REGISTRATION WITH CVM SHOULD NOT BE CONSTRUED AS AN EVALUATION OF THE COMPANY. COMPANY MANAGEMENT IS RESPONSIBLE FOR THE INFORMATION PROVIDED.

Transcription

1 (A free translation of the original in Portuguese) REGISTRATION WITH CVM SHOULD NOT BE CONSTRUED AS AN EVALUATION OF THE COMPANY. COMPANY MANAGEMENT IS RESPONSIBLE FOR THE INFORMATION PROVIDED IDENTIFICATION 1 - CVM CODE 2 - COMPANY NAME 3 - CNPJ (Corporate Taxpayer s ID) LUPATECH S.A / NIRE (Corporate Registry ID) HEADQUARTERS 1 - ADDRESS RUA DALTON LAHM DOS REIS 2 - DISTRICT D. INDUSTRIAL 3 - ZIP CODE AREA CODE CITY CAXIAS DO SUL 7 - TELEPHONE TELEPHONE 9 - TELEPHONE STATE RS 10 - TELEX 11 - AREA CODE FAX FAX FAX ri@lupatech.com.br INVESTORS RELATIONS OFFICER (Company Mailing Address) 1- NAME THIAGO ALONSO DE OLIVEIRA 2 - ADDRESS RUA PEQUETITA 145 CJ DISTRICT VILA OLIMPIA 4 - ZIP CODE CITY SAO PAULO 6 - STATE SP 7 - AREA CODE TELEPHONE TELEPHONE TELEPHONE TELEX 12 - AREA CODE ir@lupatech.com.br 13 - FAX FAX FAX ITR REFERENCE AND AUDITOR INFORMATION CURRENT FISCAL YEAR CURRENT QUARTER PREVIOUS QUARTER 1 - BEGINNING 2 - END 3 - NUMBER 4 - BEGINNING 5 - END 6 - NUMBER 7 - BEGINNING 8 - END 01/01/ /31/ /01/ /31/ /01/ /31/ INDEPENDENT ACCOUNTANT DELOITTE TOUCHE TOHMATSU AUDITORES INDEPENDENTES 6 - TECHNICIAN IN CHARGE FERNANDO CARRASCO IDENTIFICATION 5 - CVM CODE TECHNICIAN S CPF (INDIVIDUAL TAXPAYER S REGISTER) CVM CODE 2 - COMPANY NAME 3 - CNPJ (Corporate Taxpayer s ID) LUPATECH S.A /

2 (A free translation of the original in Portuguese) CAPITAL STOCK Number of Shares (in thousands) Paid-up Capital 1 09/30/ /30/ /30/ Common 47,674 47,674 47, Preferred Total 47,674 47,674 47,581 Treasury Stock 4 - Common Preferred Total COMPANY PROFILE 1 - TYPE OF COMPANY Commercial, Industry and Others 2 - STATUS Operational 3 - NATURE OF OWNERSHIP Domestic Private 4 - ACTIVITY CODE 1010 Oil and Gas 5 - MAIN ACTIVITY Production of equipment and rendering of services for the oil and gas industry, industrial valves and microcasting parts 6 - CONSOLIDATION TYPE Not stated 7 TYPE OF REPORT OF THE AUDITORS COMPANIES NOT INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS 1 - ITEM 2 - CNPJ (Corporate Taxpayer s ID) 3 - COMPANY NAME CASH DIVIDENDS DELIBERATE AND/OR PAID DURING AND AFTER THE QUARTER 1 - ITEM 2 - EVENT 3 - APPROVAL 4 - TYPE 5 - DATE OF PAYMENT 6 - TYPE OF SHARE 7 - AMOUNT PER SHARE SUBSCRIBED CAPITAL AND CHANGES IN THE CURRENT FISCAL YEAR 1 - ITEM 2 DATE OF CHANGE 3 CAPITAL STOCK (In thousands of Reais) 4 AMOUNT OF CHANGE (In thousands of Reais) 5 NATURE OF CHANGE 6 NUMBER OF SHARES ISSUED (Thousands) 7 SHARE PRICE WHEN ISSUED (In Reais) INVESTORS RELATIONS OFFICER 1 DATE 2 SIGNATURE

3 (A free translation of the original in Portuguese) IDENTIFICATION 1 - CVM CODE COMPANY NAME LUPATECH S.A. 3 - CNPJ (Corporate Taxpayer s ID) / CONSOLIDATED BALANCE SHEET - ASSETS (in R$ thousands) 1 - CODE 2 - DESCRIPTION 3 03/31/ /31/ Total Assets 1,494,251 1,477, Current Assets 571, , Cash and Cash Equivalents 136, , Cash 136, , Credits 247, , Clients 198, , Sundry Credits 48,695 45, Recoverable Taxes 48,695 45, Inventories 156, , Other 30,790 29, Prepaid expenses Securities-restricted 21, Other accounts receivable 9,029 7, Non-current Assets 922, , Long-term Assets 93,953 96, Sundry Credits 88,921 90, Judicial Deposits 1,611 1, Accounts receivable 4,721 3, Recoverable taxes 20,472 23, Deferred Income Tax and Social Contribution 62,117 62, Credit w ith Related Parties Direct and Indirect Associated Companies Subsidiaries Other Related Parties Other 5,032 5, Permanent Assets 828, , Investments 2,301 2, Direct and Indirect Associated Companies 2,179 2, Direct and Indirect Affiliate Companies Others Fixed Assets 319, , Intangible 506, , Goodw ill 489, , Other Intangible 16,225 16,729

4 (A free translation of the original in Portuguese) IDENTIFICATION 1 - CVM CODE COMPANY NAME LUPATECH S.A. 3 - CNPJ (Corporate Taxpayer s ID) / CONSOLIDATED BALANCE SHEET - LIABILITIES (in R$ thousands) 1 - CODE 2 - DESCRIPTION 3 03/31/ /31/ Total Liabilities 1,494,251 1,477, Current Liabilities 186, , Loans and Financing 46,472 40, Loans and Financing 34,652 29, Perpetual Bonds - Interest Payable 11,820 10, Debentures 25, Suppliers 49,783 35, Taxes, Fees and Contributions 19,121 17, Dividends Payable Provisions 13,695 8, Provisions Payroll 13,695 8, Debts w ith Related Parties Other 31,781 31, Payroll Payable 5,004 5, Advances from Customers 8,994 8, Employees Profit Sharing Accounts payable related to Investment Purchase 2,255 2, Other accounts payable 9,053 9, Other obligations 5,955 5, Non-current Liabilities 1,035,136 1,039, Long-term Liabilities 1,035,136 1,039, Loans and Financing 657, , Loans and Financing 171, , Perpetual Bonds 485, , Debentures 338, , Provisions 32,020 42, Deferred Income Tax and Social Contribution 24,663 34, Provision for Contingencies 7,357 7, Debts w ith Related Parties Advance for Future Capital Increase Other 7,531 7, Taxes Payable 3,389 3, Other obligations 1,635 1, Accounts Payable / Purchase of Investment 2,507 2, Future results 0 0

5 (A free translation of the original in Portuguese) IDENTIFICATION 1 - CVM CODE COMPANY NAME LUPATECH S.A. 3 - CNPJ (Corporate Taxpayer s ID) / BALANCE SHEET - LIABILITIES (in R$ thousands) 1 - CODE 2 - DESCRIPTION 3 03/31/ /31/ Minority Interest Shareholders Equity 272, , Paid-up Capital 311, , Capital Reserves 12,265 11, Stock Options 12,265 11, Revaluation Reserves Ow n Assets Subsidiaries/ Direct and Indirect Associated Companies Profit Reserves Legal Statutory For Contingencies Unrealized Profit Profit Retention Special for Non-Distributed Dividends Other Profit Reserves Assets Evaluation Adjustments (30,252) (30,497) Cash and Cash Equivalents Adjust Cumulative Conversion Effects (30,252) (30,497) Combined Business Adjustments Retained Earnings/Accumulated Losses (20,921) (4,770) Advance for Future Capital Increase 0 0

6 (A free translation of the original in Portuguese) IDENTIFICATION 1 - CVM CODE COMPANY NAME LUPATECH S.A. 3 - CNPJ (Corporate Taxpayer s ID) / CONSOLIDATED STATEMENT OF INCOME (In R$ thousands) 1 CODE 2 DESCRIPTION 3-01/01/2010 a 03/31/ /01/2010 a 03/31/ /01/2009 a 03/31/ /01/2009 a 03/31/ Gross Revenue from Sales and/or Services 166, , , , Local Market 135, , , , Exports 31,554 31,554 31,709 31, Deductions for Gross Revenue (19,548) (19,548) (20,288) (20,288) Value-added, sales and other taxes (19,548) (19,548) (20,288) (20,288) 3.03 Net Revenue from Sales and/or Services 147, , , , Cost of Goods Sold and/or Services Rendered (105,886) (105,886) (100,413) (10,413) 3.05 Gross Profit 41,238 41,238 50,804 50, Operating Income/Expenses (63,052) (63,052) (65,609) (65,609) Selling (15,477) (15,477) (12,642) (12,642) General and Administrative (11,281) (11,281) (14,233) (14,233) General and Administrative (10,543) (10,543) (13,693) (13,693) Management Compensation (738) (738) (540) (540) Financial (34,027) (34,027) (32,513) (32,513) Financial Income 36,810 36,810 15,698 15, Exchange Variation Gains 29,529 29,529 12,308 12, Other Financial Income 7,218 7,218 3,390 3, Financial Expenses (70,837) (70,837) (48,211) (48,211) Exchange Variation Losses (39,996) (39,993) (18,796) (18,796) Other Financial Expenses (30,841) (30,841) (29,415) (29,415) Other Operating Income Other Operating Expenses (2,991) (2,991) (6,810) (6,810) Equity Pick-Up Operating Income (21,814) (21,814) (14,805) (14,805)

7 (A free translation of the original in Portuguese) IDENTIFICATION 1 - CVM CODE COMPANY NAME LUPATECH S.A. 3 - CNPJ (Corporate Taxpayer s ID) / CONSOLIDATED STATEMENT OF INCOME (In R$ thousands) 1 CODE 2 DESCRIPTION 3-01/01/2010 a 03/31/ /01/2010 a 03/31/ /01/2009 a 03/31/ /01/2009 a 03/31/ Non-Operating Income Income Expenses Income Before Tax/Holding (21,814) (21,814) (14,805) (14,805) 3.10 Provision for Income Tax and Social Contribution (3,905) (3,905) (4,071) (4,071) 3.11 Deferred Income Tax and Social Contribuition 9,568 9,683 6,347 6, Statutory Holding/Contributions Holdings Contributions Reversal of Interest on Ow n Capital Minority Interest Income/Loss for the Period (16,151) (16,150) (12,529) (12,529) No. SHARES, EX-TREASURY (in thousands) 47,674 47,674 47,581 47,581 EARNINGS PER SHARE(in Reais) LOSS PER SHARE(in Reais) ( ) ( ) ( ) ( )

8 (A free translation of the original in Portuguese) IDENTIFICATION 1 - CVM CODE COMPANY NAME LUPATECH S.A. 3 - CNPJ (Corporate Taxpayer s ID) / CONSOLIDATED STATEMENT OF CASH FLOW INDIRECT METHOD (in R$ thousands) 1 CODE 2 DESCRIPTION 3-01/01/2010 a 03/31/ /01/2010 a 03/31/ /01/2009 a 03/31/ /01/2009 a 03/31/ Cash flow s from operation activities 29,814 29,814 (3,495) (3,495) Cash from operations 20,250 20,250 24,528 24, Net result (16,151) (16,151) (12,529) (12,529) Depreciation and amortization 7,512 7,512 7,818 7, Negative goodw ill on acquisition of investment Equity pick-up (90) (90) (192) (192) Cost of w rite-off or sale of fixed assets Financial expenses and exchange variation 37,192 37,192 34,084 34, Expenses w ith stock option 1,263 1, Deferred income tax and social contribution (9,568) (9,568) (6,347) (6,347) Changes in assets & liabilities 9,564 9,564 (28,023) (28,023) (Increase) Decrease in accounts receivable (13,274) (13,274) (12,044) (12,044) (Increase) Decrease in inventories 8,169 8,169 (2,812) (2,812) (Increase) Decrease in recoverable taxes (5,161) (5,161) (Increase) Decrease in other assets (908) (908) (2,948) (2,948) (Increase) Decrease in suppliers 12,909 12,909 (8,807) (8,807) (Increase) Decrease in taxes payable 1,492 1,492 (440) (440) (Increase) Decrease in accounts payable ,189 4, Others Cash flow s from investing activities (8,926) (8,926) (42,574) (42,574) Investments 0 0 (20,164) (20,164) Acquisition of fixed assets (8,779) (8,779) (21,532) (21,532) Addition to intangible (147) (147) (1,239) (1,239) Dividends and interest on ow n capital received Cash & Mkt Securities restricted account

