEFERRED TAXES In accordance with the Institute of Independent Auditors of Brazil (Ibracon) standard on Accounting for Income Tax and Social Contribution, which was approved by the CVM in Deliberation No. 273, issued on August 20, 1998, the Company has recognized deferred tax assets and liabilities arising from temporary differences and tax losses. THOUSANDS OF R$ -------------------- 09/30/02 -------------------- Tax losses 926,828 Temporary differences 1,427,471 -------------------- Total 2,354,299 Rate 25% -------------------- 588,575 Credit not included in the deferred income tax asset (452,256) -------------------- Deferred income tax 136,319 ==================== We present as follows the reconciliation between the amount reported as income tax (expense) benefit in the statements of operations and the tax expense at the statutory federal income tax rate for the period of January 1, 2002 until May 31, 2002. As from June 1, 2002, the Company ceased to record a deferred income tax asset for tax losses due to inherent uncertainties relating to the operating and corporate restructuring process, as described in Note 1(c). 35 THOUSANDS OF R$ ------------------------- 09/30/02 09/30/01 ----------- ------------ Income (loss) before income tax until May 31, 2002 (206,649) 104,305 Income tax at statutory rate of 25% 51,662 (26,076) Tax effects on: Transactions of merged companies (8,149) Equity in income (loss) of investees 6,402 (2,135) Non-deductible expenses (426) (1,252) Other 5,132 ----------- ------------ 57,638 (32,480) =========== ============ Management believes that the realization of deferred tax assets arising from tax loss carryforwards, which are not subject to the statute of limitations, its estimated to occur in a deadline of five years, not just in the consequence of the restructuring process described in Note 1 (c), but, mainly, for the good perspective to the international petrochemical segment. 16. SHAREHOLDERS' EQUITY (a) CAPITAL STOCK As of September 30, 2002, the capital stock is represented by shares without par value, as follows: Authorized Capital Paid-in Capital -------------------------- --------------------------- Common shares 1,836,000,000 1,226,091,148 Preferred shares- Class "A" 3,213,000,000 2,160,764,336 Class "B" 51,000,000 11,457,740 -------------------------- --------------------------- Total 5,100,000,000 3,398,313,224 ========================== =========================== Preferred shares are not convertible into common shares and do not carry voting rights, but have priority to a minimum non-cumulative annual dividend of 6%, depending on the availability of income for distribution. Only the preferred "A" shares have equal participation with the common shares in the remaining income, and this right exists only after the payment of dividends to the holders of preferred shares. The preferred "A" shares also have equal rights with the common shares to receive distributions of shares arising from the capitalization of other reserves. The preferred "B" shares, subsequent to the expiration of the period of non-convertibility as foreseen in special legislation, may be converted into preferred "A" shares at any time, according to the following ratio: 2 (two) preferred "B" shares to each preferred "A". 36 Shares subscribed with FINOR funds (preferred "B" shares) do not carry preferential rights in the event of new share subscriptions. In the event of dissolution of the Company, the preferred "A" and "B" shares have priority to capital reimbursement. Shareholders have the right to a mandatory minimum dividend of 25% of net income, computed in accordance with the terms of the Brazilian Corporate Law. As described in the Memoranda of Understanding for Shareholders' Agreements signed by (i) Odebrecht Quimica S.A., Petroquimica da Bahia S.A., Petros - Fundacao Petrobras de Seguridade Social and Previ - Caixa de Previdencia dos Funcionarios do Banco do Brasil and (ii) Odebrecht Quimica S.A., Petroquimica da Bahia S.A. and Petrobras Quimica S.A. - Petroquisa, on July 20 and July 3, 2001, respectively, the Company must