Unigel S.A. Review of combined consolidated interim financial information June 30, 2011

Transcription

1 Review of combined consolidated interim financial information June 30, 2011

2 Combined consolidated interim financial June 30, 2011 and 2010 Contents Independent auditors report on the review of interim financial information 5-7 Combined consolidated statement of financial position 8 Combined consolidated of income 9 Combined consolidated of shareholders equity 10 Combined consolidated of cash flows 11 Combined consolidated of comprehensive income 12 Notes to the interim combined consolidated financial

3 Independent auditors report on the review of interim financial information 3

4 Consolidado Draft Consolidated and Combined consolidated statement of financial position June 30, 2011 and December 31, 2010 Assets Note 06/30/11 12/31/10 Liabilities Note 06/30/11 12/31/10 (combined (combined (consolidated) consolidated) (consolidated) consolidated) Current Current Cash and cash equivalents 6 160, ,333 Loans and financing , ,515 Trade accounts receivable 7 267, ,054 Suppliers , ,127 Inventories 8 329, ,574 Taxes payable 18 15,312 28,998 Related parties 9 2, Income tax and social contribution 8,445 24,364 Recoverable taxes 10 95,954 75,496 Salaries and vacation pay 19,710 16,979 Income tax and social contribution 9,390 8,519 Related parties Prepaid expenses 6,226 3,346 Dividends payable 9 2,186 55,627 Other accounts receivable 12 23,368 23,969 Other accounts payable 19 47,460 78,221 Total current assets 894, ,258 Total current liabilities 697, ,881 Noncurrent Noncurrent Trade accounts receivable 7 7,282 7,282 Inventories 8 5,333 5,333 Loans and financing , ,706 Related parties 9 135, ,787 Taxes payable 18 10,475 13,136 Recoverable taxes 10 15,839 16,069 Deferred taxes , ,712 Deferred taxes , ,730 Provision for contingencies 20 23,899 23,560 Deposits in court 4,868 4,632 Other accounts payable 19 20,645 22,748 Assets classified as held for sale Other accounts receivable 12 2,096 1,702 1,141,211 1,145,862 Investment property 8,571 8,571 Shareholders' equity Other investments 14 2,627 2, Property, plant and equipment 13 1,580,815 1,607,475 Capital 440, ,154 Intangible assets 15 6,161 6,789 Valuation adjustments 372, ,374 Accumulated translation adjustments 7,383 7,841 Total non current assets 1,920,361 2,092,137 Profit reserve 102, ,693 (Accumulated losses) retained earnings 29,661 (43,534) Total equity attributable to equity holders of the Company 951, ,528 Non-controlling interest 24,100 24,124 Total shareholders equity 975,671 1,013,652 2,814,611 2,743,395 2,814,611 2,743,395 See the accompanying notes to the combined consolidated financial. 8

5 Draft Consolidado Combined consolidated statement of income Six-month period ended June 30, 2011 and 2010 Note 06/30/11 06/30/10 Net revenue 23 1,145,472 1,023,587 Cost of sales 27 (1,016,052) (893,041) Gross profit 129, ,546 Operating (expenses) income Selling expenses 27 (19,046) (23,143) Administrative and general expenses 27 (25,604) (27,192) Other operating income (expenses) 26 (21,842) (22,482) Profit (loss) before financial results equity income and taxes 62,928 57,729 Financial income 25 46,897 97,054 Financial expenses 25 (56,757) (158,203) Financial results, net (9,860) (61,149) Share of profit of equity-accounted investees 14-6,898 Net income before income tax and social contribution 53,068 3,478 Income tax and social contribution 11 Current (17,514) (3,934) Deferred 17,580 22, ,112 Net income for the year 53,134 21,590 Income attributable to Shareholders' of the Company 53,158 22,087 Non-controlling interests in subsidiaries (24) (497) 0 See the accompanying notes to the combined consolidated financial. 9

6 Draft Combined consolidated of changes in shareholders' equity Profit reserves Accumulated Accumulated Capital Valuation conversion Revaluation Profit Additional (losses) retained Noncontroling Capital reserves adjustments adjustments reserves Legal retention dividends earnings interest Total Balances at January 1, , ,471 12,101 1,337 13,764 90,657 22,893 (20,465) 6 974,540 Payment of additional dividends from previous year (22,893) - - (22,893) Net income for the year ,978 (310) 98,668 Capital increase by contribution of combined entity on April 1, ,416 (38) (12,736) - - (1,813) (6,199) - (34,093) 24,599 (864) Realization of valuation adjustment due to depreciation and disposals net of tax effects - - (38,361) , Realization of revaluation in equity-accounted investees (1,337) (891) Other comprehensive income: Currency translation adjustments (4,260) (4,260) Actuarial gain or loss in defined benefit plan, net of taxes (608) (608) Distributions: Legal reserve , (6,326) - - Dividends (29,869) (171) (30,040) Retained profit destination ,120 - (90,120) - - Balances at December 31, , ,374 7,841-18, ,416 - (43,534) 24,124 1,013,652 Net income for the period ,158 (24) 53,134 Realization of valuation adjustment due to depreciation and disposals net of tax effects - - (20,037) , Other comprehensive income: Currency translation adjustments (458) (458) Distributions: Dividends from previous year (90,657) (90,657) Balances at June 30, , ,337 7,383-18,277 83,759-29,661 24, ,671 See the accompanying notes to the combined consolidated financial. 10

