(ii) | calculation of the fair value for receivables that, in accordance with our business model, may be sold before their maturities. | Classification by category | | | | | | | | | | | | Cash and cash equivalents | | | | | Cash and banks | Loans and receivables | Amortized cost | 1,428,766 | 1,428,766 | Financial investments in Brazil | Loans and receivables | Fair value through profit and loss | 1,706,784 | 1,706,784 | Financial investments abroad | Held-for-trading | Fair value through profit and loss | | | | | | 3,775,093 | 3,775,093 | Financial investments | | | | | LFTs and LFs | Held-for-trading | Fair value through profit and loss | 1,816,889 | 1,816,889 | Time deposit investments | Loans and receivables | Amortized cost | 440,616 | 440,616 | Time deposit investments | Held-for-trading | Fair value through profit and loss | 15,764 | 15,764 | Other | Held-for-trading | Fair value through profit and loss | | | | | | 2,313,008 | 2,313,008 | Trade accounts receivable | Loans and receivables | Amortized cost | 3,244,851 | 3,235,463 | Trade accounts receivable | Loans and receivables | Fair value through other comprehensive income | 73,841 | 73,240 | Derivatives | Financial assets measured at fair value | Fair value through profit and loss | 74,378 | 74,378 |
| Classification by category | Book value as of January 1, 2018 | | | | | | | | | | | Cash and cash equivalents | | | | | Cash and banks | Loans and receivables | Amortized cost | 1,428,766 | 1,428,766 | Financial investments in Brazil | Loans and receivables | Fair value through profit and loss | 1,706,784 | 1,706,784 | Financial investments abroad | Held-for-trading | Fair value through profit and loss | | | | | | 3,775,093 | 3,775,093 | Financial investments | | | | | LFTs and LFs | Held-for-trading | Fair value through profit and loss | 1,816,889 | 1,816,889 | Time deposit investments | Loans and receivables | Amortized cost | 440,616 | 440,616 | Time deposit investments | Held-for-trading | Fair value through profit and loss | 15,764 | 15,764 | Other | Held-for-trading | Fair value through profit and loss | | | | | | 2,313,008 | 2,313,008 | Trade accounts receivable | Loans and receivables | Amortized cost | 3,244,851 | 3,235,463 | Trade accounts receivable | Loans and receivables | Fair value through other comprehensive income | 73,841 | 73,240 | Derivatives | Financial assets measured at fair value | Fair value through profit and loss | 74,378 | 74,378 | | | | | |
Impairment – Financial and Contractual Assets
IFRS 9 replaced the “incurred loss” model from IAS 39 with a prospective model of “expected credit losses.” This change requires a relevant judgment regarding the way in which changes in economic factors affect the expected credit losses, which are determined based on weighted probabilities. The new expected losses model will apply to financial assets measured at AC or FVTPL, excluding investments in equity instruments and contractual assets. According to IFRS 9, provisions for expected losses are measured using one of the following bases: · | the 12-month expected credit losses, i.e. expected credit losses from possible default events within 12 months after the reporting date, and whose credit risk does not increase significantly since initial recognition; and | · | the full lifetime expected credit losses (expected credit losses that result from all possible default events over the life of the financial instrument). The measurement of these credit losses applies when the credit risk of a financial asset at the reporting date has increased significantly since initial recognition. |
Our assessment indicated that the adoption of the expected credit loss model as required by IFRS 9 on January 1, 2018 had the effect of R$9.4 million, net of taxes. The judgments of how changes in economic factors affect our expected credit losses are determined by stages that can be observed in note 7 to our audited consolidated financial statements. Hedge Accounting IFRS 9 requires that we ensure that hedge accounting relationships are aligned with our risk management objectives and strategies, and that a more qualitative and prospective approach is applied to assess hedge effectiveness. IFRS 9 also introduced new requirements for rebalancing hedge relations and prohibits the voluntary discontinuation of hedge accounting. 86
Upon adopting IFRS 9, we elected to account for changes to fair value of forward points separately, as hedge cost. Therefore, as of January 1, 2018, these changes are recognized in other comprehensive income (loss) and accrued in a hedge cost reserve as a separate component in equity and subsequently accounted for in the same way as the cumulative gains or losses in the cash flow hedge reserve. The types of hedge accounting relations presently designated by us meet the IFRS 9 requirements and are aligned with our risk management objective and strategy.
Transition The changes to accounting policies stemming from the adoption of IFRS 9 were applied prospectively, including: (i)allowed exemption to not restate comparative information from prior periods due to changes in classification and measurement financial instruments, including expected credit losses;
(ii)new requirements for hedge accounting;
(iii)the following assessments were made based on facts and circumstances in place on the adoption date:
·determination of business model in which the financial asset is held;
·designation and revoking of prior designations of specific financial assets and liabilities measured at FVTPL.
(i) | allowed exemption to not restate comparative information from prior periods due to changes in classification and measurement financial instruments, including expected credit losses; | (ii) | new requirements for hedge accounting; | (iii) | the following assessments were made based on facts and circumstances in place on the adoption date: | | · | determination of business model in which the financial asset is held; | | · | designation and revoking of prior designations of specific financial assets and liabilities measured at FVTPL. |
Principal Factors Affecting Our Results of Operations Growth of Brazil’sthe GDP of the Countries in which we Operate and Domestic Demand for Our Products in Brazil Our sales in Brazil represented 55.1%54.5% of our net revenue, including inter-segment sales, revenue in the year ended December 31, 2018.2019. We are significantly affected by economic conditions in Brazil and in the other countries in which we operate, and our results of operations and financial condition have been, and will continue to be, affected by the growth rate of Brazilianthe GDP because our products are used inof Brazil, the manufacture of a wide range of consumerUnited States, Europe and industrial products.Mexico. The following table sets forth the growth rates of Brazilian GDP and domestic apparent consumption for polyethylene, polypropylene and PVC for the periods presented. | | | | | | | | | | | | | | | | | | | | | Brazilian GDP | 1.1% | 1.0% | (3.6)% | (3.8)% | 0.1% | 1.1% | 1.1% | 1.0% | (3.6)% | (3.8)% | Brazilian apparent consumption of polyethylene | 3.2% | 4.8% | (1.3)% | (3.2)% | 0.6% | 2.5% | 3.2% | 4.8% | (1.3)% | (3.2)% | Brazilian apparent consumption of polypropylene | 1.9% | 5.9% | 1.1% | (8.3)% | (2.6)% | 2.2% | 1.9% | 5.9% | 1.1% | (8.3)% | Brazilian apparent consumption of PVC | 1.4% | (1.9%) | (2.3)% | (16.0)% | (2.3)% | 1.4% | 1.4% | (1.9)% | (2.3)% | (16.0)% |
Source: Brazilian government and Tendências Consultoria. Brazilian GDP growth has fluctuated significantly, and we anticipate that it will likely continue to do so. Our management believes that economicthe impact on growth in Brazil should positivelywill affect our future net sales revenue and results of operations. However,operations, and a continued recession or low growth in Brazil would likely reduce our future net sales revenue and have a negative effect on our results of operations. In 2016, indicators for economic growth in Brazil were weaker than expected, with negative GDP growth for the year, primarily due to lower borrowing as a result of higher levels of debt held by households and businesses. These factors, combined with the persistent bottlenecks contributing to Brazil cost and the prolonged political and institutional crisis, affected the country’s economy, which resulted in lower demand for resins in the Brazilian market. As a result, Brazilian consumption volumes of thermoplastic resins declined by 2.3% for PVC and 1.3% for polyethylene.
In 2017Brazilian economic indicators showed signs of a slow recovery. As a result, Brazilian consumption volumes of thermoplastic resins increased by 5.9% for polypropylene and 4.8% for polyethylene.PVC remained vulnerable to the effects of the contraction of the civil construction sectorand consumption volumes declined by 1.9%. In 2018, Brazil experienced a recovery in economic indicators and, as a result of stronger economic activity, Brazilian consumption volumes of thermoplastic resins increased by 1.9% for polypropylene and and by 3.2% for polyethylene. The PVC market grew by 1.4% for the first time after four years of contraction.
In 2019, Brazil’s economy continued to recover and, as a result, Brazilian consumption volumes of thermoplastic resins increased by 2.2% for polypropylene and by 2.5% for polyethylene. The PVC market remained stable in relation to 2018. According to the IMF, because ofthe adverse effects of the novel coronavirus (COVID-19) pandemic on the economy of several countries, the world’s GDP and the GDP of Brazil, the United States, Europe and Mexico is expected to shrink significantly in 2020, leading to an economic contraction and a recession in these countries or regions. Brazil’s Macroeconomic Environment The following table shows data inflation, interest rates and the U.S. dollar exchange rate for and as of the periods indicated. | | | | | | | | | | | | | | GDP growth / Reduction(1) | 1.1% | 1.0% | (3.6)% | (3.8)% | 0.1% | 1.1% | 1.1% | 1.0% | (3.6)% | (3.8)% | Inflation (IGP-M)(2) | 7.5% | (0.42%) | 7.2% | 10.5% | 3.7% | 7.3% | 7.5% | (0.42)% | 7.2% | 10.5% | Inflation (IPCA)(3) | 3.7% | 2.9% | 6.2% | 10.7% | 6.4% | 4.3% | 3.7% | 2.9% | 6.2% | 10.7% | CDI rate(4) | 6.40% | 6.99% | 13.6% | 14.1% | 11.6% | 4.6% | 6.40% | 6.99% | 13.6% | 14.1% | Appreciation (depreciation) of therealvs. U.S. dollar | 17.1% | 1.5% | 4.3% | 41.8% | 9.0% | 4.0% | 17.1% | 1.5% | 4.3% | 41.8% | Period-end exchange rate—US$1.00 | R$3.874 | R$3.308 | R$3.259 | R$3.905 | R$2.656 | R$4.0307 | R$3.8748 | R$3.3080 | R$3.2591 | R$3.9048 |
Sources: Fundação Getúlio Vargas, the Central Bank and Bloomberg (1) Brazilian GDP according to Sistema IBGE de Recuperação Automática–SIDRA. (2) Inflation (IGP-M) is the general market price index measured by the Fundação Getúlio Vargas. (3) Inflation (IPCA) is a broad consumer price index measured by the Instituto Brasileiro de Geografia e Estatística. (4) The CDI rate is average of inter-bank overnight rates in Brazil (as of the last date of the respective period). Effects of Fluctuations in Exchange Rates between theReal and the U.S. Dollar Our results of operations and financial condition have been, and will continue to be, affected by the rate of depreciation or appreciation of thereal against the U.S. dollar because: · a substantial portion of our net sales revenue is denominated in or linked to U.S. dollars; ·our costs for some of our raw materials, principally naphtha and certain catalysts required in our production processes, are incurred in U.S. dollars or are linked to U.S. dollars;
·we have operating expenses, and make other expenditures, that are denominated in or linked to U.S. dollars; and
·we have significant amounts of U.S. dollar-denominated liabilities that require us to make principal and interest payments in U.S. dollars.
| a substantial portion of our net revenue is denominated in or linked to U.S. dollars; | · | our costs for some of our raw materials, principally naphtha and certain catalysts required in our production processes, are incurred in U.S. dollars or are linked to U.S. dollars; | · | we have operating expenses, and make other expenditures, that are denominated in or linked to U.S. dollars; and | · | we have significant amounts of U.S. dollar-denominated liabilities that require us to make principal and interest payments in U.S. dollars. |
Virtually all of our sales are of petrochemical products for which there are international market prices expressed in U.S. dollars. We generally attempt to set prices that take into account (1) the international market prices for our petrochemical products, and (2) in Brazil, variations in thereal/U.S. dollar exchange rate. As a result, although a significant portion of our net sales revenue is denominated inreais, substantially all of our products are sold at prices that are based on international market prices that are quoted in U.S. dollars. Fluctuations in thereal will affect the cost of naphtha and other U.S. dollar-linked or imported raw materials. The price of naphtha is linked to the U.S. dollar. The pricing formula included in the contract with Petrobras under which we purchase naphtha for our basic petrochemical plants in the Northeastern Complex and in the Southern Complex includes a factor that adjusts the price to reflect thereal/U.S. dollar exchange rate. The depreciation of thereal against the U.S. dollar generally increases the production cost for our products and we generally attempt to increase the Brazilian prices for our products inreais (to the extent possible in light of then-prevailing market conditions in Brazil), which may result in reduced sales volumes of our products. To the extent that our price increases are not sufficient to cover the increased costs for raw materials, our operating margin decreases. Conversely, the appreciation of thereal against the U.S. dollar generally decreases the productiontheproduction cost for our products and we generally decrease the Brazilian prices for our products inreais, which may result in increased sales volumes of our products. In periods when thereal/U.S. dollar exchange rate is highly volatile, there is usually a lag between the time when the U.S. dollar appreciates or depreciates and the time when we are able to pass on increased costs, or are required to pass on reduced costs, inreais to our customers in Brazil. These pricing discrepancies decrease when thereal/U.S. dollar exchange rate is less volatile. 88
Braskem can enter into financial derivatives transactions to mitigate exchange rate risk associated with exposure to costs inreais. Those operations can include call and put options and related strategies. For example, Braskem may apply a hedging strategy referred to as collar, which is composed of the purchase of a put optionassociated with the simultaneous sale of a call option, where both options having the same maturity. In this case, if thereal depreciates and the strike price of the call exceeds the exchange rate of the option’s exercise date, we may incur significant financial losses. However, since those strategies will be implemented only for non-speculative purposes (in accordance with our financial policy), potential losses on derivatives transactions should be offset by more competitive fixed costs inreais.
Our consolidated U.S. dollar-denominated indebtedness represented 97.1%96% of our outstanding indebtedness as of December 31, 2018. 2019,including thesecureddebt related to our Mexico Complex. Without the latter, our U.S. dollar-denominated indebtedness represented 94% of our outstanding indebtedness. As a result, when thereal depreciates against the U.S. dollar: · | the interest costs on our U.S. dollar-denominated indebtedness increase inreais, which adversely affects our results of operations inreais, which adversely affects our results of operations inreais; ·the amount of our U.S. dollar-denominated indebtedness increases inreais, and our total liabilities and debt service obligations inreais increase; and
·our financial expenses tend to increase as a result of foreign exchange losses that we must record, mitigated by our decision to designate, on May 1, 2013, part of our U.S. dollar-denominated liabilities as a hedge for our future exports.
| · | the amount of our U.S. dollar-denominated indebtedness increases inreais, and our total liabilities and debt service obligations inreais increase; and | · | our financial expenses tend to increase as a result of foreign exchange losses that we must record, mitigated by our decision to designate, on May 1, 2013, October 10, 2017, February 28, 2019, May 2, 2019, November 1, 2019 and December 31, 2019, part of our U.S. dollar-denominated liabilities as a hedge for our future exports. |
Appreciation of thereal against the U.S. dollar has the converse effects. Export sales and sales by our USA and Europe Unit, which enable us to generate receivables payable in foreign currencies, tend to provide a hedge against a portion of our U.S. dollar-denominated debt service obligations, but they do not fully match them. To further mitigate our exposure to exchange rate risk, we try, where possible, to enter into trade finance loans for our working capital needs, which funding is generally available at a lower cost because it is linked to U.S. dollar exports. Thereal depreciated against the U.S. dollar from mid-2011 to early 2016, and again from early 2018 to 2020. In particular, during 2015, due to the poor economic conditions in Brazil, including as a result of political instability, therealdepreciated at a rate that was much higher than in previous years, and a similar trend occurred during 2018 and 2019. On March 31, 2020, the real fell to the lowest level since the introduction of the currency, at R$5.1987 per US$1.00. Overall, in 2015, thereal depreciated 47.0%, reaching R$3.9048 per US$1.00 on December 31, 2015. In 2016, therealfluctuated significantly, primarily as a result of Brazil’s political instability, appreciating 16.5%, to R$3.2591 per US$1.00 on December 31, 2016. In 2017, thereal depreciated 1.5% against the U.S. dollar, ending the year at an exchange rate of R$3.3080 per US$1.00. In 2018, thereal depreciated 14.6 % against the U.S. dollar, ending the year at an exchange rate of R$3.8748 per US$1.00, primarily as a result of lower interest rates in Brazil, which reduced the volume of foreign currency deposited in Brazil in the “carry trade,” as well as uncertainty regarding the Brazilian presidential elections held in October 2018. As of December 31, 2019, thereal/U.S. dollar exchange rate reported by the Central Bank was R$4.0307 per US$1.00 and, as of May 29, 2020, it was R$5.4263 per US$1.00. There can be no assurance that thereal will not depreciate or appreciate further against the U.S. dollar. Effects of Brazilian Inflation Brazilian inflation affects our financial performance by increasing some of our operating expenses denominated inreais (and not linked to the U.S. dollar). A significant portion of our cost of products sold, however, are denominated in or linked to the U.S. dollar and are not substantially affected by the Brazilian inflationBrazilianinflation rate. Some of ourreal-denominated debt is indexed to take into account the effects of inflation. Under this debt, the principal amount generally is adjusted with reference to the General Price Index—Market (Índice Geral de Preços—Mercado), an inflation index, so that inflation results in increases in our financial expenses and debt service obligations. In addition, a significant portion of ourreal-denominated debt bears interest at the TLP or the CDI rate, which are partially adjusted for inflation. 89
Effect of Sales outside Brazil on Our Financial Performance We have significant production capacity located outside of Brazil from our plants located in the United States, Germany and Mexico. During the year ended December 31, 2018, 45.2%2019, 45.5% of our net sales revenue was derived from sales of our products outside Brazil as compared to 45.2% during 2018 and 46.9% during 2017 and 48.3% during 2016.2017. Net sales revenue derived from sales outside Brazil increaseddecreased by 9.1% during 2019, compared to 13.4% during 2018, compared to 0.9%and 0.4% during 2017, and decreased by 0.3% during 2016.2017. During the year ended December 31, 2018,2019, sales to customers in countries in the Americas (other than Brazil) accounted for 67.7%63.4% of our sales outside Brazil. During the year ended December 31, 2018,2019, sales to customers in Europe accounted for 14.3%18.9% of our sales outside Brazil, and sales to customers in East Asia and Other accounted for 18.1%17.8% of our sales outside Brazil. DuringSales outside Brazil are important to us for diversification purposes in relation to regional supply and demand balance, macroeconomic factors and the pastpolitical environment. In line with our strategy, sales outside Brazil affect our financial performance by hedging our operations against risks linked to Brazil.
According to the IMF, because ofthe adverse effects of the novel coronavirus (COVID-19) pandemic on the economy of several years, ascountries, the relative costworld’s GDP and the GDP of naphthathe United States, Europe and gas as feedstock for petrochemical crackers has diverged, the profit margins of many naphtha crackers, including ours, have decreased as crackers using gas as feedstock have become the low-cost producerMexico is expected to shrink significantly in the global markets. However, since gas crackers are unable2020, leading to produce the co-productsan economic contraction and byproducts that naphtha crackers generate, such as propylene, butadiene and BTX products, the prices ofa recession in these products in the international markets have increased.countries or regions. As a result, of the increased prices available for most of these co-products and byproducts, our net sales revenue from export sales of these products increased.outside Brazil are expected to be adversely affected.
Cyclicality Affecting the Petrochemical Industry Global consumption of petrochemical products has increased significantly over the past 30 years. Due to this growth in consumption, producers have experienced periods of insufficient capacity for these products. Periods of insufficient capacity, including some due to raw material shortages, have usually resulted in increased capacity utilization rates and international market prices for our products, leading to increased domestic prices and operating margins. These periods have often been followed by periods of capacity additions, which have resulted in declining capacity utilization rates and international selling prices, leading to declining domestic prices and operating margins. We expect that these cyclical trends in international selling prices and operating margins relating to global capacity shortfalls and additions will likely persist, principally due to the continuing impact of four general factors: · | cyclical trends in general business and economic activity produce swings in demand for petrochemicals; | · | during periods of reduced demand, the high fixed cost structure of the capital intensive petrochemicals industry generally leads producers to compete aggressively on price in order to maximize capacity utilization; | · | significant capacity additions, whether through plant expansion or construction, can take three to four years to implement and are therefore necessarily based upon estimates of future demand; and | · | as competition in petrochemical products is, in most cases, focused on price, being a low-cost producer is critical to improved profitability. This favors producers with larger plants that maximize economies of scale, but construction of plants with high capacity may result in significant increases in capacity that can outstrip demand growth. |
·cyclical trends in general business and economic activity produce swings in demand for petrochemicals;
·during periods of reduced demand, the high fixed cost structure of the capital intensive petrochemicals industry generally leads producers to compete aggressively on price in order to maximize capacity utilization;
·significant capacity additions, whether through plant expansion or construction, can take three to four years to implement and are therefore necessarily based upon estimates of future demand; and
·as competition in petrochemical products is, in most cases, focused on price, being a low-cost producer is critical to improved profitability. This favors producers with larger plants that maximize economies of scale, but construction of plants with high capacity may result in significant increases in capacity that can outstrip demand growth.
A variety ofSeveral petrochemical companies have announced plans to build significant additional ethylene production capacity primarily in Asia and North America.the coming years, of which 56.1% is expected to be concentrated in Northeast Asia. According to IHS, 40.646.3 million tons of annual global ethylene capacity is scheduled to be commissioned between 20192020 and 2023, 2025,including 17.621.2 million tons of annual capacity in China and 9.4 million tons of annual capacity in North America.China. According to IHS, the majority of the new capacity in China will be based on flexible feedstock, with naphtha as the main raw material but also with the option to crack natural gas liquids. The scenario is different in North America, where all the new capacity is ethane-based, with only a small percentage of it being flexible to use another feedstock.liquids, gas oil and residues. Additionally, expansions of ethylene capacity are frequently subject to delays, and we cannot predict when the planned additional capacity will be commissioned, if at all.
International pricing pressures increased90
In 2020, the novel coronavirus (COVID-19) pandemic has significantly impacted economic activity and markets around the world, and its severity, magnitude and duration are highly uncertain, rapidly changing and difficult to predict.According to the IMF, because ofthe adverse effects of the novel coronavirus (COVID-19) pandemic on the economy of several countries, the world’s GDP and the GDP of Brazil, the United States, Europe and Mexico is expected to shrink significantly in 20112020, leading to an economic contraction and 2012a recession in these countries or regions. In the long-term, the trend is for the down cycle to soften and eventually revert into an upcycle again, as the price differentialindustry waits to make decisions on new investments while global trade rebalances and the world absorbs new capacity. Additionally, projects that are announced to start up further into the future have a greater chance of being postponed or cancelled, as the scenario may change, feedstocks may become more or less advantaged, and cash cost curves may shift. In 2019, the world economy slowed to its slowest pace since the financial crisis of 2008. During the year, the impact from the trade war between naphthathe United States and gas increased and producers using ethane as raw materials were able to maintain competitive margins at sales prices lower than those required by some naphtha based producers. In 2013,China; the global economy showed signs of recovery, as reflected by the improved performance of the U.S. economy and indications that the euro zone had begun to emerge from crisis. This scenario helped support a recoveryslowdown in the profitability ofChinese economy; the global petrochemicalcontraction in Europe’s automotive industry, especially in Germany; the uncertainties associated with Brexit; and the spreadspolitical instability in key emerging markets, such as Brazil and Mexico, adversely affected investment and demand for thermoplastic resins and main basic petrochemicals improved during the year. In 2014, world GDP growth fell short of initial forecasts for the year, reflecting theconsumer goods, leading to slower growth in emerging economiesthe industrial sector and in international trade. In this scenario, the euro zone. However,growth in global demand for chemicals and thermoplastic resins in 2019 was below the recoveryinitial expectations of petrochemical industry players and external consulting firms, such as IHS. Combined with this weaker demand, new shale gas-based integrated polyethylene capacities in the United States and new refineries in Asia expanded the global supply of polyolefins and chemicals, pressuring the international spreads of these products. The exception was the PP market in the United States, which still presented healthy spreads supported by U.S. economyeconomic growth and the good performance of other developed markets, such as the United Kingdom, had a positive impact on the world economy in 2014. In 2015 crude oil prices fell sharply, which reduced the competitive advantage of gas-based producers compared to naphtha-based producers. In 2016 oil prices were kept under pressure and the petrochemical industry continued to benefit from the upcycle, even though prices were down from 2015. In 2017, the wave of new ethylene capacity that had been expected to start up in North America in the prior year continued to suffer numerous delays. This factor, combined with several unscheduled maintenance turnarounds, especially in the U.S. due to extreme weather conditions, have allowed spreads to maintain a healthy level throughout the year, thus extending the upcyclehigh supply of the industry.material.
In 2018, much of the capacity additions that had been delayed in prior years finally became available in the United States. The new plants benefit from a lower cost due to their use of ethane, and therefore have the ability to produce products at a lower price than most of their peers in the global market, which caused international price references to fall throughout the year. On the other hand, oil and naphtha prices were at high levels for most of theyear, mainly due to OPEC production cuts and United States sanctions on Iran, which caused spreads to decrease. Additionally, trade disputes between the two largest economies in the world, China and the United States forced American companies to find new regions to market their products, therefore increasing the pressure on prices in these regions.
In 2017, the shortwave of new ethylene capacity that had been expected to mid-term,start up in North America in the global economic slowdown, lower GDP growth in China, and increasingly protective global trade policies may continueprior year continued to affect demand growth for petrochemical products. Furthermore, there is still a considerable amount of capacity to be started up, mainlysuffer numerous delays. This factor, combined with several unscheduled maintenance turnarounds, especially in the United States and Asia, and somedue to extreme weather conditions, have allowed spreads to maintain a healthy level throughout the year, thus extending the upcycle of the projects may come online faster than anticipated, continuing to put pressure on prices due to increased supply. Oil and naphtha prices may continue to show instability, as the cuts in production in the Middle East, deteriorating economic environment in Venezuela, and the increasing supply from the United States shale oil cause prices to remain volatile. Finally, ethane prices may show an upside due to the lack of fractionators to extract liquids from natural gas and pipelines to connect consumers to producers.industry. In the long-term, the trend is for the down cycle to soften and eventually revert into an upcycle again, as the industry waits to make decisions on new investments while global trade rebalances and the world absorbs new capacity. Additionally, projects that are announced to start up further into the future have a greater chance of being postponed or cancelled, as the scenario may change, feedstocks may become more or less advantaged, and cash cost curves may shift.
Effects of Fluctuations in Naphtha, Ethane, Propane and Propylene Prices Fluctuations in the international market price of naphtha have significant effects on our costs of goods sold and the prices that we are able to charge our customers for our first and second generation products. Political instability in the Middle East or similar events that may occur in the future may lead to unpredictable effects on the global economy or the economies of the affected regions. These events have had and may continue to have negative effects on oil production and price volatility, consequently driving naphtha and petrochemical prices higher worldwide. 91
The price of ethane and propane in the Mont Belvieu region in Texas is used as a reference for our costs of feedstock. Any future developments that affect the U.S. supply/demand balance for natural gas may adversely affect the Mont Belvieu price of natural gas (including ethane, propane and butane) and increase our production costs or decrease the price of petrochemical products. External factors and natural disasters such as hurricanes, harsh winters or industry developments, such as shale gas exploration, may disrupt the supply of natural gas, thereby increasing the cost, which may materially adversely affect our cost of products sold and results of operations. Effects on Cost of Products Sold Naphtha is the principal raw material used by our Chemicals Unit and, indirectly, in several of our other business units. Naphtha and condensate accounted for 41.8%40.7% of our direct and indirect consolidated cost of products sold during 2018.2019. The cost of naphtha varies in accordance with international market prices, which fluctuate depending upon the supply and demand for oil and other refined petroleum products. We purchase naphtha under a long-term supply contract with Petrobras, and we import naphtha from other suppliers through our terminal at Aratú, in the State of Bahia and Petrobras’ terminal at Osório, in the State of Rio Grande do Sul. The prices that we pay for naphtha under these arrangements, other than our supply contract with Petrobras, are based on the Amsterdam-Rotterdam-Antwerp (ARA) market price for naphtha. As a result, fluctuations in the ARA market price for naphtha have had a direct impact on the cost of our first generation products. Our contracts with Petrobras provides for naphtha prices based on ARA quotations. The volatility of the quotation of this product in the international market, thereal/U.S. dollar exchange rate, and the level of carbon disulfide, a contaminant of the naphtha that is delivered, also influence the price of naphtha that we purchase from Petrobras. We believe that these contracts have reduced the exposure of the cost of our first generation products to fluctuations in the ARA market price for naphtha. The international price of naphtha has fluctuated significantly in the past, and we expect that it will continue to do so in the future. Significant increases in the price of naphtha and, consequently, the cost of producing our products, generally reduce our gross margins and our results of operations to the extent that we are unable to passall of these increased costs on to our customers, and may result in reduced sales volumes of our products. Conversely, significant decreases in the price of naphtha and, consequently, the cost of producing our products, generally increase our gross margins and our results of operations and may result in increased sales volumes if this lower cost leads us to lower our prices. In periods of high volatility in the U.S. dollar price of naphtha, there is usually a lag between the time that the U.S. dollar price increases or decreases and the time that we are able to pass on increased, or required to pass on reduced, costs to our customers in Brazil. These pricing discrepancies decrease when the U.S. dollar price of naphtha is less volatile.
We do not currently hedge our exposure to changes in the prices of naphtha because a portion of our sales are exports payable in foreign currencies and linked to the international market prices of naphtha and also because the prices of our polyethylene, polypropylene and PVC products sold in Brazil generally reflect changes in the international market prices of these products. Effects on Prices of Our Products The prices that we charge for many of our basic petrochemical products are determined by reference to the European contract prices for these products. Because European producers of basic petrochemical products primarily use naphtha as a raw material, changes in the European contract prices are strongly influenced by fluctuations in international market prices for naphtha. To the extent that our prices are based on the European contract prices for our products, the prices that we charge for these products are significantly influenced by international market prices for naphtha. We negotiate the prices inreais for part of our products, principally polyethylene, polypropylene and PVC, on a monthly basis with our domestic customers. We attempt to revise our prices to reflect (1) changes in the international market prices of these products, which tend to fluctuate in tandem with naphtha prices, especially for polyethylene, and (2) the appreciation or depreciation of therealagainst the U.S. dollar. However, during periods of high volatility in international market prices or exchange rates, we are sometimes unable to fully reflect these changes in our prices in a prompt manner. 92
The international market prices of our petrochemical products have fluctuated significantly, and we believe that they will continue to do so. Volatility of the price of naphtha and the upward trend in the price of petroleum and naphtha have effects on the price competitiveness of our naphtha-based crackers and our resins. Because pricing trends for naphtha and ethane have diverged in recent years to a greater extent than has been the case historically, producers of ethylene and resin products derived from ethane generally have experienced lower unit raw material costs than naphtha-based producers of these products. As a consequence, significant increases in the pricing differential between naphtha and gas, as a consequence of higher oil prices, increases the competitiveness of products derived from ethane and may result in pricingan effect on our results of operations to the extent that we are able to maintain our operating margins and increased prices do not reduce pressure in the international markets. Significant increases in the international market prices of our petrochemical products and, consequently, the prices that we are able to charge, generally increase our net sales revenue and our results of operations due to the extent that we are able to maintain our operating margins and increased prices do not reduce sales volumes of our products. Conversely, significant decreases in the international prices of our petrochemical products, and, consequently, the prices that we charge, generally reduce our net sales revenue and our results of operations if we are unable to increase our operating margins or these reduced prices do not result in increased sales volumes of our products. Capacity Utilization Our operations are capital intensive. Accordingly, to obtain lower unit production costs and maintain adequate operating margins, we seek to maintain a high capacity utilization rate at all of our production facilities. The table below sets forth capacity utilization rates with respect to the production facilities for some of our principal products for the periods presented. | | | | | | | | | | Ethylene | 91% | 94% | 92% | Polyethylene | 88% | 90% | 89% | Polypropylene | 87% | 93% | 86% | PVC | 76% | 86% | 84% | Polypropylene USA and Europe | 87% | 97% | 100% | PE Mexico | 77% | 88% | 42% |
| | | | | | | | | | Ethylene | 85% | 91% | 94% | Polyethylene | 85% | 88% | 90% | Polypropylene | 89% | 87% | 93% | PVC | 65% | 76% | 86% | Polypropylene USA and Europe | 89% | 87% | 97% | PE Mexico | 76% | 77% | 88% |
In 2019, average capacity utilization was affected by the: (i) lower ethylene utilization rate of the cracker in Bahia resulting from the shutdown of the chlor-alkali and dichloroethane plants in Alagoas; (ii) scheduled turnaround of one of our ethylene production lines at the Bahia cracker in the fourth quarter of 2019; (iii) lower ethylene utilization rate at the crackers in Rio Grande do Sul, due to logistics problems; and (iv) drop in the marginal profitability of our export of resins. In 2018, average capacity utilization was affected by the truckers’ strike that took place in Brazil in May of 2018; the incident involving the chlor-alkali plant in Alagoas; the blackout that affected Brazil’s Northeast plants in March; and lower demand in the fourth quarter of 2018. In 2017, average capacity utilization was affected by strong operating performance of the crackers, resulting from increased operating efficiency and higher availability of feedstock at the gas-based cracker in Rio de Janeiro. In 2016, average capacity utilization was affected by (1) strong operating performance of the crackers, resulting from increased operating efficiency and exports of excess volumes not absorbed, and (2) higher availability of feedstock at the gas-based cracker in Rio de Janeiro.
Effects of Brazilian Industrial Policy The Brazilian government has a significant influence in some sectors of the domestic economy, including the petrochemical sector in which we operate. The Brazilian government has adopted, or is considering adopting, measures to boost the competitiveness of domestic companies, as described below. Reintegra In December 2011, the Brazilian government implemented the “Reintegra” program, which is designed to improve the competitiveness of Brazilian manufacturers in the export markets by refunding the federal taxes levied on their export sales. As a result of this incentive, exports of third generation products by Brazilian companies have increased. The original program ended on December 31, 2013. In August 2014, the Brazilian governmentBraziliangovernment permanently reinstated Reintegra on a permanent basis and with variable rates that could vary by up to 5% of the revenue of the companies with exports. The refund tax rate was set at 0.1% in August 2014. In October 2014, the Brazilian government restored the rate to 3.0% until the end of 2015. However, in March 2015, the Brazilian federal government again decreased the rate to 1.0% for 2015 and 2016. In October 2015, according to the Decree 8,543, the Brazilian federal government decreased the refund rate to 0.1% as of December 1, 2015, which remained in effect until December 31, 2016. On August 28, 2017, pursuant to Decree 9,148 that amended the Decree 8,543, the Reintegra rate increased to 2% effective, as of January 1, 2017 until December 31, 2018. However, on May 30, 2018, the Brazilian government issued a new decree decreasing the refund rate to 0.1%, effective June 1, 2018.2018, for an undefined term. 93
Pricing and Tariffs We set prices for ethylene, the principal first generation petrochemical product that we sell to third-party second generation producers, by reference to international market prices. See “Item 4. Information on the Company—Chemicals Unit—Sales and Marketing of Our Chemicals Unit.” Prices paid by second generation producers for imported first generation petrochemical products partly reflect transportation and tariff costs. We establish the prices of ethylene by-products, such as butadiene, by reference to several market factors, including the prices paid by second generation producers for imported products. Prices paid for such imports also reflect transportation and tariff costs. Second generation producers, including us, generally set prices for their petrochemical products by reference to several market factors, including the prices paid by third generation producers for imported products. Prices paid for such imports also reflect transportation and tariff costs. The Brazilian government has used import tariffs to implement economic policies. As a result, import tariffs imposed on petrochemical products have varied in the past and may vary in the future. Tariffs on imports of first generation petrochemical products are between 0% and 4%, and tariffs on polyethylene, polypropylene and PVC resins are 14.0%. Imports and exports within the free trade area in South America (Mercado Comum do Sul), or Mercosur, which is composed of Argentina, Brazil, Paraguay and Uruguay, have not been subject to tariffs since December 2001. Imports of suspension PVC from Bolivia, Chile, Colombia, Cuba, Ecuador, Peru and Venezuela are not subject to tariffs, due to a number of trade agreements. Imports of suspension PVC from Mexico are subject toreduced tariffs of 11.2%, due to a trade agreement. Imports and exports among Mercosur and Colombia, Ecuador e Venezuela are not subject to tariffs due to a trade agreement since 2005.
ImportsAlso, imports of suspension PVC from the U.S.United States and Mexico have been subject to anti-dumping duties of 16.0% and 18.0%, respectively, that were imposed by the Brazilian Foreign Trade Chamber (Câmara de Comércio Exterior), or CAMEX. Since 2008, imports of suspension PVC from China have also been also subject to dutiesa duty of 21.6%, and imports of suspension PVC from South Korea have been subject to duties ranging between 0% and 18.9%, depending on the producer, as a result of the imposition of anti-dumping duties by CAMEX. The duties imposed toon imports from U.S.the United States and Mexico are scheduled to expire in 2021, and, although the duties imposed toon imports from China and South Korea expired in 2019, they are scheduledcurrently under review and therefore will remain in effect until the end of the review process, which is expected to expireoccur in 2019.August 2020.
Additionally, in December 2010, CAMEX imposed an anti-dumping duty of 10.6% on polypropylene imports from the United States. Those measures were renewedStates, which was extended in November 2016. In August 2014, the Brazilian government imposed anti-dumping duties on polypropylene imports from South Africa, India and South Korea of 16.0%, 6.46.4% to 9.9%, and 2.42.4% to 6.3%, respectively. The duties imposed on imports of polypropylene from the United States are scheduled to expire in 2021, and although the duties imposed on imports from South Africa, India and South Korea expired in 2019, they are scheduledcurrently under review and therefore will remain in effect until the end of the review process, which is expected to expireoccur in 2019.August 2020. In 2019, 31% of Brazilian polyethylene, polypropylene and PVC resins were imported products, which reflected an 8.5% annual increase in the volume of resins imported. In 2018, 25% of Brazilian polyethylene, polypropylene and PVC resins were imported products, which reflected a 12.3% annual increase in the volume of resins imported, due to the higher availability of products from plants that recently entered into operation.started to operate. 94
Effect of Level of Indebtedness and Interest Rates As of December 31, 2018,2019, our total outstanding consolidated indebtedness, net of transaction costs, was R$25,192.7 million.39,273.3 million (US$9,743.5 million), including R$9,981.7 million (US$2,476.4 million) in connection with the secured debt related to our Mexico Complex. The level of our indebtedness results in significant financial expenses that are reflected in our statement of operations.profit or loss. Financial expenses consist of interest expense, exchange variations of U.S. dollar-dollar and other foreign currency-denominated debt, foreign exchange losses or gains, and other items as set forth in note 1534 to our audited consolidated financial statements. In the year ended December 31, 2018,2019, we recorded total financial expenses of R$3,007.64,746.4 million, of which R$2,084.82,191.8 million consisted of interest expense.expenses. In addition, we recorded a loss of R$2,257.01,725.8 million in connection foreign exchange variation on our financial assets and liabilities. The interest rates that we pay depend on a variety of factors, including prevailing Brazilian and international interest rates and our risk assessments, our industry and the Brazilian economy made by our potential lenders, potential purchasers of our debt securities and the rating agencies that assess us and our debt securities. Effect of Taxes on Our Income We are subject to a variety of generally applicable federal and state taxes in multiple jurisdictionson our operations and results. We are generally subject to Brazilian federal income tax at 25%, combined with Social Contribution on Net Income (Contribuição Social Sobre o Lucro Líquido-– CSLL) at 9%, totalizing an effective rate of 34%, which is the standard corporate tax rate in Brazil. We have available certain federal tax exemptions based upon federal law that offers tax incentives to companies that locate their manufacturing operations in the Brazilian states of Bahia and Alagoas. These exemptions have been grantedrepresent a 75% reduction of our tax burden, and, thenas a result, we are entitled to pay 25% of the statutory income tax rate on the profits arising from the sale of: · polyethylene manufactured at one of our polyethylene plants in the Northeastern Complex until 2026; and ·polyethylene manufactured at one of our polyethylene plants in the Northeastern Complex and caustic soda, chlorine, ethylene dichloride and PVC produced at our plants in the Northeastern Complex and Alagoas until 2024.
| polyethylene manufactured at one of our polyethylene plants in the Northeastern Complex until 2026; and | · | polyethylene manufactured at one of our polyethylene plants in the Northeastern Complex and caustic soda, chlorine, ethylene dichloride and PVC produced at our plants in the Northeastern Complex and Alagoas until 2024. |
The exemption of 75% of income tax rate combined with CSLL at 9%, entitles us to pay only 44.9% of the 34% standard corporate tax rate on the profits arising from products manufactured at these plants. Income tax loss carryforwards available for offset in Brazil do not expire. However, the annual offset is limited to 30% of our adjusted net profits. This limit also affects the social contribution on net profit, or CSLL.The deferred income tax and social contributions assets originating from tax loss carryforwards were completely used in 2018. There is no outstanding balance to be used in 2019.2020.
The consolidated amount includes the impact from the different tax rates in countries where foreign subsidiaries are located, as follows: · | Braskem Europe (Germany): 31.18%; | · | Braskem America e Braskem America Finance (United States): 21.00%; | · | Braskem Argentina (Argentina): 30.00%; | · | Braskem Petroquímica Chile (Chile): 27.00%; | · | Braskem Holanda, Braskem Holanda Finance and Braskem Holanda Inc Netherland (The Netherlands): 25.00%; and | · | Braskem Idesa, Braskem Idesa Serviços, Braskem México, Braskem México Serviços and Braskem México Sofom (Mexico): 30.00%. |
·Braskem Europe (Germany): 31.18%;95
·Braskem America e Braskem America Finance (United States): 21.00%;
·Braskem Argentina (Argentina): 30.00%;
·Braskem Petroquímica Chile (Chile): 27.00 %;
·Braskem Holanda, Braskem Holanda Finance and Braskem Holanda Inc Netherland (The Netherlands): 25.00%; and
·Braskem Idesa, Braskem Idesa Serviços, Braskem México, Braskem México Serviços and Braskem México Sofom (Mexico): 30.00%.
Our export sales are currently exempt from (1) PIS (2) COFINS, a federal value-added tax, (3) the Tax on Industrial Products (Imposto sobre Produtos Industrializados), or IPI, a federal value-added tax on industrial products, and (4) ICMS. Recent Developments
Long-Term Share-Based Incentive Plan
On March 21, 2018, our shareholders approved our long-term share-based incentive plan for key executives, or the ILP Plan, which aims to align the interests of its participants with those of the our shareholders and to encourage participants’ retention at the Company by offering eligible participants an opportunity to receive restricted shares in the Company by voluntarily investing own funds and holding such shares through the end of the three-year vesting period. For additional information, see Item 6—Directors, Senior Management and Employees—Compensation—Long-Term Incentive Plan.”
On March 28, 2018, our Board of Directors approved the “ILP Program 2018” in accordance with the terms and conditions of the ILP Plan, which includes the list of eligible persons, the deadline for acquiring own shares by participants and the number of restricted shares to be delivered to participants as matching contribution for each own share acquired. The maximum number of shares the Company expects to deliver to the participants of the ILP Program 2018, after the vesting period and subject to compliance with all necessary requirements, is 727,688 shares. The program’s grant date is April 6, 2018.
On March 13, 2019, our Board of Directors approved the “ILP Program 2019” in accordance with the terms and conditions of the ILP Plan, which includes the list of eligible persons, the deadline for acquiring own shares by participants and the number of restricted shares to be delivered to participants as matching contribution for each own share acquired. The maximum number of shares the Company expects to deliver to the participants of the ILP Program 2019, after the vesting period and subject to compliance with all necessary requirements, is 573,345 shares.
Quantiq
On January 9, 2017, our Board of Directors approved the sale of the subsidiaries Quantiq Distribuidora Ltda (“Quantiq”) and IQAG Armazéns Gerais Ltda (“IQAG”) in the amount of R$550 million, and on April 3, 2017 the transfer of control to the buyer company was concluded.
In April 2018, we received the amount of R$81 million, adjusted by inflation, related to the outstanding balance of R$100 million in connection with the sale of our subsidiaries Quantiq and IQAG in 2017. The difference between the expected amount and the received amount was recognized in the second quarter of 2018 in the line item “other income (expenses), net,” in the amount of R$19.6 million, resulting from an adjustment provided for the agreement.
Dividends
On April 30, 2018, at our annual shareholders’ meeting, our shareholders approved the payment of additional dividends considering the net income for fiscal year 2017, in the amount of R$1,500.0 million. We paid this dividend distribution on May 10, 2018.
In March 2019, our board of directors proposed the distribution of dividends for the year ended 2018, which was expected to be submitted for approval at our annual and extraordinary general shareholders’ meeting held on April 16, 2019. On April 15, 2019, a court of appeals in the state of Alagoas suspended such distribution of dividends to cover any potential liability costs in connection with a lawsuit filed in the state of Alagoas claiming damages arising out of a geological incident at our salt mine. This decision was reversed by a decision of the Superior Court of Justice (Superior Tribunal de Justiça, or STJ), which authorized the distribution of dividends upon posting of a judicial bond in the same amount.
On August 19, 2019, we became aware of the filing of another civil lawsuit by the Federal Prosecutor’s Office (Ministério Público Federal) against us and other parties, requesting injunctive reliefs for, among other things, freeze any profits not yet distributed. We are taking all relevant measures to defend against this lawsuit. We are taking all relevant measures to defend against these lawsuits. As of the date of this annual report, the plaintiff´s requests for injunctive relief have not yet been ruled upon.
On October 3, 2019, the Extraordinary General Meeting approved (i) the payment of the mandatory dividend, in the amounf of R$667 million, to be paid until December 31, 2019; (ii) the capital budget fo the fiscal year of 2019; and (iii) the remaining amount of the 2018 net profit, of R$2,002.3 million, be withheld by the Company, pursuant to article 196 of the Brazilian Corporation Law.
Standby Letter Of Credit
In April 2018, the Company replaced the standby letter of credit that covers Braskem’s obligation to constitute a reserve account for the project finance of its subsidiary Braskem Idesa, releasing the R$476.9 million cash collateral that was given in connection with the previous standby.
Revolving Credit Facility
On May 11, 2018, Braskem S.A., in line with its commitment to maintain financial liquidity, entered into an international revolving credit facility in the amount of US$1,000 million with a syndicate of banks, maturing in 2023. The two facilities held by the Company until then in the amounts of US$750 million with expiration in December 2019 and of R$500 million with expiration in September 2019 were cancelled.
Credit Facility
On May 30, 2018, our subsidiary Braskem America entered into a credit facility in the amount of up to US$225 million, secured by Euler Hermes, a German export credit agency, which will be used to finance a portion of our investment in the new polypropylene plant located in Houston, Texas. The funds will be disbursed in accordance with the progress of the project’s construction, and we expect to have the full amount disbursed by December 30, 2020. As of this annual report, US$172 million has been disbursed.
EDC (ethylene dichloride)
In July 2018, the Company was served a notice by the State of Alagoas claiming that it allegedly used an ICMS tax base lower than that envisaged in legislation for internal transfers to another unit in the State of Alagoas of EDC (ethylene dichloride), between January 2013 and May 2016, which is a product that is not subject to deferral in such transactions. The restated value of this tax assessment notice amounted to R$175 million. The Company’s external legal advisors estimate that the administrative proceedings should be concluded in 2022. No judicial deposit or other form of security was accrued for this proceeding, as it is currently still in its administrative stage.
SACE Financing
In November 2018, the subsidiary Braskem Netherlands B.V. secured a financing facility of US$295 million guaranteed by SACE Covered Facility Agreement, the Italian export credit agency, with maturity in November 2028 and charges US dollar exchange variation + semianual Libor + 0.90% per year.
Recovery of Federal Tax Credits
In March 2017, the Brazilian Federal Supreme Court (“STF”) decided, in connection with an extraordinary appeal initiated by STF, that ICMS tax should not be included in the calculation base of PIS/COFINS. Despite the filing of a motion for clarification by the Federal Government requesting the prospective effects of the decision, the STF itself and all Regional Federal Appellate Courts in Brazil have applied the decision of the lead case indiscriminately. On December 31, 2018, the extraordinary appeal filed against us by the Brazilian Government was ruled moot. These developments increase the legal certainty of the STF’s decision to exclude ICMS tax from the calculation of PIS/COFINS. As a result, on December 31, 2018 we recognized a tax credit in the amount of R$519.8 million related to PIS and COFINS for the period from March 2017 to November 2018, of which R$265.4 million was recorded under “net sales revenue”, R$235.9 million under “other income (expenses)” and R$18.5 million under “financial income.”
In 2019, a Brazilian court issued final and unappealable decisions in our favor in connection with a lawsuit filed by us, allowing the exclusion of ICMS tax from the calculation base of PIS/COFINS taxes with retroactive effect to the year 1991. The effects of these decisions were assessed by the Company which recognized in the first half of 2019, we recognized the amount of R$2,038.9 million related to PIS and COFINS taxes, of which R$1,851.0 million was recorded under “Other operating income (expenses)” and R$188.0 million under “Financial income”.
BNDES
On January 30, 2019, Braskem received the first installment of R$266 million related to the onlending transaction with the BNDES in the aggregate amount of R$476 million at an interest rate of 11.57% p.a. and with maturity on January 15, 2031, which was contracted on December 26, 2018. The Company will receive the remaining amounts by the end of fiscal year 2019.
Odebrecht Reorganization
As per the Notice to the Market disclosed on February 1, 2019, we were informed by Odebrecht S.A., our indirect controlling shareholder, of the corporate reorganization conducted by the Odebrecht Group with the main objective of segregating its businesses, whose corporate acts were filed with the Commercial Registry of the State of São Paulo on January 31, 2019, with retroactive effects through December 31, 2018.
We were informed that the reorganization involved the spin-off of Odebrecht Serviços e Participações S.A. ("OSP") with the segregation of its asset composed of all common and preferred shares of Braskem and liability composed of the Purchase and Sale Agreement of Debentures no. 16.2.0023.1, entered into on March 16, 2016 between BNDES Participações S.A. - BNDESPAR and OSP, with third-parties acting as intervening parties, as amended ("Spun-Off Portion"), the other operating activities of OSP, followed by the merger of the Spun-Off Portion into OSP Investimentos S.A. ("OSP Inv.").
The corporate reorganization took place within the Odebrecht Group and, therefore, Odebrecht S.A. continues to be our indirect controlling shareholder.