distribute dividends in a percentage not less than 50% of available net income of each year, as long as remaining reserves are sufficient to maintain efficient operations and development of the Company's business. According to the terms of the contract for the 10th issue of debentures and of the Export Prepayment Credit Agreement, the payment of dividends on common shares, interest on own capital or any other kind of profit sharing is limited to the greater of 50% of net income or 6% of the combined unit values of class "A" and class "B" preferred shares. In accordance with the Company's statutes, the Company may pay interest on its own capital to its shareholders, within the terms of Article 9, paragraph 7 of Law No. 9,249 of December 26, 1995. Interest, when paid or credited, will be considered as part of the priority dividend on preferred shares as well as part of the minimum dividend requirement. (b) SHARES HELD IN TREASURY On September 30, 2002 the Company held in treasury 54,620 thousand class "A" preferred shares at the total amount of R$17,291 thousand. The value of these shares, based on the average quotation of the last trading day of the quarter, is R$12,825 thousand. 17. FUNDACAO PETROBRAS DE SEGURIDADE SOCIAL - PETROS The Company sponsors a defined benefit pension plan for its employees. This plan is managed by the Fundacao Petrobras de Seguridade Social (PETROS). Its main objectives are to complement retirement benefits provided by the government and to implement social assistance programs supported by the sponsoring companies. The sponsoring companies and their employees pay monthly contributions to Petros based on their employees' remuneration. On March 6, 2002, the Administrative Council authorized the signature of the Beneficiaries Segregation Agreement to be signed between the Company, PETROS and the other co-sponsors of the PETROS benefits pension plan. 37 The segregation of beneficiaries of the PETROS Plan, approved by the Council of Trustees and the Administrative Council of Petrobras, was based on the net asset position of Petros as of April 30, 2001. Petrobras employees represent approximately 90% of the beneficiaries of the funds managed by Petros. The net asset position determined on that date was divided among the sponsors in proportion to the mathematical reserves calculated by the independent actuaries STEA - Servicos Tecnicos de Estatistica e Atuaria Ltda. for each sponsor. As from May 1, 2001 the accounting records have been kept individually by sponsor. For this purpose, the funds under management were transformed into quotas of R$1.00, which change in accordance with new contributions or benefit payments for each sponsor's beneficiaries and share in the results of the overall investment program of Petros. In accordance with CVM rule No. 371, which approved IBRACON standard No. 26, "Accounting for Employee Benefits," the Company decided to recognize the cumulative actuarial deficit for the plan through December 31, 2001 as a prior year adjustment charged against 1994 retained earnings, as follows: Company --------------------------------- Own Affiliate --------------- --------------- Thousands of R$ Thousands of R$ --------------- --------------- Actuarial Liability - Actuarial Obligation at present value 212,707 63,907 Fair value of plan's assets 158,954 59,120 ---------- --------- Net liability accrued 53,753 4,787 ===== ===== The amounts shown above and presented in the Company's financial statements are based on the independent actuary's report dated January 15, 2002. Subsequently, on January 31, 2002, PETROS' independent auditors issued an unqualified opinion. * * * * * 38 MANAGEMENT'S COMMENTARY ON COMPANY PERFORMANCE 39
