Annual Reports


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Braskem SA 6-K 2007

Documents found in this filing:

  1. 6-K
  2. 6-K
Provided by MZ Data Products
Washington, D.C. 20549


For the month of May, 2007

(Commission File No. 1-14862 )


(Exact Name as Specified in its Charter)
(Translation of registrant's name into English)

Rua Eteno, 1561, Polo Petroquimico de Camacari
Camacari, Bahia - CEP 42810-000 Brazil
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F ___X___       Form 40-F ______

Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(1). _____

Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(7). _____

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes ______       No ___X___

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- _____.

Braskem S.A.
Quarterly financial information
as of March 31, 2007

(A translation of the original interim financial information in Portuguese, prepared in accordance with accounting principles derived from the Brazilian Corporation Law and rules of the Brazilian Securities Commission - CVM)

Braskem S.A. 
ITR – Quarterly Financial Information – Base Date 03/31/2007 

Independent Auditors’ Special Review Report

The Shareholders and Directors
Braskem S.A.
Camaçari - BA

We have conducted a special review of the quarterly financial information of Braskem S.A. and of this Company and its subsidiaries for the quarter ended March 31, 2007, which comprises the balance sheets, the statements of income, the performance report and other relevant information, prepared in accordance with accounting practices adopted in Brazil and rules issued by the Brazilian Securities Commission (CVM). The quarterly financial information of the subsidiaries, Petroflex Indústria e Comércio S.A. and Copesul - Companhia Petroquímica do Sul, as of March 31, 2007 and 2006, and the balance sheets of these subsidiaries, and of the subsidiary Politeno Indústria e Comércio S.A. at of December 31, 2006, were reviewed or examined by other independent auditors, and our review, with respect to the value of the investments and the results from these subsidiaries, is based exclusively on the reports issued by these other auditors.
Our review was performed in accordance with specific rules established by IBRACON – Brazilian Institute of Independent Auditors and the Federal Accounting Council, and consisted mainly of: (a) enquiries and discussions with management responsible for the accounting, financial and operational departments of the Company and its subsidiaries, with respect to the main criteria adopted in preparing the quarterly information; and (b) a review of the information and subsequent events that had or could have had significant effects on the financial position and operations of the Company and its subsidiaries.
Based on our special review and the special review reports on the quarterly financial information and the reports, which were the responsibility of other independent auditors, we are not aware of any significant changes that should be made to the aforementioned quarterly financial information for it to be in accordance with accounting practices adopted in Brazil and consistent with the rules issued by the Brazilian Securities Commission, specifically applicable to the preparation of the quarterly financial information.


Braskem S.A.
As reported in note 9(b), the Company has accumulated ICMS credits from previous years, arising mainly from the differences between the tax rates applicable to purchases and products sold, domestic shipments that receive incentives with deferment of taxation, and exports. The realization of these tax credits depends on successfully implementing management’s plans as described in this note to the accompanying quarterly financial information. The quarterly financial information at March 31, 2007, does not include any adjustments related to the recovery of these tax credits given the existing uncertainty.
As reported in note 17(c), the government filed a rescissory action to overrule the final judgment of the processes judged in favour of the Company and for certain subsidiaries, with respect to the non payment of social contribution on net income (CSLL) for the fiscal year 1988 and drafted tax assessments as a result of this contribution being declared constitutional by the Federal High Court (STF) for subsequent years. Company management, based on the opinion of its legal advisors does not expect that the sentence passed, stating the Company was exempt from paying the aforementioned contribution, will be reversed. Consequently, for the purposes of preparing the quarterly financial information, no provision was recorded for an unfavourable outcome or for the years that have still not been investigated by the tax authorities.
As reported in note 9(a), OPP Química S.A., incorporated by the Company in 2003, based on a decision taken by the Federal Supreme Court (STF) has recognized in its accounting records Excise Tax (IPI) credits of R$ 1,030,125 thousand, which were offset against IPI due and other federal taxes. Although this decision was the object of an appeal by the National Treasury, pending judgment by the 2nd panel of judges of the Federal Supreme Court, and despite the assessments drafted against the Company, management based on the opinion of its legal advisors considers the chances of a successful outcome as probable and, consequently, no provision has been recorded in the quarterly financial information for the quarter ended March 31, 2007.
As reported in Notes 11, 12 and 13, the Company and certain subsidiaries recorded goodwill on the acquisition of investments, based on the added value of the assets and future profitability of the companies invested in, and which is being amortized over the realization period stated in the appraisal reports. Maintaining this goodwill in the accounting records is dependent upon realizing the assumptions used for forecasting the cash flows, income and expenses.
The balance sheet for the year ended December 31, 2006, presented for comparison purposes, was examined by other independent auditors, who issued their unqualified audit report, dated February 7, 2007, which included paragraphs of emphasis on the issues reported in paragraphs 4, 5, 6 and 7 above and regarding the fact that the Company and its subsidiaries are involved in legal processes disputing the validity of Clause Four in the Collective Workers Agreement of SINQU¥MICA.
The statement of income for the quarter ended March 31, 2006, presented for comparison purposes, was reviewed by other independent auditors, who issued an unqualified report on the special review, dated April 28, 2006, with paragraphs of emphasis on the same issues reported in paragraphs 4, 5, 6 and 7 above and regarding the fact that the Company and its subsidiaries are involved in legal processes disputing the validity of Clause Four in the Collective Workers Agreement of SINQU¥MICA.


Our reviewed was conducted to enable us to issue a report on the special review of the quarterly financial information referred to in the first paragraph. The statements of cash flows for the quarter ended March 31, 2007, provides supplementary information to the quarterly financial information, which is not required according to accounting practices adopted in Brazil and is presented to enable additional analyses. This additional information was submitted to the same review procedures applied to the quarterly financial information and we are not aware o any significant changes that should be made for this information to be in accordance with accounting practices in Brazil and consistent with the rules issued by the Brazilian Securities Commission

April 26, 2007

KPMG Auditores Independentes
CRC 2SP014428/O-6-S-BA

Anselmo Neves Macedo
Accountant CRC 1SP160482/O-6-S-BA


Braskem S.A.
Publicly-held Company

Balance Sheets

March 31, 2007 and December 31, 2006

        Parent company        Consolidated 
Assets    Mar-2007    Dec-2006    Mar-2007    Dec-2006 
Current assets                 
 Cash and cash equivalents (Note 4)   1,464,788    1,125,925    1,655,731    1,547,061 
 Marketable securities (Note 5)   522,714    849,006    117,686    413,891 
 Trade accounts receivable (Note 6)   986,588    891,794    1,351,551    1,594,858 
 Inventories (Note 7)   1,462,144    1,443,876    1,824,600    1,767,275 
 Taxes recoverable (Note 9)   287,619    336,350    355,125    408,082 
 Deferred income and social contribution taxes (Nota 17)   19,573    19,573    21,359    20,625 
 Dividends and interest on capital receivable    2,000    71,908    2,000     
 Prepaid expenses    64,232    76,049    72,761    84,586 
 Other accounts receivable    117,408    94,544    126,175    114,618 
    4,927,066    4,909,025    5,526,988    5,950,996 
Noncurrent assets                 
Long-term receivables                 
 Marketable securities (Note 5)   16,437    63,460    1,741    1,628 
 Trade accounts receivable (Note 6)   45,625    51,766    45,625    52,542 
 Inventories (Note 7)   22,780    22,946    22,780    22,946 
 Taxes recoverable (Note 9)   684,216    698,497    965,580    953,102 
 Deferred income and social contribution taxes (Note 17)   353,849    361,089    373,220    377,041 
 Judicial deposits and compulsory loan (Note 10)   63,336    70,610    81,179    90,516 
 Related parties (Note 8)   294,491    229,308    41,661    40,733 
 Other accounts receivable    46,006    49,292    55,591    58,653 
    1,526,740    1,546,968    1,587,377    1,597,161 
Permanent assets                 
 Investments in subsidiaries (Note 11)   1,873,094    1,813,326    8,865    6,528 
 Investments in associated companies (Note 11)   23,820    25,604    24,402    26,187 
 Other investments    8,367    8,367    12,683    14,056 
 Property, plant and equipment (Note 12)   6,034,271    5,994,130    6,774,798    6,688,699 
 Intangible assets (Note 12)   127,043    129,126    125,372    129,450 
 Deferred charges (Note 13)   1,235,433    1,325,286    1,790,080    1,811,245 
    9,302,028    9,295,839    8,736,200    8,756,165 
Total assets    15,755,834    15,751,832    15,850,565    16,304,322 


        company        Consolidated 
Liabilities and shareholders’ equity    Mar-2007    Dec-2006    Mar-2007    Dec-2006 
Current liabilities                 
 Suppliers    2,839,607    2,896,126    2,913,179    3,010,892 
 Loans and financing (Note 14)   667,046    675,674    657,358    653,898 
 Debentures (Note 15)   1,187,211    1,157,356    1,188,571    1,157,687 
 Salaries and social charges    173,694    133,301    190,955    160,128 
 Taxes and contributions    93,038    86,670    126,750    122,840 
 Income and social contribution taxes (Note 17)   4,528        35,700    14,425 
 Dividends & interest on capital proposed & payable    40,217    40,221    41,831    41,425 
 Other accounts provisions and accounts payable (Note 1(c))   290,891    304,706    305,196    345,657 
    5,296,232    5,294,054    5,459,540    5,506,952 
Noncurrent liabilities                 
 Suppliers    21,043    21,426    21,043    21,426 
 Loans and financing (Note 14)   3,477,516    3,591,687    3,422,966    3,935,794 
 Debentures (Note 15)   950,000    950,000    982,190    982,190 
 Taxes and contributions (Note 16)   1,298,214    1,279,698    1,331,854    1,321,961 
 Related parties (Note 8)   11,817    7,050    1,147    4,791 
 Long-term incentives (Note 19)   1,845    2,272    1,845    2,272 
 Deferred income and social contribution taxes (Note 17)   7,788    7,935    18,153    17,274 
 Private pension plans (Note 27)   40,943    58,554    46,594    64,205 
 Other accounts payable    63,321    70,582    84,752    83,398 
    5,872,487    5,989,204    5,910,544    6,433,311 
Deferred income                 
 Negative goodwill on the purchase of investments    19,911    21,060    29,256    30,405 
Minority interests            21,767    21,767 
Shareholders’ equity (Note 20)                
 Capital    3,508,272    3,508,272    3,508,272    3,508,272 
 Capital reserves    419,361    408,650    419,361    408,650 
 Treasury shares    (194,555)   (194,555)   (255,554)   (255,554)
 Revenue reserves    725,147    725,147    650,519    650,519 
 Retained earnings    108,979        106,860     
    4,567,204    4,477,514    4,429,458    4,311,887 
Total liabilities and shareholders’ equity    15,755,834    15,751,832    15,850,565    16,304,322 


Income Statements

Three-month period ended March 31, 2006 and 2005

(In thousands of Reais, excepting the share unit value and the dividend by share, which are expressed in R$)

        Parent company        Consolidated 
    Mar-2007    Mar-2006    Mar-2007    Mar-2006 
Gross sales                 
 Domestic market    3,002,681    2,857,193    3,398,499    3,223,260 
 Foreign market    691,185    449,652    831,449    649,343 
 Taxes, freights and returns    (850,552)   (789,094)   (939,264)   (874,448)
Net sales    2,843,314    2,517,751    3,290,684    2,998,155 
   Cost of products sold and services rendered    (2,322,184)   (2,179,180)   (2,615,157)   (2,536,020)
Gross profit    521,130    338,571    675,527    462,135 
Operating expenses (income)                
     Selling    113,432    64,722    137,501    74,601 
     General and administrative    113,724    98,431    131,469    116,226 
     Directors’ fees    2,615    1,336    3,053    1,978 
     Depreciation and amortization    97,484    86,891    103,127    82,504 
     Other operating income, net (Note 24)   672    (91,218)   799    (95,122)
    327,927    160,162    375,949    180,187 
Operating profit before equity results                 
     and financial results    193,203    178,409    299,578    281,948 
Equity results                 
     Equity in the results of investees    59,387    68,448    (109)   (966)
     Amortization of goodwill (negative goodwill), net    (23.647)   (39,406)   (22,674)   (38,433)
     Exchange variation    (2,579)   4,890    (2,808)   148 
     Provision for (reversal of) loss in subsidiaries        3,440        (3,029)
     Others    (49)       (671)   18,666 
    33,112    37,372    (24,964)   (23,614)
Financial results (Note 23)                
 Financial expenses    (73,323)   (2,457)   (138,170)   (29,448)
 Financial income    (20,751)   (63,024)   25,294    (55,289)
    (94,074)   (65,481)   (112,876)   (84,737)
Operating profit    132,241    150,300    161,738    173,597 
Non-operating expenses, net    (927)   23    (1,646)   (1,390)
Income before income tax                 
   and social contribution    131,314    150,323    160,092    172,207 
Provision for income and social contribution taxes (Note 17)   (15,242)   (14,435)   (50,746)   (40,240)
Deferred income and social contribution taxes (Note 17)   (7,093)   (16,141)   (2,484)   (11,006)
Income before                 
 minority interests    108,979    119,747    106,862    120,961 
Minority interests            (2)   994 
Net income for the period    108,979    119,747    106,860    121,955 


Shares outstanding at the end of the period (thousands)   356,039    362,057    356,039    362,057 
Net income per thousand shares                 
 at year end - R$    0.30609    0.33074    0.30014    0.33684 


Notes to the interim financial information

Quarter ended March 31, 2007 and 2006 and year ended December 31, 2006

(In thousands of Reais)

1 Operations

(a) Braskem S.A. ("Braskem" or the "Company"), with headquarters at Camaçari - BA, and 14 production units located in the States of Alagoas, Bahia, São Paulo and Rio Grande do Sul, engages in the production of basic petrochemicals such as ethene, propene, benzene, and caprolactam, in addition to gasoline and LPG (cooking gas). The thermoplastic resin segment includes polyethylene, polypropilene, PVC and Polyethylene Teraphtalate ("PET"). The Company also engages in the import and export of chemicals, petrochemicals, fuels, as well as the production and supply of utilities such as steam, water, compressed air and electric power to the companies in the Camaçari Petrochemical Complex in Bahia, and the rendering of services to those companies. The Company also invests in other companies, either as a partner or shareholder.