9 (A free translation of the original in Portuguese) IDENTIFICATION 1 - CVM CODE COMPANY NAME LUPATECH S.A. 3 - CNPJ (Corporate Taxpayer s ID) / CONSOLIDATED STATEMENT OF CASH FLOW INDIRECT METHOD (in R$ thousands) 1 CODE 2 DESCRIPTION 3-01/01/2010 a 03/31/ /01/2010 a 03/31/ /01/2009 a 03/31/ /01/2009 a 03/31/ Cash flow s from financing activities (15,159) (15,159) 16,650 16, Proceeds from loans and financing 6,182 6,182 60,209 60, Proceeds from debentures Proceeds from perpetual bond Capital increase Payments of loans and financing (21,341) (21,341) (43,559) (43,559) 4.04 Exchange variation on cash and cash equivalents (2,265) (2,265) 4.05 Increase (Decrease) in cash and cash equivalents 5,744 5,744 (31,684) (31,684) Cash and cash equivalents at the beginning of period 131, , , , Cash and cash equivalents at the end of period 136, , , ,190

10 (A free translation of the original in Portuguese) IDENTIFICATION 1 - CVM CODE COMPANY NAME LUPATECH S.A. 3 - CNPJ (Corporate Taxpayer s ID) / CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY FROM 01/01/2010 TO 03/31/2010 (in R$ thousands) 1 - CODE 2 - DESCRIPTION 3 CAPITAL STOCK 4 CAPITAL RESERVES 5 REVALUATION RESERVES 6 PROFIT RESERVES 7 - ACCUMULATED PROFIT/LOSS 8 EQUITY ADJUSTMENTS 9 - TOTAL PARENT COMPANY'S INTEREST 10 - NON- CONTROLLING INTERESTS 11 - TOTAL SHAREHOLDER S EQUITY 5.01 Opening Balance 311, (4,770) (30,497) 287, , Previous Years Adjustments Adjusted Balance 311,525 11, (4,770) (30,497) 287, , Income/Loss of Period (16,151) 0 (16,151) 0 (16,151) 5.05 Allocations Dividends Interest on capital Other Allocations Realization of Reserves Assets Evaluation Adjustments Cash and Cash Equivalents adjustments Cumulative Conversion Effects Combined Business Adjustments Increase/Decrease in Capital Stock Constitution Capital Reserves Treasury Shares Other Capital Transactions Others 0 1, , , Stock Options 0 1, , , Ending Balance 311,525 12, (20,921) (30,352) 272, ,617

11 (A free translation of the original in Portuguese) IDENTIFICATION 1 - CVM CODE COMPANY NAME LUPATECH S.A. 3 - CNPJ (Corporate Taxpayer s ID) / STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY FROM 01/01/2010 TO 03/31/2010 (in R$ thousands) 1 - CODE 2 - DESCRIPTION 3 CAPITAL STOCK 4 CAPITAL RESERVES 5 REVALUATION RESERVES 6 PROFIT RESERVES 7 - ACCUMULATED PROFIT/LOSS 8 EQUITY ADJUSTMENTS 9 - TOTAL PARENT COMPANY'S INTEREST 10 - NON- CONTROLLING INTERESTS 11 - TOTAL SHAREHOLDER S EQUITY 5.01 Opening Balance 311, (4,770) (30,497) 287, , Previous Years Adjustments Adjusted Balance 311,525 11, (4,770) (30,497) 287, , Income/Loss of Period (16,151) 0 (16,151) 0 (16,151) 5.05 Allocations Dividends Interest on capital Other Allocations Realization of Reserves Assets Evaluation Adjustments Cash and Cash Equivalents adjustments Cumulative Conversion Effects Combined Business Adjustments Increase/Decrease in Capital Stock Constitution Capital Reserves Treasury Shares Other Capital Transactions Others 0 1, , , Stock Options 0 1, , , Ending Balance 311,525 12, (20,921) (30,352) 272, ,617

12 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS 1. Operating Context Lupatech S.A. (the Company ) and its subsidiaries (jointly, the Group ), is a group comprised of 31 units and has three business segments: Energy Products, Flow Control and Metallurgy. The Company has 3,097 employees. The Company is a corporation with headquarters in Caxias do Sul, State of Rio Grande do Sul, and is listed on the Sao Paulo Stock Exchange ( BOVESPA ). In the Energy Products Segment, the Company offers high added value products and services for the oil and gas industry, such as anchorage ropes for deepwater platforms, manual and automated valves for use in applications of exploitation, production, transportation and oil refining and hydrocarbon chain, equipment for completion of oil wells allowing oil and gas production, linings of drilling and production pipes, equipment lease and offshore services and VNG compressors through the Lupatech MNA, Lupatech CSL, Lupatech Tecval, Lupatech Oil Tools, Lupatech Esferomatic, Lupatech Oil & Gas Services, Lupatech Tubular Services, Lupatech Monitoring Systems, Aspro, Sinergás and Norpatagonica brands. In the Flow Control Segment, the Company is the Mercosur market leader in the manufacture and sales of industrial valves, mainly for the chemical, pharmaceutical, pulp and paper, food, civil construction and machine and equipment industries, through the Lupatech Valmicro, Lupatech Mipel, ValBol e Jefferson. Through the Metallurgy Segment, the Company holds a prominent position in the international market, and is specialized in the development and manufacture of parts, complex parts and sub-assemblies aimed mainly at the international automobile industry through precision casting and steel injection processes, in which the Company is the pioneer in Latin America. The Company also operates in the casting of corrosion-resistant metal alloy parts, aimed at the industrial valves and pumps sectors, mainly for applications in oil and gas industry processes. 2. Presentation of interim consolidated financial statements 2.1 Basis of presentation The conclusion of these interim consolidated financial statements was authorized by the Administration of the Company on April 23, 2010 and will be available for approval by the Board of Directors. The interim consolidated financial statements of the Company and its subsidiaries were prepared for the quarter ended and 2009 and are presented in accordance with the International Accounting Standards (IAS) Nr.34, which deals with the interim financial reports. These interim consolidated financial statements should be read together with the consolidated financial statements of Lupatech SA for the year ended, December 31, 2009, which were prepared in accordance with International Financial Reporting Standards (). These consolidated financial statements are presented in accordance with in place of the quarterly consolidated financial statements according to BRGAAP, as permitted by Instruction No. 457 of 13 July 2007, and Ofício-Circular/CVM/SEP/No. 004/2007 of 06 November 2007.

13 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS The preparation of interim financial statements in accordance with IAS 34 requires the use of certain critical accounting estimates and also the use of judgment by the Company s Management in the application process of the Group s accounting practices. The same accounting policies and calculation methods were followed in these interim consolidated financial statements such as were applied to the consolidated financial statements of December 31, 2009, except for the impact of the adoption of standards and interpretations of standards described below. 2.2 New procedures and interpretations of the IFRIC (International Financial Reporting Interpretations Committee of the IASB) which may be applicable by the Company (a) Standards and Interpretations in force and/or adopted in advance IAS 27 Consolidated and Separate Financial Statements In January 2008, the IASB issued a revised version of IAS 27, whose changes are related, primarily, to accounting for noncontrolling interests and the loss of control of a subsidiary. This amended Standard must be applied to years beginning on or after July 1, The revision of these standard did not have an effect on the consolidated statements of the company and it take effect in accounting treatment and disclosures only for new purchases of subsidiaries that take place from Business Combinations In January 2008 the IASB issued a revised version of 3, which deals with the recognition and measurement in financial statements of the assets acquired and liabilities assumed and participation of non-controlling shareholders, apart from the exchange originated in a business combination and disclosures relating to the subject, the changes are effective for years beginning on or after July 1, The revision of these standard did not have an effect on the consolidated statements of the company and it take effect in accounting treatment and disclosures only for new purchases of subsidiaries that take place from IAS 39 Financial Instruments: Recognition and Measurement In July 2008, the IASB issued a revised version of IAS 39 which deals with items eligible for hedge. The changes are effective for years beginning on or after July 1, The adoption of this amendment didn't impact Consolidated Quarterly Financial Information of the Company. IFRIC 17 Distributions of Non-cash Assets to Owners In November 2008, the IFRIC issued Interpretation 17, which deals with the distributions of non-cash assets to the owners. The entity is required to implement this Interpretation for years that begin on or after July 1, 2009, but earlier adoption is permitted. The adoption of this amendment did not impact the Consolidated Quarterly Financial Information of the Company. IFRIC 18 Transfers of Assets from Customers In January 2009, the IFRIC issued Interpretation 18, which deals with the transfer of assets from customers to the Company. The entity is required to prospectively implement this Interpretation for assets received from customers on or after July 1, 2009 and earlier adoption is permitted. The adoption of this Interpretation did not impact the Consolidated Quarterly Financial Information of the Company.

14 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS IAS 39 e IFRIC 9 Embedded Derivatives In March 2009, the IASB revised IAS 39 and IFRIC 9, which deal with aspects related to the recognition of derivatives. The entity is required to implement these changes for years beginning on or after June 30, The adoption of this Interpretation did not impact the Consolidated Quarterly Financial Information of the Company. (b) Annual improvements of April 2009 In April 2009, the IASB revised various standards and interpretations as follows: 2, 5, 8, IAS 1, IAS 7, IAS 17, IAS 18, IAS 36, IAS 38, IAS 39, IFRIC 9 e IFRIC 16. The changes in the standards 2 and IAS 38 and interpretations IFRIC 9 and IFRIC 16 are effective for years beginning on or after July 01, The other changes in standards are effective for the years beginning on or after January 01, The alteration of this norms did not impact the Consolidated Quarterly Financial Information of the Company. 2 Share-based Payment In June 2009, the IASB revised rule 2, which deals with share based payments settled in cash or other assets, or by the issuance of equity instruments. This change is effective for years beginning on or after January 01, The alteration of this norms did not impact the Consolidated Quarterly Financial Information of the Company. 1 Additional Exemptions for First time adopters In July 2009, the IASB revised standard 1, which deals with additional exemptions for first-time adopters. This change is effective for years beginning on or after January 01, Because the Company has already adopted the, the alteration of this norms did not impact the Consolidated Quarterly Financial Information of the Company. (c) Standards and Interpretations of standards not yet in force IAS 32 Classification of Rights Issues: Amendment to IAS 32 In October 2009, the IASB revised IAS 32, which deals with contracts that will or may be settled in the entity s own equity instruments and establish that rights, options or warrants to acquire a fixed number of the entity s own equity instruments for a fixed amount of any currency are equity instruments. This change is effective for years beginning on or after February 01, The Company is evaluating the effects of implementing the change of this standard. IAS 24 Related Party Disclosures In November 2009, the IASB revised IAS 24, which deals with disclosures of transactions with related parties and relationships between parents and subsidiaries. This change is effective for years beginning on/or after January 01, The Company is evaluating the effects of implementing the change of this standard. 9 Financial Instruments In November 2009, IASB issued 9, which aims to replace IAS 39 - Financial Instruments: Recognition and measurement, over three phases. This standard represents the first part of Phase 1 of replacement of IAS 39 and addresses the classification and measurement of financial assets. This

15 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS standard is effective for years beginning on/or after January 01, The Company is evaluating the effects arising from the application of this standard and any differences from IAS 39. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments In November 2009, IFRIC issued interpretation 19, which deals with the issue of equity instruments for an entity to its creditors in order to settle liabilities. This interpretation is effective for years beginning on/or after July 1, The adoption of this Interpretation will not have an impact on the Consolidated Financial Statements of the Company. IFRIC 14 Prepayments of a Minimum Funding Requirement Amendments to IFRIC 14 In November 2009, IFRIC issued changes to interpretation 14, which are applicable in limited circumstances when an entity is subject to minimum requirements for provision of funds and makes an advance payment of contributions to cover these requirements. These changes are effective for years beginning on/or after January 1, The adoption of this Interpretation will not have will not have an impact on the Consolidated Financial Statements of the Company. 1 e 7 Limited Exemption from Comparative 7 Disclosures for First-time Adopter In January 2010 the IASB issued changes to 1 and 7, which address issues of disclosure of comparative information of financial instruments. These changes are effective for years beginning on/or after July 1, The adoption of this Interpretation will not have an impact will not have an impact on the Consolidated Financial Statements of the Company. 3. Interim condensed consolidated finacial statements The interim condensed consolidated financial statements include subsidiaries. Lupatech SA and its majority owned Subsidiaries The Company had no change of shareholdings in subsidiaries for the period ended. Jointly-owned subsidiaries The Company had no change of shareholdings in jointly-owned subsidiaries for the period ended March 31, Associate companies The Company had no change of shareholdings in associated companies for the period ended March 31, 2010.

