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Amounts Available for Distribuition
At each annual shareholders’ meeting, our board of directors is required to advise on how to allocate our net income for the preceding year. The allocation is subject to approval by our shareholders. The Brazilian Corporate Law defines "net income" for any year as the results in a given year after the deduction of accrued losses, the provisions for income and social contribution taxes for that year, accumulated losses from prior years, and any amounts allocated to profit-sharing payments to the employees and management, provided that management will be entitled to any profit-sharing payment only after the shareholders are paid the mandatory dividend.
Our bylaws provide that an amount equal to our adjusted net income, should be available for distribution as mandatory dividend or interest on shareholders’ equity after:
- deducting allocations to the legal reserve, if any;
- deducting allocations to the bylaws reserve, if any;
- deducting allocations to the contingency eserve, if any;
- adding reversed contingency reserve amounts from prior years, if any;
- adding unrealized profit reserve amounts, upon their realization and if not absorbed by subsequent losses, if any.
Our calculation of net income and allocations to reserves for any year, as well as the amounts available for distribution, are determined on the basis of our financial statements prepared in accordance with the Brazilian Corporate Law.
The table below shows our historical dividend distribuition.
|Refered Year||Dividends / IOC (R$ thousand)||AFFO||Shares (R$ thousand)||Dividend / IOC per Share|
Companies incorporated under Brazilian law usually present two main reserve accounts: profit reserve account and capital reserve account.
The profit reserve accounts are comprised of the legal reserve, the bylaws reserves, the contingencies reserve, the tax incentive reserve, the retained profit reserve and the unrealized profit reserve.
Legal Reserve.Under Brazilian Corporate Law, we are required to maintain a legal reserve to which we must allocate 5% of our net profits for each year until the aggregate amount of the reserve equals 20% of our share capital. However, we are not required to make any allocations to our legal reserve in a year in which the legal reserve, when added to our other established capital reserves, exceeds 30% of our share capital. The amounts allocated to such reserve may only be used to increase our share capital or to offset losses. Therefore, they are not available for the payment of dividends. As of March 31, 2009, the balance of our legal reserve was zero.
Unrecognized Profit Reserve. Under Brazilian Corporate Law, in a given year in which the amount of the mandatory dividend exceeds the recognized net profits, our shareholders in a shareholders’ meeting may, as proposed by our management, allocate such amount in excess to an unrecognized profit reserve account. Brazilian Corporate Law defines recognized net profits as the amount by which our net profits exceeds the sum of (1) our net positive results, if any, from the equity method of accounting; and (2) the profits, gains or income in transactions or recording of assets and liabilities by the market value, the term of financial realization of which occurs after the end of the subsequent fiscal year. Profits recorded in the unrecognized profit reserve, if recognized and not absorbed by losses in subsequent years, must be added to the next mandatory dividend distributed after the recognition. As of March 31, 2009, the balance of our unrecognized profit reserve was zero.
Bylaws Reserve. Under Brazilian Corporate Law, we are permitted to provide for the allocation of part of our net profits to discretionary reserve accounts that may be established in accordance with our bylaws, which must also indicate the purpose, allotment criteria and maximum amount of the reserve. The allocation of our net profits to discretionary reserve accounts may not be made if it affects the payment of the minimum mandatory dividend. Our bylaws do not provide for such reserve.
Contingencies Reserve. Under Brazilian Corporate Law, part of our net profits may be allocated to a contingencies reserve to compensate, in future years, the reduction of profits resulting from losses that are deemed probable, if their amount may be estimated. The proposal of the management for allocation of part of the net profits to such reserve must indicate the reason of the anticipated losses and justify the creation of the reserve. Any amount so allocated in the previous year must be reversed in the year in which a loss that had been anticipated fails to occur as projected or charged off in the event that the anticipated loss occurs. The allocations to the contingency reserve are also subject to approval of our shareholders in a shareholders’ meeting. As of March 31, 2009, the balance of our contingency reserve was zero.
Tax Incentive Reserve. Our shareholders in a shareholders’ meeting may, as proposed by our management, allocate to the tax incentive reserve part of our net profits resulting from donations or governmental granting for investments, which may be excluded form the taxable basis of the mandatory dividend. Our bylaws do not provide for such reserve.
Retained Profit Reserve. Under Brazilian Corporate Law, our shareholders in a shareholders’ meeting may, as proposed by our management, retain a portion of our net profits, as provided for in a capital expenditure budget that has been previously approved. The allocation of funds to this reserve cannot jeopardize the payment of the minimum mandatory dividends. As of March 31, 2009, the balance of our retained profit reserve was zero.
The balance of our profit reserve accounts, except for the contingency reserve, the tax incentive reserve and the unrecognized profits reserve, may not exceed our share capital. If so, a shareholders’ meeting would vote on whether the excess should be used to pay in subscribed and unpaid capital, or to increase the share capital or to distribute dividends.
Pursuant to the Brazilian Corporate Law, we may maintain capital reserves in which we may record goodwill paid in connection with the subscription of our shares, mergers, sale of warrants or debentures, and tax incentives, donations and granting for investments.
