Dividends

Dividends and Dividend Policy

Amounts Available for Distribution

the Company’s Board of Directors is required to advise on how to allocate our net income for the preceding fiscal year. The allocation is subject to approval by our shareholders.

The Brazilian Corporate Law defines “net income” for any fiscal year as the results of the Company in a fiscal 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 managers.

The calculation of net income and allocations to reserves for any year, as well as the net income, are determined on the basis of our audited consolidated financial statements prepared in the preceding fiscal year.

In accordance with the Brazilian Corporate Law, the net income, as adjusted, shall be available for distribution, to the shareholders in any fiscal year, and it, could be:

  • reduced by any amounts allocated to the legal reserve;
  • reduced by any amounts allocated to the statutory reserves, if any;
  • reduced by any amounts allocated to the contingency reserve, if any;
  • reduced by any amounts allocated to the retained profit reserve, if any;
  • reduced by any amounts allocated to the unrealized profit reserve;
  • increased by reversed contingency reserve amounts from prior years; and
  • increased by amounts allocated to the unrealized profit reserve, upon their realization and if not absorbed by subsequent losses.

Any allocation of our profits to the statutory and retained profit reserves shall not be approved, in any fiscal year, to harm the payment of the minimum mandatory dividends.

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.

Reserve Accounts

According to the Brazilian Corporate Law, companies usually present two main categories of reserve accounts: (i) profit reserve accounts; and (ii) capital reserve accounts.

Profit Reserves

The profit reserve accounts are comprised of the legal, contingency, unrealized profit, retained profit and statutory reserves. As of September 30, 2009, our profit reserve amounted to R$152.7 million.

The balance of the profit reserves, except the balances of contingency, tax incentive and unrealized profit reserves may not exceed the amount of our capital stock. In case of excess, our shareholders shall decide at a shareholders‘ meeting whether the excess amount will be used to pay or increase our capital stock or pay dividends.

Legal Reserve

Under the Brazilian Corporate Law, we are required to maintain a legal reserve to which we must allocate 5.0% of our net income for each fiscal year until the aggregate amount of the reserve became equals to 20.0% 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 established capital reserves, exceeds 30.0% of our share capital. Any net loss may be offset with the amounts allocated to the legal reserve. The amounts allocated to such reserve must be approved by our shareholders in a shareholders‘ meeting, and may only be used to increase our share capital or to offset losses. As of September 30, 2009, our legal reserve was R$13.7 million.

Contingency Reserve

Under the Brazilian Corporate Law, a percentage of our net profits may be allocated to a contingency reserve for anticipated losses that are deemed probable in future years if their amount may be estimated. The proposal of our Board of Directors with respect to the allocation of a percentage of our net profits to a contingency reserve shall indicate the reason for the eventual loss and justify the constitution of the reserve. Any amount so allocated must be reversed in the fiscal 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 September 30, 2009, we did not have a contingency reserve.

Tax Incentive Reserve

Under the Brazilian Corporate Law, the Board of Directors may propose at a shareholders‘ meeting to allocate a portion of our net income resulting from donations or government grants for investments to a tax incentive reserve. The amount of this reserve may be excluded from the calculation of the mandatory dividends. As of September 30, 2009, we did not have a tax incentive reserve.

Retained Profit Reserve

Under the Brazilian Corporate Law, our shareholders may decide at the annual shareholders‘ meeting to retain a portion of our net profits, as provided for in a capital expenditure budget that has been previously approved. As of September 30, 2009, our retained profit reserve was R$152.7 million.

Statutory Reserves

We are permitted by the Brazilian Corporate Law to allocate part of our net income to a discretionary reserve account that may be established in accordance with our bylaws, provided that we: (i) accurately and completely indicate the purpose of each reserve; (ii) set the criteria to determine the annual portion of net income that will be allocated to each reserve; and (iii) set the maximum limit of each reserve. The allocation of net income to statutory reserves may not be made to the detriment of the payment of the mandatory dividend. As of September 30, 2009, we did not have any statutory reserve.

Capital Reserves

Pursuant to the Brazilian Corporate Law, the capital reserves are comprised of goodwill paid in connection with the subscription of our shares, special reserve of goodwill in incorporation, sale of beneficiary interests and sale of subscription bonus. According to the Brazilian Corporate Law, the capital reserve may be used, among other things, to: (i) absorb losses exceeding accumulated profits and profits reserves; (ii) redemption, reimbursement, or purchase of our own shares; and (iii) allocation to our capital stock. As of September 30, 2009, our capital reserve was R$132.0 million.