16 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS 4. Cash and cash equivalents and marketable securities Cash and cash equivalents Cash and cash equivalents are broken down as follows: 03/31/ /31/2009 Cash and banks Brazil 18,755 32,372 Abroad 14,432 10,666 33,187 43,038 Financial investments Bill of Exchange Agribusiness 10,000 - Time deposits (CDI) 93,717 88, ,717 88,122 Cash and cash equivalent 136, ,160 The financial investments have immediate liquidity and refer to funds invested in fixed-rate securities, bill of exchange agribusiness and bank deposit certificates, carried out to optimize the Company s short-term funds. Yield rates of financial investments in bills of exchange in agribusiness and bank deposit certificates are in accordance with the characteristics of the application with CDI's parameter. Securities restricted account Marketable securities - restrict Scroll deposit 21,002 20,577 Marketable securities - restrict 21,002 20,577 This refers to a deposit guarantee for payment of performance in company acquisitions, with maturity on October 31, 2010, which is remunerated at 102% of the Interbank Deposit Certificate (CDI). The balance on March 31 st, 2010 is R$ 21,002 (R$ 20,577 in Decemeber 2009), recorded in current assets. In case the contract performance targets for payment of additional cost are not met, these funds will be released on behalf of the Company on their date of maturity.

17 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS 5. Inventories 03/31/ /31/2009 Finished goods 27,973 26,975 Goods for resale 13,143 15,651 Work in progress 42,189 51,383 Raw material 73,563 70, , , Fixed Assets 03/31/ /31/2009 Land 25,505 24,692 Building and construction 109, ,214 Machinery and equipment 220, ,054 Molds and matrixes 17,159 16,923 Industrial facilities 20,495 20,391 Furniture and fixtures 8,736 8,601 Data processing equipments 8,000 7,836 Improvements 6,606 6,606 Vehicles 4,033 3,932 Casks Advances for fixed assets acquisitions 7,922 4,086 Construction in progress 11,397 10,175 Depreciation (119,516) (112,673) Total 319, ,961 The value of interests and exchange variation capitalized to construction in progress in the first quarter of 2010 was zero (R$ in 2009). Synthesis of movement of permanent assets- during the semester ended on the 31st of March 2010, the acquisitions of permanent assets came to a total of R$ (R$ on the 31 st of March 2009) and the lows came to a total of R$ 92 (R$ 996 on the 31 st of March 2009). The value attributed to fixed assets in guarantee of liabilities on is as follows: Taxation (Tax Executions) 11,498 Loans and Financing (note 9) 21,835 Total 33,333 In this quarter the Company performed the first periodical analysis of the remaining economic life cycle of the permanent and intangible assets with effects registered from the 1 st of January 2010.As a consequence of the revision of this accounting estimative that aimed at realigning the remaining life cycle

18 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS of the assets and consequently, the remaining depreciation of the rest of the life cycle of the assets, a reduction of cost was determined with depreciation in the quarter of R$ 1.564, in comparison to the depreciation cost calculated on the basis of the economic life cycle used until December, 31 st The cost with depreciation on the quarter ended on the 31 st of March 2010 was R$ (R$ in the quarter ended on the 31 st of March 2009). 7. Intangíveis 03/31/ /31/2009 Goodwill 493, ,365 Software and other licenses 11,465 11,377 Projects development 19,466 19,389 Accumulated depreciation (18,129) (17,461) Total 506, ,670 (a) Development of new products It refers to the costs with the development of new products, processes and equipment by the Research and Development Center (CPDL) of the Company. The amortization of these projects, whose term does not exceed 5 years, is recorded as debt in income for the year, in the cost of products sold account. (b) Software and other licenses It includes all the data processing systems and usage license, which are registered by the acquisition cost and are amortized linearly. The amortization of software is recorded as debt in income for the year, in the cost of products sold and operating expenses account, for a 5-year term. (c) Goodwill on acquisitions Goodwill is allocated to business segments for which cash flows may be identified (Cash Generating Units - UGC). No other relevant intangible assets were indentified in the acquisitions other than goodwill for allocation of a portion of the acquisition cost. The recoverable value of a UGC is determined based on calculations of the asset in use. These calculations use cash flow projections before the calculation of income tax and social contribution based on financial budgets approved by the management. The goodwill is not subject to amortization, and should be evaluated by impairment test, at least on annual basis or whenever there are indications of possible loss of value. The test did not indicate impairment losses for goodwill and other intangible, and therefore there is no accounting effect arising for this determination in the financial statement.

19 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS Key assumptions used in cash flow projection for impairment test: Discount rate: 12.37%, based on the weighted cost of capital of the Group and the business segment to which it belongs considering scenario of the year-end 2009, adjusted for inflation and adjusted when necessary to reflect market assessments of specific risks of the asset. Growth rate of operations: between 8.59% and 25% for determining the flow of the next 5 years. Additionally, the perpetuity has been calculated considering the stabilization of operating margins, levels of working capital and investment and with zero growth. The growth rates used vary according to each market's expectation that the cash-generating units are submitted. The inflation rates in the projection were not considered. Below is a summary of the allocation of net goodwill of accumulated amortization, recorded until March 31, 2010, by Cash Generating Unit (UGC) level: UGCs 03/31/ /31/2009 Metallurgy Segment Itasa Unit 16,588 16,588 Flow control Segement Carbonox and Valmicro (Group of units) 6,065 6,065 Lupatech S/A - Metalurgica Ipê Unit 22,927 22,927 Worcester Unit 82,943 82,943 Jefferson Unit 39,680 39,680 Energy Products Segment Lupatech S/A - CSL Unit 105, ,414 Lupatech Equipamentos de Serviços para Petróleo - Oil Tools Unit 9,100 9,100 Lupatech Equipamentos de Serviços para Petróleo Unit 59,546 59,546 Lupatech Equipamentos de Serviços para Petróleo Tubular Services Unit 14,524 14,524 Aspro Unit 48,726 48,726 Tecval Unit 55,680 55,680 Lupatech Equipamentos de Serviços para Petróleo Monitoring Systems Unit 9,315 9,315 Fiberware Unit 14,038 14,038 Norpatagonica Unit 5,395 5, , ,941 The goodwill allocated to the group of Carbonox and Valmicro units is not relevant in the comparison with the goodwill s total book value. Therefore, individual information referring to these UGC is not being presented. In addition, some acquisitions have contingent price clauses based on EBITDA targets for each acquired company. The total value of the additional payment, in the case the EBITDA targets are reached, is as follows:

20 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS Company Amount of contingent payment: Lupatech S/A - CSL 100% of the EBITDA that exceeds the value agreed between the parts related to the accumulated EBITDA between 04/03/2007 and 06/30/2010. Lupatech Equipamentos de Serviços para Petróleo Ltda Maximum additional payment if minimum EBITDA targets are met during the period between 07/01/2007 and 06/30/2010: Lupatech Equipamentos de Serviços para Petróleo Ltda Tubular Services R$16,240 Maximum additional payment if minimum EBITDA targets are met during the period between 01/01/2008 and 12/31/2011: R$22,396 Jefferson Sudamericana S/A. 25% of the amount that exceeds the EBITDA agreed between the parts for each fiscal year of 2008 to Fiberware Equipamentos Serviços para Indústria Ltda. 50% of net income to be generated in 2009 and 2010 and 35% of net income to be generated in Tecval S/A Válvulas Industriais. 50%, 40% and 30% respectively of 2009 to 2011 that exceeds the 2007 EBITDA reference. Lupatech Equipamentos de Serviços para Petróleo Ltda Monitoring Systems 50% for 2009 to 2012 that exceeds the agreed EBITDA between the parts adjusted by the IGPM. Norpatagonica S.R.L. 12,2% of the amount that exceeds the EBITDA agreed between the parts for each fiscal year of 2009, 2010 and On the 31st of March 2010 are acknowledged in the liabilities complementary values to the cost of the original acquisition by reaching EBITDA of performance in the Aspro and Fiberware companies, in the totals of R$ and R$ respectively, registered as an addition to the value of Goodwill. For the rest of the companies, whose contracts include terms of contingent payments, as mentioned above, considering that the goals of EBITDA were not reached, no additional obligation of payment was registered. Such additional contingent payments will be registered as a complement to goodwill value, when it is considered to be probable that they become a payable obligation. In January 2008, IASB issued a revised version of 3, which determines the accounting of provision for additional payments based on their mensuration to the fair value on the date of acquisition. The changes are effective for years beginning on or the 1 st of July The group will apply the revised 3 in its consolidated financial statements for its new acquisitions.

21 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS 8. Loans, financings and Perpetual Bond (a) Loans and financings 03/31/ /31/2009 Index Weighted Não Non Descrição interest rates Current Current Total Current Current Total Moeda nacional Working capital / expansion Pré-Fixado 11,75% p.a Working capital / expansion BNDES TJLP 7,04% p.a. 19,666 89, ,953 15,761 91, ,306 Working capital / expansion BNDES USD 3,01% p.a Working capital / expansion BNDES FIXO 4,50% p.a ,067 50, ,000 50,276 Financing of fixed assets purchase TJLP 3,80% p.a. 2,346 3,147 5,493 2,434 3,728 6,162 Financing of fixed assets purchase CDI 13,95% p.a Financing of fixed assets purchase FIXO 13,72% p.a Financing incentives to research and technology TJLP -3.50% 901 2,208 3, ,632 3,513 23, , ,439 20, , ,105 Moeda estrangeira Working capital / expansion US Dollar Libor + 2,50% a.a. 1, ,294 1, ,714 Working capital / expansion US Dollar 7,01% p.a. 5,304 18,011 23,315 4,202 17,639 21,841 Working capital / expansion US Dollar 3,50% p.a 1,613-1,613 1,830-1,830 Working capital / expansion Peso ARS 4.14% 2, ,594 1, ,395 Financing of fixed assets purchase US Dollar 5,60% p.a. - 6,820 6, ,670 6,727 Financing of fixed assets purchase Peso ARS 17,00% p.a Financing of fixed assets purchase US Dollar Libor + 8,71% p.a ,814 26,044 36,858 9,237 25,673 34,910 34, , ,297 29, , ,015 Maturities for non-current financing installments are distributed as follow: Maturity 03/31/ /31/ ,366 65, ,305 50, ,453 22, ,911 22, ,880 11, ,604 1, , ,304 The guarantees for loans and financings were granted as follows:

22 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS Guarantee Amount Local currency Working capital / expansion Promissory note 62,500 Working capital / expansion Mortgage / Building 39,266 Working capital / expansion Companies guarantee 34,697 Financing of fixed assets purchase Companies guarantee 9,737 Financing of fixed assets purchase Own financed asset 15,933 Financing incentives to research and technology Bank guarantee 7, ,105 Foreign currency Working capital / expansion Companies guarantee 23,249 Financing of fixed assets purchase Own financed asset 5,902 29,151 Total 199,256 Over some financing contracts, the Company and its Affiliates are subject to complying to some restrictive clauses ( covenants ), which are related to the maintenance of the indexes (a) Net Debt / EBITDA until 3.5x, (b) EBITDA / Adjusted Net Operating Income at least 20% (twenty percent) (c) quick ratio (current assets / current liabilities) at least of 1.5, all based in the last twelve months of operation. In addition, our indirect joint subsidiary Aspro do Brasil has covenants related to financing contract which requires the maintenance of (a) minimum quick ratio of 1.2; (b) debt/shareholders equity until 1.5x and (c) Gross operational cash generation minimum of 1.3x the debt service. In the case of these covenants not being followed by the Company and its affiliates, the financial institution can require the anticipated debt clean-up. The company does not present a situation of "Default" in relation to these contracts on the date of this quarterly information. (b) Bônus Perpétuos As of July 11 th, 2007 and June 30 th, 2008, through its subsidiary affiliated to the branch abroad Lupatech Finance Limited, the offering of senior perpetual bonds abroad remunerated at 9.875% p.a. (bonds) was concluded in the total amount of US$ 200 million and US$ 75 million, respectively. The yield rates of the perpetual bonds are paid on a quarterly basis. These operations were guaranteed by sureties provided by the Company and its subsidiaries In case of Company interest, the Perpetual Bonds may be redeemed, parity in the face value, in a quarterly bases, since July 2012, ie five years after the emission. The Perpetual Bonds have not due date for the principal, but may become payable in specific situations, as defined under Perpetual Bonds Agreement, if a break up of any of such of obligations is verified. Currently the Company complies fully with its obligations relating with the Perpetual Bonds. The Bonds were neither registered at the Securities and Exchange Commission of Brazil (CVM) nor under the U.S. Securities Act of 1933 (Securities Act). The bonds were offered only to institutional investors qualified under Rule 144A and to non-american persons outside the United States, except in jurisdictions