Odebrecht Judicial Restructuring Proceedings
On June 17, 2019, Odebrecht, together with certain of its controlling and controlled entities (collectively, the “Debtors”), filed the Odebrecht Judicial Restructuring Proceedings. The Odebrecht Judicial Restructuring Proceedings expressly excluded us and certain other entities controlled by Odebrecht. We have no relevant trade receivables from Odebrecht and the filing of the Odebreacht Judicial Restructuring Proceedings do not trigger the early termination of any of our liabilities.
As mentioned in this annual report, the Odebrecht Judicial Restructuring Proceedings may expose us to certain risks. Because Odebrecht owns a majority of the voting power of our common stock, the occurrence of an event of default, foreclosure, and a subsequent sale of all, or substantially all, of the shares of common stock held by Odebrecht and received upon foreclosure of any pledged securities could result in a change of control, change of corporate strategy, trigger certain events of default or lead to the breach of certain covenants under certain of the agreements we entered into. See “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Petrochemical Industry. Some of our shareholders may have the ability to determine the outcome of corporate actions or decisions, which could affect the holders of our class A preferred shares and the ADSs” and “Item 3. Key Information—Risk Factors—Risks Relating to Our Equity and Debt Securities—The totality of the shares issued by Braskem and owned by OSP Investimentos S.A. were given as collateral in financing agreements entered into by the Odebrecht Group.”
CGU/AGU Agreement
As per the notice to the market dated July 10, 2018 and the Material Fact notice dated May 27, 2019, Braskem engaged in a cooperation and negotiation process with the Ministry of Transparency, the Office of the Federal Controller General (“CGU”) and the Office of the General Counsel for the Federal Government (“AGU”), which culminated in the signing of a leniency agreement with said authorities on May 31, 2019 (“CGU/AGU Agreement”).
The CGU/AGU Agreement addresses the same facts that are the subject of the Global Settlement entered into in December 2016 and provides for an additional disbursement of R$410 million due to the calculations and parameters adopted by CGU/AGU.
In response to a request by the Company and the MPF, the Federal Courts ratified the allocation of funds under the MPF Agreement to the payment of the CGU/AGU Agreement, with the outstanding installments restated by the variation in the SELIC basic interest rate as of the execution of the CGU/AGU Agreement. The additional disbursement of R$410 million will be paid in two annual installments at the end of the payment schedule of the MPF Agreement, in 2024 and 2025. The CGU/AGU Agreement jointly with the Global Settlement are referred to as the “Agreements.”
The Agreements do not exempt us from liability before third parties with legitimate interests that seek damages in connection with the facts covered by the Agreements, including other authorities seeking to apply new monetary sanctions or fines or to launch new investigations into the Company. Therefore, it is not possible to ensure that the aggregate amount agreed upon will be sufficient to ensure full reparation to all victims.
We are currently in compliance with all obligations under the Agreements.
Mining Activities
In April 2019, the Alagoas State Attorney’s Office (Ministério Público do Estado de Alagoas) and the State Public Defender’s Office (Defensoria Pública do Estado de Alagoas) filed a lawsuit seeking to freeze our assets in an amount of up to R$6.7 billion to secure funds allegedly required to ensure remediation and compensation for environmental, property and personal damages potentially resulting from a geological incident related to our mining actitivies in the city of Maceió. A preliminary decision ordered the freezing of R$100 million in our banks accounts.
In addition, the Alagoas state court of appeals (Tribunal de Justiça do Estado de Alagoas) ordered the suspension of the distribution of dividends for the fiscal year 2018 that had been proposed in the amount of R$2.7 billion, or, alternatively, the freezing of assets in the same amount of the proposed dividend distribution.This decision was subsequently reversed by a decision of the Superior Court of Justice (Superior Tribunal de Justiça, or STJ), which authorized the distribution of dividends upon posting of a judicial bond in the same amount. The Alagoas State Attorney’s Office and the Alagoas State Public Defender’s Office amended their claim to exclude the request for indemnification for the alleged environmental damages and reduce the amount of assets to be frozen to R$3.7 billion, which according to their allegations would be equivalent to the actual damages caused to the residents of the districts affected by the geological event. On June 26, 2019, the presiding judge of the Alagoas state court of appeals (Tribunal de Justiça do Estado de Alagoas) issued a decision ordering an amount of R$3.7 billion to be frozen. This decision was also subsequently reversed by the Superior Court of Justice (STJ), which ordered the frozen amount of R$3.7 billion to be returned to our bank accounts after posting another judicial bond in an equivalent amount.
On July 25, 2019, we were informed of another civil lawsuit filed against us by the Labor Prosecutor’s Office of the State of Alagoas, or MPT-AL, requesting injunctive relief to freeze the amount of R$2.5 billion to guarantee payment of any actual damages that workers affected by the geological event may suffer. In that lawsuit, MPT-AL further requested the payment of compensation to workers for pain and suffering. On October 10, 2019, the trial court denied the injunctive relief request.
On August 19, 2019, we became aware of the filing of another civil lawsuit by the Federal Prosecutor’s Office (Ministério Público Federal) against us and other parties, requesting the following injunctive reliefs: (i) the set-up of a fund of R$3.1 billion for the benefit of social and environmental programs and emergency measures to be carried out, and the maintenance in said fund of working capital in the amount of at least R$2.0 billion or, after a financial schedule is approved for such fund, an amount equivalent to 100% of the expenses projected for the subsequent 12 months; (ii) the posting of bonds in the amount of R$20.5 billion; (iii) prohibition on us to encumber or dispose of any of our fixed assets and to distribute profits, in the form of dividends, interest on shareholders’ equity or any other form; (iv) freezing of any profits not yet distributed; and (v) suspension of receipt of government financings and government incentives, as well as acceleration of existing indebtedness with BNDES (a federal development bank). As of the date of this annual report, the plaintiff´s requests for injunctive relief have not yet been ruled upon.
Weare taking all relevant measures to defend against these lawsuits.
NYSE
Since the Company was not able to file Form 20-F, for the year ended December 31, 2017, in accordance with the filing requirements of the SEC and no further extensions have been granted pursuant to Section 802.01E of the NYSE Listed Company Manual, on May 13, 2019, the New York Stock Exchange suspended trading of the Registrant’s American Depositary Shares and had initiated delisting procedures.
The Company appealed the decision, which is scheduled by the NYSE for October 17, 2019.
On October 7, 2019 the Company filed Form 20-F for the year ended December 31, 2017.
Negotiations
As per the material fact dated June 4, 2019, we were informed by Odebrecht of its decision taken jointly with LyondellBasell to terminate negotiations for a potential transaction involving the transfer to LyondellBasell of the entire interest held by Odebrecht in our capital stock. Those negotiations were started on June 15, 2018.
Braskem Idesa
As of October 9th, 2019, a Waivers & Consent package was approved by the Intercreditor Agent on behalf of the Lenders, thus extending the dates for achieving the Guaranteed Physical Completion Date from November 30, 2016 to December 31, 2020 and the Guaranteed Financial Completion Date from December 31, 2016 to December 31, 2020.
The approval of the Waivers & Consent package allows Braskem Idesa to reclassify the Senior Debt from current to non-current liabilities. As of December 2018, R$9,554.5 million will be reclassified from current liabilities to non-current liabilities for all periods reported after the date of the waiver.
Statement of Profit or Loss The discussion of the results of our business units is based upon financial information reported for each of the segments of our business, as presented in the following tables, which set forth the results of each of our segments and the reconciliation of these results of our segments to our consolidated results of operations. This segment information was prepared on the same basis as the information that our senior management uses to allocate resources among segments and evaluate their performance. We evaluate and manage the performance of our segments based on information generated from our accounting records maintained in accordance with IFRS, and reflected in ourauditedconsolidated financial statements.
| Year Ended December 31, 2018 | Year Ended December 31, 2019 | | | | | Selling, general and distribution expenses | Results from equity investments | Other operating income (expense), net(1) | | | | | Selling, general and distribution expenses | Results from equity investments | Other operating income (expense), net(1) | | | (in millions ofreais) | (in millions ofreais) | Chemicals | 31,111.7 | (27,464.0) | 3,647.6 | (756.7) | | (139.4) | 2,751.5 | 27,172.3 | (25,349.9) | 1,822.4 | (1,069.9) | — | (269.4) | 483.1 | Polyolefins | 22,483.9 | (19,255.4) | 3,228.5 | (1,310.1) | | (93.5) | 1,824.9 | 21,191.9 | (18,494.5) | 2,697.3 | (1,439.2) | — | (151.4) | 1,106.8 | Vinyls | 3,167.4 | (2,889.5) | 277.9 | (169.4) | | (18.4) | 90.1 | 2,692.8 | (3,069.3) | (376.5) | (437.2) | — | (3,673.1) | (4,486.8) | USA and Europe | 11,724.8 | (9,126.4) | 2,598.4 | (610.4) | | 10.7 | 1,998.7 | 10,044.3 | (8,233.1) | 1,811.2 | (786.1) | — | 9.2 | 1,034.3 | Mexico | | (2,333.8) | 1,436.7 | (296.4) | | 305.5 | 1,445.7 | | | | | | | | Total segments | 72,258.2 | (61,069.2) | 11,189.0 | (3,143.0) | | 64.8 | 8,110.9 | 64,152.7 | (57,650.8) | 6,501.8 | (4,083.5) | — | (3,760.0) | (1,341.7) | Other segment(2) | 292.4 | (173.6) | 118.8 | (34.8) | | (0.1) | 83.9 | 296.3 | (188.3) | 108.0 | (44.5) | — | 3.4 | 66.8 | Corporate unit(3) | 265.4 | | 265.4 | (200.6) | (0.9) | 26.1 | 90.0 | — | (218.0) | 10.2 | 1,775.2 | 1,567.5 | Reclassifications and eliminations(4)(3) | | | | | | | | | | | | | | Consolidated | | | | | | | | | | | | | | |
(1) Includes research and development. (2) Represents income (expenses) of Braskem that are not allocated to any particular segment. (3) Eliminations consist primarily of inter-segment sales, which are made in similar terms as arm’s length transactions. | Year Ended December 31, 2018 | | | | | Selling, general and distribution expenses | Results from equity investments | Other operating income (expense), net(1) | | | (in millions ofreais) | Chemicals | 31,111.7 | (27,523.7) | 3,587.9 | (784.5) | — | (52.0) | 2,751.5 | Polyolefins | 22,483.9 | (19,295.9) | 3,188.0 | (1,328.0) | — | (35.0) | 1,824.9 | Vinyls | 3,167.4 | (2,908.4) | 259.0 | (177.3) | — | 8.4 | 90.1 | USA and Europe | 11,724.8 | (9,152.8) | 2,571.9 | (642.0) | — | 68.7 | 1,998.7 | Mexico | | | | | | | | Total segments | 72,258.2 | (61,214.6) | 11,043.6 | (3,245.4) | — | 312.7 | 8,110.9 | Other segment(2) | 292.4 | (173.6) | 118.8 | (34.8) | — | (0.1) | 83.9 | Corporate unit(3) | 265.4 | — | 265.4 | (334.4) | (0.9) | 159.9 | 90.0 | Reclassifications and eliminations(4) | | | | | | | | Consolidated | | | | | | | |
(1) Includes research and development. (2) Represents income (expenses) of Braskem that are not allocated to any particular segment. (3) Includes the amount of R$501.4 million (R$265.4 million in “net sales revenue” and R$236.0 million in “other operating income (expenses), net”) related to PIS and COFINS tax credits – exclusion of ICMS from the calculation basis (note 10(c) to our audited consolidated financial statements). (4) Eliminations consist primarily of intersegmentinter-segment sales, which are made in similar terms as arm’s length transactions.
| Year Ended December 31, 2017 | | | | | Selling, general and distribution expenses | Results from equity investments | Other operating income (expense), net(1) | | | (in millions ofreais) | Chemicals | 25,179.3 | (20,478.9) | 4,700.4 | (773.4) | — | (197.3) | 3,729.7 | Polyolefins | 19,650.4 | (15,432.2) | 4,218.2 | (1,321.6) | — | (177.5) | 2,719.1 | Vinyls | 3,066.9 | (2,572.8) | 494.1 | (163.0) | — | (163.4) | 167.7 | USA and Europe | 9,854.5 | (7,419.3) | 2,435.2 | (582.7) | — | (21.3) | 1,831.3 | Mexico | | | | | | | | Total segments | 61,351.9 | (48,097.5) | 13,351.3 | (3,124.0) | — | (531.5) | 9,695.8 | Other segment(2) | 83.7 | (65.7) | 18.0 | (13.4) | — | (2.4) | 2.2 | Corporate unit | — | — | — | (61.4) | 40.0 | (320.9) | (342.3) | Reclassifications and eliminations(3) | | | | | | | | Consolidated | | | | | | | |
| Year Ended December 31, 2017 | | | | | Selling, general and distribution expenses | Results from equity investments | Other operating income (expense), net(1) | | | (in millions ofreais) | Chemicals | 25,179.3 | (20,478.9) | 4,700.4 | (773.4) | — | (197.3) | 3,729.7 | Polyolefins | 19,650.4 | (15,432.2) | 4,218.2 | (1,321.6) | — | (177.5) | 2,719.1 | Vinyls | 3,066.9 | (2,572.8) | 494.1 | (163.0) | — | (163.4) | 167.7 | USA and Europe | 9,854.5 | (7,419.3) | 2,435.2 | (582.7) | — | (21.3) | 1,831.2 | Mexico | | | | | | | | Total segments | 61,351.9 | (48,000.6) | 13,351.3 | (3,124.0) | — | (531.6) | 9,695.8 | Other segment(2) | 83.7 | (65.7) | 18.0 | (13.4) | — | (2.4) | 2.2 | Corporate unit | — | — | — | (61.4) | 40.0 | (320.9) | (342.3) | Reclassifications and eliminations(3) | | | | | | | | Consolidated | | | | | | | |
(1) Includes research and development. (2) Represents income (expenses) of Braskem that are not allocated to any particular segment. (3) Eliminations consist primarily of intersegmentinter-segment sales, which are made in similar terms as arm’s length transactions. | Year Ended December 31, 2016 (adjusted) | | | | | Selling, general and distribution expenses | Results from equity investments | Other operating income (expense), net(1) | | | (in millions ofreais) | Chemicals | 25,062.6 | (20,248.2) | 4,814.4 | (680.1) | — | (409.9) | 3,724.4 | Polyolefins | 20,307.4 | (15,980.9) | 4,326.5 | (1,284.7) | — | (199.1) | 2,842.7 | Vinyls | 3,016.4 | (2,815.2) | 201.2 | (236.8) | — | (71.9) | (107.4) | USA and Europe | 8,896.1 | (6,080.7) | 2,815.4 | (497.8) | — | (71.0) | 2,246.6 | Mexico(2) | | | | | | | | Total segments | 58,869.4 | (46,277.0) | 12,592.3 | (2,931.2) | — | (756.7) | 8,904.5 | Other segment(3) | 12.2 | (14.8) | (2.6) | (1.9) | — | (20.8) | (25.3) | Corporate unit | — | — | — | (33.6) | 30.1 | (3,128.4) | (3,131.9) | Reclassifications and eliminations(4) | | | | | | | | Consolidated | | | | | | | |
(1) Includes research and development.
(2) With the operational startup of Braskem Idesa, Braskem began to report, as of January 1, 2016, the “Mexico” segment, which includes activities related to polyethylene production and sales from that subsidiary.
(3) Represents income (expenses) of Braskem that are not allocated to any particular segment.
(4) Eliminations consist primarily of intersegment sales, which are made in similar terms as arm’s length transactions.
In the following discussion, references to increases or declines in any period are made by comparison with the corresponding prior period, except as the context otherwise indicates. Year Ended December 31, 2019 Compared with Year Ended December 31, 2018 The following table sets forth ourauditedconsolidated financial information for the years ended December 31, 2019 and 2018. | | | | | | | (in millions ofreais) | | Net revenue | 52,323.5 | 57,999.9 | (9.8)% | Cost of products sold | | | (1.5)% | Gross profit | 6,444.4 | 11,423.2 | (43.6)% | Income (expenses): | | | | Selling and distribution | (1,783.5) | (1,689.2) | 5.6% | (Loss) reversals for impairment of accounts receivable | (7.1) | 87.0 | n.m. | General and administrative | (2,224.2) | (1,793.2) | 24.0% | Research and development | (247.7) | (219.3) | 13.0% | Results from equity investments | 10.2 | (0.9) | n.m. | Other income | 2,408.4 | 1,027.2 | 134.5% | Other expenses | | | 701.7% | Operating profit | 153.7 | 8,280.2 | (98.1)% | Financial results: | | | | Financial expenses | (3,882.8) | (3,007.6) | 29.1% | Financial income | 850.6 | 589.1 | 44.4% | Exchange rate variations, net | | | (23.6)% | Financial expenses, net | | | 1.7% | (Loss) profit before income tax and social contribution | (4,603.1) | 3,604.7 | n.m. | Current and deferred income tax and social contribution | | | n.m. | (Loss) profit for the year from continuing operations | | | n.m. |
n.m.: Not meaningful
Net revenue Net revenue decreased by 9.8%, or R$5,676.3 million, to R$52,323.5 million in 2019, from R$57,999.9 million in 2018, primarily as a result of (1) a R$3,939.4 million, or 12.7%, decrease in net revenue of our Chemicals Unit, to R$27,172.3 million in 2019, from R$31,111.7 million in 2018, (2) a R$1,292.0million, or5.7%, decrease in net revenue of our Polyolefins Unit, to R$21,191.9 million in 2019, from R$22,483.9 million in 2018, (3) a R$474.6million, or 15.0%, decrease in net revenue of our Vinyls Unit, to R$2,692.8 million in 2019, from R$3,167.4 million in 2018, (4) a R$1,680.5million, or 14.3%, decrease in net revenue of our USA and Europe Unit, to R$10,044.3 million in 2019, from R$11,724.8 million in 2018, and (5) a R$719.1million, or 19.1%, decrease in net revenue of our Mexico Unit, to R$3,051.4 million in 2019, from R$3,770.5 million in 2018. Reclassifications and eliminations of net revenue of our segments in consolidation, primarily reflecting intercompany sales of chemicals by our Chemicals Unit to our other segments, decreased by 18.2%, or R$2,690.8 million, to R$12,125.4 million in 2019, from R$14,816.2 million in 2018. 97
In 2019 and 2018, we did not have any revenue arising from transactions with any single client that was equal to or greater than 10% of our total net revenue. In 2019, the most significant revenue from a single client accounted for 6.5% of our total net revenue. Net Revenue of Chemicals Unit Net revenue of the Chemicals Unit decreased byR$3,939.4 million, or 12.7%,to R$27,172.3 million in 2019, from R$31,111.7 million in 2018. The table below sets forth information regarding the weighted average international prices of main chemicals that are generally used as a reference for our Chemicals Unit for the periods indicated: International References1 | | | | | | (in US$/ton) | | | | | | Main Chemicals2 | 827.9 | 1,014.9 | (18.4)% |
___________ (1) Source: External consulting firm (spot price). (2) Average prices weighted based on Braskem’s capacity production: ethylene (20%), butadiene (10%), propylene (10%), cumene (5%), benzene (20%), paraxylene (5%), gasoline (25%) and toluene (5%). Net Revenue Generated by Sales in Brazil In 2019, net revenue of the Chemicals Unit from domestic sales in Brazil decreased by 15.5%, or R$4,137.9 million, to R$22,562.9 million (including R$11,826.9 million from sales to the Polyolefins and Vinyls Units) in 2019, compared to R$26,700.8 million (including R$14,468.7 million from sales to the Polyolefins and Vinyls Units) in 2018, primarily due to lower sales volume of chemicals to third parties and lower main chemicals average prices in the petrochemical sector, which were explained by: (1) the startup of new shale-gas-based ethylene capacity and the good operational performance of propane dehydrogenation, or PDH, plants in the United States, (2) the startup of new refineries in Asia, and (3) weaker demand, mainly from the automobile sector. Sales Volume in Brazil Our Chemicals Unit’s internal transfers decreased by 5.9%, to 3,528.9 ktons in 2019, from 3,749.1 ktons in 2018, and our sales volume in the Brazilian market to third parties decreased by 2.1%, to 2,812.0 ktons in 2019, from 2,871.8 ktons in 2018, primarily due to the lower availability of products since our crackers operated at an average capacity utilization rate of 85%, down 6 p.p. from 2018. The decrease in the capacity utilization rate was mainly explained by: (1) lower utilization rate of our cracker in the state of Bahia, Brazil, resulting from the shutdown of our chlor-alkali and dichloroethane plants in the state of Alagoas, Brazil; (2) scheduled turnaround of one of our production lines at our cracker located in the state of Bahia, Brazil, in the last quarter of 2019; (3) lower utilization rate at our crackers in the state of Rio Grande do Sul, Brazil, due to certain logistics issues; and (4) a drop in the marginal profitability of our resins export business. The table below sets forth our Chemicals Unit’s internal transfers, comprised mainly of ethylene to our Vinyls Unit, and of ethylene and propylene to our Polyolefins Unit, by volume for the periods indicated. Chemicals Unit’s Internal Transfers Volume | | | | | | (in tons) | | | | | | Ethylene | 2,584,872 | 2,779,589 | (7.0)% | Propylene | | | (2.6)% | Total | | | (5.9)% | | | | | |
98
The table below sets forth our Chemicals Unit’s sales in Brazil to third parties by volume for the periods indicated: Chemicals Unit’s Domestic Sales Volume | | | | | | (in tons) | | | | | | Ethylene | 464,087 | 509,056 | (8.8)% | Propylene | 341,891 | 345,795 | (1.1)% | Cumene | 219,047 | 234,108 | (6.4)% | Butadiene | 161,020 | 192,049 | (16.2)% | Gasoline | 1,007,311 | 942,864 | 6.8% | BTX(1) | | | (4.5)% | Total | | | (2.1)% |
(1) BTX is defined as benzene, toluene and para-xylene. Net Revenue Generated by Exports Net revenue of the Chemicals Unit from exports increased by 4.5%, or R$198.4 million, to R$4,609.3 million in 2019, compared to R$4,410.9 million in 2018, mainly due to the higher sales volume. Sales Volume from Exports Our Chemicals Unit’s volume of export sales increased by 10.0%, to 627.9 ktons in 2019, from 570.7 ktons in 2018, mostly in ethylene, propylene and BTX, primarily due to lower sales volume in the Brazilian market. The table below sets forth our Chemicals Unit’s export sales by volume for the periods indicated: | | Chemicals Unit’s Export Sales Volume | | | | | (in tons) | | | | | | Ethylene | 138,907 | 114,549 | 21.3% | Propylene | 25,632 | 9,600 | 167.0% | Butadiene | 237,911 | 206,162 | 15.4% | Gasoline | 4,096 | 60,437 | (93.2)% | BTX(1) | | | 23.0% | Total | | | 10.0% |
(1) BTX is defined as benzene, toluene and para-xylene. Net Revenue of Polyolefins Unit Net revenue of the Polyolefins Unit decreased by 5.7%, or R$1,292.0 million, to R$21,191.9 million in 2019, from R$22,483.9 million in 2018, mainly as a result of the lower average price of polyolefins in the petrochemical sector, which was the result of: (1) a decline in global demand as a result of lower levels of global growth; (2) lower demand of the automobile sector influenced by the end of tax incentives for vehicle purchases in China and to the ongoing adjustment of production lines to meet the new rules for greenhouse gas emissions in Europe and China; and (3) the startup of new shale-gas-based integrated polyethylene capacity in the United States and new polypropylene plants in Asia, mainly in China. The table below sets forth information regarding the weighted average international prices of the polyolefins of our Polyolefins Unit for the periods indicated: 99
International References1 | | | | | | (in US$/ton) | | | | | | Polyethylene U.S | 859.5 | 1,190.7 | (27.8)% | Polypropylene Asia | 1,033.9 | 1,206.4 | (14.3)% |
___________ (1) Source: External consulting (spot price).
Net Revenue Generated by Sales in Brazil Net revenue from domestic sales of the Polyolefins Unit in Brazil decreased by 8.2%, or R$1,317.2 million, to R$14,799.7 million in 2019, from R$16,116.8 million in 2018. Sales Volume in Brazil In 2019, sales volume in Brazil increased by 0.1%, to 2,933.8 ktons in 2019, from 2,931.7 ktons in 2018. | | Polyolefins Unit’s Domestic Sales Volume | | | | | (in tons) | | | | | | Polyethylene | 1,790,955 | 1,788,332 | 0.1% | Polypropylene | | | 0.0% | Total | | | 0.1% |
Net Revenue Generated by Exports Our Polyolefins Unit’s net revenue from exports increased by 0.4%, or R$25.2 million, to R$6,392.2 million in 2019, from R$6,367.0 million in 2018, reflecting higher export sales. Sales Volume from Exports Our Polyolefins Unit’s volume of export sales increased by 10.7%, to 1,391.8 kton in 2019, from 1,257.3 kton in 2018, in particular of polypropylene reflecting a higher market share in the South America region. The table below sets forth our Polyolefins Unit’s export sales by volume for the periods indicated: | | Polyolefins Unit’s Export Sales Volume | | | | | (in tons) | | | | | | Polyethylene | 834,926 | 819,979 | 1.8% | Polypropylene | | | 27.3% | Total | | | 10.7% |
Net Revenue of Vinyls Unit Net revenue of our Vinyls Unit decreased by15.0%, or R$474.6million, to R$2,692.8 million in 2019, fromR$3,167.4 million in 2018, which was the result of lower caustic soda sales volume as a result of the shutdown of our chlor-alkali and dichloroethane plants in the state of Alagoas, Brazil, and lower PVC and caustic soda prices in the petrochemical sector due to the weakening of: (1) PVC demand in Asia, due to the trade war between the United States and China and India’s anti-dumping policy; and (2) demand for caustic soda in the aluminum and pulp and paper sectors. International References(1) | | | | | | (in US$/ton) | | | | | | PVC Asia | 861.7 | 912.1 | (5.5)% |
___________ (1) External consulting (Spot Price). 100
Net Revenue Generated by Sales in Brazil Net revenue of the Vinyls Unit generated by sales in Brazil decreased by 12.4%, or R$372.1 million, to R$2,633.1 million in 2019, from R$3,005.2 million in 2018. Sales Volume in Brazil Our Vinyls Unit’s volume of sales in Brazil decreased by 12.5%, to 806.7 ktons in 2019, from 921.6 ktons in 2018, which was the result of lower sales volume of caustic soda following the shutdown of our chlor-alkali and dichloroethane plants in the state of Alagoas, Brazil. | | Vinyls Unit’s Domestic Sales Volume | | | | | (in tons) | | | | | | PVC | | | 0.2% | Caustic Soda | | | (29.6)% | Others | | | (16.1)% | Total | | | (12.51)% |
Net Revenue Generated by Exports Our Vinyls Unit’s net revenue generated by exports decreased by 63.2%, or R$102.5 million, to R$59.7 million in 2019, from R$162.2 million in 2018. Sales Volume from Exports Our Vinyls Unit’s volume of export sales decreased by 55.2%, to 22.2 kton in 2019, from 49.4 kton in 2018, due to due to the lower availability of PVC volumes to exports. | | Vinyls Unit’s Export Sales Volume | | | | | (in tons) | | | | | | PVC | 15,934 | 45,512 | (65.0)% | Caustic Soda | | | 58.7% | Total | | | (55.2)% |
Net Revenue of USA and Europe Unit Net revenue of our USA and Europe Unit, which includes our polypropylene assets in the United States and Europe, decreased by 14.3%, or R$1,680.5million, to R$10,044.3 million in 2019, from R$11,724.8 million in 2018, primarily as a result of lower availability of polypropylene for sale in Europe caused by lower utilization of the plants due to operational problems affecting the propylene supplier and the consequent shortage of feedstock at one of our plants. International References1 | | | | | | (in US$/ton) | | | | | | PP US and Europe2 | 1,449.3 | 1,763.1 | (17.8)% |
___________ (1) Source: External consulting (spot price). (2) Average prices weighted based on Braskem’s capacity production: PP USA (72%) and PP Europe (28%). Net Revenue of Mexico Unit Net revenue of the Mexico Unit decreased by 19.1%, or R$719.1 million, to R$3,051.4 million in 2019, from R$3,770.5 million in 2018, due to lower polyethylene prices in the petrochemical sector, which was the result of the decline in global demand associated with the startup of new shale-gas-based integrated polyethylene capacity in the United States. 101
International References1 | | | | | | (in US$/ton) | | | | | | PE US | 868.2 | 1,220.8 | (28.9)% |
__________ (1) Source: External consulting (spot price). Cost of Products Sold and Gross Profit Cost of products sold decreased by 1.5%, or R$697.5 million, to R$45,879.1 million in 2019, from R$46,576.7 million in 2018, primarily as a result of a 7.9% decrease in the cost of products sold by our Chemicals Unit, a 4.2% decrease in the cost of products sold by our Polyolefins Unit, and a 10.0% decrease in the cost of products sold by our USA and Europe Unit. Reclassifications and eliminations of cost of products sold by our Units calculated as part of our consolidation, primarily reflecting the costs of chemicals purchased by our Polyolefins and Vinyls Units from our Chemicals Unit, decreased by 19.3% in 2019. Consolidated gross profit decreased by 43.6%, or R$4,978.8 million, to R$6,444.4 million in 2019, from R$11,423.2 million in 2018. Gross margin (gross profit as a percentage of net revenue) decreased to 12.3% during 2019, from 19.7% during 2018. Cost of Products Sold of Chemicals Unit Cost of products sold of the Chemicals Unit decreased by 7.9%, or R$2,173.8 million, to R$25,349.9 million in 2019, from R$27,523.7 million in 2018, primarily as a result of a decrease in the international prices of the raw materials used by the Chemicals Unit. The lower international prices for naphtha are explained by the lower oil prices as well as by the use of more competitive feedstocks to produce ethylene at flexible petrochemical complexes, mainly in the United States. The lower U.S. ethane and propane prices are explained by the higher supply of these products associated with the startup of new gas fractionators and pipelines for transportation and with the delays in the startup of new petrochemical complexes in the region. International References1 | | | | | | (in US$/ton) | | | | | | Naphtha ARA | 505.3 | 601.7 | (16.0)% | Ethane U.S. | 160.5 | 243.4 | (34.1)% | Propane U.S. | 278.9 | 548.1 | (39.1)% |
___________ (1) Source: External consulting (spot price). Gross profit of the Chemicals Unit decreased by 49.2%, or R$1,765.6 million, to R$1,822.4 million in 2019, from R$3,587.9 million during 2018, and gross margin (gross profit as a percentage of net revenue) decreased to 6.7% during 2019, from 11.5% during 2018.Cost of Products Sold of Polyolefins Unit Cost of products sold of the Polyolefins Unit decreased by 4.2%, or R$801.3 million, to R$18,494.5 million in 2019, from R$19,295.9 million in 2018, explained by the lower ethylene and propylene prices applied by our Chemicals Unit to its internal transfers. Gross profit of the Polyolefins Unit decreased by 15.4%, or R$490.7 million, to R$2,697.3 million during 2019, from R$3,188.0 million during 2018, and gross margin (gross profit as a percentage of net revenue) was 12.7% during 2019, as compared to 14.2% during 2018. Cost of Products Sold of Vinyls Unit Cost of products sold of the Vinyls Unit increased by 5.5%, or R$160.9 million, to R$3,069.3 million in 2019, from R$2,908.4 million in 2018, primarily due to the transition from an integrated business model to a temporary model based on imports of EDC, which has a higher cost than the integrated business model. 102
International References1 | | | | | | (in US$/ton) | | | | | | EDC U.S. | 285.4 | 238.4 | 19.7% |
___________ (1) Source: External consulting (spot price). Our Vinyls Unit presented a gross loss of R$376.5 million during 2019, compared to a gross profit of R$259.0 million during 2018, with a gross margin of 8.2%. Cost of Products Sold of USA and Europe Unit Cost of products sold of the USA and Europe Unit decreased by 10.0%, or R$918.8 million, to R$8,233.1 million in 2019, from R$9,152.8 million in 2018, which was the result of: (1) the increased availability of propylene in the United States due to the high utilization rates of PDH plants and the higher use of natural gas liquids in crackers, and (2) the normalization of logistics constraints on propylene in Europe, which affected the region in the previous year due to low river levels. International References1 | | | | | | (in US$/ton) | | | | | | PP US and Europe2 | 877.7 | 1,183.1 | (25.8)% |
___________ (1) Source: External consulting (spot price). (2) Average prices weighted based on Braskem’s capacity production: PP USA (72%) and PP Europe (28%). Gross profit of the USA and Europe Unit decreased by 29.6%, to R$1,811.2 million during 2019, from R$2,571.9 million during 2018, and gross margin (gross profit as a percentage of net revenue) decreased to 18.0% during 2019, from 21.9% during 2018. Cost of Products Sold by Mexico Unit Cost of products sold by the Mexico Unit increased by 7.3%, or R$170.2 million, to R$2,504.0 in 2019, from R$2,333.8 million in 2018, due to the impact of the Brazilianreal depreciation, higher sales volume and higher natural gas prices in the Mexican market, which was partially offset by the drop in U.S. ethane prices due to higher supply associated with the startup of new gas fractionators and pipelines for transportation and with the delays in the startup of new petrochemical complexes in the United States. International References1 | | | | | | (in US$/ton) | | | | | | Ethane U.S. | 160.5 | 243.4 | (34.1)% |
__________ (1) Source: External consulting (spot price). During 2019, the Mexico Unit recorded a gross profit of R$547.4 million and gross margin (gross profit as a percentage of net revenue) of 17.9%. During 2018, the Mexico Unit recorded a gross profit of R$1,436.7 million and gross margin of 38.1%. Selling and Distribution Expenses Selling and distribution expenses increased by 5.6%, or R$94.3 million, to R$1,783.5 million in 2019, from R$1,689.2 million in 2018, primarily as a result of: (1) higher exports sales of resins and main chemicals of our Polyolefin and Chemical Unit, (2) higher sales volumes of our USA and Europe Unit, (3) higher exports sales from our Mexico Unit. 103
(Loss) reversals for impairment of accounts receivable (Loss) reversals for impairment of accounts receivable decreased to a loss of R$7.1 million in 2019, from a reversal of R$87.0 million in 2018. For more information related to our (loss) reversals for impairment of accounts receivable, see note 7(i) to our audited consolidated financial statements included elsewhere in this annual report. General and Administrative Expenses General and administrative expenses increased by 24.0%, or R$431.0 million, to R$2,224.2 million in 2019, from R$1,793.2 million in 2018, primarily as a result of higher expenses with: (1) consulting and legal fees to support the external monitorship related to our Global Settlement with certain authorities; (2) auditing firms; and (3) the cooperation with relevant authorities and the local community in relation to the geological event in certain neighborhoods of the city of Maceió, in the state of Alagoas, Brazil, that are located adjacent to and above the area where our salt mining activities were located. Research and Development Expenses Research and development expenses increased by 13.0%, or R$28.5 million, to R$247.7 in 2019, from R$219.3 million in 2018. Research and development expenses as a percentage of net revenue were 0.5% during 2019, as compared to 0.4% during 2018. Results from Equity Investments Results from equity investments increased to an income of R$10.2 million in 2019, from a loss of R$0.9 million in 2018, as a result of an increase in the results of jointly-controlled investments, primarily Refinaria de Petróleo Rio-Grandense S.A., or RPR, and Borealis Brasil S.A., or Borealis. For more information related to our results of equity investments, see note 11(c) to our audited consolidated financial statements included elsewhere in this annual report. Other Income Other income increased by 134.5%, or R$1,381.2 million, to R$2,408.4 million in 2019 from R$1,027.2 million in 2018, which was the result of an increase of R$1,667.8 million in the provision related to the Federal Supreme Court (STF) decision that ICMS tax should not be included in the calculation base of PIS/COFINS. For more information related to the PIS/COFINS exclusion from the ICMS tax basis calculation, see note 10(c) to our audited consolidated financial statements included elsewhere in this annual report. Other Expenses Other expenses increased by R$3,892.2 million, to R$4,446.9 million in 2019 from R$554.7 million in 2018, due to: (1) provisions related to the Financial Compensation and Support for Relocation Program, Business Recovery and Promotion of Educational Activities Program and the actions required to close certain of our salt wells totaling R$3,383.1 million; (2) the provision related to the leniency agreement with the Office of the Federal Controller General (CGU) and the Office of the Attorney General (AGU) (the “CGU/AGU Agreement”) in the amount of R$409.9 million; (3) the provision to permanently close our chlor-alkali production facility located in Camaçari, in the state of Bahia, Brazil, in the amount of R$172.9 million; and (4) an increase of R$52.1 million, or 58.3%, in the provision for remediation of environmental damage. Operating Profit As a result of the foregoing: · | operating profit on a consolidated basis decreased by 98.1%, or R$8,126.5 million, to an operating profit of R$153.7 million in 2019, from R$8,280.2 million in 2018, and as a percentage of net revenue, operating profit decreased to 0.3% in 2019, from 14.3% during 2018; | · | operating profit of the Chemicals Unit decreased by 82.4%% %, to R$483.1 million during 2019, from R$2,751.5 million during 2018, and the operating margin of the Chemicals Unit decreased to 1.8% during 2019, from 8.8% during 2018; |
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· | operating profit of the Polyolefins Unit decreased by 39.4%, to R$1,106.8 million during 2019, from R$1,824.9 million during 2019, and the operating margin of the Polyolefins Unit decreased to 5.2% from 8.1% during 2018; | · | operating loss of the Vinyls Unit was R$4,486.8 million during 2019, compared to operating profit of R$90.1 million and an operating margin of 2.8% during 2018; | · | operating profit of the USA and Europe Unit decreased by 48.2%, to R$1,034.3 million during 2019, from R$1,998.7 million during 2018, and the operating margin of the USA and Europe Unit decreased to 10.3% during 2019, from 17.0% during 2018; and | · | Operating profit of the Mexico Unit decreased by 64.0%, to R$520.9 million during 2019, from R$1,445.7 million during 2018, and the operating margin of the Mexico Unit decreased to 17.1% during 2019, from 38.3% during 2018. |
Financial Results Financial expenses, net increased by 1.7%, or R$81.3 million, to R$4,756.8 million in 2019, from R$4,675.5million in 2018. Financial Expenses Financial expenses increased by 29.1%, or R$875.2 million, to R$3,882.8 million in 2019, from R$3,007.6 million in 2018 due to: (1) the interest linked to the adoption of the new IFRS 16 standard as from January 1, 2019; (2) the adjustment to present value of the leniency agreement as a result of a change in the index of monetary correction applicable to the installments payable to the Federal Public Ministry, from IPCA to Selic, in the amount of R$117.9 million; and (3) the payment of costs related to the full redemption of notes maturing in 2020 and 2021 and the partial redemption of notes maturing in 2022 and 2023. Financial Income Financial income increased by 44.4%, or R$261.5 million, to R$850.6 million in 2019, from R$589.1 million in 2018, mainly due to the recognition of revenue related to PIS and COFINS claims originated in previous years ruled favorably by tax courts. Exchange variations, net Net exchange variations decreased by 23.6%, or R$532.5 million, to R$1,724.5 million in 2019, from R$2,257.0 million in 2018, explained by the effect of a lower Brazilianreal depreciation against the U.S. dollars in the period on the net exposure of the financial result not designated for hedge accounting, and by the expense with the transition to hedge accounting of exports of Braskem and Braskem Idesa, which were previously recorded under shareholders’ equity, in the amount of R$1,652.3 million during 2019, compared to R$1,259.4 million during 2018. Current and deferred Income Tax and Social Contribution Our income tax and social contribution was a benefit of R$1,962.7 million during 2019, as compared to an expense of R$736.6 million during 2018. The effective tax rate applicable to our profit before income tax and social contribution was a negative rate of 42.6% in 2019, as compared to an effective tax rate applicable to our profit before income tax and social contribution of 20.4% in 2018. (Loss) profit for the year As a result of the foregoing, we recorded a loss of R$2,640.4 million during 2019, compared to a profit of R$2,868.2 million, or 4.9% of net revenue, during 2018. 105
Year Ended December 31, 2018 Compared with Year Ended December 31, 2017 The following table sets forth ourauditedconsolidated financial information for the years ended December 31, 2018 and 2017. | | | | | | | | | | | (in millions ofreais) | | (in millions ofreais) | | Net sales revenue | 57,999.9 | 49,260.6 | 17.7% | | Net revenue | | 57,999.9 | 49,260.6 | 17.7% | Cost of products sold | | | 28.3% | | | 28.7% | Gross profit | 11,568.6 | 13,083.2 | (11.6%) | 11,423.2 | 13,083.2 | (12.7)% | Income (expenses): | | | | | | Selling and distribution | (1,545.6) | (1,459.6) | 5.9% | (1,689.2) | (1,459.6) | 16.8% | (Loss) reversals for impairment of accounts receivable | | 87.0 | (13.5) | n.m. | General and administrative | (1,633.0) | (1,434.3) | 13.9% | (1,793.2) | (1,434.3) | 25.0% | Research and development | (199.8) | (167.5) | 19.3% | (219.3) | (167.5) | 30.9% | Results from equity investments | (0.9) | 40.0 | n.m. | (0.9) | 40.0 | n.m. | Other income expenses, net | | | n.m. | | Other income | | 1,027.2 | 314.9 | 226.2% | Other expenses | | | | (52.6)% | Operating profit | 8,280.2 | 9,206.9 | (10.1%) | 8,280.2 | 9,206.9 | (10.1)% | Financial results: | | | | | | Financial expenses | (3,007.6) | (3,747.2) | (19.7%) | (3,007.6) | (3,747.2) | (19.7)% | Financial income | 589.1 | 603.6 | (2.4%) | 589.1 | 603.6 | (2.4)% | Exchange rate variations, net | | | 182.6% | | | 182.6% | Financial expenses, net | | | 18.6% | | | 18.6% | Profit (loss) before income tax and social contribution | 3,604.7 | 5,264.6 | (31.5%) | | (Loss) profit before income tax and social contribution | | 3,604.7 | 5,264.6 | (31.5)% | Current and deferred income tax and social contribution | | | (45.7%) | | | (45.7)% | Profit (loss) for the year from continuing operations | 2,868.2 | 3,906.9 | (26.6%) | | (Loss) profit for the year from continuing operations | | 2,868.2 | 3,906.9 | (26.6)% | Discontinued operations results | | | n.m. | | | — | Profit (loss) for the year | | | (26.8%) | | (Loss) profit for the year | | | | (26.8)% |
n.m.: Not meaningful Net Sales Revenue Net sales revenue increased by 17.7%, or R$8,739.3 million, to R$57,999.9 million in 2018, from $$R$49,260.6 million in 2017, primarily as a result of (1) a R$1,870.3 million, or 19.0%, increase in net sales revenue of our USA and Europe Unit, to R$11,724.8 million in 2018 from R$9,854.5 million in 2017, and (2) an increase in net sales revenue of our Chemicals Unit to R$31,111.6 million in 2018 from R$25,179.3 million in 2017. Reclassifications and eliminations of net sales revenue of our segments in consolidation, primarily reflecting intercompany sales of chemicals by our Chemicals Unit to our other segments, increased by 21.7%, or R$2,641.2 million, to R$14,816.2 million in 2018 from R$12,175.0 million in 2017. In 2018 and 2017, we did not have any revenue arising from transactions with any single client that was equal to or greater than 10% of its total net sales revenue. In 2018, the most significant revenue from a single client accounted for 2.4% of our total net sales revenue and refers to the Chemical segment. Net Sales Revenue of Chemicals Unit Net sales revenue of the Chemicals Unit increased by R$5,932.4million, or 23.6%23.6%, to R$31,111.6million in 2018, from R$25,179.3 million in 2017. Net Sales Revenue Generated by Sales in Brazil: In 2018, net sales revenue of the Chemicals Unit from domestic sales in Brazil increased by 27.1%, or R$5,633.9 million, to R$26,700.8 million, (including R$14,468.7 million from sales to the Polyolefins and Vinyls Units) in 2018, compared to R$21,006.921,007.0 million (including R$11,355.4 million from sales to the Polyolefins and Vinyls Units) in 2017, primarily due to higher sales by volume of chemicals to third parties, in particular an increase in theinthe sales volume of gasoline and budadiene in the domestic market as a result of the prioritization of domestic sales. 106
Sales Volume in Brazil. The table below sets forth our Chemicals Unit’s internal transfers, mainly ethylene to the Vinyls Unit and ethylene and propylene to the Polyolefins Unit, by volume for the periods indicated. Chemicals Unit’s Internal Transfers Volume | | | | | | | | | | (in tons) | | (in tons) | | | | | | | Ethylene | 2,779,589 | 2,888,776 | (3.8%) | 2,779,589 | 2,888,776 | (3.8)% | Propylene | | | (6.9%) | | | (6.9)% | Total | | | (4.6%) | | | (4.6)% |
The table below sets forth our Chemicals Unit’s sales in Brazil to third parties by volume for the periods indicated: Chemicals Unit’s Domestic Sales Volume | | | | | | (in tons) | | | | | | Ethylene | 509,056 | 523,639 | (2.8)% | Propylene | 345,795 | 360,394 | (4.1)% | Cumene | 234,108 | 199,792 | 17.2% | Butadiene | 192,049 | 183,849 | 4.5% | Gasoline | 942,864 | 925,867 | 1.8% | BTX(1) | | | 0.5% | Total | | | 1.2% |
Chemicals Unit’s Domestic Sales Volume | | | | | | (in tons) | | | | | | Ethylene | 509,056 | 523,639 | (2.8%) | Propylene | 345,795 | 360,394 | (4.1%) | Cumene | 234,108 | 199,792 | 17.2% | Butadiene | 192,049 | 183,849 | 4.5% | Gasoline | 942,864 | 925,867 | 1.8% | BTX(1) | | | 0.5% | Total | | | 1.2% |
(1) BTX is defined as benzene, toluene and para-xylene. Net Sales Revenue Generated by Exports. Net sales revenue of the Chemicals Unit from exports increased by 5.7%, or R$238.5 million, to R$4,410.91 million in 2018, compared to R$4,172.4 million in 2017, mainly due to the higher sales volume of ethylene and para-xylene. Sales Volume from Exports. Our Chemicals Unit’s volume of export sales decreased 31%, to 570.7 ktons in 2018 from 824.6 ktons in 2017, mostly in propylene and BTX, primarily due to the lower availability of product since Braskem’s crackers operated at an average capacity utilization rate of 91%, down 3 p.p. from 2017. The decrease in the capacity utilization rate was mainly explained by the: (i) truckers’ strike that took place in Brazil in May of 2018; (ii) incident involving the chlor-alkali plant in Alagoas in January of 2018; (iii) blackout that affected Brazil’s Northeast plants in March of 2018; and (iv) lower demand in the fourth quarter of 2018. The table below sets forth our Chemicals Unit’s export sales by volume for the periods indicated: | | | Chemicals Unit’s Export Sales Volume | | | | | | | | (in tons) | | (in tons) | | | | | | | Ethylene | 114,549 | 100,927 | 13.5% | 114,549 | 100,927 | 13.5% | Propylene | 9,600 | 43,127 | (77.7%) | 9,600 | 43,127 | (77.7)% | Butadiene | 206,162 | 241,019 | (14.5%) | 206,162 | 241,019 | (14.5)% | Gasoline | 60,437 | 78,030 | (22.5%) | 60,437 | 78,030 | (22.5)% | BTX(1) | | | (50.2%) | | | (50.2)% | Total | | | (30.8%) | | | (30.8)% |
(1) BTX is defined as benzene, toluene and para-xylene. 107
Net Sales Revenue of Polyolefins Unit Net sales revenue of the Polyolefins Unit increased by 14.4%, or R$2,833.5 million, to R$22,483.9 million in 2018, from R$19,650.4 million in 2017, mainly as a result of the depreciation of thereal against the U.S. dollar during the corresponding period. Net Sales Revenue Generated by Sales in Brazil. Net sales revenue from domestic sales of the Polyolefins Unit in Brazil increased by 16.3%, or R$2,260.5 million, to R$16,116.8 million in 2018, from R$13,856.4 million in 2017. Sales Volume in Brazil. In 2018, sales volume in Brazil decreased 1.0%, to 2,932 ktons in 2018, from the (i) truckers’ strike that took place in Brazil in May of 2018; (ii) blackout that affected Brazil’s Northeast plants in March; and (iii) lower demand in the fourth quarter of 2018. | | Polyolefins Unit’s Domestic Sales Volume | | | | | (in tons) | | | | | | Polyethylene | 1,788,332 | 1,795,446 | (0.4)% | Polypropylene | | | (1.9)% | Total | | | (1.0)% |
| | Polyolefins Unit’s Domestic Sales Volume | | | | | (in tons) | | | | | | Polyethylene | 1,788,332 | 1,795,446 | (0.4%) | Polypropylene | | | (1.9%) | Total | | | (1.0%) |
Net Sales Revenuerevenue Generated by Exports. Our Polyolefins Unit’s net sales revenue from exports increased 9.9%, or R$573.0 million, to R$6,367.0 million in 2018, from R$5,794.0 million in 2017, reflecting the depreciation of thereal against the U.S. dollar during the corresponding period. Sales Volume from Exports. Our Polyolefins Unit’s volume of export sales decreased 12.6% to to 1,257 kton in 2018 from 1,438 kton in 2017 due to the lower availability of product, as described above. The table below sets forth our Polyolefins Unit’s export sales by volume for the periods indicated: | | | Polyolefins Unit’s Export Sales Volume | | | | | | | | (in tons) | | (in tons) | | | | | | | Polyethylene | 819,979 | 916,115 | (10.5%) | 819,979 | 916,115 | (10.5)% | Polypropylene | | | (16.2%) | | | (16.2)% | Total | | | (12.6%) | | | (12.6)% |
Net Sales Revenue of Vinyls Unit Net sales revenue of our Vinyls Unit increased by 3.3%3.3%, or R$100.5million, to R$3,167.4 million in 2018 fromR$3,066.9 million in 2017, primarily as a result of the depreciation of the real against the U.S. dollar during the corresponding period. 108
Net Sales Revenue Generated by Sales in Brazil. Net sales revenue of the Vinyls Unit generated by sales in Brazil increased 6.4%, or R$180.5 million, to R$3,005.2 million in 2018 from R$2,824.6 million in 2017. Sales Volume in Brazil. Our Vinyls Unit’s volume of sales in Brazil decreased 6.8% to 490.1 ktons in 2018 from 525.7 ktons in 2017. | | | Vinyls Unit’s Domestic Sales Volume | | | | | | | | (in tons) | | (in tons) | | | | | | | PVC | | | (6.8%) | | | (6.8)% | Total | | | (6.8%) | | | (6.8)% |
Net Sales Revenue Generated by Exports. Our Vinyls Unit’s net sales revenue generated by exports decreased by 33.0%, or R$80.0 million, to R$162.2 million in 2018 from R$242 million in 2017, primarily due to a decrease in the export sales volume of PVC.
