Track Record of Dividends Payment
The table below establishes the dividends paid to the holders of common shares (ON), class A preferred shares (PNA) and class B preferred shares (PNB) since 2002 in Brazilian Reais and U.S. dollars converted into the sale commercial rate effective on the payment date.
Paid (R$ thousand)
|Value per Share (R$)*||US$ Equivalent per Share**|
* In 2002, 2004 and 2005 the total amount was distributed per thousands of shares
** Values converted by US$ quotation on the payment date
IASE: Interest attributable to shareholders' equity
The Brazilian Corporation Law ("LSA"), as well as the Company's Bylaws require the Annual General Meeting to be held until April 30 of each year, when the common shareholders will vote on the distribution of annual dividend. The payment of annual dividends is based on the audited financial statements, which refer to the immediately preceding fiscal period.
Pursuant to the Brazilian Corporation Law, the dividends shall be paid within 60 days as of the date the dividend is declared, unless shareholders deliberation establishes another payment date, but, in any case, the payment shall occur before the end of the fiscal period in which dividends are declared.
The Board of Directors may declare interim dividends to be distributed from the profit reserve account verified in the last annual balance sheet. In addition, dividends may be paid using the income earned based on the Company's quarterly information.
These quarterly interim dividends cannot exceed the amounts recorded in the capital reserve accounts. Any payment of interim dividends will be offset against the amount of mandatory distributions referring to the year in which the interim dividends have been paid.
Interest on Equity
Brazilian companies may pay interest on equity as an alternative payment of dividends to the shareholders. These payments can be deducted when calculating income and social contributions taxes. The interest rate applied to these distributions usually cannot exceed the long-term interest rates (TJLP) for the period. The amount of interest paid, which can be deducted for tax purposes cannot exceed the highest of the following amounts:
-50% of the net income (after deducting the provision for social contribution and before deducting provision for corporate income tax) before considering any distribution in the period in relation to which the payment is made; or
-50% of the retained earnings or profit reserves.
Any payment of interest on equity to the holders of common, preferred shares or ADS, whether or not resident in Brazil is subject to a 15% withholding income tax, establishing that a 25% withholding income tax will be levied if the individual receiving the interest is resident in a jurisdiction deemed as tax haven according to the prevailing tax laws. Pursuant to the Company's Bylaws, the amount distributed to shareholders can be included as interest on equity, as part of the mandatory dividend.
Priority in the distribution of dividends on preferred shares
Pursuant to Braskem's Bylaws, class "A and "B" preferred shares will have equal priority in the distribution, in each fiscal period, of a non-cumulative minimum dividend of 6% over the unit value of its share. If the Company declares dividends in an amount exceeding those owed to preferred shareholders, in this case, the common shareholders will be entitled to receive distributions corresponding to the dividend owed to preferred shareholders, based on each share. In the event of any balance of additional dividends, the class "A" common and preferred shareholders will be entitled to receive the same amount per share. However, class "B" preferred shareholders will not be entitled to receive any additional dividend after receiving the priority dividend related to the preferred shares.
As authorized by the Brazilian Corporation Law, Braskem's Bylaws set forth that 25% of the adjusted net income of each year shall be distributed to shareholders as dividends or interest on equity (mandatory distribution amount). The portion of net income deriving from donations or governmental subsidies for investments can be excluded from the calculation basis of mandatory dividend, pursuant to Article 195-A of Law 6,404/76, amended by Laws 11,638/07 and 11,941/09.
The Brazilian Corporation Law allows the non-distribution of mandatory dividend should the Management bodies report to the Annual General Meeting that the distribution is inconsistent with the Company's financial conditions on that occasion. Any discontinuance of the mandatory dividend shall be examined by the Fiscal Council. In addition, the Company's management shall also submit to CVM its arguments to suspend the mandatory distribution. The net income not distributed by the Company due to discontinuance is earmarked to a special reserve, and if not absorbed by subsequent losses, it shall be distributed as soon as financial conditions allow. If the profit reserve exceeds the company's capital stock, the surplus shall be credited to the capital stock or used to pay dividends.