23 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS where such offering or sale is forbidden, in accordance with Regulation S. bonds are listed on the Luxemburg Stock Exchange. Resources obtained through the offer are being used to finance the Company s growth plan. 9. Debentures To obtain the recourses for the acquisition of companies, strengthening the capital structure and working capital, modernization and expansion of production capacity and social investments, the Board of Directors approved at the Extraordinary General Meeting (AGE) held on 15 April 2009, the issuance of 320,000 (three hundred and twenty thousand) debentures, in a single series, for private placement. The debentures convertible into common shares, with floating guarantee and nominal value per unit of R$1, with the maturity of 9 years, with total amount of up to R$320,000 are remunerated to the variation of the IPCA % per year. The debentures may be converted into common shares, issued by the Company, the sole discretion of the debentures, at any time from the second year on, considering the date of issue. The remuneration will be paid annually, always on 15, with the first payment from April 15, 2010, and the subsequent payments, all on 15 April the following year, and the interest until April 15, The debentures will be paid in 3 installments, from the date of issuance on, and (i) the first, in proportion of 47.5% of principal value, on April 15, 2016, (ii) the second, in proportion of 47.5% of the principal value, on April 15, 2017, (iii) the third, in proportion of 5% of principal value, on 15 April If all or part of the debentures are not converted into shares and the condition of early redemption is not reached, they will be entitled to conversion of non-premium equivalent to R$ (four hundred and twenty three dollars and seventy-five cents), updated by the IPCA. The maturity premium, with the remuneration of IPCA + 6.5% per year, increases the annual return in IPCA + 10%. The company may redeem the debentures in advance from the 2nd year on, from the date of issuance on, ie, from April 15, 2011, provided that the following condition occurs, and except for the conversion of debentures. The condition for the redemption of debentures in advance occurs when the weighted average price of 180 (one hundred eighty) calendar days from issuance of common shares of the Company, calculated in sessions of BM& F BOVESPA and raised daily by the trustee of the private issue is greater than or equal to the maximum achieved at the price negotiated updated by IPCA, multiplied by the premium on the price and capitalized by 14% p.a., and the maximum value reached by the negotiated price ( "MAXPAN") will be the higher value found by moving average of 120 (one hundred twenty) calendar days from common shares issued Company's stock as calculated on the BM & F BOVESPA to be raised daily over the first 2 years from the date of issue, with a minimum R$17.50 (seventeen Brazilian Reais and fifty cents) per share, this value will not be updated, and maximum value, R$35.00 (thirty-five Brazilian Reais), updated for 2 years from the date of issue. The commitments of redemption, conversion of debentures into shares and redemption without conversion were identified by Management of the Company as contractual components which have the characteristic, alone, to constitute an embedded derivative. Due to this fact, they were separated from the main contract and valued at fair value on initial recognition and subsequently at fair value through results. On December 31, 2009 and on 31 March, 2010, the value of the embedded derivative was valued at R$ and R$ , respectively, for each debenture in amount of R$ 1,000 face value. The change in fair value of embedded derivative in the period totaled R$ 1,843, recorded in the market change, option debentures and as a debt on income statement.

24 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS The main characteristic of the debentures are as follows: Series Date of issuance: Date of final maturity: Quantity: Nominal value: First Issuance 04/15/ /15/ , /31/ /31/2009 Debt instrument - Debentures 204, ,807 Embedded derivative instrument 133, ,421 Interest on Debentures 25,646 16,313 Current 25,646 16,313 Non Current 338, , , ,541 The debentures are subject to calculation of financial "covenants", a) Net debt / EBTIDA: equal or lower than 3.5 (three and a half), b) EBTIDA / ROL: higher than or equal to 20% (twenty percent); and c) Current Liquidity Index: higher than or equal to 1.5 (one and a half full). The covenants are calculated on a yearly basis, on December 31 st of each year, which is the settlement period to the calendar year, which began on January 1 st and ended on December 31 st. In the 4th quarter of 2009, the Company did not meet the financial covenants clause on the debentures. As First Amendment to the Private Deed of the 2nd issue of Debentures concluded on December 30 th, 2009, these covenants will not be required for the fulfillment of the special rule in writing, the default would determine acceleration of the debentures at the closing of the fiscal year 2009, provided that the Company makes payment to debenture holders of "waiver fee" until January 31 st, To release the Company of the situation of default, the Company management made on January 15th, 2010, the payment of R$ 3,691 to the title of waiver fee. 10. Realted Parties The transactions are made according to the conditions agreed among the parties. The credits and debits with the related parties are remunerated to the taxes applied by the financial market. a) Guarantees granted The aval guarantees and sureties rendered by the group s companies (Company and subsidiaries) for own or related-party financing are presented in Notes 8.

25 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS b) Price and charge conditions Loan contracts among companies in Brazil are monetarily restated according to the DI-Cetip monthly rate for funds obtained in the market. c) Management compensation Lupatech S.A. paid its managers, between wages and variable compensation, a total amount of R$ 738 in the first quarter ended (R$ 540 in the quarter ended March 31, 2009), the limit amount of R$ 3,600 having been approved for the year. Additionally the cost of options granted related to the management, amounted in the 3 months ended R$ 1,263 (R$ 689 in the quarter ended March 31, 2009). 11. Income Tax and Social Contribuition For companies headquartered in Brazil, depending on the situation of each company, if levied by taxable profit, the provision for income tax is calculated and accounted at the 15% rate over the taxable income, plus an additional 10%, and the social contribution at the 9% rate, calculated and accounted over the income before income tax, adjusted pursuant to tax laws. The companies levied based on presumed profit calculate their income tax at the rate of 15%, plus an additional 10%, and social contribution at the rate of 9%, over presumed profits from 8% to 32% for income tax and 12% for social contribution on subsidiaries gross income from selling and services, pursuant to the fiscal rules in force. Operations of subsidiaries located in Argentina are taxed at a 35% rate on adjusted profit for tax purposes.

26 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS (a) Deferred income tax and social contribution 03/31/ /31/2009 Assets Contingence provisions 2,991 3,181 AVP - Adjustments to equity value 1,218 1,829 Deferred write-off - research projects Tax losses 38,481 37,486 Negative base of the CSLL 13,399 13,548 Allowance for doubtful accounts Debentures 3,316 3,943 Gaap difference on the valoriazation of inventories 2,026 2,011 Other non-deductable provisions Deferred income tax and social contribution (CSLL) 62,117 62,708 Passivo - calculado sobre: Surplus Value of fixed assets of the acquired company Goodwill amortization 14,524 9,267 Fair value of fixed assets 6,908 6,963 Perpetual bonds expenses deferred Exchange variation taxable by cash basis 2,023 17,314 Imposto de renda e contribuição social diferidos - não circulante 24,663 34,822 (b) Estimate of deferred tax assets realization amounts The tax benefits recognized on tax losses and negative basis of social contribution are supported by projections of taxable income on the basis of technical feasibility studies, submitted annually to the Management of the Companies. These studies consider the historical profitability of the Company and its subsidiaries and the prospect of maintaining current profitability in the future, allowing an estimate of recovery of credits. The remaining claims, which are based on temporary differences, mainly tax contingencies as well as provision for losses, were recognized as the expectation of its realization. The tax credit recovery, in the Parent Company and Consolidated, is based on taxable income projections for the following years:

27 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS Year , , , , , a ,891 Indeterminate 2,991 62,117 The collection of tax debts, in the parent company and consolidated, will be practically according to (i) the maturity of the loan, denominated in foreign currency, due to the deferral of taxation of foreign exchange for the time of settlement, (ii) the realization of goodwill on acquisition of subsidiaries and (iii) amortization of the fair value of fixed assets. Year , Indeterminate 22,293 24,663

28 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS (c) Reconciliation of income tax and social contribution: 03/31/ /31/2009 Gain (Loss) before taxes and participations (21,814) (14,805) Additions and exclusions Equity pick-up (90) (192) Effects of subsidiaries taxed by presumed profit (647) 1,296 Difference of social contribution and income tax rate of 1% in subsidiaries based abroad Exchange variation effects and financial results of subsidiaries abroad that not affect the tributary profit 1,120 8,628 Options granted expenses 1, Goodwill amortization before incorporation (deductible after incorporation) - - Other 3,258 (2,532) Calculation basis (16,656) (6,694) Combined tax rate 34% 34% Income tax and social contribution by the combined tax rate 5,663 2,276 Deferred income tax and social contribution 9,568 6,347 Current income tax and social contribution (3,905) (4,071) Considering the fact that the goodwill is not more subject to accounting amortization from 2009, the effect of the amortization made only for tax purposes, creates the constitution of provision for deferred tax liabilities on the accounting and tax bases, according to the item (a) of this note. 12. Contingencies (a) Contingent liabilities The Company, through their attorneys, has been discussing some tax, labor and civil issues in courts. The provision for contingencies was determined by the Management based on available information and supported by the opinion of the Company s attorneys as to the expected decision, in an amount deemed sufficient to cover losses considered likely to occur, which may occur in view of unfavorable court decisions.

29 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS Loss probability Possible Probable Tributários (i) 18,709 5,114 Trabalhistas (ii) 3,129 2,084 Cíveis (iii) 11, Total 33,825 7,357 (-) Depósitos Judiciais - - Total em 31 de março de ,825 7,357 Total em 31 de dezembro de ,139 7,860 The provision for the resources involved in legal disputes in the amounts above presented and relating to the spheres listed below takes into account the probable loss, which is set when an outflow of economic benefits is presumed on the subject under discussion, worthy of trials in each demand and jurisprudential understanding of each case. These figures R$ 22,825 and R$ include all the Group companies in Brazil and abroad and include figures under litigation and administrative as well as situations where incurred even without the existence of release or formal questioning by the authorities, would give rise to risk further losses. The demands with possible risk of loss are excluded from the provision, behold, there is an equal chance for both success and loss for these actions. The lawsuits are divided into three levels, namely: (i) Tax issues regarding state and federal taxes, among these IRPJ (corporate income tax), PIS (social integration program), COFINS (contribution for social security financing), INSS (Brazilian Social Security Institute), ICMS (value-added tax) and IPI (tax on manufactured products). There are legal proceedings in all phases, from lower courts to higher courts, STJ (Higher Court of Justice) and STF (Higher Federal Court). (ii) Labor several labor claims mostly related to suits for damages. (iii) Civil civil claims regarding ordinary, provisional and execution claims, among others. (b) Contingent assets Probability of probable gain Tax 2,276 Civil 561 Balances at March 31st, ,837 Balances at December 31st, ,675

30 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS Tax discussions related to city, state and federal tax rights. The Company did not record contingent gains, for it only records them after the claims are final and unappeasable or upon the effective inflow of funds. 13. Shareholders equity (a) Capital stock Current integrated capital stock only comprises common shares with 100% tag-along right, as follows: 03/31/ /31/2009 Ordinary shares payment 47,674,118 47,674,118 Total 47,674,118 47,674,118 According to the Bylaws, the Board of Directors may further increase the capital stock regardless of amendments to the bylaws in more 118,047,939 common shares. (b) Dividends The distribution of minimum mandatory dividends corresponding to 25% of the adjusted net revenue is ensured to shareholders on annual basis, in accordance with the Brazilian Corporate Law. (c) Cumulative Translation Adjustment The Company records in this item the effect of foreign exchange variations on investments in subsidiaries abroad. This accumulated effect will be transferred to income for the year as profit or loss only in case of investment disposal or write-off. (d) Options granted The Company records in this item the effect of the recognition of the fair value of stock options to which some executives are entitled, as mentioned in Note Financial instruments Financial risk management Financial risk factor The Group s activities expose it to several financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group s program for global risk management is focused on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group s financial performance through the use of derivative financial instruments to protect certain risk exposures.