BRASKEM S.A. AND SUBSIDIARIES (A free translation of the original in Portuguese prepared in conformity with CONSOLIDATED BALANCE SHEETS accounting principles determined by Brazilian corporate legislation) AS OF SEPTEMBER 30, 2002 AND JUNE 30, 2002 (Unaudited) (In thousands of Brazilian reais) A S S E T S Consolidated ------------------------------------------ September 30,2002 June 30,2002 ---------------- --------------- CURRENT ASSETS: Cash and banks 111,878 37,426 Temporary cash investment 51,036 85,653 Trade accounts receivable 1,106,956 346,788 Notes and marketable securities 858,221 394,883 Notes receivable 24,208 Subsidiaries 11,186 6,082 Inventories 769,442 260,861 Recoverable taxes 277,600 181,889 Financing pre-payments 112,689 Other receivables 164,407 43,641 -------------- -------------- Total current assets 3,463,415 1,381,431 -------------- -------------- NONCURRENT ASSETS: Notes receivable 85,044 Advance for capital increase 7,528 2,654 Notes and marketable securities 80,044 Related parties 109,153 51,702 Recoverable taxes 225,179 125,035 Judicial deposits 51,832 21,521 Deferred income tax 135,358 135,284 Trade accounts receivable 50,264 8,152 Financing pre-payments 73,560 Other 69,436 1,972 --------------- -------------- Total noncurrent assets 802,354 431,364 --------------- -------------- PERMANENT ASSETS: Investments- Subsidiaries (6,063) 19,414 Jointly controlled entities 3,730,095 1,086,184 Other 102,315 66,948 --------------- --------------- Total 3,826,347 1,172,546 Property, plant and equipment 4,534,750 2,434,525 Deferred charges 652,297 386,592 --------------- -------------- Total permanent assets 9,013,394 3,993,663 --------------- -------------- Total assets 13,279,163 5,806,458 =============== ==============
The accompanying condensed notes are an integral part of these financial statements. 40
BRASKEM S.A. AND SUBSIDIARIES (A free translation of the original in Portuguese prepared in conformity with CONSOLIDATED BALANCE SHEETS accounting principles determined by Brazilian corporate legislation) AS OF SEPTEMBER 30, 2002 AND JUNE 30, 2002 (Unaudited) (In thousands of Brazilian reais) LIABILITIES AND SHAREHOLDERS' EQUITY Consolidated ------------------------------------------ September 30,2002 June 30, 2002 ---------------- -------------- CURRENT LIABILITIES: Bank loans 3,705,486 748,515 Debentures 40,992 Suppliers 1,167,697 409,686 Taxes payable 187,320 124,344 Dividends 2,369 2,413 Related parties 69,776 Other payable 289,283 48,815 --------------- --------------- Total current liabilities 5,421,931 1,374,765 --------------- --------------- LONG-TERM LIABILITIES: Bank loans 2,237,789 1,380,195 Foreign notes payable 1,875,410 426,660 Debentures 1,274,003 473,494 Related parties 208,031 5,738 Pension plan 55,037 53,753 Taxes payable 805,570 4,922 Advance for capital increase 15,172 13,717 Deferred income tax 21,809 Other 84,601 45,329 ------------- -------------- Total long-term liabilities 6,577,422 2,403,808 DEFERRED INCOME 63,007 14,130 --------------- --------------- MINORITY INTEREST 437,152 229,643 --------------- --------------- SHAREHOLDERS' EQUITY: Updated capital 1,845,399 1,201,589 Capital reserves 717,822 717,822 Income reserves 97,684 97,684 Retained earnings (1,881,254) (232,983) --------------- --------------- Total shareholders' equity 779,651 1,784,112 --------------- --------------- Total liabilities and shareholders' equity 13,279,163 5,806,458 =============== ==============
The accompanying condensed notes are an integral part of these financial statements. 41
BRASKEM S.A. AND SUBSIDIARIES (A free translation of the original in Portuguese prepared in conformity with accounting principles determined by CONSOLIDATED STATEMENTS OF OPERATIONS Brazilian corporate legislation) FOR THE PERIODS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001 (Unaudited) (In thousands of Brazilian reais) Consolidated ---------------------------------------------------------------------- 07/01/2002 until 01/01/2002 until 07/01/2001 until 01/01/2001 until 09/30/2002 09/30/2002 09/30/2001 09/30/2001 ---------------------------------------------------------------------- GROSS SALES 3,492,611 5,280,795 1,009,287 3,062,288 DEDUCTIONS FROM SALES (696,063) (1,067,374) (232,036) (660,059) ------------- ------------ ----------- ----------- Net sales 2,796,548 4,213,421 777,251 2,402,229 COST OF SALES (2,232,680) (3,419,509) (674,881) (2,042,852) ------------- ------------ ----------- ----------- Gross