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Braskem SA 6-K 2011

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bakdf4q10_6k.htm - Generated by SEC Publisher for SEC Filing
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16
OR 15D-16 OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of March, 2011

(Commission File No. 1-14862 )

 

 
BRASKEM S.A.
(Exact Name as Specified in its Charter)
 
N/A
(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- _____.


 

 

 

(A free translation of the original in Portuguese)

 

 

 

Braskem S.A.

Financial Statements at

December 31, 2010

 


 

Braskem S.A. and Subsidiaries

Independent Auditor’s Report as of December 31, 2010

 

 

 

Independent Auditor’s Report
on the Financial Statements

 

 

To the Board of Directors and Shareholders

Braskem S.A

 

 

 

 

We have audited the accompanying financial statements of Braskem S.A (“Company” or "Parent Company"), which comprise the balance sheet as at December 31, 2010 and the statements of income, comprehensive income changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

 

We have also audited the accompanying consolidated financial statements of Braskem S.A and its subsidiaries ("Consolidated"), which comprise the consolidated balance sheet as at December 31, 2010 and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

 

Management’s responsibility
for the financial statements

 

Management is responsible for the preparation and fair presentation of the parent company financial statements in accordance with accounting practices adopted in Brazil, and for the consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and accounting practices adopted in Brazil, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s responsibility

 

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

 


 

Braskem S.A. and Subsidiaries

Independent Auditor’s Report as of December 31, 2010

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion on the parent company
financial statements

 

In our opinion, the parent company financial statements present fairly, in all material respects, the financial position of Braskem S.A as at December 31, 2010, and its financial performance and cash flows for the year then ended, in accordance with accounting practices adopted in Brazil.

 

Opinion on the consolidated
financial statements

 

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of  Braskem S.A and its subsidiaries as at December 31, 2010, and their financial performance and cash flows for the year then ended in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and accounting practices adopted in Brazil.

 

Emphasis of matter

 

As discussed in Note 2 to these financial statements, the parent company financial statements have been prepared in accordance with accounting practices adopted in Brazil. In the case of Braskem S.A, these practices differ from IFRS applicable to separate financial statements only in relation to the measurement of investments in subsidiaries, associates and jointly-controlled entities based on equity accounting, while IFRS requires measurement based on cost or fair value.

 


 

Braskem S.A. and Subsidiaries

Independent Auditor’s Report as of December 31, 2010

 

Other matters

Statements of value added

 

We also have audited the parent company and consolidated statements of value added for the year ended December 31, 2010, the presentation of which is required by the Brazilian corporate legislation for listed companies, but is considered supplementary information for IFRS. These statements were subject to the same audit procedures described above and, in our opinion, are fairly presented, in all material respects, in relation to the financial statements taken as a whole.

 

Audit of corresponding amounts in the previous year

 

The audit of the financial statements for the year ended December 31, 2009, presented for comparative purposes, was conducted under the responsibility of other auditors, who issued an unqualified opinion thereon dated February 12, 2010, containing an emphasis of matter paragraph regarding the completion of negotiations for the acquisition of Quattor Participações on January 22, 2010. Our opinion is not qualified due to this issue.

 

As part of our audit of the 2010 financial statements, we have also audited the adjustments described in Note 4 that were made to amend the financial statements of 2009. In our opinion, such adjustments are appropriate and were properly recorded.

 

 

 

Salvador [1], March 16, 2011

 

 

 

PricewaterhouseCoopers

Auditores Independentes

CRC 2SP000160/O-5 "F" BA

 

 

 

Felipe Edmond Ayoub

Contador CRC 1SP187402/O-4 "S" BA

 

 


 

Braskem S.A. and Subsidiaries

 

Balance Sheet at December 31

Amounts in thousands of Brazilian reais                                                                                                                                                  (continued)

 

        Parent Company   Consolidated
Assets   Note   2010   2009   01/01/2009   2010   2009   01/01/2009
 
Current assets                            

Cash and cash equivalents

  6   2,339,060   2,294,124   2,199,862   2,624,270   2,683,068   2,413,749

Available for sale investments investments

  7   -   261,453   331,452   -   261,884   331,452

Held for trading

  7   236,319   173,616   187,446   236,319   173,616   187,446

Trade accounts receivable

  8   1,077,492   1,402,630   2,027,101   1,894,648   1,666,467   2,126,608

Inventories

  9   1,789,505   1,547,165   2,474,277   3,015,657   1,721,755   2,709,206

Taxes recoverable

  11   400,969   482,494   582,385   698,879   506,298   612,282

Dividends and interest on capital receivable

      10,895   3,736   7,162   -   -   -

Prepaid expenses

      29,690   22,085   65,187   41,620   22,295   65,760

Other accounts receivables

      151,410   120,518   114,805   268,905   113,272   123,084
 
        6,035,340   6,307,821   7,989,677   8,780,298   7,148,655   8,569,587
 
Non-current assets                            

Held-to-maturity

  8   28,706   15,811   9,717   28,706   15,811   9,717

Trade accounts receivable

      59,026   58,343   46,666   62,303   58,783   47,129

Taxes recoverable

  21 (b)   1,096,497   1,253,889   1,197,710   1,444,401   1,259,801   1,201,816

Deferred income tax and social contribution

  12   361,299   1,076,679   1,253,931   1,136,685   1,080,804   1,261,569

Judicial deposits

  10   227,888   213,533   163,432   250,195   217,769   167,579

Related parties

      2,408,371   70,054   84,055   53,742   100,725   45,953

Other accounts receivable

  13   95,780   76,920   64,831   107,432   78,590   66,356

Investments in subsidiaries

  13   6,549,402   411,647   381,418   -   -    

Investment in associated companies

      157,910   136,677   127,330   160,790   136,677   127,330

Other investments

  14   6,575   6,575   11,770   7,485   8,605   13,702

Property, plant and equipment

  15   11,100,184   10,828,453   11,007,463   19,366,272   10,947,678   11,094,020

Intangible assets

      2,280,111   2,312,011   2,290,506   3,079,182   2,317,859   2,341,887
 
        24,371,749   16,460,592   16,638,829   25,697,193   16,223,102   16,377,058
 
Total assets       30,407,089   22,768,413   24,628,506   34,477,491   23,371,757   24,946,645

 

5


 

Braskem S.A. and Subsidiaries

 

Balance Sheet at December 31 

Amounts in thousands of Brazilian reais                                                                                                                                                         (continued)

 

        Parent Company   Consolidated
Liabilities andEquity   Note   2010   2009   01/01/2009   2010   2009   01/01/2009
 
Current liabilities                            

Suppliers

      4,462,552   3,326,678   4,703,070   5,201,162   3,858,783   4,920,758

Loans and financing

  17   1,212,975   1,880,577   3,250,925   1,206,444   1,890,494   3,279,463

Debentures

  18   517,741   316,729   26,276   517,741   316,729   26,276

Hedge accounting transactions and other derivatives

  19.2   27,618   37,913   -   50,124   79,667   31,531

Salaries and social charges

      252,694   258,419   206,202   360,368   267,688   215,085

Taxes payable

  20   235,339   1,160,990   101,214   390,062   1,175,672   105,258

Dividends and interest on capital

      416,648   2,861   6,604   419,981   2,894   6,708

Advances from customers

      44,587   66,434   78,910   50,344   67,388   86,136

Other provisions

  22   26,036   30,748   17,395   32,602   30,926   18,869

Other accounts payable

  16   125,935   5,394   55,787   233,322   24,835   68,306

Related parties

  10   64,517   66,798   -   -   -   -
 
        7,386,642   7,153,541   8,446,383   8,462,150   7,715,076   8,758,390
 
Non-current liabilities                            

Suppliers

      -   23,140   18,675   -   23,229   18,675

Loans and financing

  17   9,309,704   7,427,865   9,000,602   11,004,301   7,434,939   9,029,941

Debentures

  18       500,000   800,000   -   500,000   800,000

Hedge accounting transactions

  19   12,526   -   -   34,433   31,579   77,913

Taxes payable

  20   1,449,704   1,273,149   1,285,778   1,583,569   1,277,148   1,290,043

Related parties

  10   83,739   11,397   115,819   31,386   -    

Long-term incentives

  23   14,442   7,709   10,453   14,442   7,709   10,453

Deferred income taxand social contribution

  21 (b)   1,238,340   1,098,591   166,799   2,200,538   1,098,607   174,942

Private pension plans

  24   109,894   96,548   97,135   123,517   109,390   113,774

Allowance for losses in subsidiaries

      937   3,798   17,458   -   -    

Other provisions

  22   124,495   130,719   125,463   362,265   132,118   126,348

Other payable

  16   237,567   63,312   54,513   252,604   63,318   56,738
 
        12,581,348   10,636,228   11,692,695   15,607,055   10,678,037   11,698,827
 
Equity                            

Capital

  26   8,043,222   5,473,181   5,375,802   8,043,222   5,473,181   5,375,802

Capital reserves

      845,998   416,675   396,064   845,998   416,675   396,064

Revenue reserves

      1,338,908   -   -   1,338,908   -   -

Other comprehensive income

      221,350   314,838   361,821   221,350   314,838   361,821

Treasury stock

      (10,379)   (10,376)   -   (59,271)   (10,376)   -

Accumulated deficit

      -   (1,215,674)   (1,644,259)   -   (1,215,674)   (1,644,259)
 

Total equity attributable to the shareholders of the company

      10,439,099   4,978,644   4,489,428   10,390,207   4,978,644   4,489,428
 

Non-controlling interest

      -   -   -   18,079   -   -
 
        10,439,099   4,978,644   4,489,428   10,408,286   4,978,644   4,489,428
 
Total liabilities and equity       30,407,089   22,768,413   24,628,506   34,477,491   23,371,757   24,946,645

 

The accompanying notes are an integral part of these financial statements.

 

6


 

Braskem S.A. and Subsidiaries

 

Statement of Operations

Years ended December 31

Amounts in thousands of Brazilian reais, except for earnings per share                      (A free translation of the original in Portuguese)

 

        Parent Company   Consolidated
    Note   2010   2009   2010   2009
 
Net sales   29   17,152,789   14,602,066   25,494,817   16,136,070

Cost of sales and services rendered

      (14,109,477)   (12,203,495)   (21,411,775)   (13,529,696)
 
Gross profit       3,043,312   2,398,571   4,083,042   2,606,374
 
Income (expenses)                    

Selling

      (176,325)   (250,831)   (383,454)   (298,847)

Distribution

      (299,890)   (300,735)   (335,510)   (300,735)

General and administrative

      (723,118)   (584,751)   (969,929)   (648,310)

Research and development

      (55,288)   (60,898)   (78,778)   (63,119)

Equity in the results of investees

  13 (c)   439,014   (45,948)   20,302   3,188

Gain from business combinations

  5   849,194   102,051   975,283   102,051

Other operating expenses (income), net

  30   (43,959)   6,887   (95,995)   3,705
 
Operating profit before financial incomel result       3,032,940   1,264,346   3,214,961   1,404,307
 
Financial income (expenses)   31                

Financial expenses

      (1,149,483)   641,495   (1,696,949)   685,439

Financial income

      340,732   (156,887)   369,426   (331,330)
 
        (808,751)   484,608   (1,327,523)   354,109
 
Profit before income and tax social contribution       2,224,189   1,748,954   1,887,438   1,758,416
 

Income tax and social contribution - current

  21 (a)   (20,426)   (340,079)   (61,536)   (353,551)

Income tax and social contribution - deferred

  21 (a)   (308,454)   (1,010,384)   63,583   (1,006,374)
        (328,880)   (1,350,463)   2,047   (1,359,925)
 
Net income for the year       1,895,309   398,491   1,889,485   398,491
 
Attributable to:                    

Company's shareholders

      -   -   1,895,309   398,491

Non-controlling interest

      -   -   (5,824)   -
 
 
Net income per share at the end of period                    
 
Basic earnings per share - common and preferred               2.6497   0.7734
Diluted earnings per share - common and preferred               2.6491   0.7737

 

The accompanying notes are an integral part of these financial statements.