On July 20, 2001, Braskem entered into heads of agreement to execute a shareholders' agreement with two of its shareholders, which established the distribution of, at least, 50% of the adjusted net income during any relevant period, provided that all necessary reserves have been established and maintained for an efficient operation and development of its business.
Under the indenture of the Notes issued by Braskem in January 2004, in the amount of US$ 250 million, 11.75% coupon due in 2014, the Company cannot pay dividends representing the double of minimum dividends set forth in its Bylaws.
Calculating Net Income
The Brazilian Corporation Law defines "net income" of any fiscal year as the income for the year that remains after provision for income tax and statutory profit sharing of employees, management and founder's shares. Pursuant to the Brazilian Corporation Law, the profit subject to sharing corresponds to the net income in any fiscal year, less accumulated losses and amounts earmarked to the legal reserve and other relevant reserves and increased by any reversal of reserves established in previous years.
The calculation of net income and allocations to reserves in any fiscal year is determined based on the financial statements prepared pursuant to the BR GAAP.
Payment Limitation Period
Shareholders have three years as of the date they are entitled to claim the payment of dividends distributed in relation to their shares. After such period, any dividends not claimed legally return to the benefit of Braskem. The Company is not required to pay monetary restatement over the distribution amount due to inflation occurring between the declaration date and payment date.
Pursuant to the Brazilian Corporation Law and Braskem's Bylaws, 5% of the net income of each fiscal year shall be earmarked to the legal reserve until the total amount of legal reserve is equal to 20% of the Company's capital stock. Nevertheless, the Company is not required to make any allocations to the legal reserve in a fiscal year in which the balance of this reserve, accrued of capital reserve amount exceeds 30% of total capital stock.
Reserve for investments deriving from tax incentives
Included in the profit reserves group, this reserve corresponds to the portion of net income deriving from governmental donations or subsidies for investments, which can be excluded from the calculation basis of the mandatory dividend.
Prior to the adoption of Law 11,638/07 and Law 11,941/09, the income tax incentive was classified as capital reserve not carried through income. As of January 1, 2007, this tax incentive started to be recorded in the income statement account for the year and earmarked to the profit reserve account by management's proposal approved by the Annual General Meeting.
Regardless of change enacted by Laws 11,638/07 and 11,941/09, this incentive can only be used to increase capital stock or absorb losses.
This reserve is destined to offset, in a future year, the profit decrease resulting from probable loss, whose amount can be estimated. Any amount of this type set aside in a previous year shall be reversed in the fiscal year in which there are no reasons to justify its establishment or removed from assets in the event the estimated loss occurs.
Reserve for investment projects (Expansion)
This reserve refers to the retention of profit balance, in order to meet the expansion projects established in the business plan, as provided for in the capital budget proposed by the Company's management and submitted to the approval of the Annual General Meeting, subject to the provisions in Article 196 of the Brazilian Corporation Law.
The allocations to each one of these reserves (except for the legal reserve) are subject to the approval of common shareholders in voting to be conducted during the Annual General Meeting.
Pursuant to the new wording of the Brazilian Corporation Law, amended by Law 11,638/07 and Law 11,941/09, the Company is allowed to create a capital reserve, where the following items will be classified: (a) the share subscriber's contribution that exceeds the nominal value and part of the issue price of shares without par value shares that exceeds the amount destined to the capital stock structure, also in cases of conversion of debentures into shares or founder's shares and (b) the product of sale of founder's shares and warrants.
The capital reserve only may be used to:
(a) Absorb losses exceeding the retained earnings and profit reserves as defined in the Brazilian Corporation Law, (b) Redeem or buyback shares and/or founder's shares, (c) Increase capital, or (d) If specified in the Bylaws (which does not occur in the Company's Bylaws), pay preferred shares dividends.
The amounts destined to the capital reserves are unavailable for payment of dividends and are not considered for the purposes of determining the mandatory dividend.
Equity valuation adjustments accounts
This account was created by Law 11,638/07, amended by Law 11,941/09 and aims at registering, while not calculated in the income for the year in observance to the accrual basis of accounting, the corresponding entries of value increases or decreases attributed to assets and liabilities, as a result of its fair value valuation.