(Commission File No. 1-14862 )

(a free translation of the original in Portuguese)

Rio Polímeros S.A.

Financial Statements

at December 31, 2009 and 2008

and Report of Independent Accountants

Report of Independent Accountants

To the Management and Stockholders of

Rio Polímeros S.A.

1        We have examined the balance sheets of Rio Polímeros S.A. (“Company”) at December 31, 2009 and 2008 and the corresponding statements of operations, changes in stockholders’ equity, cash flows and value added for the years ended at said dates, prepared under its Management’s responsibility. Our responsibility is to express an opinion about these financial statements.

2        Our analysis were conducted in accordance with the auditing standards applicable in Brazil, which require analysis to be made with a view to providing a fairly presentation of the financial statements in all their material respects. Therefore, our review comprised, among other procedures: a) the planning of works, considering the relevance of balances, the volume of transactions, the accounting systems, as well as the Company’s internal controls; b) the verification, based on tests, of both evidence and records supporting the amounts and accounting information disclosed; and c) the evaluation of the most significant accounting practices and estimates adopted by the Company's Management, as well as the presentation of the financial statements taken as a whole.

3        In our opinion, the aforementioned financial statements duly represent, in all material respects, both equity and financial position of Rio Polímeros S.A. at December 31, 2009 and 2008, the result of its operations, the changes in stockholders’ equity, cash flows, as well as the value added in the operations related to the years ended at said dates, in accordance with the accounting practices adopted in Brazil.

4        Financial statements for the year ended December 31, 2009 were prepared assuming that the regularization of raw materials supply, which have been executed by Petróleo Brasileiro S.A. - PETROBRAS, will be successfully completed, as described in Note 1. Therefore, the financial statements do not include any adjustments due to this uncertainty.

Rio de Janeiro, March 17, 2010

 /s/ PricewaterhouseCoopers

PricewaterhouseCoopers

Auditores Independentes

CRC 2SP000160/O-5 "F" RJ

 /s/ Patricio Marques Roche

Patricio Marques Roche

Accountant

CRC 1RJ081115/O-4

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Balance Sheet at December 31

The notes are an integral part of the financial statements.

Statement of operations

For the years ended December 31

The notes are an integral part of the financial statements.

Statements of changes in stockholders’ equity

The notes are an integral part of the financial statements.

Rio Polímeros S.A.

Statements of cash flows

For the years ended December 31

Rio Polímeros S.A.

The notes are an integral part of the financial statements.

8

Rio Polímeros S.A.

Statements of value added

For the years ended December 31

The notes are an integral part of the financial statements.

9

Rio Polímeros S.A.

Notes to the financial statements as of December 31, 2009 and 2008

All amounts stated in thousands of reais, unless otherwise indicated

1          Operations

Rio Polímeros S.A. ("Company") has polyethylene annual production capacity of 540 thousand tons, deriving from fraction of natural gas produced at Campos basin. Its industrial unit is located at the Chemical Gas Complex in Duque de Caxias-RJ.

The Company is a result of an investment made with own funds of its stockholders UNIPAR - União de Indústrias Petroquímicas S.A., Quattor Petroquímica S.A., Petrobras Química S.A. - Petroquisa, Petróleo Brasileiro S.A. - PETROBRAS and BNDESpar Participações; and loans raised with the Brazilian Development Bank - BNDES, US Ex-Im Bank and European Banks Union collateralized by SACE - Servizi Assicurativi Del Commercio Estero da Itália.

The Company obtained the Operation License nº FE 13.989, issued by State Foundation of Engineering and Environment - FEEMA, an authority subordinated to the state government of Rio de Janeiro. This license was issued on March 18, 2008 and is valid until March 18, 2013, and automatically renewed provided that certain conditions established by FEEMA are fulfilled.

The Company, in accordance with the raw material supply agreement executed with  Petróleo Brasileiro S.A. - PETROBRAS at December 22, 2000, guarantees the supply of raw materials (ethane and propane) to produce 500,000 tons/year of ethene, which guarantee the project supply needs.

