<DOCUMENT>
<TYPE>EX-1
<SEQUENCE>3
<FILENAME>e852739.txt
<DESCRIPTION>INTERIM FINANCIAL STATEMENTS
<TEXT>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<TABLE>
<CAPTION>
September 30, 2002 June 30, 2002
------------------ -------------
CURRENT ASSETS:
<S> <C> <C>
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
========= =========
</TABLE>
The accompanying condensed notes are an
integral part of these financial statements.
5
<PAGE>
(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
------------------------------------
<TABLE>
<CAPTION>
September 30, 2002 June 30, 2002
------------------ -------------
CURRENT LIABILITIES:
<S> <C> <C>
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
=========== =========
</TABLE>
The accompanying condensed notes are an
integral part of these financial statements.
6
<PAGE>
(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)
<TABLE>
<CAPTION>
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
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
The accompanying condensed notes are an
integral part of these financial statements.
7
<PAGE>
(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
<PAGE>
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:
<TABLE>
<CAPTION>
% total In thousands of reais
Assets capital Sellers Amount Investment Premium
------------------------------------- --------- ------------------------ ------------- -------------- ----------
<S> <C> <C> <C>
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
============= =========== ==========
</TABLE>
(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
<PAGE>
(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$1,417,512 thousand.
The amount paid for the acquisition of those investments is supported by
the economic and financial appraisal reports of independent experts.
The purchase of these assets (Northeast Assets) by the Company was approved
by the aforementioned Company Administrative Council meeting on July 24,
2001. The terms of approval stipulated that, after the Company acquired
Nova Camacari, a first class investment bank would independently appraise
the cost of Nova Camacari for the purposes of adjusting the price paid by
the Company, if applicable. The selected bank, Unibanco, prepared its
appraisal using the same projections of resin and raw material prices and
of macroeconomic indicators used in the formulation of the discount rate
used in the independent appraisals of Nova Camacari. The remaining
hypotheses and the methodology used to obtain the discount rate were
selected by the bank.
This appraisal presented a result compatible with the other appraisals, and
was approved during the Company's Administrative Council meeting on
December, 18, 2001.
(vi) Upstream mergers
On September 13, 2001, the Company publicly announced the terms, conditions
and justifications for the corporate restructuring which it intended to
carry out including the upstream merger of Nova Camacari, Intercapital and
Proppet into the Company. The mergers were based on the book values of
their respective Shareholders' Equity balances as attested to by qualified
experts. The Stockholders' Extraordinary General Meeting of September 28,
2001, approved the complete merger.
The reports of the qualified experts show the net assets of Nova Camacari,
Intercapital and Proppet in accordance with accounting principles
determined by Brazilian corporate legislation, based on their Balance
Sheets as of August 31, 2001, as set out below:
10
<PAGE>
<TABLE>
<CAPTION>
In thousands of R$
---------------------------------------------------
Nova
Camacari Intercapital Proppet
-------------- -------------- --------------
ASSETS:
<S> <C> <C> <C>
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
============== ============= ==============
</TABLE>
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
<PAGE>
(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$1,845,398 thousand, through the issue of 579,397,986 new common shares
and 1,026,498,803 class "A" preferred shares.
As established in the Merger and Justification Protocol, these mergers were
performed through the exchange of Odebrecht/Mariani Assets' shares for new
shares issued by the Company, based on economic appraisal reports of the
involved companies, prepared by a first class investment bank.
The net assets of the merged companies OPP Produtos Petroquimicos S.A.
("OPP PP") and 52114 Participacoes S.A. ("52114"), in accordance with the
appraisal reports as of May 31, 2002, are presented as follows:
12
<PAGE>
<TABLE>
<CAPTION>
THOUSANDS OF R$
-----------------------------
OPP PP 52114
--------- ----------
ASSETS
<S> <C> <C>
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)
</TABLE>
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
<PAGE>
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
<PAGE>
(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:
<TABLE>
<CAPTION>
SHAREHOLDING
BRASKEM'S DIRECT SHAREHOLDINGS COUNTRY IN TOTAL CAPITAL (%)
---------------------------------------------------------------------------- -------------------- -------------------------
SUBSIDIARIES
<S> <C>
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
</TABLE>
(*) 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
<PAGE>
The direct or indirect holdings of the subsidiary Odebrecht Quimica included in
the consolidation are as follows:
<TABLE>
<CAPTION>
SHAREHOLDING
BRASKEM'S DIRECT SHAREHOLDINGS COUNTRY IN TOTAL CAPITAL (%)
---------------------------------------------------------------------------- -------------------- -------------------------
<S> <C>
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
</TABLE>
(*) 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:
<TABLE>
<CAPTION>
THOUSANDS OF R$
---------------------------------
SHAREHOLDERS' RESULT OF
EQUITY THE PERIOD
---------------------------------
<S> <C> <C>
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)
============= ==========
</TABLE>
16
<PAGE>
3. TRADE ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
THOUSANDS OF R$
---------------------------
09/30/02 06/30/02
--------- ---------
Clients
<S> <C> <C>
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
========= =========
</TABLE>
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$111,019 thousand on June 30,2002).