(b) As a result of convertible debentures due to shareholder ODBPAR Investimentos S.A. (“ODBPAR INV”), in the amount of R$ 1,162,037 (Note 15) at March 31, 2007, the Company states negative net working capital of R$ 369,166 (December 31, 2006 - R$ 385,029).

(c) Corporate reorganization

Since its inception on August 16, 2002, the Company has undergone a major corporate restructuring process, disclosed to the market through material event notices. The main developments in 2006 can be summarized as follows:

. On April 4, 2006, as disclosed in a “Relevant Event”, Braskem acquired 66.04% of the common shares and 15.33% of the preferred shares in the capital of Politeno Indústria e Comércio S.A. (“Politeno”). With the acquisition, Braskem now holds 100% of the voting capital and 96.16% of the total capital of Politeno, a company located in the Northeast Petrochemical Complex, with an annual production capacity of 360 thousand tons of polyethylene. The initial amount paid by Braskem was R$ 237.500 thousand, equal to US$ 111,300 thousand.

The final amount to be paid by the Company for the shares acquired will be computed in November 2007, based on Politeno’s average performance over the 18 months subsequent to


the execution of the purchase and sale agreement, in accordance with the difference between the prices of polyethylene and ethylene in the Brazilian market, audited by an independent firm appointed by Braskem and the former shareholders. In order to record the commitment to pay for this acquisition, the Company projected the variables that will define the final price of the shares and, at December 31, 2006, recognized a provision to supplement the estimated price, stated in current liabilities, under “Other provisions and accounts payable”. The provision is subject to changes on account of the fluctuation of market prices and conditions up to the actual payment date. The sum of this provision and the initial payment gave rise to goodwill of R$ 106,612.

. The Extraordinary General Meeting held on May 31, 2006 approved the merger of Polialden Petroquímica S.A. (“Polialden”) into the Company, based on the book value of shareholders’ equity as of March 31, 2006, in the amount of R$ 289,941. The exchange ratio of Polialden shares for Braskem shares was determined based on the book value of shareholders’ equity of the companies, at market values, as of March 31, 2006, according to appraisal reports issued by independent experts.

In order to encourage shareholders to engage in the exchange, Polialden shares held by third parties were replaced with class “A” preferred shares in the Company at the ratio of 33.62 shares in Braskem for each 1,000 shares in Polialden, which corresponds to an increase of 6.76% on the replacement ratio derived from the Appraisal Reports of the Market Value of Shareholders’ Equity, as shown below:

    Braskem    Polialden 
Number of shares issued    362,523,521    645,253,380 
Book value of shareholders’ equity (in R$)   4,650,559,014.63    289,940,899.44 
Value per share based on the book value of shareholders’         
equity (in R$)   12,828    0,449 
Market value of shareholders’ equity (in R$)   8,202,482,686.96    459,721,902.03 
Value per share based on the market value of shareholders’         
equity (in R$)   22.626    0.713 
Exchange ratio – market value of shareholders’ equity    31,49    1.000 
Exchange ratio of replacement of Polialden preferred shares         
with Braskem class “A” preferred share under the merger    33.62    1,000 

The equity variations in Polialden determined during the period from the merger base date and the actual merger were taken to the statement of income of the Company, as equity in the earnings. The balance of goodwill as of the merger date, R$ 337,328, justified based on future profitability, was transferred to deferred assets.

Upon the merger of Polialden, the Company capital was increased by R$105,304, through the issue of 7,878,725 class A preferred shares, totaling R$ 3,508,272, comprising 123,492,142 common, 246,107,138 class A, and 803,066 class B preferred shares (Note 20(a)).


The Extraordinary Shareholders’ Meeting held on July 20, 2006 approved a proposal to absorb the net assets spun off from Companhia Alagoas Industrial - CINAL, a wholly-owned subsidiary. 

Pursuant to the Valuation Report of CINAL’s Shareholders’ Equity issued by independent  experts as of March 31, 2006, the book value of the spun-off assets assigned to Braskem is R$ 58,212. Equity variations between the transaction base date and the spin-off approval date were recognized by the Company as equity in the results. As a result of the spin-off, the capital of CINAL was reduced by R$ 58,212 and 57,657,265 preferred shares were cancelled. 

. At a meeting held on September 29, 2006, the Board of Directors of the Company approved the formation of an entity in Holland, named Braskem Europe B.V. (“Braskem Europa”), organized as a limited liability company, having the Company as partner holding 100% of the capital. 

The Company and its subsidiaries, as participants in the corporate restructuring process, may be affected by economic and/or corporate aspects as a result of the outcome of this process.

(d) Administrative Council for Economic Defense - CADE

On July 19, 2006, CADE approved, by unanimous vote, the acquisition of Politeno by the Company (Note 1(c)), on the grounds that the relevant market for the petrochemical industry has international scope and therefore the transaction does not represent a threat to competition.

(e) Corporate governance

Braskem enrolled in Level 1 of the Differentiated Corporate Governance on the Bovespa, which mainly commits the Company to improvements in providing information to the market and in the dispersion of shareholdings. The Company intends to reach Level 2 of Bovespa's Corporate Governance in due time.

2 Presentation of Financial Statements

The individual and consolidated Quarterly Financial Information was prepared in accordance with the accounting practices adopted in Brazil and also in compliance with the rules and procedures determined by the Brazilian Securities Exchange Commission – CVM, Brazilian Institute of Independent Auditors – IBRACON, and Federal Accounting Council - CFC.

The explanatory notes refer only to the individual Quarterly Financial Information.

To provide the market with more information, the Company presents its Statement of Cash Flows as supplementary information to the Quarterly Financial Information.

3 Significant Accounting Practices

(a) Use of estimates


In the preparation of the financial statements, it is necessary to use estimates to record certain assets, liabilities and transactions. The financial statements of the Company and its subsidiaries include, therefore, various estimates regarding the selection of the useful lives of property, plant and equipment, deferred charges amortization periods, as well as provisions for contingencies, income tax and other similar amounts.

(b) Determination of net income

Net income is determined on the accrual basis of accounting.

Sales revenues are recognized when the risk and product title are transferred to customers. This transfer occurs when the product is delivered to customers or carriers, depending on the type of sales.

The provisions for income tax and Value-Added Tax on Sales and Services (ICMS) are recorded gross of the tax incentive portions, with the amounts related to tax exemption and reduction recorded in a capital reserve, while the ICMS amounts are taken to income.

In accordance with the requirements of CVM Deliberation 273 and Instruction 371, the deferred income tax is stated at probable realizable value, expected to occur as described in Note 17 (b).

Monetary and foreign exchange variations on assets and liabilities are classified in “Financial income” and “Financial expenses”, respectively.

The Company has recognized in financial results for the period the market value of derivative contracts relating to cash flows and liabilities indexed to foreign currency or international interest rates.

Earnings per share are calculated based on the number of outstanding shares at the end of the period.

(c) Current assets and long-term receivables

Cash and cash equivalents comprise primarily cash deposits and marketable securities or investments with immediate liquidity or maturing within 90 days (Note 4).

Marketable securities are valued at the lower of cost or market, including accrued income earned to the balance sheet date. Derivative instruments are valued at their adjusted fair values, based on market quotations for similar instruments against future exchange and interest rates.

The allowance for doubtful accounts is set up at an amount considered sufficient to cover estimated losses on the realization of the receivables, taking into account the Company's loss experience. For a better calculation of the doubtful accounts the Company analyzes, on a monthly basis, the amounts and characteristics of trade accounts receivable.


Inventories are stated at average purchase or production cost, which is lower than replacement cost or realization value. Imports in transit are stated at the accumulated cost of each import. Inventories of consumable materials (“Warehouse”) are classified in current assets or long-term receivables, considering their history of consumption.

Deferred income tax is recognized upon favorable scenarios for its realization. Periodically, the amounts recorded are revalued in accordance with CVM Deliberation 273/98 and CVM Instruction 371/02.

Judicial deposits are stated net of the related contingent liabilities, pursuant to CVM Deliberation 489/05.

Other assets are shown at realizable values, including, where applicable, accrued income and monetary variations, or at cost in the case of prepaid expenses.

(d) Permanent assets

These assets are stated at cost plus restatements for inflation through December 31, 1995 considering the following:

. investments in subsidiaries, jointly-controlled entities and associated companies are accounted for on the equity method, plus unamortized goodwill/negative goodwill. Goodwill is calculated as the difference between the amount paid and the book value of net assets acquired. Goodwill is based on the expected future profitability of the investees and appreciation of the assets, and is amortized over a period of up to 10 years. Goodwill in merged companies is transferred  to property, plant and equipment and deferred charges, when based on asset appreciation and  future profitability of the investees, respectively. Other investments are carried at the cost of acquisition. 

. interests in foreign subsidiaries are accounted for on the equity method and foreign exchange variances on assets is recorded in a separate account under operating profits. Balance sheet and income statement accounts are converted into Brazilian currency at the exchange rates ruling as of the closing date of the Quarterly Financial Information, according to CVM  Deliberation 28/86. 

. property, plant and equipment is shown at acquisition or construction cost and, as from 1997,  includes capitalized interest incurred during the construction period. Capitalized interest is added to assets and depreciated as from the date they become operational. 

. depreciation of property, plant and equipment is recorded on the straight-line basis at the rates mentioned in Note 12. 

. amortization of deferred charges is recorded over a period of up to ten years, as from the time benefits begin to accrue. 


. as from January 2006, in accordance with IBRACON Technical Interpretation 01/2006, the  Company records all programmed maintenance shutdown expenses in property, plant and equipment, as “Machinery, equipment and facilities”. Such stoppages occur at scheduled periods at intervals from two to six years and the related expenses are amortized until the beginning of the next maintenance shutdown (Note 12). 

(e) Current and long-term liabilities

These are stated at known or estimated amounts, including accrued charges and monetary and exchange adjustments, as applicable.

The provision for loss in subsidiaries is recorded based on the net unsecured liabilities (excess of liabilities over assets) of these companies, and is recorded as a long-term liability against the equity results.

Defined benefit pension plans are accounted for based on the calculations made by independent actuaries, which in turn are based on assumptions provided by the Company.

A provision is recognized in the balance sheet when the Company has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are recorded considering the best estimates of the risk specific to the liability.

(f) Deferred income

Deferred income includes negative goodwill of merged or consolidated companies, supported by the expected future profitability.


(g) Consolidated financial statements

The consolidated Quarterly Financial Information was prepared in accordance with the consolidation principles set forth in the Brazilian corporate law and supplementary provisions of CVM and include the financial statements of the Company and its subsidiaries and jointly-controlled entities, and Special Purpose Entities (Entidades de Propósito Específico - “EPEs”) in which the Company has direct or indirect share control, as shown below:

            Interest in total 
            capital - % 
        Head office         
        (country)   Mar/07   Dec/06 
 Braskem Argentina S.R.L. (“Braskem Argentina”)   (i)   Argentina    98.00    98.00 
 Braskem America Inc. (“Braskem America”)       USA    100.00    100.00 
 Braskem Distribuidora Ltda. (“Braskem Distribuidora”)       Brazil    100.00    100.00 
 Braskem Europa        Holland    100.00    100.00 
 Braskem Incorporated Limited (“Braskem Inc”)       Cayman Islands    100.00    100.00 
 Braskem Participações S.A. (“Braskem Participações”)       Brazil    100.00    100.00 
 CINAL        Brazil    100.00    100.00 
 CPP - Companhia Petroquímica Paulista ("CPP")       Brazil    79.70    79.70 
 Politeno    (ii)   Brazil    96.16    96.16 
 Tegal - Terminal de Gases Ltda. ("Tegal")       Brazil    95.83    95.83 
Jointly-controlled entities                 
 CETREL S.A. - Empresa de Proteção Ambiental ("CETREL")   (iii)   Brazil    49.03    49.03 
 Companhia Petroquímica do Sul (“COPESUL”)       Brazil    29.46    29.46 
 Petroflex Indústria e Comércio S.A. (“Petroflex”)       Brazil    20.12    20.12 
 Petroquímica Paulínia S.A. (“Petroquímica Paulínia”)   (iv)   Brazil    60.00    60.00 
Special Purpose Entities (“EPE’s”)   (v)            
 Chemical Fundo de Investimento em Direitos Creditórios (“Fundo Chemical”)   (vi)   Brazil        100.00 
 Chemical Fundo de Investimento em Direitos Creditórios (“Fundo Chemical II”)   (vii)   Brazil        9.19 
 Fundo Parin        Guernsey    100.00    100.00 
 Sol-Fundo de Aplicação em Cotas de Fundos de Investimento (“FIQ Sol”)       Brazil    100.00    100.00 
Direct subsidiary of Copesul                 
 COPESUL International Trading Inc.        Bahamas    100.00    100.00 
Direct subsidiaries of Braskem Distribuidora                 
 Braskem Cayman Ltd.        Cayman Islands    100.00    100.00 
 Braskem Importação e Exportação Ltda (“Braskem Importação”)       Brazil    100.00    100.00 
Direct subsidiaries of Cayman                 
 Braskem Overseas Inc (“Overseas”)   (viii)   Cayman Islands        100.00 
 Lantana Trading Company Inc (“Lantana”)       Bahamas    100.00    100.00 
Direct subsidiary of Politeno                 
 Politeno Empreendimentos Ltda. (“Politeno Empreendimentos”)       Brazil    100.00    100.00 
Direct subsidiary of Politeno Empreendimentos                 
 Santeno Irrigações do Nordeste Ltda. (“Santeno”)       Brazil    100.00    100.00 

(i) Including the interest of the subsidiary Braskem Distribuidora, Braskem’s interest is equal to 100.00% .
(ii) Company merged on April 2, 2007 (Note 29(a)).
(iii) Including the interest of subsidiary CINAL, Braskem’s interest amounts to 53.61% . Jointly-controlled entity pursuant to the provisions the by-laws.
(iv) Jointly-controlled entity pursuant to the provisions of the shareholders’ agreement
(v) Investments consolidated pursuant to CVM Instruction 408/04.
(vi) Fund wound up in January 2007.
(vii) The subordinated quotas held by Braskem were sold in the quarter ended March 2007.
(viii) Company wound up in January 2007.