Taking into account current price of these raw materials on the market, the annual commitment is approximately R$962,000. In addition to the supply guarantee, the agreement provides for the purchase and sale of said raw materials (take or pay and supply or pay).

This agreement is valid for 15 years as of the date of first supply of ethane and/or propane, executed after completing the Company’s pre-operational phase and plant tests. At the end of this period, in the event neither party expresses any disagreement, this agreement will be automatically renewed for successive two-year periods under same current conditions.

The Company tenders joint guarantees with its stockholders related to the payment for PETROBRAS’ future supply of raw material. These guarantees will be extinguished in the following cases: (i) the Company pays these amounts or (ii) the payment of all Company’s liabilities to the creditors in the long-term loan agreements (estimated for the second quarter of 2016), which occurs first.

Since the integrated plant startup in 2006, the Company has been affected by an irregular supply of raw material. In the year ended December 31, 2009, the Company posted an operating loss of R$89,182 thousand, mostly due to this instability. In order to regularize this supply, PETROBRAS has been developing works at the processing plant of Cabiúnas - RJ and at the gas pipeline of

Campos basin, aiming at stabilizing the supply of this input and works are estimated to be completed in March 2010. The Company’s Management understands that with the guarantee of full and continued gas supply from the completion of the aforementioned works, the industrial plant will have conditions to optimizing its operations and reverting operating losses current scenario.

2          Presentation of the financial statements

The financial statements referring to the year ended December 31, 2009 were approved by the Company’s Management on March 12, 2010 and were prepared in accordance with accounting practices adopted in Brazil, which comprise the Brazilian Corporation Law and rules issued by the Brazilian Securities Commission - CVM, including the pronouncements issued by the Accounting Pronouncements Committee - CPC.

When preparing the financial statements, it is necessary to use estimates to account for certain assets, liabilities and other transactions. Therefore, the Company’s financial statements include estimates referring to the selection of property, plant and equipment useful lives, allowances required in tax, civil and labor risks, provisions for income tax and other. Actual results may differ from estimates.

New accounting pronouncements

The standards and interpretations listed below were published and are mandatory for the fiscal years starting on or after January 1, 2010. Other standards and interpretations were published that altered the accounting practices adopted in Brazil, according to the harmonization process with the International Financial Reporting Standards. The following standards are only those that may (or should) most significantly affect the Company’s financial statements. The Company did not anticipate the adoption of these standards in the fiscal year ended December 31, 2009.

The CPCs applicable to the Company, taking into account their operations are: Inventories (CPC 16); Investments in associated companies (CPC 18); Borrowing costs (CPC 20); Provisions, contingent assets and liabilities (CPC 25); Property, plant and equipment (CPC 27); Revenues (CPC 30); Taxes on income (CPC 32); First-time adoption of International Financial Reporting Standards (CPC 37); Financial instruments: recognition and measurement (CPC 38); Financial instruments: presentation (CPC 39); Financial instruments: disclosure (CPC 40); Accounting for dividend payment proposal (ICPC 08); Individual, separate and consolidated financial statements and application of the equity method of accounting (ICPC 09); Clarifications on CPC 27 and CPC 28 (ICPC 10).

The Company’s Management is analyzing the impacts of changes introduced by these new pronouncements and made a decision of not anticipating the adoption of the CPC Pronouncements, Interpretations and Guidelines in its 2009 financial statements, effective for the fiscal years starting as of January 1, 2010. In the event of adjustments deriving from the adoption of new accounting practices as of January 1, 2010, the Company shall evaluate the need of measuring again the effects on its 2009 financial statements for comparison purposes, in the event these new procedures are effective as of the start of the fiscal year to end at December 31, 2010.