7 Draft Combined consolidated statement of cash flows Six-month period ended June 30, 2011 and /30/11 06/30/10 Cash flows from operating activities Net income before income and social contribution taxes 53,134 21,590 Ajustments for: Depreciation and amortization 74,936 60,593 Provision for contingencies 473 5,098 Loss on investments 10 - Provision for doubtful accounts 459 (1,485) Provision (reversal) for losses on inventories (556) 244 Deferred taxes (17,580) (22,046) Valuation adjustment (458) (2,611) Interest and exchange rate variation (8,775) 55,644 Gain on the sale of fixed assets 2,670 1,706 Equity in net income of affiliated companies - (6,898) 104, ,835 Changes in assets and liabilities Increase in trade accounts receivables (60,889) (72,867) Increase in inventories (107,110) (61,984) Increase in suppliers 87, ,769 Increase in other accounts receivable (24,008) (29,234) Decrease in other accounts payable and provisions (37,393) (32,364) Decrease (increase) in income and social contribution taxes (22,240) 4,366 Interest paid in loans (25,600) (33,995) Net cash provided by (used in) operating activities (85,646) 7,526 Cash flows from investing activities Purchases of property, plant and equipment and intangibles (44,667) (22,076) Proceeds from the sale of property, plant and equipment 1,482 11,739 Loans and advances provided to subsidiaries (5,315) (7,225) Net cash provided by investing activities (48,500) (17,562) Cash flows from financing activities Payment of dividends and interest on shareholders equity Proceeds from issuance of loans 376,921 84,388 Principal payments on loans (193,015) (93,351) Net cash provided by financing activities 183,906 (8,247) Net increase (decrease) in cash and cash equivalents 49,760 (18,283) Increase (decrease) in cash and cash equivalents At the begining of the year 110,333 64,599 At the end of the year 160,093 46,316 49,760 (18,283) See the accompanying notes to the combined consolidated financial. 11

8 Draft Combined consolidated statement of changes in other comprehensive income Six-month period ended June 30, 2011 and /30/11 06/30/10 Net income for the year 53,134 21,590 Other comprehensive income Currency translation loss (458) (4,260) Total comprehensive income for the year 52,676 17,330 See the accompanying notes to the combined consolidated financial.

9 Six-month period ended June 30, 2011 and Operations Unigel S.A. (hereinafter referred to as Unigel or Company ) is a privately-held corporation, with offices at Avenida Presidente Juscelino Kubitschek, 1,726-13th floor, Itaim Bibi, in São Paulo. Its subsidiaries are privately-held corporations or limited liability companies. The Company is controlled by Unigel Participações S.A. Unigel Participações S.A. is a holding company, with subsidiaries operating in the production, sale, import and export of special chemical products, fertilizers, plastics and packaging materials. Also, the Company provides services in areas such as controllership, finance, legal and information technology to its subsidiaries. The Company also determines the strategic and growth plans for its subsidiaries by investing in their managerial and operational development through the promotion of synergy among its several business segments. In April 2010, Unigel Participações S.A. transferred all of its equity interest in CBE to Unigel S.A. at book value, with no goodwill. In August 2010, the combined Companies, through a share purchase agreement entered into with Participações Industriais do Nordeste S/A and Ball Cayman Limited, sold all its equity interest in Latapack S.A. as well as in August, through a share transfer agreement entered into with Cigel Participações S/A, Unigel S.A., sold all its equity interest in Engepack Embalagens S.A. As of June 30, 2011 and 2010, the combined consolidated interim financial inclueded the following Companies subsidiaries and affiliates: 15