In the consolidated Quarterly Information, the intercompany investments and the equity pick-up, as well as the intercompany assets, liabilities, income, expenses and unrealized gains arising from transactions between consolidated companies, were eliminated.

Minority interest in the equity and in the results of subsidiaries has been segregated in the consolidated balance sheet and statement of operations for the consolidated years, respectively. Minority interest corresponds to the respective participations in the capital of CPP, Politeno and Tegal.

Goodwill not eliminated on consolidation is reclassified to a specific account in permanent assets which gave rise to it, in accordance with CVM Instruction 247/96. Negative goodwill is reclassified to “Deferred income".

Pursuant to paragraph 1, article 23 of CVM Normative Instruction CVM 247/96 and authorization by CVM Letter SNC 004/2007, the Company has not consolidated on a pro rata basis the financial statements of the jointly-controlled entity Companhia de Desenvolvimento Rio Verde - CODEVERDE. This subsidiary is at pre-operating stage. Its information does not show significant changes and does not lead to distortions in the Company consolidated Quarterly Information.


CODEVERDE balance sheet (not reviewed) is summarized as follows:

    Feb/07(*)   Dec/06 
   Current assets    251    304 
   Non-current assets         
           Long-term receivables    103    102 
           Permanent assets    45,421    45,019 
Total assets    45,775    45,425 
Liabilities and shareholders’ equity         
   Current liabilities    93    100 
   Long-term liabilities    1,795    1,438 
   Shareholders’ equity    43,887    43,887 
Total liabilities and shareholders’ equity    45,775    45,425 

(*) The financial statements as of March 2007 are not available.

For a better presentation of the consolidated Quarterly Information, the cross-holding between the Company and the subsidiaries Braskem Participações and Politeno was reclassified as “Treasury share”. Total shares hold by the subsidiaries, as well as their shareholding in the Company’s total capital are stated below:

    Braskem Participações    Politeno 
Common shares    580,331     
Class A preferred shares    290,165    2,186,133 
Interest in total capital    0.24%    0.60% 

The reconciliation between the parent company and consolidated shareholders’ equity and the net income for the period is as follows:

            Net income for the 
    Shareholders’ equity        period 
    Mar/07    Dec/06    Mar/07    Mar/06 
Parent company    4,567,204    4,447,514    108,979    119,747 
   Cross holding classified as treasury share    (60,999)   (60,999)        
   Exclusion of profits in subsidiaries’ inventories    (10,262)   (6,587)   (3,675)   168 
   Exclusion of the gain on the sale of investment between                 
           related parties    (38,476)   (38,476)        
   Exclusion of results of financial transactions between                 
           related parties    (12,303)   (12,829)   526    1,010 
   Reversal of amortization of goodwill on the sale of                 
           investments between related parties    19,236    18,206    1,030    1,030 
   Exclusion of the gain on the assignment of right of use                 
           between related parties    (34,942)   (34,942)        
Consolidated    4,429,458    4,311,887    106,860    121,955 


4 Cash and Cash Equivalents

    Mar/07    Dec/06 
Cash and banks    337,499    130,128 
Financial investments         
     Domestic    677,326    602,748 
     Abroad    449,963    393,049 
    1,464,788    1,125,925 

The domestic investments are mainly represented by quotas of a Braskem exclusive fund, which, in turn, holds quotas of domestic investment funds, such as fixed income investment funds, multiportfolio funds, investment fund quotas in credit rights, and other fixed-income securities. Foreign investments mainly comprise highly liquid government securities.

The Company maintains cash and cash equivalents sufficient to cover: (i) its working capital needs; (ii) investments anticipated in the business plan; and (iii) adverse conditions that may reduce the available funds.

Such funds are allocated in order to: (i) have a return compatible with the maximum volatility determined by the investment and risk policy; (ii) obtain a high spread of the consolidated portfolio; (iii) avoid the credit risk arising from the concentration in a few securities; and (iv) follow the market interest rate changes both in Brazil and abroad.

5 Marketable Securities

    Mar/07    Dec/06 
Current assets         
   Government securities issued abroad        311,080 
   Investment fund    522,714    537,926 
    522,714    849,006 
Long-term receivables         
   Debentures with share in profit    6,826    6,826 
   Subordinated quotas of investment fund         
      Credit rights        46,612 
   Other    9,611    10,022 
    16,437    63,460 
Total    539,151    912,466 

Braskem is the only quotaholder of the investment fund recorded in current assets. The portfolio comprises time deposits at Credit Suisse First Boston Bank (“CSFB”).


6 Trade Accounts Receivable

    Mar/07    Dec/06 
   Domestic market    747,599    833,045 
   Foreign market    502,975    324,864 
Discounted trade bills    (101,015)   (110,875)
Allowance for doubtful accounts    (117,346)   (103,474)
    1,032,213    943,560 
Long-term receivables    (45,625)   (51,766)
Current assets    986,588    891,794 

The Company adopts an additional policy for realizing domestic trade accounts, by selling its receivables to investment funds with credit rights (Fundo Chemical, until December 2006, and Chemical II - Note 3 (g)).

In December 2006, the Company carried out a trade bill discount transaction with a financial institution, undertaking to reimburse it in the event of delinquency of the customers.

Changes in the allowance for doubtful accounts are as follows:

    Mar/07    Mar/06 
At January 1    103,474    72,945 
Additions classified as selling expenses    15,070    12,421 
Recovery of credits provided for    (1,198)   (2,718)
At the end of the period    117,346    82,648 


7 Inventories

    Mar/07    Dec/06 
Finished products and work-in-process    861,929    870,257 
Raw materials, production inputs and packaging    253,084    249,083 
Warehouse (*)   296,613    298,779 
Advances to suppliers    49,213    48,034 
Imports in transit and other    38,912    16,758 
Provision for adjustment to realization value    (14,827)   (16,089)
Total    1,484,924    1,466,822 
Long-term receivables (*)   (22,780)   (22,946)
Current assets    1,462,144    1,443,876 

(*)Based on its turnover, part of the maintenance materials inventory was reclassified to long-term.

Advances to suppliers and expenditures for imports in transit mainly relate to the acquisition of petrochemical naphtha, which is the main raw material of the Company.


8 Related Parties

    Current assets    Long-term receivables 
    Cash & cash    Marketable    accounts    Marketable    Related 
    equivalents    securities    receivable    securities    parties 
 Braskem America            26,867         
 Braskem Argentina            3,038         
 Braskem Distribuidora                    130 
 Braskem Europa            7,130         
 Braskem Inc.            17,418         
 Cayman            12        52 
 CINAL            1,153        1,264 
 Lantana            12,798         
 Politeno            25,138        248,892 
 Tegal (i)                 2,420 
Jointly-controlled entities                     
 CETREL (i)           27        135 
 Copesul            3,207         
 Petroflex            10,568         
 Fundo Parin        522,715             
 FIQ Sol    407,124                 
Associated company                     
 Borealis            3,057         
Related parties                     
 Petróleo Brasileiro S.A.                     
   ("Petrobras")           5,298        39,680 
 Petrobras Distribuidora S.A.            1,797         
 Other            4,830        1,918 
At March 31, 2007    407,124    522,715    122,343        294,491 
At December 31, 2006    395,230    537,926    161,461    46,612    229,308 

(i) Amounts stated under “Related parties”, in long-term receivables, refer to advances for future capital increase.


    Current liabilities    Long-term liabilities 
    Suppliers    Debentures    Suppliers    parties 
 Braskem Argentina    3,368             
 Braskem Importação                1,402 
 Braskem Participações                5,411 
 Politeno                2,130 
 Tegal    139            2,874 
Jointly-controlled entities                 
 CETREL    47             
 Copesul    625,436             
Related parties                 
 ODBPAR INV (ii)       1,162,037         
 CNO    11,310             
 Petrobras    17,050             
 Petrobras Distribuidora S.A.    11,476             
At March 31, 2007    668,826    1,162,037        11,817 
At December 31, 2006    1,139,205    1,130,752    17,644    7,050 

(ii) Debentures issued by Braskem (Note 15)


        Raw materials,         
    Product    services & utilities    Financial    Financial 
    sales    purchases    income    expenses 
 Braskem America    10,980        (1,287)    
 Braskem Argentina    3,108        (70)   (116)
 Braskem Distribuidora            (66)    
 Braskem Europa    7,217           
 Braskem Inc.    17,196        (333)   (136)
 Braskem Importação                 
 Braskem Participações                 
 Cayman            (1)   41 
 CINAL    118    2,850    78    167 
 Lantana            27     
 Politeno    295,367    11,977    6,692     
 Politeno Empreendimentos                63 
 Tegal        4,950    100    12 
Jointly-controlled entities                 
 CETREL    147    4,299         
 Copesul    1,253    670,402        20,977 
 Petroflex    119,986             
Associated company                 
 Borealis    20,891             
Related parties                 
 ODBPAR INV                31,285 
 CNO        26,917         
 Petrobras    5,898    926,365    812    13,977 
 Petrobras Distribuidora S.A.    6,987    77,965        (234)
 Other    14,977             
At March 31, 2007    504,125    1,725,725    5,956    66,036 
At March 31, 2006    494,597    1,956,360    1,011    40,975 

“Trade accounts receivable” and “Suppliers” include the balances resulting from transactions with related parties, arising mainly from the following sales and purchases of goods and services:

Sales of Braskem:

Company    Products/inputs 
Borealis / Cayman / Lantana / Braskem America    Thermoplastic resins 
Braskem Inc.    Basic petrochemicals 
Polialden / Politeno    Ethylene and utilities 
Petroflex    Butadiene 
Petrobras    Gasoline 


Purchases of Braskem:

Company    Products/inputs/services 
CINAL / Cetrel    Utilities, treatment and incineration of waste 
Copesul    Ethylene, propane and utilities 
Petrobras    Naphtha 
Petrobras Distribuidora    Fuel 
Polialden    Thermoplastic resins 
CNO    Construction and maintenance services 
Tegal    Gas storage services 

These transactions are carried out at normal market prices and conditions, considering (i) for purchase and sale of ethylene, international market prices, and (ii) for purchases of naphtha from Petrobras, the European market prices. Until March 31, 2007, the Company also imported naphtha at a volume equal to 27% of its consumption.

The related parties balance includes current account balances with group companies, remunerated at 100% of CDI. The current accounts are used by the Company and its direct and indirect subsidiaries to centralize available cash in a central pool for settlement of their obligations. The Company and its direct and indirect subsidiaries current-account holders in this pool.

9 Taxes Recoverable

    Mar/07    Dec/06 
Excise tax (IPI) (standard operations)   63,592    61,125 
Value-added Tax on Sales and Services (ICMS)   668,511    693,548 
Social Integration Program (PIS) and Social Contribution on         
Revenues (Cofins)   76,513    109,112 
Social investment Fund (Finsocial)   10,363    11,813 
PIS – Decrees-Law 2445 and 2449/88    55,194    55,194 
Income and Social Contribution taxes    39,730    37,193 
Tax on Net Income - ILL    1,606    1,589 
Other    56,326    65,273 
Total    971,835    1,034,847 
Current assets    (287,619)   (336,350)
Long-term receivables    684,216    698,497 


(a) IPI

In the 1st quarter of 2005, the Company used up its IPI credits from acquisition of raw materials taxed at a zero rate, when related to transactions involving the establishments of absorbed company OPP Química S.A. (OPP Química), located in the State of Rio Grande do Sul. This excise tax credit derived from a lawsuit filed by OPP Química in July 2000 for full adoption of the non-cumulative tax principle to said establishments.

On December 19, 2002, the Federal Supreme Court (STF) – based on its full-bench precedents on this matter – entertained an extraordinary appeal lodged by the National Treasury and affirmed the erstwhile decision rendered by the Regional Federal Court (TRF), 4th Circuit, thus recognizing OPP Química’s entitlement to the IPI tax credit on said acquisitions, covering the ten-year period prior to the filing date and accruing the SELIC benchmark rate until the date of actual use of such credits.

The STF determination was challenged by the National Treasury via special appeal known as agravo regimental, which is pending judgment by the 2nd Panel of STF. In this special appeal, the National Treasury is no longer challenging the company’s entitlement to the IPI tax credit from acquisition of raw materials taxed at a zero rate, but rather alleging some inaccuracies in the court determination as to non-taxed inputs and raw materials, the restatement of tax credits, and the respective calculation rate. According to the opinion of the Company’s legal advisors, all these aspects have already been settled in the STF and TRF court decisions favorably to OPP Química, or even in the STF full-bench precedents. For this reason, the special appeal referred to above poses no risk of changes in the Company’s entitlement to the tax credit, even though the STF itself is revisiting this matter in a similar lawsuit involving another taxpayer (this judgment is currently on hold).

In December 2002, OPP Química booked the related tax credit of R$ 1,030,125, which was offset by the Company with IPI itself and other federal tax debts.

On September 28, 2006, the Company was given four infraction notices (autos de infração) for use of those IPI tax credits at the Rio Grande do Sul establishments of absorbed company OPP Química. The Company presented administrative defenses against such infraction notices.

Two of these infraction notices were issued solely to avoid forfeiture of the tax authorities’ right to dispute the use of tax credits until ten years before the filing of a lawsuit by the Company (R$ 308,629). However, the Company’s use of tax credits is protected by the STF final and conclusive determination, which voids the content of said notices.

The other two infraction notices (R$ 791,371) allege that there is no favorable court decision supporting the Company’s use of tax credits deriving from future acquisition of raw materials. However, those court rulings did warrant the Company’s ongoing entitlement to offset its tax credits. In the opinion of its legal advisors, the Company stands good chances of prevailing against these four infraction notices.

Similar lawsuits have also been filed by the Company's branches located in the States of São Paulo, Bahia and Alagoas (Note 16(ii)).