Sales Volume from Exports. Our Vinyls Unit’s volume of export sales decreased by 44.5%, to 45 kton in 2018 from 82 kton in 2017, despite the lower volume, Braskem continued to export PVC to offset the Brazilian market. | | | Vinyls Unit’s Export Sales Volume | | | | | | | | (in tons) | | (in tons) | | | | | | | PVC | | | (44.5%) | | | (44.5)% | Total | | | (44.5%) | | | (44.5)% |
Net Sales Revenue of USA and Europe Unit Net sales revenue of our USA and Europe Unit, which includes our polypropylene assets in the United States and Europe, increased by 19.0%, or R$1,870.3 million, to R$11,724.8 million in 2018 from R$9,854.5 million in 2017, primarily as a result of better international PP prices. Net Sales Revenue of Mexico Unit Net sales revenue of the Mexico Unit increased by 4.7%, or R$169.7 million, to R$3,770.5 million in 2018 from R$3,600.8 million in 2017 due to higher USG price for PE. Cost of Products Sold and Gross Profit Cost of products sold increased by 28.3%28.7%, or R$10.253.810,399.2 million, to R$46,431.246,576.7 million in 2018 from R$36,177.4 million in 2017, primarily as a result of a 34.1%34.4% increase in the cost of products sold by our Chemicals Unit and a 23.0%23.4% increase in the cost of products sold by orour USA and Europe Unit. Reclassifications and eliminations of cost of products sold by our Units calculated as part of our consolidation, primarily reflecting the costs of chemicals purchases by our Polyolefins and Vinyls Units from our Chemicals Unit, increased by 24.6% in 2018. Consolidated gross profit decreased by 11.6%12.7%, or R$1,514.51,660.0 million to R$11,568.611,423.2 million in 2018 from R$13,083.2 million in 2017. Gross margin (gross profit as a percentage of net sales revenue) decreased to 19.9%19.7% during 2018 from 26.6% during 2017. 109
Cost of Products Sold of Chemicals Unit Cost of products sold of the Chemicals Unit increased by 34.1%34.4%, or R$6,985.17,044.8 million, to R$27,464.027,523.7 million in 2018 from R$20,478.9 million in 2017, primarily as a result of increase in the prices of all raw materials. Gross profit of the Chemicals Unit decreased by 22.4%23.7%, or R$1,112.5 million, to R$3,647.63,587.9 million in 2018 from R$4,700.4 million during 2017, and gross margin decreased to 11.7%11.5% during 2018 from 18.5% during 2017. Cost of Products Sold of Polyolefins Unit Cost of products sold of the Polyolefins Unit increased by 24.8%25.0%, or R$3,823.23,863.7 million, to R$19,255.419,295.9 million in 2018 from R$15,432.2 million in 2017 because of higher cost of raw materials associated with depreciation of thereal. Gross profit of the Polyolefins Unit decreased by 23.5%24.4%, or R$1,030.2 million, to R$3,228.53,188.0 million during 2018 from R$4,218.2 million during 2017, and gross margin was 14.4%14.2% during 2018 from 21.5% during 2017. Cost of Products Sold of Vinyls Unit Cost of products sold of the Vinyls Unit increased by 12.3%13.0%, or R$316.7335.6 million, to R$2,889.52,908.4) million in 2018 to R$2,572.8 million in 2017, primarily as a result of increase in the prices of all raw material. Gross profit of the Vinyls Unit decreased by 43.8%47.6%, or R$235.1 million, to R$277.9259.0 million during 2018 to R$494.1 million during 2017, while gross margin was 8.8%8.2% during 2018 from 16.1% during 2017.
Cost of Products Sold of USA and Europe Unit Cost of products sold of the USA and Europe Unit increased by 23.0%23.4%, or R$1,707.11,733.5 million, to R$9,126.49,152.8 million in 2018 from R$7,419.3 million in 2017, due to the increase in ethane prices, many producers substituted the gas by heavier feedstocks, such as LPG (propane and butane) and naphtha, which contributed to the higher supply of propylene in the region. Gross profit of the USA and Europe Unit increased by 6.7%5.6%, or R$136.7 million, to R$2,598.42,571.9 million during 2018 from R$2,435.2 million during 2017, and gross margin decreased to 22.2%21.9% during 2018 from 24.7% during 2017. Cost of Products Sold by Mexico Unit Cost of products sold by the Mexico Unit increased by 11.3%, or R$236.4236.3 million, to R$2,333.8 in 2018 from R$2,097.5 million in 2017, due to the increase in ethane prices driven by stronger demand from recently inaugurated crackers, combined with the lack of pipelines to transport gas and fractionators to extract ethane During 2018, the Mexico Unit recorded a gross profit of R$1,436.7 and gross margin of 38.1%. During 2017, the Mexico Unit recorded a gross profit of R$1,503.3 million and gross margin of 41.8%41.7%. Selling and Distribution Expenses Selling and distribution expenses increased by 5.9%16.8%, or R$86.0243.0 million, to R$1,545.61,689.2 million in 2018 from R$1,459.6 million in 2017, primarily as a result of higher expenses relating to sales and distribution in the United States and Europe. (Loss) reversals for impairment of accounts receivable (Loss) reversals for impairment of accounts receivable corresponded to a reversal of R$87.0 million in 2018 due to proceeds received from customers, from a loss of R$13.5 million in 2017 relating to an allowance for doubtful accounts recorded in that year. For more information related to our (loss) reversals for impairment of accounts receivable, see note 7(i) to our audited consolidated financial statements included elsewhere in this annual report. 110
General and Administrative Expenses General and administrative expenses increased by 13.9%25.0%, or R$198.7358.9 million, to R$1,633.01,793.2 million in 2018 from R$1,434.3 million in 2017, primarily as a result of strategic project expenditures in the United States, auditing and legal expenses in support of our corporate monitors and higher expenses with advertising and publicity. Research and Development Expenses Research and development expenses increased by 19.3%30.9%, or R$32.451.8 million, to R$199.8219.3 million in 2018 from R$167.5 million in 2017. Research and development expenses as a percentage of net sales revenue were 0.3%,0.4% during 2018 and 0.3% during 2017. Results from Equity Investments Results from equity investments decreased to a loss of R$0.9 million in 2018 from a gain of R$40.0 million in 2017, as a result of decrease in the results of jointly-controlled investments, primarily RPR and Borealis. For more information related to our results of equity investments, see note 11 to our audited consolidated financial statements included elsewhere herein.in this annual report. Other Operating Income (Expenses), Netincome Other operating expenses, netincome increased by 226.2%, or R$712.3 million, to an income of R$90.91,027.2 million in 2018 from a loss of R$854.9314.9 million in 2017, primarily due to the Federal Supreme Court (STF) decision that ICMS tax should not be included in the calculation base of PIS/COFINS. In this scenario Braskem recognized an income related to PIS and COFINS tax liabilities paid in excess from March 2017 to November 2018; and the delivery-or-pay provision related to ethane supply agreement in Mexico. Other expenses Other expenses decreased by 52.6%, or R$615.1 million, to R$554.7 million in 2018 from R$1,169.8 million in 2017 as a result of lower: (i) expenses from fixed assets; (ii) provision of legal and labor lawsuits; and (iii) provision for repair environmental damage. Operating Profit As a result of the foregoing: · | operating profit on a consolidated basis decreased by 10.1%, or R$926.7 million, to R$8,280.2 million in 2018 from R$9,206.9 million in 2017, and as a percentage of net revenue, operating profit decreased to 14.8% in 2018 from 18.7% during 2017; | · | operating profit of the Chemicals Unit decreased by 26.2% to R$2,751.5 million during 2018 from R$3,729.7 million during 2017, and the operating margin of the Chemicals Unit decreased to 8.8% during 2018 from 14.8% during 2017; | · | operating profit of the Polyolefins Unit decreased by 32.9% to R$1,824.9 million during 2018 from R$2,719.1 million during 2017, and the operating margin of the Polyolefins Unit decreased to 8.1% from 13.8% during 2017; | · | operating profit of the Vinyls Unit decreased by 46.3% to R$90.1 million during 2018 from R$167.7 million during 2017, and the operating margin of the Vinyls Unit decreased by 2.8% during 2018 from 5.5% during 2017; | · | operating profit of the USA and Europe Unit increased by 9.1% to R$1,998.7 million during 2018 from R$1,831.3 million during 2017, and the operating margin of the USA and Europe Unit decreased to 17.0% during 2018 from 18.6% during 2017; and |
·operating profit on a consolidated basis decreased by 10.1%, or R$926.7 million, to R$8,280.2 million in 2018 from R$9,206.9 million in 2017, and as a percentage of net sales revenue, operating profit decreased to 14.8% in 2018 from 18.7% during 2017;111
· | 93
| Operating profit of the Mexico Unit increased by 15.8%, to R$1,445.7 million during 2018 from R$1,247.9 million during 2017, and the operating margin of the Mexico Unit increased to 38.3% during 2018 from 34.7% during 2017. |
·operating profit of the Chemicals Unit decreased by 26.2% to R$2,751.5 million during 2018 from R$3,729.7 million during 2017, and the operating margin of the Chemicals Unit decreased to 8.8% during 2018 from 14.8% during 2017;
·operating profit of the Polyolefins Unit decreased by 32.9% to R$1,824.9 million during 2018 from R$2,719.1 million during 2017, and the operating margin of the Polyolefins Unit decreased to 8.1% from 13.8% during 2017;
·operating profit of the Vinyls Unit decreased by 46.3% to R$90.1 million during 2018 from R$167.7 million during 2017, and the operating margin of the Vinyls Unit decreased by 2.8% during 2018 from 5.5% during 2017;
·operating profit of the USA and Europe Unit increased by 9.1% to R$1,998.7 million during 2018 from R$1,831.3 million during 2017, and the operating margin of the USA and Europe Unit decreased to 17.0% during 2018 from 18.6% during 2017; and
·Operating profit of the Mexico Unit increased by 15.8%, to R$1,445.7 million during 2018 from R$1,247.9 million during 2017, and the operating margin of the Mexico Unit increased to 38.3% during 2018 from 34.7% during 2017.
Financial Results Financial expenses, net increased by 18.6%, or R$733.1 million, to R$4,675.5 million in 2018 from R$3,942.4 million in 2017, primarily as a result of our recording of a R$2,257.0 million loss in exchange rate variation, net in 2018 compared to a R$798.8 million loss in exchange rate variation, net in 2017, mainly due to the Brazilianrealdepreciation in the period on the net exposure of the financial result not designated for hedge accounting, and by the expense with the transition to hedge accounting of exports of Braskem and Braskem Idesa, which previously were recorded under shareholders’ equity. Financial Income
Financial income decreased by 2.4%, or R$14.6 million, to R$589.0 million in 2018 from R$603.6 million in 2017, mainly due to the reduction in Brazil’s interest rates.
Financial Expenses
Financial expenses decreased by 19.7%, or R$739.7 million, to R$3,007.6 million in 2018 from R$3,747.2 million in 2017. Despite the effect from the Brazilian real depreciation of 17% on consolidated net exposure, financial expenses decreased compared to 2017, during which period “Other Expenses” were impacted in the amount of R$471 million by the early settlement of derivative operations due to debt prepayment.
Current and deferred
Income Tax and Social Contribution
Our income tax and social contribution expense decreased by 45.7% to R$736.6 million during 2018 from R$1,357.7 million during 2017. The effective tax rate applicable to our profit before income tax and social contribution was 20.4% as compared to effective tax rate applicable to our profit before income tax and social contribution in 2017 of 25.8%.
Profit (Loss) for the year
As a result of the foregoing, we recorded a profit of R$2,868.2, or 4.9% of net sales revenue, during 2018, compared to a profit of R$3,915.8 million, or 7.9% of net sales revenue, during 2017.
Year Ended December 31, 2017 Compared with Year Ended December 31, 2016
| | | | | | | (in millions ofreais) | | | | | | Net sales revenue | 49,260.6 | 47,664.0 | 3.3% | Cost of products sold | (36,177.4) | | 3.4% | Gross profit | 13,083.2 | 12,678.4 | 3.2% | Income (expenses): | | | | Selling and distribution | (1,459.6) | (1,403.7) | 4.0% | General and administrative | (1,434.3) | (1,285.6) | 11.6% | Research and development | (167.5) | (162.0) | 3.4% | Results from equity investments | 40.0 | 30.1 | 32.9% | Other operating expenses, net | (854.9) | | (78.1%) | Operating profit | 9,206.9 | 5,951.2 | 54.7% | Financial results: | | | | Financial expenses | (3,747,2) | (3,571.0) | 4.9% | Financial income | 603.6 | 690.1 | (12.5%) | Exchange rate variations, net | | | (75.1%) | Financial expenses, net | | | (35.3%) | Profit (loss) before income tax and social contribution | 5,264.6 | (140.1) | n.m. | Income tax and social contribution | | | 120.4% | Profit (loss) from continuing operations | 3,906.9 | (756.1) | n.m. | Results from discontinued operations | 8.9 | 26.9 | (66.9%) | Profit (loss) | 3,915.8 | | n.m. |
The following table sets forth our consolidated financial information for the years ended December 31, 2017 a
___________________________
n.m.: Not meaningful
Net Sales Revenue
Net sales revenue increased by 3.3%, or R$1,596.6 million, to R$49,260.6 million in 2017 from R$47,664.0 million in 2016, primarily as a result of (1) a R$2,013.9 million, or 126.9%, increase in net sales revenue of our Mexico Unit, to R$3,600.8 million in 2017 from R$1,586.9 million in 2016, and (2) an increase in net sales revenue of our USA and Europe Unit to R$9,854.5 million in 2017 from R$8,896.1 million in 2016. Reclassifications and eliminations of net sales revenues of our segments in consolidation, primarily reflecting intercompany sales of chemicals by our Chemicals Unit to our other segments, increased by 8.5%, or R$957.4 million, to R$12,175.0 million in 2017 from R$11,217.6 million in 2016.
In 2017 and 2016, the Company did not have any revenue arising from transactions with any single client that was equal to or greater than 10% of its total net revenue. In 2017, the most significant revenue from a single client accounted for 2.9% of total net revenues of the Company and refers to the Chemical segment.
Net Sales Revenue of Chemicals Unit
Net sales revenue of the Chemicals Unit increased by R$116.7 million, or 0.5%, to R$25,179.3 million in 2017 from R$25,062.6 million in 2016.
Net Sales Revenue Generated by Sales in Brazil:
In 2017, net sales revenue of the Chemicals Unit from domestic sales in Brazil increased by 7.8%, or R$1,516 million, to R$21,007 million (including R$11,355.4 million from sales to the Polyolefins and Vinyls Units) in 2017 compared to R$19,490 million in 2016, primarily due to higher sales by volume of chemicals to third parties, in particular an increase in the sales volume of gasoline and propylene in the domestic market as a result of the prioritization of domestic sales.
Sales Volume in Brazil.
The table below sets forth our Chemicals Unit’s internal transfers, mainly ethylene to the Vinyls Unit and ethylene and propylene to the Polyolefins Unit, by volume for the periods indicated.
Chemicals Unit’s
Internal Transfers Volume | | | | | | (in tons) | | | | | | Ethylene | 2,888,776 | 2,856,541 | 1.1% | Propylene | | | 1.7% | Total | | | 1.3% | | | | | |
The table below sets forth our Chemicals Unit’s sales in Brazil to third parties by volume for the periods indicated:
Chemicals Unit’s
Domestic Sales Volume | | | | | | (in tons) | | | | | | Ethylene | 523,639 | 511,865 | 2.3% | Propylene | 360,394 | 291,311 | 23.7% | Cumene | 199,792 | 194,472 | 2.7% | Butadiene | 183,849 | 198,451 | (7.4)% | Gasoline | 925,867 | 745,087 | 24,3% | BTX(1) | | | (4.8%) | Total | | | 8.4% |
___________________________
(1)BTX is defined as Benzeno, Tolueno and Paraxylene.
Net Sales Revenue Generated by Exports.
Net sales revenue of the Chemicals Unit from exports decreased by 25.1%, or R$1,399 million, to R$4,172 million in 2017 compared to R$5,572 million in 2016, mainly due to the lower of sales volume of gasoline due to a decision to prioritize sales in the Brazilian market.
Sales Volume from Exports.
Our Chemicals Unit’s volume of export sales decreased 8.3%, to 824.6 ktons in 2017 from 898.9 ktons in 2016, primarily due to the substitution of propylene and export volumes to supply to the Polyolefins Unit to produce polypropylene and the increased volume of gasoline allocated to the Brazilian market. These factors were partially offset by higher exports of ethylene and butadiene.
The table below sets forth our Chemicals Unit’s export sales by volume for the periods indicated:
| | Chemicals Unit’s Export Sales Volume | | | | | (in tons) | | | | | | Ethylene | 100,927 | 64,193 | 57.2% | Propylene | 43,127 | 79,312 | (45.6)% | Butadiene | 241,019 | 213,666 | 12.8% | Gasoline | 78,030 | 194,222 | (59.8%) | BTX(1) | | | 4.0% | Total | | | (8.3)% |
(1)BTX is defined as Benzeno, Tolueno and Paraxylene.
Net Sales Revenue of Polyolefins Unit
Net sales revenue of the Polyolefins Unit decreased by 3.2%, or R$657.0 million, to R$19,650.4 million in 2017 from R$20,307.4 million in 2016, mainly as a result of the appreciation of thereal against the U.S. dollar during the corresponding period.
Net Sales Revenue Generated by Sales in Brazil.
Net sales revenue from domestic sales of the Polyolefins Unit in Brazil decreased by 0.3%, or R$47.0 million, to R$13,856 million in 2017 from R$13,903 million in 2016.
Sales Volume in Brazil.
In 2017, sales volume in Brazil increased 5.3%, to 2,960 ktons in 2017 from 2,811 ktons in 2016, primarily as a result higher level of activity of the packaging sector and recovery in some segments, especially in the automotive, retail and electronics sectors.
| | Polyolefins Unit’s Domestic Sales Volume | | | | | (in tons) | | | | | | Polyethylene | 1,795,446 | 1,705,462 | 5.3% | Polypropylene | | | 5.4% | Total | | | 5.3% |
Net Sales Revenue Generated by Exports.
Our Polyolefins Unit’s net sales revenue from exports decreased 9.5%, or R$610.3 million, to R$5,794.0 million in 2017 from R$6,404.3 million in 2016, reflecting the stronger demand for resins in the Brazilian market. Exports to South American countries remained strong, since they are priority markets for the Company.
Sales Volume from Exports.
Our Polyolefins Unit’s volume of export sales decreased 8.8% to 1,449 kton from 1,590 kton in 2016 due to decision to prioritize to the Brazilian market, as described above.
The table below sets forth our Polyolefins Unit’s export sales by volume for the periods indicated:
| | Polyolefins Unit’s Export Sales Volume | | | | | (in tons) | | | | | | Polyethylene | 916,115 | 1,024,233 | (10.6%) | Polypropylene | | | (7.8%) | Total | | | (9.6%) |
Net Sales Revenue of Vinyls Unit
Net sales revenue of our Vinyls Unit increased by 1.7%, or R$50.5 million, to R$3,066.9 million in 2017 from R$3,016.4 million in 2016, primarily as a result of an increase in the prices of PVC and caustic soda in the international market
Net Sales Revenue Generated by Sales in Brazil.
Net sales revenue of the Vinyls Unit generated by sales in Brazil increased 4.8%, or R$129.5 million, to R$2,825 million in 2017 from R$2,695 million in 2016, primarily as a result of the increase in the average Northeast Asian spot market prices of PVC in U.S. dollars, as reported by IHS.
Sales Volume in Brazil.
Our Vinyls Unit’s volume of sales in Brazil decreased 0.5% to 525.7 ktons in 2017 from 528.3 ktons in 2016.
| | Vinyls Unit’s Domestic Sales Volume | | | | | (in tons) | | | | | | PVC | | | (0.5)% | Total | | | (0.5)% |
Net Sales Revenue Generated by Exports.
Our Vinyls Unit’s net sales revenue generated by exports decreased by 24.6%, or R$79 million, to R$242 million in 2017 from R$321 million in 2016, primarily due to a decrease in the export sales volume of PVC.
Sales Volume from Exports.
Our Vinyls Unit’s volume of export sales decreased by 29.9%, to 82 kton in 2017 from 116.9 kton in 2016, despite the lower volume, Braskem continued to export PVC to offset the contraction in the Brazilian market.
| | Vinyls Unit’s Export Sales Volume | | | | | (in tons) | | | | | | PVC | | | (29.9%) | Total | | | (29.9%) |
Net Sales Revenue of USA and Europe Unit
Net sales revenue of our USA and Europe Unit, which includes our polypropylene assets in the United States and Europe, increased by 10.8%, or R$958.4 million, to R$9,854.5 million in 2017 from R$8,896.1 million in 2016, primarily as a result the increase in capacity and sales volume of the USA and Europe units and the firm PP demand in these regions.
Net Sales Revenue of Mexico Unit
Net sales revenue of the Mexico Unit increased by 126.9%, or R$2,013.9 million, to R$3,600.8 million in 2017 from R$1,586.9 million in 2016 due to higher sales volumes. The USG price for PE was 6% higher than the previous year due to higher naphtha prices in the international market and the effects of Hurricane Harvey on the industry activity, including the delay in the entry of new PE capacity.
Cost of Products Sold and Gross Profit
Cost of products sold increased by 3.4%, or R$1,191.8 million, to R$36,177.4 million in 2017 from R$34,985.6 million in 2016, primarily as a result of a 82.1% increase in the cost of products sold by our Mexico Unit and a 22.0% increase in the cost of products sold by or USA and Europe Unit. Reclassifications and eliminations of cost of sales and services rendered by our Units calculated as part of our consolidation, primarily reflecting the costs of chemicals purchases by our Polyolefins and Vinyls Units from our Chemicals Unit, increased by 5.2% in 2017.
Consolidated gross profit increased by 3.2%, or R$404.8 million to R$13,083.2 million in 2017 from R$12,678.4 million in 2016. Gross margin (gross profit as a percentage of net sales revenue) remained stable at 26.6% during 2017 and 2016.
Cost of Products Sold of Chemicals Unit
Cost of products sold of the Chemicals Unit increased by 1.1% or R$230.7 million, to R$20,478.9 million from R$20,248.2 million in 2016, primarily as a result of increase in sales volumes and increases in the prices of all raw materials.
Gross profit of the Chemicals Unit decreased by 2.4% to R$ 4,700.4 million during 2017 from R$4,814.4 million during 2016, and gross margin decreased to 18.5% during 2017 from 19.2% during 2016.
Cost of Products Sold of Polyolefins Unit
Cost of products sold of the Polyolefins Unit decreased by 3.4%, or R$548.7 million, to R$15,432.2 million in 2017 to R$15,980.9 million in 2016, because the higher cost of raw materials associated with higher sales volumes was more than offset by the appreciation of thereal.
Gross profit of the Polyolefins Unit decreased by 2.5% to R$4,218.2 million during 2017 from R$4,326.4 million during 2016, and gross margin was 21.5% during 2017 from 21.3% during 2016.
Cost of Products Sold of Vinyls Unit
Cost of products sold of the Vinyls Unit decreased by 8.6%, or R$242.4 million, to R$2,572.8 million in 2017 from R$2,815.2 million in 2016, primarily as a result of lower sales volume.
Gross profit of the Vinyls Unit increased by 145.6% to R$494.1 million during 2017 from R$201.2 million during 2017, while gross margin increased to 16.1% during 2017 from 6.7% during 2017.
Cost of Products Sold of USA and Europe Unit
Cost of products sold of the USA and Europe Unit increased by 22.0%, or R$1,338.6 million, to R$7,419.3 million in 2017 from R$6,080.7 million in 2016, explained by the higher propane prices and low inventory levels in the USA and higher oil prices and the growing share of gas used as feedstock by European crackers at the expense of naphtha, which reduced the supply of propylene in the region.
Gross profit of the USA and Europe Unit decreased by 13.5% to R$2,435.2 million during 2017 from R$2,815.4 million during 2016, and gross margin decreased to 24.7% during 2017 from 31.6% during 2016.
Cost of Products Sold by Mexico Unit
Cost of products sold by the Mexico Unit increased by 82.1%, or R$945.4 million, to R$2,097.5 million in 2017 from R$1,152.0 million in 2016, because the USG price for ethane was 26% higher than in 2016, due to higher demand after the start of operation of the ethanol export terminals, the rise in LPG prices and the expectation of entering into operation of new crackers.
During 2017, the Mexico Unit recorded a gross profit R$1,503.3 million and gross margin of 41.7%. During 2016, the Mexico Unit recorded a gross profit R$434.9 million and gross margin of 27.4%.
Selling and Distribution Expenses
Selling and distribution expenses increased by 4.0%, or R$55.9 million, to R$1,459.6 million in 2017 from R$1,403.7 million in 2016, primarily as a result higher expenses relating to sales in Mexico.
General and Administrative Expenses
General and administrative expenses increased by 11.6%, or R$148.7 million, to R$1,434.3 million in 2017 from R$1,285.6 million in 2016, primarily as a result of strategic project expenditures in the United States and auditing and legal expenses in support of our corporate monitors.
Research and Development Expenses
Research and development expenses increased by 3.4%, or R$5.5 million, to R$167.5 million in 2017 from R$162.0 million in 2016. Research and development expenses as a percentage of net sales revenue were 0.3% during 2017 and 2016.
Results from Equity Investments
Results from equity investments increased by R$9.9 million to a gain of R$40.0 million in 2017 from a gain of R$30.1 million in 2016, as a result of an increase in the results of jointly-controlled investments, primarily RPR and Borealis. For more information related to our results of equity investments, see note 12 to our audited consolidated financial statements included elsewhere herein.
Other Income (Expenses), Net
Other expenses, net decreased by 78.1% or R$3,051.1 million, to R$854.9 million in 2017 from R$3,906.00 million in 2016 primarily because the fines related to the Global Settlement entered into with the applicable governmental authorities in 2016 was provisioned in the fourth quarter of 2016.
Operating Profit
As a result of the foregoing:
·operating profit on a consolidated basis increased by 54.7%, or R$3,255.7 million, to R$9,206.9 million in 2017 from R$5,951.2 million in 2016, and as a percentage of net sales revenue, operating profit increased to 18.7% during 2017 from 12.5% during 2016;
·operating profit of the Chemicals Unit increased by 0.1% to R$3,729.7 million during 2017 from R$3,724.4 million during 2016, and the operating margin of the Chemicals Unit decreased to 14.8% during 2017 from 14.9% during 2016;
·operating profit of the Polyolefins Unit declined by 4.3% to R$2,719.1 million during 2017 from R$2,842.7 million during 2016, and the operating margin of the Polyolefins Unit declined to 13.8% during 2017 from 14.0% during 2016;
·operating profit of the USA and Europe Unit decreased by 18.5% to R$1,831.2 million during 2017 from R$2,246.6 million during 2016, and the operating margin of the USA and Europe Unit decreased to 18.6% during 2017 from 25.3% during 2016;
·operating profit of the Vinyls Unit increased by 256.0% to R$167.7 million during 2017 from an operating loss of R$107.5 million during 2016; and the operating margin of the Vinyls Unit increased by 5.5% during 2017 compared to negative operating margin of 3.6% during 2016; and
·Operating profit of the Mexico Unit increased by 529.3% or R$1,049.6 million to R$1,247.9 million during 2017 from an operating profit of R$198.3 million during 2016, and the operating margin of the Mexico Unit increased to 34.7% during 2017 from 12.5% during 2016.
Financial Results
Net financial expenses decreased by 35.3%, or R$2,149.0 million, to R$3,942.3 million in 2017 from R$6,091.3 million in 2016, primarily as a result of our recording a R$798.7 million loss in exchange rate variation, net in 2017 compared to R$3,210.4 million loss in exchange rate variation, net in 2016, principally due to by the depreciation of the real in the period and by the transition from export hedge accounting.
Braskem holds net exposure to the U.S. dollar (i.e., more USD-pegged liabilities than USD-pegged assets). At the end of 2017, this net exposure was formed: (i) in the operations, by 56% of suppliers, which was offset by 66% of accounts receivable; and (ii) in the capital structure, by the higher exposure of net debt to the U.S. dollar. Since itsour operating cash flow is heavily linked to the U.S. dollar, maintaining this level of net exposure to the U.S. dollar in liabilities acts as a natural hedge. Virtually, 100% of itsour revenue is pegged to the variation inof the U.S. dollar and 80% of itsour costs also are pegged to this currency. Therefore, inIn September 2016, Braskem launched a recurring currency hedge program to mitigate the exposure of itsour cash flows to liabilities denominated in Brazilianreais and not pegged to the U.S. dollar (e.g., electricity, payroll, etc.). With the sole purpose of protecting itsour cash flow,flows, the program adopts two strategies using derivative instruments: (i) purchase of put options (“puts”) and (ii) purchase of put options associated with the sale of call options (“collars”). Both alternatives protect Braskem in the event of the appreciation inof the local currency,with the difference being that the collar strategy can also result in losses for the Company if the USD/BRL exchange rate surpasses the strike price of the call options. With collars, however, the payment of the net premium for obtaining the puts is lower, since the Company receives a premium from the sale of the call options. Lastly, note thatIn addition, any losses from the collar strategy are always are offset by gains in competitiveness from the reduction in costs denominated in BRL when translated into USD.
As of December 31, 2017, Braskem held put options in the amount of US$1.4 billion, with an average strike price of 2.96 R$/US$. Braskem also held a total notional value of short options in call option contracts in the amount of US$926 million, with an average strike price of R$4.32. The operations have a maximum term of 18 months. Such operations were designed for the hedge accounting of cash flows as from January 1, 2017, and seek to hedge future exports denominated in USD with maturities in months coinciding with the maturity of the derivatives. Financial Income Financial income decreased by 12.5%2.4%, or R$86.514.6 million, to R$589.0 million in 2018 from R$603.6 million in 2017, from R$690.1 million in 2017, primarilymainly due to an R$134.7 million decreasethe reduction in Brazil’s interest income, which was partially offset by an R$48.2 million increase in other financial income.rates. Financial Expenses Financial expenses increaseddecreased by 4.9%19.7%, or R$176.2739.7 million, to R$3,007.6 million in 2018 from R$3,747.2 million in 2017. Despite the effect from the Brazilian real depreciation of 17% on consolidated net exposure, financial expenses decreased compared to 2017, fromduring which period “Other Expenses” were impacted in the amount of R$3,571.0471 million in 2016, primarilyby the early settlement of derivative operations due to a R$647.9 million increase in other expenses, which was partially offset by an R$228 million decrease in interest expensesdebt prepayment. Current and R$8.8 million decreased in loan transactions costs.deferred Income Tax and Social Contribution Our income tax and social contribution expense increaseddecreased by 120.4%45.7% to R$736.6 million during 2018 from R$1,357.7 million during 2017 from R$616.0 million during 2016.2017. The effective tax rate applicable to our profit before income tax and social contribution was 25.8%20.4% as compared to effective tax rate applicable to our profit before income tax and social contribution in 20162017 of 439.7%. This effective rate for the fiscal year ended December 31, 2016 is related to the provision accrued for payment of the leniency agreement and consequent adjustments to the bases of IR and CSL. Excluding this provision from the calculation, the effective rate would be 36.90%25.8%. 112
Profit (Loss) profit for the year
As a result of the foregoing, we recorded a profit of R$2,868.2 million, or 4.9% of net revenue, during 2018, compared to a profit of R$3,915.8 million, or 7.9% of net sales revenue, during 2017, compared to a net loss of R$729.2 million, or 1.5% of net sales revenue, during 2016.2017. Liquidity and Capital Resources Our principal cash requirements for 20182019 consisted of the following: ·servicing our indebtedness;
·working capital requirements;
·capital expenditures related to investments in operations, construction of new plant facilities, and maintenance of plant facilities; and
·dividends on our shares, including in the form of interest attributable to shareholders’ equity, and
·payments under the Global Settlement.
Our principal sources of liquidity have traditionally consisted of the following:
·cash flows from operating activities;
· | servicing our indebtedness; | 101·
| working capital requirements; | · | capital expenditures related to investments in operations, construction of new plant facilities, and maintenance of plant facilities; and | · | dividends on our shares, including in the form of interest attributable to shareholders’ equity, and | · | payments under the Global Settlement. | · | Our principal sources of liquidity have traditionally consisted of the following: | · | cash flows from operating activities; | · | short-term and long-term borrowings; and | · | sales of debt securities in domestic and international capital markets. |
·short-term and long-term borrowings; and
·sales of debt securities in domestic and international capital markets.
During 2018,2019, cash flow provided by operating activities was used primarily for investing activities, working capital requirements, to service our outstanding debt obligations and to distributeddistribute dividends to shareholders. At the annual and extraordinary shareholders'shareholders’ meeting held on April 30, 2018,October 3, 2019, our shareholders approved the distribution of the minimum mandatory dividends for the fiscal year ended December 31, 2017,2018, in the amount of R$1,500,000,667.4 million, which was made on May 10, 2018.December 30, 2019. The amount was sufficient to meet the minimum mandatory dividend of 25% of profit for the year calculated under Articlearticle 202 of the Brazilian Corporations Law. In September 2018, to reduce interest expenses on borrowings, we partially redeemed US$200 million of our outstanding 7.375% perpetual bonds at par value.
As of December 31, 2018,2019, our consolidated cash and cash equivalents amounted to R$5,547.66,803.9 million, (US$1,794.1 million), excludingincluding the aggregate amount of R$963.41,017.2 million (US$248.6 million) of Braskem Idesa’s cash and cash equivalents. As of December 31, 2018,2019, we had negativepositive net working capital (defined as (1) current assets minus (2) current liabilities) of R$1,732.37,242.2 million, (US$447.1) million), including the total assets in the amount of R$16,415.7 million and total liabilities in the amount of R$18,613.8 million of Braskem Idesa S.A.P.I.Idesa. Projected Sources and Uses of Cash Considering our short-term contractual obligations and commitments as of December 31, 20182019 and budgeted capital expenditures for 2019,2020, we anticipate that we will be required to spend R$23.6 billion15,440.2 million during 20192020 to meet our short-term contractual obligations and commitments and budgeted capital expenditures. We expect that we will meet these cash requirements for (1) our operations through sales of our products, and (2) our debt service through new financing activities, including new debt financings and the refinancing of our existing short-term indebtedness as it becomes due. We have commitments from several financial institutions to provide us with financing in the future, including commitments from the Brazilian National Bank for Economic and Social Development (Banco Nacional do Desenvolvimento), or BNDES, to lend us funds under our revolving stand-by credit facilities (Contrato de Abertura de Limite de Crédito), or CALC facilities, described under “—Indebtedness and Financing Strategy—Credit Facilities with BNDES.” As of December 31, 2018, the full aggregate principal amount had been disbursed under these facilities. Such commitments are subject to conditions precedent. We payprecedent and the payment of commitment fees to these financial institutions in connection with their commitments, other than our BNDES revolving stand-by credit facilities.fees. In May 2018, in line with our commitment to maintain financial liquidity, we and several of our subsidiaries entered into an international revolving credit facility with several international financial institutions for a principal amount of US$1,000.0 million, which matures in May 2023. This line of credit may be used without restrictions to improve our credit quality or in the event of a deterioration in the macroeconomic scenario. As of the date of this annual report,we have borrowed the amount of R$5,426.3 million (US$1,000.0 million) on this credit line had not been used.facility. The two facilities previously held by the Company until thenus in the aggregate amounts of US$750R$4,069.7 million (US$750.0 million) with expiration in December 2019 and of R$500500.0 million with expiration in September 2019 were cancelled. 113
In July 2018, Braskem America entered into a credit facility with Euler Hermes, a German export credit agency, in the aggregate principal amount of up to R$1,220.9 million (US$225.0 million) to finance a portion of the investments in our new PP plant in the United States. As of December 31, 2019, R$973.5 million (US$179.4 million) had been disbursed in principal amount, and the amount outstanding under the credit facility was R$1,011.5 million (US$186.4 million). In December 2018, we entered into a new credit facility with BNDES, in the aggregate principal amount of R$476.0 million, maturing in January 2031, with proceeds used to finance our capital expenditures in Brazil. As of December 31, 2019, the outstanding amount under this facility was R$270.5 million. Cash Flows The following table sets forth certain consolidated cash flow information for the periods indicated: | | | | | | | | | | | | | | | | (in millions ofreais) | Net cash provided by (used in) operating activities | 9,250.4 | 2,461.6 | 4,457.9 | 2,265.3 | 9,250.4 | 2,461.6 | Net cash provided by (used in) investing activities | (2,488.3) | (2,406.4) | (2,552.5) | (2,666.4) | (2,488.3) | (2,406.4) | Net cash provided by (used in) financing activities | (4,603.4) | (2,988.5) | (2,757.3) | 1,636.8 | (4,603.4) | (2,988.5) | Effect of exchange rate changes on cash and cash equivalents | | | | | | | Increase (decrease) in cash and cash equivalents | | | | | | |
Cash Flows generated by Operating Activities Net cash provided by operating activities was R$2,265.3 million during 2019, R$9,250.4 million during 2018 and R$2,461.6 million during 2017 and2017. Net cash provided by operating activities decreased by R$4,457.96,985.1 million during 2016.2019, as compared to 2018, which was the result of the: · | negative impact relating to the transfer of the amount of R$3,680.5 million from our bank accounts to a judicial deposit account in connection with the public interest civil lawsuit filed by the Alagoas State Prosecutors’ Office and the Alagoas State Public Defender’s Office; | · | reductions in sales volume and in the average international prices references for both chemicals and resins;; and | · | the payment under Global Settlement of (i) R$278.0 million to the MPF, on January 30, 2019 and (ii) CHF16.1 million (R$58 million) to the OAG, on June 27, 2019. |
During 2019, the effects of these factors were partially offset by the: · | lower inventories of raw materials and finished products in the amount of R$867.8 million; and | · | purchase of larger volumes of imported naphtha with extended payment terms. | · | monetization of R$280.8 million of the PIS/COFINS balance (excluded from the ICMS calculation base); | · | receipt of advances from customers related to the future sale of chemical products in the Brazilian market and the future export of PE and PP in the amount of R$36.4 million; and | · | lower tax payments in the amount of R$412.5 million. |
During 2019, the effects of these factors were partially offset by the: Net cash provided by operating activities increased by R$6,788.8 million during 2018, as compared to 2017, as a result of: · | a R$3,604.7 million increase in profit before tax and social contribution; | · | although we had a R$130.1 million increase in trade accounts receivable during 2018, compared to a R$1,598.4 million decrease during 2017, it was positively impacted by the decrease in working days, which was partially offset by the exchange rate depreciation; and |
·a R$3,604.7 million increase in profit before tax and social contribution;114
· Although we had a R$130.1 million increase in trade accounts receivable during 2018, compared to a R$1,598.4 million decrease during 2017, it was positively impacted by the decrease in working days, partially offset by the exchange rate depreciation; and ·a R$1,343.4 million increase in trade payables during 2018, compared to a R$1,642.6 million decrease during 2017.
| a R$1,343.4 million increase in trade payables during 2018, compared to a R$1,642.6 million decrease during 2017. |
During 2018 the effects of these factors were partially offset by: ·a R$330.0 million decrease in amounts owed under our Leniency Agreement during 2018; and
·a R$1,537.3 million decrease in inventories during 2018 compared to a R$1,351.0 million decrease during 2017, primarily as a result of higher volumes and cost of stocks in finished products, higher volume of raw material, partially offset by lower cost of raw material, mainly naphtha.
Net cash provided by operating activities decreased by R$1,996.3 million during 2017 compared to 2016 as a result of:
·a R$1,343.8 million decline in amounts paid by us under our LeniencyAgreement during 2017;
·a R$1,598.4 million decline in trade accounts receivable during 2017 compared to a R$1,007.9 million increase during 2016, which was negatively impacted by overall increase in sales prices of our products in U.S. dollars, the exchange depreciation and the increase in working days, mainly due to the increase in Braskem Idesa’s average receivables maturity; and
·a R$1,351.0 million decline in inventories during 2017 compared to an R$862.3 million increase during 2016, primarily as a result of higher volumes in naphtha stocks and finished products in anticipation of scheduled maintenance shutdown.
During 2017 the effects of these factors were partially offset by:
·a R$5,363.8 million increase in profit before income tax and social contribution and for the result with discontinued operations; and
·a R$1,642.6 million decline in trade payables during 2017 compared to a R$4,254.6 million decline during 2016, primarily as a result of an increase in raw material costs, mainly naphtha.
· | a R$330.0 million decrease in amounts owed under our Leniency Agreement during 2018; and | · | a R$1,537.3 million decrease in inventories during 2018 compared to a R$1,351.0 million decrease during 2017, primarily as a result of higher volumes and cost of stocks in finished products, higher volume of raw material, partially offset by lower cost of raw material, mainly naphtha. |
Cash Flows Used in Investing Activities Net cash used in Investinginvesting activities was R$2,666.4 million during 2019, R$2,488.3 million during 2018 and R$2,406.4 million during 2017 and R$2,552.5 million during 2016.2017. During 2018,2019, investing activities for which we used cash on a consolidated basis primarily consisted ofof: (1) investmentsacquisitions to property, plant and equipment of R$1,7781,749.3 million, in Brazilian units, which were allocated primarily to industrial operations, including the investments related to operating efficiency, health, environmental and safety, or HES, productivity and modernization, (such as diversification(2) acquisitions to property, plant and equipment of the feedstock profile of the cracker in Bahia); (2) investments of R$9931,026.9 million were invested in the USA and Europe Unit, equivalent to US$269259.7 million, allocated both to industrial operations and strategic projects, such as: (i)as the new polypropylene plant;plant, and (3) investmentsacquisitions to property, plant and equipment of R$55104.5 million in Mexico.Mexico, equivalent to US$25.8 million. During 2017,2018, investing activities for which we used cash on a consolidated basis primarily consisted ofof: (1) investmentsacquisitions to property, plant and equipment of R$1,5761,777.7 million, in Brazilian units, which were allocated primarily to industrial operations,including the investments related to operating efficiency, health, environmental and safety, or HES, productivity and modernization (such as diversification of the feedstock profile of the cracker in Bahia);, (2) investmentsacquisitions to property, plant and equipment of R$184992.6 million (equivalent to US$57 million) were invested in the USA and Europe Unit, equivalent to US$268.7 million, allocated both to industrial operations and strategic projects, such as: (i) theas our new polypropylene plant, and (ii) productivity gains at our polypropylene plants in the United States(3) acquisitions to property, plant and Germany; and (3) investmentsequipment of R$2255.2 million in Mexico Complex.Mexico.
During 2016,2017, investing activities for which we used cash on a consolidated basis primarily consisted ofof: (1) investmentsacquisitions to property, plant and equipment of R$1,195.01,575.7 million, for the construction of our Mexico Complex; (2) investments of R$1,439.0 million,in Brazilian units, which were allocated primarily to industrial operations, (R$107 million of which were invested in the USA and Europe Unit), including the investments related to operating efficiency, HES, productivity and modernization; and (3) investments of R$341 million (of which R$244 million were invested in the USA and Europe Unit, equivalent to US$72 million) allocated to strategic projects, such as: (i) the production of UTEC® resin in La Porte, Texas; (ii)modernization (such as diversification of the feedstock profile of the cracker in Bahia;Bahia), (2) acquisitions to property, plant and (iii)equipment of R$184.4 million, equivalent to US$57.4 million, in the USA and Europe Unit, allocated to strategic projects, such as the new polypropylene plant and productivity gains at our polypropylene plants in the United States and Germany.Germany, and (3) acquisitions to property, plant and equipment of R$22.4 million in our Mexico Complex. Cash Flows Used in Financing Activities Net cash provided by financing activities was R$1,636.8 million during 2019, as compared to a net cash used in Financing Activities wasfinancing activities of R$4,603.4 during 2018, R$2,988.5 million during 20172018. During 2019: · | we entered into a contract with international financial institutions under which we borrowed an aggregate principal amount of R$550.0 million from the Italian export credit agency SACE; | · | we drew funds under a revolving credit line in the amount of R$7,851.2 million; | · | we entered into certain agreements for advance on exchange contracts (adiantamentos sobre contratos de câmbio), or ACCs, with local financial institutions in Brazil under which we borrowed an aggregate principal amount of R$1,172.7 million; | · | we entered into export prepayment agreements in the aggregate amount of R$601.8 million; | · | we received disbursements under a financing agreement with certain governmental entities in the aggregate amount of R$266.4 million; |
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· | we issued notes maturing in 2030 and 2050 for an aggregate principal amount of R$9,966.0 million (US$2,250.0 million) in the fourth quarter of 2019; | · | our subsidiary Braskem Idesa issued notes maturing in 2029 for an aggregate principal amount of R$3,497.6 million (US$900.0 million) in the fourth quarter of 2019; and | · | we received R$277.4 million from a leaseback operation for machinery and equipment at some of our plants, with a term of seven years. |
During 2019, we used cash to pay: · | R$128.4 million, representing aggregate interest expenses of our lease agreements; | · | R$1,204.6 million, representing ACCs with local financial institutions in Brazil; | · | R$141.5 million, representing corporate loans (advance exports contracts, credit facilities, promissory notes and others), with local and international institutions; | · | R$7,405.4 million, representing a full redemption of notes maturing in 2020 and 2021 and a partial redemption of our perpetual bonds; | · | R$599.9 million, representing export prepayments which local and international institutions; | · | R$4,414.5 million, related to the partial amortization of the Braskem Idesa project finance facility; | · | R$188.2 million, representing aggregate principal under a financing agreement with BNDES and certain governmental entities; and | · | R$7,829.0 million, representing payments related to a revolving credit line. |
In addition, in 2019 we used cash to pay dividends in the aggregate amount of R$2,757.3 million during 2016.667.4 million. During 2018: · we entered into a contract with international financial institutions under which we borrowed an aggregate principal amount of R$610.5 million (US$158.1 million) of Euler Hermes, a German export credit agency and R$1,117.3 million (US$295.1 million) of the Italian export credit agency SACE; and ·we entered into certain agreements for advance on exchange contracts (adiantamentos sobre contratos de câmbio), or ACCs, with local financial institutions under which we borrowed an aggregate principal amount of R$1,931.7 million (US$531 million); and
·we entered into a Credit Export Note Facility in the amount of R$406.3 million.
| Braskem America entered into a contract with international financial institutions under which we borrowed an aggregate principal amount of R$610.5 million (US$158.1 million) from Euler Hermes, a German export credit agency, and R$1,117.3 million (US$295.1 million) from the Italian export credit agency SACE; and | · | we entered into certain agreements for ACCs with local financial institutions in Brazil under which we borrowed an aggregate principal amount of R$1,931.7 million (US$536.8 million); and | · | we entered into a credit export note facility in the amount of R$406.3 million. |
During 2018, we used cash to pay: · | R$1,916.8 million, representing aggregate interest expenses; | · | R$1,649.7 million, representing ACCs with local financial institutions in Brazil; | · | R$2,487.8 million, representing corporate loans (advance exports contracts, credit facilities, promissory notes and others), with local and international institutions; | · | R$1,958.4 million, representing amortization of principal of notes maturing in 2018, 2020 and 2021 and a partial redemption of our perpetual bonds; | · | R$105.9 million, representing export prepayments with local and international institutions; | · | R$805.0 million, representing amortization of principal of the Braskem Idesa project finance facility; and | · | R$368.6 million, representing aggregate principal under a financing agreement with BNDES and certain governmental entities. |
·R$1,916.8 million, representing aggregate interest expenses;
·R$1,649.7 million, representing all advance on exchange contracts (adiantamentos sobre contratos de câmbio), or ACC, with local financial institutions;
·R$2,487.8 million, representing corporate loans (advance exports contracts, credit facility, promissory notes and others), with local and international institutions;
·R$1,958.4 million, representing amortization of the market bond with maturityIn addition, in 2018 2020, 2021 and partial redemption of the perpetual bonds;
·R$105.9 million, representing the exports prepayments which local and international institutions;
·R$805.0 million, representing amortization of the Braskem Idesa Project Finance principal amount;
·R$368.6 million, representing aggregate principal under a financing agreement with BNDES and certain governmental entities;
In addition, we used cash to pay dividends in the aggregate amount of R$1,499.8 million.
During 2017: 116
· | we received disbursements under a financing agreement with certain governmental entities, in the amount of R$420.0 million in September 2017; and | 104·
| we received proceeds from the issuance of notes maturing in 2022 and 2027 in the aggregate principal amount of R$5,470.1 million in the fourth quarter of 2017. |
·we received disbursements under a financing agreement with certain governmental entities, in the amounts of R$420 million in September; and
·we entered into a certain bonds which maturity of five and ten years, we borrowed an aggregate principal amount of R$5,470.1 million in the fourth quarter.
During 2017, we used cash to pay: · R$2,149.6 million, representing aggregate interest expenses; ·R$307.7 million, representing all advance on exchange contracts (adiantamentos sobre contratos de câmbio), or ACC, with local financial institutions;
·R$3,357.6 million, representing corporate loans (advance exports contracts, credit facility, promissory notes and others), with local and international institutions;
·R$176.9 million, representing all principal outstanding of the market bond with maturity in 2017;
·R$441.0 million, representing the exports prepayments which local and international institutions;
· R$300.8 million, representing all principal outstanding under a certain credit facility agreements of Braskem Idesa;
· R$581.9 million, representing amortization of the Braskem Idesa Project Finance principal amount;
· R$2,298.4 million, representing aggregate principal under a financing agreement with BNDES and certain governmental entities;
| R$2,149.6 million, representing aggregate interest expenses; | · | R$307.7 million, representing ACCs with local financial institutions; | · | R$3,357.6 million, representing corporate loans (advance exports contracts, credit facility, promissory notes and others), with local and international institutions; | · | R$176.9 million, representing all principal outstanding of the notes maturing in 2017; | · | R$441.0 million, representing the exports prepayments which local and international institutions; | · | R$300.8 million, representing all principal outstanding under a certain credit facility agreement of Braskem Idesa; | · | R$581.9 million, representing amortization of the principal of the Braskem Idesa project finance facility; and | · | R$2,298.4 million, representing aggregate principal under a financing agreement with BNDES and certain governmental entities. |
In addition, in 2017 we used cash to pay dividends in the aggregate amount of R$998.9 million. During 2016:
we received disbursements under a financing agreement with BNDES and certain governmental entities, in the amounts of R$21 million, R$84.0 million and R$56 million in the first, second and fourth quarter of 2016, respectively;we entered into an export pre-payment agreement, or EPP, with international financial institutions under which we borrowed an aggregate principal amount of R$594.5 million in May, June and December, 2016;we entered into certain ACCs with local financial institutions under which we borrowed an aggregate principal amount of R$358.5 million in 2016; andBraskem Idesa borrowed through the Braskem Idesa Working Capital Facility an aggregate amount of US$92 million from local financial institutions September 2016.