31 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS Risk management is carried out by the Group s treasury according to approved policies, except for jointlyowned subsidiaries, which are shared with the other controlling shareholders. The Group s treasury identifies, evaluates and protects the Company against possible financial risks in cooperation with the Group s operating units. The Board of Directors sets forth principles for global risk management, as well as for specific areas such as foreign exchange risk, interest rate risk, use of derivative and non-derivative financial instruments. (i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk resulting from exposure to some currencies, mainly the US dollar and the Argentine Peso. Foreign exchange risk results from trade and financial operations, recorded assets and liabilities and net investments in overseas operations. The Management has established a policy that requires that the Group s companies manage their foreign exchange risk related to their functional currency. In order to manage their foreign exchange risk resulting from trade operations, the companies seek to balance their balance of trade between purchases and sales in currencies different from their functional currency. In funding operations through debts with no maturity date (perpetual bonds) no instruments for foreign exchange protection were used, since there was no principal settlement flow involved and, therefore, no relevant effect on the cash position. The accounting and equity exposure to these fluctuations continue to be recorded in the financial statements. Financial debts with maturity date, in which there is the exposure to currency variation in relation to cash, are protected by rate and index swap operations, which are perfect in relation to the amount protected, maturity date and valuation indicators, removing foreign exchange risk completely. The Group has certain investments in overseas operations whose net assets are exposed to foreign exchange risk. On March 31st, 2010 and 2009 the Company had assets and liabilities denominated in US dollars, as shown in the table below: Amounts in US dollar Items 03/31/ /31/2009 Cash and cash equivalents 4,987 3,010 Other assets 70,443 66,972 Liabilities (11,449) (25,470) Perpetual bonds (280,689) (283,952) Total (216,708) (239,440)

32 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS In addition, in 1Q 2010 our exposure to Argentina pesos is as below: Itens Cash and cash equivalents Financial applications Accounts and notes receivable Inventories Fixed Assets Intangible Other assets Suppliers Loans and Financings Advances from Customers Total Amounts in P$ thousands 03/31/ ,995 1,500 15,479 63,822 34,192 10,501 - (13,623) (7,229) (2,754) 114,884 12/31/ ,374 2,700 12,744 66,557 34,155 10, (7,088) (2,335) (2,175) 128,096 On the US dollar ( dollar ) rate in relation to the Brazilian Real was US$1.00 = R$ (On December 31, 2009 US$ 1.00 = R$ 1.741). If the Real depreciates 10% in relation to the official dollar rate at the end of the year and all the other variables remain equal, the impact on income, after the calculation of income tax and social contribution, is a loss of approximately R$ 25,473. In this scenario, the impact on liquidity would be positive, i.e., the Company would have a net cash increase from loans and financings of approximately R$ 888 since the major dollar-denominated debt perpetual bonds, in this case has no maturity date and does not require disbursement. Analysis of the sensitivity of foreign currency and variation of interest rate As presented in the note 9 and 11, the Company is exposed to risks of fluctuation of interest rates and foreign currencies (other than its functional currency, the "Real"), mainly the U.S. dollar on their loans and financing.there are any derivative transactions outstanding at the date of these financial statements, so in this fact the sensitivity analysis was performed for the exposure of financial loans to exchange rate fluctuation and interest rates fluctuation. The sensitivity analysis considers 3 scenarios of interest rate fluctuation and exchange rate fluctuation. To define the scenarios used, the Company s Management believes that the following assumptions may be fulfilled, with their respective likelihoods; however, it is worth pointing out that these assumptions are based on judgments of the Company s Management and that they may vary significantly in relation to the actual results due to market conditions, which cannot be estimated with certainty on this date for the full estimation profile. Scenario involving a probable interest rate parity of US Dollar in comparison with Brazilian Real estimated by the Management: Interest rate for the year 2010: Increase of 10% US$: 1,80 Scenario involving a possible interest rate parity of US Dollar in comparison with Brazilian Real and a twenty-five percent (25%) impairment in the risk variable considered likely: Interest rate for the year 2010: Increase of 12% US$: 2,25

33 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS Scenario involving a remote interest rate parity of US Dollar in comparison with Brazilian Real and a fifty percent (50%) impairment in the risk variable considered likely: Interest rate for the year 2010: Increase of 15% US$: 2,70 The impact shown in the table below refers to the period of 1 year of projection: Scenario as per description above Operation Risk Probable Possible Remote Loans, financing and perpetual bond US$ hike 6, , ,172 Loans, financing and perpetual bond Interest Rate hike ,089 TOTAL 6, , ,262 (ii) Cash flow risk or fair value associated with interest rate The Group s interest rate risk arises from long-term loans. The loans issued at variable rates expose the Group to cash flow interest rate risk. The Group s loans at variable rates were mainly denominated in Reais. The Group analyzes its interest rate exposure dynamically. Several scenarios are simulated taking into consideration refinancing, renewal of existing positions, and alternative financing and hedge. Based on these scenarios, the Group determines a reasonable change in the interest rate and calculates the impact on income. For each simulation, the same change in interest rate is used for all currencies. The scenarios are prepared only for liabilities representing the main interest-bearing positions. Based on the simulations and considering the Group s indebtedness profile in December 2009, the impact on income, after the calculation of income tax and social contribution, with a variation of around 0.25 percentage points in variable interest rates and with all the other variables remaining constant, would correspond to an approximate increase/decrease of R$ 199 in interest expenses for the year. The simulation is conducted quarterly to ascertain whether the maximum loss potential is within the limits set forth by the Management. (iii) Credit risk Credit risk is managed within the company. It arises from cash and cash equivalents, derivative financial instruments, deposits in banks and financial institutions and exposure to client credit. For banks and financial institutions, securities from entities classified by the Company s Management as prime are accepted. Individual risk limits are determined based on internal or external classifications, according to limits set forth by the Management. The use of credit limits is monitored regularly and recorded when applicable the allowance for doubtful accounts. Client selection and the monitoring of the periods for financing sales by business segments and individual position limits are procedures adopted in order to minimize potential default in its accounts receivable. Our revenues are more concentrated, directly and indirectly, on the client Petrobras, which in 1Q2010 accounted for approximately 50% (54% in 2009) of the Company s and its subsidiaries total revenues. (iv) Liquidity risk The cautious management of liquidity risk implies keeping enough cash and securities, availability of funding through conditional credit lines and the ability to settle market positions. Due to the dynamic nature of the Group s businesses, the treasury keeps funding flexible by maintaining conditional credit lines.

34 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS The Management monitors the level of the Group s liquidity, considering the expected cash flow, which comprises the unused credit line, cash and cash equivalents. This is generally conducted locally within the Group s operating companies, according to the practice and the limits set forth by the Group. These limits vary according to the region in order to take into account the liquidity of the market where the organization operates. Additionally, the Group s liquidity management policy involves the projection of cash flows in the main currencies and the consideration of the level of net assets required to achieve these projections, the monitoring of the balance sheet s liquidity index in relation to the internal and external regulatory requirements and the maintenance of debt financing plans Capital risk management The Group s objectives when managing its capital are to ensure the Group s ability to continue offering return to shareholders and creditors, in addition to maintaining an ideal capital structure to maximize its weighted average cost. The Group monitors its capital based on the financial leverage index. This index corresponds to net debt divided by total capital. Net debt, in turn, corresponds to total loans (including short- and long-term loans, as demonstrated in the consolidated balance sheet), subtracted from the amount of debts with no maturity date (perpetual bonds), from cash and cash equivalents and from securities. Total capital is calculated by adding the capital stock to net debt, as demonstrated in the consolidated balance sheet Fair value estimate The fair value of financial assets and liabilities that have terms and conditions and traded in active markets is determined on the basis of observed prices in these markets (including perpetual bonds). The fair value of other assets and liabilities (excluding derivative instruments) is determined by pricing models generally accepted. These models use based on the estimated discounted cash flows from the prices of similar instruments applied to transactions in a current market observable. The fair value of derivative instruments is calculated using quoted prices. When those prices are not available, is used the analysis of discounted cash flows using the yield curve, apply according to the duration of the derivative instruments to no options. For derivatives containing options models are used for pricing options. The exchange rate swaps are measured at present value of future cash flows estimated and discounted based on yield curves applicable price, based on interest rates. The Company s main financial assets and liabilities are described below, as well as the criteria for their valuation/assessment: (a) Cash, cash equivalents, banks and securities held to maturity Balances in cash and cash equivalents and securities have a similar value to the accounting balances, considering their turnover and liquidity. The table below shows this comparison:

35 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS Items Book Value Fair Value Cash and cash equivalents 136, ,904 Marketable securities 21,002 21,002 Total 157, ,906 (b) Loans and financings The estimated market value was calculated based on the present value of future cash disbursement, using interest rates available to the Company, and the evaluation indicates that the market values, in relation to the accounting balances, are as follows: Items Book Value Fair Value Loans and financing 206, ,469 Total 206, ,469 (c) Bônus Perpétuo The estimated market value was calculated based on the bond s market quotation on. This evaluation indicates that market values, in relation to accounting balances, as follows: Items Book Value Fair Value Perpetual bonds 497, ,187 Total 497, ,187 (d) Debêntures The Company's Management identified the commitments of the early redemption of debentures, conversion of debentures into shares and redemption without conversion as contractual components that have the characteristic of an embedded derivative. They were separated from the main contract, valued at fair value on initial recognition and subsequently at fair value through results. The evaluation of assets and liabilities is based on assumptions and criteria which, in some cases includes estimates of the exercise price, conversion period, interest rate, volatility of action, expected dividends, etc. The model used for pricing and valuation of these derivative instruments was the method of Monte Carlo simulation. On December 31 st, 2009 and on the value of the embedded derivative was valued at RS and R$ , respectively, for each debenture R$ 1,000 face value. The change in fair value of embedded derivative in the period totaled R$ 1,843, recorded in the market change, the option debentures income.

36 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS The value of the debt instrument of debenture is presented at book value because there is not a significant volume of transactions in the secondary market in order to characterize a market valuation. Additionally were issued in 2009 and therefore we are assuming that the amount recorded reflects the market value on. (e) Measurement of fair value 7 defines fair value as the price that would be received for an asset or paid for transferring a liability (exit price) in the principal or most advantageous market for the asset or liability in a regular transaction between market participants on the day of calculation. 7 also establishes a hierarchy of three levels for the fair value, which prioritizes information when measuring the fair value by the company, to maximize the use of observable information and minimize the use of nonobservable information. 7 describes the three levels of information to be used to measure fair value: Level 1 - quoted prices (not adjusted) in active markets for identical assets and liabilities. Level 2 - Inputs other than quoted prices included in Level 1 available, where (non-adjusted) quoted prices are for similar assets and liabilities in non-active markets, or other data that is available or may be corroborated by market data for substantially the full term of the asset or liability. Level 3 Inputs for the asset or liability that are not based on observable market data (unobservable inputs) because market activity is insignificant or does not exist. As of December 31, 2009, the Company had the derivate embedded in debenture contracts which the fair value measurement is required on a recurring basis, using the Level 3. Derivative embedded at the date of issue 135,421 Variation of fair value (1,843) Derivative embedded on December 31, , Insurance coverage (unaudited by independent auditors) It is the Company s policy to maintain insurance coverage for fixed assets and inventories subject to risks, under the type Comprehensive Corporate Insurance, and for amounts deemed as sufficient to cover the risks involved. The company also has general Civil Liability Insurance, as well as Directors and Officers Liability Insurance. In the oil segment, it covers the national transportation and risks involving oil equipment. Insurance purpose Amount Secured - Corporate Understanding Insurance R$ 334,956 - General Civil Responsibility Insurance R$ 10,000 - Management D&O Responsibility Insurance R$ 15,000 - Oil Equipment Risk Insurance US$ 7,852