profit 563,868 793,912 102,370 359,377 OPERATING (EXPENSES) INCOME: Selling (52,074) (98,463) (17,613) (45,471) General and administrative (66,282) (118,778) (21,471) (58,314) Financial expenses (2,828,805) (3,365,152) (35,460) (282,833) Financial income 751,075 845,070 76,148 182,866 Other operating income (expenses) - net (203,724) (209,473) (961) (6,534) ------------- ------------ ----------- ----------- Total (2,399,810) (2,946,796) 643 (210,286) EQUITY IN INCOME (LOSS) OF SUBSIDIARIES AND AFFILIATES 18,193 18,011 (30,845) (29,327) ------------- ------------ ----------- ----------- INCOME (LOSS) FROM OPERATIONS (1,817,749) (2,134,873) 72,168 119,764 NON-OPERATING (INCOME) EXPENSES, NET (28,372) (84,688) (8,221) (8,216) ------------- ------------ ----------- ----------- INCOME (LOSS) BEFORE INCOME TAX (1,846,121) (2,219,561) 63,947 111,548 BENEFIT (PROVISION) FOR INCOME TAX: Provision for income tax and social contribution (39,833) (52,083) 8,540 (3,375) Deferred income tax 57,638 (34,174) (32,690) ------------- ------------ ----------- ----------- Total benefit (provision) for income tax (39,833) 5,555 (25,634) (36,065) MINORITY INTEREST 221,389 214,286 (4,453) (4,071) ------------- ------------ ----------- ----------- Net income (loss) (1,664,565) (1,999,720) 33,860 71,412 ============= =========== ============ ============ NUMBER OF OUTSTANDING SHARES (THOUSANDS) 3,343,693 3,343,693 1,737,796 1,737,796 ======== ======= ======== ======== NET INCOME (LOSS) PER THOUSAND SHARES (0.49782) (0.59806) 0.01948 0.04109 ======== ======= ======== ========
The accompanying condensed notes are an integral part of these financial statements. 42 MANAGEMENT'S COMMENTARY ON COMPANY'S CONSOLIDATED PERFORMANCE Braskem announced earnings for the nine-month period ended September 30, 2002. Results are stated in Reais according to Brazilian GAAP and Braskem's investments in Politeno and Copesul are recognized via the equity accounting method instead of being proportionally consolidated as per rule CVM-247. Due to the fact that Braskem was created on August 16, 2002, the comments stated herein are based on pro-forma(1) financial statements, which are attached at the end of this release and are part of the Company's "Performance Commentary" included in the CVM quarterly filing document (ITR). Starting in 4Q02 with the twelve-month period earnings, Braskem will provide comparisons between consecutive quarters. Commentary provided in this release refers to consolidated earnings, with all comparisons being made to the same period in 2001. On September 30, 2002, the U.S. dollar exchange rate was R$3.8949. HIGHLIGHTS o EBITDA totaled R$ 921 million in the first nine months of 2002, 16% higher than in the same period last year. This result is a significant achievement, particularly in light of the maintenance and modernization stoppage of Pirolysis Unit #1 at the Camacari Naphtha Cracker. This stoppage took place in the second quarter of the year and lasted 95 days. For the first nine months of 2002, EBITDA margin was 19% compared to 18% in the same period in 2001, and was the highest among Braskem's international peers. o Synergies from the integration process currently underway are being realized at a rapid rate, totaling R$53 million/year on an annualized basis, arising mainly from the following initiatives: rationalization of administrative expenses, reduction of tax redundancies and credit compensations on inter-company product transfers within the group and workforce rationalization. o Implementation of modern Corporate Governance principles: o Compliance with BOVESPA's Level 1 requirements; o 100% tag-along rights to all shareholders in the event of a sale of controlling shareholding stake, which exceeds Bovespa's Level 2 requirements; and o Election of the new Board of Directors, approval of Internal Policies and new Company Bylaws. o CVM filing of the Public Share Exchange proposal to holders of Nitrocarbono common shares; o New York Stock Exchange (NYSE) listing of Braskem's shares (Level II ADR program). o Greater operational flexibility resulting from guaranteed access to the international naphtha market. During the first nine months of 2002, imported naphtha already represented 27% of Braskem's total naphtha consumption. o Capacity expansion for ethylene, the main raw material used in downstream petrochemical production, through an investment of R$216 million in the Naphtha Cracker in Camacari, Bahia. _________________________ (1) Pro-forma: consolidated financial information from the companies that form Braskem as if they were part of the company's corporate structure during the nine-month periods of 2001 and 2002. 