Pursuant to the Brazilian Corporate Law, the capital reserves may be used by us, among others, (1) to offset losses that exceed retained earnings and profit reserves; (2) to redeem, repay or buy our common shares; or (3) for capitalization. The amounts allocated to the capital reserve are not considered for the calculation of the mandatory dividend. As of March 31, 2009, the balance of our capital reserve was R$7.5 million.
Payment of Dividends and Interest on Shareholders’ Equity
The Brazilian Corporate Law requires that the bylaws of a Brazilian company specify a minimum percentage of the available profits for the annual distribution of dividends, known as mandatory dividend, which must be paid to shareholders as either dividends or interest on shareholders’ equity.
The basis of the mandatory dividend is a percentage of the net income, as adjusted pursuant to Article 202 of the Brazilian Corporate Law. Under our bylaws and the Brazilian Corporate Law, a minimum of 25% of our adjusted net income, as explained above under "Amounts Available for Distribution," should be intended for the distribution and payment of the mandatory dividend to our shareholders. However, the payment of mandatory dividends to our shareholders may be limited to the amount of realized net income in a given year, provided the difference should be recorded as unrecognized profit reserve, as discussed above under "—Unrecognized Profit Reserve." Our calculation of net income and allocations to reserves for any year, as well as the amounts available for distribution, are determined on the basis of our non-combined consolidated financial statements prepared in accordance with the Brazilian Corporate Law.
The Brazilian Corporate Law allows, however, a company to suspend such dividend distribution if its Board of Directors reports to our annual shareholders’ meeting that the distribution would not be advisable given the company’s financial condition. The Fiscal Council, if one is in place, should opine on any suspension of the mandatory dividend. In addition, our management should submit a report to the CVM setting out the reasons for the suspension. Net income not distributed by virtue of a suspension is allocated to a separate reserve and, if not absorbed by subsequent losses, is required to be distributed as dividends as soon as the financial condition of the company should permit such payment.
We are required by Brazilian Corporate Law and our bylaws to hold an annual shareholders’ meeting no later than the fourth month subsequent to year end, at which time, among other matters, the allocation of the results of operations in any year and the distribution of an annual dividend are reviewed. The payment of annual dividends is based on our unconsolidated audited financial statements prepared for the immediately preceding year.
Any holder of record of shares at the time a dividend is declared is entitled to receive dividends. Under Brazilian Corporate Law, dividends are generally required to be paid within 60 days following the date on which the dividend is declared, unless the shareholders’ resolution established another payment date, which, in any event, must occur before the end of the year in which the dividend is declared.
Under our bylaws, our board of directors may declare interim dividends or interest attributable to shareholders’ equity based on realized profits verified in semi-annual financial statements. The Board of Directors may also declare dividends based on financial statements prepared in shorter periods, provided that the total amount of dividends paid in each semester does not exceed the amounts accounted for in our capital reserve account set forth in paragraph 1 of Article 182 of the Brazilian Corporate Law.
Interim dividends may also be paid from profit reserve accounts based on the latest annual or semiannual financial statements. Any payment of interim dividends or interest on shareholders’ equity may be set off against the amount of mandatory dividends relating to the net profits earned in the year in which the interim dividends were paid.
Interest on Shareholders’ Equity
Since January 1, 1996, Brazilian companies have been authorized to pay interest on shareholders’ equity to holders of equity securities, and to treat those payments as a deductible expense for purposes of calculating corporate income tax and, since 1998, the social contribution tax. The amount of the tax deduction in each year is limited to the greater of :
- 50% of our net income (after the deduction of any allowances for social contribution taxes but before taking into account allowances for income tax and the interest on shareholders’ equity) for the period in respect of which the payment is made;
- 50% of our accumulated profits and profit reserve at the beginning of the relevant period.
The rate applied in calculating interest on shareholders’ equity cannot exceed the pro rata die variation of the long-term interest rate (TJLP).
Any payment to the shareholders of interest attributable to shareholders’ equity, whether or not they are Brazilian residents, is subject to Brazilian withholding tax at the rate of 15%, with a 25% withholding tax rate applicable if the person receiving this interest is a resident of a tax haven jurisdiction (that is, a country that does not impose income tax or that imposes it at a maximum rate lower than 20% or where the local legislation imposes restrictions on disclosing the shareholding composition or the ownership of the investment).
Payments of interest on shareholders’ equity, net of withholding income tax, may be considered as part of the mandatory dividend distribution. Under applicable law, we are required to pay to our shareholders an amount sufficient to ensure that the net amount they receive in respect of interest on shareholders’ equity, after payment of any applicable withholding tax, plus the amount of distributed dividends, is at least equivalent to the minimum mandatory dividend amount. Shareholders have a three-year period from the date of the dividend payment to claim the dividends or interest on shareholders’ equity with respect to their shares, after which the aggregate amount of any unclaimed dividend shall legally revert to us.
As of March 31, 2009, we have not paid any interest on shareholders’ equity.