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Mandatory Dividends

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. In the event the bylaws does not provide a mandatory dividend, the Brazilian Corporate Law establishes that the mandatory dividends shall not be less than 25.0% of our net income. According to Law No. 9,249 of December 26, 1995,as amended from time to time, interest on shareholders‘ equity may be distributed and included in the amount due as mandatory dividends.

Pursuant to our bylaws, at least 25% of the adjusted net income of the previous fiscal year, determined in accordance with Brazilian GAAP and adjusted as determined by the Brazilian Corporate Law, shall be distributed as mandatory dividends.

The annual declaration of dividends depends on approval by the shareholders as well as several other factors, such as operational results, financial conditions, cash needs, future profitability and other factors that the shareholders and the board of directors deem relevant. The Brazilian Corporate Law allows, however, a company to suspend such dividend distribution if its board of directors reports to the annual shareholders‘ meeting that the distribution would not be advisable given the company‘s financial condition. The board of auditors, if one is in place, reviews any suspension of the mandatory dividend. In addition, the board of directors of publicly held corporations should submit a report to the CVM stating the reasons for the suspension, within five days from the shareholders‘ meeting. 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.

According to the Brazilian Corporate Law, the general shareholders´ meeting of a publicly-held corporation may approve the payment of dividends in an amount lower than the mandatory dividends or rather retain the total amount of net income, exclusively for raising funds through outstanding debentures which are not convertible in shares, provided that no shareholder is against such proposal at the shareholders´ meeting.

The mandatory dividend may also be paid as interest on shareholders´ equity, and may be deducted as our expenses for purposes of income and social contribution taxes.

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Dividends

We are required by the Brazilian Corporate Law and our bylaws to hold an annual shareholders´ meeting no later than April 30 of each year, at which time, among other subjects, our shareholders approve 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 fiscal year.

According to Brazilian corporate Law, any holder of shares at the time a dividend is declared is entitled to receive dividends. Under the Brazilian Corporate Law, dividends are required to be paid within 60 days following the date on which the dividend is declared, unless the shareholders‘ resolution establishes another payment date, which, in any event, must occur before the end of the year in which the dividend is declared. Unclaimed dividends do not accrue interest, are not adjusted in relation to inflation and revert in our favor if not claimed within three years from the date in which they are made available to the shareholders.

Our Board of Directors may also declare intermediate dividends based on annual or semi-annual financial statements, as permitted by our bylaws. The Board of Directors may also declare dividends based on financial statements prepared in our semester or trimester, if permitted by our bylaws. The total amount of dividends paid in each semester cannot exceed the amounts accounted for in our capital reserve account. Any payment of intermediate dividends may be set off against the amount of mandatory dividends relating to the net profits earned in the year in which the intermediate dividends were paid. As permitted by our bylaws, our intermediate dividends may also be paid from profit reserve accounts based on any period of time, which will be considered as an anticipation from the minimum mandatory dividend.

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Interest on Shareholders´ Equity

Under Brazilian tax legislation in effect since January 1, 1996, Brazilian companies are authorized to pay interest on shareholders‘ equity to holders or beneficiaries of shares, and to treat those payments as a deductible expense for purposes of calculating corporate income tax and, since 1997, the social contribution tax, to the extent permitted by applicable law.

The amount of the tax deduction in each year is limited to the greater of (i) 50% of our net income (after the deduction of any allowances for social contribution tax 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 and (ii) 50% of our retained 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 Brazilian long term interest rate (Taxa de Juros de Longo Prazo—TJLP).

Any payments of interests on shareholders‘ equity to the shareholders, whether Brazilian residents or not, are subject to a withholding income tax of 15%, provided that such rate shall be 25% if the beneficiary of the interests is a resident of a tax haven (i.e., a country with no income tax or which its maximum percentage is fixed bellow 20%, or if the local applicable law imposes restrictions to the disclosure of the shareholders composition or the owners of the investment).

The amount paid as interest on shareholders‘ equity after deducting the income tax may be set off against the mandatory dividends. According to 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 declared dividends, is at least equivalent to the minimum mandatory dividend amount. The interest on the shareholders‘ equity reverts in our favor if not claimed within three years after the date in which they were made available to the shareholders, as in the case of dividends.