(b) ICMS

The Company has accrued ICMS tax credits, basically on account of its high level of exports (exempt from ICMS taxation) and outgoing products (subject to deferred state taxation).

The Company’s Management is giving priority to a number of actions aimed at optimal use of such credits and, currently, no losses are expected from realization of those credits.

The Management’s actions comprise, among others:

. Obtaining from the Rio Grande do Sul state authorities an authorization for transfer of these credits to third parties, backed by Agreement TSC 036 of 2006 (published in the Official Gazette on October 19, 2006).

. Obtaining from the Bahia state authorities a greater reduction in the tax base of ICMS levied on imported petrochemical naphtha (from 40% to 60%), as per article 347, paragraphs 9 and 10 of the Bahia State ICMS Regulations (Decree 9681 of 2005).

. Increasing the ICMS tax base in connection with the sale of fuels to refiner (from 40% to 100%), as per article 347 of the Bahia State ICMS Regulations.

. Replacing the exports of co-products by domestic market transactions with identified clients.

. Starting feedstock imports under specific customs prerogatives, thus ensuring a lower generation of ICMS credits.

Based on the Company’s Management projection over the term for realization of those credits, which came to R$ 668,511 on March 31, 2007 (December 31, 2006 – R$ 693,548), the amount of R$ 538,012 (December 31, 2006 – R$ 539,033) was posted as noncurrent assets.


10 Judicial Deposits and Compulsory Loan – Long-term Receivables

    Mar/07    Dec/06 
Judicial deposits         
Tax claims    17,365    16,268 
Labor and other claims    26,991    35,362 
Compulsory loan         
 Eletrobrás    18,980    18,980 
    63,336    70,610 

11 Investments

(a) Information on investments

    Number of shares or quotas held (thousands)                
                        Interest in    Interest in 
                Mar/07    Dec/06    total capital (%)   voting capital (%)
    Common    Pref.                             
    shares    shares   Quotas    Total    Total    Mar/07    Dec/06    Mar/07    Dec/06 
Braskem America (i)   40            40    40    100.00    100.00    100.00    100.00 
Braskem Argentina (i)           19,600    19,600    19,600    98.00    98.00    98.00    98.00 
Braskem Inc.    40,095            40,095    40,095    100.00    100.00    100.00    100.00 
Braskem Participações    6,500,000            6,500,000    6,500,000    100.00    100.00    100.00    100.00 
Braskem Distribuidora            31,649    31,649    31,649    100.00    100.00    100.00    100.00 
Braskem Europa (i)           500    500    500    100.00    100.00    100.00    100.00 
CINAL    92,587            92,587    92,587    100.00    100.00    100.00    100.00 
CPP    8,465            8,465    8,465    79.70    79.70    79.70    79.70 
Politeno    62,422,578    1,190,136        63,612,714    63,612,714    96.16    96.16    100.00    100.00 
Tegal            23,157    23,157    23.157    95.83    95.83    95.83    95.83 
Jointly-controlled entities                                     
CETREL    730            730    730    49.03    49.03    49.03    49.03 
CODEVERDE    9,755            9,755    9,755    35.55    35.55    35.55    35.55 
Copesul    44,255            44,255    44,255    29.46    29.46    29.46    29.46 
Petroflex    4,759    2,321       7,080    7,080    20.12    20.12    20.14    20.14 
Petroquímica Paulínia    67,582            67,582    67,582    60.00    60.00    60.00    60.00 
Associated companies                                     
Borealis    18,949            18,949    18,949    20.00    20.00    20.00    20.00 
Rionil            3,061    3,061    3,061    33.33    33.33    33.33    33.33 
Sansuy            271    271    271    20.00    20.00    20.00    20.00 
Information on investments of subsidiaries                                     
Braskem Distribuidora                                     
Braskem Argentina (i)           400    400    400    2.00    2.00    2.00    2.00 
Braskem Importação            252,818    252,818    252,818    100.00    100.00    100.00    100.00 
Cayman    900            900    900    100.00    100.00    100.00    100.00 
Overseas (i)                         100.00        100.00 
Lantana                  100.00    100.00    100.00    100.00 
CETREL    68            68    68    4.58    4.58    4.58    4.58 
Politeno Empreendimentos            24    24    24    100.00    100.00    100.00    100.00 
Politeno Empreendimentos                                     
Santeno            2,966    2,966    2,966    100.00    100.00    100.00    100.00 

(i) Number of shares or quotas expressed in units.


Information on investments (continued)

            Adjusted shareholders’ 
    Adjusted net income (loss)   equity (unsecured 
        for the quarter        liabilities)
    Mar/07    Mar/06    Mar/07    Dec/06 
   Braskem America    (135)   726    5,301    5,668 
   Braskem Argentina    (778)       1,310    2,209 
   Braskem Europa    111        1,293    1,217 
   Braskem Inc.    2,562    12,221    53,881    53,512 
   Braskem Participações    (288)   (49)   21,461    21,749 
   Braskem Distribuidora    (5,316)   (7,235)   94,616    99,932 
   CINAL    33    785    24,815    24,782 
   CPP            10,621    10,621 
   Politeno    (158)   7,685    495,289    495,447 
   Tegal    184    22    14,327    14,143 
Jointly-controlled entities                 
   CETREL    5,773    6,310    115,819    109,474 
   CODEVERDE            43,887    43,887 
   Copesul    192,998    146,139    1,493,212    1,300,160 
   Petroflex    12,984    (4,827)   321,508    306,817 
   Petroquímica Paulínia            130,138    130,138 
Associated companies                 
   Borealis    1,507        109,398    117,906 
   Rionil    296      5,823    6,070 
   Sansuy    184    (32,808)   (25,177)   (25,359)
Information on investments of subsidiaries                 
Braskem Distribuidora                 
 Braskem Argentina    (778)       1,310    2,209 
 Braskem Importação    34    39    560    526 
 Cayman    (2,156)   (2,697)   3,154    5,539 
 Lantana    (1,856)   (1,194)   (196,513)   (202,973)
 Overseas        (796)        
 CETREL    5,773    6,310    115,819    109,474 
 Politeno Empreendimentos    (36)   872    14,149    14,185 
Politeno Empreendimentos                 
 Santeno    (23)   57    1,670    1,693 

Quotation of related parties listed on the São Paulo Stock Exchange:

            Quotation (R$)   Trading 
     Type    Code    Mar/07    Dec/06   
Politeno    PNA    PLTO5    9.90    10.50    1,000 shares 
    PNB    PLTO6    9.40    5.45    1,000 shares 
Copesul    ON    CPSL3    36.25    38.10    1 share 
Petroflex    ON    PEFX3    14.10    14.40    1 share 
    PNA    PEFX5    13.35    14.85    1 share 


(b) Investment activity in subsidiaries, jointly-controlled entities and associated companies

            Subsidiaries and jointly-controlled entities 
    Braskem    Braskem    Braskem    Braskem    Braskem 
    Distribuidora    America    Inc.    Participações    Europa 
At January 1    99,932    5,668    53,512    21,749    1,217 
Addition through exchange/ purchase of shares/ merger (i)                    
Addition through capital increase/ organization                     
Write-off through transfer/ sale/ merger/ spin-off                     
Equity in the results    (5,316)   (135)   2,562    (288)   111 
Recording of goodwill (negative goodwill)                    
Amortization of (goodwill) negative goodwill                     
Exchange variation on foreign investment        (232)   (2,193)       (35)
Transfer of goodwill on merger (ii)                    
At the end of the period    94,616    5,301    53,881    21,461    1,293 
        Subsidiaries and jointly-controlled entities (continued)
    CETREL    CINAL    COPESUL    Paulínia    Petroflex 
At January 1    65,534    16,051    541,812    78,082    61,117 
Addition through exchange/ purchase of shares/ merger (i)                    
Addition through capital increase / organization                     
Write-off through transfer/ sale / merger/ spin-off                     
Equity in the results    3,110    33    56,875        2,956 
Recording of goodwill (negative goodwill)                    
Amortization of (goodwill) negative goodwill    (391)       (8,069)        
Exchange variation on foreign investment                     
Transfer of goodwill on merger (ii)                    
At the end of the period    68,253    16,084    590,618    78,082    64,073 
        Subsidiaries and jointly-controlled entities (continued)
                Mar/07    Dec/06 
    Politeno (iii)   Tegal    Other    Total    Total 
At January 1    837,867    13,553    17,232    1,813,326    2,024,713 
Addition through exchange/purchase of shares/ merger (i)                   331,023 
Addition through capital increase/ organization                    74,958 
Write-off through transfer/ sale/ merger/ spin-off                    (287,489)
Dividends                    (173,970)
Equity in the results    (152)   177    (762)   59,171    170,940 
Recording of goodwill (negative goodwill)   26,824            26,824    82,705 
Amortization of (goodwill) negative goodwill    (15,188)           (23,648)   (61,648)
Exchange variation on foreign investment            (119)   (2,579)   (10,990)
Transfer of goodwill on merger (ii)                   (337,328)
Other                    412 
At the end of the period / year    849,351    13,730    16,351    1,873,094    1,813,326 

(i) Additions through merger arise mainly from the corporate restructuring described in Note 1(c).
(ii) Goodwill on the merger of Polialden was transferred from “Investments” to “Deferred charges”, pursuant to CVM Instruction 319/99.
(iii) Equity in the results includes the effect of the distribution of dividends for preference shares with incentives.


            Mar/07    Dec/06 
    Borealis    Rionil    Total    Total 
At January 1    23,581    2,023    25,604    25,761 
Equity in the results    298    (82)   216    1,843 
Dividends    (2,000)       (2,000)   (2,000)
At the end of the period / year    21,879    1,941    23,820    25,604 

Goodwill (negative goodwill) underlying the investments

                        Mar/07    Dec/06 
    Cetrel (i)   Cinal    Copesul
  Other    Total       Total 
Cost of goodwill/(negative                             
goodwill)   11,859    (8,731)   158,774    359,430    (2,114)   519,218    1,330,604 
Goodwill on the acquisition of                             
shares (iii)               26,824        26,824    79,788 
(-) Accumulated amortization    (391)       (8,069)   (15,188)       (23,648)   (543,001)
Transfer through merger                            (337,328)
Negative goodwill value                            (10,845)
Goodwill (negative goodwill), net    11,468    (8,731)   150,705    371,066    (2,114)   522,394    519,218 

(i) Goodwill based on the appreciation of property, plant and equipment, and amortized up to 2015.
(ii) Goodwill base don future profitability, amortized up to 2011.
(iii) Estimated goodwill on shares purchased in April 2006 (Note 1(c)), the final price of which will be determined in November 2007.

In the consolidated Quarterly Information, goodwill is stated in property, plant and equipment or deferred charges, while negative goodwill is stated in deferred income, in accordance with CVM Instruction 247/96.

(c) Information on the main investees with operating activities


COPESUL is engaged in the manufacture, sale, import and export of chemical, petrochemical and fuel products and the production and supply of utilities, as well as providing various services used by the companies in the Triunfo Petrochemical Complex in the State of Rio Grande do Sul and management of logistic services related to its waterway and terrestrial terminals.


Polialden, merged into the Company on May 31, 2006 (Note 1(c)), was engaged in the manufacture, processing, sale, import and export and any other activities related to the production or sale of high-density polyethylene and other chemical and petrochemical products. The main raw material for all of its products was ethylene, which was supplied by Braskem. Polialden operated an industrial plant in Camaçari –– Bahia.



Politeno, merged on April 2, 2007 (Note 29), was engaged in the manufacture, processing, direct or indirect sale, consignment, export, import and transportation of polyethylene and by-products, as well as the participation in other companies. The main raw material for all of its products was ethylene, which was supplied by Braskem. Politeno operated an industrial plant in Camaçari - Bahia.


The activities of CETREL are to supervise, coordinate, operate and monitor environmental protection systems; carry out research in the environmental control area and in the recycling of waste and other materials recoverable from industrial and urban emissions; monitor the levels of environmental pollution of air quality, water resources and other vital elements; perform environmental diagnostics; prepare and implement projects of environmental engineering solutions; develop and install environmental management systems and those relating to quality, laboratory analyses, training, environmental education and also specification, monitoring and intermediation in the acquisition of materials of environmental protection systems.


Until July 2006, CINAL was engaged in the implementation of the Basic Industrial Nucleus of the Alagoas Chlorine chemical Complex and the production and sale of goods and several services, such as steam, industrial water, industrial waste treatment and incineration of organ chlorine waste for the companies located in the mentioned Industrial Nucleus. In July 2006, the assets associated with the production of steam, industrial water and other industrial inputs were spun-off and merged into the Company (Note 1(c)).

Petroquímica Paulínia

On September 16, 2005, Braskem and Petroquisa formed Petroquímica Paulínia, which will be responsible for the implementation and operation of a new polypropylene unit to be built at Paulínia – São Paulo, using as raw material polymer-grade propylene supplied by Petrobras. Operations are scheduled to start by early 2008, using last-generation Braskem technology. Startup of this venture is scheduled for the first quarter of 2008.


12 Property, Plant and Equipment and Intangible Assets

            Mar/07    Dec/06    Average 
rates (%)
    Cost    depreciation    Net    Net   
Property, plant and equipment                     
Land    21,266        21,266    21,267     
Buildings and improvements    897,934    (394,271)   503,663    507,467    2.7 
Machinery, equipment and facilities    7,406,418    (3,515,231)   3,891,187    3,900,880    7.1 
Mines and wells    27,634    (23,209)   4,425    4,626    10.6 
Furniture and fixtures    44,515    (34,570)   9,945    9,628    9.8 
Information technology equipment    67,627    (51,205)   16,422    13,404    20.0 
Maintenance stoppages in progress    55,021        55,021    77,843     
Projects in progress    1,321,171        1,321,171    1,271,773     
Capitalized interest on projects in progress    121,497        121,497    104,566     
Other    139,235    (49,561)   89,674    82,676    15.4 
    10,102,318    (4,068,047)   6,034,271    5,994,130     
Intangible assets                     
Brands and patents    512    (502)   10    12    10.3 
Technology    45,806    (33,080)   12,726    13,758    11.8 
Rights of use    136,837    (22,530)   114,307    115,356    19.8 
    183,155    (56,112)   127,043    129,126     
    10,285,473    (4,124,159)   6,161,314    6,123,256     

Projects in progress relates mainly to projects for expansion of the industrial units capacities, operating improvements to increase the useful lives of machinery and equipment, excellence projects in maintenance and production, as well as programs in the areas of health, technology and security.