 

7

 


 

Braskem S.A. and Subsidiaries

 

Statement of Comprehensive Income

Years ended December 31

Amounts in thousands of Brazilian reais                                                                        (A free translation of the original in Portuguese)

 

    Parent Company   Consolidated
    2010   2009   2010   2009
 
Net income for the year   1,895,309   398,491   1,889,485   398,491
 
Other comprehensive income:                
 

Available for sale financial assets

  58   (10,722)   58.0   (10,722)

Cash flow hedge

  6,032   42,794   6,032   42,794

Foreign currency translation adjustment

  (79,135)   -   (79,346)   -

Income tax and social contribution related to comprehensive income

  6,793   3,851   6,793   3,851
 
Total other comprehensive income   (66,252)   35,923   (66,463)   35,923
 
Total comprehensive income for the year   1,829,057   434,414   1,823,022   434,414
 
Attributable to:                

Company's shareholders

          1,829,057   434,414

Non-controlling interest

          (6,035)    
 
            1,823,022   434,414

 

The accompanying notes are an integral part of these financial statements.

 

8


 

Braskem S.A. and Subsidiaries

 

Statement of Changes in Equity

Amounts in thousands of Brazilian reais                                                                                     (A free translation of the original in Portuguese)

 

Parent Company
                Profit reserves              
    Note   Capital   Capital reserves Legal  reserve    Tax incentives   Unrealized profit reserve   Additional proposed dividend   Other comprehensive income   Treasury shares   Retained earnings (accumulated) deficit   Total shareholders' equity
At December 31, 2008 - previously disclosed       5,375,802   407,964   -   -   -   -   (102,100)   -   (2,001,810)   3,679,856

Adjustment upon initial IFRS adoption

  4.3.1(c)   -   (11,900)   -   -   -   -   463,921   -   357,551   809,572
Restated balances at January 1, 2009       5,375,802   396,064   -   -   -   -   361,821   -   (1,644,259)   4,489,428
 
Total comprehensive income for the year:                                            

Net income for the year

      -   -   -   -   -   -   -   -   398,491   398,491

Deferred social contribution on additional price-level restatement

      -   -   -   -   -   -   (55,670)   -   -   (55,670)

of property, plant and equipment

                                           

Realization of additional property, plant and equipment price-

      -   -   -   -   -   -   (27,236)   -   27,236   -

level restatement, net of taxes

  4.4 (c)                                        

Fair value variation of financial assets

      -   -   -   -   -   -   (6,871)   -   -   (6,871)

Fair value of cash flow hedges, net of taxes

      -   -   -   -   -   -   42,794   -   -   42,794
        -   -   -   -   -   -   (46,983)   -   425,727   378,744
Total shareholders' contributions :                                            

Capital increase

      97,379   20,611   -   -   -   -   -   -   -   117,990

Treasury shares

  26 (a)   -   -   -   -   -   -   -   (10,376)   -   (10,376)

Unclaimed dividends

  26 (f)   -   -   -   -   -   -   -   -   2,858   2,858
        97,379   20,611   -   -   -   -   -   (10,376)   2,858   110,472
At December 31, 2009       5,473,181   416,675   -   -   -   -   314,838   (10,376)   (1,215,674)   4,978,644
 
Total comprehensive income for the year:                                            

Net income for the year

      -   -   -   -   -   -   -   -   1,895,309   1,895,309

Realization of additional property, plant and equipment price-level restatement, net of taxes

   4.4 (c)   -   -   -   -   -   -   (27,236)   -   27,236   -

Fair value variation of financial assets

      -   -   -   -   -   -   38   -   -   38

Fair value of cash flow hedges, net of taxes

      -   -   -   -   -   -   12,845   -   -   12,845

Foreign currency translation adjustment

  13( b)   -   -   -   -   -   -   (79,135)   -   -   (79,135)
        -   -   -   -   -   -   (93,488)   -   1,922,545   1,829,057

Total contributions from and distributions to shareholders:

                                           

Capital increase

  26 (a)   2,570,041   1,479,294   -   -   -   -   -   -   -   4,049,335

Treasury shares

  26 (f)   -   -   -   -   -   -   -   (3)   -   (3)

Prescribed dividends/others

      -   -   -   -   -   -   -   -   (2,650)   (2,650)

Offset of losses

      -   (1,061,871)   -   -   -   -   -   -   1,061,871   -

Transfer to taxincentives reserve

  26 (h)   -   11,900   -   -   -   -   -   -   (11,900)   -

Legal reserve

      -   -   87,710   -   -   -   -   -   (87,710)   -

Minimum mandatory dividends

  26 (d)   -   -   -   -   -   -   -   -   (415,284)   (415,284)

Additional dividends proposed

  26 (g)   -   -   -   -   -   250,346   -   -   (250,346)   -

Unrealized profit reserves

  26 (g)   -   -   -   -   995,505   -   -   -   (995,505)   -

Taxincentives reserves

  26 (g)   -   -   -   5,347   -   -   -   -   (5,347)   -
    26 (g)   2,570,041   429,323   87,710   5,347   995,505   250,346   -   (3)   (706,871)   3,631,398
At December 31, 2010       8,043,222   845,998   87,710   5,347   995,505   250,346   221,350   (10,379)   -   10,439,099

 

9

BRASKEM10GHM123 PARTES.DOCX


 

Braskem S.A. and subsidiaries

 

Statement of Changes in Equity

Amounts in thousands of Brazilian reais                                                                                                                                                                       (continued)

 

Consolidated
        Attributed to shareholders' interest            
                Profit reserves                    
    Note   Capital   Capital reserve   Legal reserve Tax incentives   Unrealized profit reserve   Additional proposed dividend   Other comprehensive income   Treasury stock   Retained earnings (accumulated) deficit   Total Braskem shareholders' interest   Non-controlling interest   Total shareholders' equity
 
At December 31, 2008 - previously disclosed       5,375,802   407,964   -   -   -   -   (102,100)   -   (2,001,810)   3,679,856   -   3,679,856

Adjustment upon initial IFRS adoption

  4.3.1(c)   -   (11,900)   -   -   -   -   463,921   -   357,551   809,572   -   809,572
Restated balances at January 1, 2009       5,375,802   396,064   -   -   -   -   361,821   -   (1,644,259)   4,489,428   -   4,489,428
 
Total comprehensive income for the year:                                                    

Net income for the year

      -   -   -   -   -   -   -   -   398,491   398,491   -   398,491

Deferred social contribution on additional price-level restatement of property, plant and equipment

      -   -   -   -   -   -   (55,670)   -   -   (55,670)   -   (55,670)

Realization of additional property, plant and equipment price-level restatement, net of taxes

  4.4 (c)   -   -   -   -   -   -   (27,236)   -   27,236   -   -   -

Fair value variation of financial assets

      -   -   -   -   -   -   (6,871)   -   -   (6,871)   -   (6,871)

Fair of value of cash flow hedges, net of taxes

      -   -   -   -   -   -   42,794   -   -   42,794   -   42,794
        -   -   -   -   -   -   (46,983)   -   425,727   378,744   -   378,744
Total shareholders' contributions :                                                    

Capital increase

  26 (a)   97,379   20,611   -   -   -   -   -   -   -   117,990   -   117,990

Treasury shares

  26 (f)   -   -   -   -   -   -   -   (10,376)   -   (10,376)   -   (10,376)

Prescribed dividends

      -   -   -   -   -   -   -   -   2,858   2,858   -   2,858
        97,379   20,611   -   -   -   -   -   (10,376)   2,858   110,472   -   110,472
At December 31, 2009       5,473,181   416,675   -   -   -   -   314,838   (10,376)   (1,215,674)   4,978,644   -   4,978,644
 
Total comprehensive income for the year:                                                    

Net income for the year

      -   -   -   -   -   -   -   -   1,895,309   1,895,309   (5,824)   1,889,485

Realization of additional property, plant and equipment price-level restatement, net of taxes

  4.4 (c)   -   -   -   -   -   -   (27,236)   -   27,236   -   -   -

Fair value variation of financial assets

      -   -   -   -   -   -   38   -   -   38   -   38

Fair value of cash flow hedges, net of taxes

      -   -   -   -   -   -   12,845   -   -   12,845   -   12,845

Foreign currency translation adjustment

  13( b)   -   -   -   -   -   -   (79,135)   -   -   (79,135)   (211)   (79,346)
        -   -   -   -   -   -   (93,488)   -   1,922,545   1,829,057   (6,035)   1,823,022

Total contributions from and distributions to shareholders:

                                                   

Capital increase

  26 (a)   2,570,041   1,479,294   -   -   -   -   -   -   -   4,049,335   -   4,049,335

Treasury shares

  26 (f)   -   -   -   -   -   -   -   (48,892)   -   (48,892)   -   (48,892)

Purchase of treasury shares

      -   -   -   -   -   -   -   (3)   -   (3)   -   (3)

Prescribed dividends / others

      -   -   -   -   -   -   -   -   (2,650)   (2,650)   -   (2,650)

Offset of losses

  26 (h)   -   (1,061,871)   -   -   -   -   -   -   1,061,871   -   -   -

Transfer to tax incentives reserve

      -   11,900   -   -   -   -   -   -   (11,900)   -   -   -

Legal reserve

  26 (d)   -   -   87,710   -   -   -   -   -   (87,710)   -   -   -

Minimum mandatory dividends

  26 (g)   -   -   -   -   -   -   -   -   (415,284)   (415,284)   -   (415,284)

Additional dividends proposed

  26 (g)   -   -   -   -   -   250,346   -   -   (250,346)   -   -   -

Unrealized profit reserves

  26 (g)   -   -   -   -   995,505   -   -   -   (995,505)   -   -   -

Tax incentives reserve

  26 (g)   -   -   -   5,347   -   -   -   -   (5,347)   -   -   -

Acquisition of non-controlling interest

      -   -   -   -   -   -   -   -   -   -   24,114   24,114
        2,570,041   429,323   87,710   5,347   995,505   250,346   -   (48,895)   (706,871)   3,582,506   24,114   3,606,620
At December 31, 2010       8,043,222   845,998   87,710   5,347   995,505   250,346   221,350   (59,271)   -   10,390,207   18,079   10,408,286

The accompanying notes are an integral part of these financial statements.

 

10


 

Braskem S.A. and Subsidiaries

 

Statement of Cash Flows

Years ended December 31

Amounts in thousands of Brazilian reais                                                                        (A free translation of the original in Portuguese)

 

    Parent Company   Consolidated
    2010   2009   2010   2009
Profit before income tax and social contribution   2,224,189   1,748,954   1,887,438   1,758,416
Reconciling items:                
Depreciation, amortization and depletion   1,036,758   1,028,186   1,606,354   1,038,061
Equity in the results of investees   (439,014)   45,948   (20,302)   (3,188)
Losses (gains) on investments and others   (4,838)   (1,565)   (4,133)   (4,223)
Business combination   (849,194)   (102,051)   (975,283)   (102,051)
Provision for losses and write-offs of non-current assets   28,039   75,915   51,342   76,776
Interest, monetary and exchange variations, net   615,497   (904,431)   413,194   (1,108,058)
Other   -   283   -   26,894
    2,611,437   1,891,239   2,958,610   1,682,627
Changes in operating working capital                
Available for Sale and Held-to-maturity   (50,460)   8,352   79,764   8,351
Trade accounts receivable   322,674   (879,725)   184,442   (1,044,263)
Inventories   (226,778)   973,640   (382,285)   1,035,140
Taxes recoverable   284,139   81,712   622,167   94,372
Prepaid expenses   (7,605)   43,434   (5,062)   44,295
Related parties   (810,110)   14,001   -   -
Other accounts receivable   (68,664)   (43,540)   1,730   (41,577)
Suppliers   1,112,734   (1,383,122)   683,639   (1,073,838)
Taxes payable   (430,828)   405,581   (601,878)   501,718
Long-term incentives   6,733   (2,744)   6,733   (2,744)
Advances from customers   (21,847)   (16,120)   (38,424)   (19,218)
Other provisions   (10,936)   (18,609)   21,128   (17,669)
Other accounts payable   155,701   75,792   177,901   50,116
 
Cash generated from operations   2,866,190   1,149,891   3,708,465   1,217,310
 
Interest paid   (595,796)   (487,762)   (929,481)   (594,676)
Income tax and social contribution   (45,222)   (15,590)   (58,617)   (23,970)
Net cash provided by operating activities   2,225,172   646,539   2,720,367   598,664
 
Proceeds from the sale of non-current assets   1,781   2,765   1,781   2,949
Additions to investments jointly-controlled and subsidiaries   (4,586,233)   (50,932)   (939,427)   1,464
Additions to property, plant and equipment   (1,307,279)   (767,128)   (1,689,006)   (811,740)
Additions to intangible assets   -   -   (17,042)   -
Held-to-maturity and available for sale   256,113   (17,346)   256,113   (17,346)
Cash provided by (used in) investing activities   (5,635,618)   (832,641)   (2,387,581)   (824,673)
 
Short-term debt                
New loans   358,650   2,177,460   866,097   2,279,801
Repayment of loans   (4,839,330)   (4,111,651)   (10,013,753)   (3,010,705)
Long-term debt   -   -   -   -
New loans   4,118,701   2,229,247   4,994,464   1,227,188
Related parties   -   -   -   -
New loans   484,847   63,603   -   -
Repayment of loans   (414,277)   (77,410)   -   -
Dividends paid to shareholders   (98)   (885)   (107)   (956)
Non-controlling interests   -   -   -   -
Repurchase of shares   (3)   -   (3)   -
Increase in capital   3,746,892   -   3,764,971   -
Cash provided by (used in) financing activities   3,455,382   280,364   (388,331)   495,328
Exchange variation on cash of foreign subsidiaries   -   -   (3,253)   -
Increase (decrease) in cash and cash equivalents   44,936   94,262   (58,798)   269,319
 
Represented by                
Cash and cash equivalents at the beginning of the year   2,294,124   2,199,862   2,683,068   2,413,749
Cash and cash equivalents at the end of the year   2,339,060   2,294,124   2,624,270   2,683,068
 
Increase (decrease) in cash and cash equivalents   44,936   94,262   (58,798)   269,319

The accompanying notes are an integral part of these financial statements.