Changes in the Brazilian Corporation Law

At December 28, 2007, the Law 11638, amended by Provisional Measure (PM) 449 of December 4, 2008, converted into Law 11941/09, changed and introduced new provisions to the Brazilian Corporation Law. This law and PM mainly aimed at updating the Brazilian Corporation Law so that to enable the convergence process of the accounting practices adopted in Brazil with the International Financial Reporting Standards issued by the International Accounting Standards Board - IASB. The application of said law and PM became mandatory for the annual financial statements starting on or as of January 1, 2008.

The changes in the Brazilian Corporation Law resulted in the following main effects on the Company’s financial statements:

(a)             Securities investments: securities held for trading and available-for-sale securities now are evaluated at their fair value against income for the year and stockholders’ equity, respectively. See Note 3 (b).

(b)            Adjustment to present value – trade accounts receivable and accounts payable to suppliers with long-term and short-term maturities with relevant amount were adjusted to the present value, see Note 3 (c).

(c)       Reclassifications – certain expenses incurred and recorded under deferred charges were reclassified into intangible assets.

As authorized by pronouncement CPC 13 - "First-time Adoption of Law 11638/07 and PM 449/08", the Company’s Management decided to strictly comply with Paragraph 1 of Article 186 of Law 6404/76 and considered January 1, 2008 as the transition date to adopt the new accounting practices adopted in Brazil.

The Management assessed the adjustments deriving from Law 11638/07 and PM 449/08, on the transition date and determined the amount of R$20,727, recorded under "accumulated deficit", as previous years adjustments referring to the adjustment to present value.

3          Summary of the main accounting practices adopted

Main accounting practices adopted when preparing these financial statements are the following:

(a)              Cash and cash equivalents

Cash and cash equivalents include cash, bank deposits, short-term investments to originally mature within three months or less, which are readily convertible into a known cash amount and subject to an insignificant risk of changing the value and limits used from current account overdraft.

(b)               Financial instruments

(i)                Classification and measurement

The Company classifies its financial assets under the following categories: measured at fair value through profit or loss, loans and receivables, held to maturity and available for sale. The classification depends on the purpose to which the financial assets were acquired. The Management determines the classification of its financial assets upon initial recognition of each operation.

(ii)               Financial assets measured at fair value through profit or loss

The financial assets measured at fair value through profit or loss are those held for trading actively and frequently. The assets of this category are classified as current assets. The gains or losses deriving from changes in fair value of financial assets, measured through profit or loss are stated in the income statement under "Financial Result" in the period in which they occur, unless the instrument has been contracted connected to other operation. In this case, the changes are recognized under the same line of results affected by said operation.

(iii)             Loans and receivables

This category includes loans granted and receivables which are non-derivative financial assets with fixed or determinable payments, not quoted on the active market. These are included as current assets, except for those with maturity exceeding 12 months following the balance sheet closing date. The Company’s loans and receivables comprise eventual loans to companies pertaining to the same economic group, trade accounts receivable, other accounts receivable and cash and cash equivalents, except for short-term investments. Loans and receivables are recorded by their amortized cost, using the effective interest rate method.

(iv)            Assets held to maturity

These are basically the financial assets that cannot be classified as loans and receivables, since they are quoted in an active market. In this case, these financial assets are acquired with the intention and financial capacity to be held in portfolio to maturity. These are evaluated by acquisition cost, plus earnings against income for the period, using the effective interest rate method.

(v)              Available-for-sale financial assets

The available-for-sale financial assets are non-derivative instruments which are designated in this category or not classified in any other category. These are classified as non-current assets, unless the Management plans to sell the investment within 12 months after the balance sheet date. The available-for-sale financial assets are recorded by their fair value. Available-for-sale securities interest, calculated based on the effective interest rate method are is recognized in the income statement as financial income. The amount corresponding to the change in fair value is entered against stockholders’ equity, under asset valuation adjustment account and realized against profit or loss upon its settlement or impairment.

(vi)            Fair value

The fair value of investments publicly quoted is based on current purchase prices. For financial assets without active market or publicly quoted, the Company establishes the fair value through valuation techniques. These techniques include the use of recent operations contracted with third parties, benchmark to other instruments which are substantially similar, the analysis of discounted cash flows and option pricing models that use as much as possible the market information and rely least as possible on the entity’s management information.