During 2016, we used cash:
to pay R$1,924 million, representing aggregate financial expenses;to pay R$250.0 million, representing all principal outstanding undera certain credit facility agreements witha certain local financial institutions;to pay R$1,043.1 million, representing aggregate principal and interest outstanding under a financing agreement with BNDES; andto make other scheduled payments and prepayments under various of our outstanding debt instruments.
In addition, we used cash to pay dividends in the aggregate amount of R$1,998.0 million.
Unless our board of directors deems it inconsistent with our financial position and the decision of our board of directors is ratified by our shareholders, payment of dividends is mandatory under Brazilian Corporations Law and our by-laws and also is required under agreements with two of our shareholders and, consequently, may give rise to significant cash requirements in future periods. Share Repurchase Program
On August 13, 2012, our board of directors authorized a share repurchase program under which we were authorized to repurchase up to 13,376,161 class A preferred shares at market prices over the B3 S.A. – Brasil, Bolsa e Balcão, or B3, at any time and from time to time prior to August 28, 2013. Shares that were repurchased will be held in treasury and may be resold or cancelled. As of December 31, 2012, we had repurchased 262,300 class A preferred shares for an aggregate of R$3.5 million.
We did not repurchase any shares in 2013 or 2014.
On February 11, 2015, our board of directors authorized a share repurchase program under which we are authorized to repurchase up to 3,500,000 class A preferred shares at market prices over the B3. The program started in February 19, 2015, and was effective until February 18, 2016. We repurchased 80,000 class A preferred shares for an aggregate of R$0.9 million in 2015.
Contractual Commitments The following table summarizes significant contractual obligations and commitments as of December 31, 20182019 that have an impact on our liquidity. Braskem hasWe have adopted a calculation methodology to determine operatingminimum cash needs for a 30-day timeframe (the “monthly vision”) and minimum cash needs for a 12-month timeframe (the “yearly vision”) for the purpose, of, respectively:respectively, of: (i) ensuring the liquidity needed to comply withmeet obligations ofcoming due in the following month; and (ii) ensuring that we maintain liquidity during potential crises. These amounts areMinimum cash needed for our “yearly vision” is calculated mainly based on the projected operating cash generation, less short-term debts and working capital needs. Minimum cash needed for our “monthly vision” considers the projected operating cash disbursements, debt service and contributions to projects, as well as the planned disbursement for derivatives maturing in the following month, among other items. For our financial policy, we adopt the greater of these two references to determined the amount of minimum cash needed
In May 2018, we and several of our subsidiaries entered into a revolving credit facility agreement with several international financial institutions for a principal amount of US$R$5,426.3 million (US$1,000.0 million,million), which matures in May 2023. This line of credit may be used without restrictions to improve our credit quality or in the event of a deterioration in the macroeconomic scenario. As a precautionary measure, on April 1, 2020, we borrowed the amount of the date of this annual report,R$5,426.3 million (US$1,000.0 million) on this credit line had not been used. On December 31, 2018, our subsidiary Braskem Idesa continued to record as current liabilities its financial obligations whose original maturities were long term. Such reclassification is due to the failure to comply with certain contractual covenants set forth in the financing contract of Braskem Idesa (note 16 tofacility our audited consolidated financial statements.). Braskem Idesa has been settling all of its obligations in accordance with the original debt maturity schedule, and none of its creditors has requested or showed any intention of accelerating such obligations or requesting the early amortization of such debt.See “Item 3. Key Information—Risk Factors—RisksRelating to Us and the Petrochemical Industry—If we are unable to comply with the restrictions and covenants in the agreements governing our indebtedness, there could be a default under the terms of these agreements, which could result in an acceleration of payment of funds that we have borrowed and could affect our ability to make principal and interest payments on our debt obligations.”
In case Braskem Idesa’s group of lenders decide to request the early amortization of this debt,The table below shows Braskem’s financial liabilities by maturity, including the amounts due under the Leniency Agreement, (note 23.3according to note 25 to our audited consolidated financial statements), are as shown in the table below.statements. These amounts are calculated frombased on undiscounted cash flowsand include contractual interest payments, therefore they may not be reconciled with our balance sheet.
| | | | | | Between two and
five years | | | Trade payables | 8,435.2 | 37.3 | — | — | 8,472.5 | Borrowings | 806.4 | 6,469.3 | 5,479.5 | 26,182.8 | 38,938.0 | Debentures | 34.8 | 118.5 | 142.0 | 106.3 | 401.6 | Braskem Idesa borrowings | 10,504.6 | — | — | — | 10,504.6 | Derivatives | 76.4 | 55.4 | 128.8 | — | 260.6 | Loan to non-controlling shareholder of Braskem Idesa | — | — | — | 2,183.8 | 2,183.8 | Leniency agreement (note 23.3 to our audited consolidated financial statements) | | | | | | At December 31, 2018 | | | | | |
Assuming that Braskem Idesa’s group of lenders will not request the early amortization of this debt, Braskem’s financial liabilities by maturity, including the amounts due under the Leniency Agreement (note 23.3of our audited consolidated financial statements) and excluding the reclassification to current liabilities arising from the aforementioned Braskem Idesa´s breach of contractual obligations, are as shown in the table below. These amounts are calculated from undiscounted cash flows and may not be reconciled with the balance sheet.
| | Maturity as of December 31, 2019 | | | | | | | Between two and
five years | | | | | | Between two and
five years | | | (in millions ofreais) | Trade payables | 8,435.2 | 37.3 | | | 8,472.5 | 9.2 | 0.0 | — | 9.2 | Borrowings | 806.4 | 6,469.3 | 5,479.5 | 26,182.8 | 38,938.0 | 0.9 | 2.3 | 7.2 | 40.1 | 50.4 | Debentures | 34.8 | 118.5 | 142.0 | 106.3 | 401.5 | 0.1 | 0.4 | Braskem Idesa borrowings | 995.7 | 2,482.6 | 2,835.2 | 7,353.8 | 13,667.3 | 0.8 | 1.7 | 2.4 | 9.5 | 14.4 | Derivatives | 76.4 | 55.4 | 128.8 | | 260.6 | 0.1 | 0.0 | 0.2 | Loan to non-controlling shareholder of Braskem Idesa | | | | 2,183.8 | 2,183.8 | — | 2.4 | Leniency agreement (Note 23.3 of our audited financial statements) | | | | | | | At December 31, 2018 | | | | | | | Other financial liabilities | | | | | Leniency agreement (note 25 to our audited consolidated financial statements) | | | | | | Leases | | | | | | | Total | | | | | | |
Indebtedness and Financing Strategy As of December 31, 2018,2019, our total outstanding consolidated indebtedness, net of transaction costs, was R$25,192.7 million, consisting of R$765.2 million of short-term indebtedness, including current portion of long term indebtedness (3.0% of our total indebtedness), and R$24,427.5 million of long-term indebtedness (97.0% of our total indebtedness), in addition to an aggregate amount of R$10,504.639,273.3million (US$9,743.5 million), including R$2,711.09,981.7million (US$2,476.4 million) outstanding as of December 31, 2018 in connection with thesecureddebt related to our Mexico Complex. As of December 31, 2018,2019, we had noR$2,395.9 million in outstanding indebtendess relating to a loan payable to the non-controlling shareholder of Braskem Idesa, maturing in December 2029 and accruing interest at 7% p.a., whose proceeds were used by Braskem Idesa to fund its construction project. Our short-term indebtedness outstanding as of December 31, 2019 was R$1,566.0million, including the current portion of long-term indebtedness (4.0% of our total indebtedness) and the amount of R$744.4 million in connection with thesecureddebt related to our Mexico Complex. Our long-term indebtedness outstanding as of December 31, 2019 was R$37,707.3million (96.0% of our total indebtedness), including the amount of R$9,237.3 million in connection with thesecureddebt related parties on a consolidated basis. to our Mexico Complex. On a consolidated basis, ourreal-denominated indebtedness as of December 31, 2018,2019, net of transaction costs, was R$1,030.91,640.1 million (2.94.2% of our total indebtedness), and our foreign currency-denominated indebtedness was R$34,666.337,633.2 million (97.195.8% of our total indebtedness). Our financing strategy has been to maintain an adequate liquidity and a debt maturity profile that is compatible with our anticipated cash flow generation and anticipated capital expenditures. This is the same strategy for the next several years and in addition, we do not expect our capital expenditures to adversely affect the quality of our debt leverage ratios or our disciplined approach to capital allocation.
The following table presents information relating to our debt maturity profile as of December 31, 2018, excluding transaction costs and the reclassification to current liabilities arising from the aforementioned Braskem Idesa´s breach of contractual obligations:2019: | | | | | | | | | | (in millions ofreais) | Indebtedness | 415.3 | 417.6 | 425.3 | 419.7 | 510.7 | 501.0 | 920.7 | 3,610.3 | Capital Markets | 412.7 | 1,436.8 | 3,613.2 | 1,937.4 | 1,937.4 | 2,906.1 | 9,687.0 | 21,930.6 | Debt related to our Mexico Complex (Braskem Idesa Financing) | | | | | | | | | Total | | | | | | | | |
| | | | | | | | | | (in millions ofreais) | Indebtedness | 424.7 | 448.1 | 448.8 | 644.3 | 1,044.0 | 411.9 | 1,100.7 | 4,522.6 | Capital Markets | 396.8 | (15.7) | 1,153.3 | 824.5 | 3,426.6 | (22.7) | 19,006.2 | 24,768.9 | Debt related to our Mexico Complex (Braskem Idesa Financing) | | | | | | | | | Total | | | | | | | | |
Short-Term Indebtedness Our consolidated short-term debt, including current portion of long-term debt, was R$R$765.2 million1,566.0 asmillion, including the amount of December 31, 2018. This short-term indebtedness does not includeR$744.4 million in connection with thesecureddebt related to our Mexico Complex and derivatives.Complex. We maintain short-term finance lines denominated in reais with a number of financial institutions in Brazil. Although we have no committed lines of credit with these financial institutions, we believe that we will continue to be able to obtain sufficient credit to finance our working capital needs based on our relationships with these financial institutions and current market conditions. As of December 31, 2018, the consolidated outstanding balance under our short-term finance lines inreais was R$154.2 million.
Long-Term Indebtedness Our long-term indebtedness outstanding as of December 31, 2019 was R$37,707.3million (96.0% of our total indebtedness), including the amount of R$9,237.3 million in connection with thesecureddebt related to our Mexico Complex. 118
Our principal sources of long-term debt are: · fixed-rate notes issued in the international market; ·export credit notes;
·credit facilities with BNDES;
·bank credit facilities;
·project financing; and
·export prepayment facilities.
| fixed-rate notes issued in the international market; | · | export credit notes; | · | credit facilities with BNDES; | · | bank credit facilities; | · | project financing; and | · | export prepayment facilities. |
Some of these instruments contain other covenants that could restrict, among other things, our and most of our subsidiaries ability to incur liens or merge or consolidate with any other person or sell or otherwise dispose of all or substantially all of our assets. In addition, thecertain instruments governing a substantial portion of our indebtedness contain cross-default or cross-acceleration clauses, such that the occurrence of an event of default under one of these instruments could trigger an event of default under other indebtedness or enable the creditors under other indebtedness to accelerate that indebtedness. As of December 31, 2018,2019, R$193.736.5 millionof our real-denominated debt was secured. In order to secure this debt, we have pledged certain of our property and equipment and certain of our accounts receivable. The security arrangements for our secured debt vary depending on the transaction. In October 2019, our finance subsidiary Braskem Netherlands Finance B.V. issued R$8,139.5 million (US$1,500.0 million) in aggregate principal amount of 4.500% notes due 2030 and R$4,069.7 million (US$750.0 million) in aggregate principal amount of 5.875% notes due 2050. The proceeds of the issuance were used primarily to repay certain of our outstanding debt. In November 2019, we issued R$550.0 million in aggregate principal amount of promissory notes due 2024. The proceeds from the promissory notes issuance were used primarily to repay certain of our outstanding debt, including our notes maturing in 2020 and 2021, and for a partial repayment of our notes maturing in 2022 and 2023. As of December 31, 2018,2019, all of our project finance debt related to our Mexico Complex was secured. In order to secure this debt, we have pledged our shares in Braskem Idesa, some of our rights to repayment under subordinated loans that Braskem S.A. has made to Braskem Idesa, and all of the assets of Braskem Idesa. Although our Mexico Complex is fully operational and Braskem Idesa has satisfied and continues to satisfy its debt service requirements and all other payment obligations under its US$3,193 million senior secured syndicated facility on a timely basis, certain defaults not related to payment obligations have occurred and are continuing thereunder since at least 2016. See “Item 5. Operating and Financial Review and Prospects—Capital Expenditures—Joint Venture—Mexico Complex.”
Fixed-Rate Notes Denominated in U.S. Dollars We have issued fixed-rate debt securities in the international market. All of these securities pay interest semi-annually in arrears, except for our perpetual bonds on which interest is payable quarterly in arrears. The table below sets forth our outstanding fixed-rate debt securities, the outstanding principal amount of these securities and their maturity dates. | Outstanding Principal plus Interest Amount as of December 31, 2019 | | | (in millions of US$) | (in millions ofreais) | | | | | | 5.375% Notes due 2022(1) | 291.7 | 1,582.9 | May 2022 | 3.50% Notes due 2023(2) | 210.3 | 1,141.2 | January 2023 | 6.45% Notes due 2024(1) | 769.9 | 4,177.7 | February 2024 | 4.50% Notes due 2028(2) | 1,276.6 | 6,927.2 | February 2028 | 4.500% Notes due 2030(2) | 1,511.1 | 8,199.7 | January 2030 | 7.125% Notes due 2041(3) | 773.5 | 4,197.2 | July 2041 | 5.875% Notes due 2050(2) | 757.2 | 4,108.8 | January 2050 | 7.375% Perpetual Bonds(1) | 508.8 | 2,760.9 | — |
| Outstanding Principal
plus Interest (Amount as of
December 31, 2018)
| | | (in millions of U.S. dollars)
| | | | | 7.00% Notes due 2020(1)
| 374.6
| May 2020
| 5.75% Notes due 2021(1)
| 943.7
| April 2021
| 5.375% Notes due 2022(1)
| 504.3
| May 2022
| 3.50% Notes due 2023(2)
| 508.3
| January 2023
| 6.45% Notes due 2024(1)
| 769.9
| February 2024
| 4.50% Notes due 2028(2)
| 1,276.7
| February 2028
| 7.125% Notes due 2041(3)
| 773.5
| July 2041
| 7.375% Perpetual Bonds(1)
| 508.8
| —
|
(1) Represents notes issued by Braskem Finance Limited and guaranteed by Braskem. (2) Represents notes issued by Braskem Netherlands Finance and guaranteed by Braskem. (3) Represents notes issued by Braskem America Finance and guaranteed by Braskem. 119
Export Credit Note FacilitiesFloating-Rate Notes Denominated in BrazilianReais
We have entered into several credit exportissued a floating-rate promissory note facilities.in the Brazilian market, which pays interest in ten semi-annual installments to maturity in November 2024. The promissory note is non-amortizing, and principal becomes due upon maturity. The table below sets forth the outstanding amount of this security and its maturity date. | Outstanding Principal
plus Interest Amount as of
December 31, 2019 | | | (in millions of US$) | (in millions ofreais) | | | | | | CDI + 0.85% Promissory Note due 2024 | 102.2 | 554.3 | November 2024 |
Credit Facilities with Governmental Agencies Denominated in U.S. Dollars In March 2017, we entered into a credit facility secured by NEXI, a Japanese export credit agency, in an aggregate principal amount of R$732.6 million (US$135.0 million). This facility bears interest at a rate equivalent to LIBOR plus 1.61% per year, payable semi-annually to maturity in March 2027. The principal amount is amortized in 20 successive semi-annual installments beginning in September 2017. As of December 31, 2019, the outstanding amount under this facility was R$616.4 million (US$113.6 million). In July 2018, Braskem America entered into a credit facility with Euler Hermes, a German export credit agency, in the aggregate principal amount of up to R$1,220.6 million (US$225.0 million) to finance a portion of the investments in our significant outstanding credit export note facilities,new PP plant in the United States. The facility, which matures on December 30, 2028, bears interest at a rate equivalent to LIBOR plus 0.65% per year, payable semi-annually to maturity. The principal amount is amortized semi-annually as from December 30, 2020. The funds are disbursed in accordance with the progress of the construction project, and the total amount is expected to be disbursed by December 30, 2020. As of December 31, 2019, R$973.5 million (US$179.4 million) had been disbursed in principal amount, and the amount outstanding under these facilities, the credit facility was R$1,011.5 million (US$186.4 million). In November 2018, we entered into a credit facility secured by SACE, an Italian export credit agency, in an aggregate principal amount of US$295.1 million. This facility bears interest at a rate applicableequivalent to these facilities,LIBOR plus 0.90% per year, payable semi-annually to maturity in November 2028. The principal amount is payable in 20 successive semi-annual installments beginning in May 2019. As of December 31, 2019, the amortization schedule of these facilities and their maturity dates. | Outstanding Principal and Interest as of
December 31, 2018 | | | | | (in millions ofreais) | | | | | | | | | 2018 | 406.3 | CDI + 0.7% | 2023 and 2024 | 2024 |
outstanding amount under this facility was R$1,445.0 million (US$266.3 million). In December 2019, we entered into a credit facility secured by SACE, in an aggregate principal amount of R$813.9 million (US$150.0 million). This facility bears interest at a rate equivalent to LIBOR plus 0.90% per year, payable semi-annually to maturity in December 2029. The principal amount is payable in 20 successive semi-annual installments beginning in June 2020. As of December 31, 2019, the outstanding amount under this facility was R$368.4 million (US$67.9 million). | Outstanding Principal plus Interest Amount
as of December 31, 2019 | | | | | (in millions of US$) | (in millions ofreais) | | | | | | | | | | March 2017 | 113.6 | 616.4 | LIBOR + 1.61% p.a. | Semi-annual(1) | March 2027 | July 2018 | 186.4 | 1,011.5 | LIBOR + 0.65% p.a. | Semi-annual(2) | December 2028 | November 2018 | 266.3 | 1,445.0 | LIBOR + 0.90% p.a. | Semi-annual(3) | November 2028 | December 2019 | 67.9 | 368.4 | LIBOR + 0.90% p.a. | Semi-annual(4) | December 2029 |
(1) Amortization on this facility commenced in September 2017. (2) Amortization on this facility will commence in November 2020. (3) Amortization on this facility commenced in May 2019. (4) Amortization on this facility will commence in June 2020. Credit Facilities with BNDESGovernmental Agencies Denominated in Brazilian Reais We haveIn December 2018, we entered into two revolving stand-bya new credit facilitiesfacility with BNDES. Loans under these facilities are required to beBNDES, in the aggregate principal amount of R$476.0 million, maturing in January 2031, with proceeds used to fund specifiedfinance our capital expenditure projects, including:expenditures in Brazil. On January 30, 2019, we drew the first installment under this facility in the aggregate principal amount of R$266.0 million.
expansion This facility bears interest at a rate equivalent to IPCA plus 6.04% per year, payable quarterly after an initial grace period, from the first installment until January 2021, and modernization of fixed assets;acquisition of new machinery and equipment produced in Brazil;programs relatedafterwards monthly to technical training and management, and information technology;social investment programs;environmental investments; andinvestments in research, development and innovation.
maturity until January2031. The interest rates for loans drawn under these facilities are set at the time the loans are made and are based on a fixed rate defined at closing date. The outstanding principal and interest of each of these loansamount is payable in monthly120 successive montly installments followingbeginning in February 2021.As of December 31, 2019, the expiration of the grace period for these loans, which is generally one year or 18 months, depending upon the terms of the relevant facility.outstanding amount under this facility was R$1,467.8 million (US$270.5 million). 120
The table below sets forth selected information with respect to our BNDES revolving credit facilities as of December 31, 2018.2019. | Outstanding Principal plus Interest Amount as of December 31, 2019 | Weighted Average
Interest Rate | | | (in millions of US$) | (in millions ofreais) | | | | | | | | December 2009(1)—Fixed rate | 3.69 | 20.0 | 4.0% p.a. | January 2021 | January 2019(2) —Fixed rate | 49.8 | 270.5 | IPCA + 6.04% p.a. | January 2031 |
Facility | Committed Principal Amount | Outstanding Principal and Interest | Weighted Average
Interest Rate | | | (in millions ofreais) | (in millions ofreais) | | | | | | | | December 2009 | R$500.0 | | | | | | | | | Fixed rate | | 38.4 | 4.0% | January 2021 | | | | | | November 2011 | R$2,460.0 | | | | | | | | | Fixed rate | | 13.6 | 3.5% | November 2019 |
Each of these(1) Amortization on this facility commenced in February 2016.
(2) Amortization on this facility will commence in February 2021. The credit facilitiesfacility that matures in January 2021 is secured by mortgages on (1) two of our plants located in our Southern Complex, (2) one of our plants locatedComplex. The credit facility that matures in the cities of Santo André in the state of São Paulo.January 2031 is unsecured. Revolving Credit Facility AgreementsAgreement In May 2018, we and severalcertain of our subsidiaries entered into a revolving credit facility agreement with several international financial institutions for a principal amount of US$R$5,426.3 million (US$1,000.0 million,million), which matures in May 2023. We had not drawn any amount on this credit facility as of December 31, 2019. In April 2020, we borrowed the amount of R$5,426.3 million (US$1,000.0 million) on this credit facility. Bank Credit Facilities with Banks Denominated in Dollars
On April 8, 2019, we entered into a credit facility with international institutions in the aggregate principal amount of R$436.3 million (US$80.4 million) with a term of seven years. To consummate this facility, certain assets of the Company’s plants were transferred to the financial institutions and, by the maturity date, Braskem has the option to repurchase them for a residual value. In accordance with IFRS15, this transfer is not considered a sale. This facility bears interest at a rate equivalent to LIBOR minus 1.00% per year, payable semi-annually to maturity in April 2026. The principal amount is payable in successive semi-annual installments beginning in September 30, 2019. As of December 31, 2019, the outstanding amount under this facility was R$368.4 million (US$67.9 million). In July 2018,October 2019, we entered in a Loan Agreement with an international institutionexport pre-payment facility and we received a disbursement in an aggregate principal amount of US$R$542.6 million (US$160.0 million100.0 million). This facility bears interest at a rate of LIBOR plus 0.65%1.75% per annum,year, payable semi-annually untilto maturity in December 2028.October 2024. The outstanding principal amount is payable in 16 successive semi-annual installments beginninga single installment at maturity. As of December 31, 2019, the outstanding amount under this facility was R$545.9 million (US$100.6 million). | Outstanding Principal plus Interest Amount
as of December 31, 2019 | | | | | (in millions of US$) | (in millions ofreais) | | | | | | | | | | April 2019 | 67.9 | 368.4 | LIBOR – 1.00% | Semi-annual | April 2026 | October 2019 | 100.6 | 545.9 | LIBOR + 1.75% | Bullet | October 2024 |
Credit Facilities with Banks Denominated in November 2020.Reais In NovemberApril 2018, we entered into a credit export note facility in a Loan Agreement with an international institution and we received a disbursement in anthe aggregate principal amount of US$295.1 million.R$400.0 million. This facility bears interest at a rate of LIBORequivalent to CDI plus 0.90%0.70% per annum,year, payable semi-annually untilto maturity in November 2028.March 2024. The outstanding principal amount is payable in 20 successive semi-annualtwo installments, beginning in May 2019. | Outstanding Principal Amount
as of December 31, 2018
| | | | | (in millions of U.S. dollars)
| | | | January 2013
| 80.0
| LIBOR + 1.10%
| Semi-annual(1)
| November 2022
| September 2017
| 127.5
| LIBOR + 1.61%
| Semi-annual(2)
| March 2027
| July 2018
| 160.0
| LIBOR + 0.65%
| Semi-annual(3)
| December 2028
| November 2018
| 295.1
| LIBOR + 0.90%
| Semi-annual(4)
| November 2028
|
(1) Amortization onMarch 2023 and March 2024. As of December 31, 2019, the outstanding amount under this facility commenced in May 2013was R$405.6 million.
| Outstanding Principal and Interest Amount
as of December 31, 2019 | | | | | (in millions ofUS$) | (in millions ofreais) | | | | | | | | | | April 2018 | 74.7 | 405.6 | CDI + 0.70% | 2023 and 2024 | October 2024 |
121
Indebtedness of Braskem Idesa (2) Amortization on this facility commenced in September 2018
(3) Amortization on this facility commenced in November 2020
(4) Amortization on this facility commenced in May 2019
Financing Agreements
In December 2012, Braskem Idesa entered into a common terms agreement with certain financial institutions to finance the development, design, construction and initial operation of the Mexico Complex. The Mexico Complex includes an ethane cracker with annual capacity of 1.05 million tons to produce ethylene, two high density polyethylene plants and a low density polyethylene plant. In connection with the common terms agreement, Braskem Idesa entered into eight separate financing agreements with international and Brazilian financial institutions and development banks in an aggregate principal amount of up to US$3.2 billion, or the Braskem Idesa Financing. All amounts disbursed under these credit facilities are secured by our shares in Braskem Idesa. In addition, as a condition precedent to the initial disbursement and each subsequent disbursement, Braskem Idesa was required to have a maximum debt to base equity ratio of 70 to 30 after giving effect to such disbursement, as calculated pursuant to the common terms agreement. In September 2015, Braskem Idesa received the final disbursement pursuant to the common terms agreement, reaching an aggregate principal amount of US$R$17.4 billion (US$3.2 billion.billion). The financing consists of fixed and floating tranches. The interest rates on the fixed tranche are within a range of 4.33% to 6.17%. The interest rates on the floating tranche are within a range of LIBOR plus2.73% to LIBOR plus 4.65%. To reduce the interest rate risk, the second tranche is hedged through several swap agreements. Interest on both tranches is payable quarterly in arrears and principal is amortized quarterly. The final maturity date of these loans is February 15, 2029 with amortizations beginning in May 2016. On November 25, 2019, Braskem Idesa issued R$4,883.7 million (US$900.0 million) in aggregate principal amount of 7.450% senior secured notes due 2029.The notes are senior secured obligations of Braskem Idesa and rankpari passu with the existing Braskem Idesa project finance debt until the full repayment of the outstanding amount of the Braskem Idesa project finance facility. After the full amortization of the outstanding amount of the Braskem Idesa project finance facility, Braskem Idesa’s notes will convert into senior unsecured notes. Interest on the notes is payable semi-annually, and the principal amount becomes due at maturity. The proceeds of the notes were used to partially refinance Braskem Idesa’s existing secured project finance indebtedness incurred in 2012 to construct a plant in Mexico. Excess proceeds of the issuance were used to prepay certain other indebtedness of Braskem Idesa. | Outstanding Principal plus Interest Amount as of December 31, 2019 | | | (in millions of US$) | (in millions ofreais) | | | | | | 7.45% Notes due 2029 | 903.2 | 4,901.0 | November 2029 |
(1) Represents notes issued by Braskem Idesa.
Capital Expenditures In 2018, our total investmentsDuring 2019, investing activities for which we used cash on a consolidated basis primarily consisted of: (1) acquisitions to property, plant and equipment and intangible assets totaled R$2,770.4 million, consisting primarily of (1) a capital expenditure of R$1,7781,749.3 million, in Brazilian units, which were allocated primarily to industrial operations including the investments related to operating efficiency, HES, productivity and modernization;modernization, (2) investmentsacquisitions to property, plant and equipment of R$9931,026.9 million were invested in the USA and Europe Unit, equivalent to US$269259.7 million, allocated both to industrial operations and strategic projects, such as: (i) theas our new polypropylene plant; and (3) acquisitions to property, plant and (ii) productivity gains at our polypropylene plants in the United States and Germany; and (3) investmentsequipment of R$55104.5 million in the Mexico, Complex.equivalent to US$25.8 million.
Capital Expenditure Budget We plan to invest R$3,3153,010.3 million in 2019,2020, of which R$1,2361,152.9 million (US$331 million) is pegged to the U.S. dollar, related to investments in the United States and Europe units. Of the total investment, R$3001,836.2 million will be allocated to Health, Environment & Safety (HES) projects, and R$1,968 million toas well as maintenance, productivity and operating efficiency projects, including the investment to be made in the scheduled shutdown of the cracker in Bahia,São Paulo, which is slatedscheduled for 4Q19. The remainder will be allocated to other strategic projects, such as the new PP plant in the United States (US$223 million).third quarter of 2020. 122
Braskem Idesa plans to invest around US$29approximately R$122.1 million (R$107(US$22.5 million) in projects related to maintenance, productivity, HES and operating efficiency. Joint Venture Mexico Complex Braskem and Idesa formed Braskem Idesa in April 2010 to develop, construct and operate the Mexico Complex, located in the Mexican state of Veracruz. The Mexico Complex includes an ethylene cracker that produces 1.05 million tons of ethylene per year from ethane based on technology licensed from Technip Italy S.p.A, or Technip, -twotwo high density polyethylene plants based on Innovene S technology licensed from Ineos Commercial Services UK Limited (as successor to Ineos Europe Limited) and a low density polyethylene plant based on Lupotech T technology licensed from Basell Polyolefin GmbH. The three polyethylene plants have a combined annual production capacity of 1.0 million tons of HDPE and LDPE. As of December 31, 2018,2019, we produced 808,388800,783 tons of HDPE and LDPE. Braskem Idesa is party to an ethane supply agreement with Pemex TRI dated February 19, 2010, pursuant to which Pemex TRI is obligated to provide, and Braskem Idesa to purchase, 66,000 barrels per day of ethane to the Mexico Complex for a period of 20 years at prices based on U.S. dollar-based international reference price of these feedstocks. Under this agreement, any daily amount rejected by Braskem Idesa must be purchased in installments in subsequent deliveries until the deficit has been resolved. This contract will expire in 2035 and is renewable for three five-year periods, with prior notice by aeach party at least two years prior to the expiration of the agreement that it intends to renew this agreement. Pemex TRI may terminate the contract in the event of: (1) a failure to pay that continues for more than 180 days after notice, or (2) an emergency stoppage in operations or force majeure event that continues for more than 48 months. The ethane supply agreement contains a volume delivery long-term performance covenant that requires Pemex TRI to meet a volume delivery of ethane over a six-month period averaging 70% of the agreed-upon volume under the ethane supply agreement (the “Long-Term Performance Test”). As of January 2019,2020, Pemex TRI volume deliveries under the Long-Term Performance Test remained close tobut above the 70% threshold. In the event that Pemex TRI fails to meet the Long-Term Performance Test, in addition to the direct negative impact on the production volumes of our Mexico Complex, it may (i) render us unable to generate sufficient cash to service our indebtedness with creditors under the Braskem Idesa Financing, (ii) cause such creditors to accelerate this indebtedness, and/or (iii) require Braskem Idesa to exercise a termination and put option against Pemex TRI that would force Pemex TRI to purchase the Mexico Complex from us. In the event any such termination and put option is exercised by us, there can be no assurance that Pemex TRI will not challenge the exercise of thistermination and put option or otherwise attempt to avoid purchasing the Mexico Complex from us. See “Item 3. Key Information—Risks Relating to Us and the Petrochemical Industry—We depend on ethane supplied by Pemex TRI in Mexico.”
In February 2010, we and Idesa entered into the Braskem Idesa shareholders’ agreement to govern our relationship with respect to Braskem Idesa, which was amended in November 2012, December 2012, April 2015, and April 2017. The Braskem Idesa shareholders’ agreement, as amended, sets forth the understanding of the parties regarding the implementation of this project and the relationship of Braskem and Idesa as shareholders of Braskem Idesa. Under the Braskem Idesa shareholders’ agreement, as amended: ·the parties agree to use their best efforts to use Braskem Idesa as their commercialization vehicle for polyethylene in Mexico;
·the parties agree that the polyethylene production of Braskem Idesa shall be strategically focused on supplying the Mexican market;
·we have the right to appoint five members and Idesa has the right to appoint two members of Braskem Idesa’s board of directors; decisions considered at Braskem Idesa’s ordinary shareholders’ meetings or by Braskem Idesa’s board of directors require the approval by a simple majority;
· | the parties agree to use their best efforts to use Braskem Idesa as their commercialization vehicle for polyethylene in Mexico; | · | the parties agree that the polyethylene production of Braskem Idesa shall be strategically focused on supplying the Mexican market; | · | we have the right to appoint five members and Idesa has the right to appoint two members of Braskem Idesa’s board of directors; decisions considered at Braskem Idesa’s general shareholders’ meetings require the approval of at least 50% plus one of the voting shares of Braskem Idesa. Decisions considered by Braskem Idesa’s board of directors require the approval by a simple majority of votes of its members; | · | upon the failure of Braskem and Idesa to agree to vote in favor of certain matters requiring a supermajority vote in an extraordinary shareholders’ meeting, (1) we will have the right to seek approval of such matters by a simple majority vote of Braskem Idesa’s shareholders, (2) in the event that such matters by a simple majority vote of Braskem Idesa’s shareholders, (2) in the event that suchmatters are approved by a simple majority vote of Braskem Idesa’s shareholders, we will have the option to purchase all of the shares then held by Idesa, and (3) in the event that we do not exercise this right, Idesa will have the option to sell all of its shares of Braskem Idesa to us; and ·any disputes between Braskem and Idesa arising out of or in connection with the Braskem Idesa shareholders’ agreement will be resolved through arbitration.
|
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· | any disputes between Braskem and Idesa arising out of or in connection with the Braskem Idesa shareholders’ agreement will be resolved through arbitration. |
The Braskem Idesa shareholders’ agreement also contains rights of first refusal, tag along rights and drag along rights in connection with the disposition of Braskem Idesa shares. The original estimated total cost of the Mexico Complex of US$4.5 billion, including financial costs during construction and initial working capital requirements, was revised in 2015 to US$5.2 billion primarily as a result of (1) a change in the scope of the power generating unit in order to ensure the self-sufficiency of the complex and improve the reliability of energy supply, with the possibility of selling any surplus energy to the grid; and (2) additional costs arising from infrastructure and local services. We and Idesa contributed an aggregate of 38% of the total costs as equity in proportion to our ownership interests in Braskem Idesa, and the remainder was borrowed by Braskem Idesa under project finance facilities secured by the assets of this project, with multilateral credit agencies, export credit agencies, development banks and private banks. Construction of the Mexico Complex began in 2012 and it commenced operations with the production of the first batch of polyethylene in April 2016. Although our Mexico Complex is fully operational and Braskem Idesa has satisfied and continues to satisfy its debt service requirements and all other payment obligations under its US$3,193R$8,063.5 million (US$1,486 million) senior secured syndicated facility on a timely basis, certain defaults not related to payment obligations have occurred and are continuing thereunder since at least 2016. These defaults give the creditors thereunder the right to vote to accelerate their debt under this facility and exercise their remedies in respect of the collateral for the facility, including the Mexico Complex and the outstanding shares of Braskem Idesa. In October 2019, a waivers and consent package was approved by the intercreditor agent on behalf of the lenders, thereby extending the date for achieving the guaranteed physical completion date from November 30, 2016 to December 30, 2020 and the guaranteed financial completion date from December 31, 2016 to December 31, 2020. On November 25, 2019,Braskem Idesa has submitted requests for waiversissued R$4,883.7 million (US$900.0 million) in aggregate principal amount of these defaults to7.450% senior secured notes due 2029. The notes are senior secured obligations of Braskem Idesa and is currently negotiating such waiversrankpari passu with the inter-creditor agent for this facility. However, there can be no assurance that the inter-creditor agent and the lenders will agree to extend such waivers, or if they agree to extend such waivers, whether the waivers will include additional obligations with whichexisting Braskem Idesa would be required to comply.project finance debt until the full repayment of the outstanding amount of the Braskem Idesa project finance facility. After the full amortization of the outstanding amount of the Braskem Idesa project finance facility, Braskem Idesa’s notes will convert into senior unsecured notes.
Equity Support Agreement Relating to the Mexico Complex In December 2012, we, Braskem Idesa, Etileno XXI, S.A. de C.V., and Idesa entered into an equity support agreement pursuant to which Braskem Idesa’s shareholders agreed to make and guarantee payment of certain equity contributions to Braskem Idesa. This contract was amended and restated in April 2015. Pursuant to the amended and restated equity support agreement, the parties assumed a base equity commitment of US$2.0 billion in proportion to their percentage ownership, direct or indirect, in Braskem Idesa (Braskem 75% and Idesa 25%), which has been fully contributed into Braskem Idesa. The shareholders have also assumed the obligation of making certain contingent equity contributions to cover any additional amounts necessary to complete the project. TheOur contingent equity commitment that remains available is in the amount of up to US$200208 million, and such commitment will be available until the occurrence of the contingent equity release date in accordance with the amended and restated equity support agreement; provided that the same will be reduced to the lesser of the amount then available and US$100 million upon the achievement of financial completion of the project. Currently, we have not provided credit support for any of our obligations to fund base equity or primary or secondary contingent equity, but in the event that we cease to have an investment grade rating prior to the release of our base and contingent equity obligations, we will be required to provide cash collateral or in an amount equal to any such equity contributions that we may be required to make under the agreement. To develop our Mexico Complex, Braskem Idesa required significant capital expenditure and incurred significant debt. The ability of Braskem Idesa’s shareholders to comply with the obligation to make certaincontingent equity contributions to cover additional amounts necessary to complete the project, as agreed in the equity support agreement in connection with the project finance facility,could affect the operation of the Mexican Complex. See “Risk Factors—Risks Relating to Us and the Petrochemical Industry—We may face unforeseen challenges in the operation of our Mexico Complex, which could result in this business unit failing to provide expected benefits to us.” 124
Amendments to Braskem Idesa Shareholders’ Agreement Relating to Project Ethylene XXI In February 2010, Braskem and Idesa entered into a shareholders’ agreement, which we refer to as the Braskem Idesa shareholders’ agreement, to govern our relationship with respect to Braskem Idesa. In November 2012, Braskem and Idesa entered into the first amendment to the Braskem Idesa shareholders’ agreement, under which our ownership interest in Braskem Idesa was increased to 75% minus one share of the equity interest in Braskem Idesa and Idesa’s ownership interest in Braskem Idesa was reduced to 25% plus one share of the equity interest. In December 2012, we and Idesa entered into the second amendment to the Braskem Idesa shareholders’ agreement to include the commitment of both Sponsors to fund certain primary and secondary contingent equity to the project. In April 2015, we and Idesa entered into the third amendment to the Braskem Idesa shareholders’ agreement to include additional base equity contribution and reaffirm the new commitments of contingent equity, under which we agreed to fund up to 100% of the contingent equity commitment under the equity support agreement up to start-up date. The primary contingent equity commitment is US$208 million. Finally, in April 2017, we and Idesa amended and restated the Braskem Idesa shareholders’ agreement to update the terms to reflect the progress of the enterprise since the original signing in 2010 and to reflect the understanding among the shareholders as to the shareholders’ rights and obligations in connection with the payment of fees and interest by Idesa related to any funding by Braskem of Idesa’s portion of contingent equity or the working capital needs of Braskem Idesa, and the eventual dilution of Idesa’s equity interests in Braskem Idesa as a result of the same. Other Investments UTEC® Project Our new production line of ultra-high molecular weight polyethylene (UHMWPE), commercially known as UTEC® began its operation in January 2017. Located in the city of La Porte, state of Texas, in the United States, the production from this plant will complementcomplements the capacity of the already exiting line in Brazil, in the petrochemical complex of Camaçari. With 100% Brazilian technology, the UTEC® resin has sophisticated applications in several industries, such as automotive and transportation, electronics, fibers and textiles, heavy industry and machines, material handling, oil and gas, pipelines and mining, porous plastics, recreation, and for the end consumer. The main market for the production of the La Porte UTEC® plant is the North-American market, but we expect in the future toalso export resin for destinations such asto Europe, India and China. The beginning of this plant’s operations strengthens our position as one of the biggest UHMWPE producers in the world. Raw material flexibility project in Bahia Aligned with our strategy, which looks for alternatives sources of raw materials to increase its global competitiveness, in November 2017, the flexibilization for production of up to 15% of ethylene using ethane as raw material began in the petrochemical complex in Bahia.
For the raw material supply, we signed an agreement for the purchase of ethane from the United States from an affiliated company of Enterprise Products. The term of the agreement is of 10 the years, and the price is based on the international reference of Mont Belvieu. R$380 million have been invested in the technological adaptation of the Chemicals Unit in Camaçari, in the pipeline and in the adaptation of the logistics infrastructure of the Dock-Terminal of Aratu, in Candeias. Debottlenecking of the capacity in the Marcus Hook plant, USA
Aligned with the strategy of expanding to international markets and to meet its clients’ needs, in 2016, we invested US$21 million in the debottlenecking of the production capacity of the Marcus Hook/PA PP plant, increasing its nominal capacity in 64 thousand tons per year. The scope of the project included improvements to the propylene purifier and in the resin production areas of the plant.
New PP plant in the United States Aligned with the strategy to diversify the raw materials matrix and geographic expansion in the Americas, reinforcing the leadership in the PP production in the United States, our Board of Directors approved, on June 21, 2017,21,2017, the project to build a new PP plant of 450 thousand tons at the La Porte site, in the American state of Texas. The beginning of the project’s operation is expected for the second quarter of 2020. 125
With an approved investment of up to US$675675.0 million, as of December 31, 20182019, we had already invested US$382555.4 million in the engineering project detailing and in the purchase of equipment. In 2018,2019, the project had a 48.3% completion: 97.4% of the engineering detailing; 97.4% of equipment and material acquisitions; and 41.6%an 89.7% completion rate: 88.5% of the construction was completed, and 100% of the engineering detailing and equipment and material acquisitions were completed. It is worth highlighting that Linde Group was hired to lead the EPC (engineering, procurement and construction) of the project and the choice of Grace’s UNIPOL® technology. As of the date of this annual report, Braskem already had invested US$485 million, and overall construction had reached a completion rate of 65.5%, as follows:
·Engineering Detailing: 97.6% complete.
·Equipment and Material Acquisitions: 99.8% complete.
·Construction: 61.0% complete.
Braskem America entered into a credit facility in the amount of up to US$225R$1,220.5 million that is secured by(US$225.0 million) with Euler Hermes, a German export credit agency, which will be used to finance a portion of the investments in the new PP plant. The transaction, which matures on December 30, 2028, has a cost of 0.65% p.a. + semiannual LIBOR, with semiannual amortization as of December 30, 2020. The funds will be disbursed in accordance with the progress of the project’s construction and the total amount is expected to be disbursed by December 30, 2020. As of the date of this annual report, US$172R$973.5 million has(US$179.4 million) had been disbursed.disbursed. Energy efficiency project in our cracker at the São Paulo Complex To improve energy efficiency and competitiveness of the cracker at the São Paulo Complex, Braskem and Siemens will invest approximately R$600 million to improve the thermoelectric system of the unit at the complex by replacing some of the steam-powered turbines with high-efficiency electric engines supported by a new co-generation plant that will consume the residual gas from the unit’s own production process. To enable the investment by Siemens in the new co-generation plant, Braskem signed an agreement with Siemens for a term of 15 years under a build, own and operate model. With startup expected in 2021, the project will not only reduce the site’s energy consumption, but also reduces the cracker’s water consumption by 11.4% and its greenhouse gas emissions by 6.3%. As of the date of this annual report, R$72.2 million (US$13.3 million) was already invested and the project was approximately 11% complete. Technology change at our chlor-alkali facility in Alagoas We are investing R$59.3 million in a project at our chlor-alkali facility located in the district of Pontal da Barra, in Maceió, in the state of Alagoas, which aims to change the raw material processing from brine to sea salt. With this project, we will be able to resume operations of our chlor-alkali and dichloroethane plants in the region that have been suspended since May 2019 following the developments stemming from the publication of Report no. 1 by the Brazilian Geological Service (CPRM). See “Item 3. Key Information—Risk Factors—Our business and operations are inherently subject to environmental, health and safety hazards. As a result, our business is also subject to stringent environmental and other regulations.” The new technology consists of sourcing salt from third parties. Salt could be sourced from the Northeast region of Brazil by road or imported from other regions using the port of Maceió, which is located near the chlor-alkali facility. Salt sourced from third parties would be initially stored, dissolved into water to produce brine, treated and then sent to be processed in the chlor-alkali facility. As of the date of this annual report, R$115.0 million (US$21.2 million) had already been invested. Fast-Track Solution to import ethane for the Braskem Idesa facility in Mexico Braskem Idesa is investing in logistics infrastructure to import ethane from the United States to increase the capacity utilization rate of its cracker. With regard to ethane supply, Braskem Idesa is currently negotiating and may enter into a long-term agreement, or opt to acquire ethane in the spot market. To ensure the feasibility of the Fast-Track Solution, Braskem Idesa executed agreements with Smart Pass, a logistics operator, and with Enestas, a company specializing in cryogenic gas transportation. Smart Pass will be responsible for receiving liquid ethane at the docks of the Port of Coatzacoalcos and unloading it from the vessels in cryogenic tanks. Enestas will transport the ethane by truck to the Braskem Idesa petrochemical complex, where the ethane will be stored in existing tanks and regasified for use in the production process. 126
With an approximate investment of R$22 million (US$4 million), this complementary solution for acquiring feedstock will make it possible to import up to 12,800 barrels per day of ethane to the Petrochemical Complex in Mexico, which represents 19% of its ethane needs. In February 2020, Braskem Idesa imported its first shipment of ethane. In addition, Braskem Idesa continues to assess a complementary solution for larger-scale ethane imports whose scope consists of building a terminal for importing ethane and a pipeline to transport it to its petrochemical complex. For additional information, particularly relating to the risks associated with this project, please see “Item 3. Key Information—Risk Factors—Risks Relating to Mexico—If we fail to develop an alternative source of ethane, it may have a negative impact on our business because we cannot operate our Mexico Complex at full capacity.”. Off-Balance Sheet Arrangements We do not currently have any transactions involving off-balance sheet arrangements. Item 6. Directors, Senior Management and Employees Directors and Senior Management Our board of directors (conselho de administração) and our board of executive officers (diretoria) are responsible for operating our business. Board of Directors of Braskem Our by-laws provide for a board of directors of eleven members and eleven alternate members. During periods of absence or temporary unavailability of a regular member of our board of directors, the corresponding alternate member substitutes for the absent or unavailable regular member. Our board of directors is a decision-making body responsible for, among other things, determining policies and guidelines for our business and ourwholly-owned subsidiaries and controlled companies. Our board of directors also supervises our board of executive officers and monitors its implementation of the policies and guidelines that are established from time to time by the board of directors. Under the Brazilian Corporations Law, our board of directors is also responsible for hiring independent accountants.
The members of our board of directors are elected at general meetings of shareholders for two-year terms and are eligible for reelection. The terms of all current members expire at our annual shareholders’ meeting scheduled for 2020. Members of our board of directors are subject to removal at any time with or without cause at a general shareholders’ meeting. Our by-laws do not contain any citizenship or residency requirements for members of our board of directors and the members of our board of directors need not to be our shareholder. Our board of directors is presided over by the presidentchairman of the board of directors, and, in his absence, the vice presidentvice-chairman of the board of directors. The presidentchairman and the vice presidentvice-chairman of our board of directors are elected at a general shareholders´ meeting from among the members of our board of directors, serve for two-year terms and are eligible for reelection. Our board of directors ordinarily meets eleven times a year and extraordinarily whenever necessary and called by the chairman, the vice-chairman or any two other members of our board of directors. Decisions of our board of directors require a quorum of a majority of the directors and are taken by majority vote, other than certain actions which require the consensus of the nominees of Odebrecht and Petrobras under the Braskem S.A. Shareholders’ Agreement. See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders—Shareholders’ Agreements—Braskem S.A. Shareholders’ Agreement.” The following table sets forth certain information with respect to the current members of our board of directors and their alternates as of the date of this annual report: | | | | Marcelo Moses de Oliveira Lyrio (1)José Mauro Mettrau Carneiro da Cunha
| June 27, 2017December 20, 2019
| Chairman of the Board | 5670
| João Cox Neto | June 8, 2016 | Vice-Chairman of the Board | 56
| Ana Lúcia Poças Zambelli
| June 19, 2019
| Board Member
| 4657
| Roberto Lopes Pontes Simões | May 22, 2019 | Board Member | 6264
| Gesner José de Oliveira Filho(1) | June 27, 2017 | Board Member | 6364
| Pedro Oliva Marcilio de Sousa(1) | June 27, 2017 | Board Member | 4647
| Roberto Faldini | May 22, 2019 | Board Member | 7172
| João Pinheiro Nogueira Batista | April 22, 2019 | Board Member | 6364
| Fábio Venturelli (1)
| October 16, 2018
| Board Member
| 53
| Julio Soares de Moura Neto(1) | April 22, 2019 | Board Member | 7677
| Mauro Motta FigueiraRogério Bautista da Nova Moreira
| April 27, 2012November 12, 2019
| Board Member | 4944
| Larry Carris CardosoAndrea da Motta Chamma(1)
| October 16, 2018May 29,2020
| Board Member | 55 | Maria Isabel de Faria Perez | May 29,2020 | Alternate | 4439
| André Amaro da Silveira | June 8, 2016 | Alternate | 5657
| Marcelo Rossini de Oliveira | April 22, 2019 | Alternate | 41
| Susan Barrio de Siqueira Campos
| April 30, 2018
| Alternate
| 3842
| Marcelo Mancini Stella | June 8, 2016 | Alternate | 5657
| João Carlos TrigoDaniel Pereira de LoureiroAlburquerque Ennes
| April 7, 2016May 29,2020
| Alternate | 6640
| José Marcelo Lima Pontes | May 22, 2019 | Alternate | 6566
| Guilherme Duarte Abud | May 29,2020 | Alternate | 37 | Guilherme Simões de Abreu | May 29,2020 | Alternate | 69 |
(1) Independent director. 127
The following is a summary of the business experience, areas of expertise and principal outside business interests of our current directors and their alternates. Directors Marcelo Moses de Oliveira LyrioJosé Mauro Mettrau Carneiro da Cunha.Mr. Lyrio.Mr. Carneiro da Cunha is the Chairman of our Board of Directors, as an independent director and wasappointed to our Board of Directors by Odebrecht. He is the founding partner of Príncipio Assessoria Empresarial. Prior, during 12 years, from 2004 to 2016, he was a businessman, partner and co-founder of Signatura Lazard, and Managing Director (MD) of Lazard in Brazil. Duringthis period, he acted asanadvisor for large Brazilian and International Corporations.Mr. Lyrio also worked for 14 years,between 1990and 2004, for ING Bank and ING Barings in several areas of the institution. From 2001 to 2004 he held the role of President of ING’s operations in Brazil.Mr.Lyrio holds a bachelor’s degree in economics from Pontifícia Universidade Católica - PUC of Rio de Janeiro.