 

11


 

Braskem S.A. and Subsidiaries

 

Statement of Cash Flows

Years ended December 31

Amounts in thousands of Brazilian reais                                                                        (A free translation of the original in Portuguese)

 

    Parent Company   Consolidated
    2010   2009   2010   2009
Profit before income taxand social contribution   2,224,189   1,748,954   1,887,438   1,758,416
Reconciling items:                
Depreciation, amortization and depletion   1,036,758   1,028,186   1,606,354   1,038,061
Equity in the results of investees   (439,014)   45,948   (20,302)   (3,188)
Losses (gains) on investments and others   (4,838)   (1,565)   (4,133)   (4,223)
Business combination   (849,194)   (102,051)   (975,283)   (102,051)
Provision for losses and write-offs of non-current assets   28,039   75,915   51,342   76,776
Interest, monetary and exchange variations, net   615,497   (904,431)   413,194   (1,108,058)
Other   -   283   -   26,894
    2,611,437   1,891,239   2,958,610   1,682,627
Changes in operating working capital                
Available for Sale and Held-to-maturity   (50,460)   8,352   79,764   8,351
Trade accounts receivable   322,674   (879,725)   184,442   (1,044,263)
Inventories   (226,778)   973,640   (382,285)   1,035,140
Taxes recoverable   284,139   81,712   622,167   94,372
Prepaid expenses   (7,605)   43,434   (5,062)   44,295
Related parties   (810,110)   14,001   -   -
Other accounts receivable   (68,664)   (43,540)   1,730   (41,577)
Suppliers   1,112,734   (1,383,122)   683,639   (1,073,838)
Taxes payable   (430,828)   405,581   (601,878)   501,718
Long-termincentives   6,733   (2,744)   6,733   (2,744)
Advances from customers   (21,847)   (16,120)   (38,424)   (19,218)
Other provisions   (10,936)   (18,609)   21,128   (17,669)
Other accounts payable   155,701   75,792   177,901   50,116
 
Cash generated from operations   2,866,190   1,149,891   3,708,465   1,217,310
 
Interest paid   (595,796)   (487,762)   (929,481)   (594,676)
Income taxand social contribution   (45,222)   (15,590)   (58,617)   (23,970)
Net cash provided by operating activities   2,225,172   646,539   2,720,367   598,664
 
Proceeds from the sale of non-current assets   1,781   2,765   1,781   2,949
Additions to investments jointly-controlled and subsidiaries   (4,586,233)   (50,932)   (939,427)   1,464
Additions to property, plant and equipment   (1,307,279)   (767,128)   (1,689,006)   (811,740)
Additions to intangible assets   -   -   (17,042)   -
Held-to-maturity and available for sale   256,113   (17,346)   256,113   (17,346)
Cash provided by (used in) investing activities   (5,635,618)   (832,641)   (2,387,581)   (824,673)
 
Short-term debt                
New loans   358,650   2,177,460   866,097   2,279,801
Repayment of loans   (4,839,330)   (4,111,651)   (10,013,753)   (3,010,705)
Long-term debt   -   -   -   -
New loans   4,118,701   2,229,247   4,994,464   1,227,188
Related parties   -   -   -   -
New loans   484,847   63,603   -   -
Repayment of loans   (414,277)   (77,410)   -   -
Dividends paid to shareholders   (98)   (885)   (107)   (956)
Non-controlling interests   -   -   -   -
Repurchase of shares   (3)   -   (3)   -
Increase in capital   3,746,892   -   3,764,971   -
Cash provided by (used in) financing activities   3,455,382   280,364   (388,331)   495,328
Exchange variation on cash of foreign subsidiaries   -   -   (3,253)   -
Increase (decrease) in cash andcash equivalents   44,936   94,262   (58,798)   269,319
 
Represented by                
Cash and cash equivalents at the beginning of the year   2,294,124   2,199,862   2,683,068   2,413,749
Cash and cash equivalents at the end of the year   2,339,060   2,294,124   2,624,270   2,683,068
 
Increase (decrease) in cash andcash equivalents   44,936   94,262   (58,798)   269,319

 

The accompanying notes are an integral part of these financial statements.

 

12


 

Braskem S.A. and Subsidiaries

 

Statement of Value-Added

Years ended December 31

Amounts in thousands of Brazilian reais                                                           (A free translation of the original in Portuguese)

 

    Parent Company   Consolidated
    2010   2009   2010   2009
Revenues   21,031,396   17,769,255   31,217,214   19,549,896
Sale of merchandise, products and services   21,069,290   17,796,341   31,392,470   19,588,832
Other income (expenses), net   (27,296)   22,886   (108,360)   22,634
Allowance for doubtful accounts   (10,598)   (49,972)   (66,896)   (61,570)
Inputs acquired from third parties   (16,458,763)   (13,888,075)   (24,644,991)   (15,401,736)
Cost of products, merchandise and services sold   (15,743,445)   (12,584,549)   (23,687,052)   (14,038,168)
Material, energy, outsourced services and other   (698,173)   (1,274,888)   (976,327)   (1,334,930)
Loss / recovery of assets   (17,145)   (28,638)   18,388   (28,638)
Gross value added   4,572,633   3,881,180   6,572,223   4,148,160
 
Depreciation, amortization and deplention   (1,036,758)   (1,028,186)   (1,606,354)   (1,038,061)
 
Net value added produced by the entity   3,535,875   2,852,994   4,965,869   3,110,099
 
Value added receivedin transfer   1,629,421   (109,263)   1,363,071   (232,577)
Equity in the results of investees   439,014   (45,948)   20,302   3,188
Financial income   340,732   (156,887)   369,426   (331,309)
Business combination   849,194   102,051   975,283   102,051
Other   481   (8,479)   (1,940)   (6,507)
 
Total value added to distribute   5,165,296   2,743,731   6,328,940   2,877,522
 
 
Personnel   485,305   429,012   786,511   472,374
Direct compensation   380,234   313,228   630,795   347,950
Benefits   73,939   78,305   111,486   85,037
FGTS (Unemployment Compensation Fund)   31,132   37,479   44,230   39,387
 
Taxes, fees andcobtributions   1,486,653   2,367,879   1,781,323   2,499,422
Federal   1,115,770   2,054,866   1,062,174   2,127,067
State   367,890   310,191   704,644   369,615
Municipal   2,993   2,822   14,505   2,740
 
Remuneration of third-party capital   1,298,029   (451,651)   1,871,621   (492,765)
Financial expenses (including exchange variation)   1,131,747   (673,787)   1,676,227   (718,554)
Rentals   166,282   222,136   195,394   225,789
 
Remuneration of own capital   1,895,309   398,491   1,889,485   398,491
Earnings reinvested   1,480,025   398,491   1,480,025   398,491
Dividends   415,284   -   415,284   -
Non-controlling interest in earnings reinvested   -   -   (5,824)   -
 
Total value added distributed   5,165,296   2,743,731   6,328,940   2,877,522

 

 

·          The statement of value- added statement is not a required part of a set of financial statements under IFRS.

 

The accompanying notes are an integral part of these financial statements.

 

13


 

(A free translation of the original in Portuguese)

 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

 

 

1          Operating Context

       

(a)      Braskem S.A. (“Braskem” or “the Company”) is a publicly-traded corporation, with its headquarters in Camaçari – Bahia, which, along with its subsidiaries, operates a total of thirty one industrial units, twenty eight in the Brazilian states of Alagoas, Bahia, Rio de Janeiro, Rio Grande do Sul and São Paulo and three in the United States, in Pennsylvania, Texas and West Virginia. These units produce basic petrochemicals, such as ethylene, propylene and benzene, as well as gasoline and LPG (Liquefied Petroleum Gas, also known as kitchen gas). In the segment of thermoplastic resins, the Company produces polyethylene, polypropylene and polyvinyl chloride (“PVC”). In addition, Braskem’s operations include the import and export of chemical products, petrochemicals, fuels, the production and sale of inputs consumed by companies at the Petrochemical Complexes of Camaçari - Bahia and Triunfo – Rio Grande do Sul, including: steam, water, compressed air, electricity, the provision of several services to those companies as well as investments in others as a partner or shareholder. Braskem is controlled by Odebrecht S.A. (“Odebrecht”) with an indirect holding of 50.1% and 38.1% of voting and total stock, respectively at December 31, 2010.

 

(b)     In May 2009, the Company’s management announced the suspension of production of caprolactam and the temporary closure the industrial plant in Camaçari. This decision was based on an evaluation of the business, taking into account the market difficulties for caprolactam in Brazil experienced in the last few years, as well as the impact of the recent global economic financial crisis. At that moment the Company booked animpairment of this plant at the same amount, R$ 29.600, of the total net book value of machinery, equipment and installations for the production of caprolactam, which cannot be used in the event of resumption in production. There were no changes in 2010 related to this matter. Company management is monitoring developments in the market for caprolactam before making any final decision on this matter.

 

(c)      In January 2010, the Company’s management decided to suspend production at the industrial unit located in São Paulo, which produced specialty PVC resins. This decision was based on the rising logistics costs associated with obtaining the main raw material for the unit, Monovinyl chloride (“MVC”), which was transferred from one of Braskem’s plants in Camaçari. To maintain the sale of these PVC resins, the Company signed a purchase agreement with Mexichem Colombia S.A. The unit in question has warehouses that continue to be used as distribution centers for specialty PVC and other products manufactured by the Company in other states. On December 31, 2009, the net book value of the machinery, equipment and installations of this plant was R$ 25,000 and an allowance for impairment was recorded for the same amount, given that the assets would not result in any cash flow from either sale or possible resumption of production.

14

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

 

 

(d)     In September 2010, management of subsidiary Braskem PP Americas, Inc.  ("PP Americas") decided to idle a high-impact copolymer production line at the La Porte plant, located in Texas, United States. This decision was based on the line's older technology, high production cost and low production capacity.  PP Americas will keep the production of high-impact copolymer on two other lines at the La Porte plant, without affecting the total production of other resins. As of December 31, 2010, this production line had a fair value of zero.

 

(e)      On September 24, 2010, the Company inaugurated an ethanol-derived ethylene unit at the Triunfo Petrochemical Complex (Rio Grande do Sul), which will produce 200,000 tons of green polyethylene per year. With this new unit, the Company now offers resin from renewable sources diversifying its competitive raw material sources. The total investment cost was R$ 482,053.

 

(f)      Corporate Reorganization

 

Since its creation on August 16, 2002, Braskem has undergone an extensive corporate restructuring process, which has been disclosed to the market in the form of Relevant Fact notices filed with the Comissão de Valores Mobiliários (“CVM”). The main events in 2009 and 2010 are summarized below:

 

(f.1) On April 30, and May 5, 2009, the Extraordinary General Shareholders’ Meetings held by Braskem and Petroquímica Triunfo S.A. (“Triunfo”), respectively, approved the merger of Triunfo into the Company. The net asset value merged, at book value, totaled R$ 117,990. A total of 13,387,157 class A preferred shares were issued by Braskem and delivered to shareholders of Triunfo at an exchange ratio of 0.210428051882238 share of Braskem for each share of Triunfo. (Note 20.a). This acquisition represents a business combination, as per Accounting Pronouncement CPC 15 and IFRS 3 and its effects are presented in Note 5.