10 06/30/2011 Company Main products Subsidiaries Acrinor Acrilonitrila do Nordeste S.A. Proquigel Química S.A. Unigel Plásticos S.A. Polo Indústria e Comércio Ltda. Companhia Brasileira de Estireno CBE (04/2010) ) and its subsidiary EDN - Estireno do Nordeste S.A. Unigel México, S de R. L. de C. V. and subsidiaries Plastiglás de México, S.A. de C.V., Unigel Química, S.A. de C.V. Unigel Acrílicos, S.A. de C.V. and Metacril S.A. de C.V. Unigel Inc. Companhia Brasileira de Estireno CBE (04/2010) ) and its subsidiary EDN - Estireno do Nordeste S.A. Acrylonitrile and cyanidric acid Methyl and Ethyl Methacrylates, methyl and ethyl acrylates, potassium and sodium cyanide and ammonia sulphate Acrylic resins and plates and polycarbonate resins and plates Packaging material BOPP film Styrene monomer and polystyrene Styrene monomer Acrylic plates, resale of plates of polycarbonate and other resins Distributor of acrylic plates and polycarbonates and BOPP Films Styrene monomer and polystyrene Styrene monomer 16

11 06/30/2010 Company Subsidiaries Acrinor Acrilonitrila do Nordeste S.A. Proquigel Química S.A. Unigel Plásticos S.A. Polo Indústria e Comércio Ltda. Unigel Inc. Unigel México, S de R. L. de C. V. and subsidiaries Plastiglás de México, S.A. de C.V., Unigel Química, S.A. de C.V. Unigel Acrílicos, S.A. de C.V. and Metacril S.A. de C.V. Main products Acrylonitrile and cyanidric acid Methyl and Ethyl Methacrylates, methyl and ethyl acrylates, potassium and sodium cyanide and ammonia sulphate Acrylic resins and plates and polycarbonate resins and plates Packaging materials BOPP film Distributor of acrylic plates and polycarbonates and BOPP Films Acrylic plates, resale of plates of polycarbonate and other resins Affiliates Engepack Embalagens S.A. Engepack São Paulo S.A. Latapack S.A. PET bottles and pre-forms PET bottles and pre-forms Aluminum packages Combined entities Companhia Brasileira de Estireno CBE (04/2010) and its subsidiary EDN - Estireno do Nordeste S.A. Styrene monomer and polystyrene Styrene monomer Note: the statement of income of CBE was combined in the combined consolidatd of income for the year ended December 31, 2010 up to April 1º, 2010, when the interest on CBE was transferred from Unigel Participações S.A. to Unigel S.A. At that date CBE started to be consolidated by Unigel S.A. 17

12 2 Basis of preparation and presentation a. Statement of compliance The combined consolidated interim financial were prepared in accordance with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) and also in accordance with the accounting practices adopted in Brazil (BR GAAP); The issuance of the combined consolidated interim financial as of and for the year ended December 31, 2010 and the six-month period ended June 30, 2011 was authorized by the Management on August 19, b. Basis of preparation The combined consolidated interim financial have been prepared on the historical cost basis, except for the financial instruments measured at fair value through profit and loss. c. Functional and presentation currency These combined consolidated interim financial are presented in Brazilian Real, which is the Company s functional currency. All financial information presented in Real has been rounded to the nearest thousand, unless otherwise stated. d. Use of estimates and judgments The preparation of the combined consolidated interim financial in conformity with IFRSs and CPCs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. 18

13 Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. The information about uncertainties on assumptions and estimates that have a significant risk to result in a material adjustment within the next financial year are included in the following explanatory notes: Note 7 Allowance for impaired receivables Note 11 Deferred taxes assets Note 13 Depreciation of Property, Plant and Equipment Note 19 Provision for defined benefit plan and other provisions Note 20 Provision for contingencies 3 Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these combined consolidated interim financial. The accounting policies have been applied consistently by the Companies included in these combined consolidated financial. a. Foreign Currency Transactions in foreign currencies are translated to the respective functional currencies of the entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. b. Financial instruments Non derivative financial assets. 19

14 The combined consolidated Companies initially recognize receivables on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are initially recognized on the date of negotiation in which the combined consolidated Companies become a party to the contractual provisions of the instrument. The combined consolidated Companies have the following non-derivative financial assets: financial assets designated at fair value through profit or loss and loans and receivables. Financial assets at fair value through profit or loss A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the combined consolidated Companies manage such investments and make purchase and sale decisions based on their fair value in accordance with the combined consolidated Companies documented risk management or investment strategy. Upon initial recognition, attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses. Loans and receivables comprise accounts receivables from third and related parties and other receivables. 20

15 Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available for sale or are not classified in any of the above categories of financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than imparment losses and foreign currency differences on available-forsale debt instruments, are recognized in other comprehensive income and presented in the value reserve in equity. When an investment is derecognized, the gain or loss accumulated in equity is reclassified to profit and loss. Non-derivative financial liabilities Financial liabilities are initially recognized at the date of the negotiation in which the combined consolidated Companies become a party to a contract. The combined consolidated Companies derecognize a financial liability when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. The combined consolidated Companies have the following non-derivative financial liabilities: loans, suppliers, payable to related parties and other accounts payable. Such financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective interest method. c. Trade accounts receivable Trade accounts receivable are recorded at the amount billed, including the respective direct taxes for which the combined consolidated Companies are responsible. Net present value is 21

