5.1 Basis of transition to IFRS

5.1.1 Basis of transition to IFRS IFRS 1

The Company's financial statements for the year ended December 31, 2010 are the first annual financial statements that comply with IFRS as issued by the IASB. The Company applied IFRS 1, "First time adoption of IFRS", in preparing these consolidated financial statements. The Company determined January 1st, 2009 to be the transition date for IFRS.

The prior GAAP of the Company are the accounting practices adopted in Brazil (Prior Brazilian GAAP). Reconciliations from the previously issued financial statements prepared in accordance with the Prior Brazilian GAAP at January 1st, 2009, at December 31, 2009 and for the year then ended, to the corresponding balances of shareholder's equity and net income are presented herein (Note 5.2). Reconciliations to the corresponding balances of shareholders' equity and net income balances in the consolidated financial statements filed with the U.S. Securities and Exchange Commission, as of January 1st, 2009, as of and for the year ended December 31, 2009 prepared under U.S. generally accepted accounting principles (U.S. GAAP) are also presented (Note 5.3).

The accounting policies set out in Note 2 have been applied in preparing the financial statements as at and for the year ended December 31, 2010, the comparative information presented for the year ended December 31, 2009 and the opening IFRS balance sheet at January 1st, 2009.

In preparing these consolidated financial statements in accordance with IFRS 1, the Company has applied the mandatory exceptions and certain of the optional exemptions from full retrospective application of IFRS, as set out in IFRS 1.

5.1.2 Exemptions to full retrospective application – elected by the Company

IFRS 1 allows first-time adopters certain exemptions from the general requirements contained in IFRSs. The Company opted to apply the following exceptions to retrospective application of IFRS:

Exemption for business combination
Business combinations through December 31, 2008 were accounted for under prior GAAP. As at December 31, 2008, the Company did not present significant goodwill relating to these business combinations under the prior GAAP.

Exemption for leases
The Company adopted the lease exemption for contracts which may contain a lease based on the facts and circumstances as at the date of transition to IFRS. There was no impact on the financial statements.

The remaining voluntary exemptions do not apply to the Company:

Exemption for share-based payment transactions
This exemption is not applicable as options granted by the Company were already vested before the transition date.

Exemption for insurance contracts (IFRS 4 "Insurance Contracts")
The Company does not issue insurance contracts; therefore this exemption is not applicable.

Exemption for fair value as deemed cost
The Company was in full compliance with the requirements of IAS 16 at the transition date.

Exemption for cumulative translation differences
The Company elected to record prior amounts from the cumulative translation adjustment through January 1st, 2009, and therefore this exemption is not applicable.

Exemption for assets and liabilities of subsidiaries
This exemption is not applicable, as the use of the exemption is made at the level of the subsidiary, associate or joint venture that adopts IFRS when later than its parent company.

Exemption for compound financial instruments
The Company has not issued any compound financial instrument; this exemption is not applicable.

Designation of previously recognized financial instruments
This exemption is not applicable, as there were no financial instruments to be designated as available-for-sale.

Fair value measurements of financial assets or financial liabilities
Management has not applied the exemption offered by the revision of IAS 39 on the initial recognition of the financial instruments measured at fair value through profit and loss where there is no active market; this exemption is not applicable.

Changes to existing decommissioning, restoration and similar liabilities included in the cost of property, plant and equipment exemption.
The Company does not have any decommissioning liabilities relating to its property, plant and equipment; this exemption is not applicable.

Service concession arrangements
The Company does not have agreements under the scope of IFRIC 12, "Service concession arrangements"; this exemption is not applicable.

Borrowing costs
This exemption is not applicable to the Company.

Transfer of assets from customers
The Company does not have agreements under the scope of IFRIC 18, "Transfers of Assets from Customers"; this exemption is not applicable.

Extinguishing financial liabilities with equity instruments
The Company does not have agreements under the scope of IFRIC 19, "Extinguishing Financial Liabilities with Equity Instruments"; this exemption is not applicable.

Exemption for employee benefits
The Company does not have significant employee defined benefit plans. Therefore, this exemption is not relevant.

5.1.3 Exceptions to full retrospective application

The Company applied the following compulsory exceptions to retrospective application:

Estimates
Estimates under IFRS at January 1st, 2009 and December 31, 2009 are consistent with estimates made as at the same dates under Prior Brazilian GAAP. There is no evidence that those estimates were made in error.

Derecognition of financial assets and liabilities
Financial assets and liabilities derecognized before January 1st, 2009 are not re-recognized under IFRS. The application of this exception had no significant impact on these financial statements.

Hedge accounting
Management has chosen not to apply hedge accounting. Accordingly, no adjustments were required.

Noncontrolling interest
Management applied prospectively from the date of transition to IFRS the requirement of IAS 27 in attributing total comprehensive income to the noncontrolling interest; and for accounting for changes in the parent's ownership interest in a subsidiary.

5.2 Reconciliation between BR GAAP and IFRS

5.3 Additional reconciliation between U.S. GAAP and IFRS

• The intangible asset must be identifiable to distinguish it from goodwill;
• The company must control the asset; and
• The future economic benefits from the intangible asset must flow to the Company.

• It is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and
• The cost of the asset can be measured reliably.

• The technical feasibility of completing the intangible asset so that it will be available for use or sale can be demonstrated;
• The intention to complete the intangible asset and use it can be demonstrated;
• The ability to use the intangible asset can be demonstrated;
• The Company can demonstrate how the intangible asset will generate probable future economic benefits;
• The availability of adequate technical, financial and other resources to complete the development and to use the intangible asset can be demonstrated; and
• The ability to measure reliably the expenditure attributable to the intangible asset during its development can be demonstrated.

At the transition date, the Company had certain development projects which met the above criteria and, therefore, IAS 38 was applied retrospectively. As a result, capitalized assets totaling US$665.5 and US$695.2, as at January 1st and December 31, 2009, respectively.

In December 31, 2009, US$26.2 was recognized to expenses with amortization.

b) Acquisition of noncontrolling interest
Under U.S. GAAP, in 2008, the acquisition of the 40% noncontrolling interest in the subsidiary ELEB was recorded at fair value.

Under Prior Brazilian GAAP, the noncontrolling interest acquired was measured at book value and a negative goodwill balance was recorded. At transition date, the negative goodwill recorded was reversed to opening retained earnings. As permitted by IFRS 1, this transaction was not reprocessed.

Under IFRS, liabilities were reduced by US$17.0 and US$19.5 as at January 1st and December 31, 2009, respectively, and US$2.5 was recorded in income as a result of changes in assets or liabilities affected by purchase price allocations.

c) Income tax effects – recognition criteria
Under U.S. GAAP, consistent with ASC 740-10, paragraph 25-3 (f), the Company did not recognize a deferred tax liability or asset for differences related to assets and liabilities that are remeasured from the local currency into the functional currency using historical exchange rates and that result from changes in exchange rates.

IAS 12 "Income Taxes" requires that deferred tax asset or liabilities be recognized for all deductible or taxable temporary differences, with the following exceptions.

• The initial recognition of goodwill; or
• The initial recognition of an asset or liability in a transaction which: (i) is not a business combination; and (ii) at the time of the transaction, affects neither net income nor taxable profit.

• Is not a business combination; and


• At the time of the transaction, affects neither net income nor taxable profit.