At March 31, 2007, property, plant and equipment includes the appreciation, in the form of goodwill arising from the merger of subsidiaries, in conformity with CVM Instruction 319/99, in the net amount of R$ 798,924 (December 31, 2006 - R$ 819,754).

As from January 2006, in accordance with IBRACON Technical Interpretation 01/2006, the Company records all programmed maintenance shutdown expenses in property, plant and equipment, as “Machinery, equipment and facilities”. Such expenses, which arise from the partial or full production stoppage, occur at scheduled periods at intervals from two to six years and are amortized in production cost until the beginning of the next maintenance shutdown.

Also because of the adoption of Technical Interpretation 01/2006, in the first quarter of 2006, the Company recorded additional depreciation of machinery and equipment in the amount of R$ 164,890. As this is a change in accounting criterion and depreciation in relation to years prior to 2006, this amount was recorded in Shareholders’ equity, in the Accumulated deficit line, as required by Technical Interpretation 01/2006 and article 186 of the Brazilian corporate law.


13 Deferred Charges

            Mar/07    Dec/06    Average 
        Accumulated            amortization 
    Cost    amortization    Net    Net    rates (%)
Organization and system implementation expenses    325,487    (218,825)   106,662    117,465    17.7 
Expenditures for structured transactions    314,443    (182,336)   132,107    144,609    16.1 
Goodwill on merged investments (i)   1,865,551    (913,108)   952,443    1,017,073    12.5 
Research and development    59,798    (26,466)   33,332    34,816    7.4 
Pre-operating expenses and other items    17,507    (6,618)   10,889    11,323    17.0 
    2,582,786    (1,347,353)   1,235,433    1,325,286     

(i) Goodwill on merger is based on future profitability and is being amortized in up to 10 years, according to appraisal reports issued by independent experts. The recording of this goodwill in deferred charges is in conformity with CVM Instruction 319/99.

14 Loans and Financing

    Annual financial charges    Mar/07    Dec/06 
Foreign currency             
 Eurobonds    Note 14(a)   2,142,517    2,218,789 
 Export prepayment    Note 14(b)   295,455    312,457 
 Medium - Term Notes    Note 14(c)   721,652    763,523 
 Raw material financing    YEN exchange variation + fixed interest of 6.70%    828    1,302 
    USD exchange variation + average interest of 5.85% (2006 -5.73% )   22,275    3,397 
 Permanent asset financing    USD exchange variation + interest of 9.47 (2006 – 9.73%)   7,897    8,022 
    USD exchange variation + fixed interest of 7.14%    598    613 
 BNDES    Average fixed interest of 10.00% + post-fixed restatement         
        (UMBNDES) (i)   38,487    39,558 
 Working capital    USD exchange variation + interest of 8.10%    165,005    168,678 
    USD exchange variation + interest of 6.91%    3,890    3,988 
Local currency             
 BNDES    Fixed interest of 4.00% +TJLP    279,084    263,248 
 BNB    Fixed interest of 9.78% (2006 – 11.81%)   122,168    125,273 
 FINEP    Fixed interest of 1.00% +TJLP    75,464    76,630 
 Project financing (NEXI)   YEN exchange variation + interest of 0.95% above TIBOR    269,242    281,883 
Total        4,144,562    4,267,361 
Current liabilities        (667,046)   (675,674)
Long-term liabilities        3,477,516    3,591,687 

(i) UMBNDES = BNDES monetary unit.


(a) Eurobonds

In April 2006, the Company completed the issue of US$ 200,000 thousand perpetual bonds. The bonds are redeemable at the option of the Company in 360 months, and quarterly as from 2011. Funds raised were used for working capital purposes and acquisition of Politeno shares.

In September 2006, the Company approved the issue of US$ 275.000 thousand Bonds, with a 8% coupon and maturity in ten years. Funds raised were used mainly for the partial repurchase of Medium-Term Notes (“MTN”) of the 3rd tranche (Note 14(c)).

Composition of transactions:

    Issue amount        Interest         
Issue date    US$ thousand    Maturity    % p.a.    Mar/07    Dec/06 
Jun/1997    150,000    Jun/2007    9.00    314,865    321,101 
Jul/1997    250,000    Jun/2015    9.38    528,485    538,537 
Jun/2005    150,000    None    9.75    308,798    321,990 
Apr/2006    200,000    None    9.00    417,344    435,175 
Sep/2006    275,000    Jan/2017    8.00    573,025    601,986 
                2,142,517    2,218,789 

(b) Export prepayments

Composition of transactions:

    Initial amount                 
    US$    Settlement             
Date    thousand    date    Charges (% p.a)   Mar/07    Dec/06 
Jun/2004    200,000    Jun/2009    1.45 + 6-month LIBOR    261,535    268,160 
Jan/2005    45,000    Jan/2008    1.55 + 3-month LIBOR    33,920    44,297 
                295,455    312,457 

(c) Medium-Term Notes ("MTN") program

Composition of transactions:

    Amount    Issue        Interest         
Issue    US$ thousand    date    Maturity    p.a.    Mar/07    Dec/06 
3rd tranche    275,000    Nov/2003    Nov/2008       12.50%    196,050    197,522 
4th tranche    250,000    Jan/2004    Jan/2014       11.75%    525,602    566,001 
                    721,652    763,523 


To restructure its debt, in September 2006, the Company repurchased part of the notes of the 3rd tranche, in the amount of US$ 184,600 thousand, corresponding to 67% of the original issue. In addition to the principal, note holders were paid the amount relating to due and not yet due interest, brought to present value.


These loans relate to various transactions aiming at increasing production capacity, as well as environmental programs, operating control centers, laboratory and waste treatment stations. Principal and charges are payable monthly up to June 2016.

In June 2005, a BNDES credit line was approved, in the amount of R$ 384,600, of which R$ 295,335 was released up to March 31, 2007.

In November 2006, a further BNDES credit line was approved in the amount of R$ 48,449, of which R$ 23,014 was released up to March 31, 2007.

(e) Project financing

In March and September 2005, the Company obtained loans in Japanese currency from Nippon Export and Investment Insurance ("NEXI"), in the amount of YEN 5,256,500 thousand -R$ 136,496, and YEN 6,628,200 thousand - R$ 141,529. The principal is payable in 11 installments as from March 2007, with final maturity in June 2012.

As part of its risk management policy (Note 22), the Company entered into a swap contract in the total amount of these loans, which, in effect, change the annual interest rate to 101.59% of CDI for the tranche drawn down in March, and 104.29% and 103.98% of CDI for the tranches drawn down in September 2005. The swap contract was signed with a leading foreign bank and its maturity, currencies, rates and amounts are perfectly matched to the financing contracts. The effect of this swap contract is recorded in financial results, under monetary variation of financing (Note 23).

(f) Repayment schedule and guarantees

Long-term loans mature as follows:

        Mar/07    Dec/06 
2008        405,471    456,129 
2009        215,555    211,522 
2010        161,954    150,603 
2011        125,873    109,697 
2012 and thereafter        2,568,663    2,663,736 
        3,477,516    3,591,687 

For financing and debentures, the Company has given security as stated below:


        Total    Loan     
    Maturity    guaranteed    amount    Guarantees 
BNB    Jan/2016    122,168    122,168    Mortgage, machinery and equipment 
BNDES    Jan/2012    317,571    317,571    Mortgage, machinery and equipment 
1st and 2nd series debentures    Jun/2009    1,319,153    2,137,211    Shares and credit rights 
NEXI    Mar/2012    199,073    269,242    Insurance premium 
FINEP    Mar/2012    75,464    75,464    Mortgage and surety bond 
Other institutions    Nov/2007            Surety/ endorsement and promissory 
    to Dec/2008    65,517    200,493       notes 
    Total    2,098,946    3,122,149     

At March 31, 2007, the company is the direct financing guarantor of the jointly-controlled entity Petroflex for R$ 8,296 (December 31, 2006 - R$ 12,742) corresponding to 40% of Petroflex’ debt with BNDES.

In December 2006, the Company, together with Petrobras Química S.A. – Petroquisa, entered into a supporting agreement with BNDES, under which Braskem and Petroquisa undertake to provide, in proportion to their respective interests in the capital of Petroquímica Paulínia, the required funds to meet any insufficiencies arising from delinquency on the part of this company. Accordingly, the Company may be required to make disbursements to Petroquímica Paulista of up to R$ 339,720, as capital contribution or loan.

These amounts correspond to the maximum amount of potential future repayments (not discounted) that the Company may be required to make.

(h) Capitalized interest

As described in Note 3(d), the Company adopts the accounting practice of capitalizing interest on financing during the period of asset construction. The Company policy is to apply the weighted average financial charge rate on the debt to the balance of projects in progress. This amount is limited to the amount of charges incurred in the period.

During the first quarter of 2007, the average rate used was 7% p.a. and the amounts capitalized during the periods are stated below:

    Mar/07    Dec/06 
Gross financial charges    51,321    535,830 
(-) Capitalized interest    (21,601)   (114,664)
Net financial charges    29,720    421,166 

15 Debentures

At a meeting held on August 2, 2006, the Board of Directors approved the 14th issue of 50,000 simple, unsecured debentures, not convertible into shares, in a single series, for a total of R$ 500,000. The debentures were subscribed and paid up on September 1, 2006.


At a meeting held on November 29, 2006, the Board of Directors approved the cancellation of 1,500 debentures of the 12th issue, to mature in June 2009.

Composition of transactions:

Issue    value    Maturity    Remuneration    Remuneration payment    Mar/07    Dec/06 
1st .(i)   R$ 10    Jul/2007    TJLP variation + interest of    Upon maturity    1,162,037    1,130,752 
            5% p.a.             
12th.(ii)   R$ 100    Jun/2009    117.00% of CDI    Biannually as from Dec/2004    157,116    151,729 
13th .(ii)   R$ 10    Jun/2009    104.10% of CDI    Biannually as from Dec/2005    312,631    303,074 
14th.(ii)   R$ 10    Sep/2011    103.50% of CDI    Biannually as from Mar/2007    505,427    521,801 
                    2,137,211    2,107,356 

(i) Private’s issue of debentures convertible into class A preferred shares. At present, these securities are held by ODBPARINV (Note 8).
(ii) Public’s issues of debentures not convertible into shares.

The debenture activity in the period/ year is summarized as follows:

    Mar/07    Dec/06 
At January 1    2,107,356    1,608,642 
     Financial charges    62,232    248,622 
     Issue        500,000 
     Amortization / cancellation    (32,377)   (249,908)
At the end of the period / year    2,137,211    2,107,356 
Less: Current liabilities    (1,187,211)   (1,157,356)
Long-term liabilities    950,000    950,000 


16 Taxes and Contributions Payable – Long-term Liabilities

        Mar/07    Dec/06 
IPI credits offset             
   IPI – export credit    (i)   657,624    646,641 
   IPI – zero rate    (ii)   514,787    505,852 
   IPI – consumption materials and property, plant and             
     equipment        40,880    44,593 
Other taxes and contributions payable             
   PIS /COFINS - Law 9718/98    (iii)   138,935    134,573 
   Education contribution, SAT and INSS        35,472    32,520 
   PAES-Law 10684    (iv)   34,958    36,596 
   Other        4,430    7,374 
(-) Judicial deposits        (128,872)   (128,451)
        1,298,214    1,279,698 

The Company has challenged in court certain changes in the tax law. The related restated amounts have been provided for. The Company did not record contingent assets.

(i) IPI Tax Credit on Exports (Crédito- Prêmio)

The Company – by itself and through absorbed companies – challenges the term of effectiveness of the IPI tax credit (crédito-prêmio) introduced by Decree-law 491 of 1969 as an incentive to manufactured product exports. Lower courts have granted most lawsuits to that end, but such favorable decisions may still be appealed.

According to its legal advisors, the Company stands good chances of success in these suits. The Superior Court of Justice (STJ) is currently entertaining an identical lawsuit lodged by another taxpayer (judgment is currently on hold). Most of the STJ justices who have cast their votes to date recognized that such tax benefit continued after 1983.

(ii) IPI – Zero rate

Absorbed companies OPP Química, Trikem and Polialden have filed lawsuits claiming IPI tax credits from the acquisition of raw materials and inputs that are exempt, non-taxed or taxed at a zero rate. Lower courts have granted most lawsuits to that end, but such favorable decisions may still be appealed. The Company’s legal advisors are of the opinion that these cases are likely to prevail; the STF itself is revisiting this matter as well.

In a decision rendered in February 2007 on a case unrelated to the Company, the STF found against the right to offset zero-rate IPI credits by a tight majority (6 to 5). This judgment is currently on hold, as the STF justices are yet to deliberate on the effects of such decision. In light of this shift in its stance, the STF should now determine when such new precedent will take effect (that is, whether it will have future or retrospective effects).


(iii) PIS/COFINS - Law 9718 of 1998

The Company – by itself and through absorbed companies – has brought a number of lawsuits to challenge the constitutionality of the changes in the PIS and COFINS tax bases deriving from Law 9718 of 1998.

In February 2006, court decisions favorable to the Company’s cases initiated in March 1999 became final and conclusive.

As the STF Full Bench had definitively ruled, in November 2005, that the increase in PIS and COFINS tax rates under said law was unconstitutional, the Company – also in reliance on the opinion of its legal advisors – believes that it shall prevail in the other cases as well. The positive impact on the Company’s results will come to approximately R$ 106,941, considering the amounts provisioned for at March 31, 2007.

Some of these lawsuits also challenged the escalation of COFINS tax rates from 2% to 3%. In the opinion of its legal advisors, the Company stands remote chances in this specific regard. This fact, coupled with the recent unfavorable determination from the STF, led the Company to file for voluntary dismissal of this claim in most suits and settle the debt in cash on December 15, 2006.