16 not calculated, as the combined consolidated Companies consider that this adjustment, would not be material to the combined consolidated interim financial. The allowance for impaired receivables is recorded in an amount considered sufficient by management to cover possible losses on the realization of the receivable. d. Inventories Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the average cost principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. e. Other investments Other investments are valued at cost of acquisition, less impairment, when applicable. f. Property, plant and equipment Recognition and measurement Property, plant and equipment items are measured at historic cost or construction less accumulated depreciation and accumulated impairment losses. The indirect subsidiaries Acrinor, Companhia Brasileira de Estireno, Polo, Proquigel and Unigel Plásticos revalued their property, plant and equipment by using the deemed cost at the opening balance of the fiscal year The revaluation increased fixed assets, with a corresponding increase in equity, net of tax effects (see explanatory note 15). The other subsidiaries did not elect to use the deemed cost due to the immateriality of the value. 22

17 Despite the adoption of the fair value as the deemed cost and the consequent increase in the depreciation expense in future years, the combined consolidated Companies will not change its dividends policy. The cost includes expenses that are directly attribuatable to the acquisition of an asset. The cost of assets constructed by the entity includes the cost of materials, direct labor, and any other costs incurred to place the asset at the site and in condition necessary to enable them to operate as intended by the administration. Purchased software that is part of equipment functionality is capitalized as part of that equipment. When parts of an item of fixed assets have different useful lives, they are recorded as separate items (major components) of property, plant and equipment. Gains and losses on the disposal of items of the fixed assets are calculated by comparing the proceeds derived from the disposal with the fixed assets book value, and are recognized net within other operational expenses and income in profit or loss. Reclassification to investment property When the use of a property changes from owner-occupied to investment property, the item is reclassified to investment property at amortized cost. Subsequent costs The cost of replacing a component of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the combined consolidated Companies, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred. 23

18 Depreciation Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits generated by the asset. The estimated useful lives for the current period are as follows: Buildings Machinery and equipment Leasehold improvements Installation, tools and instruments Materials and parts 6% to 10% per year 5% to 28% per year 10% to 12% per year 7% to 9% per year 8% per year Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate, as change in estimates. g. Intangibles Refers to the rights to use of software, which are booked at the purchase cost and amortized over a useful life of 5 years. h. Decrease in recoverable value (Impairment) The recoverable value of the combined consolidated Companies non-financial assets, excluding inventories and deferred taxes are tested at least annually if there are indications of loss in value. The recoverable amount of an asset is the greater of its value in use and the fair value less sales expenses. 24

19 i. Current and non-current liabilities Current and non-current liabilities are stated at the known amounts or estimated, plus, when applicable, the corresponding charges and monetary and/or exchange variations incurred up to the balance sheet date. Current and non-current liabilities are not stated at present value, given that combined consolidated Companies consider that the difference between the carrying amount and present value is not significant to the combined consolidated interim financial. j. Employee benefits Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the combined consolidated Companies have a present legal or constructive obligation to pay this amount as a result of past service provided by the employee. Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognized past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting date on AA creditrated bonds that have maturity dates approximating the terms of the combined consolidated Companies obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed annually by a qualified actuary using the projected unit credit method. 25

20 When the calculation results in a benefit to the combined Companies, the recognized asset is limited to the total of any unrecognized past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan of the combined consolidated Companies. An economic benefit is available to the combined consolidated Companies if it is realizable during the life of the plan, or on settlement of the plan liabilities. The Company recognizes all actuarial gains and loss arising from defined plans in other comprehensive income and expenses. k. Revenue Goods sold Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized. Government grants for subsidiaries Government grants are recognized when persuasive evidence exists that all conditions established by Government have been fulfilled. The subsidiaries located at the Camaçari and the Candeias petrochemical complexes have the following government grants: 26

21 Superintendência de Desenvolvimento do Nordeste - SUDENE; Government of the State of Bahia; Polo has a government Grant from: Government of the State of Rio Grande do Sul; At the subsidiaries level, state government grants are recorded as a cost reduction in the corresponding profit and loss account, and federal government grants as a reduction of the income tax and social contribution expense which are subsequently transferred to the respective reserve in equity. l. Finance income and expenses Finance income comprise interest income on funds invested, financial discounts obtained and exchange rate gains. Finance expenses comprise interest expenses, financial discounts, banks duties and exchange rate losses.. m. Income and social contribution taxes Income and social contribution taxes, both current and deferred, are calculated based on the rates of 15%, plus a surcharge of 10% on taxable income in excess of R$ 240 for income tax, and 9% on taxable income for social contribution on net income, and consider the offsetting of tax loss carry forwards and negative basis of social contribution, limited to 30% of taxable income. For purposes of calculation of income tax and social contribution, the combined conosolidated Companies adopted the Transitional Tax System RTT, pursuant to the Law 11,941/09, that considers for taxable basis, the accounting criteria of the Law 6,404/76, before the changes of Law 11,638/07. 27

