Petrobras (PBR)

^{(1) – Before financial expenses and revenues, equity in the net income of subsidiaries and net monetary and exchange variance.}

The growth in net income was mainly due to the increase in Gross Profit by R$ 5,877 million, chiefly caused by the following factors:

• Higher sales volumes on the domestic market (R$ 476 million)
  
  
• Higher derivatives prices on the domestic market (R$ 5,061 million) and the international market (R$ 1,445 million)
  
  
• The revenue increase was partly offset by the 4% increase to average unit costs of the goods sold, mainly caused by higher expenses on Government Profit Shares, due to the 7% increase to the average daily oil and LGN production in the period and the higher oil prices on international market.

Other factors included:

• Cuts to other operating expenses of R$ 1,114 million, including Pension Plans and Health Care Plans, deriving from: lower expenses on contractual contingencies in 2005 (R$257 million), due to the acquisitions of thermoelectric power stations through merchant banks and reduced expenditure on judicial tax contingencies, mainly due to the extrajudicial agreement executed in March 2005 with the Sao Paulo State Treasury, charging ICMS tax on petrochemical naphtha operations in the period Sep/84 through Feb/89) (R$ 286 million).

These effects were partially offset by the increase in the following expenses:

• Research and development costs (R$ 317 million) mainly due to the allocation of R$ 203 million, in accordance with the regulations of the ANP

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• Tax expenses (R$ 125 million) due to the PASEP/COFINS payable on other revenues (R$ 101 million), R$ 73 million of which refers to the regularization of prior years
  
  
• General and administrative expenses related to personnel salaries, advantages and benefits (R$ 73 million) and outsourced services (R$ 57 million), principally the consultancy services related to implementing the information systems solutions for projects and services in the new business and environmental management areas.

Positive effect of R$ 1,086 million on the net financial result, due to:

• The better performance recorded by the financial investments (R$ 352 million ), due to the reduced losses recorded by financial investments index to the US dollar (R$ 259 million), due to the fact appreciation of the Brazilian currency against the dollar (7.54%) decelerated in the first half of 2006 in relation to the first half of 2005 (11.45%) and the high yield returned by overseas funds, linked to Brazilian and US bonds, due to the decrease to the Brazilian sovereign risk (R$ 93 million)
  
  
• Lower financial charges on loans (R$ 33 million)
  
  
• Financial charges being renegotiated an outstanding receivables (R$ 52 million)
  
  
• Decrease to the negative exchange variance (R$ 515 million), due to the fact appreciation of the Brazilian currency against the dollar (7.54%) decelerated in the first half of 2006 in relation to the first half of 2005 (11.45%).

Decrease to nonoperating expenses mainly due to the reduction in losses incurred by idle capacity on the platforms P-14 and P-34 (R$ 126 million).

Higher expenses on income of social contribution taxes, due to the effect of the tax benefit on the provision for interest on capital in June 2005, which boosted profits in H1-2005 by R$ 746 million.