(iv) Special Installment Program - PAES - Law 10684/03

In August 2003, absorbed company Trikem opted to file for voluntary dismissal of its lawsuit against the COFINS rate increase from 2% to 3% under Law 9718 of 1998, thus qualifying for the more favorable payment conditions under the PAES program instituted by Federal Law 10684 of 2003. The amount due is being paid in 120 monthly installments. The outstanding debt is R$ 41,513 as of March 31, 2007, being R$ 6,555 in current liabilities and R$ 34,958 in noncurrent liabilities (December 31, 2006 – R$ 43,151, being R$ 6,555 in current liabilities and R$ 36,596 in noncurrent liabilities).

Even though the Company had met all legal requirements and payments were being made as and when due, the National Treasury Attorney’s Office (PFN) disqualified the Company for PAES on two different occasions, and the Company obtained a court relief reinstating it to PAES in these two events. In reliance on the opinion of its legal advisors, Management believes that the Company’s eligibility for these installment payments will be upheld as originally requested.


17 Income and Social Contribution Taxes on Net Income

(a) Current income tax

    Mar/07    Mar/06 
Income before income tax    131,314    150,323 
Adjustments to net income for the period         
   Permanent additions    5,657    4,873 
   Temporary additions    93,536    79,902 
   Permanent exclusions    (72,863)   (73,801)
   Temporary exclusions    (68,370)   (84,847)
Taxable income before tax loss carryforward    89,274    76,450 
 Utilization of tax losses (30%)   (26,782)   (22,935)
Taxable income for the period    62,492    53,515 
Income tax (15%) and surcharge (10%)   15,617    13,373 
Other    (375)   1,062 
Income tax expense for the period    15,242    14,435 

Out of the income tax expense, R$ 10,711 (1st quarter of 2006 - R$ 7,377) is entitled to income tax exemption/abatement benefits.


(b) Deferred income tax

(i) Composition of deferred income tax

In accordance with the provisions of CVM Deliberation 273/98, which approved the Institute of Independent Auditors of Brazil (IBRACON) standards on the accounting of income tax, supplemented by CVM Instruction 371/02, the Company has the following accounting balances of deferred income tax:

Composition of calculated deferred income tax:    Mar/07    Dec/06 
Tax loss carryforward    618,093    648,848 
Amortized goodwill on investments in merged companies    382,085    401,659 
Temporarily non-deductible expenses    506,592    485,743 
Potential calculation basis of deferred income tax    1,506,770    1,536,250 
Potential deferred income tax (25%)   376,692    384,062 
Unrecorded portion of deferred income tax    (3,270)   (3,400)
Deferred income tax – assets    373,422    380,662 
Current assets    (19,573)   (19,573)
Long-term liabilities    353,849    361,089 
Opening balance for the period / year    380,662    277,250 
 Polialden balance merged        4,482 
 Addition (utilization) of deferred income tax on tax losses    (7,689)   51,945 
 Addition of income tax on amortized goodwill of merged company Polialden        75,875 
 Deferred income tax on amortized goodwill of merged companies    (4,763)   (12,227)
 Deferred income tax on temporary provisions    5,212    (16,663)
Closing balance    373,422    380,662 
Deferred income tax (liabilities) on accelerated depreciation:         
Opening balance for the period / year    (7,935)   (8,525)
Realization of deferred income tax    147    590 
Closing balance for the period / year    (7,788)   (7,935)
Deferred income tax in income statement    (7,093)   99,520 

Deferred income tax assets arising from tax losses and timing differences are recorded taking into account analyses of future tax profits, supported by studies prepared based on internal and external assumptions and current macroeconomic and business scenarios approved by the Company's management.


(ii) Estimated timing of the realization of deferred income tax assets

Deferred income tax assets recorded are limited to the amounts whose offsetting is supported by projections of taxable income, brought to present value, earned by the Company in up to 10 years, also taking into account the limit for offsetting tax losses of 30% of the net income for the year before income tax and tax exemption and reduction benefits.

Considering the price, foreign exchange, interest rate, market growth assumptions and other relevant variables, the Company prepared its business plan for the base date of December 31, 2006, anticipating the generation of future taxable income. The studies show that the income tax credit from tax losses, in the amount of R$ 154,523, will be fully utilized between 2009 and 2012.

The realization of deferred income tax on tax losses is anticipated as follows:

2009    13,875 
2010    47,100 
2011    93,075 
2012    473 

Deferred income tax credits on timing differences, mainly comprised of goodwill in the amount of R$ 92,251 and provisions in the amount of R$ 126,648, are justified by their full utilization due to the accounting realization of goodwill and provisions.

The realization of income tax credits on goodwill is anticipated as follows:

2007        14,679 
2008        19,573 
2009        20,126 
2010        20,126 
2011        11,224 
2012 to 2014        4,343 
2015 to 2017        2,180 

The accounting for deferred income tax assets does not consider the portion of amortized goodwill on investments in merged companies, the realization term of which exceeds 10 years (R$ 13,079).

Concerning temporarily non-deductible expenses, deferred income tax was calculated on tax expenses which are currently being challenged in court and other operating expenses, as is the case of the provision for doubtful accounts.

As the taxable income basis is determined not only by the potential future profits, but also the existence of non-taxable revenues, non-deductible expenses, fiscal incentives and other


variables, there is no immediate correlation between the Company's net income and the income tax results. Accordingly, the expectation of using fiscal credits should not be construed as an indication of the Company's future results.

(c) Social Contribution on Net Income (“CSL”)

In view of the discussions over the constitutionality of Law 7689 of 1988, the Company and its absorbed companies OPP Química, Trikem and Polialden filed civil lawsuits against payment of CSL. The resulting court decision favorable to these companies became final and conclusive.

However, the Federal Government filed a suit on the judgment (ação rescisória) challenging the decisions on the lawsuits filed by the Company, Trikem and Polialden, on the argument that – after the final decision favorable to those companies – the Full Bench of STF declared the constitutionality of this tax except for 1988. As the Federal Government did not file a suit on the judgment in the case of OPP Química, the first final and conclusive decision remained in force.

The suit on the judgment is pending the STJ and STF review of a number of appeals concerning this specific matter. Even though the suit on the judgment and tax payments are still on hold, the Federal Revenue Office has issued tax infraction notices against the Company and its absorbed companies, and administrative defenses have been filed against such notices.

Based on the opinion of its legal advisors, Management believes that the following is likely to occur: (i) the courts will eventually release the Company from paying this tax; and (ii) even if the suit on the judgment is held invalid, the effects of said judgment cannot retroact to the year of enactment of the law, the reason why the Company has created no provisions for this tax.

If retrospective collection is required by court order (contrary to the opinion of its legal advisors), the Company believes that the possibility of being imposed a fine is remote. Accordingly, the amount payable, restated based on Brazil’s SELIC benchmark rate, would be approximately R$ 754,000 (December 31, 2006 - R$ 743,000), net of fine.


18 Tax Incentives

(a) Corporate income tax

Until calendar year 2011, the Company is entitled to reduce by 75% the income tax on the profit arising from the sale of basic petrochemical products and utilities. The two polyethylene plants at Camaçari have the same right up to base years 2011 and 2012. The PVC plant at Camaçari will also have this right until base year 2013. The PVC plants in Alagoas and the PET plant at Camaçari are exempt from corporate income tax calculated on the results of their industrial operations until 2008.

Productions of caustic soda, chloride, ethylene dichloride and caprolactam enjoy the benefit of the 75% decrease in the income tax rate up to 2012.

At the end of each fiscal year, in the case of taxable profit resulting from the benefited operations, the income tax amount is recorded as expense for the year and credited to a capital reserve account, which can only be used to increase the capital or absorb losses.

Incentives determined for the quarter ended March 31, 2007 amounted to R$ 10,711.

(b) Value-added tax - ICMS

The Company has ICMS tax incentives granted by the States of Rio Grande do Sul and Alagoas, through the Company Operation Fund - FUNDOPEM and State of Alagoas Integrated Development Program - PRODESIN, respectively. Such incentives are designed to foster the installation and expansion of industrial facilities in those States. The incentive determined for the quarter ended March 31, 2007 was R$ 1,160.

19 Long-term Incentives

In 2006, Braskem developed a Long-term Incentive Plan, under which the employees involved in strategic program (Alfa unit) can acquire Investment Units.

The unit value of each Alfa Investment Units corresponds to the average closing price of quotations of Braskem class A preferred shares on the São Paulo Stock Exchange between October of prior year and March of the current year.

As an incentive to purchase Alfa Investment Units by those employees entitled to the program, Braskem granted 1 Investment Unit for each Investment Unit already purchased (Beta Unit). Beta Units are redeemable as from the fifth year at the ratio of 20% in the first year and 10% in subsequent years. Beta Units not redeemed within the stipulated terms are converted into Alfa Units. The value of these units was determined based on the projected the value of the Company class A preferred share.

Alfa Units will have a return equivalent to the amount of dividends and/or interest on capital paid to the holders of Braskem class A preferred shares.

The composition and cost of Investment Units at March 31, 2007 are as follows:


    Number    Value 
Investment Units         
Issued (Alfa units)   95,710    1,736 
Granted as bonus (Beta units)   95,710    109 
Total    191,420    1,845 

20 Shareholders’ Equity

(a) Capital

At March 31, 2007, the Company’s subscribed and paid-up capital is R$ 3,508,272, divided into 123,492,142 common, 246,107,138 class A preferred, and 803,066 class B preferred shares, with no par value. At the same date, the Company’s authorized capital comprises 488,000,000 shares, of which 175,680,000 are common, 307,440,000 are class A preferred, and 4,880,000 are class B preferred shares.

The Extraordinary General Meeting held on May 31, 2006 approved the Company’s capital increase by R$ 105,304 as a result of the merger of subsidiary Polialden (Note 1(c)), through the issue of 7,878,725 class A preferred shares. On that same date, the conversion of 2,632,043 class A preferred shares into common shares, at the ratio of 1:1, was also approved.

(b) Rights attaching to shares

Preferred shares carry no voting rights, but qualify for a non-cumulative priority dividend at 6% per annum on their unit value, if profits are available for distribution. Only Class “A” preferred shares are on a par with common shares for entitlement to remaining profits; dividends are earmarked to common shares only after the priority dividend has been paid to preferred shares. Further, only Class “A” preferred shares rank equally with common shares in the distribution of shares resulting from capitalization of other reserves. Class “B” preferred shares are not convertible into common shares. However, after expiration of the non-convertibility period prescribed in special legislation, these shares may be converted into Class “A” preferred shares at any time, at a ratio of two Class “B” preferred shares to each Class “A” preferred share.

If the Company is wound up, Class “A” and “B” preferred shares are accorded priority treatment in repayment of capital.

Shareholders are entitled to a compulsory dividend at 25% of the net profits at year end, adjusted as per the Brazilian Corporation Law.

According to the Memorandums of Understanding for Execution of Shareholders Agreement, the Company is required to distribute dividends not lower than 50% of the yearend net profits, to the extent that the reserves necessary for its effective operation in the ordinary course of business are maintained at a sufficient level.


As agreed at the time of issuance of Medium-Term Notes (Note 14(c)), the payment of dividends or interest on equity is capped at twofold the minimum dividends accorded to preferred shares under the Company’s bylaws. Further, pursuant to the 12th debentures indenture (Note 15), the payment of dividends or interest on equity capped either at 50% of the net profits at yearend, or at 6% of the nominal value of the Company’s Class “A” and “B” preferred shares, whichever is higher.

(c) Treasury share

The Board of Directors meeting held on May 3, 2006 approved a Share Buyback Program. This program was closed on October 23, 2006 and was intended to acquire common and class A preferred shares to be held in treasury and subsequently sold and/or cancelled, with no reduction in capital. Under the program, the Company acquired 13,131,054 class A preferred shares at the average cost of R$ 13.88. The low and high quotations during this period were R$ 9.97 and R$ 15.89 per share, respectively.

In July 2006, the Company also acquired 765,079 class A preferred shares from dissenting Polialden shareholders.

At March 31, 2007, shares held in treasury comprised 14,363,480 class A preferred shares for a total value of R$ 194,555. The total value of these shares, based on the average quotation of Bovespa’s last session on March 31, 2007, is R$ 218,038.

(d) Appropriation of net income

The Extraordinary Shareholders’ Meeting held on March 28, 2007 approved the appropriation of net income for 2006, amounting to R$ 77,753, as follows: (i) R$ 36,933 for payment of dividends to class A and B preferred shares, at the ratio of R$ 0.159017 per share; (ii) R$ 3,888 to the legal reserve; and (iii) R$ 36,933 to the profit retention reserve for expansion. Payment of dividends started April 9, 2007.


(e) Statement of changes in shareholders’ equity

        Capital reserves    Revenue reserves             
        Tax        Legal    Retention for    Treasury    Retained     
    Capital    incentives    Other    reserve    expansion    share    earnings    Total 
January 1, 2007    3,508,272    408,093    557    72,811    652,336    (194,555)       4,447,514 
Tax incentives        10,711                        10,711 
Net income for the period                            108,979    108,979 
March 31, 2007    3,508,272    418,804    557    72,811    652,336    (194,555)   108,979    4,567,204 

21 Contingencies

(a) Collective Bargaining Agreement – Section 4

The Petrochemical, Plastics, Chemicals and Related Industry Workers Union in the State of Bahia (SINDIQU¥MICA) and the Employers’ Association of the Petrochemical and Synthetic Resins Industries in the State of Bahia (SINPEQ) are disputing in court the validity of a wage and salary indexation clause contained in the collective bargaining agreement (convenção coletiva de trabalho), given the matter of public policy involved, namely, the adoption of an economic stabilization plan in 1990 that put a limit on wage adjustments. The Company ran plants in the region in 1990, and is a member of SINPEQ.

The employees’ labor union seeks retrospective adjustment of wages and salaries. In December 2002, the STF affirmed an erstwhile decision from the Superior Labor Court (TST), determining that an economic policy legislation should prevail over collective bargaining agreements and, as such, no adjustment was due. SINDIQU¥MICA appealed this decision by means of a motion for clarification, which was rejected by unanimous opinion on May 31, 2005.