 

(f.2) On January 22, 2010, the Company announced the finalization of the negotiations that resulted in the acquisition of Quattor Participações S.A. (“Quattor”) ( Note 1.f2.iv) by the Company, in accordance with an Investment Agreement signed on that date between Odebrecht, Petroleo Brasileiro S.A. – PETROBRAS (“Petrobras”), Braskem and Unipar – União de Indústrias Petroquímicas S.A. (“Unipar”). The agreement will enable Petrobras to consolidate its main petrochemical assets in Braskem, which will remain a private-sector publicly-traded company and improve its ability to compete globally.

 

In addition, the Investment Agreement gives Braskem first-refusal rights for participating as a partner in projects involving the Rio de Janeiro Petrochemical Complex (COMPERJ) and the Suape Petrochemical Complex in Pernambuco.

15

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

 

 

The Investment Agreement was sent to the Brazilian Antitrust Agency – CADE (“CADE”) for review and approval. The Economic Monitoring Office of the Ministry of Finance (SEAE) has recommended that this acquisition be approved without restrictions by CADE. The Economic Law Office of the Ministry of Justice (SDE) has also recommended that the transaction be approved without restrictions. These recommendations were registered by the CADE Attorney’s Office on January 11, 2011 and approved on February 23, 2011 (Note 37). That transaction was unanimously approved for this agency.

 

As of September 30, 2010, the steps already taken in terms of the Investment Agreement include the following:

 

(i)        The creation of a holding company, BRK Investimentos Petroquímicos S.A. (“BRK”), in December 2009, to which Odebrecht and Petrobras later transferred all their common shares in Braskem.

 

(ii)      In April 2010, Odebrecht and Petrobras finalized R$ 3,500,000 share capital increase in BRK through the issue of new shares paid up in cash.

 

(iii)    On April 14, 2010, the Board of Directors of Braskem ratified the share capital increase in the Company through a private subscription that resulted in the issue of 243,206,530 common shares and 16,697,781 class A preferred shares at a unit value of R$ 14.40, for a total of R$ 3,742,622, of which R$ 2,378,742 was recorded in the capital stock account and R$ 1,363,880 was recorded in the capital reserve account (Note 26(a)).

 

(iv)    On April 27, 2010, the Company disclosed, in a Relevant Fact notice, the acquisition, together with Unipar, of shares representing 60% of the total and voting capital of Quattor, through a cash payment of R$ 659,454. On April 30, 2010, Quattor held the following investments:

 

16

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

 

 

 

(v)      On May 10, 2010, the Company announced the acquisition, from Unipar, of all the shares of Unipar Comercial e Distribuidora (“Unipar Comercial”) as well as shares representing 33.33% of the total capital of Polibutenos S.A. Indústrias Químicas (“Polibutenos”) for cash payments of R$ 27,104 and R$ 22,362, respectively.

 

On May 31, 2010, the Company acquired from Chevron Oronite do Brasil (“Chevron Brasil”), shares representing 33.33% of the total capital of Polibutenos for R$ 22,482. With the acquisitions from Unipar and Chevron Brasil, Braskem now owns, directly and indirectly, 100% of the share capital of Polibutenos.

 

In accordance with the accounting procedures adopted to prepare these financial statements (see Note 2), the acquisitions of Unipar Comercial and Polibutenos represented business combinations, as per Technical Pronouncement - CPC 15 the effects of which are stated in Note 5.

 

17

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

 

 

 

(vi)    On June 18, 2010, the Extraordinary General Shareholders’ Meeting held by Braskem approved the acquisition of Quattor shares previously held by Petrobras which represented 40% of the total and voting  shares of the subsidiary. The net asset value acquired, at book value on March 31, 2010 was R$ 199,356, of which R$ 164,744 was recorded in the Capital account and R$ 34,612 was recorded in the Capital reserve account. This operation involved the issuance of 18,000,087 common shares at an exchange ratio of 0.18855863182 share of Braskem for each share of Quattor, as established in the economic reports of the companies prepared by an independent specialist (Note 26(a)). As a result of this acquisition, Braskem now holds 100% of voting and total capital of Quattor. This operation, along with that mentioned in item (iv) above, represent business combinations, (as per Technical Pronouncement CPC 15), the effects of which are stated in Note 5.

 

(vii)   On June 24, 2010, Quattor’s Extraordinary General Shareholders’ Meeting approved an increase in the capital stock of R$ 4,014,128, without the issue of new shares. The capital increase was paid up using advances for future capital increase previously made by Braskem. Additionally, on June 29, 2010, the Extraordinary General Shareholders’ Meeting held by Quattor approved a R$ 2,578,372 reduction in its share capital, without the cancellation of shares and restitution to Braskem, its sole shareholder, of all the investments in Rio Polímeros S.A. (“Riopol”) and Quattor Petroquímica. 

 

(viii)    On January 7, 2008, BNDES Participações S.A. ("BNDESPAR") acquired 25% of Riopol and  was also granted a put option to sell 60% and 40% of the acquired interest to Unipar and Petrobras, respectively. This option was exercisable up to June 2013.

 

On August 9, 2010, BNDESPAR exercised the put option and Braskem acquired 190,784,674 common shares and 30 preferred shares of Riopol for R$ 209,951. The acquisition corresponds to 15% of the share capital of Riopol and Braskem holds direct and indirect 90% of its subsidiary share capital.

 

 

The amount of this acquisition will be paid in three installments, restated by the TJLP (Note 16), as follows:

                       

a.         First installment, due on June 11, 2015, corresponding to 15% of the total amount;

b.        Second installment, due on June 11, 2016, corresponding to 35% of the total amount and

c.         Third installment, due on June 11, 2017, corresponding to 50% of the total amount.

 

18

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

 

 

Also, as a result of the put option exercised by BNDESPAR, Petrobras has acquired 10% of Riopol's capital stock.

 

(ix)    On August 30, 2010, the Extraordinary General Shareholders’ Meeting held by Braskem's  approved the merger of Riopol's shares, converting Riopol into a wholly-owned subsidiary of the Company. The book value of the merged net assets on March 31, 2010, the transaction's base date, amounted to R$ 103,087. Of that amount, R$ 22,285 was allocated to the capital  account, and R$ 80,802 was allocated to the capital reserve account. In that transaction, 2,434,890 preferred class A shares were issued, based on an exchange ratio of 0.010064743789 share of Braskem for each Riopol share, pursuant to economic appraisal reports of the companies, prepared by an independent expert (Note 26(a)).

 

Due to this stock merger, subsidiary Quattor Petroquímica, which held 9.02% of Riopol's capital, has received Braskem shares. In these financial statements, such shares are accounted for as "treasury shares" (Note 26(a)).

 

(x)      On September 1, 2010, the Extraordinary General Shareholders’ meeting held by Quattor's approved the merger of the companies referred below. The net assets of the merged companies were appraised at book value on June 30, 2010 (the transaction's base date).

 

a.    Merger of Quattor Química S.A. ("Quattor Química”) 

 

On the merger date, Quattor Química's capital was owned by Quattor (94.11%) and Quattor Petroquímica (5.89%). The exchange ratio of Quattor Química shares for Quattor shares was determined based on the equity of both companies on June 30, 2010, resulting in a capital increase of R$ 58,231 with the issuance of 7,538,949 common shares delivered to Quattor Petroquímica.

 

b.    Merger of Polibutenos

 

On the merger date, Polibutenos's capital was owned by Quattor (33.33%) and Braskem (66.67%). The exchange ratio of Polibutenos shares for Quattor shares was determined based on the equity of both companies on June 30, 2010, resulting in a capital increase of R$ 13,032 with the issuance of 1,687,179 common shares delivered to Braskem.

 

c.    Mergers of Mauá Resinas S.A. ("Mauá Resinas") and Norfolk Distribuidora Ltda ("Norfolk”)

 

19

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

 

 

On the merger date, Mauá Resinas and Norfolk were wholly-owned subsidiaries of Quattor; accordingly there was no capital increase or issue of shares by the merged  company.

 

(xi)         On May 26, 2010, the Company filed a request to register a public offer with CVM, in order to acquire the 7,688 common shares and 1,542,006 preferred shares of Quattor Petroquímica S.A. (“Quattor Petroquímica”) held by minority shareholders, as a result of the change in control. These shares represented 0.68% of the total capital of Quattor Petroquímica. CVM’s Board approved the public offer on October 28, 2010.

The public offer was completed and settled on December 16, 2010. The total number of shares acquired through the public offer was 224,968, and 1,324,726 preferred shares held by minority shareholders still remained. The remaining shares, valued at book value on March 31, 2010, increased the capital stock of Braskem by R$4,270 and were subscribed and paid-up by Quattor Petroquímica’s shareholders. 398,175 class A preferred shares were issued in this operation based on the ratio of 0.300571316385725 share of Braskem for each share of Quattor Petroquímica, according to the economic appraisal report of the companies, prepared by an independent expert (Note 26(a)).

 

This operation was approved by the Extraordinary General Shareholders’ Meetings held by Braskem and subsidiary Quattor Petroquímica on December 27, 2010, following disclosure in a Relevant Fact notice on December 7, 2010. 

 

CVM, by means of an official letter dated February 3, 2011, approved the cancelation of the authorization to trade the shares of subsidiary Quattor Petroquímica on the stock exchanges, which was requested by the Company on January 28, 2011.

 

On December 31, 2010, after the acquisition of the minority shareholders' shares of subsidiary Quattor Petroquímica item (xi) above Braskem’s interest in the investees is shown below:

 

20

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

 

 

 

 

(f.3) On February 1, 2010, Braskem announced that its subsidiary Braskem Americas, Inc. (“Braskem Americas”) had signed, on that same date, a Share Purchase and Sale Contract with Sunoco Inc., a U.S. oil company, through which it acquired all the total and voting capital of Sunoco Chemicals, Inc. (“Sunoco Chemicals”) for US$ 350 million, equivalent to R$ 620,000. Sunoco Chemicals has an annual installed capacity of 950 million metric tons of polypropylene distributed in three plants located in Pennsylvania, West Virginia and Texas.

                                                             

The transaction was completed on April 1, 2010, when full payment for the acquired shares was made. On the same date the name of the acquired company was changed to PP Americas.

 

In accordance with the accounting practices adopted when preparing these financial statements (Note 2) the acquisition represented a “business combination” as per Technical Pronouncement - CPC 15 and IFRS 3 the effects of which are stated in (Note 5).

 

(f.4) On June 1, 2010, Braskem approved the spin-off of its subsidiary Varient Distribuidora de Resinas Ltda. (“Varient”) and the merger of the spin-off part by the new subsidiary Alcacer Distribuidora de Resinas Ltda. (“Alcacer”). On the same date, negotiations were concluded to sell these two subsidiaries for a total value of R$ 12,700 (Note 13(b)).

21

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

 

 

 

(f.5) In November 2009, Braskem and Grupo IDESA Sociedad Anónima de Capital Variable (“IDESA”), a traditional petrochemical company in Mexico, announced that they had submitted the winning bid in a tender offer process in Mexico to implement a petrochemical project based on ethane in the Veracruz region with a supply contract through PEMEX-Gás, of 66,000 barrels/day of this input over a period of 20 years. As a result of winning the bid Braskem and IDESA signed a Memorandum of Understanding and finalized a definitive contract on February 23, 2010, involving:

 

(i)    a commitment by Braskem and IDESA to invest in the construction of an integrated ethane cracker, with production capacity of one million metric tons per year of ethylene; and

 

(ii)   to invest in three polyethylene plants producing approximately 1 million metric tons per year. The investment in the project, which is denominated Etileno XXI, is estimated at some US$2.5 billion, with conclusion of construction and operational startup of the unit expected in January 2015.

 

The name of the new investee is Braskem Idesa, Sociedad Anónima Promotora de Inversión (“Braskem Idesa”). The fully-subscribed share capital of this subsidiary totaled 76,592,000 Mexican pesos (approximately R$ 11,300) on May 25, 2010, represented by 6,300 shares, of which 65% are owned by Braskem and 35% by Etileno XXI Sociedad Anónima de Capital Variable. Additionally, on September 30, 2010, the shareholders contributed Mex$ 433,788 thousand (approximately R$ 58,345)  to Braskem Idesa's capital, through the issuance of 35,680 shares. Braskem Idesa's subscribed and paid-up capital is now Mex$ 510,380,000 (approximately R$ 69,648), represented by 41,980 shares.