4. INVENTORIES
<TABLE>
<CAPTION>
THOUSANDS OF R$
---------------------------
09/30/02 06/30/02
--------- ---------
Clients
<S> <C> <C>
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
======= =======
</TABLE>
17
<PAGE>
5. RELATED PARTIES
<TABLE>
<CAPTION>
THOUSANDS OF R$
ASSETS LIABILITIES
CURRENT NONCURRENT CURRENT
TRADE ACCOUNTS NOTES NOTES RELATED NOTES
RECEIVABLE RECEIVABLE RECEIVABLE PARTIES SUPPLIERS PAYABLE
-------------- ---------- ---------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
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
============ ========== ========== ========== ========= =======
</TABLE>
(*) Advances for future capital increase.
18
<PAGE>
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C>
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
========= =========== ========= ========== ============= =============
</TABLE>
(**) 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
<PAGE>
(a) The related parties balance includes current account balances, and the main
balances are summarized as follows:
<TABLE>
<CAPTION>
THOUSANDS OF R$
---------------
BALANCE
---------------
PARTICIPATING COMPANIES ANNUAL FINANCIAL CHARGES 09/30/02 06/30/02
----------------------- ------------------------ -------- --------
SUBSIDIARIES
NONCURRENT ASSETS
-----------------
<S> <C> <C>
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
</TABLE>
The amount of R$2,281,736 recorded as Long term liabilities refers to notes
payable to the subsidiary Odequi. The liquidation of this amount depends on
the schedule to be set by the parties.
(b) The related parties balance includes intercompany balances, and the main
balance is summarized as follows:
<TABLE>
<CAPTION>
AFFILIATE
THOUSANDS OF R$
---------------
NONCURRENT ASSETS ANNUAL FINANCIAL CHARGES 09/30/02 06/30/02
----------------------- ------------------------ -------- --------
<S> <C> <C> <C>
Petroflex 110% of CDI 20,386 21,613
</TABLE>
20
<PAGE>
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
<PAGE>
(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$28,155 thousand
(Note 7).
On March 6, 2002, the Federal Court of Appeals (TRF) recognized the
Company's right to offset the paid amounts, monetarily restated as from the
payment date, including the use of expunged inflation indexes and the SELIC
rate.
22
<PAGE>
7. DEPOSITS PAID INTO COURT
Based on questions as to the legality and constitutionality of certain
taxes, the Company has requested court injunctions against such taxation
and has paid deposits into court for the related amounts.
The main deposits, monetarily restated, are:
THOUSANDS OF R$
-----------------------
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$25,000 thousand.
The main information regarding the investments in subsidiary, jointly
controlled and affiliated companies is follows:
23
<PAGE>
(a) INVESTMENT INFORMATION
<TABLE>
<CAPTION>
QUANTITY OF OWNED SHAREHOLDING
SHARES OR QUOTAS IN TOTAL CAPITAL (%)
------------------------------- ----------------------
09/30/02 06/30/02 09/30/02 06/30/02
--------------- -------------- ---------- ----------
(PARENT COMPANY'S
INVESTMENT INFORMATION
SUBSIDIARIES
<S> <C> <C> <C> <C>
Monomeros 683,393,147 683,393,147 87.24 87.24
Tegal 19,814,247 19,814,247 82.00 82.00
CPN Inc. 95,000 95,000 100.00 100.00
CPN Distribuidora 354,210 354,210 100.00 100.00
Copene Participacoes 3,713,338,554 3,713,338,554 43.69 43.69
ESAE 2,789,675,559 2,789,675,559 100.00 100.00
Proppet Overseas (*) 2 2 100.00 100.00
Nitrocarbono (**) 135,607,490 92.29
Odequi (**) 20,078,695 98.39
OIL (**) 5,000 100.00
Overseas (**) 1 100.00
JOINTLY CONTROLLED
Cetrel 174,188 174,188 18.31 18.46
CODEVERDE (*) 9,372,047 9,372,047 35.42 35.42
Norcell (*) 93,377,672 93,377,672 88.42 88.42
COPESUL (**) 3,104,531,327 20.67
AFFILIATE
Petroflex 141,597,478 141,597,478 20.12 20.12
</TABLE>
<TABLE>
<CAPTION>
THOUSANDS OF R$
------------------------------------------------------------
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
<S> <C> <C> <C> <C>
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
</TABLE>
(*) 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
<PAGE>
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C>
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
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
(b) INVESTMENT ACTIVITY
NOVA
CAMACARI MONOMEROS TEGAL CPNINC.