João Cox Neto.Mr. Cox is the Vice-Chairmanchairman of our board of directors and was appointed toelected as a member of our board of directors as a nominee of Petrobras. He is currentlyby our shareholder Odebrecht S.A. Mr. Carneiro da Cunha has been a member of the boardsboard of directors of Odebrecht S.A. since October 2019 and of Oi S.A. since September 2018, and has previously acted as chairman of the board of directors of Oi S.A. since 2009. Mr. Carneiro da Cunha started his career as an employee of BNDES, where he held several executive positions (from 1974 to 1990) and was also appointed officer (from 1991 to 1998) and vice-president responsible for the industrial operations, legal and fiscal matters areas (from 1998 to 2002). He has held the following positions: (i) member of the board of directors of Telemar Participações S.A. (from 2008 until the merger of Telemar Participações S.A., in September 2015); (ii) member of the board of directors of Vale S.A. (from 2010 to April 2015); (iii) interim CEO of Oi S.A., in 2013; (iv) chairman of the board of directors of the following companies: (a) Tele Norte Leste Participações S.A. (from 1999 to 2003 and from 2007 to 2012), where he also acted as alternate member of the board of directors in 2006; (b) Telemar Norte Leste S.A. (from 2007 to 2012); (c) TNL PCS S.A. (from 2007 to 2012); (d) Tele Norte Celular Participações S.A. (from 2008 to 2012); (e) Coari Participações S.A. (from 2007 to 2012); and (f) Dommo Empreendimentos Imobiliários S.A., formerly known as Calais Participações S.A. (from 2007 to December 2016); (v) member of the board of directors of Log-In Logística Intermodal S.A. (from 2007 to 2011); (vi) member of the board of directors of Lupatech S.A. (from 2006 to 2012); (vii) member of the board of directors of Santo Antonio Energia S.A. (from 2008 to 2017); (viii) member of the Board of Directors of the following Companies: (a) Braskem S.A. (from 2007 to 2010), where he previously held the position of vice-president of strategic planning (from 2003 to 2005); (b) LIGHT Serviços de Eletricidade S.A. (from 1997 to 2000); (c) Aracruz Celulose S.A. (from 1997 to 2002); (d) Politeno Indústria e Comércio S.A. (from 2003 to 2004); (e) BANESTES S.A. – Banco do Estado do Espírito Santo (from 2008 to 2009); and (f) Pharol, SGPS, S.A. (from 2015 to 2017).Mr. Carneiro da Cunha holds a bachelor’s degree in mechanical engineering from Universidade Católica de Petrópolis (1971).He also completed the Executive Program in Management at Anderson School, University of California, in December 2002.
João Cox Neto.Mr. Neto was elected as a member of our Board of Directors after nominated by the shareholder Petróleo Brasileiro – Petrobras. Currently, he serves as Chairman of the Board of Vivara S.A. and as a member of the Board of Directors of Embraer S.A., Petrobras S.A.,Qualicorp S.A., and Linx S.A. and Eldorado S.A.. He is the founding partner and managing directorChief Executive Officer of Cox Investments & Advisory. BetweenFrom 2006 andto 2010, Coxhe served as CEOChief Executive Officer and vice-chairmanVice-Chairman of the Board of Directors of Claro. In 2005, he was the vice-chairmanserved as Vice-Chairman of the boardBoard of directorsDirectors of Cellcom Israel. HeFrom April 1999 to August 2004, he served as CFOChief Financial and investor relationsInvestor Relations Officer of Telemig Celular Participações and Tele Norte Celular Participações, from April 1999 to August 2004 and also as CEOwell as Chief Executive Officer of Telemig Celular and AmazoniaAmazônia Celular from August 2002 to August 2004. In addition,Mr. Cox hasalso served as a member of boardsthe Boards of directorsDirectors of other companies in Brazil, Argentina, the Netherlands and Israel. He served as consultant to CRSFN - Nationalalso was a member of the Brazilian Financial System Resources Council, ABRASCA (BrazilianBoard (CRSFN), the Brazilian Association of Publicly Held Companies)Companies (ABRASCA) and IBRI (Brazilian Institute of Investors’ Relations).Brazilian Investor Relations Institute. Mr. Cox holds a bachelor’s degreeB.A. in economicsEconomics from Universidadethe Federal daUniversity of Bahia, and completed a graduate degreecontinued his studies in economics at the Université duQuébec à Montrealand at theOxford University’s College of Petroleum Studies of Oxford University.Studies. Ana Lúcia Poças Zambelli.Ms. Zambelli was appointed to our board of directorsby Petrobras. She is a senior executive with 22 years of experience in the Oil & Gas industry (O&G). She holds a degree in Mechanical Engineering, a Master's Degree in Petroleum Engineering and a Graduate Degree in Leadership, Strategy and Innovation from MIT - Massachusetts Institute of Technology. Currently, Ms. Ana Lúcia Poças Zambelli is also a member of the board of directors at Petrobras.128
Roberto Lopes Pontes Simões.Mr. Simões was elected to our boardis currently the Chief Executive Officer of directorsBraskem as well as a nomineemember of Odebrecht. Mr.Simõesour Board of Directors appointed by the shareholder Odebrecht S. A. He has actedserved as chairmanthe chair or member on the Boards of the boardDirectors of directors of largemajor companies such asas: Odebrecht Engenharia e Construção, ConsórcioConsorcio Baia de Sepetiba, Itaguaí Construções Navais, Petroquímica Paulínia, Ipiranga Química, Ipiranga Petroquímica, Refinaria Ipiranga, COPESUL, Petroflex and CETREL. He is currentlyserved as the CEOChief Executive Officer of Ocyan where he started working in 2012. From 2010 to 2012, he was the CEO ofS.A. (2012-2019), Odebrecht Defesa e Tecnologia. From 2008 to 2010, heTecnologia (2010-2012) and Santo Antônio Energia (2008-2010), and as the Vice-CEO of Braskem (2004-2008). He was the president of Santo Antonio Energia. At Braskem, he held the position of Executive Vice President, from 2004 to 2008. From 2000 to 2004 he held the position of COO and subsequently CEO of iG-Internet Group.Group from 2000 to 2004. He was the presidentCEO of Opportrans Concessão Metroviária - Metro Rio from 1999 to 2000. His career atHe joined the Odebrecht beganGroup in 1994 as aChief Contract Officer at Tenenge and at CNO, Agreements Officer. Mr. Simões holdsserving until 1999. He was awarded a degreeB.Sc. in Mechanical Engineering from Universidadethe Federal daUniversity of Bahia (UFBA) obtained in 1978. He also attended1978 and completed the Petrochemical Projects and Maintenance & Project Engineering Course - Cemant (a cooperation between Petrobras and UFBA).Program (CEMANT) of Petrobras/UFBA. He is a member of the Assembly of the private philanthropic organization Obras Sociais de Irmã Dulce (Charitable Works Foundation of Sister Dulce).Dulce. Gesner José de Oliveira Filho.Mr. Oliveira Filhois an independent director and was appointed to our board of directorsby Odebrecht. Mr. Oliveira is certified by the Brazilian Institute of Cooperative Governance. He is currently a member of the board of directors of TIM, chairman of Estre, member of the board of directors of Iguá and Instituto Iguá, a member of the Self-regulation Council of FEBRABAN, member of the Advisory Board of ETCO, CIEE and the Muktistakeholder Council of the Less Loss, Less Water Movement. Partner of GO Associados, Professor at EAESP/FGV, Coordinator of the Economics Group of Infrastructure & Environmental Solutions of FGV. Between 2007 and 2010, he was the President of Sabesp – Sanitation Company of the State of São Paulo. He has also acted as a Consultant in a project for the World Bank, for institutional analysis of a sanitation company in Dhaka, Bangladesh, in 2012. Mr. Gesner Oliveira graduated with a degree in Economics from the School of Economics and Administration of Universidade de São Paulo – FEA/USP, with a Master’s degree in Economics from the Economics Institute of Universidade Estadual de Campinas (UNICAMP) and Ph.D. in Economics from University of California, Berkeley. Pedro Oliva Marcilio de Sousa.Mr..Mr. Sousa is an independent director and was appointed to our board of directors by Odebrecht. Currently, he is a member of the board of directors of Klabin S.A and from 2011 to 2017 he acted as a Resources Management Office at GR Partners Gestão de Recursos Ltda. In 2011, he acted as an M&A Officer. From 2009 to 2010, he acted as M&A officer at Banco Standard de Investimentos S.A. As of 2013, he has been acting as a member of the Audit Committee at Companhia Brasileira de Distribuição and B3 S.A. – Brasil, Bolsa e Balcão. Between 2013 and 2014, he was a member of the fiscal board of Hypermarcas. Mr. Sousa holds a bachelor’s degree in law from Faculdade de Direito da Universidade Federal of the State of Bahia. Roberto Faldini.Mr. Faldini was elected to our board of directors as a nomineemember of Odebrecht.our Board of Directors by the shareholder Odebrecht S.A. He holds a degreeB.A. in Business AdministratorAdministration from the GetulioGetúlio Vargas Foundation obteained in 1972. He also holds specialization degrees(1972) and completed non-degree programs in (i) Advanced Management fromat the Dom Cabral Foundation and at INSEAD obtained in 1991;(1991); (ii) Entrepreneurship fromat Babson College obtained in 2004(2004); and (iii) Corporate Governance (IFCat the IFC and IBGC), obtained in 2009,IBGC (2009, 2011, 2013 and 2016. Mr. Faldini2016). He is the presidentPresident and partner ofa Partner at Faldini Estratégia Empresarial,Participações Administração e Investimentos Ltda. and the CEOChief Executive Officer of MBF Administração e Serviços. He currently holdsIn addition to participating on the positionboard of Chairman of the Board of Metalúrgica GolinBraskem S.A., and he currently is a member of the Boards of Directors of Vulcabrás-Azaleia,s/Azaleia, Marfrig General Foods,CHP Group (Celulose Irani andPapel e Embalagens SA, Cia. Habitasul)Habitasul de Participações and Odebrecht S.A..S. A. He isparticipates voluntarily as a volunteer member of the Board of TrusteesCurators of the Dorina Nowill Foundation for the Blind People and the Crespi Prado Foundation. He is anexecutive officer of the Ema Gordon Klabin Cultural Foundation. Mr. FaldiniHe is an inviteda visiting professor at the Dom Cabral Foundation and an arbitrator atof the Market Arbitration Chamber (CAM) of the B3. He has beenwas a member of the BoardBoards of Directors and Advisory Boards of severalvarious companies in Brazil and abroad, including BOVESPA, Metal Leve, Maraú, Livrarias Siciliano, CPFL, Inpar, Klicknet, Sadia, BRF and Sadia. Mr. Faldini is a co-founder of IBCG -Bco. BMG. He co-founded the Brazilian Institute for Corporate Governance Institute (IBGC) in 1995 and he remains active in manycontinues to participate on several of its committees.commissions. He is an associatedassociate member of IBEF -the Brazilian Institute forof Financial Executives (IBEF) and FBN -of the Family Business Network.Network (FBN). For more thanover 20 years, he was the CEO, aan executive officer, shareholder and member of the Board of Directors of Metal Leve S.A., and he held the position ofserved as President of CVMthe Securities and Exchange Commission of Brazil (CVM), in 1992. He was thea coordinator for five years (2002-07) in the State of São Paulo of the Family Business Core - PDACenter (PDA) of the Dom Cabral Foundation, from 2002 to 2007.Foundation.
João Pinheiro Nogueira Batista. Mr. Batista was elected to our board of directors as a nominee of Odebrecht. He has served for more than ten years on Boards of Directors of companies in Brazil. In the Odebrecht Group, he was an independent member of the Boards of Directors of Odebrecht Engenharia e Construção since June 2017 and Ocyan since April 2018, where he remained until January 2019, and joined the Board of Directors of Odebrecht S.A. in November 2018. In addition, currently he is a CEO of Evoltz S.A..S.A. He was the CEO of Swiss Re, Bertin S.A. and Suzano Petroquímica, as well as a director at companies such as Petrobras, Dresdner Bank,Citibank, Radiobras and Siderbras. Mr. Batista holds a degree in Economics from PUC-RJ and an MBA degree in Economic Engineering from Universidade Gama Filho, Rio de Janeiro. Fábio Venturelli. Mr. Venturelli is an independent director and was appointed to our board of directors by Petrobras. He has more than 25 years of experience in corporate management, global business management and commercial management, with vast experience in management of national and international companies. Currently, he is a member of the boards of directors of CTC – Centro de Tecnologia Canavieira S.A. and COINFRA – Conselho Superior de Infraestrutura da FIESP. Mr. Venturelli has been the CEO of São Martinho since 2007. He began his career at Dow Chemical, where he held several positions both in Brazil and in the United States, including as Global Business Officer and Corporate and Strategic Development Officer, between 1989 and 2007. In addition, Mr. Venturelli was the receipient of the Businessman of Value - Executivo de Valor prize, granted by the newspaperValor Econômico, in 2012, 2013, 2016, 2017 and 2018, and he was named one of the best CEOs in Brazil by Forbes Magazine in 2017. Mr. Venturelli holds a bachelor’s degree in production engineering at the Engineering School of the University of São Paulo, an MBA degree from FIA-FEA and participated in the Young Management Program at INSEAD, in France.129
Julio Soares de Moura Neto.Mr..Mr. Moura is an independent director and was appointed to our board of directors by Petrobras. He is a Fleet Admiral and has experience on the Strategic Consulting Board of Fundação EZUTE, on the Consulting Board of Cia Brasileira de Cartuchos (CBC) and on the Consulting Board of Sindicato Nacional das Indústrias de Materiais de Defesa (SIMDE). Mr. Moura holds a degree in Command and General Staff from theEscola de Guerra Naval, Navy War Higher Course from theEscola de Guerra Naval and Navy War Higher Course fromInstituto Superior Naval de Guerra in Portugal. Mauro Motta FigueiraRogério Bautista da Nova Moreira. Mr. Figueira.Mr. Moreira was elected toas a member of our board of directors as a nominee of Odebrecht.our shareholder Odebrecht S.A. Mr. FigueiraMoreira is currently serves as the Investment and Strategic Planninga director of Odebrecht.Empreendimentos Imobiliários S.A. and Lagoa da Barra S.A. and the general counsel of Odebrecht S.A. Previously, he wasworked as director at Santo Antonio Energia S.A. and Odebrecht Comercializadora de Energia S.A., between 2014 and 2015. He also worked as general counsel of OR Empreendimentos Imobiliários S.A., between 2016 and 2019, of Odebrecht Energia S.A., between 2012 and 2016, and as a management associatelawyer at Citibank and strategic planning manager at OPP Petroquimica until 2002; senior consultant at management consulting firm A.T. Kearney from 2004 to 2006, marketing controller at J&J Pharmaceutical Division (Janssen) from 2006 toOdebrecht Energia S.A., between 2008 and senior manager2012, at strategic consultingBraskem S.A., between 2002 and 2008, at the law firm Monitor Group from 2008 to 2010.Veirano Advogados, between 2000 and 2001, and at Deloitte, between 1999 and 2000. Mr. FigueiraMoreira holds a degree in production engineeringlaw from the University of São PauloUniversidade Católica de Salvador (1999), a specialization degree in tax law from Instituto Brasileiro de Direito Tributário and an MBA degreein business management from Fundação Getúlio Vargas.
Andrea da Motta Chamma. Ms. Chama was elected as a member of our board of directors as a nominee of our shareholder Petróleo Brasileiro S. A. – Petrobras. Currently, she is a member of the board of directors and head of the People Committee of Fleury Group and an advisor and member of the advisory board specializing in fintech and blockchain startups at 3C Advisors. Previously, she served as Vice-Chairman and Head of Equity Sales of Bank of America Merrill Lynch and Executive Officer of Brokerage and Equity Sales at ABN Amro. Ms. Chamma holds a B.A. in business administration from the Darden School of Business of theGetúlio Vargas Foundation (FGV) and completed non-degree programs in management at Harvard University of Virginia.and Columbia University. Alternate Directors Larry Carris Cardoso.Maria Isabel de Faria Perez.Mr. CardosoMs. Perez was elected as an alternate member of our board of directors by our shareholder Petróleo Brasileiro S.A. – Petrobras. Currently, she acts as a nomineegeneral manager in the area of Petrobras. He has workedbusiness integration and interest at Petrobras, since 2003 and currently serveshaving previously acted as the General Manager of Loans and Financing, and previously served as a Corporate Finance Manager from 2013 to 2014, Manager of Financial Resources from 2011 to 2013, Manager of Sector Financial Operations from 2003 to 2011 and Exchange Coordinator at Petrobras from 2001 to 2002. In addition, he was a member of the Audit Committee of FCC – Fábrica Carioca de Catalizadores from 2012 to 2014. Previously, Mr. Cardoso was a member of of the Investment Committee at Petros. Between 1998 and 2004, he was a professor of economics at Faculdade Moraes Júnior and at University Estácio de Sá. Mr. Cardosoits legal manager. Ms. Perez holds a bachelor’slaw degree a master’s degreefrom Universidade do Estado do Rio de Janeiro (UERJ) and a Ph.D.graduate degree in EconomicsOil and Gas Exploration and Production Business Management from Instituto Brasileiro de Petróleo (IBP). She also holds a Business Acumen for the Federal UniversityEnergy Executive certification from McCombs School of Business (University of Texas) and has completed extension courses in anticorruption compliance for the State of Rioenergy sector at Instituto Brasileiro de Janeiro.Petróleo (IBP) and in national and international commercial arbitration at IBMEC.
André Amaro da Silveira.Mr. Silveira was elected as an alternate member of our board of directors as a nominee of Odebrecht. He worked with Odebrecht Group from 1989 to 2018. Currently, he is a member of the boards of directors of Odebrecht Engenharia e Construção, Ocyan and Odebrecht Transport, and Atvos, acting also on its respective Compliance Committees. HeCommittees and as a board member of Santo Antonio Energia S.A..He began his career in heavy infrastructure projects and led Odebrecht investments in the concession of public services in Brazil, Argentina and Portugal. During this period, he was also Director of Project Finance and Export at Construtora Norberto Odebrecht, Vice-President of Planning and People at Braskem, Director of Human Resources at Odebrecht S.A., President of Odebrecht Properties and Odebrecht Defesa e Tecnologia. He was a member of the boards of directors of Odebrecht Engenharia e Construção, Atvos and OR, acting also as coordinator of the compliance committees and as a member of the people committees. Mr. SIlveiraSilveira holds a degree in Civil Engineering from Unversidade Federal de Minas Gerais and a Master of Business Administration degree from IMD. Marcelo Rossini de Oliveira.Mr. Oliveira was elected as an alternate a member of our board of directors as a nominee of Odebrecht. Mr. Oliveira currently serves as the Treasury and IR Officer of Odebrecht S.A. From 2005 to 2018, he worked as a financial analyst, Capital Market and Operations Structure Manager and Treasury ManagerTreasuryManager of Braskem S.A..S.A. He previously worked as senior auditor and financial analyst at Deloitte - Auditores e Consultores. Mr. Rossini holds a degree in Economics from Universidade Católica do Salvador, a graduate degree in Finance from Fundação Getulio Vargas and an MBA degree in Finance from Insper. 130
Susan Barrio de Siqueira Campos.Ms. Campos was elected an alternate member of our board of directors as a nominee of Odebrecht. She is currently an attorney of Odebrecht S.A. A professional with 17 years’ experience in the areas of finance, Mergers and Acquisitions, and Investment Projects of legal departments. She started her career as an attorney in the financial area of the legal department of Braskem in 2005. She was also manager of the areas of finance, Mergers and Acquisitions and Investment Projects of the legal department of Braskem, between 2006 and 2010. In 2011 she held the position of international associate of the corporate area of Simpson Thacher & Bartlett LLP, New York, USA. At the Odebrecht Organization, she started in 2012 as legal responsible for Odebrecht Properties S.A. Ms. Campos holds a Law degree from Fundação Armando Alvares Penteado, in São Paulo, obtained in 2004, a certificate in Financial Management from Insper Instituto de Ensino e Pesquisa, in São Paulo, obtained in 2010, and completed an LLM at the University Of Michigan Law School, Michigan, USA, in 2011.
Marcelo Mancini Stella.Mr. Mancini was elected as an alternate member of our board of directors as a nominee of Odebrecht. He has served as the Vice-President of Marketing and Sales of Ethanol, Sugar and Energy, Logistics, Supply and Business Development at Atvos since 2010. Previously, he held several positions at Braskem from 2002 to 2010, leading the Business Directorships of Polyethylene, Vinyls and Polypropylene. He worked for Pilkington Brasil Ltd. as Sales and Marketing Director from 1990 to 2002. Mr. Mancini holds a bachelor’s degree in production engineering from the Polytechnic School of the University of São Paulo and an MBA degree from the University of São Paulo - FIA. He also participated in the INSEAD Finance Program and the Marketing Program at Cranfield University. João Carlos TrigoDaniel Pereira de Loureiro.Albuquerque Ennes.Mr. LoureiroEnnes was elected as an alternate member of our board of directors asby our shareholder Petróleo Brasileiro S.A. – Petrobras. Currently, he is a nomineemember of Petrobras,Mr. Loureiro has 40 yearsthe board of professional experience, including more than six years in France, with vast management experience. Since 2015,directors of Liquigas Distribuidora S.A. and a Structured Bank Financing Relations Manager at Petrobras. Previously, he holdswas the positionCoordinator of ManagerBanking Market, Coordinator of Interests in PetrochemicalDomestic Capital Market and Biofuel CompaniesCoordinator of the Export Credit Agency at Petrobras. Mr. LoureiroDaniel Pereira holds a bachelor’s degree in economics from Universidade Cândido MendesFederal do Rio de Janeiro (UFRJ), a law degree from Universidade do Estado do Rio de Janeiro (UERJ) and an executive MBAa master’s degree in oil and gasindustrial economy from Coppe – UFRJ.Universidade Federal do Rio de Janeiro (UFRJ).
José Marcelo Lima Pontes. Mr. Pontes was elected as an alternate member of our board of directors as a nominee of Odebrecht. Mr. Pontes is a professional journalist, with 34 years of experience at some of the main media outlets in Brazil, and 21 years of experience in corporate communication, six of which at Odebrecht. Guilherme Duarte Abud.Mr. Abud was appointed as an alternate member of our board of directors as a nominee of Odebrecht S.A. He is currenly a lawyer at Odebrecht S.A. Previously, he served as Chief Legal & Corporate Governance Officer at Enseada Industria Naval S.A. from 2012 to 2019 and as a lawyer at Construtora Norberto Odebrecht S.A. from 2008 to 2012 and at the law firm Machado Meyer Advogados from 2002 to 2008. Mr. Abud holds a degree in law from the Pontifical Catholic University of São Paulo (2006) and an LL.M. in corporate law from Insper (2008). Guilherme Simões de Abreu.Mr. Abreu was appointed as an alternate member of our board of directors as a nominee of Odebrecht S.A. He has served as Chief People, Communication & Organization Officer at Odebrecht S.A. since January 2020. From June 2018 to December 2019, he was executive secretary to the board of directors of Odebrecht S.A. From 2013 to March 2017, he held the position of People & Organization Manager at Odebrecht S.A. Board of Executive Officers of Braskem Our board of executive officers is our executive management body. Our executive officers are our legal representatives and are responsible for our internal organization and day-to-day operations and the implementation of the general policies and guidelines established from time to time by our board of directors. Our by-laws require that the board of executive officers consist of a chief executive officer and between three and nine additional members, each responsible for business areas that our board of directors assigns to them. The members of our board of executive officers, other than our chief executive officer and the general counsel, have no formal titles (other than the title of executive officer or “Director”) but have the informal titles set forth in the table below.
The members of our board of executive officers are elected by our board of directors for three-year terms and are eligible for reelection. The current term of all of our executive officers ends at the first board of directors meeting held immediately after our annual shareholders’ meeting to be held in 2021. Our board of directors may remove any executive officer from office at any time with or without cause. According to the Brazilian Corporations Law, executive officers must be residents of Brazil but need not to be our shareholders. Our board of executive officers holds meetings when called by our chief executive officer. 131
The following table lists the current members of our board of executive officers as of the date of this annual report: | | | | | | | Fernando Musa | 2016 | Chief Executive Officer | 54 | | Roberto Lopes Pontes Simões | | 2019 | Chief Executive Officer | 63 | Pedro van Langendonck Teixeira de Freitas | 2016 | Chief Financial Officer, Investor Relations and External Affairs Officer | 43 | 2016 | Chief Financial Officer, Investor Relations and External Affairs Officer | 44 | Cristiana Lapa | 2019 | General Counsel and Corporate Governance Officer | 42 | 2019 | General Counsel and Corporate Governance Officer | 42 | Edison Terra Filho | 2016 | Executive Officer and Head of the Polyolefins South America and Europe Unit | 47 | 2016 | Executive Officer and Head of the Polyolefins South America and Europe Unit | 48 | Marcelo Arantes de Carvalho | 2015 | Executive Officer and Head of People, Communication, Marketing and Sustainable Development | 51 | 2015 | Executive Officer and Head of People, Communication, Marketing and Sustainable Development | 51 | Marcelo de Oliveira Cerqueira | 2013 | Executive Officer and Head of the Chemicals and Vinyl Unit | 54 | 2013 | Executive Officer and Head of the Chemicals and Vinyl Unit | 54 | Luiz Eduardo Valente Moreira | 2019 | Executive Officer and Head of Investments & Portfolio | 62 | 2019 | Executive Officer and Head of Investments & Portfolio | 63 |
Summarized below is information regarding the business experience, areas of expertise and principal outside business interests of our current executive officers: Fernando Musa.Mr. Musa is currently our chief executive officer. From April 2012 to April 2016, Mr. Musa was in charge of our business in the United States and Europe. Before that, in 2011, Mr. Musa was planning and business development officer for Braskem, leading the areas of strategic planning, procurement and information technology and also in charge of quantiQ, Braskem’s distributor of chemical products. Mr. Musa joined Braskem in January 2010 as planning and integration officer at Quattor (at the time of the acquisition by Braskem), where he was responsible for the integration into Braskem, leading the financial, procurement, polymer logistics and SAP project areas. Previously, Mr. Musa held leadership positions at McKinsey, Editora Abril and Monitor Group. Mr. Musa holds a degree in mechanical engineering from the Aeronautic Technological Institute (Instituto Tecnológico da Aeronáutica), or ITA, in São José dos Campos, Brazil and an MBA degree from Insead.
Pedro Van Langendonck Teixeira de Freitas.Mr. Freitas is currently our chief financial officer, investor relations and external affairs officer. He previously served in our strategic planning area from 2011 to 2016. Prior to this, he was a strategy consultant, having participated in the construction of business strategies and mergers and acquisitions projects in various industries, including petrochemicals, agribusiness, consumer goods and pharmaceuticals. Mr. Freitas holds a degree in production engineering from the Polytechnic School of the University of São Paulo and an MBA degree from Insead. Cristiana Lapa.Ms. Lapa is currently our General Counsel and Corporate Governance officer. Ms. Lapa joined theour Company in November 2006 as a Legal Manager responsible for the labor, pension and environmental areas, where she worked until 2013, when she became a Legal Director for the South America and Europe Polyolefins Unit. Previously, she was an intern and lawyer at the law firm Pinheiro Neto Advogados, from 1997 to 2006. She holds a bachelor’s degree, master’s degree and doctorate from the Law School of the University of São Paulo (USP), completed a non-degree program in Labor Law from COGEAE at the Pontifical Catholic University of São Paulo (PUC-SP) and conducted research at Montesquieu University in France. Edison Terra Filho. Mr. Terra is currently our head of polyolefins South America and Europe Unit. Mr. Terra joined Braskem in 2002 and has held positions in several areas, including marketing, supply chain and export and as leader of Small Enterprise Polyethylene, UNIB and quantiQ. Previously, he served in several positions at Rhodia from 1993 to 2002. Mr. Terra holds a bachelor’s degree in production engineering from Escola Politécnica da USP and a master’s degree in business administration from EAESP-FGV/SP.He also completed extension courses in Global Leadership at Wharton Business School and in Disruptive Technologies at Singularity University.
Marcelo Arantes de Carvalho.Mr. Carvalho is currently our head of people, communication, marketing and sustainable development. He has implemented organizational and human resources training programs, cultural change and leadership development programs and developed and implemented global strategies in the areas of human resources, information technology and procurement. Previously, Mr. Carvalho worked in global companies such as ABB, Unilever, Fiat Chrysler Automotive and Braskem. He has over 28 years of experience in the human resources, information technology and procurement areas in industries such as metallurgy, automation and power technology, telecommunications,automotive, consumer goods and petrochemical/chemical industries. Mr. Carvalho holds a degree in business administration, with specialization in business management, from Fundação Dom Cabral and a degree in global leadership from Wharton. Marcelo de Oliveira Cerqueira. Mr. Cerqueira is currently the head of the Chemicals and Vinyl Business. Mr. Cerqueira previously served as head of our Vinyls Unit from 2010 until October 2013, as industrial vinyls director from 2009 until 2010 and as production manager of our PVC production unit in the State of Bahia from 2003 until 2008. Previously he worked at Trikem in various capacities, including production manager of the PVC production unit in the State of Alagoas from 1997 until 2002. At Companhia Petroquímica Camaçari, he worked with the production logistics, health, safety and the environment and procurement engineering areas from 1989 until 1996. He began his career at Companhia Alcoolquímica Nacional and COPERBO (now Lanxess), where he workedheworked from 1987 until 1989. Mr. Cerqueira holds a bachelor’s degree in chemical engineering from the University of Pernambuco and an MBA degree from FGV. 132
Luiz Eduardo Valente Moreira.Mr. Moreira is currently our head of Investments & Portfolio. Mr. Moreira has 38 years of experience at Petrobras, in the following positions: Industrial Executive Manager from April 2018 to March 2019; Safety, Environment and Health Executive Manager from 2015 to 2018; Director of the Comperj Petrochemical Project from 2013 to 2015; Gas and Gas Chemical Energy and Liquefaction Manager (GE-GQL) from 2009 to 2013; General Manager of the Bahia Nitrogen Fertilizers Plant (FAFEN-BA) from 2008 to 2009; General Manager of the Henrique Lage Refinery (REVAP) from 2005 to 2008; General Manager of Refining Technology for Supply (AB-RE/TR) from 2001 to 2005; and Superintendent of the Presidente Getúlio Vargas Refinery (REPAR) from 1999 to 2000. Mr. Moreira holds a bachelor’s degree in chemical engineering from the Federal University of Rio de Janeiro (UFRJ) and a graduate degree in Petroleum Processes Engineering from the same university, as well as an Executive MBA degree from COPPEAD (UFRJ). Fiscal Council The Brazilian Corporations Law requires us to establish a permanent or non-permanent fiscal council (conselho fiscal). Our by-laws provide for a permanent fiscal council composed of five members and their respective alternate members. The fiscal council is a separate corporate body, independent of our management and our independent accountants. The members of our fiscal council are elected by our shareholders at the annual general shareholders’ meeting for one-year terms and are eligible for reelection. The terms of the members of our fiscal council expire at the next annual general shareholders’ meeting, which will be held in 2019. Under the Brazilian Corporations Law, the fiscal council may not contain members who are members of our board of directors or our board of executive officers or are employees or spouses or relatives of any member of our management. To be eligible to serve on our fiscal council, a person must be a resident of Brazil and either be a university graduate or have been an officer or fiscal council member of another Brazilian company for at least three years prior to election to our fiscal council. Holders of (1) preferred shares without voting rights and (2) non-controlling common shareholders that together hold at least 10.0% of our voting share capital are each entitled to elect one member and his or her respective alternate to the fiscal council. The responsibilities of a fiscal council are established by the Brazilian Corporations Law. In accordance with the Brazilian Corporations Law, our fiscal council has the right and obligation to, among other things: · | supervise, through any of its members, the actions of our managers and to verify their fulfillment of their duties; | · | give an opinion on the annual report of our management, including the supplementary information deemed necessary or useful for deliberation at a general meeting; | · | at least every three months examine the trial balance sheet and other financial statements periodically prepared by the company; | · | examine the accounts and financial statements for the financial year and give an opinion on them; | · | opine on any management proposals to be submitted to a vote of our shareholders related to: |
| o | changes in our share capital; | | o | issuances of debentures or rights offerings entitling the holder to subscribe for equity securities; | | o | distributions of dividends; and | | o | transformation of our corporate form and any corporate restructuring, such as takeovers, mergers and spin-offs; |
· | inform our management of any error, fraud or misdemeanor detected and suggest measures we should take in order to protect our primary interests. If our management fails to take the measures required to protect our interests, inform our shareholders at a shareholders’ meeting of these facts; and |
·supervise, through any of its members, the actions of our managers and to verify their fulfillment of their duties;133
·give an opinion on the annual report of our management, including the supplementary information deemed necessary or useful for deliberation at a general meeting;
·at least every three months examine the trial balance sheet and other financial statements periodically prepared by the company;
· | 120
| call general shareholders’ meetings if management delays the general shareholders’ meeting for more than one month and call special shareholders’ meetings in the event that important matters arise. |
·examine the accounts and financial statements for the financial year and give an opinion on them;
·opine on any management proposals to be submitted to a vote of our shareholders related to:
Øchanges in our share capital;
Øissuances of debentures or rights offerings entitling the holder to subscribe for equity securities;
Ødistributions of dividends; and
Øtransformation of our corporate form and any corporate restructuring, such as takeovers, mergers and spin-offs;
·inform our management of any error, fraud or misdemeanor detected and suggest measures we should take in order to protect our primary interests. If our management fails to take the measures required to protect our interests, inform our shareholders at a shareholders’ meeting of these facts; and
·call general shareholders’ meetings if management delays the general shareholders’ meeting for more than one month and call special shareholders’ meetings in the event that important matters arise.
As described in “Item 16D. Exemptions from the Listing Standards for Audit Committees,” we are relying on the general exemption from the listing standards relating to audit committees contained in Rule 10A-3(c)(3) under the Exchange Act.In order to comply with the requirements of this exemption, our board of directors has delegated to our fiscal council certain additional responsibilities and our fiscal council adopted rules under which our fiscal council has the duties and responsibilities of a U.S. audit committee to the extent permitted under Brazilian Corporations Law. Because Brazilian Corporations Law does not permit the board of directors to delegate responsibility for the appointment, retention and compensation of the external auditors and does not provide our board of directors or fiscal council with the authority to resolve disagreements between management and our external auditors regarding financial reporting, our fiscal council cannot fulfill these functions. Our fiscal council may only make recommendations to our board of directors and shareholders with respect to the appointment, retention and compensation of the external auditors, and with regard to resolution of disagreements between management and the external auditors, our fiscal council may only make recommendations to our board of directors and shareholders. Under the rules governing our fiscal council, our fiscal council has the following rights and obligations, among others, in addition to those established by the Brazilian Corporations Law: ·to follow and analyze the process of hiring independent auditors, observing applicable Brazilian rules and legislation, and considering the technical expertise, independence, efficiency, experience and costs of the independent auditors, and recommend to our board of directors the selection and remuneration for the work of independent auditors and their possible replacement;
·to approve the annual list of pre-approval services that may be provided in a given year by the independent auditors, as well as ensure that the policy is observed by our management and independent auditors;
·to supervise the work of our independent auditors, as well as to discuss the scope of audit services to be performed by them;
·to analyze the recommendations report prepared by our independent auditors and the internal control over financial reporting, including items that may impact our financial statements;
·to request from our independent auditors, if necessary, any clarification or information that is deemed to be necessary for the verification of specific facts;
·to meet with our management and independent auditors, whenever required, for the analysis of adoption of significant accounting policies and practices, including analysis of alternative treatments of policies, practices and disclosures related to material items, giving preferential treatment to the guidelines of our independent auditors;
· | to follow and analyze the process of hiring independent auditors, observing applicable Brazilian rules and legislation, and considering the technical expertise, independence, efficiency, experience and costs of the independent auditors, and recommend to our board of directors the selection and remuneration for the work of independent auditors and their possible replacement; | 121·
| to approve the annual list of pre-approval services that may be provided in a given year by the independent auditors, as well as ensure that the policy is observed by our management and independent auditors; | · | to supervise the work of our independent auditors, as well as to discuss the scope of audit services to be performed by them; | · | to analyze the recommendations report prepared by our independent auditors and the internal control over financial reporting, including items that may impact our financial statements; | · | to request from our independent auditors, if necessary, any clarification or information that is deemed to be necessary for the verification of specific facts; | · | to meet with our management and independent auditors, whenever required, for the analysis of adoption of significant accounting policies and practices, including analysis of alternative treatments of policies, practices and disclosures related to material items, giving preferential treatment to the guidelines of our independent auditors; | · | to intermediate possible discussion and conflicts arising between our independent auditors and our management related to the draft of financial reports, providing, if necessary, opinions regarding such conflicts; | · | to discuss the content of all material and relevant communication made in writing by our independent auditors to our management which come to its knowledge; | · | to hire, as appropriate, in accordance with § 8 of Article 163 of the Brazilian Corporations Law, independent experts and advisers, including but not limited to legal counsel, to advise and give opinions on matters related to the performance of its duties; | · | to meet regularly and privately with the head of internal audit to discuss any issues and/or concerns; and | · | to receive information and oversee the evaluation process regarding complaints received by us, whether through our confidential, anonymous ethics hotline or otherwise, with respect to our financial statements, internal accounting controls and auditors (whether internal or independent). |
·to intermediate possible discussion and conflicts arising between our independent auditors and our management related to the draft of financial reports, providing, if necessary, opinions regarding such conflicts;
·to discuss the content of all material and relevant communication made in writing by our independent auditors to our management which come to its knowledge;
·to hire, as appropriate, in accordance with § 8 of Article 163 of the Brazilian Corporations Law, independent experts and advisers, including but not limited to legal counsel, to advise and give opinions on matters related to the performance of its duties;
·to meet regularly and privately with the head of internal audit to discuss any issues and/or concerns; and
·to receive information and oversee the evaluation process regarding complaints received by us, whether through our confidential, anonymous ethics hotline or otherwise, with respect to our financial statements, internal accounting controls and auditors (whether internal or independent).
The following table lists the current members of our fiscal council and their alternates: 134
| Year of First Appointment | Ismael Campos de Abreu | 2003 | Gilberto Braga | 2017 | Carlos Alberto Rechelo Neto | 2018 | Viviana Cardoso de Sá e FariaAmós da Silva Cancio
| 20192020
| Patricia Gracindo Marques de Assis BentesHeloisa Belotti Bedicks
| 2019
| | 2020 | Ivan Silva Duarte (alternate) | 2016 | Tatiana Macedo Costa Rego Tourinho (alternate) | 2018 | Bruno Passos da Silva MeloHerbert Luiz de Araujo Guimarães (alternate)
| 20192020
| Bruno Carvalho BaruquiRafael Menezes Peres (alternate)
| 20182020
| Fábio ViannaReginaldo Ferreira Alexandre (alternate)
| 20192020
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The following is a summary of the business experience, areas of expertise and principal outside business interests of the current members of our fiscal council and their alternates. Members of Fiscal Council Ismael Campos de Abreu.Mr. Abreuwas elected a member of our fiscal council as representative of Odebrecht in 2003. He served in the period of April 2011 until May 2017, as director of Kieppe Participações and Administration Ltda., and as Controller of Odebrecht S.A., between 1995 and March 2011. Served as the manager of the tax Consulting Division of PricewaterhouseCoopers from 1978 to 1985, as controller of Corrêa Ribeiro S.A. Comércio e Indústria from 1986 to 1988, as manager of the consulting area of Arthur Andersen from 1989 to 1991 and as partner of Performance Auditoria e Consultoria from 1992 to 1995. Previously, he served as a member of the fiscal council of Petroflex Indústria e Comércio S.A. until the sale of our interest in Petroflex in April 2008. Between March 2006 and March 2008, he served as member of the fiscal council of Companhia Petroquímica do Sul. Mr. Abreu holds a degree in accounting from Fundação Visconde de Cairú and a graduate degree in economic engineering from the Inter-American Development Center. Gilberto Braga.Braga. Mr. Braga was elected as a member of the Fiscal Council as representative of Odebrecht Serviços e Participações S.A. in August 2017. Mr. Braga is a business consultant with specialization in the areas of finance, capital market, corporate and tax; offering consulting services specialized in lawsuits. He is also a member of the fiscal, administrative and audit committees of companies listed in the stock Exchange and professional associations. He was a member of the Advisory Committee on Accounting Standards for CVM’s investment funds, and is a graduate teacher of corporate governance. He teaches the courses: Fundação Dom Cabral, IBMEC, PUC and FGV; and is a columnist for the newspaper O Dia. He holds a degree in economics from UCAM Ipanema, a degree in Accounting from UGF, a post-graduate from the IAG-PUC Rio in financial administration and a masters in administration (finance and capital markets) from IBMEC-Rio.
Carlos Alberto Rechelo Neto. Mr. Neto was elected a member of our fiscal council as representative of Petrobras. Mr. Neto currently holds the position of Assistant to the Financial and Investors’ Relations Officer. As head of the Risk area for over two years, he has coordinated the structuring process of the Risk Corporate Management at Petrobras. He also worked as Governance team leader at the end of 2016, in which occasion he coordinated the corporate effort to adjust the internal policies and procedures to Law No. 13,303/2016, making it possible for Petrobras to be certified by B3 in the Highlight in Governance of State Companies Program. He has a degree in engineering, a Master’s Degree in Energy from USP, an MBA degree in Finance from UFRJ and a Risk International Certification / FRM.
Viviana Cardoso de Sá e Faria.Mrs. Faria was elected as a member of our fiscal council by the shareholder Odebrecht S.A. Mr. Braga is a business consultant in the following areas: financial, capital markets, corporate, tax, expert evidence and support for court-ordered expert. He also is as representativemember of Petrobras. At Petrobras, she is an economistthe audit boards, boards of directors and audit committees of publicly held companies and professional associations. He was member of CVM’s Investment Fund Accounting Standards Consulting Commission, a professor in the undergraduate and corporate governance graduate programs of the Dom Cabral Foundation, IBMEC, PUC and FGV, a broadcaster at CBN and FM 94 radio stations in Rio de Janeiro and a writer for the newspaperO Dia. He holds a coordination position of the tax department since 2008, working on tax assessment and planning for the gas and energy segments. Ms. Faria has experience in investment and acquisition projects and divestiture and strategic initiatives in connection with tax matters. She currently leads the tax area at Petrobras. Ms. Faria holds a degreeB.A. in Economics from UFF,UCAM Ipanema and in Accounting from UGF, a Master’sgraduate degree in Financial Administration from IAG-PUC Rio and a master’s degree in Business Administration (Finances and Capital Markets) from IBMEC-Rio. He is a member of the Brazilian Corporate Governance Institute (IBGC).
Carlos Alberto Rechelo Neto.Mr. Neto was elected as a member of our fiscal council by the shareholder Petróleo Brasileiro – Petrobras. Mr. Neto joined Petrobras in 2007, starting his career in the risk management of Oil & Energy assets and businesses. As Executive Manager for three years, he led the corporate risk management structuring process at Petrobras S.A and coordinated, as head of the Governance team, the corporate efforts to adjust internal policies and procedures in accordance with Federal Law 13,303/2016, which enabled Petrobras to obtain the highest score in the Governance Highlight certification process of the B3. Currently he is the Chief Financial Officer at Transportadora Brasileira Gasoduto Bolívia Brasil S.A. and Executive Officer at Petrobras Europe Limited (Petrobras’ trading company in London). Mr. Rechelo Neto holds a B.Sc. in Engineering, completed a non-degree program in Portfolio Management from Wharton, and received a master’s degree in Energy Planning from PPE/COPPE/UFRJ,the University of São Paulo (partially attended at Ecole Nationale Supérieure du Pétrole et des Moteurs – Institut Français du Pétrole) ,an MBA in Finance from the Federal University of Rio de Janeiro and a post graduate degree in Tax ManagementFRM certification from PUC-Rio and an extension degree in Comparative Tax Policy and Administration from Harvard Kennedy School.GARP. Patricia Gracindo Marques de Assis Bentes.Amós da Silva CancioMs. Bentes. Mr. Cancio was elected a member of our fiscal council as a representativeby our shareholder Petróleo Brasileiro S.A. – Petrobras. Currently, he is General Accounting Manager of minority shareholder Geração Futuro L. Par de Fundo de Investimento em Ações.Ms. Bentesthe parent company, subsidiaries and consolidated entities of Petrobras and has previously served as Accounting Planning and Orientations Manager. Mr. Cancio holds a Director at Cemig, Lightbachelor’s degree in accounting from the Fluminense Federal University (UFF), an MBA in economics and Renova.financial engineering and a master’s degree in production engineering (with major in strategy, management and corporate finances) from the same institution, and a bachelor’s degree in oil & gas explorationand production business management from the Brazilian Oil & Gas Institute (IBP). He is also a Certified Public Accountant (CPA) in the United States.
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Heloisa Belotti Bedicks. Ms. Bedicks was elected a member of our fiscal council by our non-controlling shareholders. She is a Managing Partner at Estatice Holdings, a consulting firm that structuresmember of the audit committee of Mapfre Group, of the audit board of Boticário Foundation and raises funds for corporate clients through FIDCs, FII, CRA and CRI and other structured securities. Previously, shethe non-profit organization Conselho do Portas Abertas no Brasil. She served as Managing Partner at Hampton Solfise, Executive Officer at CitigroupGeneral Director of the Brazilian Corporate Governance Institute (IBGC) from April 2001 to January 2020, and Vice-CEO at Banco Bracce.as Deputy Chair of the Global Network of Director Institutes – GNDI for two consecutive terms of office until 2019. She served on the board of the Association of Supporters of the Mergers and Acquisition Committee (ACAF) (B3, Anbima and IBGC), on the boards of MAPFRE Seguradora de Garantias e Créditos S.A, on the advisory boards of the Ethical Fund of ABN AMRO Asset Management, and on the Sustainability Studies Centers of the Getúlio Vargas Foundation (FGV) and the Corporate Sustainability Index (ISE) of the B3. She was Director of the International Corporate Governance Network – ICGN and President of the Latin America Corporate Governance Network (IGCLA). She started her career as an auditor at Latin America GilletteArthur Andersen in 1983. She was responsible for several IBGC technical missions to the United States, Europe, Asia, Israel and PwC.Australia. She served as chairwoman of the boards of Tecelagem de Fitas Progresso and of PH-Fit, both family companies of the Serveng group. Ms. BentesBedicks holds a bachelor’s degree in Business Administrationeconomics from the Federal University of Rio de Janeiro (UFRJ)Unicamp, a bachelor’s degree in accounting from PUC Campinas and a master’s degree in Financefinancial management from Mackenzie Presbyterian University. She also completed non-degree programs in corporate governance at Yale University and Marketing from the Universityin boards of São Paulo (USP).directors at Chicago University. Alternate Members of Fiscal Council Ivan Silva Duarte.Mr. Duarte was elected as an alternate member of our fiscal council in 2016. He has served as directorby the shareholder Odebrecht S.A. Mr. Duarte is a Director of Kieppe Participações e Administração LTDALtda. since January 2016.2016, which belongs to the same business group of the issuer and indirectly holds more than 5% of the capital stock. Previously, he served as manager of KPMG - Auditores Independentes from 1995 to 2001, andwhen he started to work as senior manager atof PricewaterhouseCoopers Auditores Independentes from 2001where he served until 2008. BetweenFrom 2008 andto 2015, Mr. Duarte was an executive officer atserved as director of EAO Empreendimentos Agropecuários e Obras S.A., ana company of the Odebrecht Group company operating in the AgriculturalAgriculture and Food and& Beverage segments.sectors. Mr. Duarte holds a degreeB.Sc. in accountingAccounting Sciences from the University of Salvador (UNIFACS), an MBA degree in corporate financesCorporate Finance from the Fundação Getúlio Vargas Foundation and an MBA degree in entrepreneurshipEntrepreneurship from Babson College.College (Boston/USA). Tatiana Macedo Costa Rego Tourinho.Mrs. TourinhoMs. Macedo was elected as an alternate member of Braskem’sour fiscal council by the shareholder Odebrecht S.A. Currently, she serves as a representativethe controller of Odebrecht in April 2018. Since April 2014, she is the Corporate Controller of Construtora Norberto Odebrecht. From May 2007 to March 2014,Engineering & Construction (OEC). Previously, she served as a Director of Tax Planning at CNO.Construtora Norberto Odebrecht S.A. (CNO). From 2000 to April 2007, she worked in the tax department of VIVO S/A, a company in the telecommunication sector, as Manager of the Tax Planning Division Manager.Department. Previously, she worked for two2 years at Arthur Andersen. Ms. TourinhoMacedo holds a B.A. in Public and Private Business Administration from the Federal University of Bahia (UFBA) and an MBA degree in Management from IBMEC. Bruno Passos da Silva Melo.Herbert Luiz de Araújo Guimarães.Mr. MeloGuimarães was elected as an alternate member of our fiscal council as representative ofby our shareholder Petróleo Brasileiro S.A. – Petrobras. Mr. Melo has worked at Petrobras for over 16 years, since 2017 as Accounting Planning Manager and the person in charge of process management involving studies, analyses and implementation of new accounting rules. HeCurrently, he is currently the Chairmana Coordinator of the Fiscal CouncilFinancial and Insurance Analysis Department, having prior experience as the Financial Director of BR distribuidora.Petrobras Paraguay Distribución Limited (UK) and as a member of the Audit Board of BSBios Indústria e Comércio de Biodiesel Sul Brasil S.A. Mr. MeloGuimarães holds a bachelor’s degree in Accountingproduction engineering from Universidade Federal Fluminense (UFF) and an MBA in finance (major in risk management) from the Universidade Federal do Rio de Janeiro – UFRJ and has a MBA degree in Accounting Management from FIPECAFI – USP.(UFRJ).