43 MARKET Sales volume of thermoplastics in 9M02 totaled 1,144 thousand tons, 4% higher compared to the same period in 2001. Sales volumes for all product lines were higher compared to 2001. Sales volume of ethylene, the main product in the basic petrochemical segment, totaled 708 thousand tons, 12% lower than in 9M01 due to the scheduled maintenance stoppage mentioned above. Of this total, 369 thousand tons (52%) were sales to third parties. Net Sales is summarized in the table below: (GRAPHIC TABLE OMITTED) It is evident that even within the more challenging macroeconomic context and more adverse conditions for the petrochemical industry in 2002, Braskem's Sales performance was strong: net revenues from the vinyls unit remained stable compared to 2001 while revenues from all other units surpassed 2001 levels. The company registered a substantial increase in its export revenues (44%), resulting partially from translation gains from foreign currencies into the brazilian real. PRODUCTION Thermoplastics production (Polyethylenes, PP, PVC and PET) remained at practically the same level as the previous year, totaling 1,099 thousand tons in 9M02, compared to 1,105 thousand tons in 9M01, despite the scheduled maintenance stoppage at the Naphtha Cracker The Polypropylene units operated at 89% capacity during the period, while the PVC and Polyethylene units ran at 84% and 94% capacity, respectively, following the maintenance stoppage. The scheduled stoppage at the Camacari Unit resulted in 11% lower basic petrochemical production, which totaled 1,844 thousand tons in 2002 compared to 2,077 thousand in 2001. Ethylene production was 13% lower, totaling 704 thousand tons in 9M02 compared to 805 thousand tons in 9M01. 44 The capacity utilization rate at the ethylene plants was 92% in 3Q02 (post-stoppage) compared to 67% in 2Q02. In September of 2002, capacity utilization returned to a level of 93%. Production output is summarized in the table below: (GRAPHIC TABLE OMITTED) OPERATING RESULTS NET SALES REVENUE Net sales in the first nine months of 2002 grew 15% to R$4.9 billion. Thermoplastics sales prices were in line with international price trends. Furthermore, Braskem's state-of-the-art technological, customer support and logistics infrastructure adds value to products sold by the Company, which translates into a service margin premium over the international price (post-import) in Brazil. (GRAPH OMITTED) 45 Breakdown of each Business Unit's participation in net revenues: (GRAPH OMITTED) COST OF GOODS SOLD AND GROSS PROFT As shown in the graph below, Braskem's main cost component is naphtha. Naphtha prices are referenced to the U.S. dollar and track international oil prices. Average naphtha prices in Brazil increased 4% in reais in 2002 when compared to the same period last year. (GRAPH OMITTED) In the first nine months of 2002, cost of goods sold totaled R$4 billion, 18% higher when compared to the R$3.4 billion in the same period of last year. This increase was due to higher naphtha costs coupled with the Company's 4% higher sales volume during the period. Braskem sells over 50% of its production volume of ethylene and propylene to outside customers. The pricing agreements with customers for these products include a U.S. dollar indexation component, which partially offsets the negative impact of the U.S. dollar appreciation on the Company's profitability. In the first nine months of 2002, gross profit totaled R$907 million, 3% higher than the gross profit of R$881 million in the first nine months of 2001. 