37 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS 16. Stock option plan With the purpose of promoting the Company s expansion and achieving the corporate goals established, allowing the Company to obtain and keep its top executives and promote the good performance of the Company and shareholders interests upon the long-term commitment by the Management, the Extraordinary General Meeting held on April 19 th, 2006 approved the Authorization Plan for the Option Granted (Plan). The Board of Directors has defined the eligible persons to the programs set forth in the Plan, including the beneficiaries, the amount of shares entitled for subscription with exercise of call option and the means of payments of shares. The option provided pursuant to the Plan will represent each year the maximum of 5% of the total amount of shares representing the Company s capital on the concession date plus existing shares, should all stock options offered pursuant to the Plan be exercised. The shares distributed will entitle to the same rights as the other which already comprise the capital stock. The obtainment of the right to exercise the Option will occur in installments annual and constant during 5 (five) years, ie, 20% (twenty percent) at the end of the first year and then 20% (twenty percent) every birthday. The beneficiary may defer the payment of the option for up to one year and should exercise their option within 7 (seven) years from the Contract Option date on. The exercise price will be adjusted by the IGPM-FGV variation, plus six percent (6%) per year, calculated on a pro rata temporis basis up to the effective date of subscription and/or acquisition. If the beneficiary will leave the Company due to its sole intention or due to the initiative of Company, automatically will be extinguished all options granted to him that are not yet at the time, options that may already be exercised. The Company has no legal or constructive obligations to repurchase or settle the options in cash. The beneficiary may exercise the option upon cash payment or extend exercise for one year and accumulate the payment regarding this exercise with the payment of the options which the beneficiary is entitled to in the following year. The programs issued and their respective approvals are as follows: First Program: At the Board of Directors meeting held on 20 July 2006 was approved the First Program of Options Granted. Second Program: The Second Program of Options Granted was approved at the Board of Directors meeting held on 19 April Third Program: The third program of Options Granted was approved at the Board of Directors meeting held on January 16, Additive to the First and Second Program ("Fourth Program"): On April 30, 2009, the Board of Directors approved the increase in the amount of shares of the Company to be issued within first and second program for stock options purchase of shares ("Fourth Program"), up to 477,000 (four hundred and seventy-seven thousand) new common shares of the Company issued and 414,000 for the First Program and 63,000 options for the Second Program. The number of shares object of the fourth program will be calculated according to the valuation of the shares on the IBOVESPA, in the period from 31 December 2008 to 31 December After that period, it will be determined, based on the percentage of recovery, the number of shares subject of the new option that can be subscribed / purchased by the recipient, considering that (i) if the valorization of shares in the period from 31 December 2008 to 31 December 2012 is lower than 70% (seventy percent) of valorization

38 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS of IBOVESPA for the same period, the beneficiary may not exercise any options in the Fourth Program; (ii) the percentage of valorization of shares is higher than 70% (seventy percent) and up to 180% (one hundred eighty percent) of the valorization of IBOVESPA for the same period, will be given to the beneficiary the quantity of shares the subject of new options anticipated, multiplied by the percentage of valorization of actions and (iii) the percentage of valorization of the shares will be higher than 180% (one hundred eighty percent), shall be limited the amount of shares the subject of the new option that the beneficiary can subscribe to 180% (one hundred and eighty percent ) of the quantity anticipated. The option may be exercised on all or a part of the shares during the exercise period of the option. The exercise period of the option will be 01 January 2013 to March 31, The purchase price per share subject of the new option will be the same as the stock on the first program and the second program, according to the allocation for each beneficiary. Variations in the Programs: Variations in the number of options for purchase of outstanding shares and their corresponding weighted average strike prices are presented below: First issuance 1Q Weightted average strike price Weightted average strike price per store Options per store Options At the beginning of the period , ,778 Cancelled (28,493) Exercised (92,372) At the end of the period , ,913 Exercisable at the end of the period , ,723 Second issuance 1Q Weightted average strike price Weightted average strike price per store Options per store Options At the beginning of the period , ,286 Cancelled (37,144) At the end of the period 36,46 322, ,142 Exercisable at the end of the period 36,46 182, ,712 Third issuance 1Q Weightted average strike price Weightted average strike price per store Options per store Options At the beginning of the period , Grantee ,000 At the end of the period , ,000 Exercisable at the end of the period , ,400 Fourth issuance 1Q Weightted average strike price Weightted average strike price per store Options per store Options At the beginning of the period , Grantee ,000 At the end of the period 19,47 477, ,000 Exercisable at the end of the period Consolidated 1Q Weightted average strike price Weightted average strike price per store Options per store Options At the beginning of the period ,305, ,064 Grantee ,000 Cancelled (65,637) Exercised (92,372) At the end of the period ,305, ,305,055 Exercisable at the end of the period , ,835 Out of the 1,305,055 outstanding options, 182,039 options were exercisable (48,106 in 2009). The options exercised in 2009 resulted in the issue of 92,372 shares for the weighted average price of R$16.21

39 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS each.the share s respective weighted average price on the stock exchange at the time of exercise was R$ per share (R$ in 2008). The options for purchase of outstanding shares at the end of the year have expiration dates and strike prices as presented in the following table. Additionally, the weighted average fair value of the options granted, determined based on the Black-Scholes pricing method (except fourth issuance based on Monte Carlo method) was as demonstrated in the table below: Average exercise price Fair value of options Shares Maturity date - May per share in R$ on grantee date in R$ 03/31/ /31/ ,835 First issuance ,723 Second issuance ,712 Third issuance , , ,305 First issuance ,818 97,095 Second issuance ,522 69,810 Third issuance ,800 61, , ,305 First issuance ,095 97,095 Second issuance ,810 69,810 Third issuance ,400 61, , ,210 Second issuance (*) ,810 69,810 Third issuance (*) ,400 61, , ,400 Second issuance (*) ,400 61,400 Third issuance (*) , ,000 1,305,055 1,305,055 (*) Fundação Getulio Varga s General Market Price Index (IGPM-FGV) + 6% p.a. will be added to this amount Significant data included in the model were: Issue First Second Third Fourth Share weighted average price R$ R$ R$ R$ Dividend yield Option's expected life 5 years 5 years 5 years 4 years Annual risk-free interest rate (*) Selic Rate Selic Rate Selic Rate Selic Rate Volatility 28.38% 36.05% 57.86% 57.30% Strike price: price defined in the program approved by the Board of Directors restated by 6% p.a. plus the projected IGPM-FGV for the exercise periods. Volatility was measured by the standard deviation of share returns considering the history of the Company s daily quotations since its IPO, as well as the weighted average of the behavior of shares of other companies in the same segment during the same period. The percentage of equity interest dilution to which current shareholders are potentially submitted in case of exercise of all the options is approximately 2.07%.

40 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS On March 31 st, 2010 the stock option reserve balance was R$ 11,265 (R$ 11,002 on December 31 st, 2009). The effect of this program on income for the quarter ended March 31 st, 2010 was R$ 1,263 (R$ 389 in quarter, ended March 31, 2009) 17. Gain (Loss) per Share (a) Basic The basic gain per share is calculated by dividing the gain (loss) attributable to the Company s shareholders by the weighted average number of common shares issued during the year. Items 03/31/ /31/2009 Loss attributable to shareholders' of the Company (16,151) (12,529) Weighted average number of ordinary shares outstanding (thousands) 47,640 47,493 Basic loss per share - R$ (0.34) (0.26) (b) Diluted The diluted gain (loss) per share is calculated by adjusting the weighted average number of outstanding common shares to presume the conversion of all potential diluted common shares. Concerning stock options, a calculation is made to determine the number of shares that could have been acquired by fair value (determined as annual market average price of Company share), based on the monetary value of subscription rights linked to outstanding stock options. The amount of shares calculated as previously outlined is compared to the number of shares issued, presupposing the exercise of stock options. Items 03/31/ /31/2009 Loss attributable to shareholders' of the Company - (16,151) (12,529) Weighted average number of ordinary shares outstanding (thousands) 47,670 47,493 Adjusted by: Exercisable stock option Weighted average number of ordinary shares outstanding (thousands) 47,684 47,504 Diluted loss per share - R$ (0.34) (0.26)

41 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS 18. Financial Results Itens 03/31/ /31/2009 Financial Income Financial investments income 2,657 1,218 Related-party interest income (mutual contract) - - Present value adjustment 250 1,810 Embedded derivative instrument - debentures 1,843 - Other financial income 2, TOTAL Financial Income 7,218 3,390 Financial Expenses Interest on loan and financing (4,174) (12,804) Interest on debentures (12,597) (14,793) Related-party interest expenses (mutual contract) (12,286) - IOF, Banking expenses (108) (1,584) Other financial expenses, banking expenses (1,676) (234) TOTAL Financial Expenses (30,841) (29,415) Gain on exchange variation 29,592 12,308 Loss on exchange variation (39,996) (18,796) Exchange variation, net (10,404) (6,488) 19. Other Operating Expenses (Income) Items 03/31/ /31/2009 Provision for loss of legal proceeding 19 3,298 Stock Options expenses 1, Other 1,075 2,418 2,357 6, Expenses by Type As required by, the detailing of the consolidated result by type of expenses is summarized as follows:

42 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS Items 03/31/ /31/2009 Depreciation and amortization 7,512 7,818 Salaries, social charges and benefits 35,582 41,024 Raw material 56,057 62,124 Freights 1,669 1,378 Other expenses 34,181 21, , ,701 Classified as: Cost of sales 105, ,413 Selling expenses 15,477 12,642 General and administrative 11,281 14,233 Other operating expenses 2,357 6, , , Information by Business Segment The Company has adopted 8 (Operating Segments) as of 01/01/2009, to replace IAS 14 (Presentation of segment information) that had been adopted until the year The Management defined the Group s operating segments, based on reports used in strategic decisionmaking processes, reviewed by the Board of Directors. The Management analyzes the business, by segmenting it under the product application market perspective, and also under the geographic viewpoint. Performance markets are segmented in Energy Products, Flow Control and Metallurgy, same composition reported in Note 1. Accounting criteria and practices adopted when preparing information by segment presented below observe the accounting practices adopted in Brazil. Geographically, the Management considers the performance of Brazilian, Argentine markets and other. The distribution by region takes into account the location of Group s companies and not client s location. In view of a solid relationship with Oil and Gas segments in Brazil and Argentina, by means of its subsidiaries located in that country, the geographic analysis is directly focused on this structure. Revenues generated by operating segments mainly derive from: a) Energy Products: platforms mooring cables in deep waters, manual and automated valves for use in the exploitation, production, transportation and oil refining and hydrocarbon chain,oil well completion equipment, drill pipe coatings and production, equipment rental, offshore services, natural gas compressors, sensors by optic fiber and leasing of gas compression kits. b) Flow Control: production and commercialization of industrial valves, mainly for chemical, pharmaceutical, pulp and paper, food, home building, machinery and equipment industries. c) Metallurgy: development and production of parts, complex parts and sub-sets mainly directed to the automotive industry, in the casting of parts with metal alloys highly resistant to corrosion targeting industrial valves and pumps sectors, mainly to be used in processes for the oil and gas industries.