Bruno Carvalho BaruquiRafael Menezes Peres.. Mr. BaruquiPeres was elected as an alternate member of our fiscal council by our shareholder Petróleo Brasileiro S.A. – Petrobras. Currently, he serves as representative of Petrobras. He has been a Governmental Interest Sector Manager since April 2010 in the AccountingTax Assessment for Business area, having prior experience in the Tax Department of Petrobras and Tax Executive Management area, and also worked as Tax Systemic Solutions Sector Manager between July 2008 and March 2010. He was an alternatea member of the FiscalAudit Board of e-Petro.Termobahia S.A. and of Gasbrasiliano S.A. Mr. BaruquiPeres holds a bachelor’s degree in Administrationaccounting from Universidade Estadual do Rio de Janeiro (UERJ), an MBAMoraes Junior College and a graduate degree in Tax Management from PUC-RJ and an MBA degree in Business Management from FIA-USP.IBMEC.
Fábio Vianna. Reginaldo Ferreira Alexandre. Mr. ViannaAlexandre was elected as an alternate member of our fiscal council as a representative ofby our minority shareholder Geração Futuro L. Par de Fundo de Investimento em Ações. Mr. Vianna is currently the CEO at RiMO Entertainment, Brazil’s leading producer and distributor of physical media in the gaming, movie and music segments, a position he has held since November 2013. Previously, he was the CEO of Gradiente – CBTD Cia Brasileira de Tecnologia Digital from 2011 to 2013, the Vice-President for Latin America at Paramount Pictures – Viacom, from 2001 to 2011, a Commercial Director at Parmalat Ltda., from 1994 to 2001, a Product Manager at PepsiCo – Elma Chips, from 1991 to 1994, a Product Manager at LPC Danone/General Biscuits, from 1990 to 1991, and a Trainee/Product Manager at Santista / Petybon – Bunge & Born Group, from 1988 to 1989. Mr. Viannashareholders. He holds a bachelor’s degree in Business Administrationeconomics and has 18 years of experience in investment research as an analyst, organizer and director of research teams, having held these positions at Citibank, Unibanco, BBA (now Itaú BBA) and Itaú Corretora de Valores. He has also worked as an corporate credit analyst (Citibank) and as a consultant in the strategy (Accenture) and corporate finance (Deloitte) areas. He also worked at ProxyCon Consultoria Empresarial, a company that provides consulting and other services in the areas of capital markets, finance and corporate governance, from University Center FMU (SP)2003 to 2017. He is a member of the Accounting Pronouncements Committee (CPC), the organization that formulates Brazilian accounting standards, since its founding in 2005 and a Vice-Coordinator of Corporate Affairs at CPC. Mr. Peres is a Certified Investment Analyst (CNPI), a bachelor’s degree in Marketing fromsecurities manager accredited by the Higher School of Advertising and Marketing (ESPM)CVM, and a bachelor’s degreefiscal council member certified by IBGC. Mr. Peres has been a board member of Mahle Metal Leve S.A. (elected in Foreign Trade from CEAG/Getúlio Vargas Foundation (FGV)June 2007 and re-elected in April 2018 and April 2019). Currently, he is a member of the audit boards of the following publicly traded companies: Cia. de Saneamento do Paraná – Sanepar (elected in April 2017 and re-elected in April 2018); Cia. Energética de Brasília – CEB (elected in April 2019); Rumo S.A. (elected in April 2019); Ser Educacional S.A. (chairman, elected in April 2015 and re-elected in April 2016, 2017 and 2018). Mr. Peres currently is also an alternate member of the boards of the following publicly traded companies: Bradesco S.A. (alternate member of the fiscal council, elected in March 2017 and re-elected in March 2018 and March 2019); CPFL Energia S.A. (alternate member of the fiscal council, elected in April 2017 and re-elected in April 2018 and April 2019). He has also served as a member of the Audit Committee of Paranapanema S.A. (2017) and on the Audit Boards of the following companies: Petrobras S.A. (elected in April 2013 and re-elected in April 2014, 2015, 2016, 2017 and 2018); Iochpe Maxion S.A. (elected in April 2013 and re-elected in April 2014, 2015, 2016 and 2017); BRF S.A. (elected in April 2015 and re-elected in April 2016); Aliansce Shopping Centers S.A. (elected in April 2014 and re-elected in April 2015); Cremer S.A. (chair of the Audit Board;elected in April 2011 and re-elected in April 2012); Movida S.A. (elected in January 2017); Paraná Banco S.A. (elected in April 2011 and re-elected in April 2012, 2013, 2014 and 2015); Tecnisa S.A. (elected in April 2011 and re-elected in April 2012); Tele Norte Celular Participações S.A. (elected in April 2006 and re-elected in April 2007); Unipar Carbocloro S.A. (elected in April 2012 and re- elected in April 2013 and April 2015); Bradespar S.A. (alternate; elected in April 2012); Former Companhia Siderúrgica Belgo-Mineira, today Arcelor Mittal (alternate; elected in April 2004 and re-elected in April 2005); Grendene S.A. (alternate; elected in April 2012 and re-elected in April 2013 and 2014); Indústrias Romi (alternate, elected in April 2015); Grazziotin S.A. (alternate; elected in April 2015); SLC Agrícola S.A. (alternate; elected in April 2013 and re-elected in April 2014 and 2015). He is a Director certified byformer president of the Association of Capital Markets Analysts and Investment Professionals (APIMEC), elected for the 2015-2016 term, and a former president of the São Paulo Office of APIMEC, elected for the 2011-2012 term. He was one of the authors of the Brazilian Institute of Corporate Governance (IBGC)Code – Listed Companies. He is a member of the State-Owned Company Governance Committee of the B3; a member of the Audit Board of the São Paulo Museum of Modern Art, and a former member of the Mergers & Acquisitions Committee (CAF).
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Board Committees On August 8, 2018 our board of directors approved its internal operating rules, as well as the board committees bylaws. An English translation of the internal operating rules of our board of directors and its committees is available on our investor relations website atwww.braskem-ri.com.br. Under these rules, our board of directors has established four permanent committees and has the power to establish ad-hoc committees. Permanent committees must have no fewer than three and no more than five members. Ad-hoc committees may be convened for a limited period to consider temporary issues and are dissolved when their purpose has been achieved or when the term established upon the creation of such committees expires. The number of members of the ad-hoc committees is defined upon the creation of such committees. In April 2015, our board of directors approved the constitution of an ad hoc committee to accompany the Investigation surrounding allegations of improper payments made to Petrobras for beneficial terms in connection with certain raw material supply contracts we have with Petrobras. Such ad hoc committee was formed by members independent from our shareholders, and its main objectives are (i) to ensure that the Investigation is carried out independently, thoroughly and in strict compliance with its approved scope, mitigating as much as possible the impact on our operations and (ii) to take all necessary measures to ensure that all required resources are devoted to the Investigation. Our board of directors dissolved the ad hoc committee in August 2016.
In May 2016, our board of directors approved the constitution of a compliance committee, or the Compliance Committee, to monitor internal controls and risk exposure and to supervise the preparation of financial reports, without prejudice to the legal duties designated to our fiscal council. We currently have the following four permanent committees: (1) the Finance and Investments Committee, (2) the Personnel and Organization Issues Committee, (3) the Strategy and Communication Committee, and (4) the Compliance Committee. The duties of each permanent committee are established in their respective bylaws, all approved by our board of directors. The coordinators and the members of each permanent committee are appointed by the chairman of the board and approved by our board of directors, solely from among its members and alternate members. Our board of directors does not delegate the power to take actions on behalf of our companyCompany to the permanent committees; rather the role of the permanent committees is to examine certain matters in order to assist in deliberations under the board of directors’ responsibility. 137
Finance and Investments Committee Our Finance and Investments Committee meets quarterly and has the following duties: (1) to evaluate new policies relating to financial management, insurance and guarantees and analyze existing policies, (2) to evaluate new risk management policies and analyze existing policies, (3) to analyze opportunities related to financing and investment transactions that may improve our capital structure, (4) to propose to the chairman the criteria for the annual assessment of the board and its support committees, and of the board secretariat and (5) to analyze guidelines and protocols for our business planning execution cycle. Our Finance and Investments Committee is currently composed of João Pinheiro Nogueira Batista Larry Carris Cardoso(coordinator) and Marcelo Rossini. Personnel and Organization Issues Committee Our Personnel and Organization Issues Committee conducts work meetings at least five times per year and has the following duties: (1) to evaluate new policies and review existing policies relating to personnel matters and organizational issues, (2) to analyze processes relating to identification, training, development and succession ofexecutives for or in strategic positions, (3) to analyze processes relating to the determination of fixed and variable compensation for executives in strategic positions, and (4) to evaluate new policies and review existing policies relating the maintenance and strengthening of our corporate culture. Our Personnel and Organization Issues Committee is currently composed of Ana Lúcia Poças Zambelli, André Amaro da Silveira and Roberto Faldini.
Strategy and Communication Committee Our Strategy and Communication Committee meets quarterly and has the following duties: (1) to evaluate determinations relating to the foundation of our business plan, (2) to evaluate the business direction being pursued to achieve objectives defined by our board of directors, (3) to evaluate new policies and review existing policies relating to the capital markets and social responsibility, (4) to evaluate our image projected to and perceived in the market and make recommendations to our board of directors to maintain or to redefine our social communications programs, and (5) to analyze guidelines and protocols for our business planning and execution cycle. Our Strategy and Communication Committee is currently composed of Roberto Simões (coordinator), Pedro Oliva Marcilio de Sousa and João Carlos Trigo de Loureiro.Rogério Bautista da Nova Moreira (coordinator). Compliance Committee In May 2016, our board of directors approved the establishment of the Compliance Committee, which ultimately replaced the ad hoc committee that had been created in April 2015 to monitor the Investigation. The Compliance Committee is formed by independent members of our board of directors, and its main objectives are to (1) evaluate internal controls, risk exposure and compliance with applicable laws and regulations, (2) monitor investigations related to ethics complaints, (3) approve and periodically update the Policy on Ethics, Compliance and Transparency, which addresses anti-corruption measures and related party transactions, and (4) develop training programs for board members, senior managers and certain employees.Ouremployees.Our Compliance Committee is currently composed of João Cox Neto (coordinator), Gesner José de Oliveira Filho, Julio Soares de Moura Neto and Marcelo Lyrio.Pedro Oliva Marcilio de Sousa.
Our chief compliance officer, or CCO, reports directly to the coordinator of the Compliance Committee, and exercises independent judgment. Our CCO is responsible for developing a compliance system, assist the CEO in implementing the compliance system and continually monitor developments in this respect. The following is a summary of the business experience, areas of expertise and principal outside business interests of our CCO. Everson Bassinello. Mr. Bassinello has served as our CCO since August 2016 and has led our global initiatives related to risk management, internal controls, compliance and internal audit. He served in leadership positions at Companies of the Votorantim Group, including VCP and Fibria between June 2000 and July 2016. Mr. Bassinello holds a degree in mechanical engineering from Universidade Federal de Itajubá (UNIFEI), a graduate degree in business administration from Fundação Getúlio Vargas (FGV), an MBA degree from the Business School São Paulo (BSP) and a specialization degree in corporate governance from the Kellogg School of Management. Ethics Committee Our Ethics Committee supports our Compliance Committee with matters involving the violation of the commitment to Ethics, Compliance and Transparency. Our Ethics Committee is formed by our Chief Compliance OfficerComplianceOfficer and three additional members (preferable vice-presidents in our Legal, Human Resources and Finance areas). The main objectives of our Ethics Committee are to (1) evaluate the results of investigations of ethics complaints, (2) submit to the Compliance Committee proposed revisions to the Policy on Ethics, Compliance and Transparency, and (3) provide guidance on questions of ethical conduct and ensure consistent evaluation and treatment of ethical matters. 138
Compensation According to our by-laws, our shareholders are responsible for establishing the aggregate compensation we pay to the members of our board of directors, our board of executive officers and our fiscal council. Our shareholders determine this aggregate compensation at the general shareholders’ meeting each year. Once aggregate compensation is established, the members of the board of directors are responsible for distributing suchaggregate compensation individually to the members of our board of directors, our board of executive officers and our fiscal council in compliance with our by-laws.
Compensation and Benefits The aggregate compensation paid by us to all members of our board of directors, board of executive officers and our fiscal council for services in all capacities was R$63.3 million in 2019, R$53.8 million in 2018 and R$47.6 million in 2017. On April 16, 2019,May 29, 2020, at our annual general shareholders’ meeting, our shareholders established the compensation for our board of directors, our board of executive officers and the membermembers of our fiscal council for the year 20192020 of R$84.184.2 million. The members of the board of directors receive a fixed monthly compensation, which is not affected by the numbers of meetings that take place each month. The coordinators and members of the committees, according to the responsibilities and participation in each committee receive differentiates monthly fees. The members of the fiscal council receive a fixed monthly compensation, which is not affected by the numbers of meetings that take place each month. The alternate members of the board of directors and of the fiscal council do not receive any compensation. Our executive officers receive a fixed monthly, an annual variable compensation and the same benefits generally provided to our employees, such as medical (including dental) assistance, private pension plan and meal vouchers. Members of our board of directors and fiscal council are not entitled to these benefits. Members of our board of directors, board of executive officers and fiscal council are not parties to contracts providing for benefits upon the termination of employment other than, in the case of executive officers, the benefits described above. Long-Term Incentive Plan At an extraordinary general meeting held on March 21, 2018, or the March 21 Meeting, our shareholders approved the Restricted Share Award Plan, or the Incentive Plan. The Incentive Plan establishes the general terms and conditions for the granting of certain restricted shares in our companyCompany to eligible employees. Eligibility Persons who are legally employed by us or the companies controlled by us, including officers and professionals of any kind approved by our board of directors, may participate in the Incentive Plan upon execution of an award agreement (such persons, the “participants”). Administration Our board of directors administers the Incentive Plan. Our board of directors has, subject to the general conditions of the Incentive Plan and the yearly programs that may be created, approved and / or cancelled by our board of directors and by the governing bodies of the companies controlled by us, as applicable, in observance of the terms and conditions of the Incentive Plan (such programs, the “Programs”), and the guidelines fixed by the March 21 Meeting, and to the extent fully permitted by law and under our by-laws, full powers to take all measures required and convenient for management of the Incentive Plan and such Programs, including (i) approving the eligible persons, and authorizing the grant of Restricted Shares on such persons’ behalf on the terms andtermsand conditions set forth in the corresponding award agreements; (ii) authorizing the disposal or grant of treasury shares to satisfy the delivery of the Restricted Shares under the Incentive Plan, the applicable award agreements and applicable laws and regulations, and (iii) approving objective criteria for the acquisition, by us or companies controlled by us of the Restricted Shares to be delivered to the participants. Our board of directors and the governing bodies of the companies controlled by us, as applicable, may annually approve the grant of Restricted Shares within the scope of each Program, and will determine the eligible persons on whose behalf the Restricted Shares may be granted under the Incentive Plan and such respective Program. 139
Restricted Shares The grant of Restricted Shares will be made upon and subject to the execution of award agreements pursuant to the Incentive Plan. Participants may receive shares and/or depositary receipts representing shares issued by usnegotiated abroad, representing at most one and a half percent (1.5%) of our entire share capital on the date of the Incentive Plan, subject to adjustment as set forth in the Incentive Plan.
The grant of Restricted Shares is contingent upon the (i) voluntary acquisition by the participants of shares or depositary receipts issued by us (the “Owned Shares”) at the participants’ own expense, from the stock exchanges where such shares are traded within a period of time set out in the applicable award agreements for the acquisition of such Owned Shares and (ii) participants’ continuous employment with us for three years and maintaining uninterrupted ownership of Owned Shares during such time (such three year period, the “Waiting Period”). The minimum investment amount is 10% of the planned gross amount of participants’ short-term income pursuant to our annual profit sharing program, and the maximum investment amount is 20% of such amount. The goal of the Incentive Plan is to award for each one (1) Owned Share two (2) Restricted Shares. However, our board of directors may define, in an exceptional and justified manner as set forth in the Incentive Plan and pursuant to the terms and conditions of the applicable award agreements, for each Program, a different number of Restricted Shares to be delivered for each Owned Share, in compliance with the minimum of one (1) Restricted Share and the maximum of three (3) Restricted Shares for each one (1) Owned Share, based on an analysis by our board of directors in its sole discretion. Change of Control In the event of (i) a Change of Control of theour Company (as defined in the Incentive Plan), (ii) a holding of a public offer of closing of our capital (i.e., a “going private” transaction), or (iii) a corporate restructuring that results in a significant decrease of the liquidity of the Restricted Shares, in comparison with the average price and volume traded over the six (6) months prior to the corporate restructuring, the participants will be entitled to receive within sixty (60) days from the occurrence of any of the events set forth in clauses (i) through (iii): (a) all vested Restricted Shares whose rights have vested in the participants, even if the Restricted Shares have not been effectively transferred by us or companies controlled by us; and (b) all unvested Restricted Shares which will become fully vested as a result of automatic vesting acceleration. Vesting Under the Incentive Plan, full vesting of the Restricted Shares is contingent upon participants continuously remaining employed by us and maintaining uninterrupted ownership of Owned Shares, in each case, during the Waiting Period. Termination from the Company In the event of a termination of a participant for (i) dismissal by us and / or by the companies controlled by us without cause, (ii) removal from the manager position without violation of their duties and responsibilities, or (iii) transfer of the participant to occupy a position in a company in the same group as ours, which is not a participant in the Incentive Plan, the participant will be entitled to receive (a) the vested Restricted Shares, and (b) a pro rata number of unvested Restricted Shares, calculated based on the number of complete months in which such participant worked for us or a company controlled thereby relative to the number of months in the Waiting Period, with the remaining Restricted Shares being automatically terminated on such participant’s termination date, by operation of law, regardless of prior notice or warning, and with no right whatsoever of indemnification to such participant. In the event of a termination of a participant (i) upon dismissal for cause or removal from office due to a violation of the duties and responsibilities of a manager, (ii) upon request from such participant (including redundancy(includingredundancy / voluntary solicitation or resignation) or (iii) any event of retirement that is not a mutually agreed retirement, such participant will lose any and all rights connected to the Restricted Shares under the Incentive Plan or under any program or award agreement in connection therewith, which will be automatically terminated on the termination date of such participant. 140
In the event of a termination of a participant by reason of a retirement mutually agreed by such participant and us or companies controlled by us, such participant will be entitled to receive (a) the vested Restricted Shares; and (b) the entirety of the unvested Restricted Shares. The delivery of the Restricted Shares to such participant will be made on the original delivery dates (unless delivered earlier in our exclusive direction to the extent permitted under the applicable award agreement).
In the event of a termination of a participant due to (i) death or (ii) permanent disability, the legal heirs or successors or the legal representative will be entitled to receive, within sixty (60) days from such event: (a) the vested Restricted Shares of such participant; and (b) all unvested Restricted Shares. Adjustments of Awards In the event of change to the number, nature or class of our shares as a result of bonus, splitting, reverse split, or conversion of shares into other nature or class, or conversion of other securities issued by us into shares, our board of directors will assess the need to make adjustments to the Incentive Plan, the applicable and the award agreements in connection therewith, so that the relationship between the parties remains balanced without any material windfall or detriment to the participants. Amendments and Termination Our board of directors may propose any amendments to the Incentive Plan and, in case necessary, submit such amendments for approval in an extraordinary general meeting. The Incentive Plan will remain in force until the delivery of the Restricted Shares granted pursuant to award agreements under the Incentive Plan that are executed in the fifth year of the Incentive Plan. The right to receive the Restricted Shares under the Incentive Plan and applicable program and award agreement in connection therewith will automatically terminate with no right to indemnification, ceasing all effects, if we are wound up, liquidated or adjudicated bankrupt. Corporate Governance Practices The significant differences between our corporate governance practices and the standards of the NYSE are described in “Item 16G. Corporate Governance.” Share Ownership of Directors and Officers As of the date of this annual report, no member of Braskem’s board of directors or executive officer owned more than 0.1% of Braskem’s share capital. All shares owned by our directors and executive officers were purchased at market prices through the B3. Employees The following table sets forth the number of our employees by geographic location at the datesend of each of the years indicated. Number of Employees by Geographic Location | | | | | | | State of Bahia | 1,692 | 1,650 | 1,653 | 1,637 | 1,692 | 1,650 | State of Rio Grande do Sul | 1,589 | 1,601 | 1,615 | 1,537 | 1,589 | 1,601 | State of São Paulo | 1,978 | 1,823 | 1,774 | 1,971 | 1,978 | 1,823 | State of Alagoas | 512 | 508 | 514 | 511 | 512 | 508 | State of Rio de Janeiro | 397 | 408 | 415 | 389 | 397 | 408 | Other Brazilian states | | | | | | Brazil | 6,173 | 5,996 | 5,977 | 6,050 | 6,173 | 5,996 | United States | 754 | 699 | 711 | 759 | 754 | 699 | Germany | 188 | 173 | 174 | 202 | 188 | 173 | Mexico | 812 | 785 | 752 | 830 | 812 | 785 | Other countries | | | | | | | Total | | | | | | |
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We do not employ a material number of temporary employees. In March 2020, in view of the progression of the novel coronavirus (COVID-19) outbreak, we formed a crisis committee with the aim of establishing global procedures focusing on the health of our team members and the continuity of our operations. We have taken the following measures, among others: (i) recommended that all team members and contractorswork remotely; (ii) established a minimum team in industrial areas to ensure safety and operational continuity matters; and (iii) prohibited all national and international business travel, apart from exceptional cases. Employees in Brazil In Brazil, both employees and employers have the right to organize unions. Employees belonging to a specific “professional category” and employers constituting a specific “economic category” may each be represented by a single union in a particular geographic area. Individual unions generally belong to state-wide union federations, which in turn belong to nationwide union confederations. We are a member of thePetrochemicals and Synthetic Resins Industries Union of the States of Bahia, Alagoas, Rio Grande do Sul and São Paulo, and our employees belong to the Petrochemicals Industries Workers’ Unions in each of these states. As of December 31, 2018, 6.4%2019, 27.3% of our employees in Brazil were union members.
We maintain good relations with our employees and the unions that represent them. We have not experienced a strike in Brazil since Trikem was privatized in 1995. The current collective bargaining agreements with our unions have one-year to two year terms and are subject to annual renegotiation. We have traditionally applied the terms of bargaining agreements entered into with the unions equally to unionized and non-unionized employees. Post-Employment Benefits Vexty Defined Contribution Plan The majority of our employees (86%(90.6%) participate in the Vexty Pension Plan (former Odebrecht Previdência). We pay part of the monthly payments made by our employees to Vexty. This pension fund is a defined contribution plan that pays pension and retirement amounts that supplement those paid by the Brazilian government’s pension system and are intended to provide its members with income upon retirement. In 2018,2019, we paid R$50.649.9 million into this fund. Other Benefits in Brazil Our employees in Brazil and their dependents receive medical and dental assistance through a network of accredited doctors in an insurance company. We pay most of the costs for these services, with a small monthly portion being paid by our employees. A small fee is also charged to our employees according to the use of some medical services (copayment system). In 2018,2019, we spent R$90.7101.01 million on this benefit. Employees in the United States The employees of Braskem America are not represented by any union, other than employees of Braskem America Neal, West Virginia plant. As of December 31, 2018, 57%2019, 56 % of the employees of this plant were represented by the United Steel, Paper & Forestry, Rubber, Manufacturing, Energy Allied-Industrial & Service Workers International Union. The collective bargaining agreement with this union expires inon May 3, 2020.2023. Post-Employment Benefits in the United States Braskem America administers a closed defined benefit pension plan that, as of December 31, 2018,2019, had 3834 active participants, compared to 3938 participants in 2017.2018. Due to the current funding levels of the pension plan, Braskem America made a cash contributionwas not required to contribute to the plan of US$5.3 million (R$20.5 million)during the 2019 plan year and, as a consequence, there were no additional cash contributions made in 2018. There2019. Additionally, there were no participant contributions in 2018.2019. 142
We offer a 401(k) savings plan, that,which, as of December 31, 2018,2019, had total assets of US$106R$761.9 million (US$140.4 million), including US$7.3R$90.6 million (US$16.7 million) in participant contributions made in 2018.2019. Other Benefits in the United States Braskem America offers its employees the ability to participate in a variety of health and welfare benefit plans, including medical, dental vision, life and disability coverage. Employees in Germany Employees of Braskem Europe GmbH in Germany are not represented by any union. However, they are represented by local works councils (Betriebsrat). Post-Employment Benefits in Germany Pension Plan Germany In October 2011, the obligations of Dow under German pension plans were assumed by Braskem Europe as a result of the Dow Polypropylene Acquisition. In 2013, Braskem Europe implemented a new defined contribution pension plan. As of the date of this annual report, we have 5964 active participants in this new pension plan.
Other Benefits in Germany Braskem GmbH offers its employees the ability to participate in benefit plans, including pension, life and disability coverage. Pension plan Netherlands In the Netherlands, Braskem started a pension plan in 2009 with Delta Lloyd in a defined contribution scheme. Participation is mandatory for locals that reside in NL. As of the date of this annual report, we have 28 people42 active participants in the plan. Other Benefits in Netherlands Braskem BV offers its employees the ability to participate in benefit plans, including pension, life and disability coverage, health insurance (by reimbursement). Employees in Mexico Post-Employment Benefits in Mexico Braskem Idesa employees are granted a government retirement benefit plan when they retire or reach retirement age. On December 31, 2018,2019, all 812of the 830 employees of Braskem Idesa were active participants in this government retirement plan. OnIn May 2018, Braskem Idesa implemented a private pension plan (defined benefit obligation); by the end of that year we had the participation of 339 employees, and by the end of 2019, we had the participation of 362 out of 812.830 employees. Other Benefits in Mexico Braskem MexicoIdesa offers its employees the ability to participate in benefitother benefits, including saving plans, including a savings plan, food plan,coupons, meals vouchers, canteen, and life insurance and health insurance. Performance-Based Employee Compensation Plan We have adopted and applied a personnel management philosophy which emphasizes a performance related pay structure and a decentralized management structure. Employees in each of our business units participate in setting and achieving their business unit’s annual objectives. As a result, employees in those business units that meet or exceed their goals share in our financial performance through performance-based employee compensation plans. During 20182019 and 2017,2018, we recorded expenses of R$375.4320.5 million and R$399.8375.4 million, respectively, related torelatedto this program with respect to 8,0007,940 employees and former employees, including our executive officers. The members of our board of directors do not participate in this program. 143
Item 7. Major Shareholders and Related Party Transactions Major Shareholders As of October 16, 2019,May 31, 2020 we had an outstanding share capital of R$8,043,222, equal to 797,218,554 total shares, consisting of 451,668,652 common shares, 345,049,672 class A preferred shares and 500,230 class B preferred shares. As of October 16, 2019,May 31, 2020, all of our authorized shares were issued and outstanding, other than 1,226,5991,226,559 class A preferred shares held in treasury. All of our share capital is fully paid. All of our shares are without par value. Generally, only our common shares have voting rights. Our preferred shares have voting rights only in exceptional circumstances. As permitted by the Brazilian Corporations Law, our by-laws specify that 25% of our adjusted net profits for each fiscal year must be distributed to shareholders as dividends or interest attributable to shareholders’ equity. Under our by-laws, our preferred shareholders are entitled to a minimuman annual non-cumulative preferential dividend, or the Minimum Preferred Dividend, equal to 6% of theirpro ratashare of our capital before dividends may be paid to our common shareholders. Distributions of dividends in any year are made: first, to the holders of preferred shares, up to the amount of the Minimum Preferred Dividend for such year;then, to the holders of common shares, until the amount distributed in respect of each common share is equal to the amount distributed in respect of each preferred share; andthereafter, to the holders of our common shares and our class A preferred shares on a pro rata basis.
· | first, to the holders of preferred shares, up to the amount of the Minimum Preferred Dividend for such year; | 130·
| then, to the holders of common shares, until the amount distributed in respect of each common share is equal to the amount distributed in respect of each preferred share; and | · | thereafter, to the holders of our common shares and our class A preferred shares on a pro rata basis. |
Our class B preferred shareholders are not entitled to receive any additional dividend amounts after they have received the Minimum Preferred Dividend. If the Minimum Preferred Dividend is not paid for a period of three years, holders of preferred shares will be entitled to full voting rights. The following table sets forth information concerning the ownership of our common shares and class A preferred shares as of October 16,December 31, 2019 by each person whom we know to be the owner of more than 5.0% of our common shares and our class A preferred shares, and by all of our directors and executive officers as a group. Our principal shareholders have the same voting rights with respect to each class of our shares that they own as other holders of shares of that class. | | | | | | | | | | | | | | | | | | | | Odebrecht | 226,334,623 | 50.1 | 79,182,498 | 22.9 | 305,517,121 | 38.3 | 226,334,623 | 50.1 | 79,182,498 | 22.9 | 305,517,121 | 38.3 | Petrobras | 212,426,952 | 47.0 | 75,761,739 | 22.0 | 288,188,691 | 36.1 | 212,426,952 | 47.0 | 75,761,739 | 22.0 | 288,188,691 | 36.1 | BlackRock, Inc. | 0 | * | 17,411,659 | 5.0 | 17,411,659 | 2.2 | | Alaska Investimentos Ltda. | 5,000 | * | 17,784,300 | 5.2 | 17,789,300 | 2.2 | | Alaska Investimentos Ltda . | | — | — | 21,734,100 | 6.3 | 21,734,100 | 2.7 | All directors, fiscal council members, their alternates and executive officers as a group (35 persons) | 0 | * | 161,566 | * | 161,566 | * | — | — | 83,518 | * | 83,518 | * |
* less(*) Less than 1%
We currently have no management or employee option plans or management or employee options outstanding, we have only the Long-Term Incentive Plan described above. See “Item 6. Directors, Senior Management and Employees—Compensation—Long-Term Incentive Plan.” 144
Shareholders’ Agreements Braskem S.A. Shareholders’ Agreement Odebrecht, OSP Inv., Petrobras and Petroquisa, with Braskem and BRK as intervening parties, entered into the Braskem S.A. Shareholders’ Agreement, effective February 8, 2010, which has a term of 35 years. The Braskem S.A. shareholders’ agreement superseded the Shareholders’ Agreement that formerly governed the relationship between Petrobras, Petroquisa, Odebrecht and Norquisa regarding our shares. Under the Braskem S.A. Shareholders’ Agreement Petrobras has the right to designate: ·four members of our board of directors and their alternates for so long as they own, directly or indirectly, an aggregate of 30% or more of our voting share capital;
·three members of our board of directors and their alternates for so long as they own, directly or indirectly, an aggregate of 18%, but less than 30%, of our voting share capital;
·two members of our fiscal council and their alternates, one of which will serve as president, for so long as they own, directly or indirectly, an aggregate of 30% or more of our voting share capital; and
·two members of our fiscal council and their alternates for so long as they own, directly or indirectly, an aggregate of 18%, but less than 30%, of our voting share capital and for so long as Odebrecht has the right to elect more than a majority of the members.
· | four members of our board of directors and their alternates for so long as they own, directly or indirectly, an aggregate of 30% or more of our voting share capital; | 131·
| three members of our board of directors and their alternates for so long as they own, directly or indirectly, an aggregate of 18%, but less than 30%, of our voting share capital; | · | two members of our fiscal council and their alternates, one of which will serve as president, for so long as they own, directly or indirectly, an aggregate of 30% or more of our voting share capital; and | · | two members of our fiscal council and their alternates for so long as they own, directly or indirectly, an aggregate of 18%, but less than 30%, of our voting share capital and for so long as Odebrecht has the right to elect more than a majority of the members. |
For so long as Petrobras has the right to designate three or four members of our board of directors, one of these designees will serve as vice president of our board of directors. Under the Braskem S.A. Shareholders’ Agreement, Odebrecht is entitled to nominate our chief executive officer. Our chief executive officer must choose our chief financial officer from among three nominees submitted by Odebrecht and the executive officer responsible for our investment and portfolio area from among three nominees submitted by Petrobras. Our chief executive officer has the power to nominate the other members of our board of executive officers. After these nominations, the officers will be elected at a board of directors’ meeting. Under the Braskem S.A. Shareholders’ Agreement, Odebrecht has the sole power to approve our business plan. However, for so long as Petrobras owns, directly or indirectly, an aggregate of less than 30% and more than 18% of our voting share capital, we are prohibited from taking certain strategic actions unless a consensus regarding those actions is reached between Odebrecht and Petrobras, including, among others: · actions affecting our share capitalization or the rights of holders of our shares; ·mergers, spin-offs or similar transactions;
·investments and purchases of non-current assets with a value in excess of 30% of our non-current assets;
·dispositions of non-current assets with a value in excess of 10% of our non-current assets;
·creation of liens on our non-current assets with a value in excess of the lesser of R$350 million and 20% of our non-current assets; and
·actions that would result in our violating specified net debt to EBITDA and EBITDA to total interest ratios.
| actions affecting our share capitalization or the rights of holders of our shares; | · | mergers, spin-offs or similar transactions; | · | investments and purchases of non-current assets with a value in excess of 30% of our non-current assets; | · | dispositions of non-current assets with a value in excess of 10% of our non-current assets; | · | creation of liens on our non-current assets with a value in excess of the lesser of R$350 million and 20% of our non-current assets; and | · | actions that would result in our violating specified net debt to EBITDA and EBITDA to total interest ratios. |
Under the Braskem S.A. Shareholders’ Agreement, we have agreed that investments that we make to increase our capacity must be supported by an evaluation demonstrating profitability under standards such as net present value or internal rate of return. Petrobras has granted a right of first refusal to us with respect to development of any petrochemical project that Petrobras proposes to pursue. In the event that we decide not to participate in any such proposed project, Petrobras has agreed that we will have the right to market the products produced by the proposed project on conditions satisfactory to us and Petrobras. 145
Under the Braskem S.A. Shareholders’ Agreement, Petrobras has the right to sell a pro rata portion of their common shares of us in connection with any direct or indirect sale of our common shares by the Odebrecht Group to a third party. Under the Braskem S.A. Shareholders’ Agreement, each of the parties has agreed: ·subject to certain exceptions, not to grant any liens on any of its Braskem shares held by each of them; to grant a right of first refusal and tag along rights to the other parties to the Braskem S.A. Shareholders’ Agreement with respect to any sale of its Braskem shares;
·in the event that a party’s interest in our voting share capital is diluted in a transaction involving one or more of the other parties to the Braskem S.A. Shareholders’ Agreement, the diluted party will have the right to purchase shares of Braskem from the diluting parties in an amount that would, after giving effect to such purchase, result in the diluted party holding the same percentage interest in our voting share capital that it held immediately prior to the dilution event; and
·in the event that any party acquires or receives a right to acquire common shares of Braskem from a third party, to offer to sell to the other parties to the Braskem S.A. Shareholders’ Agreement an amount of common shares of Braskem that would, after giving effect to such sale, result in each of the parties to the Braskem S.A. Shareholders’ Agreement holding the same direct and/or indirect proportion of the common shares of Braskem that the parties held prior to the acquisition of common shares of Braskem from the third party.
· | subject to certain exceptions, not to grant any liens on any of its Braskem shares held by each of them; to grant a right of first refusal and tag along rights to the other parties to the Braskem S.A. Shareholders’ Agreement with respect to any sale of its Braskem shares; | 132·
| in the event that a party’s interest in our voting share capital is diluted in a transaction involving one or more of the other parties to the Braskem S.A. Shareholders’ Agreement, the diluted party will have the right to purchase shares of Braskem from the diluting parties in an amount that would, after giving effect to such purchase, result in the diluted party holding the same percentage interest in our voting share capital that it held immediately prior to the dilution event; and | · | in the event that any party acquires or receives a right to acquire common shares of Braskem from a third party, to offer to sell to the other parties to the Braskem S.A. Shareholders’ Agreement an amount of common shares of Braskem that would, after giving effect to such sale, result in each of the parties to the Braskem S.A. Shareholders’ Agreement holding the same direct and/or indirect proportion of the common shares of Braskem that the parties held prior to the acquisition of common shares of Braskem from the third party. |
In 2016, OSP Inv. entered into agreements with certain financial institutions, through which OSP Inv. granted all shares issued by Braskem and held thereby in guarantee. On July 18, 2017, our shareholders, Petrobras and Odebrecht, have entered into negotiations to revise the terms and conditions of the Braskem S.A. Shareholders’ Agreement to improve our corporate governance and the ownership relationship among the parties, with the goal of creating value for all our shareholders. On May 25, 2018, we became aware that OSP Inv. gave all of the shares issued by Braskem and held by it as a guarantee in connection with financing operations, by means of a fiduciary assignment (alienação fiduciária). On October 24, 2018, we were informed by OSP Inv. about the execution of an amendment to the shareholders’ agreement of February 8, 2010, to extend tag along rights pursuant to clause 7.12 of such agreement to preferred shares held by Petrobras S.A. On January 31, 2019, we were informed by Odebrecht S.A., our indirect controlling shareholder, of the corporate reorganization approved by the Odebrecht Group on December 31, 2018, with the main purpose of segregating its businesses, whereby all common and preferred shares issued by Braskem and held by OSP Inv., and all liabilities (comprised of the purchase and Sale agreement of debentures no. 16.2.0023.1, entered into on March 16, 2016 between BNDES Participações S.A. – BNDESPAR and OSP Inv., and other intervening parties, as amended) and the other operating activities of OSP Inv. have been merged into OSP Investimentos S.A. Considering that the corporate reorganization took place within the Odebrecht Group, Odebrecht S.A. continues to be Braskem’s indirect controlling shareholder. Termination of BNDESPAR Shareholders’ Agreement In February 2016, we received a letter from BNDESPAR informing us of its sale of preferred shares of our capital stock on the B3. As a result of these sales, BNDESPAR held preferred shares and total share capital of 6.61% and 2.86%, respectively. The shareholders’ agreement to which BNDESPAR was a party automatically terminated as a result of BNDESPAR holding less than 5.0% of our total share capital. Related Party Transactions As provided for in our bylaws, our board of directors has the exclusive power to decide on any contract with related parties that exceeds the amount of R$20 million per transaction or R$60 million in the aggregate, per fiscal year. This is valid for contracts between Braskem and its subsidiaries and: (i) direct or indirect subsidiaries of Braskem in whose capital an interest is held by the controlling shareholder, by any direct or any of their indirect subsidiariesindirectsubsidiaries or by key personnel of such entities; (ii) affiliates of Braskem and subsidiaries of such entities; and (iii) joint ventures in which Braskem participates and any of their subsidiaries. 146
Pursuant to the Brazilian Corporations Law, officers and directors are prohibited from: (i) entering into any transaction using the Company’scompany’s assets and in its detriment; (ii) intervening in any operations in which these officers and directors have a conflict of interest with the Companycompany or in resolutions in which they participate; and (iii) receiving, based on their position, any type of personal advantage from third parties, directly or indirectly, without first obtaining an authorization pursuant to our bylaws or at a shareholders’ meeting. As part of our controls to identify related parties, we require key personnel to annually inform whether they, or their close relatives, hold full or shared control of any company. Under the Brazilian Corporations Law, each of our directors, their alternates and our executive officers cannot vote on any matter in which they have a conflict of interest and such transactions can only be approved on reasonable and fair terms and conditions that are no more favorable than the terms and conditions prevailing in the market or offered by third parties. In addition, pursuant to our Policy on Ethics, Compliance and Transparency none of our shareholders or any other individual with authority over our activities may participate in the negotiation and decision-making process of a transaction in which they have a conflict of interest. We have engaged in extensive transactions with our principal shareholders and their affiliates and we expect to continue to do so in the future. We also have commercial relationships with some of our affiliates and, as a result, record trade accounts receivable and current and long-term liabilities mainly from purchases and sales of goods and services at prices and on terms equivalent to the average terms and prices of transactions that we enter into with third parties. In addition, we have entered into financial and other transactions with our principalshareholders and their affiliates, including, among others, as a party to three shareholders’ agreements or memoranda of understanding with our shareholders. See “—Major Shareholders—Shareholders’ Agreements.”
The following summarizes the material transactions that we have engaged in with our principal shareholders and their affiliates since January 1, 2018. The Odebrecht Group Alliance Agreement In May 2014, we entered into an alliance agreement with CNO, or the Alliance Agreement, with CNO under which we have appointed CNO as a non-exclusive provider with respect to maintenance services and efficiency enhancement projects at each of our plants. This agreement was unanimously approved by our board of directors. The services are contracted through Specific Activity Agreements (Termo de Atividade Específica), or TAE, which are signed for each specific service or project. The amount of each TAE includes all costs to be incurred with the performance of the services to be rendered by CNO, including any costs with third parties that may be contracted to provide materials and services, as well as CNO’s compensation. CNO’s compensation for the execution of the TAE’s under the Alliance Agreement is capped at R$121 million, calculated as a percentage of the value of the agreement, subject to bonuses and discounts in accordance with certain metrics. The aggregate amount of services we purchased under the Alliance Agreement was R$58.12.8 million in 2019 and R$58.1million in 2018. The Alliance Agreement was terminated in May 2018. Specific activity agreements entered into until this date will continue to produce effects until the fulfillment of their scope. Sublease In August 2013, we entered in a R$226 million sublease agreement with CNO and Abiatar SPE Empreendimentos Imobiliários (as intervening party) for the floors in the building where the offices of Braskem are located in São Paulo. In January 2014, this contract was updated by IPCA/IBGE to a new amount of R$239 million. This agreement expires on December 31, 2028. This agreement would have expired on December 31, 2028, but was terminated in May 2019. The aggregate amount we paid under this agreement was R$26.745.1 million in 2018.2019. 147
Industrial Maintenance, Operation and Loads Machines Maintenance Services
In December 2017, we signed an industrial maintenance services agreement with CNO that encompassed boilers and the welding of tubing and static equipment, as well as operational and maintenance services on cargo machinery to be performed at the Braskem Units located in Rio Grande do Sul. The agreement has an estimated maximum amount of R$120 million and is valid through December 2021. The aggregate amount of services purchased under this agreement was R$1922 million in 2018.2019. Movement and Storage Services
In May 2018, we entered into an agreement for caustic soda movement and storage services with Liquiport Vila Velha S.A., which was a wholly owned subsidiary of Odebrecht Transport S.A. until August 9, 2019. The agreement has an estimated maximum value of R$93 million and is valid for 10 years. Sales in the periodServices under this agreement amounted to R$5.85.6 million in 2019 up until the date on which Odebrecht still owned Liquiport Vila Velha S.A. Furnaces, Boilers and Tanks MaintenanceIn 2019, we conducted a bid process that selected TENENGE as a non-exclusive provider of maintenance services and efficiency enhancement projects for furnaces, boilers and tanks at each of our industrial plants. Such agreement was unanimously approved by our board of directors in December 2019. Services to be provided under this agreement were contracted through pre-defined maintenance scopes and a list of unit prices per activity. TENENGE’s compensation for the execution of the services under the agreement is capped at R$669.0 million. The agreement became effective in February 2020 and is valid until January 2027. Acquisition of Cetrel In October 2012, we entered into an agreement with Cetrel for the purchase of 4 million cubic meters per year of recycled water by sites located in the Industrial Pole of Camaçari. The agreement expires in April 2028 and has a total value of R$120.0 million. In July 2016, we entered into a services agreement with Cetrel under which we appointed Cetrel as an exclusive service provider for the treatment of liquid effluents produced in our industrial units located at the Camaçari petrochemical complex. The agreement has a cap of R$77 million and expires in December 2019. The aggregate amount of services we purchased under this agreement was R$1815.3 million in 2018.2019. In March 2013, we entered into an agreement for the supply of industrial water with Distribuidora de Águas deCamaçari S.A, incorporated by Cetrel, a subsidiary of Odebrecht. This agreement expires in March 2043, and has an estimated total value of R$2,250 million. The aggregate amount we purchased under this agreement was R$8682 million in 2018.2019.
In December 2017, we entered into a services agreement with Cetrel as a service provider for incineration of hazardous industrial waste produced in our industrial units located at the Camaçari/BA petrochemical complex. Service expenses under the agreement are capped at R$61 million, and the agreement expires in December 2020. The aggregate amount of services we purchased under this agreement in 20182019 was R$1513.4 million. On January 27, 2017, our board of directors authorized the execution of a purchase agreement with Odebrecht Utilities S.A., through which Braskem undertook to purchase all shares held by the seller in Cetrel S.A., which represented 63.7% of its voting capital, for the aggregate amount of R$610 million, to be paid upon the consummation of the transaction. The acquisition was approved by relevant shareholders, in accordance with Article 256 of Brazilian Corporations Law in the meeting held on September 29, 2017. This acquisition closed on October 2, 2017, when Braskem acquired 1,269,290 shares, or 63.7%, of the voting capital stock of Cetrel S.A. Supply Agreement for Hydrous Ethanol
In March 2017, we entered into an agreement for supply of hydrous ethanol with UCP and USL. Ethanol is the feedstock consumed by Braskem to produce green ethylene. The agreement was guaranteed by Atvos and Rio Claro. The agreement also provided for a commercial discount and other flexibilities in the process of Braskem’s acquisition of the product. It also included an advance of R$150.0 million, to be restated at market rates. The advance was guaranteed by a pledge of the sugarcane crop, its products and subproducts at net market value in anamount greater than the value of the advance, with the pledged asset insured through a policy contracted from a premium insurer and with a provision for subrogation. The agreement was valid through April 30, 2018. 148
In December 2017, we entered into an amendment to the agreement for supply of hydrous ethanol with UCP and USL that changed the billing for raw material acquisitions to future delivery, so as to bring forward the billing of the volume of the goods to be delivered between January 2018 and March 2018 in the aggregate amount of R$50.0 million. The amendment determines that the price practiced at time of delivery is the lesser of the ceiling established in the amendment and the reference established in the original contract. The agreement was valid untilthrough April 30, 2018. In December 2017, an agreement was entered into with Agro Energia Santa Luzia S.A. – USL, Usina Conquista do Pontal S.A. – UCP, Atvos and Brenco Companhia Brasileira de Energia Renovável, with the purpose of ensuring the supply of hydrous ethanol volumes, which included a commercial discount on the supply and established contractual flexibilities for acquisition. The contract includesincluded an advance of R$200.0 million, which iswas guaranteed by a pledge of the sugarcane crop, its products and sub-products at a net market value greater than the amount of the advance, with the pledged asset insured by a policy contracted from a premium insurer and with a provision for subrogation to us,Braskem, valid through April 30, 2019. In January 2019, we entered into an amendment to the agreement for the purchase of feedstock for future delivery between January and March 2019. The balanceamendment provided for an advance of the advance asR$100.4 million. As of December 31, 20182019, there was R$8.7 million. Agreement for Transportation and Storage of Caustic Soda
In May 2018, Braskem entered into an agreement for transportation and storage of caustic soda with Liquiport Vila Velha S.A., a wholly-owned subsidiary of Odebrecht Transport S.A. The agreement has an estimated maximum value of R$93 million and is valid for 10 years. Salesno outstanding balance under this agreement amounted to R$5.8 million in 2018.agreement.
Petrobras Commercial Transactions with Petrobras We have entered into the following supply contracts with Petrobras: · | On December 23, 2015, we and Petrobras entered into a new five-year naphtha purchase agreement. This contract replaced the naphtha supply contract between Petrobras and us for the supply of naphtha to our basic petrochemicals plants located in the Northeastern Complex and superseded the naphtha supply contract between Petrobras and us for the supply of naphtha to our basic petrochemicals plants located in the Southern Complex.The new contract will expire in December 2020. | · | An ethane and propane supply agreement that we and Petrobras entered into in December 2000. See “Item 4—Information on the Company—Supply Contracts and Pricing of the Chemicals Unit—Ethane and Propane” for more information. | · | An agreement for the purchase and sale of a chain of refinery off gas that Quattor Química S.A. which was merged into Quattor Participações S.A., formerly known as Braskem Qpar, before it merged into us on December 1, 2014 and Petrobras entered into in January 2005. See “Item 4—Information on the Company—Supply Contracts and Pricing of the Chemicals Unit—Refinery Off Gas” for more information. | · | A 20-year propylene supply contract we and Petrobras entered into in May 2008 for our Paulínia plant. See “Item 4—Information on the Company—Raw Materials of Our Polyolefins Unit—Propylene Contracts with Petrobras and its Subsidiaries” for more information. | · | Five propylene supply agreements that Braskem Petroquímica (formerly known as Quattor Petroquímica, which was merged into our Company in November 2017) and Petrobras signed between September 1997 and February 2006. See “Item 4—Information on the Company—Raw Materials of Our Polyolefins Unit—Propylene Contracts with Petrobras and its Subsidiaries” for more information. | · | In April 2008, Polietilenos União S.A. a former subsidiary of Quattor Participações S.A. (which merged with and into Braskem on December 1, 2014) entered into an agreement for the supply of steam with Petrocoque S.A. Indústria e Comércio, as amended in March 2014. We began purchasing thermal energy produced by steam pursuant to this agreement in September 2009. This agreement had an estimated value of R$200 million, a 10-year term and expired in September 2019. The aggregate amount we purchased under this contract was R$42.6 million in 2019. |
149 ·On December 23, 2015, we and Petrobras entered into a new five-year naphtha purchase agreement. This contract replaced the naphtha supply contract between Petrobras and us for the supply of naphtha to our basic petrochemicals plants located in the Northeastern Complex and superseded the naphtha supplycontract between Petrobras and us for the supply of naphtha to our basic petrochemicals plants located in the Southern Complex. The new contract will expire in December 2020.