 

(f.6) On December 17, 2010, the Extraordinary General Meeting held by Braskem approved the merger of Companhia Alagoas Industrial - Cinal (“Cinal”) into the Company, based on its book equity as of September 30, 2010, amounting to R$ 27,834, pursuant to the terms and conditions set forth in the protocol and justification, dated November 29, 2010, without changes in the Company’s capital stock, given that the Company is the only shareholder of Cinal.

 

(g) On December 31, 2010, Braskem’s net working capital (parent company) was negative R$ 1,352,639. As compared with, consolidated net working capital of positive R$ 316,811 on December 31, 2009. Because consolidated figures are used in the management of working capital, given that the Company uses mechanisms to transfer funds between the companies efficiently, without compromising the fulfillment of the commitments of each of the entities forming our consolidated statements, any analysis of parent company working capital will not reflect the actual liquidity position of the consolidated group. In addition, the Company has a US$350 million revolving credit line that may be used permanently for 3 years, which allowed us to reduce the amount of cash held by Braskem.

 

22

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

2               Summary of the Signigicant Accounting Principles

 

The significant accounting principles applied in the preparation of these financial statements are described below. These practices have been consistently applied in all periods presented.

 

2.1    Preparation basis

 

The financial statements were prepared based on the historical cost convention, adjusted to reflect the "deemed cost" of machinery and equipment at the date of transition to the CPCs and IFRS,  and the fair value of available-for-sale financial assets and financial assets and liabilities (including derivative instruments) held for trading.

 

The preparation of financial statements requires the use of certain critical accounting estimates and the exercise of judgment by the Company's management in the application of its accounting principles. More complex areas that require a higher level of judgment, as well as areas in which assumptions and estimates are significant to the consolidated financial statements, are reported in Note 3.

 

a)                                     Consolidated financial statements

The consolidated financial statements were prepared and are presented in accordance with accounting principles adopted in Brazil, including the pronouncements issued by the Brazilian Accounting Standards Board (CPCs), and the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

 

These are the first financial statements reported by the Company under the CPCs and the IFRS. The main differences between the accounting principles previously adopted in Brazil ("BR GAAP") and the CPCs/IFRS, including reconciliations of equity, profit or loss for the period, and statement of comprehensive income, are described in Note 4.

 

b)                                     Parent company financial statements

The parent company's separate financial statements were prepared in accordance with accounting practices in Brazil issued by the CPC, and are disclosed together with the consolidated financial statements. As required on the accounting practices adopted in Brazil applied to the separate financial statements differ from the IFRS only in the recognition of investments in subsidiaries and associated companies using the equity accounting method, whereas the IFRS establishes recognition based on cost or fair value.

 

 

2.2    Consolidated financial statements

 

The following accounting policies are applied in the preparation of the consolidated financial statements.

 

(a)                 Subsidiaries

 

Subsidiaries are all entities (including special purpose entities) whose financial and operating policies are determined by the Company, and in which the Company holds a majority of the voting rights. The existence and effect of potential voting rights, which are exercisable or convertible, are taken into account when evaluating whether the Company controls another entity.  Subsidiaries are fully consolidated as of the date when control is transferred to the Company, and are no longer consolidated as of the date the Company ceases to control the entity.

23

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

 

The purchase method is used to account for the acquisition of subsidiaries by the Company. The consideration for the acquisition of a subsidiary is the fair value of assets transferred, liabilities assumed and equity instruments issued by the Company. Identifiable assets acquired, and contingencies and liabilities assumed, in a business combination are initially measured at fair value on the acquisition date, regardless of the proportion of any minority interest. The excess of the acquisition cost over the fair value of the Company's interest in net identifiable assets acquired is recorded as goodwill. If the acquisition cost is lower than the fair value of the net assets of the acquire, the difference is directly recognized in the statement of income after all calculations are reviewed and the bargain purchase price is confirmed. When incurred, acquisition costs are recognized in profit or loss for the period. This is an accounting practice on the individual financial statements according CPC 15.

 

The Company accrues provisions for losses on investments in subsidiaries in connection with any net capital deficiency of these companies. Such provision is recorded as non-current liabilities against gains or losses from "interests in subsidiaries and associated companies".

 

Operations between the Company's subsidiaries and jointly controlled companies, as well as unrealized balances, and gains and losses from these operations, were eliminated. The accounting principles of subsidiaries were adjusted to ensure consistency with the accounting principles adopted by the Company.

 

(b)                 Jointly-controlled subsidiaries

 

These are entities whose activities are jointly controlled by the Company and one or more partners, under a shareholders' agreement. Joint control is the shared control over an economic activity, established by contract, which only exists when strategic, financial and operating decisions regarding the activity require unanimous consent from the parties sharing control. These investments are consolidated using the proportional method. (Note 2.2(d)).

 

 

(c)                  Parent company financial statements

 

In the separate financial statements of the parent company, subsidiaries and jointly-controlled subsidiaries are accounted for using the equity accounting method.

 

Adjustments made to conform with international accounting standards, pursuant to CPC 37 (R1) and IFRS 1, were applied both to the consolidated  and separate financial statements, so as to obtain the same profit or loss and equity as those attributable to the parent company's shareholders.

 

 

(d)                 Interests in subsidiaries, jointly-controlled subsidiaries and special purpose entities

 

The consolidated financial statements were prepared pursuant to the consolidation procedures established by CPC 36 and IAS 27, and include the financial statements for the Company and its subsidiaries, jointly-controlled subsidiaries and special purpose entities in which the Company holds a controlling stock position or controls the activities, directly and indirectly, as follows:

 

24

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

 

 

 

 

 

 

 

 

 

Total interest- %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Headquarters (Country)

 

2010  

 

2009

 

01/01/2009

 

 

 

 

 

 

 

 

 

 

 

 

Direct and indirect subsidiaries

 

 

 

 

 

 

 

 

 

 

 

Braskem America Inc. (“Braskem America”)

 

 

 

USA

 

100.00

 

100.00

 

100.00

 

Braskem Chile Limitada (“IPQ Chile”)

 

 

 

Chile

 

100.00

 

100.00

 

100.00

 

Braskem Distribuidora Ltda.(“Braskem Distribuidora”)

 

 

 

Brazil

 

100.00

 

100.00

 

100.00

 

Braskem Europe B.V. (“Braskem Europa”)

 

 

 

Netherlands

 

100.00

 

100.00

 

100.00

 

Braskem Finance Limited (“Braskem Finance”)

 

 

 

Cayman Islands

 

100.00

 

100.00

 

100.00

 

Braskem Idesa, Sociedade Anónima Promotora de Inversión (“Braskem

   Idesa”)

 

 

 

 

Mexico

 

 

65.00

 

 

 

 

 

 

Braskem Incorporated (“Braskem Inc”)

 

 

 

Cayman Islands

 

100.00

 

100.00

 

100.00

 

Braskem Importação e Exportação Ltda. (“Braskem Importação”)

 

 

 

Brazil

 

100.00

 

100.00

 

100.00

 

Braskem México, S de RL de CV (“Braskem México”)

 

(i)

 

Mexico

 

100.00

 

 

 

Braskem Participações S.A. (“Braskem Participações”)

 

 

 

Brazil

 

100.00

 

100.00

 

100.00

 

Braskem Petroquímica S.A. (“IPQ Argentina”)

 

 

 

Argentina

 

100.00

 

100.00

 

100.00

 

Braskem Petroquímica Chile Limitada (“Braskem Chile”)

 

 

 

Chile

 

100.00

 

100.00

 

100.00

 

Braskem PP Americas Inc (“PP Americas”)

 

(ii)

 

USA

 

100.00

 

 

 

 

Companhia Alagoas Industrial - CINAL (“CINAL”)

 

(iii)

 

Brazil

 

 

100.00

 

100.00

 

Copesul International Trading INC. (“CITI”)

 

(iv)

 

British Virgin Islands

 

 

 

 

 

100.00

 

Lantana Trading Co. Inc. (“Lantana”)

 

 

 

Bahamas

 

100.00

 

100.00

 

100.00

 

Ideom Tecnologia Ltda. (“Ideom”)

 

 

 

Brazil

 

100.00

 

100.00

 

100.00

 

IQ Soluções & Químicas S.A.(“Quantiq”)

 

 

 

Brazil

 

100.00

 

100.00

 

100.00

 

Ipiranga Química Armazéns Gerais Ltda. (“IQAG”)

 

 

 

Brazil

 

100.00

 

100.00

 

100.00

 

ISATEC–Pesquisa, Desenv. e Análises Quím.Ltda. (“ISATEC”)

 

 

 

Brazil

 

100.00

 

100.00

 

100.00

 

Natal Trading

 

(iv)

 

British Virgin Islands

 

 

 

 

 

100.00

 

Politeno Empreendimentos Ltda. (“Politeno Empreendimentos”)

 

 

 

Brazil

 

100.00

 

100.00

 

100.00

 

Varient Distribuidora de Resinas Ltda (“Varient”)

 

(v)

 

Brazill

 

 

 

100.00

 

 

Quattor Participações S.A. (“Quattor”)

 

(vi)

 

Brazil

 

100.00

 

 

 

 

Quattor Petroquímica S.A. (“Quattor Petroquímica”)

 

(vi)

 

Brazil

 

100.00

 

 

 

 

Rio Polímeros S.A. (“Riopol”)

 

(vi)

 

Brazil

 

100.00

 

 

 

 

Norfolk Trading S.A. (“Norfolk Trading”)

 

(vi)

 

Uruguay

 

100.00

 

 

 

 

Commom Industries Ltd. (“Commom”)

 

(vi)

 

British Virgin Islands

 

100.00

 

 

 

 

Unipar Comercial e Distribuidora S.A. (“Unipar Comercial”)

 

(vi)

 

Brazil

 

100.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jointly-controlled subsidiaries

 

(vii)

 

 

 

 

 

 

 

 

 

Refinaria de Petróleo Rio-Grandense S.A. (“RPR”)

 

 

 

Brazil

 

33.20

 

33.20

 

33.20

 

Polietilenos de America S.A.(“POLIMERICA”)

 

 

 

Venezuela

 

49.99

 

49.99

 

 

 

Polipropileno Del Sur S.A.(“PROPILSUR”)

 

 

 

Venezuela

 

49.99

 

49.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Specific Purpose Entitites (“SPEs”)

 

 

 

 

 

 

 

 

 

 

 

Fundo de Investimento Multimercado Crédito Privado Sol (“FIQ Sol”)

 

(viii)

 

Brazil

 

100.00

 

100.00

 

100.00

 

 

 

 

 

 

 

 

 

 

 

 

(i)       Incorporated in September 2010.

(ii)     Company acquired in April 2010. (Note 1.f.3)

(iii)    Subsidiary merged into the Company in December 2010. (Note 1.f.6)

(iv)    Subsidiaries merged into Braskem Inc. in December 2009.

(v)      Company created in September 2009 from the spin-off of Quantiq and sold in June 2010. (Note 1.f.4)

(vi)    Companies acquired in April 2010. (Note 1.f.2)

(vii)   Investments consolidated proportionally, in accordance with CPC 18.

(viii) Fund consolidated in compliance with CPC 36. (R1)

 

The interest of non-controlling shareholders in the equity and profit or loss of subsidiary Braskem Idesa was separately reported in the consolidated balance sheet and income statement for the year.

 

25

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

(e)    Reconciliation of shareholders' equity and net income between the parent company and consolidated

 

 

    Shareholders' equity   Net income of the period
    2010   2009   2010   2009
 
Parent Company   10,439,099   4,978,644   1,895,309   398,491
Braskem shares   (48,892)   -   -   -
Non-controlling interest   18,079   -   (5,824)   -
Consolidated   10,408,286   4,978,644   1,889,485   398,491

 

 

2.3    Segment reporting

 

Information per operating segment is presented according to the internal report provided to the key operating decision maker. The key operating decision maker, responsible for allocating funds and evaluating the performance of operating segments, is the Chief Executive Officer.

 

2.4    Foreign currency translation

 

(a)               Functional currency and presentation currency

 

The Company's functional and presentation currency is the Brazilian real, as defined by CPC 02 and IAS 21.

 

(b)               Transactions and balances

 

Foreign currency transactions are translated into the functional currency based on the exchange rate at the transaction or measurement date, when the items are re-measured. Exchange gains and losses deriving from the settlement of these transactions and the translation based on year-end exchange rates, regarding foreign currency monetary assets and liabilities, are recognized in the statement of income for the year, except when deferred in  equity as qualifying cash flow hedging operations.