On the balance sheet date, the Company evaluates if there is objective evidence that a financial asset or group of financial assets is recorded for value above its recoverable value (impairment). If there is any evidence of cumulative losses for the available-for-sale financial assets, measured as the difference between the acquisition cost and current fair value, less any impairment loss of this financial asset previously recognized in profit or loss, is removed from assets and recognized in the income statement.

(c)             Trade accounts receivable

Initially, trade accounts receivable are evaluated by present value, less allowance for doubtful accounts. The allowance for doubtful accounts is established when there is objective evidence that the Company will not be capable of collecting all the amounts due according to the original terms of the accounts receivable. The allowance amount is the difference between the carrying value and recoverable value.

The present value is calculated based on the effective interest rate of installment sales. This interest rate is compatible with the nature, term and risks of similar transactions under market conditions.

(d)              Inventories

Inventories are evaluated at the average acquisition or production cost that does not exceed the market value.

The cost of inventories is based on the principle of average cost and includes the expenses incurred in the acquisition, transportation and inventories warehousing. In case of finished products inventories and work in process, the cost includes manufacturing general expenses based on the operation’s usual capacity. The replacement parts are recorded based on the acquisition cost and written-off as production cost upon consumption or obsolescence.

The net realizable value is the sales price estimated in the usual course of business, less execution costs and sales expenses. Imports in progress are stated at the accumulated cost of each import.

(e)              Deferred income tax and social contribution

Deferred income tax and social contribution are calculated over income tax and social contribution losses and corresponding temporary differences between the tax calculation basis over assets and liabilities and the carrying values of the financial statements. These taxes rates, currently defined in order to calculate these deferred credits are 25% for income tax and 9% for social contribution.

Deferred tax assets are recognized to the extent it is probable that the future taxable income is available to be used the temporary differences and/or tax losses carryforward, based on future results projections and based on internal assumptions and future economic scenarios that may change (Note 12(a)).

(f)                Judicial deposits

The deposits are monetarily adjusted and stated as deducted amount of a corresponding liability, when there is no possibility of redeeming these deposits, unless the Company is granted a favorable court decision.

(g)              Foreign currency translation

Foreign currency-denominated transactions are translated into Brazilian reais using the exchange rates effective on the transaction dates. The balances of balance sheet accounts are translated by the exchange rate of the balance sheet date. Exchange gains and losses resulting from the settlement of these operations and the translation of foreign currency-denominated monetary assets and liabilities are recognized in the income statement.

(h)               Property, plant and equipment

These are recorded at the acquisition, formation or construction cost. Depreciation is calculated by the straight-line method at rates that take into account the estimated useful life of assets as reported in Note 9.

Sales gains and losses are determined by comparing the sale amount with the carrying value and are included in the profit or loss.

Charges costs on loans raised to finance the construction of property, plant and equipment, where applicable, are capitalized during the period necessary to execute and prepare the asset for intended use.

Repairs and maintenance are appropriated to profit or loss during the period they are incurred. The cost of main renovations is included in the asset’s carrying value when it is probable that future economic benefits exceeding the performance standard initially evaluated for the existing asset will flow to the Company.

Main renovations are depreciated during the remaining useful life of related asset.

(i)                 Intangible assets

 Software

Licenses acquired from software are capitalized and amortized during their estimated useful life by the rate described in Note 10.

The expenses related to the development or maintenance of software are recognized as expenses to the extent these are incurred. The expenses directly associated with identifiable and exclusive software, controlled by the Company and that probably will generate economic benefits higher than costs for over one year, are recognized as intangible assets. Direct expenses include the

salaries of software development staff and appropriate amount of related general expenses.

Software development expenses recognized as assets are amortized using the straight-line method during their useful lives by the rates mentioned in Note 10.