22 Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to items recognized directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date. Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes and in respect of the tax loss carry forward and are evaluated and adjusted, when deemed necessary to reflect the extent that it is probable that future taxable profits will be available against which they can be utilized. n. Provisions A provision is recognized if, as a result of a past event, the combined consolidated Companies have a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. 4 Financial risk management The combined consolidated Companies have exposure to the following risks from its use of financial instruments: Credit Risk; Liquidity Risk; Market Risk; Operational Risk. 28

23 Credit Risk a. Risk Management Framework Unigel Participações S.A. has responsibility for the establishment and supervision of the risk management structure of the combined consolidated Companies. Unigel Participações formed its Risk Management Committee with members of its Board of Executive Officers, which is responsible for the development and follow-up of risk management policies for the combined consolidated Companies. The Committee regularly informs the combined consolidated Companies about its decisions and actions. The risk management policies for the combined consolidated Companies are established to identify and analyze the risks faced by the combined consolidated Companies to define limits and proper risk controls and to monitor risks and compliance within limits. The risk management policies and systems are frequently revised to reflect changes in the market conditions and in the combined consolidated Companies activities. The combined consolidated Companies, through its rules and procedures for training and management, aim to develop an environment of constructive and disciplined control, in which the employees understand their roles and obligations. b. Credit Risk The credit risk is the risk the combined consolidated Companies take for financial default, in case a customer or a counterparty in a financial instrument fails to comply with its contractual obligations, mainly from receivables from customers. The Risk Management Committee established a credit policy, under which all new customers have their credit capacity individually analyzed, before the combined consolidated Companies standard terms and conditions for payment and delivery are offered. The analysis includes external evaluations, when available, and in some cases banking references. Limits for purchases are established for each customer, which represent the maximum open amount, without requiring the Risk Management Committee approval; these limits are revised on quarterly basis. 29

24 The combined consolidated Companies establish an allowance for reduction to the recoverable value that represents its estimate for impairment losses incurred regarding the accounts receivable from customers and other credits. The main part of this allowance is a specific component for losses related to individually significant accounts. c. Liquidity Risk Liquidity risk is the risk that the combined consolidated Companies may have difficulty in complying with the obligations associated with its financial liabilities, which are offset in cash or with other financial assets. The combined consolidated Companies approach to manage liquidity is to ensure that they will have sufficient liquidity to comply with their obligations on their maturity date, under regular conditions. d. Market Risk Market risk is the risk that changes in market prices, such as exchange and interest rates and prices for products sold and purchased raw materials, may impact the combined consolidated Companies income or interests in financial instruments. The objective of market risk management is to manage and control the exposures to market risks, within acceptable parameters and at the same time to optimize the return. Interest Rate Risk This risk derives from the possibility that the combined consolidated Companies may suffer losses due to interest rate variations impacting their financial assets and liabilities. In order to mitigate this risk, the combined consolidated Companies concentrate their investments in transactions with rates of return that follow the CDI bank deposit certificates and fixed income mutual funds. Currency Risk The combined consolidated Companies are subject to currency risk in purchases made in currencies different from its functional currency. These transactions are denominated in U.S. dollars. The combined consolidated Companies do not use financial instruments to protect themselves from currency risk, such as hedge transactions, since Management believes this risk is not significant. 30

25 Risk of price for products sold and for materials This risk derives from the possibility of changes in market prices for the products sold by the combined consolidated Companies and for the raw materials used in the manufacturing process. These price changes may materially impact the combined consolidated Companies revenues and costs. In order to mitigate these risks, the combined consolidated Companies continually monitor the local and international markets, trying to be ahead of these price movements. Operational Risk Operational risk is the risk of direct or indirect damages due to several factors associated with manufacturing processes, personnel, technology and infrastructure of the combined consolidated Companies. These also include external factors, except the credit, market and liquidity risks, such as those deriving from legal and regulatory requirements and generally accepted corporate standards. The combined consolidated Companies try to manage their operational risk by avoiding the occurrence of financial losses and damages to their reputation, exploring cost efficiency opportunities and by avoiding procedures of control restricting initiative and creativity. e. Capital management Management s policy is to keep a solid capital base to maintain the confidence of the investors, creditors and the market and to sustain the business s future development. Management monitors the returns on capital and the level of dividends to shareholders, in addition to searching for a balance between the highest possible returns with more suitable levels of loans and the advantages and the safety provided by a healthy capital position. 5 Combined consolidated interim financial The consolidated interim financial used by management to prepare the combined consolidated interim financial are the following: 31