 

Exchange variations under assets or liabilities from borrowings are reported in the statement of income as Financial income or expenses, respectively.

 

Changes in the fair value of foreign currency monetary instruments, classified as available for sale, are divided between the exchange variations of amortized cost recognized in profit or loss, and other variations in the instrument's book value, recognized in equity as Other comprehensive income.

 

(c)               Foreign subsidiaries

 

Some direct or indirect subsidiaries have a different functional currency from that of the Company, as: i) for companies Propilsur and Polimerica, based in Venezuela, the functional currency is the U.S. dollar, because these companies are in the construction phase and the capital investments and the main equipment suppliers are based on this currency; ii) for Braskem Idesa, based in Mexico, the functional currency is the Mexican peso; and iii) for PP Americas, based in the United States, the functional currency is the U.S. dollar.

 

26

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

The financial statements of these subsidiaries are translated to the Company's presentation currency, under CPC 02 and IAS 21, which determines, among other matters, the following conversion rules:

  • Assets and liabilities of each balance sheet presented are translated using the foreign exchange rate at the end of each reporting period;
  • The equity for the beginning of the period corresponds to the closing equity at the end of the previous reporting period, as translated at the time. Changes in the opening equity during the reporting period are translated using the effective rates on the respective dates; and
  • The accounts presented in the statements of income are translated using the foreign exchange rates on the transaction dates or, for practical reasons, an average rate for the periods; provided that the difference between these rates is not material.

 

All resulting foreign exchange differences are recognized as a separate item in equity, under Foreign currency translation adjustments in Other comprehensive income.

 

When a foreign operation is partially disposed of or sold, foreign exchange differences recorded in equity are recognized in the statement of income as a part of the gain or loss on sale.

 

2.5 Cash and cash equivalents

 

Cash and cash equivalents include cash on hand, bank deposits, and highly liquid short-term financial investments maturing in up to three months, less any amounts used on overdraft accounts. Cash and cash equivalents are promptly convertible into a known amount of cash, and subject to an insignificant risk of change in value.

 

2.6 Financial instruments

 

A financial instrument is a contract that results in a financial asset for an entity, and a financial liability or equity instrument for another entity.

 

2.6.1 - Classification

 

The Company classifies its financial assets in the categories listed below. The classification depends on the purpose for the acquisition of such financial assets. The Companys’ management determines the classification of the financial assets upon initial recognition.

 

(a) Held for trading – measured at fair value, and are acquired principally for the purpose of active and frequent trading, including derivatives, except for those designated for hedge accounting. Assets in this category are classified under current assets. Gains or losses from changes in the fair value of financial assets held for trading are recognized in the profit or loss for the period.

 

(b) Loans and receivables – non-derivative financial assets with fixed or determinable payments and that are not quoted in an active market. Loans and receivables are recognized under current assets, except for those due in over 12 months following the balance sheet date (these are classified as non-current assets). The Company's loans and receivables include balances of intra-group loan contracts and current accounts with related companies, trade accounts receivable, other accounts receivable, and cash and cash equivalents, except for short- and long-term investments. Loans and receivables are accounted for at amortized cost, based on the effective interest method.

27

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

(c) Held-to-maturity - these are basically the financial assets that cannot be classified as loans and receivables because they are quoted in an active market. In this case, the Company acquires these financial assets with the intention and financial capacity to hold them to maturity. They are recorded at acquisition cost plus income earned, which is included in the profit or loss for the period. The Company's held-to-maturity assets consist mostly of subordinated quotas in investment funds, classified as non-current assets.

 

(d) Available-for-sale – these are non-derivatives recognized in this classification or that are not recognized in any other category. They are included in non-current assets, unless management intends to dispose of the investment in up to 12 months after the balance sheet date. Available-for-sale financial assets are recognized at fair value. Interest on available-for-sale securities, calculated based on the effective interest method, is recognized in the statement of income as financial income. The portion corresponding to changes in fair value is recognized in equity, net of taxes, under Other comprehensive income, and is transferred to profit or loss upon realization or due to impairment losses.

 

2.6.2 – Recognition and measurement

 

Regular way purchases or sales of financial assets are recognized on the trade date, i.e. date when the Company commits to buy or sell the asset. Investments are initially recognized at fair value. Transaction costs for held-for-trading financial assets are charged to the statement of income. For other financial assets, transaction costs are added to the respective fair value. A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or are transferred, provided that the Company has transferred substantially all the risks and rewards of ownership of the financial asset. Available-for-sale and held-for-trading financial assets are always recognized at fair value. Loans and receivables are recorded at amortized cost, based on the effective interest method.

 

Gains or losses from changes in the fair value of financial assets held for trading are recognized in the statement of income, under "financial result", in the period they occur.

 

Changes in the fair value of monetary and non-monetary instruments, classified as available for sale, are recognized in equity under "other comprehensive income."

 

When available-for-sale instruments are sold or become impaired, the cumulative adjustments to fair value, recognized in equity, are transferred to the statement of income as financial income or expense.

 

Interest on available-for-sale securities, calculated based on the effective interest method, is recognized in the statement of income as financial income. Dividends from available-for-sale equity instruments, such as shares, are recognized in the statement of income as other operating revenues as soon as the Company's right to receive payments is established.

 

The fair value of publicly-traded investments is based on the current acquisition price. If the market for a financial asset (instruments not traded on a stock exchange) is not active, the Company establishes the fair value by using valuation techniques. Valuation techniques include the use of recent transactions contracted with third parties, reference to other substantially similar instruments, analysis of discounted cash flows, and option pricing models that make the best use of information generated by the market, and rely the least possible on information generated by the Company's management.

 

28

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

The Company analyzes, at the balance sheet date, if there is objective evidence that a financial asset or group of financial assets has become impaired. If there is any evidence of impairment of available-for-sale financial assets, the cumulative loss—measured as the difference between the acquisition cost and the current fair value less any impairment loss previously recognized in profit or loss—is transferred from equity to the statement of income.

 

2.6.3   – Financial instruments offsetting

 

Financial assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally applicable right to offset the recognized amounts, and there is an intention of settling them on a net basis, or of realizing the asset and settling the liability simultaneously.

 

2.6.4 – Impairment of financial assets

 

(a)   Assets at amortized cost

 

The Company analyzes at the end of each reporting period whether  there is objective evidence that a held-to-maturity financial asset is impaired.

 

Losses are recognized when there is objective evidence of impairment as a result of one or more events occurred after the initial recognition of the assets. The loss amount is calculated as the difference between the asset's recognized amount and the present value of the estimated future cash flows (excluding future credit losses that have not yet occurred) discounted at the assets original effective rate.

 

The Company recognizes impairment of trade accounts receivable as follows: 100% of the amounts over 180 days past due 50% of the amounts over 90 days past due and 100% of the amounts under court collection procedures. This calculation also includes amounts derived from a second renegotiation with clients, as well as all amounts derived from the first renegotiation and with payments due in over 24 months. Accounts receivable with related companies are not included in this calculation.

 

(b)   Available-for-sale assets

 

When the decrease in fair value is recurring, and there is objective evidence that this reduction is other-than-temporary, the Company transfers all cumulative losses from other comprehensive income to the profit or loss for the period.

 

Impairment losses recognized in the separate consolidated income statement on equity instruments are not reversed through the separate consolidated income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the separate consolidated income statement.

 

29

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

2.7       Derivative financial instruments and hedge operations

 

Derivative financial instruments are recognized initially at fair value on the date the derivative is contracted, and are subsequently re-measured at fair value.

 

The method used to recognize the resulting gain or loss depends on whether or not the derivative is designated as a hedge instrument recording by fair value. If it is, the method depends on the nature of the hedged item. The Company designates certain derivatives as:

 

(a)    fair value hedge of recognized assets or liabilities or a firm commitment (fair value hedging);

(b)   hedge of a specific risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedging); or

(c)    hedge of a net investment in a foreign operation (net investment hedging).

 

The Company documents, at the inception of the transaction, the relationship among the hedge instruments and hedged items, as well as the objectives of the risk management and the strategy for hedge operations. The Company also documents its evaluation, both at the inception of the hedge transaction and on a continuing basis, that the derivatives used in hedge operations are highly effective in offsetting changes in the fair value or cash flows of hedged items.

 

The fair value of derivatives used for hedging purposes is disclosed in Note 19. Changes in "Other comprehensive income" in equity are presented in the statement of comprehensive income. The fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is over 12 months; otherwise, it is classified under current assets or liabilities.

 

(a)     Fair value hedging

 

Changes in fair value are recognized in the statement of income, in the same line of the hedged asset or liability. A gain or loss related to the non-effective portion is recognized in the statement of income as "other operating revenues (expenses), net."

 

If the hedge no longer meets the hedge accounting criteria, the adjustment to the book value of a hedged item, calculated using the effective interest method, is amortized to profit or loss through maturity.

 

The Company has no fair value hedging operations at the end of the reported periods.

 

(b)     Cash flow hedging

 

Changes in the fair value of the effective portion are recognized in equity under Other comprehensive income. Gains or losses related to the non-effective portion are immediately recognized in the statement of entries as Gains/losses in derivative operations under Financial result.

 

When a hedge instrument no longer meets the hedge accounting criteria, or terminates for any reason (expiration, sale or exercise), hedge accounting is prospectively discontinued, and any  cumulative gains or losses existing  in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the statement of operations. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was recognized in equity is immediately transferred to the new statement.

 

The Company's cash flow hedging operations are described in Note 19.

 

30

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

(c)      Net investment hedging

 

Hedges of net investments in foreign operations are recognized in a manner similar to cash flow hedging. Gains or losses from the hedge instrument related to the effective portion of the hedge are recognized in equity under Other comprehensive income.  Gains or losses related to the non-effective portion are immediately recognized in the statement of income under Financial result.

 

When a foreign operation is partially disposed of or sold, cumulative gains and losses recorded in equity are transferred to the statement of income.

 

The Company had no net investment hedging operations at the end of the reported periods.

 

(d)     Derivatives not designated as hedge instruments

 

Derivatives not designated as hedge instruments are classified as current assets or liabilities.

Changes in the fair value of any of these derivative instruments are immediately recognized in the statement of income as Gains/losses in derivative operations  under Financial result.

 

2.8       Trade accounts receivable

 

Trade accounts receivable are recorded at the amount billed, adjusted to present value when applicable, less any provision for impairment losses.

 

2.9       Inventories

 

Inventories are recognized at lower of the average cost of purchases or production, and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.  Imports in transit are recognized at the cumulative cost of each import. The Company has adopted the absorption costing method for its inventories, using the weighted moving average. Provisions for impairment losses of obsolete or slow-moving inventories are accrued whenever management deems necessary.

 

2.10     Interests in associated companies and other investments

 

Associated companies are entities over which the Company has significant influence, but not control, with an interest of usually 20% to 50% of the voting rights. Investments in associated companies are accounted for on the equity accounting method, and are initially recognized at cost. The Company's investments in associated companies include the cumulative goodwill on the acquisition, net of impairment losses.

 

Other investments are recognized at acquisition cost less any provision for adjustment to market value, where applicable.

 

2.11     Property, plant and equipment

 

Property, plant and equipment is recognized at cost less cumulative depreciation and impairment losses, where applicable. Cost includes:

31

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

a)      acquisition price, financing charges incurred during construction (Note 17.f), and all other costs necessary to make the asset ready for use;

b)      imputed cost related to the monetary restatement of the property, plant and equipment item in the hyperinflationary period; and

c)      fair value of assets acquired through business combinations.

 

Costs subsequent to the acquisitions arising from scheduled shutdowns for maintenance and/or replacement of parts, and the corresponding services, are added to the book value of the related asset. Shutdowns occur at scheduled intervals that range from two to six years, and the respective expenses are depreciated through the beginning of the next shutdown.

 

Rights over tangible assets intended for the maintenance of the activities of the Company and its subsidiaries, derived from financial lease operations, are initially recognized at fair value, and depreciated on a straight-line basis through the lower of the remaining useful life or the contract term.