Water mains

The expenses incurred to build Guandu-Reduc which will carry water used in the Company’s production process have been amortized, on a straight-line basis for a 30-year term. It is worth mentioning that works were financed by the Company and Petrobras, 50% for each one.

Technology

(i)         Polyethylene Technology (PE)

It refers to the licenses acquired connected with the patent and right to use technology in the fluidized bed process, from low pressure gaseous phase to produce low and high density polyethylene (PEBD and PEAD). The expenses amortization has been made on a straight-line basis for a 30-year term.

(ii)       Basic petrochemicals technology (QB)

It refers to the licenses acquired connected with the patent and right of use in the olefin production process to manufacture ethylene polymer, propylene polymer and other byproducts. The expenses amortization has been made on a straight-line basis for a 30-year term.

(j)                Deferred charges

Expenses incurred during the pre-operational phase, recorded at the formation cost were deferred and have been amortized after the operations startup within 10 years, as described in Note 11.

(k)              Asset impairment

Property, plant and equipment and other non-current assets, including deferred charges, are reviewed yearly in order to identify impairment, or also, whenever events or changes in circumstances indicate that the carrying value cannot be recoverable. When this is the case, the recoverable value is calculated to verify if there is any loss. In case of any loss, it is recognized by the amount in which the asset’s carrying value exceeds its recoverable value, which is the highest value between the sales net price and the asset’s value in use. For valuation purposes, assets are grouped into a smaller group of assets to which there are cash flows identifiable separately.

(l)                 Provisions

Provisions are recognized when the Company has current, legal obligation or not formalized, as a result of past events and it is probable that an outflow will be necessary to settle the obligation and a reliable estimate of the amount can be made.

The Company recognizes provision for onerous contracts when benefits expected to be earned from a contract are lower than the inevitable costs in order to settle the obligations assumed by means of contract.

(m)              Employees benefits

(i)                 Pension liabilities

These comprise defined contribution private pension plans, in which the Company contributes to the private pension plans on a compulsory, contractual or voluntary basis. As soon as contributions are made, the Company does not have any obligation in relation to additional payments. Regular contributions comprise the net periodical costs of the period in which these are due and thus, they are included in the personnel expenses.

(ii)               Profit sharing and bonus

The Company grants profit sharing to its employees and bonuses to its management, subject to the achievement of corporate and individual targets. At December 31,2009, the Company recorded R$1,312 as profit sharing and bonuses (R$8,384 at December 31, 2008), under  “Provision for labor charges”, in current liabilities.

(n)               Loans and financing

Loans and financing are initially recognized by their fair value, upon receipt of proceeds, net of transaction costs. Subsequently, these are stated by the amortized cost, i.e., plus monetary and exchange variations, charges and interest rates proportional to the period incurred ("pro rata temporis") taking into account funding effective rate to the balance sheets dates and they are stated in Note 13.

(o)              Determination of income

The result of operations is determined in accordance with the accrual basis. Product sales revenue is recognized in profit or loss when risks and benefits inherent to the product are transferred to the buyer. Revenue is not recognized if there is significant uncertainty as to its realization.

4        Marketable securities

(*) Indexed to the U.S. dollar

At December 31, 2009, the offshore amount of R$28,311 (R$50,483 at  December 31, 2008) is linked to loans with US Ex-Im Bank and Sace. The short-term Bank Deposit Certificates - CDB yield approximately 98% of the Interbank Deposit Certificate - CDI and 100.06% of the Interbank Deposit Certificate - CDI for repurchase agreements.

5          Accounts receivable – Third parties

Below, the breakdown of allowance for doubtful accounts for the period ended December 31, 2009:

The summary of balances per age of accounts receivable is the following:

The amounts more than 90 days overdue sum up R$5,655 (R$2,427 at December 31,2008), as shown above. After analyzing the risks involved and guarantees in force, the Management decided to record an allowance for doubtful accounts of R$3,690 (R$4,607 at December 31, 2008), since we understand there is no risk of loss for other amounts overdue due to security interest or acknowledgment of debt that have been  honored by defaulting customers.