On October 24, 2005, SINDIQU¥MICA filed a plea known as embargos de divergência, which was recognized by the higher courts. This plea was forwarded to the General Prosecutor Office of the Republic, which rendered an opinion fully favorable to SINPEQ in November 2006. The appeal is pending inclusion in the trial docket of the STF full bench.

(b) Preferred shares with incentives

Some holders of Class “B” preferred shares issued by the Company under a tax incentive program claim that they are entitled to profit distribution on a par with the holders of common and Class “A” preferred shares.

Polialden faced an identical issue before CVM; on August 10, 2000, the CVM Board sided with the Polialden’s stance that “the dividends payable to preferred shares should range from 6% to 8% of the par value of such shares, or the equivalent to 25% of net profits at yearend, whichever is higher, as the company has done over the last 10 years. Such shares are not entitled to remaining profits, as the bylaws have clearly set the maximum dividends attaching to such shares.”


Most court decisions already rendered in this regard have been favorable to the Company and its absorbed company Polialden. For this reason, most of the judicial bonds posted by Polialden as security for preliminary injunctions entered favorably to some shareholders (in an amount corresponding to the shortfall asserted by those shareholders in connection with the dividends approved at the Annual General Meetings of 2002 and 2004) have already been released to the Company; there is only one judicial bond securing the 2004 dividends asserted by one single shareholder, at the historical value of R$ 804.

The Company’s legal advisors believe that the chances of success in these cases are likely, having also relied on opinions from renowned jurists and on recent court and CVM rulings on this specific issue; for this reason, the Company has abided by the rules set out in its bylaws as to payment of dividends to preferred shares under incentive, limiting payments at 6% of their par value and capped at 25% of the compulsory dividends set forth in the Company’s bylaws.

(c) Offsetting of tax credits

From May through October 2000, absorbed companies OPP Química and Trikem offset their own federal tax debts with IPI tax credits (créditos-prêmio) assigned by an export trading company (“Assignor”). These offsetting procedures were recognized by the São Paulo tax officials (DERAT/SP) through offset supporting certificates (DCC’s) issued in response to an injunctive relief entered in a motion for writ of mandamus (“MS SP”). Assignor also filed a motion for writ of mandamus against the Rio de Janeiro tax officials (DERAT/RJ) (“MS RJ”) for recovery of IPI tax credits and their use for offsetting with third-party tax debts, among others. The MS SP was dismissed without prejudice, confirming the Rio de Janeiro administrative and jurisdictional authority to rule on Assignor’s tax credits.

In June 2005, DERAT/SP issued ordinances (portarias) canceling the DCC’s. Based on said ordinances, the Federal Revenue Office unit in Camaçari/BA sent collection letters to the Company. Notices of dispute were presented by the Company, but the administrative authorities declined to process them. As a result, past-due federal tax liabilities (dívida ativa) at R$ 276,620 were posted in December 2005 concerning the Company’s tax debts originating from purportedly undue offsetting procedures.

Both Assignor and the Company commenced a number of judicial and administrative proceedings to defend the lawfulness and validity of those offsetting procedures, and the legal counsels to both companies labeled the chances of success in those cases as probable, mostly in light of the indisputable certainty and validity of those credits as confirmed in a specific audit conducted by DERAT/RJ.

On October 3, 2005, the Federal Supreme Court (STF) held the MS RJ favorably to Assignor in a final and conclusive manner, confirming Assignor’s definite right to use the IPI tax credits from all its exports and their availability for offsetting with third-party debts. As a result, the legal advisors to Assignor and to the Company believe that the offsetting procedures carried out by the absorbed companies and duly recognized by DERAT/SP are confirmed, and for this reason they also hold that the tax liabilities being imputed to the Company are not due. Despite the final and


conclusive decision in MS RJ, the legal advisors to Assignor and to the Company, in addition to a jurist when inquired of his opinion on this specific issue, feel that the tax liabilities purportedly related to offsetting procedures carried out by the absorbed companies have become time-barred and, as such, can no longer be claimed by the tax authorities.

In January 2006, the Company was ordered to post bond in aid of execution of the tax claim referred to above; this bond was tendered in the form of an insurance policy.

The Company’s legal advisors have labeled the chances of success in all claims listed above as probable; nevertheless, if the Company is eventually defeated in all those cases, it will be entitled to full recourse against Assignor concerning all amounts paid to the National Treasury, as per the assignment agreement executed in 2000.

(d) National Social Security Institute - INSS

The Company is a party to several social security disputes in the administrative and judicial spheres, totaling approximately R$ 246,379 (updated by the SELIC rate) as of March 31, 2007. Out of these sums, the Company has made judicial deposits at R$15,100.

In reliance on the legal advisors’ opinion that the Company stands good chances of success in these cases, Management believes that no sum is payable in connection with these notices and, as such, no amount was provisioned for.

(e) Other court disputes involving the Company and its subsidiaries

The Company is defendant in civil lawsuits filed by the controlling person of a former caustic soda distributor and by a carrier that rendered services to the latter, totaling R$ 26,414 as of March 31, 2007 (December 31, 2006 – R$ 25,826). Said plaintiffs seek redress of damages caused by the Company’s alleged non-fulfillment of the distributor agreement. In reliance on the opinion of legal advisors sponsoring the Company in these lawsuits, Management believes that the cases are likely to be rejected, and for this reason the respective sums have not been provisioned for.

In the second quarter of 2005, the Chemical and Petrochemical Industry Workers Unions in Triunfo (RS) and Camaçari (BA) filed several lawsuits for recovery of unpaid overtime. The Company has presented its answers accordingly, and – in reliance on the legal advisors’ opinion – the Company’s Management does not expect to be defeated.

The Company acts as respondent in arbitration commenced by a shipping company and underway in the City of Rio de Janeiro. Recently, the arbitrators asked for a technical expert opinion on the subject matter and extent of the dispute, which was estimated at R$29,000. However, in reliance on the opinion of legal advisors sponsoring the Company’s interests in this arbitration, Management believes that the Company is likely to prevail, and for this reason no amounts were provisioned for in this regard.

As of March 31, 2007, the Company figured as defendant in circa 1,080 labor claims (including those mentioned above), totaling approximately R$ 202,300 (2006 – R$260,200). According to


the opinion of legal advisors, most claims are likely to be found for the Company. For the cases entailing a probable defeat, the Company has provisioned for R$ 13,328.

22 Financial Instruments

(a) Risk management

Since the Company operates in the domestic and international markets, obtaining funds for its operations and investments, it is exposed to market risks mainly arising from changes in the foreign exchange and interest rates.

The Company’s policy to manage risks has been approved and reviewed by management. These rules prohibit speculative trading and short sales, and provide for the diversification of instruments and counterparties. Counterparties’ limits and creditworthiness are reassessed on a regular basis and set up in accordance with rules approved by management. Gains and losses on hedge transactions are taken to income on a monthly basis.

To cover the exposure to market risk, the Company utilizes various types of currency hedges, some involving the use of cash and others not. The most common types which use cash, as adopted by the Company, are financial applications abroad (Certificates of deposit, securities in U.S. dollars, foreign mutual funds, time deposits and overnight deposits) and put and call options. The types of currency hedge which do not involve the use of cash are swaps of foreign currency for CDI and forwards".

To hedge its exposure to exchange and interest risks arising from loan and financing agreements, the Company adopted the following methodology: hedging of the principal and interest falling due in the next 12 months in, at least (i) 60% of the debt linked to exports (trade finance), except for Advances on Exchange Contracts (“ACCs”) of up to six months and Advances on Export Contracts (“ACEs”); and (ii) 75% of the debt not linked to exports (non-trade finance).


(b) Exposure to foreign exchange risks

The Company has long-term loans and financing to finance its operations, including cash flows and project financing. Part of the long-term loans is linked to the U.S. dollar (Note 14).

(c) Exposure to interest rate risks

The Company is exposed to interest rate risks on its debt. The debt in foreign currency, bearing floating interest rates, is mainly subject to LIBOR variation, while the domestic debt, bearing floating interest rates, is mainly subject to fluctuations in the Long-term Interest Rate (TJLP) and the Interbank Deposit Certificate (CDI) rate.

(d) Exposure to commodities risks

The Company is exposed to fluctuations in the price of several petrochemical commodities, especially its main raw material, naphtha. Since the Company seeks to transfer to its own selling prices the effect of price changes in its raw material, arising from changes in the naphtha international quotation, part of its sales may be carried out under fixed-price contracts or contracts stating maximum and/or minimum fluctuation ranges. Such contracts are commercial agreements or derivative contracts relating to future sales.

(e) Exposure to credit risk

The operations that subject the Company to concentration of credit risk are mainly bank accounts, financial investments and other accounts receivable, exposing Braskem to the risk of the financial institution involved. In order to manage the credit risk, the Company keeps its bank accounts and financial investments with large financial institutions.

In relation to customer credit risk, the Company protects itself by performing detailed analyses before granting credit and by obtaining real and personal guarantees, when necessary.


(f) Derivative instrument transactions

As of March 31, 2007 and December 31, 2006, the Company had the following derivative contracts:

            Market value (i)
Description    Maturity    Notional  Mar/07    Dec/06 
Real / US$ - Option (Put US$)   Feb/2007         US$ 306,000 th.        (11,592)
Real + CDI / Yen + Tibor (swap)   Mar/2012       R$ 136,000    (40,332)   (45,203)
Real + CDI /  Yen + Tibor (swap)   Jun/2012       R$ 143,000    (29,837)   (22,790)
Non Deliverable Forward (NDF)   Jun/2007       US$ 49,747 th.    (1,206)    
Real + CDI /  US$ (swap)   May/2007         US$ 100,000 th.    (38,966)   (24,311)
Real + CDI / US$ (swap)   Feb/2007         US$ 200,000 th.        (19,069)

(i) The market value represents the amount receivable (payable) in R$ thousand, should the transactions be settled on March 31, 2007 and December 31, 2006.

To determine the estimated market value of financial instruments, the Company uses transaction quotations or public information available in the financial market, as well as valuation methodologies generally accepted and utilized by counterparties. These estimates do not necessarily guarantee that such operations could be realized in the market at the indicated amounts. The use of different market information and/or valuation methodologies could have a significant effect on the estimated market value.


23 Financial Income (Expenses)

    Mar/07    Mar/06 
Financial income         
 Interest income    18,302    28,653 
 Monetary variation of financial instruments, related parties and accounts         
     receivable    28,126    1,967 
 Monetary variation of taxes recoverable    2,456    25,826 
 Gains on derivative transactions    14,146     
 Exchange variation on foreign currency assets    (85,153)   (124,385)
 Other    1,372    4,915 
    (20,751)   (63,024)
Financial expenses         
 Interest on financing and related parties    (80,058)   (79,188)
 Monetary variation on financing and related parties    (63,651)   (51,933)
 Monetary variation and interest on taxes and suppliers    (30,037)   (61,417)
 Losses on derivative transactions    (1,206)   (3,466)
 Expenses for vendor transactions    (27,244)   (21,738)
 Discounts granted    (13,362)   (11,595)
 Exchange variation on liabilities in foreign currency    196,427    302,892 
 Taxes and charges on financial transactions    (41,761)   (18,049)
 Financial expenses on receivables transactions        (20,137)
 Other    (12,431)   (37,826)
    (73,323)   (2,457)
Net financial result    (94,074)   (65,481)

24 Other Operating Income and Expenses

    Mar/07    Mar/06 
Income (expenses)        
   Rental of facilities and assignment of right of use    4,372    6,190 
   Recovery of taxes        112,367 
   Proceeds of the sale of sundry materials    (3,372)   1,773 
   Recovery of costs and expenses    1,262    2,292 
   Other operating income/(expenses), net    (2,933)   (31,404)
    671    91,218 

The recovery of taxes in the first quarter of 2006 mainly arises to favorable final decisions on PIS and COFINS lawsuits– Law 9718 of 1998 (Note 16(iii)).


25 Insurance Coverage

The Company has a broadly-based risk management program designed to provide cover and protection for all assets, as well as possible losses caused by production stoppages, through an "all risks" insurance policy. This policy establishes the amount for maximum probable damage, considered sufficient to cover possible losses, taking into account the nature of the Company’s activities and the advice of insurance consultants. At March 31, 2007, insurance coverage for inventories, property, plant and equipment, and loss of profits of the Company is R$ 16,543,519 per claim, while the total of all insured assets is R$ 11,613,424. As the risk assumptions adopted, given their nature, are not within the scope of an audit of financial statements, they have been not reviewed by the Company independent auditors.

26 Shares Traded Abroad - NYSE and LATIBEX

(a) American Depositary Receipts ("ADRs") program

The Company’s ADS’s are traded on the NYSE with the following characteristics:

. Type of shares: Class A preference
. Each ADS represents 2 shares, traded under the symbol “BAK”
. Foreign Depositary Bank: The Bank of New York (“BONY”) - New York branch
. Brazilian Custodian Bank: Banco Itaú S.A.


The Company's Class A preference shares are traded on LATIBEX, the market for Latin American Companies quoted in Euros at the Madrid Stock Exchange. The shares are traded under the symbol "XBRK" and the Brazilian Custodian Bank is Banco Itaú S.A. LATIBEX has adjusted and altered the process for quotation and trading to comply with the new standards adopted by Bovespa. Accordingly, as from May 16, 2005, the shares are traded in units.

27 Private Pension Plans

The actuarial obligations relating to the pension and retirement plans are accrued in conformity with the procedures established by CVM Deliberation 371/2000.

The formation of Braskem (Note 1 (c)) involved the integration of six sponsoring companies and three different pension plans managed by Fundação PETROBRAS de Seguridade Social - PETROS ("PETROS"), PREVINOR - Associação de Previdência Privada ("PREVINOR") and ODEPREV - Odebrecht Previdência ("ODEPREV"). In addition to sponsoring different private pension plans, the Company has approximately 800 employees who do not participate in company-sponsored pension plans, as no new benefits were granted to employees since the inception of the Company.