 

Asset depreciation is calculated using the straight-line method, so as to allocate the costs over the estimated useful life of the assets, as follows:

 

  • Buildings and improvements                                                              4.12%
  • Machinery, equipment, and facilities                                                  6.72%
  • Mines and Well                                                                                9.01%
  • Furniture and fixtures                                                                       10.36%
  • Computing equipment                                                                       20.50%
  • Lab / security equipment                                                                    9.88%
  • Other                                                                                              17.26%

 

2.12     Intangible assets

 

Intangible assets include the following:

 

(a)  Goodwill

 

Goodwill is represented by the positive difference between the amount paid and/or payable for the acquisition of a business and the net fair value of the assets and liabilities of the acquisition. Goodwill on the acquisition of subsidiaries is recorded as an intangible asset." Negative goodwill (bargain purchase) on an acquisition is recorded as gain in profit or loss for the period, at the acquisition date.

 

Goodwill is accounted for at cost less any cumulative impairment loss; impairment losses are not reversed.

 

The Company's goodwill was calculated in accordance with the criteria determined by generally accepted accounting principles in Brazil prior to the adoption of the pronouncements of the CPC, and represents the positive difference between the amount paid and the value of the net assets of the entity acquired at the time. As described in Note 4.2.1, the Company applied the exemption related to the business combinations formed prior to January 1, 2009 and did not re-measure these amounts. These goodwill not been amortized since January 1, 2009 and are tested annually to verify any probable impairment losses.

 

(b)  Trademarks and patents

 

32

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

These include the registered trademarks, and technologies acquired from third parties and in a business combination. They are recognized at acquisition cost and/or fair value less cumulative amortization and impairment losses, where applicable. Trademarks and patents with a finite life are amortized using the straight-line method based on the estimated useful life of the assets (from 15 to 20 years) or over the period of the contract.

 

Research expenses are recognized in profit or loss as incurred.

 

(c)  Contractual relationships with clients and suppliers

 

Contractual relationships with clients and suppliers, acquired in a business combination, are recognized at fair value at the acquisition date. They are recorded at cost less cumulative amortization. Such contractual relationships have a finite life and are amortized using the straight-line method over the period of the contract.

 

(d)  Software

 

Software is recognized at cost less cumulative amortization and impairment losses, where applicable. Cost includes the acquisition price and all other costs to make the software ready for use. Software with a finite life is amortized using the straight-line method based on its estimated useful life (from 3 to 10 years) or over the period of the contract. Costs related to software maintenance are recognized as expenses as incurred.

 

2.13     Impairment of non-financial assets

 

Assets with an indefinite useful life, such as goodwill, are not amortized and are tested for impairment annually. To test for impairment, goodwill is allocated to each of the acquirer’s cash generating units or groups of cash generating units.

 

Assets that are amortized are tested for impairment whenever events or changes in circumstances indicate that the assets may be impaired. 

 

An impairment loss is recognized at the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. To test for impairment, the assets are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows from other assets or group of assets. Impaired non-financial assets, except for goodwill, are assessed to determine whether impairment losses can be reversed at the balance sheet date.

 

2.14     Other assets

 

Other assets are stated at realizable amount, plus, where applicable, income earned and monetary variations or, in the case of prepaid expenses, at cost.

 

2.15     Suppliers

 

Suppliers consist of amounts payable for goods or services purchased from suppliers in the normal course of business and are stated at the billed amount. Where applicable, this account is recognized at present value, transaction by transaction, based on interest rates that reflect the term, currency and risk of each transaction. 

 

The Company usually calculates the adjustment to present value for payment term in excess of 180 days. The adjustment to present value is calculated base on specific interest rates for each transaction and reflected  as financial expenses. Naphtha is our main raw material, imported by Braskem and that commodity is priced in accordance with Antwerp, Rotterdam and Amsterdam(“ARA”) pricing of the European markets in addition to freights and financial charges for extended payment term.

33

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

 

 

2.16     Loans and financing and debentures

 

Loans and financing are initially stated at fair value and net of transaction costs incurred on the structured operation. Subsequently, they are presented increasing fees and other proportional charges on the incurred period.

 

The same method adopted for recognition of loans and financing was used for non-convertible debentures.

 

2.17     Provisions

 

A provision is recognized in the balance sheet when the Company has a legal, contractual or constructive obligation that has arisen as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and the amount can be estimated reliably. 

 

Provisions for tax, labor and other contingencies are recorded based on external legal advisors’ estimates of probable losses from ongoing proceedings, according legal external advisors of the Company (Note 22).

 

Contingencies assessed as involving only possible success that have been assumed in business combinations are recognized at fair value at the acquisition date. Subsequently, such contingent liabilities are measured at the higher of amount booked in the business combination and that amount determined under IAS 37.

 

Provisions are measured at the present value of the estimated expenditure required to settle the obligation, using a pre-tax discount rate that reflects the current market conditions. The increase in the obligation over time is recognized as a financial expense. 

 

2.18     Deferred income tax and social contribution

 

Deferred income tax and social contribution are calculated on tax loss carryforwards, temporarily non-deductible expenses and temporarily non-taxable income arising from differences between the book and tax

 

 

34

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

bases in accordance with the liability method. Income tax and social contribution of the Company and its subsidiaries in Brazil are calculated at the rate of 25% and 9%, respectively.

 

Deferred tax assets are recognized to the extent it is probable that sufficient taxable profit will be available in the coming years to allow the benefit of part or all of that deferred tax assets to be utilized, based on projections of profits using internal assumptions and future economic scenarios.  The carrying amount of deferred tax assets is periodically reviewed and the effects, including realization or settlement effects, are reflected based on the applicable tax laws.

 

Deferred income tax and social contribution are recognized using the liability method for temporary differences between the tax bases of assets and liabilities and the consolidated financial statement carrying amounts. However, deferred tax is not recognized if the tax arises from the initial recognition of an asset or a liability other than in a business combination which, at the time of the transaction, does not affect either the accounting or the taxable profit. Deferred income tax and social contribution are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date.  Deferred tax assets are recognized only if it is probable that there will be sufficient future taxable profit against which the temporary differences can be utilized.

 

Deferred tax assets and liabilities can be offset when there is the legal right to settle on a net basis and they are levied by the same taxing authority on the same entity or different entities that intend to realize the asset and settle the liability at the same time.

 

Current income tax and social contribution are calculated based on tax laws that have been enacted or substantively enacted at the balance sheet date in the countries in which the Company’s subsidiaries and associated companies operate and generate taxable profit. Management periodically assesses the data reported by the Company in its income tax returns to look for situations which, under prevailing tax regulation, are subject to interpretation.  Provisions are recognized where appropriate, based on estimates of the amounts to be paid to the tax authorities.

 

Tax expenses for the period include current and deferred income tax and social contribution. Income tax and social contribution are recognized in profit or loss; however, if the tax relates to items that are credited or charged directly to equity, the tax is also credited or charged directly to equity.

 

2.19     Employee benefits – pension plan

 

Defined benefit plan obligations are the present value of the defined benefit obligation at the balance sheet date, as adjusted for actuarial gains or losses and past service costs, and reduced by the fair value of the plan assets.   The defined benefit obligation is determined annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined based on the expected future payments required to settle the obligation, using the interest rates of public securities, whose maturities approximate the maturities of the related liability.  

 

Actuarial gains and losses, which arise from experience adjustments and changes in actuarial assumptions and exceed 10% of the greater of the fair value of plan assets or plan liabilities, are charged or credited to expenses or income over the expected remaining working lives of the participating employees.

 

35

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

Under a defined contribution plan, the Company pays contributions into a privately-managed fund on a compulsory, contractual or voluntary basis but has no obligation to make further payments. Regular contributions are included in personnel costs (Note 24).

 

2.20     Contingent assets, legal obligations and judicial deposits

 

The recognition, measurement and disclosure of contingent assets and legal obligations are made in accordance with CPC 25 and IAS 37, as follows:

 

i)           Contingent assets – are not recognized on the accounting, unless management considers that a gain is virtually certain or if there are tangible guarantees or unappealable favorable court decisions. 

 

ii)         Legal obligations – arise from tax obligations, whose legality or constitutionality is being challenged in a court of law and regardless of the probability of a successful outcome, are fully recognized in the financial statements.

 

iii)       Judicial deposits – are included in non-current assets, without offset against the related provisions for contingencies or legal obligations, unless such deposit is legally offsetable against the liability and the company plans to set off such amounts. In such cases, the deposit asset is netted against the related liability.

 

2.21     Offset of financial instruments

 

Financial assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally applicable right to offset the recognized amounts, and there is an intention of settling them on a net basis, or of realizing the asset and settling the liability simultaneously.

 

2.22     Sales revenue recognition

 

Sales revenue represents the fair value of the consideration received or receivable for sale of goods and services in normal course of business and is recorded on the accrual basis. Revenues are shown net of value-added-tax, returns, rebates and discounts and after eliminating sales within the group.

 

Revenue arising from the sale of goods is recognized: (i) when the amount of revenue can be measured reliably  and the Company retains neither effective control over the goods sold nor continuing managerial involvement to the degree usually associated with ownership; (ii) the costs incurred or to be incurred in respect of the transaction can be measured reliably; (iii) it is probable that the economic benefits associated with the transaction will flow to the Company; and (iv) all the risks and rewards of ownership have been transferred to the buyer. Sales freight is included in cost of sales.

 

Braskem's sales are mostly to industrial customers, and lower volume for retailers. Deliveries are made by truck, rail, ship or pipeline and the revenue recognition occurs when the risks and benefits inherent to the products are substantially transferred to the buyer. Based on the experience of the Company, accrued sales returns and discounts have no material impact in the Company´s financial statements and are not estimated or provisioned and there are no loss guarantees related to product performance.

 

 

2.23     Dividend distribution

 

36

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

The distribution of dividends to the Company’s shareholders is recognized as a liability in the year-end financial statements, based on the Brazilian Corporation Law and the Company’s bylaws.  

 

The amount related to the mandatory minimum dividend payment is recognized in liabilities under dividends payable because it is considered to be a legal obligation under the Company’s bylaws. The amount of dividends greater than the mandatory minimum dividend, declared by the Company’s management after the reporting period but before the date of authorization to issue the financial statements, is not recorded as a liability, but is shown under the caption “proposed additional dividend” in equity.

 

2.24     Operating leases

 

Leases under which a significant portion of the risks and rewards of ownership is retained by the lessor are classified as operating leases. Operating lease payments (net of any incentives received from the lessor) are recognized as an expense in the statement of income over the lease term on a straight-line basis. 

 

 

2.25     Standards, changes and interpretations of standards that is not yet effective

 

 Standards, changes and interpretations of current standards that are not yet effective and have not been adopted by the Company and its subsidiaries:

 

 

Standards

Term

Requirements

IFRIC 19

Extinguish Financial Liabilities with Equity Instruments

 

 

From fiscal years beginning on 07/01/2010

 Extinction of financial liabilities to equity instruments - The standard clarifies the accounting and should be applied when renegotiating terms of a financial liability results in the issuance of an equity instrument by the Company to the lender in order to partially or completely extinguish that debt. This standard will be applied by the Company from January 1, 2011.

a.          IFRS 9

b.         Financial instruments

c.         From fiscal years beginning on 01/01/2013

d.         (earlier adoption permitted)

e.         This standard introduces new requirements for classifying and measuring financial assets and is likely to affect the recognition and measurement of financial assets of the Company. The rule does not apply until January 1, 2013 but is available for early adoption.

 

3                                    Application of Judgment and Critical Accounting Practices

 

Critical accounting practices are those which: a) are important to show the financial condition and the results of the Company; and (b) require more difficult, subjective or complex rulings on the part of management  frequently resulting in the necessity to make estimates which have an impact on matters that are inherently uncertain. Increases in the number of variables and assumptions that affect the possible future resolution of these uncertainties makes these judgments even more subjective and complex. In the preparation of these financial statements, the Company has adopted variables and assumptions derived from historical experience and various other factors it believes to be reasonable and relevant. Even though these estimates and assumptions are reviewed by the Company in the normal course of business, the presentation of its financial condition and result of operations frequently require the use of judgments about the effects of inherently uncertain matters on the book value of the assets and liabilities. The actual results may differ from the estimates under different variables, assumptions or conditions. An understanding of how the Company forms its judgments about future events, including the variables and assumptions used in the estimates, is included in the following comments referring to each critical accounting practice of substantial complexity in the preparation of these financial statements:

37

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

3.1 Deferred income tax and social contribution

 

The liability method described in CPC 32 and IAS12 is used to account for deferred income tax and social contribution relating to temporary differences between the book values of the assets and liabilities and the respective values for tax purposes. The deferred income tax and social contribution assets are reviewed on each date of the financial statements and reduced by any amount not expected to be realized against future taxable profit. Deferred tax assets and liabilities are calculated using the rates applicable to the taxable profit in the years that these temporary differences will be realized. The future taxable profit could be greater or smaller than the estimates considered when the tax asset is recorded.