6          Inventories

At December 31, 2009 and 2008, a provision for realization value adjustment was not necessary.

7     Taxes recoverable

(a)    It basically refers to deferred ICMS, recorded based on Decree Law 25665/1999, levied on imports of equipment and parts destined to the construction of industrial complex. Said decree allows the Company, as substitute taxpayer, to postpone ICMS payment during 6 years as of assets acquisition date, and no financial charges will incur. As of the expiration of tax, the Company can offset the ICMS credits in its operations, at the 1/48 ratio. In addition, the Company also has R$4,961 in ICMS credits corresponding to the acquisition of equipment for the industrial complex of other states and not included in the aforementioned deferral. These other credits will be also offset at the 1/48 ratio.

(b)    It refers to PIS and COFINS deriving from the acquisition of equipment that comprise the industrial complex delivered by the partnership liable for its construction, at that time, at April 1, 2006. In the first quarter of 2007, the Company reclassified R$93,898 from property, plant and equipment to taxes recoverable in order to realize them at the 1/48 ratio, as authorized by prevailing laws.

(c)    It refers to prepaid income tax and social contribution for the 2009 fiscal year, in the total amount of R$15,936 (R$10,654 at December 31, 2008) and previous years credit balances.

(d)    The variation observed between December 31, 2008 and December 31, 2009 mainly derives from the Company’s review in the calculation of adjustment to present value over taxes recoverable.

8          Related parties

Related parties transactions derive from business operations executed between the Company and companies related to their shareholders. The balances at December 31, 2009 and 2008, as well as transactions carried out in respective years, are shown as follows:

Main related parties transactions were carried out as follows:

(a)             these mainly refer to sales of byproducts and chemical residues according to contracts in force;

(b)             purchases refer to acquisitions of raw materials, electric power, direct inputs and services rendered, made under conditions agreed upon between the parties;

(c)      as announced to the market, Quattor Químicos Básicos S.A. ("QQB") was merged on June 30, 2009 into Polietilenos União S.A., a subsidiary of Quattor Participações S.A., parent company of Rio Polímeros. At the meeting held by Polietilenos União S.A. that approved the merger also resolved to change its corporate name to Quattor Química S.A.

Remuneration of key management personnel

The Company considers as “key management personnel” the members of its board of directors and executive board, in addition to the chief executive officer. The remuneration paid to these members in 2009 amounted to R$576 thousand (R$2,767 thousand in 2008).

9     Property, plant and equipment

Plant assets, which started to operate on April 1, 2006, were collateralized in loans contracted abroad in first degree and loan from the Social and Economic Development Fund - FUNDES, in second degree (Note 13).

The Company has the following investment plans in progress, whose amounts already disbursed are those recorded under "works in progress":

(a)           Implement the installation of a warehousing system and delivery of propane, whose amount disbursed in 2009 was R$12,117.

(b)             Install a multi fuel boiler, whose total amount of the project is estimated at
R$ 27,000.

(c)             Install  a reprocessing system for off-spec product, whose total amount estimated and reviewed is R$5,559. Until December 31, 2009, R$4,941 had already been invested.

(d)             On July 31, 2009, the Company recorded R$2,279 under "machinery and equipment " related to capitalizable expenses, deriving from scheduled downtime for preventive maintenance   of its plant. The next downtime is scheduled for 2011.
The Company evaluated the recovery of the carrying value of remaining property, plant and equipment using the discounted cash flow model of cash generating units, according to the assumptions set forth in CVM Deliberation 527 – Assets Impairment. The process to estimate the value in use involves assumptions, judgments and estimates on the future cash flows, growth rates and discount rates. Future cash flows and growth projections assumptions are based on the annual budget and in the Company’s long-term business plan approved at the meetings of the Executive Board and Board of Directors, as well as comparable market data and they represent the Management’s best estimate of the economic conditions that will prevail during the economic useful life of group of assets that generate cash flows.