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History of Dividends and Interest on Shareholders´ Equity Payments


According to the Bylaws, net profit for the fiscal period available after management profit sharing up to the maximum legal limit, and after compensated for eventual accumulated losses, is distributed as follows: (i) 5% for the legal reserve, until reaching 20% of the fully paid up company equity; and (ii) 25% of the remaining balance for payment of mandatory dividends.

On May 8, 2012, at the Ordinary General Meeting, the Company’s Management approved the following allocation of the net profits for the financial year, worth a total amount of R$ 708.007.299,49: (i) R$ 168.151.258,63 were distributed as the mandatory minimum dividend, worth an amount equivalent to 25% of the calculated value, representing an amount of R$ 0,149384256 to be paid out for each share issued by the Company, with such payment made by July 05, 2012; (ii) R$ 35.400.264,97 will be allocated to the legal reserve; and (iii) R$ 504.455.775,89 will be allocated to the for new enterprises, in compliance with the capital budget proposed by the Board and approved by the shareholders in attendance.

On April 26, 2011, at the Ordinary General Meeting, the Company’s Management approved the following allocation of the net profits for the financial year, worth a total amount of R$ 789,551,649.02: (i) R$ 187,518,516.61 were distributed as the mandatory minimum dividend, worth an amount equivalent to 25% of the calculated value, representing an amount of R$ 0.169185 to be paid out for each share issued by the Company, with such payment made by July 01, 2011; (ii) R$ 39,477,582.45 will be allocated to the legal reserve; and (iii) R$ 562,555,549.93 will be allocated to the for new enterprises, in compliance with the capital budget proposed by the Board and approved by the shareholders in attendance.

On April 29, 2010, at the Ordinary General Meeting, the Company’s Management approved the following allocation of the net profits for the financial year, worth a total amount of R$ 338,130,856.50: (i) R$ 80,306,078.43 were distributed as the mandatory minimum dividend, worth an amount equivalent to 25% of the calculated value, representing an amount of R$ 0.205977 to be paid out for each share issued by the Company, with such payment made by June 30, 2010; (ii) R$ 16,906,542.83 will be allocated to the legal reserve; and (iii) R$ 240,918,235.50 will be allocated to the for new enterprises, in compliance with the capital budget proposed by the Board and approved by the shareholders in attendance.

On April 30, 2009 the Company’s shareholders approved during an Ordinary Shareholders Meeting that the net profit in the total amount of R$182,463,742.20 would be distributed as follows: (i) R$29,527,138.78 were distributed as minimum mandatory dividend, an amount equivalent to 25% the amount calculated, after discounting interest on own capital to be distributed in the amount of R$13,808.000.00, representing the amount of R$0.20 to be paid for each share issued by the Company, to be paid by June 30, 2009; (ii) R$9,123,187.11, for the legal reserve; (iii) R$130,005,416.30, for the new projects reserve, created for the Capital Budget proposed by management, which was approved at the same meeting by a decision of the shareholders attending, whose copy is on file at the Company’s headquarters.

On December 23, 2008 the proposal of the Executive Board was approved to pay shareholders Interest on Own Capital referenced to the fiscal year of 2008 in the total amount of R$16,180,000.00, resulting in a gross value of R$0.11126198 per common share, with a net value of R$0.09457268 per common share after withholding 15% in income tax at the source, and R$0.08344648 per common share after the withholding of 25% of income tax at the source, as applicable to each shareholder. The value of the interest to be paid was imputed to the value of the mandatory dividend, as called for under paragraph 7 of Article 9 of Law 9.249/95 and article 26 of the Company’s Bylaws.

On April 29, 2008 during an ordinary shareholders meeting the Company’s Shareholders approved that the net profit, in a total amount of R$71,156,340.01 be distributed as follows: (i) R$16,899,630.75 to be paid for each share issued by the Company, with the date of payment to be May 5, 2008; (ii) R$3,557,817.00 for the legal reserve; (iii) R$50,698,892.26 for the new projects reserve, created for the Capital Budget proposed by management, which was approved at the same meeting. The reserve was used in the Company’s new investments as called for by the Capital Budget.>

On April 30, 2007, our shareholders approved the distribution of R$4,918,263.70 as the minimum annual mandatory dividends. Such amount corresponded to 25% of our net income in 2006, representing a payment of R$0,044448 per share.

In 2006, our net income was R$20,708,340.22. We destined the balance of our net income that was not distributed to our shareholders as follows: (i) R$1,035,417.01 to create our legal reserve and (ii) R$14,754,659.51 to create a projects reserve, pursuant to the annual budget approved by our shareholders.

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