26 i. Consolidated financial of Unigel S.A. ii. Consolidated financial of CBE Companhia brasileira de Estireno Combined consolidated interim financial are a single set of consolidated interim financial of two or more entities that are under common control. The combined consolidated entities used the definitions of CPC 36 Consolidated Financial Statements in assessing of the existence of common control. For the purposes of presentation of these combined consolidated interim financial of Unigel S.A. and CBE Companhia Brasileira de Estireno the following criteria were used: Entities combined into the consolidated interim financial, are under common control in accordance with the definitions of CPC 36 Consolidated Financial throughout all periods presented; and the principles for consolidation of CPC 36 were applied to the combined consolidated interim financial of Unigel S.A. and CBE Companhia Brasileira de Estireno. The combined consolidated interim financial include the financial of Unigel S.A, Companhia Brasileira de Estireno and its subsidiaries listed below: Ownership percentage % 30/06/11 31/12/10 Acrinor Acrilonitrila do Nordeste S.A. (Acrinor) Companhia Brasileira de Estireno (CBE) Polo Indústria e Comércio Ltda. (Polo) Proquigel Química S.A. (Proquigel) Unigel Plásticos S.A. (Unigel Plásticos) Unigel México, S de R.L de C.V. (Unigel México) Unigel Inc Unigel México subsidiaries: Plastiglás de México, S.A. de C.V Unigel Química, S.A. de C.V Unigel Acrílicos, S.A. de C.V

27 Metacril S.A. de C.V. 100,00 100,00 CBE subsidiary: EDN - Estireno do Nordeste S.A. 99,99 99,99 The accounting policies have been uniformly applied in all the combined consolidated companies and are consistent with those used in the previous year. Description of the main consolidation procedures a. Elimination of balances for the assets and liabilities accounts between the combined and consolidated companies; b. Elimination of participation in the accumulated capital, reserves and profits of the combined companies; c. Elimination of revenue and expense balances, as well as elimination of non-realized profits derived from business among the combined and consolidated companies. Non-realized losses are eliminated in the same way, since there are no evidences related to problems with the recovery of related assets; and d. Elimination of the tax burden on the non-realized profit portion, shown as deferred taxes in the combined consolidated balance sheet. 33

28 6 Cash and cash equivalents 06/30/11 12/31/10 Cash and bank deposits 95,178 31,989 Short term interest-earning bank deposits , ,333 Cash and cash equivalents represent: (i) the balances of cash and bank deposits, and (ii) investments in short-term, highly liquid investments that are readily convertible into known amounts of cash and are subject to an insignificant risk of change in value. These financial investments refer substantially to fixed income funds remunerated at rates which vary from 99% to 101% of the interbank deposit certificate - CDI. 7 Trade accounts receivable 06/30/11 12/31/10 Domestic customers 194, ,122 Foreign customers 86,711 73,152 Related parties , ,773 Less Allowance for impaired receivables (6,409) ( 22,437) 274, ,336 Current 267, ,054 Noncurrent 7,282 7,282 34

29 The due dates for the accounts receivables are distributed as follows: 06/30/11 Current Overdue from one to 30 days 23,804 from 31 to 60 days 1,286 from 61 to 90 days 480 more than 91 days 15,236 Total 281,175 8 Inventories Cost 06/30/11 12/31/10 Provision Provision for loss Balance Cost for loss Balance Finished goods 181,019 (4,340) 176, ,027 (4,759) 103,268 Work in progress 5,101-5,101 2,419-2,419 Raw materials 63,230 (20) 63,210 37,123 (244) 36,879 Secondary Materials 21,864 (335) 21,529 24,714 (873) 23,841 Spare parts 24,778 (649) 24,129 24,434-24,434 Inventories held by third parties 39,435-39,435 27,727-27,727 Imports in transit 4,490-4,490 8,339-8, ,917 (5,344) 334, ,783 (5,876) 226,907 Current 334,584 (5,344) 329, ,450 (5,876) 221,574 Noncurrent 5,333-5,333 5,333-5,333 The changes for the provisions for loss are as follows: 35