Main key assumptions used when estimating the value in use to which the recoverable value of assets is more sensitive, are described below:

·           Revenues: revenues were projected based on the annual budget of the next year and on the business plan of the Company and its subsidiaries, which comprises the period between 2010 and 2019.

·           Operating costs and expenses: Costs and expenses were projected based on the Company’s historical performance, excluding non-recurring and atypical effects observed.

·           Capital investment: Fixed assets investments were estimated taking into account the infrastructure necessary to support the Company’s production and sales projection.

Key assumptions were estimated taking into account the Company’s historical performance and based on reasonable macroeconomic assumptions and compatible with external sources of information grounded on the financial

market projections, documented and approved by the Management’s bodies.

In line with economic valuation techniques, the evaluation of value in use is made for a 10-year period. Growth rates of revenues used are compatible with long-term macroeconomic expectations, which are yearly reviewed based on the historical performance and outlook for the sector where the Company operates.

Estimated future cash flows were discounted at the discount rate of 14%.

The recovery test of the Company's assets did not require the recognition of losses, since the estimated value in use exceeds its net carrying value on the valuation date.

10        Intangible assets

The Company evaluated the recovery of the intangible assets carrying value according to the assumptions set forth by CVM Deliberation 527 – Assets impairment. Further details are described in Note 9.

11        Deferred charges

(a)       These refer to pre-operating expenses related to the gas-chemical complex development project and also expenses incurred during the pre-­marketing phase of polyethylene resins completed on March 31, 2006.

(b)       These refer to expenses (administrative, financial expenses, studies, etc.) related to the Company’s plant construction project.

As authorized by Provisional Measure 449/08, converted into Law 11941/09, the remaining balance of deferred charges at December 31, 2008 that could not be allocated to property, plant and equipment and intangible assets will remain in assets under this classification until their full amortization at the rates mentioned above, but subject to periodic impairment analysis.

The Company evaluated the recovery of intangible assets carrying value according to the assumptions set forth by CVM Deliberation 527 – Assets Impairment. Further details are described in Note 9.

12        Deferred income tax and social contribution

(a)       Income tax and social contribution credits

Deferred income tax and social contribution included in the financial statements derive from temporary differences, tax losses as follows:

(a)       Estimated realization period

The assets amounts, net of deferred tax liabilities show the following realization expectation:

Deferred income tax and social contribution are registered in order to reflect future tax effects attributable to temporary differences between the tax basis of assets and liabilities and their respective carrying values.

Tax credits over tax losses of previous years did not have limitation period and carryforward was limited to 30% of the annual taxable income.

As the taxable basis of the income tax and social contribution on net income derive not only from the profit that can be generated, but also from the existence of non-taxable revenues, undeductible expenses, tax incentives and other variables, there is no immediate correlation between the Company’s net income and income tax and social contribution results. Therefore, the expectation of utilization of tax credits should not be considered as the only indication of the Company’s future results.

According to the material fact announced to the market on June 11, 2008, within the corporate and tax strategy of Quattor Group, the future merger of the Company into Quattor Petroquímica S.A. is expected, a company also controlled by Quattor Participações S.A. Accordingly, the estimate of realizing deferred income tax and social contribution may change in view of the new realization conditions and the successor company’s profit expectations.

(c)       Reconciliation of income tax and social contribution expense

The reconciliation between income tax and social contribution expense by nominal and effective rate is shown below:

For the purposes of calculating the income tax and social contribution on net income for 2009, the Company elected the Transitional Tax System - RTT, which allows the legal entity to remove the accounting effects of Law 11638 and PM 449/08, converted into Law 11941 of May 27,2009, by means of registrations in Taxable Income Control Register (LALUR) or ancillary controls, without changing the commercial accounting. The option for RTT was made upon submission of the Corporate Income Tax Return (DIPJ) for calendar year 2008.

The financial statements for the fiscal years ended December 31, 2009 and 2008 were prepared considering the RTT.

13      Loans and financing