46 |_| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses (without depreciation and amortization), totaled R$291 million in 9M02, compared to R$228 million in 9M01. When expressed as a percentage of net sales, SG&A expenses were 5.9% in 9M02 compared to 5.3% in 9M01. Braskem's ratio of SG&A expenses to net sales is one of the lowest among its global peers. The increase in SG&A expenses is attributed to the inflation during the period. According to the IGP-M index, which Braskem uses to adjust the majority of its contracts, inflation was 13.3%. Furthermore, the reclassification of certain administrative expenses in 2002, which were previously recorded as costs in 2001 had an impact of approximately R$10 million on the period's SG&A. In addition, approximately R$15 million in non-recurring expenses related to the Company's integration and restructuring were recorded as SG&A in this fiscal period. EBITDA EBITDA in 9M02 totaled R$921 million compared to R$794 million in 9M01, a growth of 16%. Even with higher naphtha costs and exchange rate volatility, Brakem's EBITDA margin was 19% in 9M02 compared to 18% in 9M01, the highest margin among the Company's international peers. This result confirms Braskem's ability to maintain strong operating efficiency in its sector even during a period of adverse macroeconomic conditions and a challenging environment for the petrochemical industry. (GRAPH OMITTED) OTHER OPERATING REVENUES / EXPENSES Braskem recorded a net result of R$100 million in other operating revenues/expenses, of which R$88 million was related to the recovery of PIS (Social Integration Program) taxes, calculated as per Amendment no. 7/70, resulting from legal challenges brought forth by Braskem and its subsidiaries. Of this total, 52% has been accounted for in the Company's cash balance. 47 NET FINANCIAL RESULT The currency devaluation of 68% during the first nine months of 2002 (compared to 37% in 9M01) contributed to a negative net financial result of R$2.9 billion compared to R$1.4 billion in the same period of the previous year - of this amount, R$629 million corresponded to deferred and not yet amortized exchange rate losses at sept. 30th, 2001. In the first nine months of 2002, the exchange-related impact on the balance of U.S. Dollar-indexed liabilities totaled R$2.18 billion, while the remaining financial result is comprised of other items such as interest payments, monetary restatement on liabilities indexed to the CDI, IGP-M and TJLP indexes and other financial expenses such as CPMF and bank fees, among others. DEFERRED EXCHANGE-RELATED IMPACT: In 2001 the companies that together form Braskem (Copene, OPP Quimica, Trikem. Polialden, Nitrocarbono) made the decision to defer exchange-related losses and subsequently amortized R$679 million during the first nine months of 2001, of which R$51 million were recorded as financial expenses (Copene and Nitrocarbono) and R$628 million as deferred exchange-related expenses (OPP Quimica, Trikem, Proppet and Polialden). As a result of the incorporation of OPP Produtos Quimicos and 52.114 Participacoes, S.A., in 2002 Braskem decided to record these losses directly on the income statement instead of deferring them over time. This decision resulted in a negative impact of R$190 million on the Company's income statement, which was recorded as amortization of deferred exchange-related losses. EQUITY INCOME Equity income in 9M02 totaled R$353 million compared to R$ 46 million in 9M01. The main factors that contributed to this result were the positive exchange variation on the shareholders' equity of foreign subsidiaries as well as gains recorded on companies that were incorporated. INCOME TAXES During 2002, Braskem recorded a reversion of R$58 million in income tax expense. This reversion contributed to a positive impact of R$41 million on the Income Tax account and was calculated based on Braskem's accumulated tax loss carryforwards, which totaled R$2.4 billion on September 30, 2002. The recognition of the income tax carryforwards reflects Braskem's expectation that the Company will generate positive earnings in the near future. NET INCOME (LOSS) Consolidated net loss totaled R$1.8 billion during the first nine months of 2002. The negative impact of exchange variation during the period was significant and totaled R$2.18 billion. 