30 Amount as of December 31, ,876 Write-off (532) Amount as of June 30, ,344 9 Related parties The main assets and liabilities balances as at June 30, 2011 and December 31, 2010, as well as the transactions that impact the Company s income statement, with respect to related-party transactions are derived from transactions involving the combined Companies and other related parties. The immediate parent company of the Company is Unigel Participações S.A. Commercial transactions for the purchase and sale of products, raw-materials and services, as well as financial transactions for loans and fund raising with related parties do not have a due date or remuneration. Management believes that commercial transactions with related parties do not represent a credit risk. Therefore, there is no allowance for impairment for related parties. The balances are detailed as follows: 36

31 Draft Notes to the interim combined consolidated financial 06/30/2011 Assets Liabilities Current Noncurrent Total Current Noncurrent Total Trade accounts Current Dividends Current Total Current Dividends Advances from Current Dividends Total receivable accounts receivable accounts receivable accounts Supplies payable customers accounts payable payable Companies Cigel Participações Ltda Unigel Participações S.A , , PP Print Embalagens Ltda GPB-Gaxetas e Perfis do Brasil Ltda. - 2, , Others , ,186-2, , , , ,242 12/31/2010 Assets Liabilities Current Noncurrent Total Current Noncurrent Total Trade accounts Current Dividends Current Total Current Dividends Advances from Current Dividends Total receivable accounts receivable accounts receivable accounts Supplies payable customers accounts payable payable Companies Cigel Participações Ltda Unigel Participações S.A , , , ,491 PP Print Embalagens Ltda GPB-Gaxetas e Perfis do Brasil Ltda Franpar Participações Ltda Others , , , , , ,677 36

32 The amounts related to short-term remuneration of key management personnel, are presented below: 06/30/11 06/30/10 Management fees The combined consolidated Companies consider as key management the members of its Board of Executive Officers. 10 Recoverable taxes 06/30/11 12/31/10 ICMS (value-added tax) 32,796 16,975 ICMS on PP&E (value-added tax) 10,136 10,793 IPI (sales tax on industrial production) 4,294 4,581 PIS (sales tax) 9,461 8,269 COFINS (sales tax) 39,578 37,192 Others 15,528 13, ,793 91,565 Current 95,954 75, Noncurrent 15,839 16,069 ICMS recoverable were mainly generated at São Paulo and Bahia states which will be utilized against ICMS payable over sales to internal market. Also, Management requested to Bahia s tax authorities the refund of part of the ICMS recoverable. 39

33 Credits of ICMS related to fixed assets of the Company s subsidiaries in the total amount of R$ 10,136 (R$ 10,793 as of December 31, 2010) are basically derived from the purchase of machinery and equipment and are being utilized at the rate of 1/48 per month, as provided in the State legislation. PIS and COFINS tax credits are derived from exports and will be offset against these same taxes in domestic sales or against other federal taxes. IPI credits are derived from the purchase of raw material related to non-taxable finished goods. These credits will be offset against other federal taxes. Income tax and social contribution credits are derived from financial investments and advances, which will be offset against federal taxes. 11 Income tax and social contribution Deferred income tax and social contribution are recognized to give effect to future taxes attributable to temporary differences between the tax bases of assets and liabilities and their carrying values. The combined consolidated Companies, based on a technical study approved by Management estimating future taxable income, recognized tax credits on income tax loss carry forwards and the negative bases of social contribution tax of prior years, which have no statute of limitations and whose offsetting is limited to 30% of the annual taxable income. The carrying value of the deferred tax assets is reviewed periodically and the projections are reviewed annually. If there are significant factors that change the projections, they are also reviewed by the Company during the year. The origin of the deferred income tax and social contribution is presented below: 40

34 06/30/11 12/31/10 Assets Allowance for impaired receivables 1,881 1,778 Provision for contingencies 11,504 10,376 Allowance for losses in investments Tax loss carry forwards 71,792 74,883 Negative basis of social contribution tax 26,567 27,628 Allowance for losses in inventories 1,620 2,022 Post retirement benefits 3,772 3,772 Deferred charges 21,614 18,656 Other accruals , , ,730 Liabilities Exchange rate variation 19,251 20,749 Deemed cost ,227 Other , , ,712 Management considers that the deferred tax assets arising from temporary differences will be realized in proportion to the final resolution of the contingencies and events. Based on Management s projections for future taxable income, the Company expects to offset the accumulated tax loss carry forwards and the negative basis of social contribution tax in the following years: , , , , to ,583 98,359 41

35 The expected recoverability of the tax credits is based on the projection of future taxable income taking into consideration various business and financial assumptions considered at year end. Thus, these estimates may differ from the effective taxable income in the future due to the inherent uncertainties involving these forecasts. The reconciliation between the tax expense that was calculated using the combined statutory rates and the income tax and social contribution expense charged to net income is shown as follows: 06/30/11 06/30/10 Profit before income tax and social contribution 53,068 3,478 Combined statutory rates 34% 34% Income tax and social contribution calculated at the statutory rates (18,043) (1,183) Additions: Adjustments to the tax rate (1,146) (980) Other non-deductable expenses (7,039) (12.898) Exclusions: Equity-accounted investees and tax grants ,882 Adjustments in the depreciation rate 4, Others 8,385 9,010 Income tax and social contribution before SUDENE incentive (7,387) SUDENE incentive 7, Income tax and social contribution taxes on net income for the year 66 18, Current (17,514) (3,934) Deferred 17,580 22,046 SUDENE incentive 7,453 5,788 42