· | Braskem has handed down a contract from Petrobras and joint-venture Petroquímica Paulinia S.A. (PPSA) pursuant to which Petrobras will supply steam and provide services in connection with the treatment and transport of water, clarified water and hydrogen. This contract is for a term of 20 years and has no global value clause. The aggregate amount of services we purchased under this contract was R$13.6 million in 2019. | 135·
| Braskem has handed down a contract from Petrobras and Rio Polímeros S.A. pursuant to which Petrobras will provide water transportation services. This contract is for a term of 30 years and has no global value clause. The aggregate amount of services we purchased under this contract was R$11 million in 2019. | · | Since June 2016, Braskem has had agreements for the sale of gasoline A to BR Distribuidora, which used to be a subsidiary of Petrobras, renewable on a monthly basis. As BR Distribuidora was privatized in July 2019, it is no longer considered a related party.Sales under this agreement amounted to R$392.9 million in 2019. | · | A two-year contract for logistics services related to feedstock discharge, storage and transportation in the Southern Complex between Braskem and Transpetro, entered into in November 2018. The aggregate amount of services related to this contract in 2019 was R$73.6 million. | · | A two-year contract for logistics services (pipeline operation and maintenance) related to feedstock in the Southern Complex between Braskem and Transpetro, entered into in November 2018. The aggregate amount of services related to this contract in 2019 was R$5.0 million. | · | A two-year contract for logistics services related to feedstock storage in the Southern Complex between Braskem and Petrobras, entered into in November 2018. The aggregate amount of services related to this contract in 2019 was R$25.0 million. | · | A two-year contract for storage tanks leasing and pipeline leasing related to feedstock storage in the Southern Complex between Transpetro and Braskem, entered into in November 2018. The aggregate amount of services related to this contract in 2019 for pipeline leasing was R$6.4 million and storage tanks leasing was R$15.8 million, for a total amount of R$22.2 million. | · | On July 3, 2019, Braskem S.A. and CDGN Logística S.A. entered into an agreement for the supply of compressed natural gas for a total period of five years. The aggregate amount throughout the term of the agreement is approximately R$210.0 million. | · | On September 2019, we signed an amendment to our agreement with Gás de Alagoas S.A. (Algás) for the supply of natural gas to Braskem to extend the agreement for two years until December 31, 2021. The aggregate amount throughout the term of the agreement, as amended, is R$500.0 million. | · | In December 2019, we signed an amendment to our natural gas purchase agreement with Companhia de Gás da Bahia (Bahiagás), with a term from January to December 2020 and an additional amount of R$820.0 million relating to the amendment.The aggregate amount to be paid throughout the term of the agreement, as amended, is approximately R$1.6 billion. | · | Braskem S.A. entered into two agreements with Companhia de Gás do Estado do Rio Grande do Sul (Sulgás) for the supply of natural gas. During 2019, the amount of gas supplied under the agreement was approximately R$228.7 million. | · | Braskem S.A. entered into an agreement with Petrocoque S.A. Indústria e Comércio in 2008 for the supply of steam, which was amended in September 2019 to extend its term until 2020.The aggregate amount throughout the term of the agreement is approximately R$326.0 million. | · | On December 2019, Petrobras and Braskem entered into a settlement agreement (Termo de Encerramento de Pendências, or TEP) for the refund by Petrobras to Braskem of overpayments of ICMS tax in the state of São Paulo in the amount of: (i) R$24.4 million, related to a judgment entered into in connection with the administrative proceeding GDOC 12782-984681/2017; and (ii) R$26.4 million, related to a judgment entered into in connection with the administrative proceeding GDOC 12782-984681/20. |
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·An ethane and propane supply agreement that we and Petrobras entered into in December 2000. See “Item 4—Information on the Company—Supply Contracts and Pricing of the Chemicals Unit—Ethane and Propane” for more information.
·An agreement for the purchase and sale of a chain of refinery off gas that Quattor Química S.A. which was merged into Quattor Participações S.A., formerly known as Braskem Qpar, before it merged into us on December 1, 2014 and Petrobras entered into in January 2005. See “Item 4—Information on the Company—Supply Contracts and Pricing of the Chemicals Unit—Refinery Off Gas” for more information.
·A 20-year propylene supply contract we and Petrobras entered into in May 2008 for our Paulínia plant. See “Item 4—Information on the Company—Raw Materials of Our Polyolefins Unit—Propylene Contracts with Petrobras and its Subsidiaries” for more information.
·Five propylene supply agreements that Braskem Petroquímica (formerly known as Quattor Petroquímica, which was merged into the Company in November 2017) and Petrobras signed between September 1997 and February 2006. See “Item 4—Information on the Company—Raw Materials of Our Polyolefins Unit—Propylene Contracts with Petrobras and its Subsidiaries” for more information.
·In April 2008, Polietilenos União S.A. a former subsidiary of Quattor Participações S.A. (which merged with and into Braskem on December 1, 2014) entered into an agreement for the supply of steam with Petrocoque S.A. Indústria e Comércio, as amended in March 2014. We began purchasing thermal energy produced by steam pursuant to this agreement in September 2009. This agreement has a 10-year term, expiring in September 2019, and an estimated value of R$200 million.
·In October 2015, Braskem and Petrobras entered into a monthly basis agreement for the sale of Gasoline A to Petrobras.
·Braskem has handed down a contract from Petrobras and joint-venture Petroquímica Paulinia S/A (PPSA) pursuant to which Petrobras will supply steam and provide services in connection with the treatment and transport of water, clarified water and hydrogen. This contract is for a term of 20 years and has no global value clause. The aggregate amount of services we purchased under this contract was R$12.5 million in 2018.
·A long term contract for logistic services related to naphtha transportation in pipelines in the Southern Complex between Braskem, Transpetro and Petrobras. The aggregated amount of services related to this contract in 2016 was R$17.8 million.
·Since June 2016, Braskem has had agreements for the sale of gasoline to BR Distribuidora, a subsidiary of Petrobras, renewable on a monthly basis. Sales in the year amount to R$422.6 million.
·A two-year contract for logistics services related to feedstock discharge, storage and transportation in the Southern Complex between Braskem and Transpetro, entered into in November 2018. The aggregate amount of services related to this contract in 2018 was R$114 million (for a full-year).
·A two-year contract for logistics services (pipeline operation and maintenance) related to feedstock in the Southern Complex between Braskem and Transpetro, entered into in November 2018. The aggregate amount of services related to this contract in 2018 was R$5.5 million (for a full-year).
·A two-year contract for logistics services related to feedstock storage in the Southern Complex between Braskem and Petrobras, entered into in November 2018. The aggregate amount of services related to this contract in 2018 was R$29 million (for a full-year).
·A two-year contract for tanks and pipeline leasing related to feedstock storage in the Southern Complex between Transpetro and Braskem, entered into in November 2018. The aggregate amount of services related to this contract in 2018 was R$17.7 million (for a full-year).
We purchased raw materials, finished goods services and utilities from Petrobras and its subsidiaries in the aggregate amount of R$12,291.2 million in 2016, R$ 12,795.8 million in 2017, and R$15,540.1 million in 2018 and R$12,578.2 million in 2019, and sold products to Petrobras and its subsidiaries in the aggregate amount of R$2,023.8 million in 2016, R$1,810.8 million in 2017, and R$1,225.4 million in 2018.2018 and R$665.4 million in 2019. Other Related Party Transactions Our Jointly Controlled Company Refinaria de Petróleo Rio-grandense S.A. (“RPR”) The revenue of gasoil, gasoline and gasolinesolvents to RPR amounted towas approved in 2019 for a total amount of R$368.6845.0 million in 2017per year. The agreement for the sale of gasoil and R$440.8 million in 2018. Gasoil is a product used as feedstock in the diesel oil production process, and the agreements were entered intosolvents sets forth that sales prices will be determined on a spot basis. Since March 2016, Braskem has had agreements for the sale of gasoline to RPR, renewable on a monthly basis. In 2019, Braskem provided solvent to RPR in the aggregate amount of approximately R$36.2 million (gross sales). Additionally, in 2019, Braskem provided an aggregate of R$146.9 million of gasoline and gasoil to from RPR. Fábrica Carioca de Catalisadores S.A. (“FCC”) On August 1, 2019, Braskem and FCC entered into an agreement for the sale of caustic soda for a period of two years. The aggregate amount throughout the term of the agreement is approximately R$50.0 million. Our Associated Companies Borealis Brasil S.A.
We sell polypropylene and polyethylene to Borealis, in which we have a 20.0% interest. We recorded revenue to Borealis of R$193.6 million in 2017, and R$242.7 million in 2018.2018 and R$175.9 million in 2019. We account for Borealis under the equity method of accounting. Additionally, on March 1, 2018, Braskem and Borealis entered in an agreement for the rendering by Braskem of certain services related to the set up and management of Borealis’ energy portfolio. This agreement was subsequently amended on November 1, 2019 to extend it until February 28, 2021. The aggregate amount of the services to be provided under the agreement is R$230.4 thousand. Non-controlling shareholders of Braskem Idesa
As of December 31, 2019, we had R$2,395.9 million in outstanding indebtendess relating to a loan payable to the non-controlling shareholder of Braskem Idesa, maturing in December 2029 and accruing interest at 7% p.a., whose proceeds were used by Braskem Idesa to fund its construction project. Related Party Transactions Policy In December 2018, we adopted a related party transactions policy, or the Related Party Transactions Policy, which is revised periodically and lays out the procedures for approving transactions with our controlling shareholder, controlled entities and certain other parties. Pursuant to our bylaws and the Related Party Transactions Policy, (i) our Board of Directors is responsible for approving certain related party transactions and revisions to the the Related Party Transactions Policy, (ii) our Compliance Committee is responsible for evaluating related party transactions prior to submission for approval to our Board of Directors, if applicable, as well as ensuring that the provisions contained in the Related Party Transactions Policy are observed by our other areas, and (iii) our Ethics Committee is responsible for evaluating related party transactions that do not require approval by our Board of Directors. Pursuant to this policy, we have, and may in the future, engage in transactions with our controlling shareholder or controlled entities with respect to our services or products, or other related party transactions, as defined in our Related Party Transactions Policy. 151
Item 8. Financial Information Consolidated Statements and Other Financial Information Reference is made to Item 19 for a list of all financial statements filed as part of this annual report. Legal Proceedings We are, and may be in the future, involved in numerous tax, civil and labor disputes, among others, involving monetary claims. If any of these legal proceedings were decided adversely to us, we do not believe that our results of operations or financial condition would be materially and adversely affected. For some of these lawsuits, we have not established any provision on our balance sheet nor have we established provisions only for part of the amounts claimed, based on our judgments as to the outcomes of these lawsuits. Tax Proceedings We are engaged in several legal proceedings with Brazilian tax authorities for which we have established provisions in an aggregate amount of R$607.1672.1 million as of December 31, 2018.2019. In addition, there are currently certain legal proceedings pending in which we are involved for which we have not established provisions, since there is no trigger in accordance to IAS 37 to record such provisions. If any of these legal proceedings weredecided adversely to us, we do not believe that our results of operations, cash flows or financial condition would be materially and adversely affected.
IR/CSLL Tax Assessment Notices In 2013, 2014 and 2017, we received tax assessment notices from the Federal Brazilian Revenue Service claiming that the amortization of the goodwill recorded in 2001 and 2002 in connection with the purchase of shares of certain companies related to the formation of Braskem was not deductible for purposes of calculating our income tax and social contribution. The amount claimed is R$1.21 billion, including interest and fines. We challenged these assessment notices because we believe that these claims are based on a misinterpretation of both the applicable law and facts by the tax authorities and that the statute of limitations has expired. In May 2018 oneand November 2019, two of the claims regarding the tax assessment notices waswere decided partially in our favor by the Administrative Court, thereby reducing our liabilities by R$166403 million. We believe that a loss inof these claims is possible and our consultantsexternal legal counsel expect that the administrative discussions will end in 2022. As of December 31, 2018,2019, we havehad made no provision with respect to these claims and there is no deposit or guarantee related to them. In December 2013, we received tax assessment notices from the Federal Brazilian Revenue Service claiming that the interest expenses and exchange variation losses recorded by Braskem relating to indebtedness of Ipiranga Petroquímica S.A. was not deductible for purposes of calculating our income tax and social contribution.
In 2009, 2013 and 2017, we received deficiency notices from the Brazilian federal tax authority claiming that the tax losses offset in the taxable year were in excess of the limitation of 30% of the taxable profits of a given year, as imposed by Brazilian tax law. The amount under discussion is R$348 million, including interest and fines. We challenged these assessment notices because we believe that the 30% limitation is not applicable in the event of the merger of the taxpayer and that the statute of limitations for one of these claims has expired. We believe that aIn April 2019, one of the claims regarding the tax assessment notices was decided in our favor by the Administrative Court, thereby reducing our liabilities by R$407 million. Despite this favorable decision, the risk of loss in these claims is possible and our consultantsexternal legal counsel expect that the administrative discussions will end in 2020, and the judicial discussion will end in 2027. As of December 31, 2018,2019, we havehad made no provision with respect to these claims and there is no deposit or guarantee related to the processes that are in administrative discussion phase. Collection is suspended during the discussions due to an injunction later confirmed by a judicial award that we obtained in our favor. We received a tax assessment notice from the Federal Brazilian Revenue Service claiming income tax and social contribution debts due to the following: (i) commissions paid by Braskem in 2011 were not considered deductible for purposes of calculating income tax and social contribution; (ii) commissions paid by Braskem INC in 2013 and 2014 were also not considered deductible for purposes of calculating income tax and social contribution; (iii) we did not withhold the income tax over the payments of the commissions mentioned before;aforementioned commissions; and (iv) marketing expenses were not considered deductible for purposes of calculating income tax and social contribution. We challenged this assessment notice in Administrative Court due to the following reasons: (i) the statute of limitations havehas expired for the year of 2011, and tax authorities are claiming the payment of income tax and social contribution without taking into consideration that the right to deduct some expenses for purposes of calculatingofcalculating income tax and social contribution is still under discussion in other tax proceedings; (ii) Braskem INC has already recalculated its income tax whatwhich only resulted in the decrease of its tax losses; (iii) the net interest paying company is non-resident in Brazil; and (iv) marketing expenses are related to our activities. The amount under discussion is R$122133 million, including interest and fines. We believe that a loss inof this claim is possible and our consultantsexternal legal counsel expect that the administrative discussion will end in 2022. As of December 31, 2018,2019, we havehad made no provision with respect to this claim and there is no deposit or guarantee related to it. 152
In December 2017, we received a tax assessment notice from the Federal Brazilian Revenue Service claiming unpaid income tax and social contribution in connection with exchange variation losses recorded by Braskem in the elapsed time between the due date of naphtha import invoices and their payments. The Federal Brazilian Revenue Service considered that these losses, recorded in 2012, were not deductible for purposes of calculating income tax and social contribution which resulted in the recalculation of our tax losses and social contribution negative tax base. The amount claimed is R$104103 million. We believe that a loss inof this claim is possible and our consultantsexternal legal counsel expect that the administrative discussion to be finished untilwill end by 2022. As of December 31, 2018,2019, we havehad made no provision with respect to this claim and there is no deposit or guarantee related to it. We are discussing, at the administrative level, the rejection by the Federal Brazilian Revenue Service of Clearing Statements that aimed at the discharge of federal taxes with credits arising from negative balance of IRincome tax and CSLL.social contribution. The amount under discussion, corresponding to taxes whose compensation was not ratified, is R$182196 million, including interest and fines. We believe that a loss inof this claim is possible and our consultantsexternal legal counsel expect theadministrative discussion to be finished until 2022.end by 2024. As of December 31, 2018,2019, we havehad made no provision with respect to this claim and there is no deposit or guarantee related to it. In November 2018, we received a tax assessment notice from the Federal Brazilian Revenue Service demanding the payment of income tax on exports made by Braskem Qpar S.A. to Braskem Incorporated Limited, due to resale of goods abroad. According to the Federal Brazilian Revenue Service, Braskem Incorporated Limited omitted revenue when making resales abroad for an amount greater than that recorded. This supposedly omitted revenue was attributed directly to Braskem, as successor of Braskem Qpar. Based on this premise, the inspection department issued a second tax assessment notice to impose a fine. As of December 31, 2019, the aggregate amount of these tax assessment notices was approximately R$75.0 million. We believe that a loss of this claim is possible and our external legal counsel expect that the case will be resolved by 2023. There are no deposits or guarantees related to these assessments.
IOF We are involved in judicial and administrative proceedings due to tax assessment notices issued by the Federal Brazilian Revenue Service claiming that the following operations are subject to Financial Operations Tax (IOF): (i) the transfers of financial resources under cash pooling and current account agreements made between Quattor Participações S/A, Quattor Química S/A and Braskem and between Braskem and CPN Incorporated and (ii) the advances for future capital increases made by Quattor Participações S/A and Quattor Química S/A. The amount claimed is R$175167 million. We believe that these operations do not characterize loanconstitute loans under Brazilian legislation and, as such, are not subject to IOF. We believe that a loss in this claim is possible and our consultantsexternal legal counsel expect that the judicial discussion will end in 2022.2024. We presented a guarantee for the debt under judicial litigation in the amount of R$59 million. ICMS Tax Assessment Notice From 1999 to 2018,2019, the internal revenue department of the States of Bahia, Alagoas, Pernambuco, São Paulo, Rio Grande do Sul and Rio de Janeiro issued tax assessment notices against Braskem claiming unpaid ICMS taxes in the amount of R$644740 million, retrospectively revised by inflation and the benchmark rate, in connection with several alleged violations of certain provisions of the ICMS tax legislation, including, among others: (1) inappropriately claiming ICMS credits for the acquisition of goods that the internal revenue department considers for use and consumption; (2) inappropriately claiming ICMS credits for the acquisition of assets not related to production; (3) transfer of goods below the cost of production; (4) differences in stock of final products; (5) lack of evidence that we exported goods; (6) failure to pay taxes on the sale of products subject to tax substitution and inappropriately claiming ICMS tax credits on the purchase of products subject to tax substitution; (7) failure to register invoices; (8) unpaid ICMS taxes on charges for electricity transmission; and (9) for the use of a calculation basis relating to ICMS tax lower than that required by law, in connection with internal transfers of the product crude dichlorethane to another unit in the State of Alagoas, from January 2013 to May 2016, which were not subject to deferral. We challenged these assessment notices in the administrative court because we believe that therethatthere are reasonable grounds on which we can successfully defend against these assessments. The administrative cases are expected to be finished until 2023.resolved by 2025 and the judicial cases by 2030. If an unfavorable decision is rendered in our favor,against us, it is expected that the debts would be paid at 50% of the current value, based on the favorable precedents at judicial and administrative level.levels. A guarantee was offered in the amount of R$62148 million for the debts under discussion in the Judiciary.judiciary. We believe that a loss inof these claims is possible and, as of December 31, 2018,2019, we havehad not recognized any provision with respect thereto. 153
In 2009, tax assessment notices were issued by the internal revenue department of the State of São Paulo against Braskem Qpar claiming unpaid ICMS taxes and related fines in connection with several alleged violations of certain provisions of the ICMS tax legislation, including: (1)Inappropriately claiming ICMS credits: (i) in the amount of R$53.5 million from February/February 2004 to August 2005, November/November 2005 to February/February 2006, and September/September 2006 to January/January 2008, related to the acquisition of “acrylonitrile” sold by Acrinor Acrilonitrila do Nordeste S/AS.A.; (ii) in the amount of R$1.6 million from December/December 2004 to August/August 2005, related do undulyto credits informed in invoices issued by Proquigel Química S/A;S.A.; and (iii) in the amount of R$3.1 million from August/August 2004 to November/November 2005, related do undulyto credits informed in invoices issued by Proquigel Química S/AS.A. for exportation,export, not submittedsubject to ICMS payment;ICMS; (2)A fine of 100% of the taxes assessed was imposed in all cases above.above; (3)Error in the issuance of invoices under CFOP code 6.905 without the circulation of goods – a fine of 30% of the amount of the invoices (R$480.4 million) was assessed.assessed; and (4)Fine assessed due to the default in answering to notification of tax authorities to present documents to a tax audit. The administrative proceedings were closed in the administrative court in 2015, and the remaining debt is under discussion in the Judiciary.judiciary. Due to favorable preliminary orders,decisions, the State Treasury of São Paulo has rectified the amount of the debt to apply default interest and monetary restatement limited to the SELIC rate, which reduced the debt in 20%. Regarding this amount, the chances of loss are remote, and for the remaining debt we believe theloss is possible. As of December 31, 2018,2019, we havehad established related provisions in the amount of R$280.6297.5 million. We offered a guarantee to the debts and our consultantsexternal legal counsel expect the cases to be finished untilresolved by 2025.
In 2016, we received a tax assessment notice from the revenue department of the state of Bahia alleging that we had inappropriately used ICMS credits on the acquisition of goods used in the production of gasoline, which sales are not submitted to ICMS payment, during the period of 2012 to 2015. As of December 31, 2018, the amount claimed is R$47 million. Our consultants expect the case to be finished until 2020. We believe that a loss in these claims is possible and we have made no provision with respect to this claim and there is no deposit or guarantee related to it.
In 2017, we received a tax assessment notice issued by the department of the state of Alagoas, claiming ICMS debts, in the period of August 2012 to April 2016, alleging violation of PRODESIN legislation – tax incentive issued by the state of Alagoas. As of December 31, 2018, we have established related provisions in the amount of R$45 million. We believe that a loss in this claim is likely and our consultants expect the case to be finished until 2021. There is no deposit or guarantee related to this claim.
PIS and COFINS Non-Cumulative Tax Assessment Notice We received assessment notices from the federal internal revenue department alleging that we had inappropriately claimed certain PIS and COFINS credits in relation to: (1) wastewater treatment,treatment; (2) charges for electricity transmission,transmission; (3) freight related to the storage of finished goods andgoods; (4) credits claimed at inappropriate times, relating to the acquisition ofvarious acquisitions; and (5) fixed assets between 2006 and 2011.assets. As of December 31, 2018,2019, the amount in dispute ofin connection with these claims was R$1.2 billion. We challenged these assessment notices in an administrative court because we believe that there are reasonable grounds on which we can successfully defend against these assessments. We believe that a loss onof these claims is possible and our consultantsexternal legal counsel expect that the administrative discussions will end in 2024 and the judicial discussion will end in 2022. There are no deposits or guarantees related to these claims and we have not recognized any provision with respect thereto.2030. We presented a guarantee for the debt under judicial discussion in the amount of R$30 million. The Federal Brazilian Revenue Service did not recognize the compensation of PIS and COFINS becausecredits for the amount of the credits informed in the compensation files were higher than the amount informed in the PIS and COFINS declaration (DACON). In October, 2017, we included certain tax debts in installment payment program such as: (i) the differences in the values informed in the PIS and COFINS declaration (DACON) and in the electronic files of the invoices; (ii) the values not reflected in the balance sheets, credits over untaxed purchases, credits over IPI, lack of presentation of documents, and (iii) failure to pay PIS and COFINS informed to the tax authorities in the DACON. following reasons: · | the amount of the credits informed in the compensation files were greater than the amount informed in the PIS and COFINS declaration (DACON); | · | freight expenses not linked to sales operations or without a proven connection, link to the national territory, but related to imported products; | · | credits relating to the acquisition of fixed assets from incorporated companies whose documentation was not found; and | · | taxation of taxable revenues erroneously classified as exempt, at zero rate or not taxed. |
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A loss inof this claim is likely and our consultants expectexternal legal counsel expects that the administrative discussion will end in 2020.2022. As of December 31, 2018,2019, we havehad established related provisions in the amount of R$154.7193.1 million. There are no deposits or guarantees related to these claims. PIS and COFINS Tax Assessment Notice Braskem is involved in several judicial and administrative proceedings related to the payment of PIS and COFINS, including (1) unpaid COFINS from March 1999 to December 2000, February 2001 to March 2002, May 2002 to July 2002 and during September 2002, (2) inappropriately claimed credits due to the additional 1% in the COFINS rate and PIS Decree-Law No.Nos. 2,445 and 2,449, and2,449; (3) undue compensation of PIS and COFINS debts with PIS credits (Decree-Laws(Decree-Law Nos. 2,445 eand 2,449) which were considered to have expired by the tax authorities; and (4) an omission in the base revenue resulting from exchange gains earned due to successive reductions of our associated capital. As of December 31, 2018, the amount in dispute of these claims was R$90 million. We challenged these assessment notices because we believe that there are reasonable grounds on which we can successfully defend against these assessments. We believe that a loss inof these claims is likelypossible and our consultantsexternal legal counsel expect the cases to be finished until 2020.resolved by 2023. As of December 31, 2018,2019, we havehad established related provisions in the amount of R$59.763.3 million. We offered guarantee in the amount of the judicial litigations. In 2014, we received a tax assessment notice from the Federal Brazilian Revenue Service claiming that the tax losses and social contribution negative tax base used to pay debts under the MP No. 470/2009 installments program, as well as interest, and fines exoneration afforded in installments of the MP No.470/09 are taxable. The amount of PIS and COFINS claimed is R$842 million. We challenged this assessment notice because we believe that these claims are based on a misinterpretation of both the applicable law and facts by the tax authorities. In November 2018 and August 2019, two of the claims regarding the tax assessment notices were decided in our favor by the Administrative Court. As of December 31, 2019, the amount of PIS and COFINS claimed was R$883 million. We believe that a loss inof this claim is possible and our consultantsexternal legal counsel expect that the administrative discussion will end in 2020. As of December 31, 2018, we have madeThere are no provision with respect to this claim.
We and our affiliates are involved in several other judicial and administrative proceedings related to the alleged undue compensation of PIS and COFINS debts with the following credits: (1) Corporate Income tax; (2) FINSOCIAL; (3) Taxtax on net profits; (4) PIS (Decree-Laws(Decree-Law Nos. 2,445 and 2,449); and (5) Cofins.COFINS. The proceedingproceedings are also related to debts of COFINS levied on interest calculated on equity. As of December 31, 2018,2019, the amount in material disputes relating to PIS and COFINS was R$144148 million. We offered guarantee in the amount of the judicial litigation. We believe that a loss inof this claim is possible and our consultantsexternal legal counsel expect that the administrativejudicial discussion will end in 2022.2024. As of December 31, 2018,2019, we havehad not recognized any provision with respect to these proceedings. We are involved in lawsuits related to the payment of PIS and COFINS offsetting with Cide-Combustíveis credits, as authorized by Law No. 10,336/2001. As of December 31, 2019, the aggregate amount of these cases was R$144 million. We believe that a loss of this claim is possible and our external legal counsel expect that the discussion will end in 2030. We constituted a guarantee in the amount under discussion. Isolated Fine Tax Assessment Notices From 2016 to 2018,2019, we received tax assessment notices from the federal internal revenue department imposing isolated fines due to the use of 50% on the amount of the credits relating to:of: (i) non-cumulative PIS/COFINS; (ii) negative Balance of IRPJ/CSLL; (iii) REINTEGRA and (iv) other credits, all offset with federal taxes and not homologated. As of December 31, 2018,2019, the amount claimed was R$215289 million. We believe that a loss inof these claims is possible and our consultantsexternal legal counsel believe that the administrative proceedings will end in 2022.2024. There are no deposits or guarantees related to these claims. IPI and Import Duty Tax Assessment Notice In 2002, the merged company Ipiranga Petroquímica received a tax assessment notice from the Federal Brazilian Revenue Service due to the contracting of two separate companies, one to supply the parts and technology and a secondthe other to supply the specialized labor to provide technical assistance in the construction of an industrial plant in the State of Rio Grande do Sul, claiming that it would have been done only to reduce the price of the parts and technology used and, as a consequence, reduce the value of IPI and IIimport duty to be paid. Aspaid.The administrative proceeding was closed in 2019 and currently the debt is under discussion in the judiciary.As of December 31, 2018,2019, the amount claimed was R$6882 million. We believe that a loss inof this claim is possible and our consultantsourexternal legal counsel expect the case to be finished until 2022. There is no deposit orresolved by 2030. We offered a guarantee related to this claim.in the amount of the judicial litigation. 155
SUDENE – Income Tax Reduction Since 2015, we have obtained favorable decisions in administrative proceedings and lawsuits claiming the reduction of 75% of IR on income from the following industrial units: (i) PVC and chlor-alkali (cloro soda) units, established in the state of Alagoas; and (ii) Chemicals, PE, PVC and chlor-alkali units, established in the city of Camaçari (BA). The realization period is 10 years. In 2018,2019, the operations in Brazil recorded tax losses, therefore it was not possible to claim any deductions as tax incentives. PRODESIN – ICMS Tax Incentive Braskem has ICMS tax incentives by the state of Alagoas, through the state of Alagoas Integrated Development Program, or PRODESIN, which aimed at implementing and expanding a plant in that state. This incentive is considered an offsetting entry to sales taxes. In 2018,2019, the amount was R$67.8 million (R$81.9 million (R$95.7 million in 2017)2018). As PRODESIN is considered an investment subsidy, it was allocated to the our tax incentive reserve, pursuant to the Brazilian Corporations Law. REIQ – PIS/COFINS Tax Incentive The Brazilian chemical and petrochemical sector enjoyed an important achievement in 2013. The government, in response to one of the proposals elaborated by the Chemical Industry Competitiveness Council, approved the PIS and COFINS tax rates relief on raw material purchases by first and second generation producers, which serve various sectors of the economy. The measure aimed to restore some of the industry’s competitiveness, which was weakened by factors related to infrastructure, productivity, feedstock and energy costs and the exchange rate that pressured the chemical industry’s trade deficit, according to ABIQUIM, which ended 20182019 at US$29.631.5 billion. By 2018,2019, we had a tax rebate of 3.65% (PIS and COFINS) on the acquisition of petrochemical raw materials. On May 30, 2018, the Brazilian government issued Provisional Measure No. 836/18, which revoked the tax rebate of 3.65%, beginning on September 1, 2018. However, in early October, 2018, the Provisional Measure failed to be converted into law, which kept the rebate of PIS and COFINS on the acquisition of petrochemical raw materials unchanged at 3.65%.
Other Tax Proceedings
Social Security Contributions – withholdingWithholding of 11% We were assessed byreceived a tax assessment from the Brazilian Federal Revenue Service for allegedly withholding social security at the rate of 11% on the gross amount of invoices, bills or trade notes related to services executed through assigned labor, in the period from February 1999 to June 2002, amounting to R$5253 million as of December 31, 2018.2019. Our external legal advisors,counsel, in view of prior decisions by the Administrative Council of Tax Appeals (CARF) and the evidence provided by us, assess as possibleconsider the chances of loss at the administrative level. The conclusion is supported, among other things, by the following: (i) the Tax Assessment Notice is null and void and collection of the tax is time-barred; (ii) the mismatch between the service provided and the tax substitution system under Article 31 of Federal Law No. 8,212/1991; and (iii) the lack of the requirements to characterize assignment of labor, and other matters that would have to be evidenced through a tax diligence. level as possible. Our external legal advisors estimatecounsel expect that the administrative proceeding shouldwill be concludedresolved in 2019. 2020. There are no deposits or any other type of guarantee for such procedures, since they are still being discussed at the administrative level. Social Security Contributions – Harmful Agents We are involved in several judicial and administrative proceedings related to the payment of social security contributions in which the following issues are discussed: (i) the collection through tax assessments of the additional Workplace Accident Risk (“RAT”) for the costing of special retirement, due to the alleged exposure of workers to harmful agents, in addition to a fine for non-disclosure of this information in GFIP (in the period from April 1999 to February 2006); and (ii) the requirement, in terms of tax enforcement, of additional RAT (in the period from November 2000 to January 2001, and from November 2001 to June 2002). The aggregate amount of these claims, as of December 31, 2019, was approximately R$47 million. Our external legal counsel expect that the discussions at the administrative level will be concluded in 2021 and in 2027 at the judicial level. There is no deposit or other type of guarantee for the proceedings that are still under administrative discussion and the only one that is under judicial discussion is guaranteed by bond in the amount of R$3.7 million. 156
Class Action Proceedings In July 2015, two putative class action lawsuits were filed against us and certain of our then-current and former officers and directors, or the Defendants, in the United States District Court for the Southern District of New York. The lawsuits were subsequently consolidated under the caption In re Braskem, S.A. Securities Litigation, No. 15-cv-5132. In November 2015, Boilermaker-Blacksmith National Pension Trust, or the Lead Plaintiff, filed a consolidated class action complaint, which asserted claims under Section 10(b) and Section 20(a) of the Exchange Act, on behalf of a putative class of purchasers of our ADSs, from June 1, 2010 to March 11, 2015. In the operative complaint, the Lead Plaintiff alleges that the Defendants made misrepresentations or omissions that inflated the price of our stock in violation of U.S. securities laws. We filed a motion to dismiss on July 6, 2016. On March 31, 2017, the court ruled on the motion to dismiss, granting it in part and denying it in part. The parties have signed a proposed settlement agreement on September 14, 2017 and the U.S. court granted final approval to the settlement and entered a judgment to dismiss the action and discharge the claims of the class members on February 21, 2018. Under the terms of the settlement, we paid US$10 million to resolve all claims of the settlement class consisting of purchasers of our ADRsADSs during the period from July 15, 2010 through March 11, 2015, that arise out of or relate to the subject matter of the class action. We paid the settlement amount into an Escrow Account (which is subject to the jurisdiction of the Court) on October 2, 2017 and the Claims Administrator shall arrange its distribution after the entry by the court of a class distribution order. We have made no admission of any wrongdoing or liability as part of the settlement. Global Settlement In the context of allegations of improper payments in connection with the so-called Operation Car Wash (Operação Lava Jato) in Brazil, we engaged independent expert firms to conduct an investigation into such allegations (the “Investigation”) and report their findings. We have cooperated with governmental authorities in several jurisdictions, including the U.S. Department of Justice, or the DoJ, the U.S. Securities and Exchange Commission, or the SEC, Brazil’s Federal Prosecutor’s Office (Ministério Público Federal), or the MPF, and Switzerland’s Office of the Attorney General, or the OAG. On December 14, 2016, we entered into a leniency agreement with the MPF, or the Leniency Agreement, which was ratified by the competent Brazilian court on June 6, 2017. On December, 21, 2016, we filed a plea agreement in the United States District Court for the Eastern District of New York under which we agreed to plead guilty to a one-count criminal information charging us with conspiracy to violate the anti-bribery provisions of the U.S. Foreign Corrupt Practices Act, or the FCPA. On the same date, we consented to the entry of a final judgment in a civil action brought by the SEC based on civil violations of the anti-bribery, books and records and internal accounting controls provisions of the FCPA. The competent federal courts in the United States approved the DoJ and SEC resolutions on January 26, 2017 and February 28, 2017, respectively. In addition, on December 21, 2016, the OAG closed its investigation of these matters. We refer to these actions as the Global Settlement. Under the Global Settlement, we agreed to pay to the governmental authorities in these jurisdictions an aggregate amount of US$957 million (equivalent to R$3.1 billion), based on the exchange rate of R$3.27 per U.S. Dollar, applicable at the time of the negotiation.
The MPF will distribute the majority of the amount it receives as restitution to third parties for damages caused by the misconduct. Pursuant to the Global Settlement, the MPF agreed to communicate with other public authorities or entities, as well as stated-owned companies and mixed-capital companies with which Braskem enters into discussions to address the facts under the Global Settlement and avoid making duplicate restitution payments. In this context, as announced to the market on July 10, 2018 and disclosed in a material fact on May 27, 2019, we have cooperated and engaged in negotiations with the Ministry of Transparency and Controllership (CGU) and the Office of the Attorney General (AGU) in Brazil, and our Board of Directors approved the signing of a leniency agreement with the CGU and the AGU (the "CGU/AGU Agreement"). The CGU/AGU Agreement, in the amount of R$2.9 billion, to be adjusted by the SELIC rate, addresses the same facts that are the object of the Global Settlement executed in December 2016 with the Brazilian Federal Prosecution Office (MPF), the U.S. Department of Justice (DoJ), the U.S. Securities and Exchange Commission (SEC) and the Swiss Office of the Attorney General ("Global Settlement"). Of this amount, R$2.5 billion will be offset by the amount that Company already had undertaken to pay under the scope of the Global Settlement, resulting in an additional disbursement of R$410 million. As of the date of this annual report, we have paid R$22.3 billion of the total fine established in the Global Settlement in the following manner: · | US$94.9 million (R$296.6 million) to the DoJ, on February 8, 2017; |
·US$94.9 million (R$296.6 million) to the DoJ on February 8, 2017;157
· US$65.0 million (R$206.5 million) to the SEC on April 27, 2017; ·CHF30.2 million (R$104.3 million) to the OAG on June 27, 2017;
·R$736.4 million to the MPF on July 6, 2017;
·R$267.9 million to the MPF on January, 30 2018;
·CHF16.1 million (R$62.0 million) to the OAG on June 28, 2018;
·R$278.0 million to the MPF, on January 30, 2019; and
·CHF16.1 million (R$58 million) to the OAG on June 27, 2019
| US$65.0 million (R$206.5 million) to the SEC, on April 27, 2017; | · | CHF30.2 million (R$104.3 million) to the OAG, on June 27, 2017; | · | R$736.4 million to the MPF, on July 6, 2017; | · | R$267.9 million to the MPF, on January, 30 2018; | · | CHF16.1 million (R$62.0 million) to the OAG, on June 28, 2018; | · | R$278.0 million to the MPF, on January 30, 2019; | · | CHF16.1 million (R$58 million) to the OAG, on June 27, 2019; and | · | R$278 million on January 30, 2020 with respect to the leniency agreements with MPF and CGU/AGU. |
The outstanding amount of R$1.61.5 billion related to the Global Settelement and alsothe CGU/AGU Agreementwill be paid in the following manner: · CHF32.1 million to the OAG, related to two remaining annual installments of CHF16.1 million due on June 30 of each year as from 2020; and ·R$1.1 billion to the MPF in four remaining annual installments due on January 30 of each year as from 2020. To guarantee payment of future installments, Braskem pledged collateral assets from its property, plant and equipment sufficient to cover one annual installment; and
·R$409.9 million in connection with the CGU/AGU Agreement in two annual installments due on January 30, 2024 and 2025.
The MPF will distribute the majority of the amount it receives as restitution to third parties for damages caused by the misconduct. Pursuant to the Global Settlement, the MPF agreed to communicate with other public authorities or entities, as well as stated-owned companies and mixed-capital companies with which Braskem enters into discussions to address the facts under the Global Settlement and avoid making duplicate restitution payments. In this context, as announced to the market on July 10, 2018 and disclosed in a material fact on May 27, 2019, we have cooperated and engaged in negotiations with the Ministry of Transparency and Controllership (CGU) and the Office of the Attorney General (AGU) in Brazil, and our Board of Directors approved the signing of a leniency agreement with the CGU and the AGU (the "CGU/AGU Agreement").
| CHF32.1 million to the OAG, related to two remaining annual installments of CHF16.1 million due on June 30 of each year as from 2020; and | · | R$900 million to the MPF in four remaining annual installments due on January 30 of each year as from 2020. To guarantee payment of future installments, Braskem pledged collateral assets from its property, plant and equipment sufficient to cover one annual installment; and | · | R$409.9 million in connection with the CGU/AGU Agreement in two annual installments due on January 30, 2024 and 2025. |
The Global Settlement does not prevent Braskem from responding to any legitimate third party, which may seek indemnification against us from damages for the facts subject to the Global Settlement. As a result, we cannot assure you that the aggregate amount disbursed as a requirement pursuant to the agreement will be sufficient to cover indemnification claims of all of the victims. We may be required to make additional disbursements to cover such claims.
Other authorities with jurisdiction over us may seek to impose monetary sanctions or fines on, or to initiate investigative proceedings against, Braskem. As a result of entering into the Global Settlement, Braskem may be prevented from entering into certain agreements with government entities and may be subject to increased operating costs for being under the obligation to improve its governance and anti-corruption practices and procedures, including the cost of external monitorships. Under the terms of the Global Settlement, we arewere required to cooperate with these governmental authorities and improve our governance and anti-corruption compliance practices. We willwere also be subject to external monitorship for a period of three years as from 2017, which ended in March 2020, during which time the monitor will assessassessed compliance with the Global Settlement, including the effectiveness of our internal controls, policies and procedures to reduce the risk of any anti-corruption violations. The monitorship period maycould be terminated early or extended for up to one year at the authorities’ discretion depending on our compliance with the Global Settlement. We have retained monitors pursuant to On May 13, 2020, the provisionsMPF, the DoJ and the SEC confirmed the conclusion of the Global Settlement,independent compliance monitorship at Braskem, which had been established in the settlement agreements entered into by Braskem, the DoJ and they have been approvedthe SEC on December 21, 2016. The decision of the DoJ and the SEC was based on a final report from the independent monitors, who certified that the Company implemented all of the recommendations regarding the structure and execution of its compliance program and concluded that the Company meets the standards set out in the settlement agreements entered into with the DoJ and the SEC. Following the end of the independent monitorship period and the certification by the relevant authorities. The monitors may recommend changes toMPF, the DoJ and the SEC, the Company has complied with its obligations established in the settlement agreements entered into with these authorities and has successfully concluded the three-year monitorship. We believe we are fully in compliance with our policies and procedures, which we must adopt unless they are unduly burdensome or otherwise inadvisable, in which case we may propose alternatives that the authorities may choose to accept. Operatingobligations under the oversight of the monitors will likely require the assumption of additional responsibilities by members of our management. The costs that we are likely to incur in connection with compliance with the Global Settlement, including the implementation of the recommended changes could be significant and could negatively impact us by requiring the efforts of our management team and diverting their attention from our ordinary business operations.Settlement. 158
In connection with the execution of the CGU/AGU Agreement, Braskem originally took a tax deduction in its 2019 quarterly financial statements for the full amount of the payments to be paid under the CGU/AGU Agreement, as under Brazilian tax law the execution of such agreement provides a right to take a tax deduction on the compensation amount that is due to be paid in Brazil under this type of agreement. The plea agreement entered into with the DoJ as part of the Global Settlement prohibits Braskem from seeking tax deduction in connection with the payment of any part of the aggregate amount of the total criminal penalty contained in the plea agreement, which includes a credit for a portion of the payments to be made in Brazil. After further consideration, in light of the language in the plea agreement, Braskem voluntarily decided to reverse such tax deduction so that no part of the prior tax deduction would be inconsistent with the plea agreement entered into with DoJ. Under the Plea Agreement, it is the DoJ´s sole discretion to determine whether the CompanyBraskem S.A. has breached the Plea Agreement and to determine the consequences of such breach. Currently, based on the advice of itsour counsel, the Company believeswe believe that it is unlikely that it will incur in losses as a result of this matter. We are fully in compliance with our obligations under the Global Settlement.
Labor Proceedings Employment and Occupational Health and Safety Proceedings We have provisioned R$177.8315.4 million, as of December 31, 2018,2019, with respect to employment and occupational health and safety proceedings, relating to 477604 labor proceedings, including cases of occupational health and safety (in 2017,2018, there were 599477 proceedings). Our external legal advisorscounsel estimate that the time for completion of each of such proceedings in Brazil is more than 5five years. Estimates related to the completion of the proceedings and the possibility of future disbursement may change as result of new decisions of higher courts. Social Security As of December 31, 2018,2019, we were involved in several social security proceedings in connection with which the aggregate amount claimed was R$31941.2million. We believe that our chance of loss is possible and therefore have not established a provision for these claims. Civil Proceedings Caustic soda transportation We are the defendant in civil lawsuits filed by the owner of a former distributor of caustic soda and by the shipping company that provided services to this former distributor, which, as of December 31, 2018,2019, totaled R$99.265.8 million. The claimants seek indemnity for damages related to the alleged non-performance of the distribution agreement. Management’sOur management’s evaluation, supported by the opinion of external legal advisors,counsel, is that thelawsuits will possibly be dismissed within an eight-year period as of December 2018.2019. No judicial deposit or other form of guarantee was constituted for these lawsuits. No provision has been made by us for this proceeding.
Excess weight A civil class action was filed by the Federal Prosecutor’s Office in Brasilia seeking to hold us liable for damages caused to federal roads by trucks carrying excess weight. The action claims damages to the federal government arising from material damages and collective pain and suffering, in the amount of R$7161.2 million, as of December 31, 2018.2019. The lawsuit was dismissed in the lower court, and the decision dismissing it was confirmed by a higher court. A special appeal has been filed by the Federal Prosecutor’s Office and is currently pending before the Superior Court of Justice (STJ). Resale of solvents In January 2017, we became the defendant in a civil lawsuit filed by a former reseller of solvents, claiming alleged breach of a distribution agreement. OnAs of December 31, 2018,2019, the damages claimed in the lawsuit amounted to R$185.6204.6 million. Based on the opinion of external legal counsel, our management believes that the lawsuit has a possible risk of loss within an eight-year period as of January 2017.loss. As a result, no provision has been made by us. No judicial deposit or other form of guarantee was constituted for these lawsuits.this lawsuit. Redress proceeding 159
A compensatory lawsuit was filed by the insurer of one of our customers. The insurer seeks the reimbursement of the amount paid to a customer pursuant to an insurance agreement entered into with the customer. As of December 31, 2018,2019, the amount involved in this proceeding was R$73.875.6 million. According to the insurer, the losses incurred by the customer, for which it was reimbursed, were caused by the supply of non-conforming products by Braskem. Our management, based on the opinion of external legal counsel, considers that the lawsuit may be dismissed in a period of up to 8eight years. No judicial deposit or other form of guarantee was constituted for this lawsuit. Civil Claim for Recovery of Overpaid Amounts Related to CIDE Contributions A lawsuit was filed by a customer of ours claiming (i) the repayment of the amount allegedly withheld by Braskem for the payment of CIDE’s share due for fuel supply and (ii) compensation for damages arising from the misuse of said amount. The lawsuit was dismissed at a lower court and the decision was confirmed by the a higher court. Currently, there is a special appeal that was filed by the customer pending before the Superior Court of Justice (STJ). As of March 8,December 31, 2019, the amount in dispute was R$16.9144 million. Our management, based on the opinion of external legal counsel, considers that the lawsuit will possibly be dismissed in a period of up to 3three years. No judicial deposit or other form of guarantee was constituted for this lawsuit. Corporate Related Proceedings As of December 31, 2018,2019, one of our most significant corporate claims is related to an ordinary collection claim combined with a request for damages for losses, requesting the payment of dividends and a share bonus arising from the class “A” preferred shares of the dissolved company Salgema Indústrias Químicas S.A. Dividends and bonus related to fiscal years prior to 1987 were considered to have become time-barred by lower courts and therefore not owed by Braskem. However, the Alagoas state Court of Appeals reviewed the decision and considered that amounts prior to such period are also as owed. Braskem filed an appeal against the decision with the Superior Court of Justice (STJ), which was partially granted. It is possible that the statute of limitations could be applied to part of the claim once the request for liquidation is reviewed by the Superior Court of Justice (STJ). During fiscal year 2018,2019, Braskem established a provision of R$59.664.3 million for this litigationlawsuit and there is no guarantee related to this claim. We are also currently subject to the liquidation of an award related to a lawsuit filed in 1988, which ordered Polialden Petroquímica S.A., which merged into Braskem on May 31, 2006, to pay to its non-controlling preferred shareholders certain remaining profits. The purpose of the liquidation proceeding is to determine the value of the award calculated in accordance with the judicial order issued on April 15, 2016, which will occur through an arbitration procedure, as determined by the court, and was appealed. The procedure is awaiting the beginning of the expert analysis.
Based on the understandingopinion of our external legal advisors,counsel, as of December 31, 2018, the nominal amount in dispute was R$16 million, with2019, On December 31, 2019, we constituted a possible lossprovision of R$18664.3 million. Reverse Logistic System Braskem is directly or indirectly (through associations that filed proceedings on behalf of certain groups of individuals or entities)industry associations) involved in public civil actions and proceedings currently pending before the municipality of São Paulo, the municipality of Porto Alegre, 31and 27 municipalities in the state of Mato Grosso do Sul and the state of ParanaParaná related to the execution of a National Sectorial Agreement for the reverse logistic system of general packages, seeking amendments to the terms of such agreement or the implementation of reverse logistics, as well as payment of damages to municipalities and indemnification for environmental damage. Several companies and associations that have entered into the National Sectorial Agreement are involved in such claims, which are all in their early stages. The total net value involved in these claims is R$12.4R14.5 million, considering all defendant companies and associations (if the amount is divided among all companies and associations involved as defendants, Braskem would be responsible for R$0.450.52 million). TheseAccording to the opinion of our external legal counsel, these lawsuits have a possible chance of loss and, as a result, no provision has been made by Braskem. Hashimoto Civil Action A civil class action was filed in June 2018 by the Public Prosecutor’s Office of the State of São Paulo against us and other companies that operate in the Capuava Petrochemical Complex, seeking the reparation and/or remediation of environmental damages supposedly arising from the emission of air pollutants, as well as a joint judgementjointjudgement against companies that comprise such complex, seeking environmental moral damages in the amount of R$107.6 million. Based on the opinion of external legal counsel, our management believes that the lawsuit will possibly be dismissed within a period of eight years. No judicial deposit or other form of guarantee was constituted for this lawsuit. 160
Alagoas -– Mining Activities In April 2019, the Alagoas State Attorney’s Office (Ministério Público do Estado de Alagoas) and the State Public Defender’s Office (Defensoria Pública do Estado de Alagoas) filed a lawsuit seeking to freeze our assets in an amount of up to R$6.7 billion to secure funds allegedly required to ensure remediation and compensation for environmental, property and personal damages potentially resulting from a geological incident related to our mining actitivies in the city of Maceió. A preliminary decision ordered the freezing of R$100 million in our banks accounts. In addition, the Alagoas state court of appeals (Tribunal(Tribunal de Justiça do Estado de Alagoas)Alagoas) ordered the suspension of the distribution of dividends for the fiscal year 2018 that had been proposed in the amount of R$2.7 billion, or, alternatively, the freezing of assets in the same amount of the proposed dividend distribution.This decision was subsequently reversed by a decision of the Superior Court of Justice (Superior(Superior Tribunal de Justiça, or STJ), which authorized the distribution of dividends upon posting of a judicial bond in the same amount. The Alagoas State Attorney’s Office and the Alagoas State Public Defender’s Office amended their claim to exclude the request for indemnification for the alleged environmental damages and reduce the amount of assets to be frozen to R$3.7 billion, which according to their allegations would be equivalent to the actual damages caused to the residents of the districts affected by the geological event. On June 26, 2019, the presiding judge of the Alagoas state court of appeals (Tribunal(Tribunal de Justiça do Estado de Alagoas)Alagoas) issued a decision ordering an amount of R$3.7 billion to be frozen. This decision was also subsequently reversed by the Superior Court of Justice (STJ), which ordered the frozen amount of R$3.7 billion to be returned to our bank accounts after posting another judicial bond in an equivalent amount. On May 8, 2019, we became aware of the Report No. 1, prepared by the Mineral Resources Research Company (Companhia de Pesquisa de Recursos Minerais), or CPRM, an entity of the Brazilian Energy and Mining Ministry (Ministério de Minas e Energia), on the geological events that occurred in the city of Maceió. Such report indicated the occurrence of (i) destabilization of caverns resulting from sodium chloride, or salt, extraction, which created a dynamic situation that reactivated pre-existing geological structures and deformations in the districts of Pinheiro, Mutange and Bebedouro; and (ii) instability in the Pinheiro district, which was aggravated by the erosive effects caused by an increase in the infiltration of stormwater runoff in pre-existing fractures in extremely erodible soil and accelerated due to the lack of an effective stormwater runoff drainage network and of adequate basic sanitation, among other factors. In this context, due to the developments from the publication of Report No. 1 by CPRM, in accordance with applicable safety standards, on May 9, 2019, we suspended all salt extraction and, consequently, the operations of the chlor-alkali and dichloroethane plants located in the district of Pontal da Barra in Maceió, state of Alagoas and also reducing production in the Camaçari Petrochemical Complex in the state of Bahia, since they are integrated into the production chain. Given that, Braskem put in place a non-integrated business model according to which the Company will import: (i) caustic soda to supply the Brazilian market using its logistics structure and terminals along the Brazilian coast; (ii) EDC to continue to operate its PVC plants in the states of Alagoas and Bahia, in Brazil; and (iii) sea salt to supply the Chlorine Soda plant in the state of Bahia.We have continuously cooperated with relevant authorities and the local community. On July 25, 2019, we were informed of another civil lawsuit filed against us by the Labor Prosecutor’s Office of the State of Alagoas, or MPT-AL, requesting injunctive relief to freeze the amount of R$2.5 billion to guarantee payment of any actual damages that workers affected by the geological event may suffer. In that lawsuit, MPT-AL further requested the payment of compensation to workers for pain and suffering. On October 10, 2019, the trial court denied the injunctive relief request. On August 19, 2019, we became aware of the filing of another civil lawsuit by the Federal Prosecutor’s Office (Ministério Público Federal) against us and other parties, requesting the following injunctive reliefs: (i) the set-up of a fund of R$3.1 billion for the benefit of social and environmental programs and emergency measures to be carried out, and the maintenance in said fund of working capital in the amount of at least R$2.0 billion or, aftera financial schedule is approved for such fund, an amount equivalent to 100% of the expenses projected for the subsequent 12 months; (ii) the posting of bonds in the amount of R$20.5 billion; (iii) prohibition on us to encumber or dispose of any of our fixed assets and to distribute profits, in the form of dividends, interest on shareholders’onshareholders’ equity or any other form; (iv) freezing of any profits not yet distributed; and (v) suspension of receipt of government financings and government incentives, as well as acceleration of existing indebtedness with BNDES (a federal development bank). On January 15, 2020, the trial court denied the injunctive relief requests.