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
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
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
THOUSANDS OF R$
-----------------------------------------------
SUBSIDIARIES
-----------------------------------------------
09/30/02
-----------------------------------------------
INTERCAPITAL
CPN PARTICIPACOES COPENE
DISTRIBUIDORA S.A. PARTICIPACOES
-------------- -------------- --------------
<S> <C> <C> <C>
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
============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
ESAE NITROCARBONO 52114 (**) OPP PP (**)
------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
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
============= =============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
THOUSANDS OF R$
--------------------------------------------
SUBSIDIARIES (CONTINUATION)
--------------------------------------------
09/30/02 06/30/02
------------------------------ ------------
ODEQUI TOTAL TOTAL
------------ -------------- ------------
<S> <C> <C> <C>
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
============ ============== ============
</TABLE>
(*) This balance includes goodwill in the amount of R$1,935,406 thousand (see
Note 1 (c) (viii)).
(**) The amounts presented as equity adjustments refer to the shareholders'
equity variation between the appraisal report date (05/31/02) and the
effective merger date (08/16/02).
26
<PAGE>
<TABLE>
<CAPTION>
NORCELL CETREL CODEVERDE COPESUL
----------- ----------- ------------------ ---------------
<S> <C> <C> <C>
As of December 31, 2001 130,467 12,120 12,500
Additions 310 176,549
Goodwill recording 261,689
Provision for probable losses on investments (25,000) (3,595)
Equity adjustments 8,596 (2,335) 14,566
Shareholding reduction (16)
Amortization of
(Goodwill)/Negative Goodwill (109) (3,520)
----------- ----------- ------------------ ---------------
Balance at the end of period 114,063 9,676 9,199 449,284
=========== =========== ================== ===============
</TABLE>
<TABLE>
<CAPTION>
THOUSANDS OF R$
----------------------------------
AFFILIATE AND JOINTLY CONTROLLED
----------------------------------
09/30/02 06/30/02
---------------------- -----------
PETROFLEX TOTAL TOTAL
---------- ---------- -----------
<S> <C> <C> <C>
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
========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
(c) SUBSIDIARIES WITH UNSECURED LIABILITIES
THOUSANDS OF R$
---------------------------------------------------------------------------
PROVISION FOR LOSS IN INVESTMENTS -
LONG TERM LIABILITIES
---------------------------------------------------------------------------
PROPPET
OIL OVERSEAS NITROCARBONO OVERSEAS TOTAL
------------ ------------ --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
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
============ ============ =============== ============== ==============
</TABLE>
27
<PAGE>
9. DEBT
<TABLE>
<CAPTION>
THOUSANDS OF R$
---------------------------------------------------------------------------------------
ANNUAL FINANCIAL CHARGES 09/30/02 06/30/02
------------------------------------------------------- -------------- --------------
FOREIGN CURRENCY
<S> <C> <C> <C>
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
============== ==============
</TABLE>
28
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1ST SERIES 2ND SERIES
------------------------------- ------------------------------
<S> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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$78,600 thousand and due dates between
October 28, 2002 and May 19, 2003, which are intended to reduce the impact
of an eventual devaluation of the Brazilian Real. These contracts are
summarized as follows:
<TABLE>
<CAPTION>
Unrealized Profit
Financial (Loss) as of
Contract Notional Amount Company's institution Due September 30, 2002
Financial Institution Date (US$ thousands) index index Date R$ thousands
------------------------------ ------------ ----------------- ----------------- -------------- -------------- --------------------
Swap Contracts-
<S> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
MANAGEMENT'S COMMENTARY ON COMPANY PERFORMANCE
39
<PAGE>
<TABLE>
<CAPTION>
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:
<S> <C> <C>
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
=============== ==============
</TABLE>
The accompanying condensed notes are an
integral part of these financial statements.
40
<TABLE>
<CAPTION>
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:
<S> <C> <C>
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
=============== ==============
</TABLE>
The accompanying condensed notes are an
integral part of these financial statements.
41
<PAGE>
<TABLE>
<CAPTION>
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
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
======== ======= ======== ========
</TABLE>
The accompanying condensed notes are an
integral part of these financial statements.
42
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
|_| 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
<PAGE>
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
<PAGE>
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$15 million were expenditures associated with the formation of Braskem
(general and administrative expenses). The Company's assets are updated and
competitive, with no need for significant additional investments.
******
49
<PAGE>
<TABLE>
<CAPTION>
PRO-FORMA INCOME STATEMENT (R$ MILLION)
BRASKEM S.A. (CONSOLIDATED)
9M02 9M01 CHANGE (%)
------------------------------------
A B (A)/(B)
------------------------------------
<S> <C> <C> <C>
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%
</TABLE>
* 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
<PAGE>
<TABLE>
<CAPTION>
PROFORMA BALANCE SHEET (R$ MILLION)
BRASKEM S.A. (CONSOLIDATED)
ASSETS SEP. 30, 02 SEP. 30, 01 CHANGE (%)
A B (A/B)
<S> <C> <C> <C>
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%
</TABLE>
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
</TEXT>
</DOCUMENT>