36 12 Other accounts receivable 06/30/11 12/31/10 Advances to suppliers 9,402 11,442 Advances to employees 1, Compulsory loans Contractual credits 13,666 11,906 Other receivable 833 1,292 25,464 25,671 - Current 23,368 23,969 - Noncurrent 2,096 1,702 43

37 Minuta Notes to the interim combined consolidated financial 13 Property plant and equipment Change in cost and accumulated depreciation 12/31/09 12/31/10 06/30/11 Cost Cost Additions Others Write-off Transfers Cost Additions Others Write-off Transfers Cost Buildings 205, (18,590) - 43, , ,295 Machinery and equipment 1,122,921 8,510 - (2,272) 122,145 1,251,304 9,295 (90) - 9,347 1,269,856 Instalation, tools and instruments 440, (387) 149, ,651 6, , ,375 Furniture and fixtures 8, (15) 449 8, ,749 Vehicles 1, (179) - 1, (36) 23 1,903 Computer equipment 8, (84) 811 9, (22) ,522 Land 109, (2,120) (113) 1, , (46) 109,378 Leasehold improvements 2, (242) - - 2, ,193 Construction in progress 332, ,104 - (5,484) (315,020) 145,152 25,897 (14) (14) (74,820) 96,201 Materials and parts 2, (38) 2, ,492 Imports in transit 637 5,280 - (410) (2,727) 2,780 6,184 (283) - (7,335) 1,346 Advances to suppliers 49,468 14,016 - (23,851) - 39,633 1,414 (2,283) - (10,604) 28,160 Others 2,007 1,452 (48) (15) 15 3, ,743 2,287, ,246 (21,000) (32,810) - 2,396,702 50,253 (2,670) (72) - 2,444,213 12/31/09 12/31/10 06/30/11 Accumulated depreciation Depreciation Additions others Write-off Transfers Depreciation Additions Others Write-off Transfers Depreciation Buildings (80,327) (8,053) 12, (76,198) (5,994) (82,085) Machinery and equipment (489,756) (82,938) (572,025) (48,411) (620,436) Instalation, tools and instruments (94,503) (26,335) (120,725) (18,568) (139,293) Furniture and fixtures (6,305) (360) (6,665) (176) (6,841) Vehicles (1,652) (1,573) (34) (1,598) Computer equipment (6,753) (637) (7,382) (371) (7,751) Leasehold improvements (1,416) (52) (1,254) (29) - - (109) (1,392) Construction in progress (204) (57) (261) (4) (265) Materials and parts (1,443) (88) (1,531) (43) (1,574) Others (420) (1,226) (1,613) (550) (2,163) (682,779) (119,667) 12, (789,227) (74,180) (863,398) 1,604,487 1,607,475 1,580,815 44

38 The combined consolidated Companies opted to use the deemed cost for fixed assets. As a result of the deemed cost adoption fixed assets were increased by R$ 342,654. Deferred taxes liabilities were increased by R$ 116,502, with a net effect of R$ 226,152 registered in equity valuation adjustments line item. Please see note 16 in regards to assets with collateral pledges or guarantees. 14 Other investments a. Composition 06/30/11 12/31/10 CETREL - Central de Efluentes Líquidos 2,820 2,772 (-) Allowance for losses - CETREL (797) (797) Other investments ,627 2,644 45

39 Draft Notes to the interim combined consolidated financial 15 Intangibles Movements in cost and accumulated amortization 12/31/09 12/31/10 06/30/11 Cost Cost Acquisitions Write-off Transfers Cost Acquisitions Write-off Transfers Cost Defined useful life Software 15,383 2,044 (854) 98 16, ,799 Trademarks and patents Development costs 763 2, , ,141 Others ,282 4,422 (854) 98 19, ,076 12/31/09 12/31/10 06/30/11 Amortization Amortization Acquisitions Write-off Transfers Amortization Acquisitions Write-off Transfers Amortization Defined useful life Software (11,231) (1,188) - - (12,419) (617) - - (13,036) Trademarks and patents (52) (10) - - (62) (6) - - (68) Development costs (627) (51) - - (678) (133) - - (811) (11,910) (1,249) - - (13,159) (756) - - (13,915) 4,372 6,789 6,161 47