43 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS Inter-segments sales were made as arm s length transactions.revenues from external parties informed to the Board of Executive Officers were measured consistely with those revenues reported in the statement of income. The column of eliminations and adjustments includes sales eliminations among segments applicable to the Company within the context of the consolidated financial statements, as well as adjustments in relation to the accounting practices adopted in Brazil. The amounts provided to the Board of Executive Officers in relation to total assets are compatible with balances recorded in the financial statements. These assets are allocated based on the segment operations and physical place of assets. The amounts provided to the Board of Executive Officers in relation total liabilities are compatible with balances recorded in the financial statements. These liabilities are allocated based on the segment operations. The Company's revenues have higher concentrations involving the customer Petrobrás, directly and indirectly, which responded in the first quarter of 2010 by approximately 50% (54% in 2009) of the total revenue of the Company and its subsidiaries. The information by segment and by geographic region is as follows: :

44 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS Energy Products Flow Control Metallurgy Adjustments and eliminations Consolidated 03/31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/2009 Net sales 100, ,111 34,345 34,135 14,443 14,394 (1,995) (3,423) 147, ,217 Cost of sales (74,095) (70,912) (19,769) (20,470) (13,857) (14,061) 1,835 5,030 (105,886) (100,413) Gross profit 26,236 35,199 14,576 13, (160) 1,607 41,238 50,803 Selling expenses (9,994) (8,052) (4,257) (3,214) (1,227) (1,376) - - (15,477) (12,642) General and administrative (6,576) (9,053) (2,043) (3,416) (1,924) (1,224) - - (10,543) (13,693) Management fees - (382) - (111) (738) (47) - - (738) (540) Equity pick-up Negative goodwill Other operating income (expenses), net (908) (6,205) 224 (149) (1,674) (59) - - (2,357) (6,413) Income before financial results 8,849 11,700 8,501 6,775 (4,977) (2,374) (160) 1,607 12,212 17,706 Financial income 6,262 25, ,569 26,912 1,608 11,183 (13,367) 44,792 15,697 Financial expense (8,886) (48,996) (621) (1,870) (55,548) (9,881) (13,764) 12,537 (78,819) (48,210) Income (loss) before income tax 6,225 (11,407) 8,315 6,474 (33,613) (10,647) (2,740) 777 (21,814) (14,805) Current (1,724) (1,796) (1,956) (2,381) (225) (3,905) (4,071) Deferred (1,599) 251 (121) - 11,162 5, ,568 6,347 Net income (loss) for the year 2,902 (12,952) 6,237 4,093 (22,676) (4,636) (2,614) 968 (16,151) (12,529) Energy Products Flow Control Metallurgy Adjustments and Consolidated - 03/31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/2009 Identifiable assets (1) 877, , , , , ,194 12,850 12,794 1,260,274 1,362,934 Identifiable liabilities (2) 123, ,620 13,054 6, , , , ,559 Depreciation and amortization (4,252) (4,189) (1,096) (1,230) (2,003) (2,238) (161) (161) (7,511) (7,818) Fixed assets acquisition 7,496 17, ,146 3, ,906 21, Identifiable assets : accounts receivable, inventories, fixed assets and goodwill, recoverable income taxes, Marketable securities - restrict 2- Identifiable liabilities : accounts payable and loans and financing

45 LUPATECH S.A / NOTES TO FINANCIAL STATEMENTS Brazil Argentina Other 03/31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/2009 Net sales 114, ,457 32,114 36,124 2,211 1,211 (1,250) (1,574) 147, ,217 Brazil Argentina Other 31/03/ /03/ /03/ /03/ /03/ /03/ Identifiable assets (1) 934,114 1,006, , , ,850 12,794 1,260,274 1,362, Identifiable assets : accounts receivable, inventories, fixed assets and goodwill, recoverable income taxes, Marketable securities - restrict Adjustments and eliminations Adjustments and eliminations Consolidated Consolidated

46 22. Statement of Comprehensive Income 03/31/ /31/2009 Net income (loss) of period (16,151) (14,805) Other comprehensive income of period Exchange variation on investments abroad 245 (9,539) Total comprehensive income of period (15,905) (24,344) 23. Additional Information (a) Reconciliation of shareholders equity and net income for the year, consolidated, from accounting practices adopted in Brazil (BR GAAP) to The Company recorded the effects of transition to the adoption of and their impacts on shareholders equity and the results for the quarter ended and 2009, as shown below: Shareholders equity Net Income (Loss) for the quarter 03/31/ /31/ /31/ /31/2009 Parent Company - BR GAAP 184, ,263 (16,297) (11,429) Capitalization costs in business combination 3,726 3, Fair value depreciation on fixed assets of acquired companies (1,354) (1,194) (161) (161) Deferred income tax on fair value amortization Reversal of goodwill amortization 99,692 99, Deffered income tax on deductable amount of goodwill amortization at BRGAAP (1,230) (1,230) - - Issuance costs of perpetual bond capitalized 2,532 2,740 (210) (400) Deferred income tax on issuance cost capitalized of perpetual bond (861) (931) Other Income tax and social contribution goodwill amortized in GAAP before business combination (13,776) (13,776) - - Total Adjustments 89,363 89,606 (244) (369) Unrealized profit on intra group transactions (1,221) (1,609) 389 (730) Consolidated - 272, ,260 (16,151) (12,529)

47 12.01 MANAGEMENT COMMENTS Dear Sirs, Lupatech S.A. ( Company ) presents the Management Report and the Company s Consolidated Quarterly Financial Statements for the first quarter ended on (1Q10), drawn up in line with the international accounting standard established by the International Accounting Standards Board IASB (). It is recommended to read this material together with the Notes to the Consolidated Financial Statements. COMPANY AND BUSINESS PROFILE Lupatech S.A. has three business segments: Energy Products 1, Flow Control 2 and Metallurgy 3, and 3,097 employees. The Energy Products Segment offers high value-added products and services for the Oil & Gas sector, including deepwater platform anchoring ropes, valves, oil wells completion tools, coating, VNG compressors, sensors and well intervention services through Lupatech MNA, Lupatech CSL, Lupatech Tecval, Lupatech Oil Tools, Lupatech Esferomatic, Lupatech Oil & Gas Services, Lupatech Oilfield Services, Lupatech Tubular Services, Lupatech Monitoring Systems, Aspro, Sinergás and Norpatagonica brands. The Flow Control Segment heads the national rankings in the Mercosul in the production and sale of industrial valves, primarily for the chemical, pharmaceutical, pulp and paper and construction industries, under Lupatech Valmicro, Lupatech Mipel, ValBol and Jefferson brands. The Metallurgy Segment is among the international leaders in the development and production of parts, complex parts and sub-assemblies, mainly for power train systems to the global auto industry. It employs the precision casting and steel injection processes, techniques that it pioneered in Latin America. It also produces high-corrosion-resistant cast-alloy housings for industrial valves and pumps, chiefly for applications in the oil and gas industry under Microinox, Steelinject and Itasa brands. [The remaining of this page was left in blank intentionally] 1 Former Oil & Gas 2 Former Flow 3 Former Metal

48 MESSAGE TO SHAREHOLDERS AND MARKET AGENTS Dear Shareholders and Market Agents, Lupatech S.A. presents its results for the first quarter of In the 1Q10 the Company presented a significant recovery of the Consolidated Net Revenues when compared to the previous quarter (4Q09) in most of its business units. Consolidated Net Revenues (R$ thousand) 4Q09 1Q10 % Change Energy Products Segment 66, , % Flow Control Segment 28,034 33, % Metallurgy Segment 13,114 13, % Total 107, , % The recovery of the Net Consolidated Revenues contributed to a better dilution of the Company s fixed costs, which together with the efforts to improve cost management, contributed to the growth of the Consolidated Gross Profit in 82.3%, well above of the Net Consolidated Revenues growth (36.5%). Along with the improvement of the Consolidated Gross Profit, the effects of the reduction of the General and Administrative Expenses began to be noticed, which fell by 3.7% and contributed to the improvement of the Consolidated EBITDA in 189.8% and the Consolidated EBITDA Margin, that grew from 6.4% to 13.6%. The Operating Cash Flow Generation during the period reached R$29.8 million, composed by an improvement of the operational indexes mentioned above as well the improvement in Working Capital management. The new contracts being signed by the Company have payment clauses that will help the management of the capital allocated to the business cycle. It is also important to highlight the bidding process or quotations that the Company has participated through the Energy Products and Flow Control segments have already began to reflect positively on the Company's backlog, today at record levels, which impacts will be better noticed in the financial statements throughout the second half of 2010 and subsequent periods. With these improvements, it is estimated that the development projects of oil fields in Brazil, mainly the ones related to the construction of oil and gas production platforms, begin to be presented to suppliers of equipment and services, what makes the Company believe that during the second half of 2010, new bidding processes, and consequently, new contracts will contribute to the growth of the backlog, which will create even better operational conditions for the year of [The remaining of this page was left in blank intentionally]

49 OVERVIEW OF THE BUSINESS SEGMENTS ENERGY PRODUCTS SEGMENT The Energy Products segment has verified business recovery related to oil and gas production, mainly in Brazil. The Company s units in this segment participated in several quotations related to valves and pipe lining which are already reflected in the backlog, pushing it to record levels, and will be converted into revenues over the next quarters. In addition to the current backlog there are also services and anchoring ropes contracts to be signed. The business units that presented progress in this quarter were the units of valves, well completion tools, services, pipe lining and gas compressors. This segment continues to have a significant backlog for the next periods, with some important contracts still to be signed and other quotations that the Company is participating. It is estimated that new projects in the development of oil and gas fields, which are additional business opportunities for the Company, should start being negotiated with suppliers throughout the second half of FLOW CONTROL SEGMENT The Flow Control segment has shown increasing recovery in each quarter, a result of the industrial activity recovery mainly in Brazil, and in a slower pace in Argentina. This segment has verified during the 1Q10 significant commercial activity as well as an increase of the capacity utilization, in addition to the improvement of the products mix, reflecting better operating indexes. METALLURGY SEGMENT The Metallurgy segment has shown a slow recovery, mainly due to the automotive sector in Europe and USA, despite de recovery of the automotive sector in Brazil. The positive performance of this segment during the 1Q10, although modest, is due to powder injection molding unit. In the case of the investment cast division, mainly for the automotive sector, it was verified a business slowdown mainly due to seasonality of purchases in this sector in the first months of the year. EXPOSURE OF THE COMPANY TO THE OIL AND GAS SECTOR The Company is exposed to several phases of the oil and gas sector, which is divided in three stages: upstream, midstream and downstream. Upstream Upstream is related to the exploration, development and production of oil and gas. The exploration involves a study of all the available geological and geographical information of a proposed location. This process involves independent oilfield service companies as well as the global integrated companies and it is divided into two phases surveying and preliminary drilling to confirm discoveries made in the surveying phase. Lupatech has no exposure to this stage.

50 The development phase refers to the installation of the required infrastructure to permit full production scale. It is when Lupatech starts to have exposure to the sector supplying equipments for the construction of the production infrastructure. The production phase is related to the continual extraction of hydrocarbons and their preparation for transportation. Lupatech also has exposure to the production phase, supplying services and equipment for replacements. Midstream and Downstream The midstream relates to the transportation of crude oil from where it was extracted to the refinery where it is processed. The downstream comprises the refining and marketing of the oil. Refining refers to the processing of crude oil whilst marketing entails the distribution and sale of the refined product. Lupatech is exposed to both stages above in the refining and distribution with valves and compressors. Lupatech exposure to each of the stages mentioned above is presented below: Upstream Mid & Downstream Exploration Development Production Refining Distribution Specialty Services & Lease of Equipments Services: EPC Equipments: Infrastructure Services: Maintenance Equipments: Replacement & Revamps Services: EPC & Maintenance Equipments: Replacement & Revamps Services: EPC & Maintenance Equipments: Replacement Exposure Anchoring Ropes, Valves, Completion Tools, Sensors, Coatings Well Services Anchoring Ropes, Valves, Completion Tools, Sensors, Coatings Valves, Compressors Valves, Compressors Is LUPA exposed: Yes No Therefore, the Company has no exposure to the exploration stage, with most of its revenues concentrated in development and production, in refineries and distribution of oil and gas. COMMERCIAL ACTIVITY AND BACKLOG The Company and its business units have verified constant improvement in the commercial activity related mainly to the maintenance of oil and gas production activities. The Company expects improvements in the total backlog for the coming months, assuring the industrial activity for the next periods. The Company's backlog on was R$653.3 million, being R$429.8 million in services and R$225.7 million in products. On May 6, 2010 the Company signed new contracts for valves supply called AFMG (Authorization for

51 Global Supply of Materials) in the approximate amount of R$155,0 million and a tenor of two years. These contracts are related to the maintenance and/or replacement of ball, gate, globe and check valves in different alloys, and will be supplied directly to Petrobras. With the signing of these contracts, the Company's backlog was changed as follows: Backlog as of (R$ million) Equipments Services Total Conversion in12 months Conversion in over 1 year New AFMGs for valves (May/2010) New Backlog - as of May 12, 2010 (R$ million) Equipments Services Total Conversion in12 months Conversion over 1 year LUPATECH OILFIELD SERVICES CREATION On March 29, 2010 it was announced by the Company through a Material Fact to the market, the creation of Lupatech Oilfield Services ("LOFS"), a company focused operationally to provide well intervention services. The creation of Lupatech Oilfield Services sets a new phase for this sector in Latin America, as is the emergence of a regional player in the area of specialized services for oil and gas. LOFS's main competitive differentials are three: is the first regional player with structure and portfolio diversification; brings together the biographies of executives with extensive industry experience in all countries where the company will operate, and has a project aligned with the needs of the oil and gas industry to use local content. Lupatech Oilfield Services is the result of the sum of experiences between Lupatech S.A. and Penta, a service company that brings experienced oil industry professionals, such as João Carlos de Luca a former professional of Petrobras and Repsol and that current holds the position of president of the Brazilian Petroleum Institute - IBP, Cesar Paolini a former professional of Schlumberger in several countries and Carlos Portela a former professional of British Petroleum and Atlantic LNG. Lupatech will control 85% of the new company. The remaining 15% will be owned by the above mentioned executive team, with the possibility to increase the stake up to a limit of 30% after the investments made by Lupatech returns over 17% per year accumulated in U.S. dollars. The business plan was set to have Brazil, Colombia and Mexico as the first markets to be developed, which were chosen because of their size and excellent growth prospects. The company seeks to meet a growing demand for solutions that integrate services and equipments. Lupatech already has a wide range of equipments and is a player in services not related to well intervention, so there will be no competition with LOFS. Lupatech Oilfield Services will start its operations in Colombia, through HS (Hydrocarbon Services Sociedad por Acciones Simplificada), company acquired on April 30, HS reported in 2009 net revenues of US$11.7 million and EBITDA of US$2.25 million.