48 CONSOLIDATED NET DEBT Braskem's consolidated gross debt totaled R$7.7 billion on September 30, 2002, including R$621 million in subordinated debentures for which payment of principal and interest is scheduled for May 2007. Braskem's debt is comprised of 71% U.S. Dollar-indexed obligations, while 14% is linked to TJLP, 11% to CDI and 4% to the IGP-M index. Of the total U.S. Dollar-indexed debt, R$2.88 billion (47%) is trade-related financing. Braskem will be using its cash generation mainly toward the amortization of its short term obligations. Furthermore, the Company will utilize its export revenue flows (approximately US$400 million per year) and its long term contracts with first-tier domestic customers to continue its ongoing process of extending the average maturity of the Company's outstanding debt. Short-term debt includes approximately R$1.35 billion in export contract advances related to Braskem's international customers and subsidiaries, which will be liquidated for future exports. Also included in short term debt is approximately R$700 million in working capital used to finance the Company's operations. Braskem is currently seeking alternatives to reduce this demand. INVESTMENTS During the first nine months of 2002 investments totaled R$276 million, of which R$15 million were expenditures associated with the formation of Braskem (general and administrative expenses). The Company's assets are updated and competitive, with no need for significant additional investments. ****** 49
PRO-FORMA INCOME STATEMENT (R$ MILLION) BRASKEM S.A. (CONSOLIDATED) 9M02 9M01 CHANGE (%) ------------------------------------ A B (A)/(B) ------------------------------------ Gross Revenues 6,174 5,549 11% Net Revenues 4,894 4,266 15% Cost of Goods Sold (3,987) (3,385) 18% Gross Profit 907 881 3% Selling, General and Adminstrative Expenses (291) (228) 28% Depreciation and Amortization * (252) (229) 10% Other operating revenues (expenses) 100 (9) - Equity Income 353 46 - Operating Profit (pre-financial items) 816 461 77% Net Financial Result ** (2,913) (809) 260% Operating Profit (2,097) (348) - Other non-operating revenues (expenses) (60) 178 - Pre-tax profit (loss) (2,156) (170) - Income tax 21 (32) - Minority Participation 300 (103) - Net income (loss) (1,836) (306) - EBITDA 921 794 16%
* Deferral of losses related to exchange rate variation during the first nine months of 2001 totaled R$105 million and recognition of these losses in 2002 had a negative impact onthe 9M02 income statement of R$ 190 million. ** Amount of deferred and not amortized foreign exchange losses in 9M01 totaled R$ 629 million. 50
PROFORMA BALANCE SHEET (R$ MILLION) BRASKEM S.A. (CONSOLIDATED) ASSETS SEP. 30, 02 SEP. 30, 01 CHANGE (%) A B (A/B) Current Assets 2,906 3,225 -10% . Cash and marketable secutities 748 1,431 -48% . Accounts receivable 976 680 44% . Inventory 669 634 6% . Taxes to be recovered 251 200 26% . Others 262 280 6% Noncurrent Assets 714 1,046 -60% . Related Parties 47 662 - . Others 667 384 74% Plant, property and equipment 8,923 7,812 14% Total Assets 12,543 12,082 4% Liabilities and Shareholders' Equity SEP. 30,02 SEP. 30,01 CHANGE % A B (A/B) Current Liabilities 4,963 4,323 15% . Suppliers 1,148 470 144% . Financing 3,361 3,266 3% . Others 453 587 -23% Noncurrent Liabilities 6,364 4,514 41% . Financing 5,085 3,743 36% . Related Parties 334 187 79% . Others 944 584 62% Shareholders' Equity 1,216 3,246 -63% Total Liabilities and Sharehoders' Equity 12,543 12,082 4%
Certain of the statements contained herein are forwardlooking statements, which express or imply Management's expectations at the present time and may differ materially as a result of changes in earnings, operating performance and future events, and were not subject to the revision process by the independent auditors. 51