The deferred tax assets recognized on income tax and social contribution losses are supported by projections of taxable results presented annually to management. These projections consider the history of profitability of the Company and its subsidiaries and the perspectives of generating sufficient taxable profit to recover the credits in the future.  Deferred tax liabilities of the same tax payment entity are taken into account as a source of recoverability for deferred tax assets, based on the timing of expected reversal.

 

3.2 Pension plans

 

Actuarial gains and losses are recognized in the period that they occur and are recorded in the statement of operations.

 

The Company recognizes the obligation of the employee defined benefit plans and related costs, net of the plan assets, adopting the following practices:

 

i)        Pension cost is determined by actuaries using the projected unit credit method and the best estimate of management about the expected performance of the plan assets, salary increases and retirement age of employees. The discount rate used to determine the future benefit obligation and is an estimate of the current rate of interest at the date of the balance sheet for a high quality fixed rate investments which matures at the same time as the expected obligations.

 

ii)      Pension plan assets are valued at market value.

 

iii)    Plan curtailments are significant alterations to service time expected from the active employees. A net curtailment loss is recognized when the event is probable, and can be estimated, while a net gain is deferred until it is realized.

 

Various statistics and other factors are used in the accounting for pension benefits in order to anticipate future events for the calculation of the expense and obligation related to the plans. These factors include discount rate, expected return on plan assets and salary increases. Additionally actuaries use subjective factors such as rate of staff turnover, rotation and mortality to estimate these factors. The actuarial assumptions used by the Company could be materially different for the actual result due to changes in economic conditions and the market such as regulatory events, judicial decisions, higher or lower staff turnover or longevity of the participants being shorter or longer (Note 24).

 

3.3 Derivative financial instruments

 

38

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

The Company values the derivative financial instruments at their fair value on the date of the financial statements, mainly based on market quotations. Nevertheless the high volatility of the foreign exchange and interest rate markets in Brazil caused, in certain periods, significant movements in future rates and interest rates over short periods of time, leading to significant variances in the market value of swaps and other financial instruments. The market value recognized in the financial statements may not necessarily represent the amount of cash that the Company would receive or pay, as applicable, if the Company were to settle the transaction at the date of the financial statements (Note 19).

3.4 Useful life of long-lived assets

The Company recognizes the depreciation of its long-lived assets based on the estimated useful life which in turn is based on industry practices and previous experience and reflects the economic life of the long-lived assets. However, the actual useful life can vary based on the current state of technologies at each unit. The useful life of the long-lived asset also affects the impairment testing.

The Company does not believe that have no indications of material change in the estimates and assumptions used in the calculation or the impairment losses of long-lived assets. However, if the actual results are not consistent with the estimates and assumptions used in the future cash flows estimating the fair value of the assets, the Company could be exposed to losses, which could be significant.

3.5 Valuation of assets and liabilities in business combinations

 

The Company has entered into certain business combinations, as described in Note 5, in accordance with CPC 15 and IFRS 3 in the case of acquisitions occurring after the transition date to IFRS. The Company has allocated the cost of the entity acquired to the assets acquired and liabilities assumed, on a fair value basis, estimated at the date of acquisition.

 

Any difference between the cost of the acquisition and the fair value of the assets acquired and liabilities assumed is recorded as goodwill. The Company exercises significant judgment in the process of identifying the tangible and intangible assets and liabilities, valuing such assets and liabilities in determining the remaining useful life. Assumptions used to value those assets and liabilities include estimates of discounted cash flows or discount rates and may result in a difference between the estimated and actual values. the actual results are not consistent with the estimates and assumptions used, the Company could be exposed to losses If, which could be significant.

3.6 Contingencies

The Company is currently involved in numerous legal and administrative processes as described in Note 25. The Company has accrued amounts relating to contingencies when it believes the unfavorable decision, according to the evaluations of external advisors are considered remote. Additionally, the Company recognizes the fair value of the Quattor contingencies assessed as involving possible losses, as required by the rules applicable to business combinations. The Company’s management believes that the evaluations based on the opinion of the external advisors are appropriate, although such accruals could differ from the actual result when realized.

 

39

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

3.7 – Impairment test for long-lived assets

 

There are specific rules to test the recoverability of long-lived assets, especially property, goodwill and other intangibles. On the date of each financial statement, the Company makes an analysis to determine if there is evidence that the long-lived assets may not be recoverable. If such evidence is identified, the recoverable amount of the assets is estimated by the Company.

 

The recoverable amount of an asset is determined as the greater of: (a) the fair value minus estimated costs of sale; and (b) the value in use. The value in use is measured based on pre-tax discounted cash flows generated by the continuous use of the asset until the end of its useful life.

 

When the book value exceeds the recoverable amount, the Company recognizes an appropriate provision.

 

Whether or not there are indications that an asset might not be recovered, the balance of goodwill arising from business combinations and intangible assets with an indefinite useful life are tested for impairment at least once a year as at the date of the financial statements. For this test, the Company uses accepted market practices including discounted cash flows for units with goodwill allocated and compares the book value with the recoverable value of the assets.

 

Except in the case of goodwill reversal of an impairment loss on assets is permitted. Non financial assets other than goodwill that suffered an impairment are reviewed for potential reversal of impairment at each reporting date.

 

The recoverability of goodwill is evaluated when facts and circumstances which could result in the necessity to anticipate the annual test are identified. If some fact or circumstance indicates that the recoverability of goodwill is affected, the test is anticipated. In December 2010 the Company tested goodwill for all cash generating units and /or business units representing the lowest level at which goodwill is monitored by management based on projections of expected discounted cash flows and taking into consideration the assumptions about cost of capital, growth rates and adjustments used for perpetuity in the cash flow, methodology for the determination of working capital, investment plan and economic long-term financial forecast.

 

The impairment review process is subjective and requires significant judgment in performing the analysis. The evaluation of cash generating units and/or business units of the Company based on projected cash flows could be negatively affected, mainly if it does not take into account an eventual deterioration of the petrochemical market, significant drop in the world petrochemical spreads, suspension of activities at the Company’s industrial plants or relevant changes in the economy of financial markets that result in a perception of risk of reduction in liquidity and capacity to refinance.

 

 

 

40

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

4. First Time Adoption of IFRS

 

4.1 Transition of accounting practices

 

The consolidated financial statements for the year ended December 31, 2010 are the first annual consolidated financial statements to be prepared in conformity with the CPC and IFRS. The Company applied the CPC 37 (R1) and CPC 43 (R1) and IFRS 1 in the preparation of these consolidated financial statements.

 

The financial statements of the parent company for the year ended December 31, 2010 are the first separate annual financial statements to conform with the CPCs. The Company applied CPC 37 (R1) and CPC 43(R1) in the preparation of these separate financial statements.

 

The transition date is January 1, 2009. The Company’s management prepared the opening balance sheet, following the CPCs and IFRS for that date.

 

4.2 Exemptions and exceptions in the transition of accounting practices

 

Braskem opted to apply the following exemptions and exceptions relating to retrospective application provided for CPC 37 (R1) and IFRS 1 in the preparation of the opening balance sheet.

 

4.2.1 Retrospective application exemptions

 

(i) Business combinations

 

CPC 37 (R1) and IFRS 1 give the option to apply CPC15 and IFRS 3 prospectively from the date of transition or at a specific date before the transition date. This option excluded the obligation to apply business combination accounting rules retrospectively to combinations prior to the date of transition. The Company applied this exemption and did not restate the business combinations that occurred before January 1, 2009.

 

 (ii) Employee benefits

 

The Company opted to recognize in Retained earnings all cumulative past actuarial gains and losses at January  1, 2009  for all of the defined benefit pension plans.

 

(iii)             The following optional exemptions prescribed in the standards mentioned above do not apply to the Company:

 

·         Cumulative translation adjustments under CPC 02 (R2) and IAS 21 that has already been applied by the Company since January 1, 2009;

 

·         Exemption for leases CPC 06 (R1) and IAS 17 is not relevant to the Company’s operations;

 

·         Share-based payments CPC 10 (R1) and IFRS 2 were already aligned as regards these transactions, since January 1, 2009;

 

·         The standards relating to compound financial instruments because Braskem did not have a balance relating to this type of financial instrument at the date of transition to IFRS.

 

·         The standards relating to site restoration liabilities included in the cost of land, buildings and equipment. Braskem did not have this type of liability at the date of transition; and

41

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

 

·         Financial assets or intangible assets accounted for in accordance with ICPC 01 and IFRIC 12. Braskem did not have contracts within the scope of these standards.

 

4.2.2 Retrospective application exceptions

 

(i)                 Hedge accounting

 

Management has used hedge accounting since January 1, 2009 only in cases where the hedging relationship meets the criteria prescribed in CPC 38 and IAS 39. At the date of transition, the Company had derivatives designated as cash flow hedges that qualified for hedge accounting (Note 19).

 

(ii)               Estimates

 

The estimates in accordance with CPCs and IFRS on January 1, 2009 were consistent with the previous accounting practices adopted by the Company.

 

(iii)             Others

 

The following remaining retrospective application exceptions are not applicable to the Company

 

·         De-recognition of financial assets and liabilities; and

·         Participation of non-controlling shareholders in subsidiaries.

 

4.3 Reconciliation between BR GAAP and CPCs and IFRS

 

CPC 37 (R1) and IFRS 1 require that the Company prepare a reconciliation of equity at the date of transition and as of December 31, 2009 as well as of the statements of income, comprehensive income and cash flows for the year ended December 31, 2009.

 

The following tables present the reconciliation of the consolidated financial statements and parent company for the detailed balance sheet and other statements for December 31, 2009.

 

 

42

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

4.3.1. Reconciliation of opening balance sheet

 

a)        Parent Company

 

 

        December 31, 2009
            BRGAAP       Parent Company
        Parent Company   reclassifications   GAAP   adjusted to
Assets   Note (4.4)   BR GAAP   (4.5)   adjustments   CPCs
Current assets                    
Cash and cash equivalents   (j.iv)   2,262,804   -   31,320   2,294,124
Available for sale       261,453   -   -   261,453
Held for trading   (j.iv)   204,936   -   (31,320)   173,616
Trade accounts receivable   (j.i)   1,040,212   -   362,418   1,402,630
Inventories   (j.v)   1,769,798   -   (222,633)   1,547,165
Taxes recoverable       482,494   -   -   482,494
Dividends and interest on capital       3,736   -   -   3,736
Deferred income tax and social contribution   (j.ii)   55,972   -   (55,972)   -
Prepaid expenses       22,085   -   -   22,085
Other accounts receivables       120,518   -   -   120,518
        6,224,008   -   83,813   6,307,821
Non-current assets                    
Held to maturity       15,811   -   -   15,811
Hedge accounting transactions       5,334   (5,334)   -   -
Trade accounts receivable       58,343   -   -   58,343
Inventories   (j.v)   29,273   -   (29,273)   -
Taxes recoverable       1,253,889   -   -   1,253,889
Deferred income tax and social contribution   (i)   963,514   -   113,165   1,076,679
Judicial deposits   (j.iii)   147,327   (3,816)   70,022   213,533
Related parties       70,054   -   -   70,054
Other accounts receivable       67,770   9,150   -   76,920
Investments in subsidiaries   (a) e (g)   518,907   -   (107,260)   411,647
Investment in associated companies   (a)   20,686   -   115,991   136,677
Other investments       6,575   -   -   6,575
Property, plant and equipment   (c), (h) e (j.v)   9,850,672   -   977,781   10,828,453
Intangible assets   (h)   2,329,011   -   (17,000)   2,312,011
Deferred charges   (e)   70,980   -   (70,980)   -
        15,408,146   -   1,052,446   16,460,592
Total assets       21,632,154   -   1,136,259   22,768,413

43

 


 

Braskem S.A. and Subsidiaries

 

Notes to the Financial Statements

at December 31, 2010 and 2009

Amounts in thousands of Brazilian reais, except when otherwise indicated

 

        January 1, 2009
            BRGAAP       Parent Company
        Parent Company   reclassifications   GAAP   adjustedto
Assets   Note (4.4)   BR GAAP   (4.5)   adjustments   CPCs
Current assets                    
Cash and cash equivalents       2,199,862   -   -   2,199,862
Available for sale       331,452   -   -   331,452
Held to maturity       187,446   -   -