Management ceased to include new participants in the three plans in order to devise a single, legitimate solution for all participants, with a view to protecting the plan participants’ financial assets.

Experts engaged by the Company recommended that ODEPREV be the only supplementary pension plan entity sponsored by the Company. Furthermore, employees who do not participate in the PETROS and PREVINOR plans were offered the opportunity of joining the ODEPREV plan, retroactively to August 16, 2002.

In June 2005, the Company communicated to PETROS and PREVINOR its intended withdrawal as a sponsor effective June 30, 2005. With regard to PETROS, the calculation of mathematical reserves of participants was completed in November 2006 and submitted in that month to the Supplementary Pension Plan Secretary, a Social Security Ministry department in charge of regulating and inspecting private pension plans. The Company has a provision of R$ 40,493 (December 31, 2006 – R$ 58,554), which is considered sufficient to face any disbursements at the time the commitments of this plan are settled.

As to PREVINOR, the reserve computations have been completed and the entity has a surplus, so that no contributions by the Company are required. The sponsorship withdrawal was approved by the Supplementary Pension Plan Secretary and the commitments to the plan participants will be settled in the first half of 2007.

Benefits to retired employees and pensioners will continue to be paid on a regular basis up to completion of the process.


The Company has a defined-contribution plan for its employees. The plan is managed by ODEPREV - Odebrecht Previdência which was set up by Odebrecht S.A. as a closed private pension entity. ODEPREV offers its participants, employees of the sponsoring companies, the Optional Plan, a defined-contribution plan, under which monthly and sporadic participant contributions and annual and monthly sponsor contributions are accumulated and managed in individual retirement savings accounts.

The Board of Trustees of ODEPREV defines each year, in advance, in the funding plan, the parameters for contributions to be made by the participants and the sponsoring companies. With regard to the payment of benefits under the Optional Plan, the obligation of ODEPREV is limited to the total value of the quotas held by its participants and, to comply with the regulations for a defined-contribution plan, it will not be able to require any obligation or responsibility on the part of the sponsoring company to assure minimum levels of benefits to the participants who retire.

In the quarter ended March 31, 2007, the active participants in ODEPREV totaled 2,512 (2006 – 2,137), and the Company’s and employees’ contributions in 2007 amounted to R$ 1,237 (2006 – R$ 2,018) and R$ 3,152 (2006 – R$ 2,801), respectively.


28 Raw Material Purchase Commitments

The Company has contracts for consumption of electric energy for its industrial plants located in the States of Alagoas, Bahia and Rio Grande do Sul. The minimum commitment for consumption under these four-year contracts amounts to R$ 247,522.

The Company acquires from Copesul ethylene and propylene for its units at the Southern Petrochemical Complex, under a contract in force until 2014. The minimum annual purchase commitment corresponds to 268,200 metric tons of ethylene and 262,200 metric tons of propylene. Considering the prices ruling at March 31, 2007, this commitment corresponds to R$ 1,204,927 (not reviewed). If the Company does not acquire the minimum volume, it must pay 40% of the current price of the amount not purchased. Based on 40% of prices charged as of March 31, 2007, the amount would be equal to R$ 481,970 (not reviewed).

Braskem purchases naphtha under contracts establishing a minimum annual purchase volume equal to R$ 4,234,195 (not reviewed), based on market prices as of March 31, 2007.

29 Subsequent Events

(a) Merger of Politeno

The Extraordinary Shareholders’ Meeting held on April 2, 2007 approved the merger of Politeno, based on this company’s shareholders’ equity as of December 31, 2007, in the amount of R$ 498,983. The exchange ratio of Politeno shares for Braskem shares was determined based on shareholders’ equity of the companies at book value, in accordance with appraisal reports prepared by a specialized firm as of December 31, 2006. To maintain the current capital structure in Braskem, comprising 1/3 common and 2/3 preferred shares, the conversion of 486,530 class “A” preferred shares in common shares was also approved. The Company capital was increased by R$ 19,157, through the issue of 1,533,670 class “A” preferred shares, to R$ 3,527,429, divided into 123,978,672 common, 247,154,278 class “A” preferred, and 803,066 class “A” preferred shares.

(b) Acquisition of the Ipiranga Group

On April 18, 2007, Ultrapar (for itself), with the Company and Petrobras as intervening parties (under commission), acquired for R$ 2.1 billion the equivalent to 61.6% common and 13.8% preferred shares issued by Refinaria de Petróleo Ipiranga S.A. (“RPI”), 65.5% of common and 12.6% preferred shares issued by Distribuidora de Produtos de Petróleo Ipiranga S.A. (“DPPI”), and 3.6% of common and 0.4% of preferred shares issued by Companhia Brasileira de Petróleo Ipiranga (“CBPI”), then held by the controlling shareholders of the Ipiranga Group.

Under the agreement among Ultrapar, Braskem and Petrobras, Ultrapar now holds the control over the fuel distribution businesses located in the South and Southeast regions (“Southern Distribution Assets”), Petrobras has the control over fuel distribution businesses located in the North, Northeast and Center-West Regions (“Northern Distribution Assets”), and Braskem has the control over petrochemical assets, comprising Ipiranga Química S.A., Ipiranga Petroquímica S.A. (“IPQ”) and the interest of the latter in Copesul. Oil refining operation assets held by RPI will be shared on equal terms by Petrobras, Ultrapar and Braskem.


As agreed upon with Braskem and Petrobras, Ultrapar is responsible for carrying out a corporate restructuring of the companies acquired, in order to segregate the Assets ascribed to each of the acquiring companies. This process will comprise the following phases:

Tag-Along Tender Offer for the remaining outstanding common shares of RPI, DPPI, CBPI and IPQ;
Absorption, by Ultrapar, of issued shares of RPI, DPPI and CBPI;
Segregation of Assets, as follows: (i) capital decrease of RPI and CBPI, in order to transfer Petrochemical Assets directly to Ultrapar, for subsequent delivery to Braskem and Petrobras, under the commission terms, and (ii) spin-off of CBPI in order to transfer the Northern Distribution Assets to a Petrobras subsidiary company.

On April 18, 2007, Braskem and Copesul published a relevant event notice announcing that Braskem, through its subsidiary EDSP58 Participações S.A., together with Unibanco – União de Bancos Brasileiros S.A., in the capacity of intermediary institution, had filed a request to carry out a public tender offer to delist (OPA) Copesul. Such public tender offer complies with art 4, paragraph 4 of Law 6404/76 and CVM Instruction 361/02.

On April 25, 2007, the Company and CADE (the Brazilian antitrust authority) executed an agreement to preserve the reversibility of the transaction (Acordo de Preservação da Reversibilidade da Operação – APRO), under which Braskem undertakes to maintain the competitive status of the polyethylene and polypropylene markets prevalent before April 18, and, until the transaction is judged, to refrain from taking the following actions with respect to the Ipiranga Group petrochemical assets:

  • Any changes in the corporate nature which would imply change of control;
  • Substantive changes in its physical facilities and assignment or waiver of rights and obligations concerning its assets, including brands, patents and the portfolio of customers and raw material suppliers;
  • Discontinue the use of brands and products, except for the provision of the Investment Agreement, and therefore preserve the offer of the Ipiranga product lines;
  • Any substantive changes in the structure, logistics and distribution and sale practices;
  • Substantive changes in the companies, implying the lay-off or reassignment of personnel among its production, distribution, sale and research areas, when such moves could be considered as aiming the integration of the companies;
  • Interruption without cause, at the discretion of CADE, of investment projects previously approved by the Board of Directors, in any sector of the acquired company, and implementation of the latter’s sales plans and targets.

CADE expressed no restrictions with respect to Copesul, considering that the Company and Petrobras will maintain their status of controlling and minority shareholders, respectively, as it was before April 18, thus in conformity with the Shareholders’ Agreement in force.

The agreement may be reviewed at any time by CADE or at the request of the petitioners if these, at the discretion of CADE’s full panel, prove that the conditions which led to the above mentioned agreement no longer exist.


(c) Funding

In April 2007, Braskem completed negotiations to obtain up to US$ 1.2 billion under a bridge loan to finance the acquisition of the Ipiranga Group petrochemical assets and the future delisting of Copesul. In that month, the amount of US$ 309 million was drawn down and used to pay the shares acquired on April 18, 2007. This two-year term credit line bears interest of 0.35% above LIBOR in the first, and 0.55% in the second year.

Braskem expects to refinance the bridge loan in due time, always with a focus on reducing the Company capital cost, as well as maintaining a debt profile compatible with its cash flows.

(d) Propylene supply agreement

In April 2007, Braskem entered into an agreement with Refinaria Alberto Pasqualini (“Refap”), located in Canoas – Rio Grande do Sul, for the initial supply of 70 thousand tons of propylene per year. This amount can rise to exceed 100 thousand tons per year with the anticipated increases in the refinery production.

Under the Refap contract, 5.8 thousand tons of propylene will be supplied per month. This volume will supplement the supply from the current company units at the Southern Petrochemical Complex and ensure the supply of raw material for future expansions.

(e) Agreement for the formation of joint ventures

On April 16, 2007, Braskem and Pequiven, the main petrochemical company in Venezuela, entered into an agreement to form two joint ventures intended to develop and implement in that country the most modern and competitive integrated petrochemical project in the Americas, named Jose Complex. Under one of the projects, an ethylene cracker from natural gas will be built, with a capacity of 1.3 million tons/year of ethylene, integrated with the production of 1.1 million tons/year of polyethylene and other petrochemicals.

Investments to implement the ethylene unit and the polyethylene units are estimated at approximately US$ 2.5 billion. Braskem and Pequiven are currently considering investments in PVC and soda units.

To finance these two projects, the model contemplates contributions of approximately 30% by Braskem and Pequiven, on equal shares, while the remaining 70% would be funded by a project finance arrangement guaranteed only by the project assets, obtained from multilateral export credit agencies, development banks and private banks.



Supplementary Information

Statement of cash flows for the periods ended March 31, 2007 and 2006

        company        Consolidated 
    Mar/07    Mar/06    Mar/07    Mar/06 
Net income for the period    108,979    119,747    106,860    121,955 
Adjustment to reconcile net income:                 
Depreciation, amortization and depletion    218,498    197,680    247,455    232,089 
Amortization of goodwill (negative goodwill), net    23,647    39,406    22,674    38,433 
Equity in the results of investees    (59,387)   (68,448)   109    966 
Reversal (provision) for loss on investments        (3,440)       3,029 
Tax incentives            (1,298)   (7,423)
Exchange variation on investments    2,579    (4,890)   2,808    (148)
Gains (losses) on interest in investment and other    50        671    (11,243)
Gains (losses) on permanent assets disposal    88      130    854 
Interest and monetary and exchange variations, net    15,345    15,041    6,896    36,935 
Recognition of tax credits    8,377    (80,737)   8,377    (80,737)
Minority interests              (994)
Deferred income tax    7,093    16,141    2,484    11,006 
Other    (21,149)   7,589    (20,015)   9,987 
    304,120    238,090    377,153    354,610 
Financial effects on cash    102,042    121,777    130,509    114,552 
Cash generation before changes                 
in operating working capital    406,162    359,867    507,662    469,162 
Changes in operating working capital                 
Marketable securities    374,194    (6,845)   330,570    (85,707)
Trade accounts receivable    (92,666)   140,253    268,373    6,094 
Inventories    (18,103)   (70,854)   (30,477)   (88,407)
Taxes recoverable    56,239    (69,643)   34,735    (66,777)
Prepaid expenses    19,116    9,350    18,427    9,405 
Dividends received    71,908    28,221         
Other accounts receivable    (22,547)   (5,037)   (3,338)   (36,437)
Suppliers    (55,063)   (37,482)   (151,811)   (63,418)
Taxes and contributions    9,267    (48,138)   9,308    (55,919)
Tax incentives    10,711    7,380    11,999    15,764 
Advances from customers    19,742    (3,603)   716    (4,650)
Other accounts payable    (21,685)   17,705    (30,168)   26,423 
Generation of cash from operations before financial effects    757,275    321,174    965,996    125,533 
Exclusion of financial effects in cash    (102,042)   (121,777)   (130,509)   (114,552)
Generation of accounting cash from operations    655,233    199,397    835,487    10,981 


Cash flows (continued)

        company        Consolidated 
    Mar/07    Mar/06    Mar/07    Mar/06 
Proceeds from the sale of permanent assets    164    42    164    42 
Additions to investments                 
Additions to property, plant and equipment    (144,777)   (152,539)   (198,720)   (174,048)
Additions to deferred charges    (1,725)   (4,485)   (6,243)   (4,762)
Cash used for investments    (146,338)   (156,982)   (204,799)   (178,768)
Short-term debt, net                 
 Funds obtained    140,951    127,304    315,012    515,058 
 Repayment    (141,240)   (164,917)   (719,270)   (229,703)
Long-term debt                 
 Funds obtained    42,520    446    42,829    62,253 
 Repayment    (159,260)   (199,012)   (160,058)   (281,374)
Related parties                 
 Funds obtained    7,729    3,549       
 Repayment    (60,728)   (4,622)       (867)
 Dividends paid to shareholders and minority                 
 interests    (4)   (35,274)   (473)   (35,168)
Other            (58)   (2,841)
Generation (use) of cash in financing    (170,032)   (272,526)   (522,018)   27,359 
Generation (use) of cash and cash equivalents    338,863    (230,111)   108,670    (140,428)
Represented by                 
Cash and cash equivalents, beginning of period    1,125,925    1,461,090    1,547,061    2,135,740 
Cash and cash equivalents, end of period    1,464,788    1,230,979    1,655,731    1,995,312 
Generation (use) of cash and cash equivalents    338,863    (230,111)   108,670    (140,428)

This statement was prepared in accordance with the criteria set forth in Accounting Standards and Procedures - NPC 20 - Statement of Cash Flows, issued by the Brazilian Institute of Independent Auditors - IBRACON.

* * *



        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 15, 2007

  By:      /s/      Carlos José Fadigas de Souza Filho
    Name: Carlos José Fadigas de Souza Filho
    Title: Chief Financial Officer



This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates offuture economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will a ctually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.

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