52 The goal of Lupatech Oilfield Services is to work in areas where there is demand, with controlled technologies and where it can be a differentiated player in quality and price. Another differential is the experience that the executives can bring to the company, which is the client perception of how to do and what to expect from theses services as a client and how to conduct the operation. The size of the target market of this segment is estimated in US$4.3 billion for Latin America, with potential to reach US$5.7 billion by 2015, in accordance to market estimates. Lupatech Oilfield Services intends to have a market share between 10% and 12% in 5 years. ELECTION OF THE BOARD OF DIRECTORS, BOARD OF EXECUTIVE OFFICERS AND FISCAL COUNCIL ESTABLISHMENT On April 30, 2010, during the Annual Shareholders Meeting, the Board of Directors of Lupatech was elected with a one year tenor mandate. The new constitution of the Board of Directors has the same number of members of the previous Board, seven members, of which three are independents. It is important to mention that six of the seven members were re-elected, considering that BNDESPAR, acting in accordance with practices to renew their representatives in the Board of Directors of companies where it invests, has chosen to appoint Mr. Armando Mariante Carvalho Júnior, Vice President of BNDES, to replace Mr. Marcelo Cabrera da Costa, to whom the Management is grateful for the large dedication to the Lupatech project since Board of Directors constitution: Name Nestor Perini Alcinei Cardoso Rodrigues José Teófilo Abu-Jamra Armando Mariante Carvalho Junior Clóvis Benoni Meurer José Mauro Mettrau Carneiro da Cunha José Coutinho Barbosa Ivan Magalhães Junior Teresa Rodrigues Cao Position Chairman Board Member Board Member Board Member Independent Board Member Independent Board Member Independent Board Member Substitute Member Substitute Member The Board of Directors at the meeting held on April 30, 2010, reelected all the Board of Executive Officers, which is composed by four officers: Name Nestor Perini Gilberto Pasquale da Silva José Teófilo Abu-Jamra Thiago Alonso de Oliveira Position / Designation Chief Executive Officer Officer Officer Investor Relations Officer

53 Establishment and Constitution of the Fiscal Council Also at the Annual Shareholders Meeting held on April 30, 2010, it was established the Fiscal Council in order to attend a requirement of the two largest shareholders of the Company, Lupapar and Petros. The elected Fiscal Council is composed by three members and its respective substitutes, being two of them independent members, Mr. Egon Handel and Mr. Amoreti Franco Gibbon and the third elected by Petros, Mr. Humberto Santamaria. Name Amoreti Franco Gibbon Egon Handel Humberto Santamaria Bruno Oliva Girardi Eduardo Grande Bittencourt Juliano Puchalski Teixeira Position / Designation Member Member Member Substitute Member Substitute Member Substitute Member The Management believes that the Fiscal Council is an important step towards the improvement of the corporate governance practices of the Company, which now can count on experienced members, whose professional resumes are presented below: Amoreti Franco Gibbon. Mr. Gibbon holds a bachelor Degree in Accounting from Faculdade de Administração e Ciências Contábeis São Judas Tadeu - Porto Alegre (RS), he worked for companies such as Máquinas e Moto-Peças Wallig S.A., Indústria de Celulose Borregaard S.A. and Grupo Peixoto de Castro (Gravataí - RS). He was also a partner of PricewaterhouseCoopers Auditores Independentes. He was a professor at the Faculdade de Administração e Ciências Contábeis São Judas Tadeu - Porto Alegre (RS). From 2005 to 2007 he was a member of the Fiscal Council of the Brazilian North American Culture Institute, from 2006 on he was a corporate and tax consultant, and since 2007 he is a member of the Fiscal Council of Forjas Taurus S.A.. Egon Handel. Mr. Handel holds a Master in Business Administration with emphasis in Accounting from Michigan State University - USA , has an specialization degree and teaching practice in industrial and Agricultural accounting from University of Rio Grande do Sul and holds a bachelor degree Accounting from the University Federal do Rio Grande do Sul He was the Director of BANRISUL Destribuidora de Títulos e Valores Mobiliários S.A. from 1982 to 1983, was a professor at UFRGS and Head of the Accounting and Actuarial Sciences Departament, he was also a teacher at the Graduation Courses (Master and specializations) and Administration, Actuarial Science, Economics and Accounting Courses from 1966 to He was the President of ICARGS - Institute of Accountants and Actuaries of Rio Grande do Sul from 1971 to He is currently a member of the Board of Directors of Lojas Renner S.A. since April 1991 and member of the Fiscal Council of listed companies such as Marcopolo S.A. and Gerdau S.A. since 2005 and 2002, respectively. Humberto Santamaria. Mr. Santamaria holds a bachelor degree in Economics from the Universidade Estadual de Campinas (UNICAMP),1985 and concluded the course of Master of Business Administration (MBA) from Anglia Polytechnic University - Cambridge / England in He was an economist at Unibanco S.A. from 1986 to 1993, held various economist positions of the economics department of Hamburg, he worked at Dresdner Bank Lateinamerika AG - Hamburg, Germany from March 2000 to December 2005 in Deutsch-Süd GmbH Transfergesellschaft DSB-Germany January 2006 to December 2006 and since 2008 he is the Executive Manager of Investment Planning of the Fundação Petrobrás de Seguridade Social PETROS.

54 FINAL REMARKS The Management would like to reaffirm the long-term commitment to clients, shareholders, creditors, employees and the capital markets. The independent auditor, DELOITTE TOUCHE TOHMATSU AUDITORES INDEPENDENTES (Deloitte) which analyzes the financial statements since 2008, has offered only external auditing services to Lupatech S.A., related to the financial statements auditing. The comments on the Company s consolidated performance are available on its website The Company is subject to the rules of the Market Arbitration Panel pursuant to the arbitration clause in the Company s Bylaws. Caxias do Sul, May 12, Board of Directors Nestor Perini Alcinei Cardoso Rodrigues Armando Mariante Carvalho Junior José Teófilo Abu-Jamra Clóvis Benoni Meurer José Coutinho Barbosa José Mauro Mettrau Carneiro da Cunha Substitute Board Members Ivan Magalhães Junior Teresa Rodriguez Cao Directors Nestor Perini José Teófilo Abu-Jamra Gilberto Pasquale da Silva Thiago Alonso de Oliveira [The remaining of this page was left in blank intentionally]

55 MANAGEMENT COMMENTS ON CONSOLIDATED ECONOMIC AND FINANCIAL PERFORMANCE NET REVENUES Net Revenues (in R$ thousand) 4Q09 1Q10 % Change Energy Products 66, , % Energy Products - Local Market 39,233 73, % Energy Products - Exports 27,437 26, % Flow Control 28,034 33, % Flow Control - Local Market 26,488 31, % Flow Control - Exports 1,546 1, % Metallurgy 13,114 13, % Metallurgy - Local Market 10,633 10, % Metallurgy - Exports 2,481 2, % Total 107, , % % Energy Products 61.8% 68.2% % Energy Products - Local Market 58.8% 73.2% % Energy Products - Exports 41.2% 26.8% % Flow Control 26.0% 22.8% % Flow Control - Local Market 94.5% 94.4% % Flow Control - Exports 5.5% 5.6% % Metallurgy 12.2% 9.0% % Metallurgy - Local Market 81.1% 78.5% % Metallurgy - Exports 18.9% 21.5% The Net Consolidated Revenues of 1Q10 grew 36.5% when compared to 4Q09, reaching R$147.1 million versus R$107.8 million in the 4Q09. The Net Consolidated Revenues growth is due to the progress verified in the Energy Products and Flow Control Segments. The Net Revenues of the Energy Products Segment in the 1Q10 reached R$100.3 million, growth of 50.5% when compared to the 4Q09 when it reached R$66.7 million. The growth verified during the 1Q10 is a consequence of higher industrial activity in valves, gas compressors, services, pipe lining and completion tools. The Net Revenues of the Flow Control Segment in the 1Q10 reached R$33.5 million, growth of 19.6% when compared to the 4Q09 when it reached R$28.0 million. This growth is a result of higher industrial activity in valves units in Brazil and also Argentina, reflecting the recovery of the industrial sectors of both countries. The Net Revenues of the Metallurgy Segment in 1Q10 reached R$13.2 million, growth of 1.0% when compared to the 4Q09 when reached R$13.1 million. [The remaining of this page was left in blank intentionally]

56 REVENUE BREAKDOWN BY GEOGRAPHIC REGION TOTAL 1Q10 NET CONSOLIDATED REVENUES 9.4% 9.2% 1.1% 2.5% 2.7% 7.0% 68.1% Brazil Repetro Argentina Asia Europe North America Other BY INDUSTRIAL SECTOR TOTAL 1Q10 NET CONSOLIDATED REVENUES 7.8% 1.7% 13.9% 17.9% 58.7% Energy Capital Goods Automotive Civil Construction Others BY INDUSTRIAL SECTOR 1Q10 GROSS REVENUES PER SEGMENT Oil & Gas 96% Energy Products Other 4% Food 8% Flow Control Oil & Gas Other 14% 21% Machines & Equipments 35% Chemical 9% Construction 13% Dental 1% Other 5% Food 22% Metallurgy Automation 4% Automotive 58% Oil & Gas 10%

57 COSTS OF GOODS SOLD COGS (in R$ thousand) 4Q09 1Q10 % Change Energy Products 55,115 74, % Flow Control 16,846 18, % Metallurgy 13,238 13, % Total 85, , % % Energy Products 64.7% 69.9% % Flow Control 19.8% 17.7% % Metallurgy 15.5% 12.4% COGS/Net Revenues Total 79.0% 72.0% COGS/Net Revenues Energy Products 82.7% 73.8% COGS/Net Revenues Flow Control 60.1% 55.9% COGS/Net Revenues Metallurgy 100.9% 98.9% The Consolidated Cost of Goods Sold (COGS) in the 1Q10 reached R$105.9 million, up 24.3% when compared to the 4Q09 when reached R$85.2 million. The growth in the Consolidated COGS during the 1Q10 is a direct consequence of the growth of Net Consolidated Revenues of 36.5% in the same period. The COGS of the Energy Products Segment in the 1Q10 reached R$74.0 million, up 34.3% when compared to the 4Q09 when reached R$55.1 million. The growth in the COGS of the Energy Products Segment during the 1Q10 is a direct consequence of the growth of the Net Revenues in 50.5% over the same period. The smaller growth of the COGS in comparison to the growth in the Net Revenues is a consequence of the reduction of costs in accordance with the cost management improvements initiated by the Company in the second half of The COGS of the Flow Control Segment in the 1Q10 reached R$18.8 million, up 11.3% when compared to the 4Q09 when reached R$16.8 million. The growth in the COGS of the Flow Control Segment in the 1Q10 is a direct consequence of the growth of 19.6% in the Net Revenue over the same period. The smaller growth in the COGS of the Flow Control Segment when compared to the growth of the Net Revenues is also a consequence of the cost management improvements. The COGS of the Metallurgy Segment in the 1Q10 reached R$13.1 million, down 1.0% when compared to the 4Q09 when reached R$13.2 million. [The remaining of this page was left in blank intentionally]

58 COST STRUCTURE The following table shows the behavior of fixed costs between the 2Q09 and 1Q10. Cost Structure (in %) 2Q09 3Q09 4Q09 1Q10 Energy Products: Raw Material Labor Manufacturing Expenses Depreciation Flow Control Raw Material Labor Manufacturing Expenses Depreciation Metallurgy: Raw Material Labor Manufacturing Expenses Energy Depreciation COGS MAIN COMPONENTS OF TOTAL RAW MATERIAL IN THE 1Q % 18.8% 12.5% 27.4% StainlessSteel Polyester Carbon Steel Wax for casting & Others [The remaining of this page was left in blank intentionally]