AsOn November 14, 2019 we issued a material fact in which we informed the market that we submitted to the Brazilian National Mining Agency (Agência Nacional de Mineração, or ANM) a plan with measures to permanently end salt extraction activities in Maceió and close all of its wells. We proposed to the ANM the creation of a protection area around certain wells, which will involve resettling people, vacating properties and taking certain additional monitoring measures. These measures are based on a study conducted by the Institute of Geomechanics of Leipzig (IFG), Germany, which is a global reference in geomechanics of salt wells, and is expected to be implemented in coordination with Brazilian civil defense and other authorities. Our preliminary estimates, which still need to be confirmed with relevant authorities, indicate that the protection area will cover an area of approximately 400 properties and 1,500 people. For certain other wells, the recommendation is that additional monitoring measures be taken, without the need to vacate properties and resettle residents. The proposed measures are related to the permanent termination of salt extraction activities at our salt mine in Alagoas and the closure of its wells. With regard to the geological incident that occurred in Maceió, Braskem will continue to cooperate with authorities, and count on the support of independent experts, to identify the causes of the dateincident and to implement all other necessary actions.
On January 3, 2020, we entered into an agreement with the Alagoas State Public Defender’s Office (Defensoria Pública do Estado de Alagoas), the Federal Prosecutor’s Office (Ministério Público Federal), the State of this annual report,Alagoas Prosecutor’s Office (Ministério Público do Estado de Alagoas) and the plaintiff´s requestsFederal Public Defender’s Office (Defensoria Pública da União) to support the relocation of, and indemnification to, residents in the areas at risk located in the districts of Mutange, Bom Parto, Pinheiro and Bebedouro in the city of Maceió, in the state of Alagoas, as set forth in the agreement, which was ratified by the Federal Judge of the 3rd District Court in the state of Alagoas. We estimate that the support for injunctive relief have not yetrelocation set forth in the agreement and in surrounding areas will involve approximately 17,000 people. We also estimate that the following amounts will be provisioned in connection with the agreement: (i) R$1.7 billion for the implementation of the Financial Compensation and Support for Relocation Program; and (ii) R$1.0 billion for the actions required to close certain salt wells previously operated by us. The provisions will be disbursed in the coming years and may be changed based on new developments. Based on such agreeement, the plaintiffs agreed to: (i) release the amount of R$3.7 billion that had been ruled upon.frozen, of which R$1.7 billion is to be transferred to a bank account of Braskem specifically for funding a financial compensation and relocation program, which must maintain at minimum balance of R$100 million, subject to audit by an external auditor; and (ii) substitute the surety bonds that had been presented by Braskem in the approximate aggregate amount of R$6.4 billion for two new surety bonds in the approximate aggregate amount of R$3.0 billion to guarantee the public interest civil lawsuit filed by the Alagoas State Attorney’s Office (Ministério Público do Estado de Alagoas) and the State Public Defender’s Office (Defensoria Pública do Estado de Alagoas) and the public interest civil lawsuit filed by the Federal Prosecutor’s Office (Ministério Público Federal). Of the amount of R$3.7 billion, which has been fully reimbursed to the Company, R$1.7 billion was transferred to a bank account controlled by Braskem specifically for funding the financial compensation and relocation program, as set forth in the agreement described below. We are taking all relevant measuresOn February 14, 2020, we entered into an agreement with the Labor Prosecutors’ Office in the state of Alagoas (Ministério Público do Trabalho do Estado de Alagoas) to defendend the civil lawsuit filed against the Company in July 2019, with the commitment to invest R$40.0 million to implement a Business Recovery and Promotion of Educational Activities Program for residents and workers in the districts of Mutange, Bom Parto, Pinheiro and Bebedouro in Maceió, in the state of Alagoas. Such program consists in constructing day care centers and schools, implementing vocational training programs and providing support to the Civil Defense authorities in hiring qualified personnel for continuing the process of monitoring the areas at risk in these lawsuits.districts. As per the settlement, the Labor Prosecution Office agreed to withdraw the public-interest civil action and the request to freeze funds made in said action, as per the notices to the market disclosed by the Company on July 25 and October 10, 2019.
We have also been continuouslyBraskem is still cooperating with relevant authorities to identify the causes of the incident,geological event in Maceió and necessary measures to deal with the problem with the support of independent experts. The Company is also committed to fulfilling all of its obligations under the agreements it has signed and to a continuous dialogue with the authorities and the community in order to support measures that may guarantee the safety and well-being of those involved in the event.
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Dividends and Dividend Policy Payment of Dividends Our dividend distribution policy has historically included the distribution of periodic dividends, based on annual balance sheets approved by our board of directors. When we pay dividends on an annual basis, they are declared at our annual shareholders’ meeting, which we are required by the Brazilian Corporations Law and our by-laws to hold by April 30 of each year. When we declare dividends, we are generally required to pay them within 60 days of declaring them unless the shareholders’ resolution establishes another payment date. In any event, if we declare dividends, we must pay them by the end of the fiscal year for which they are declared. Any holder of record of shares at the time that a dividend is declared is entitled to receive dividends. Our payment of annual dividends is based on our audited financial statements prepared for our preceding fiscal year. Our Finance and Investments Committee will review, prior to the review by our board of directors, any management proposal regarding the distribution of dividends or interest on capital stock. Our board of directors may declare interim dividends based on the accrued profits recorded or the realized profits in our annual or semi-annual financial statements approved by our common shareholders. In addition, we may pay dividends from net income based on our unaudited quarterly financial statements. These quarterly interim dividends may not exceed the amounts included in our capital reserve accounts. We may set off any payment of interim dividends against the amount of the mandatory distributable amount for the year in which the interim dividends were paid. The following table sets forth the dividends and/or interest attributable to shareholders’ equity paid to holders of our common shares, class “A” preferred shares and “class B” preferred shares since January 1, 20162017 inreaisand in U.S. dollars translated fromreaisat the commercial market selling rate in effect as of their respective payment date. | | Nominal Brazilian Currency per | | | Nominal Brazilian Currency per | | | | | | | | | | | | | | | | | 2016 | April 15, 2016 | 1.26 | 0.61 | 0.36 | 0.17 | | 2016 | October 11, 2016 | 1.26 | 0.39 | | 2017 | December 12,2017 | 1.26 | 0.61 | 0.38 | December 12,2017 | 1.26 | 0.61 | 0.38 | 2017 | May 10, 2018 | 1.89 | — | 0.53 | — | May 10, 2018 | 1.89 | — | 0.53 | — | 2018 | | December 30,2019 | 0.84 | 0.61 | 0.21 | 0.15 |
The following discussion summarizes the principal provisions of the Brazilian Corporations Law and our by-laws relating to the distribution of dividends, including interest attributable to shareholders’ equity. Calculation of Adjusted Net Profits At each annual shareholders’ meeting, our board of directors is required to recommend how to allocate our net profits for the preceding fiscal year, which recommendation our board of executive officers initially submits to our board of directors for approval. This allocation is subject to approval by our common shareholders. The Brazilian Corporations Law defines “net profits” for any fiscal year as our net income after income taxes for thatfiscal year, net of any accumulated losses from prior fiscal years and any amounts allocated to employees’ participation in our net profits in that fiscal year. Under the Brazilian Corporations Law, our adjusted net profits available for distribution are equal to our net profits in any fiscal year, reduced by amounts allocated to our legal reserve and other applicable reserves, and increased by any reversals of reserves that we constituted in prior years.
Reserve Accounts Under the Brazilian Corporations Law and our by-laws, we are required to maintain a legal reserve. In addition, we are permitted by the Brazilian Corporations Law to establish the following discretionary reserves: · | a contingency reserve for an anticipated loss that is deemed probable in future years. Any amount so allocated in a previous year must be reversed in the fiscal year in which the loss had been anticipated if the loss does not occur as projected or charged off in the event that the anticipated loss occurs; |
·a contingency reserve for an anticipated loss that is deemed probable in future years. Any amount so allocated in a previous year must be reversed in the fiscal year in which the loss had been anticipated if the loss does not occur as projected or charged off in the event that the anticipated loss occurs;163
· a reserve for investment projects, in an amount based on a capital expenditure budget approved by our shareholders; ·an unrealized profit reserve described under “—Mandatory Distributions” below; and
·a tax incentive investment reserve, included in our capital reserve accounts, in the amount of the reduction in our income tax obligations due to government tax incentive programs. See note 23 to our audited consolidated financial statements elsewhere in this annual report.
| a reserve for investment projects, in an amount based on a capital expenditure budget approved by our shareholders; | · | an unrealized profit reserve described under “—Mandatory Distributions” below; and | · | a tax incentive investment reserve, included in our capital reserve accounts, in the amount of the reduction in our income tax obligations due to government tax incentive programs. See note 32 to our audited consolidated financial statements elsewhere in this annual report. |
Allocations to each of these reserves (other than the legal reserve) are subject to approval by our common shareholders voting at our annual shareholders’ meeting. Legal Reserve Account Under the Brazilian Corporations Law and our by-laws, we must allocate 5% of our net profits for each fiscal year to our legal reserve until the aggregate amount of our legal reserve equals 20% of our paid-in capital. However, we are not required to make any allocations to our legal reserve in a fiscal year in which our legal reserve, when added to our other reserves, exceeds 30% of our shareholders’ equity. As of December 31, 2018,2019, we had a balance of R$577.5 million in our legal reserve account. Dividend Preference of Preferred Shares Under our by-laws, our preferred shareholders are entitled to a Minimum Preferred Dividend, equal to 6% of the book value of such shares, before dividends may be paid to our common shareholders. Distributions of dividends in any year are made: · first, to the holders of preferred shares, up to the amount of the Minimum Preferred Dividend for such year; ·then, to the holders of common shares, until the amount distributed in respect of each common share is equal to the amount distributed in respect of each preferred share; and
·thereafter, to the holders of our common shares and our class A preferred shares on a pro rata basis.
| first, to the holders of preferred shares, up to the amount of the Minimum Preferred Dividend for such year; | · | then, to the holders of common shares, until the amount distributed in respect of each common share is equal to the amount distributed in respect of each preferred share; and | · | thereafter, to the holders of our common shares and our class A preferred shares on a pro rata basis. |
Our class B preferred shareholders are not entitled to receive any additional dividend amounts after they have received the preferential dividend. If the Minimum Preferred Dividend is not paid for a period of three years, holders of preferred shares will be entitled to full voting rights. Mandatory Distributions As permitted by the Brazilian Corporations Law, our by-laws specify that 25% of our adjusted net profits for each fiscal year must be distributed to shareholders as dividends or interest attributable to shareholders’ equity. We refer to this amount as the mandatory distributable amount.
Under the Brazilian Corporations Law, the amount by which the mandatory distributable amount exceeds the “realized” portion of net income for any particular year may be allocated to the unrealized profit reserve, and the mandatory distribution may be limited to the “realized” portion of net income. The “realized” portion of net income is the amount by which our net income exceeds the sum of (1) our net positive results, if any, from the equity method of accounting for earnings and losses of our subsidiaries and certain associated companies, and (2) the profits, gains or income obtained on transactions maturing after the end of the following fiscal year. As amounts allocated to the unrealized profit reserve are realized in subsequent years, such amounts must be added to the dividend payment relating to the year of realization. The Brazilian Corporations Law permits us to suspend the mandatory distribution if our board of directors reports to our annual shareholders’ meeting that the distribution would be incompatible with our financial condition at that time, provided that this does not affect the payment of the Minimum Preferred Dividend. Our fiscal council must opine on any suspension of the mandatory distribution. In addition, our management must report the reasons of any suspension of the mandatory distribution to the CVM. We must allocate net profits not distributed by us as a result of a suspension to a special reserve and, if not absorbed by subsequent losses, we must distribute these amounts as soon as our financial condition permits. In case our profits reserves, as defined in the BraziliantheBrazilian Corporations Law, exceed our share capital, the excess must be credited to shareholders’ equity or used for the payment of distributions. 164
Interest Attributable to Shareholders’ Equity Brazilian companies, including us, are permitted to pay interest attributable to shareholders’ equity as an alternative form of payment of dividends to our shareholders. These payments may be deducted when calculating Brazilian income tax and social contribution tax. The interest rate applied to these distributions generally cannot exceed the TLP for the applicable period. The amount of interest paid that we can deduct for tax purposes cannot exceed the greater of: · 50% of our net income (after the deduction of the provision for social contribution tax and before the deduction of the provision for corporate income tax) before taking into account any such distribution for the period for which the payment is made; and ·50% of the sum of our retained earnings and profit reserves.
| 50% of our net income (after the deduction of the provision for social contribution tax and before the deduction of the provision for corporate income tax) before taking into account any such distribution for the period for which the payment is made; and | · | 50% of the sum of our retained earnings and profit reserves. |
Any payment of interest attributable to shareholders’ equity to holders of common shares, preferred shares or ADSs, whether or not they are Brazilian residents, is subject to Brazilian withholding tax at the rate of 15%, except that a 25% withholding tax rate applies if the recipient is a resident of a tax haven jurisdiction. A tax haven jurisdiction is a country (1) that does not impose income tax or whose income tax rate is lower than 20% or (2) which does not permit disclosure of the identity of shareholders of entities organized under its jurisdiction. See “Item 10. Additional Information—Taxation—Brazilian Tax Considerations.” Under our by-laws, we may include the amount distributed as interest attributable to shareholders’ equity, net of any withholding tax, as part of the mandatory distributable amount. Significant Changes Other than as disclosed in this annual report, no significant change has occurred since the date of the audited consolidated financial statements included in this annual report.
Item 9. The Offer and Listing Markets for Our Equity Securities The principal trading market for our common shares, class A preferred shares and class B preferred shares is the B3, where they are traded under the symbols “BRKM3,” “BRKM5” and “BRKM6,” respectively. Our common shares and class A preferred shares began trading on the B3 (formerly the BM&FBOVESPA) on November 11, 1980, and our class B preferred shares began trading on the B3 on August 19, 1983. On December 21, 1998, ADSs representing our class A preferred shares began trading on the NYSE. Our ADSs are traded under the symbol “BAK.” As we disclosed on a Form 6-K furnished to the SEC on May 13, 2019, the New York Stock Exchange suspended trading of our ADSs and commenced proceedings to delist us due to our delay in filing the annual report on Form 20-F for the year ended December 31, 2017 and this annual report. We have appealed the decision. Our ADSs have been available for trading on the over-the-counter (OTC) market in the United States since May 15, 2019. As of December 31, 2018,2019, there were 24,390,03616,992,383 ADSs outstanding, representing 48,780,07233,984,766 class A preferred shares, or 14.1%4.3% of our outstanding class A preferred shares. Each ADS represents two class A preferred shares. On October 8, 2003, we listed our class A preferred shares on the LATIBEX, a stock market for Latin American issuers that is quoted in eurosEuros on the Madrid Stock Exchange, under the symbol “XBRK.” Our class A preferred shares are traded on the LATIBEX in lots of one share. Regulation of Brazilian Securities Markets The Brazilian securities markets are regulated by the CVM, which has regulatory authority over the stock exchanges and the securities markets generally, the National Monetary Council and the Central Bank, which has, among other powers, licensing authority over brokerage firms and which regulates foreign investment and foreign exchange transactions. The Brazilian securities markets are governed by (1) Law No. 6,385, as amended and supplemented, which is the principal law governing the Brazilian securities markets and which we refer to as the Brazilian Securities Law; (2) the Brazilian Corporations Law; and (3) the regulations issued by the CVM, the National Monetary Council and the Central Bank. Trading on the B3 Overview of the B3 In 2000, theBolsa de Valores de São Paulo S.A. – BVSP (the São Paulo Stock Exchange), or BOVESPA was reorganized through the execution of memoranda of understanding by the Brazilian stock exchanges. Following this reorganization, the BOVESPA was a non-profit entity owned by its member brokerage firms and trading on the BOVESPA was limited to these member brokerage firms and a limited number of authorized nonmembers. Under the memoranda, all securities are now traded only on the BOVESPA, with the exception of electronically traded public debt securities and privatization auctions, which are traded on the Rio de Janeiro Stock Exchange. In August 2007, the BOVESPA underwent a corporate restructuring that resulted in the creation of BOVESPA Holding S.A., a public corporation, whose wholly owned subsidiaries were (1) the BOVESPA, which is responsible for the operations of the stock exchange and the organized over-the-counter markets, and (2) the Brazilian Settlement and Custodial Company (Companhia Brasileira de Liquidação e Custódia), or CBLC, which is responsible for settlement, clearing and depositary services. In the corporate restructuring, all holders of membership certificates of the BOVESPA and of shares of CBLC became shareholders of BOVESPA Holding S.A. As a result of the corporate restructuring, access to the trading and other services rendered by the BOVESPA is not conditioned on stock ownership in BOVESPA Holding S.A. In May 2008, the BOVESPA merged with the Commodities and Futures Exchange (Bolsa de Mercadorias & Futuros) to form the BM&FBOVESPA. In November 2008, the CBLC merged with the BM&FBOVESPA. As a result, the BM&FBOVESPA performed its own settlement, clearing and depositary services. On March 30, 2017, the BM&FBOVESPA merged with CETIP, a provider of financial services for the organized over-the-counter market, to form the B3 – Brasil Bolsa Balcão S.A., or B3.
Regulation of Foreign Investments Trading on the B3 by a holder not deemed to be domiciled in Brazil for Brazilian tax and regulatory purposes, or a non-Brazilian holder, is subject to certain limitations under Brazilian foreign investment regulations. With limited exceptions, non-Brazilian holders may trade on the B3 only in accordance with the requirements of Resolution No. 4,373 of the National Monetary Council. Resolution No. 4,373 requires that securities held by non-Brazilian holders be maintained in the custody of, or in deposit accounts with, financial institutions that are authorized by the Central Bank and the CVM. In addition, Resolution No. 4,373 requires non-Brazilian holders to restrict their securities trading to transactions on the B3 or qualified over-the-counter markets. With limited exceptions, non-Brazilian holders may not transfer the ownership of investments made under Resolution No. 4,373 to other non-Brazilian holders through private transactions. See “Item 10. Additional Information—Exchange Controls” for further information about Resolution 4,373, and “Item 10. Additional Information—Taxation—Brazilian Tax Considerations—Taxation of Gains in Brazil” for a description of certain tax benefits extended to non-Brazilian holders who qualify under Resolution No. 4,373. 166
Item 10. Additional Information Description of Our By-laws The following is a summary of the material provisions of our by-laws and of the Brazilian Corporations Law. In Brazil, a company’s by-laws (estatuto social) is the principal governing document of a corporation (sociedade por ações). Corporate Purposes Article 2 of our by-laws establishes our corporate purposes to include: ·the manufacture, trading, import and export of chemical and petrochemical products and petrochemical derivatives;
·the production, distribution and trading of utilities such as: steam, water, compressed air, industrial gases, as well as the provision of industrial services;
·the production, distribution and trading of electricity for its own consumption and that of other companies;
·holdings of equity stakes in other companies, pursuant to the Brazilian Corporations Law No. 6,404/76, as a holder of quotas or shares;
·the manufacture, distribution, trading, import and export of gasoline, diesel oil, LPG and other oil derivatives.
·the transportation, representation and consignment of petrochemical products and by-products, compounds and derivatives, such as polypropylene, polypropylene films, polyethylene, elastomers and their respective manufactured products;
·the free lease or loan of assets that are owned or possessed thereby because of a commercial leasing agreement, provided that this is carried out as an ancillary activity to the main corporate purpose of the Company; and
·the provision of services related to the activities above
· | the manufacture, trading, import and export of chemical and petrochemical products and petrochemical derivatives; | · | the production, distribution and trading of utilities such as: steam, water, compressed air, industrial gases, as well as the provision of industrial services; | · | the production, distribution and trading of electricity for its own consumption and that of other companies; | · | holdings of equity stakes in other companies, pursuant to the Brazilian Corporations Law No. 6,404/76, as a holder of quotas or shares; | · | the manufacture, distribution, trading, import and export of gasoline, diesel oil, LPG and other oil derivatives. | · | the transportation, representation and consignment of petrochemical products and by-products, compounds and derivatives, such as polypropylene, polypropylene films, polyethylene, elastomers and their respective manufactured products; | · | the free lease or loan of assets that are owned or possessed thereby because of a commercial leasing agreement, provided that this is carried out as an ancillary activity to the main corporate purpose of our Company; and | · | the provision of services related to the activities above |
Board of Directors Under the Brazilian Corporations Law, any matters subject to the approval of our board of directors can be approved by a simple majority of votes of the members present at a duly convened meeting, unless our by-laws otherwise specify. Under our by-laws, our board of directors may only deliberate if a majority of its members are present at a duly convened meeting. Any resolutions of our board of directors may be approved by the affirmative vote of a majority of the members present at the meeting; provided, however, that certain matters may only beapproved by mutual agreement between the parties under the Braskem S.A. Shareholders’ Agreement. See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders—Shareholders Agreements—Braskem S.A. Shareholders’ Agreement.” The majority of the members of our board of directors are elected by the Odebrecht Group. However, at least 20% of the members of our board of directors must be independent directors. In addition, any director appointed by a shareholder pursuant to a shareholders agreement is bound by the terms of such agreement. See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders—MajorShareholders—Shareholders Agreements.” The members of our board of directors are elected at general meetings of shareholders for concurrent two-year terms. Our by-laws do not require the members of our board of directors to be a resident in Brazil or become our shareholders. The Brazilian Corporations Law requires each of our executive officers to be residents of Brazil. Under our by-laws, the shareholders of our common shares approve the aggregate compensation payable to our directors, executive officers and members of our fiscal council. Subject to this approval, our board of directors establishes the compensation of its members and of our executive officers. See “Item 6. Directors, Senior Management and Employees—Compensation.” Neither the Brazilian Corporations Law nor our by-laws establish any mandatory retirement age for our directors or executive officers.
Compliance Our by-laws provide for a Compliance Committee comprised of at least three independent members of our board of directors, which members are appointed by our board of directors. In addition, our compliance department, led by our Chief Compliance Officer, reports directly to the Compliance Committee and is not subordinated or connected to any other department or officer of our company.Company. See “Item 6—Directors, Senior Management and Employees—Directors and Senior Management—Board Committees—Compliance Committee.” Share Capital Under the Brazilian Corporations Law and under our by-laws, the number of issued and outstanding non-voting shares or shares with limited voting rights, such as our class A preferred shares and class B preferred shares, may not exceed fifty percent of total outstanding share capital; however, our by-laws state that such amount shall not exceed two thirds of total outstanding share capital. Each of our common shares entitles its holder to one vote at our shareholders’ meetings. Holders of our common shares are not entitled to any preference in respect of our dividends or other distributions or otherwise in case of our liquidation. Our class A preferred shares and class B preferred shares are non-voting, except in limited circumstances, and have priority over our common shares in the case of our liquidation. See “—Voting ights”]rights” for information regarding the voting rights of our preferred shares, “—Liquidation” for information regarding the liquidation preferences of our preferred shares, and “Item 8. Financial Information—Dividends and Dividend Policy—Calculation of Adjusted Net Profits” and “Item 8. Financial Information—Dividends and Dividend Policy—Dividend Preference of Preferred Shares” for information regarding the distribution preferences of our preferred shares. Shareholders’ Meetings Under the Brazilian Corporations Law, we must hold an annual shareholders’ meeting by April 30 of each year in order to: · approve or reject the financial statements approved by our board of directors and board of executive officers, including any recommendation by our board of directors for the allocation of net profits and distribution of dividends; and ·elect members of our board of directors (upon expiration of their two-year term) and members of our fiscal council, subject to the right of minority shareholders to elect members of our board of directors and our fiscal council.
| approve or reject the financial statements approved by our board of directors and board of executive officers, including any recommendation by our board of directors for the allocation of net profits and distribution of dividends; and | · | elect members of our board of directors (upon expiration of their two-year term) and members of our fiscal council, subject to the right of minority shareholders to elect members of our board of directors and our fiscal council. |
In addition to the annual shareholders’ meetings, holders of our common shares have the power to determine any matters related to changes in our corporate purposes and to pass any resolutions they deem necessary to protect and enhance our development whenever our interests so require, by means of extraordinary shareholders’ meetings.
Under the Brazilian Corporations Law, the holders of our common shares have the power, among other powers, to vote at shareholders’ meetings to: ·amend our by-laws;
·approve any capital increase in excess of the amount of our authorized capital;
·approve any capital reduction;
·accept or reject the valuation of assets contributed by any of our shareholders in exchange for the issuance of our share capital;
·suspend the rights of any of our shareholders in default of their obligations established by law or by our by-laws;
·authorize the issuance of convertible debentures;
·approve any reorganization of our legal form or any merger, consolidation or spin-off involving us;
·authorize our dissolution and liquidation, the election and dismissal of liquidators appointed in connection with any dissolution or liquidation of our company, and the examination of the liquidators’ accounts;
·participate in a centralized group of companies (as defined under the Brazilian Corporations Law);
·approve the aggregate compensation payable to our directors and executive officers;
·authorize management to declare us insolvent or bankrupt and to request aconcordata(a procedure involving our protection from our creditors similar in many respects to a reorganization under the U.S. bankruptcy code);
·elect and substitute members of our board of directors and fiscal council;
·modify the number of members on our board of directors;
·alter our dividend policy; and
·authorize the delisting of our shares.
· | amend our by-laws; | · | approve any capital increase in excess of the amount of our authorized capital; | · | approve any capital reduction; |
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· | accept or reject the valuation of assets contributed by any of our shareholders in exchange for the issuance of our share capital; | · | suspend the rights of any of our shareholders in default of their obligations established by law or by our by-laws; | · | authorize the issuance of convertible debentures, in excess of the amount of our authorized capital; | · | approve any reorganization of our legal form or any merger, consolidation or spin-off involving us; | · | authorize our dissolution and liquidation, the election and dismissal of liquidators appointed in connection with any dissolution or liquidation of our Company, and the examination of the liquidators’ accounts; | · | participate in a centralized group of companies (as defined under the Brazilian Corporations Law); | · | approve the aggregate compensation payable to our directors and executive officers; | · | authorize management to declare us insolvent or bankrupt and to request aconcordata(a procedure involving our protection from our creditors similar in many respects to a reorganization under the U.S. bankruptcy code); | · | elect and substitute members of our board of directors and fiscal council; | · | modify the number of members on our board of directors; | · | alter our dividend policy; and | · | authorize the delisting of our shares. |
We convene our shareholders’ meetings, including our annual shareholders’ meeting, by publishing a notice in theDiário Oficial do Estado da Bahia,in at least one additional newspaper designated by our shareholders with general circulation in Bahia, where we maintain our registered office. On the first call of any meeting, the notice must be published no fewer than three times, beginning at least 15 calendar days prior to the scheduled meeting date. Companies that have issued ADSs with voting rights must publish the notice of a shareholders’ meeting to resolve on matters with regard to which ADS holders have voting rights at least 30 days prior to the scheduled meeting date. The notice must contain the meeting’s place, date, time, agenda and, in the case of a proposed amendment to our by-laws, a description of the subject matter of the proposed amendment. In order for a valid action to be taken at a shareholders’ meeting, shareholders representing at least 25% of our issued and outstanding voting share capital must be present on first call. However, shareholders representing at least two-thirds of our issued and outstanding voting share capital must be present at a shareholders’ meeting called to amend our by-laws. If a quorum is not present, our board of directors may issue a second call by publishing a notice as described above at least eight calendar days prior to the scheduled meeting. The quorum requirements do not apply to a meeting held on the second call, and the shareholders’ meetings may be convened with the presence of shareholders representing any number of shares (subject to the voting requirements for certain matters described below). A shareholder without a right to vote may attend a shareholders’ meeting and take part in the discussion of matters submitted for consideration.
Voting Rights Under the Brazilian Corporations Law and our by-laws, each of our common shares entitles its holder to one vote at our shareholders’ meetings. Our preferred shares generally do not confer voting rights, except in the limited circumstances. We may not restrain or deny any voting rights without the consent of the majority of the shares affected. Whenever the shares of any class of share capital are entitled to vote, each share is entitled to one vote. 169
Preemptive Rights Under the Brazilian Corporations Law, each of our common and class A preferred shareholders has a general preemptive right to subscribe for our shares or securities convertible into our shares in any capital increase, in proportion to the number of our shares held by such shareholder. In accordance with the applicable legislation and our by-laws, the class B preferred shares (which are special shares paid up with resources provided for in certain tax incentive legislation), the holders of such class B preferred shares do not have preemptive rights in case of any capital increase. In the event of a capital increase that would maintain or increase the proportion of our capital represented by our class A preferred shares, holders of our class A preferred shares would have preemptive rights to subscribe to newly issued class A preferred shares only. In the event of a capital increase that would reduce the proportion of our capital represented by our class A preferred shares, holders of such preferred shares would have preemptive rights to subscribe to any new class A preferred shares in proportion to the number of our shares that they hold, and to our common shares only to the extent necessary to prevent dilution of their interests in our total capital. Under our by-laws, except when issuing voting shares or securities convertible into voting shares, our board of directors or our shareholders, as the case may be, may decide to reduce the term of preemptive rights or not to extend preemptive rights to our shareholders with respect to any issuance of our non-voting shares, debentures convertible into our shares or warrants made in connection with a public exchange made to acquire control of another company or in connection with a public offering or through a stock exchange. The preemptive rights are transferable and must be exercised within a period of at least 30 days following the publication of notice of the issuance of shares or securities convertible into our shares. Holders of the ADSs may not be able to exercise the preemptive rights relating to our class A preferred shares underlying their ADSs unless a registration statement under the Securities Act is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights or to take any other action to make preemptive rights available to holders of the ADSs, and we may not file any such registration statement. Redemption, Amortization, Tender Offers and Rights of Withdrawal Our by-laws or our shareholders at a shareholders’ meeting may authorize us to use our profits or reserves to redeem or amortize our shares in accordance with conditions and procedures established for such redemption or amortization. The Brazilian Corporations Law defines “redemption” (resgate de ações) as the payment of the value of the shares in order to permanently remove such shares from circulation, with or without a corresponding reduction of our share capital. The Brazilian Corporations Law defines “amortization” (amortização) as the distribution to the shareholders, without a corresponding capital reduction, of amounts that they would otherwise receive if we were liquidated. If an amortization distribution has been paid prior to our liquidation, then upon our liquidation, the shareholders who did not receive an amortization distribution will have a preference equal to the amount of the amortization distribution in the distribution of our capital. The Brazilian Corporations Law authorizes us, by means of a decision made at our shareholders’ meeting, to redeem shares not held by our controlling shareholders, if, after a tender offer effected as a consequence of delisting or a substantial reduction in the liquidity of our shares, our controlling shareholders increase their participation in our total share capital to more than 95%. The redemption price in such case would be the same price paid for our shares in any such tender offer. Rights of Withdrawal The Brazilian Corporations Law provides that, in certain limited circumstances, a dissenting shareholder may withdraw its equity interest from our companyCompany and be reimbursed by us for the book value of our common or preferred shares that it then holds.
This right of withdrawal may be exercised by the holders of the adversely affected common or preferred shares if we decide: · | to create a new class of our preferred shares with greater privileges than the existing classes of our preferred shares; | · | to increase an existing class of our preferred shares relative to the other classes of our preferred shares (unless such actions are provided for or authorized by our by-laws); or |
·to create a new class of our preferred shares with greater privileges than the existing classes of our preferred shares;170
· to increase an existing class of our preferred shares relative to the other classes of our preferred shares (unless such actions are provided for or authorized by our by-laws); or ·to modify a preference, privilege or condition of redemption or amortization conferred on one or more classes of our preferred shares.
| to modify a preference, privilege or condition of redemption or amortization conferred on one or more classes of our preferred shares. |
In addition, holders of our common and preferred shares may exercise their right of withdrawal if we decide to undertake any of the following actions: ·to merge with another company or to consolidate with another company in a transaction in which our company is not the surviving entity;
· | to merge with another company or to consolidate with another company in a transaction in which our Company is not the surviving entity; | · | to transfer all of our shares to another company or to acquire all of the shares of another company (“incorporação de ações”); ·to participate in a centralized group of companies as defined under the Brazilian Corporations Law;
·to reduce the mandatory distribution of dividends;
·to change our corporate purposes; or
·to spin-off a portion of our company.
| · | to participate in a centralized group of companies as defined under the Brazilian Corporations Law; | · | to reduce the mandatory distribution of dividends; | · | to change our corporate purposes; or | · | to spin-off a portion of our Company. |
Only shareholders who own shares on the date of publication of the first notice convening the relevant shareholders’ meeting or the press release concerning the relevant shareholders’ meeting is published, whichever is earlier, will be entitled to withdrawal rights. Shareholders will not be entitled to this right of withdrawal if the shares of the entity resulting from a merger, incorporation, consolidation of our companyCompany or participation of our companyCompany in a group of companies have minimal market liquidity and are dispersed among a sufficient number of shareholders. For this purpose, shares that are part of general indices representative of portfolios of securities traded in Brazil or abroad are considered liquid, and sufficient dispersion will exist if the controlling shareholder holds less than half of the class and type of the outstanding shares. In case of a spin-off, the right of withdrawal will only exist if there is a significant change in the corporate purpose or a reduction in the mandatory dividend. The redemption of shares arising out of the exercise of any withdrawal rights would be made at book value per share, determined on the basis of their most recent audited balance sheet approved by our dissenting shareholders. However, if the shareholders’ meeting approving the action that gave rise to withdrawal rights occurred more than 60 days after the date of the most recent approved audited balance sheet, a shareholder may demand that its shares be valued on the basis of a balance sheet prepared specifically for this purpose. The right of withdrawal lapses 30 days after the date of publication of the minutes of the shareholders’ meeting that approved one of the matters described above. Our shareholders may reconsider any resolution giving rise to withdrawal rights within 10 days following the expiration date for such rights if we believe that the withdrawal of shares of dissenting shareholders would jeopardize our financial stability. Disclosures of Share Ownership Brazilian regulations require that (1) each of our controlling shareholders, directly or indirectly, (2) shareholders who have elected members of our board of directors, and (3) any person or group of persons representing a person that has directly or indirectly acquired or sold an interest that exceeds upwards or downwards, the threshold of 5%, 10%, 15%, and so on, of the total number of our shares of any type or class to disclose its or their share ownership or divestment to the CVM and to the B3.
Form and Transfer Our preferred shares and common shares are in book-entry form, registered in the name of each shareholder or its nominee. The transfer of our shares is governed by Article 35 of the Brazilian Corporations Law, which provides that a transfer of shares is effected by our transfer agent, Banco Itaú S.A., by an entry made by the transfer agent in its books, upon presentation of valid written share transfer instructions to us by a transferor or its representative. When preferred shares or common shares are acquired or sold on a Brazilian stock exchange, the transfer is effected on the records of our transfer agent by a representative of a brokerage firm or the stock exchange’s clearing system. The transfer agent also performs all the services of safe-keeping of our shares. Transfers of our shares by a non-Brazilian investor are made in the same manner and are executed on the investor’stheinvestor’s behalf by the investor’s local agent. If the original investment was registered with the Central Bank pursuant to foreign investment regulations, the non-Brazilian investor is also required to amend, if necessary, through its local agent, the electronic certificate of registration to reflect the new ownership. 171
The B3 operates a central clearing system. A holder of our shares may choose, at its discretion, to participate in this system, and all shares that such shareholder elects to be put into the clearing system are deposited in custody with the clearing and settlement chamber of the B3 (through a Brazilian institution that is duly authorized to operate by the Central Bank and maintains a clearing account with the clearing and settlement chamber of the B3). Shares subject to the custody of the clearing and settlement chamber of the B3 are noted as such in our registry of shareholders. Each participating shareholder will, in turn, be registered in the register of the clearing and settlement chamber of the B3 and will be treated in the same manner as shareholders registered in our books. Material Contracts We have not entered into any material contracts, other than those described elsewhere in this annual report or entered into in the ordinary course of business. For additional information about material agreements that we have recently entered into, please see “Item 5. Operating and Financial Review and Prospects––Recent Developments” and “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.” Exchange Controls There are no restrictions on ownership or voting of our capital stock by individuals or legal entities domiciled outside Brazil. However, the right to convert dividend payments, interest on shareholders’ equity payments and proceeds from the sale of our share capital into foreign currency and to remit such amounts outside Brazil is subject to exchange control restrictions under foreign investment legislation and foreign exchange regulations, which generally require, among other things, the registration of the relevant investment with the Central Bank and/or the CVM, as the case may be. Investments in our class A preferred shares by (1) a holder not deemed to be domiciled in Brazil for Brazilian tax purposes, (2) a non-Brazilian holder who is registered with the CVM under Annex I of Resolution No. 4,373, or a 4,373 Holder, or (3) the depositary, are eligible for registration with the Central Bank. This registration (the amount so registered is referred to as registered capital) allows the remittance outside Brazil of foreign currency, converted at the commercial market rate, acquired with the proceeds of distributions on, and amounts realized through, dispositions of our class A preferred shares. Depositary Receipts (Annex II of Resolution No. 4,373) Annex II of Resolution No. 4,373 of the National Monetary Council, as amended, provides for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers. The ADS program was approved by the Central Bank and the CVM prior to the issuance of the ADSs. Accordingly, as a general rule, the proceeds from the sale of ADSs by non-Brazilian resident holders of ADSs outside Brazil are not subject to Brazilian foreign investment controls, and holders of the ADSs who are not domiciled in a favorable tax haven jurisdiction are entitled to favorable tax treatment. See “—Taxation—Brazilian Tax Considerations.” We pay dividends and other cash distributions with respect to our class A preferred shares in reais. We have obtained an electronic certificate of foreign capital registration from the Central Bank in the name of the depositary with respect to our ADSs to be maintained by the custodian. Pursuant to this registration, the custodian is able to convert dividends and other distributions with respect to our class A preferred shares represented by ADSs into foreign currency and remit the proceeds outside Brazil to the depositary so that the depositary may distribute these proceeds to the holders of record of the ADSs.
Foreign Direct Investment and Portfolio Investment Investors (individuals, legal entities, mutual funds and other collective investment entities) domiciled, residing or headquartered outside Brazil may register their investments in our capital stock as foreign portfolio investments under Annex I of Resolution No. 4,373 (described below) or as foreign direct investments under Law No. 4,131 (described below). Registration under Annex I of Resolution No. 4,373 or Law No. 4,131 generally enables the conversion of dividends, other distributions and sales proceeds received in connection with registered investments into foreign currency and the remittance of such amounts outside Brazil. 172
Registration under Annex I of Resolution No. 4,373 affords favorable tax treatment to non-Brazilian portfolio investors who are not resident in favorable tax jurisdictions (países com tributação favorecida) pursuant to articles 24, 24-A and 24-B of Law no. 9,430/96. See “—Taxation—Brazilian Tax Considerations.” Annex I of Resolution No. 4,373 All investments made by a non-Brazilian investor under Annex I of Resolution No. 4,373 are subject to electronic registration with the Brazilian Central Bank. Such registration permits the conversion of dividend payments, payments of interest on shareholders’ equity and proceeds from the sale of our capital stock into foreign currency and the remission of such amounts outside Brazil. Under Annex I of Resolution No. 4,373, non-Brazilian investors registered with the CVM may invest in almost all financial assets and engage in almost all transactions available to Brazilian investors in the Brazilian financial and capital markets without obtaining a separate Central Bank registration for each transaction, provided that certain requirements are fulfilled. Under Annex I of Resolution No. 4,373, the definition of a non-Brazilian investor includes individuals, legal entities, mutual funds and other collective investment entities, domiciled or headquartered outside Brazil. Pursuant to Annex I of Resolution No. 4,373, non-Brazilian investors must: · appoint at least one representative in Brazil with powers to take action relating to its investments, which must be a financial institution duly authorized by the Central Bank; ·appoint an authorized custodian in Brazil for its investments, which must be a financial institution duly authorized by the CVM;
·complete the appropriate foreign investor registration forms;
·which must be a financial institution duly authorized by the Central Bank
·through its representative, register as a non-Brazilian investor with the CVM;
·through its representative, register its investments with the Central Bank; and
·obtain a taxpayer identification number from the Brazilian federal tax authorities.
| appoint at least one representative in Brazil with powers to take action relating to its investments, which must be a financial institution duly authorized by the Central Bank; | · | appoint an authorized custodian in Brazil for its investments, which must be a financial institution duly authorized by the CVM; | · | complete the appropriate foreign investor registration forms; | · | which must be a financial institution duly authorized by the Central Bank | · | through its representative, register as a non-Brazilian investor with the CVM; | · | through its representative, register its investments with the Central Bank; and | · | obtain a taxpayer identification number from the Brazilian federal tax authorities. |
The securities and other financial assets held by a non-Brazilian investor pursuant to Annex I of Resolution No. 4,373 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or the CVM, as applicable, or be registered on registration, clearing and custody systems authorized by the Central Bank or by the CVM, as applicable. Subject to limited exceptions provided in the CVM regulation or previous CVM authorization, the trading of securities held under Annex I of Resolution No. 4,373 is restricted to transactions carried out on stock exchanges or through organized over-the-counter markets licensed by the CVM. The offshore transfer or assignment of the securities or other financial assets held by non-Brazilian investors pursuant to Annex I of Resolution No. 4,373 are prohibited, except for transfers (1) resulting from consolidation, spin-off, merger or merger of shares or occurring upon the death of an investor by operation of law or will; (2) resulting from a corporate reorganization effected abroad, as long as the final beneficiaries and the amount of the assets remain the same, or (3) authorized by the CVM.
Law No. 4,131 Foreign direct investors under Law No. 4,131 may sell their shares in both private and open market transactions, but these investors will generally be subject to less favorable tax treatment on gains with respect to our class A preferred shares. See “—Taxation—Brazilian Tax Considerations.” To obtain a certificate of foreign capital registration from the Brazilian Central Bank under Law No. 4,131, a foreign direct investor must: • register as a foreign direct investor with the Central Bank;173
· | register as a foreign direct investor with the Central Bank; | · | obtain a taxpayer identification number from the Brazilian tax authorities; | · | appoint a tax representative in Brazil; and | · | • obtain a taxpayer identification number from the Brazilian tax authorities;
• appoint a tax representative in Brazil; and
• appoint a representative in Brazil for service of process in respect of suits based on the Brazilian Corporations Law.
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Foreign investors must be registered with the Federal Brazilian Revenue Service pursuant to Normative Instruction 1,683, dated as of December 27, 2016. This registration process is undertaken by the investor’s legal representative in Brazil. Investors that are foreign legal entities are required to report their final individual beneficiaries. Some exceptions apply (e.g., publicly listed corporations). Taxation The following summary contains a description of the material Brazilian and U.S. federal income tax consequences of the purchase, ownership and disposition of class A preferred shares and ADSs, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase any such securities. There is at present no income tax treaty between Brazil and the United States. The description below is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of class A preferred shares or ADSs. Prospective purchasers of our class A preferred shares or ADSs are advised to consult their own tax advisors in respect of the consequences that the purchase, ownership or disposition of our class A preferred shares or ADSs might trigger under the laws of Brazil, the United States or any other jurisdiction in light of their particular investment circumstances. Brazilian Tax Considerations The following topics summarizes the material Brazilian tax consequences of the acquisition, ownership and disposition of class A preferred shares or ADSs by an individual, entity, trust or organization that is not domiciled or resident in Brazil for purposes of Brazilian taxation and, in the case of a holder of class A preferred shares, which has registered its investment with the Central Bank, or a non-resident holder. The following information is based on the tax laws of Brazil as in effect on the date of this annual report, which are subject to change, with possible retroactive effect, and to differing interpretation. Furthermore, the following discussion does not specifically address all of the Brazilian tax considerations applicable to any particular non-resident holder, and each non- resident holder should consult his or her own tax advisor concerning the Brazilian tax consequences of an investment in any of such securities. Acquisition of ADSs or Class A Preferred Shares The acquisition of ADSs or class A preferred shares by non- resident holders is not a taxable event in Brazil. See “—Taxation of Gains Outsidein Brazil” for further information on the tax implications arising from the exchange of existing class A preferred shares for ADSs, as well as those arising from the exchange of ADSs for class A preferred shares.
Taxation of Dividends Dividends paid by a Brazilian corporation with respect to profits generated as of January 1, 1996, including dividends paid in kind to the depositary in respect of our class A preferred shares underlying the ADSs or to a non- resident holder in respect of class A preferred shares, are not subject to withholding income tax in Brazil. Dividends paid from profits generated before January 1, 1996 may be subject to Brazilian withholding income tax at variable rates, according to the tax legislation applicable to each corresponding year. 174
Interest on Shareholders’ Equity Distributions of interest on our shareholders’ equity in respect of our class A preferred shares or the ADSs are generally subject to Brazilian withholding tax at the rate of 15%. However, the rate of 25% is applicable in case the non-resident holder is domiciled in a country or location or other jurisdiction (1) that does not impose income tax; (2) where the maximum income tax rate is lower than 20%; or (3) where its legislation dodoes not allow access to information related to the composition of shareholders, ownership of investments or identification of beneficial owners of earnings attributed to non-residents, or it is considered a tax favorable jurisdiction. Since 1997 and in accordance with Laws Nos. 9,249/95 and 9,430/96, we have been permitted to deduct these distributions for purposes of calculating the CSLL and the corporate income taxes that we owe, provided that such distribution is approved by our shareholders in a general meeting and complies with the limits established by Brazilian tax legislation. Payments of interest on shareholders’ equity may be included, at their net value, as part of any mandatory dividend. To the extent payment of interest on shareholders’ equity is so included, the corporation is required to distribute to shareholders an additional amount to ensure that the net amount received by them, after payment of the applicable withholding income tax plus the amount of declared dividends, is at least equal to the mandatory dividend. Taxation of Gains outsideOutside Brazil According to Brazilian Law No. 10,833/03, gains realized on the disposition or sale of assets located in Brazil are subject to income tax in Brazil, regardless of whether the sale or the disposition is made by the non-resident holder to a Brazilian resident or to another non-resident of Brazil, as follows: “the acquiror, individual or legal entity resident or domiciled in Brazil, or the acquiror’s attorney-in-fact, when such acquiror is resident or domiciled abroad, shall be responsible to withhold and pay the income tax applicable to capital gains under Article 18 of Law 9,249 of December 26, 1995 earned by the individual or legal entity resident or domiciled abroad who disposes of property located in Brazil.” Holders of the ADSs outside of Brazil may have grounds to assert that Brazilian Law No. 10,833/03 does not apply to sales or other dispositions of ADSs as ADSs are not assets located in Brazil. However, the sale or other disposition of class A preferred shares abroad may be subject to the provisions of Brazilian Law No. 10,833/03. Any capital gains arising from sales or other dispositions outside Brazil would be subject to Brazilian income tax at the rate of 15% or 25% if the investor is located in a tax favorable jurisdiction. Brazilian Law No. 10,833/03 requires the purchaser of our class A preferred shares outside Brazil or its attorney-in-fact in Brazil to withhold the income tax. A disposition of class A preferred shares can only occur abroad if any investor decides to cancel its investment in ADSs and register the underlying class A preferred shares as a direct foreign investment under Law No. 4,131/62. Taxation of Gains in Brazil The exchange of ADSs for class A preferred shares is not subject to Brazilian tax. Upon receipt of the underlying class A preferred shares in exchange of ADSs, a non-resident investor will be entitled to register with the Central Bank the U.S. dollar value of such shares as a foreign portfolio investment under Resolution No.4,373/14. See “—Exchange Controls” and “—Tax on Foreign Exchange and on Bonds and Securities Transactions—Registered Capital.” The sale or disposition of class A preferred shares on a Brazilian stock exchange is exempt from capital gains tax, provided that such shares are held by a non-resident holder that (1) has registered its investment in Brazil with the Central Bank under the rules of Resolution No.4,373/14, and (2) is not resident or domiciled in a tax favorable jurisdiction. Upon receipt of the underlying class A preferred shares, a non-resident holder is also entitled to register with the Central Bank the U.S. dollar value of such shares as aforeign direct investment under Law 4,131/62. See “—Exchange Controls” and “—Tax on Foreign Exchange and on Bonds and Securities Transactions—Registered Capital.” A 15% capital gains tax is applicable to the sale or other disposition of preferred class A preferred shares in Brazil where such shares are held by a non-resident holder as a foreign direct investment and the transaction is executed outside a Brazilian stock exchange. If the non-resident holder is domiciled in a tax favorable jurisdiction and the disposition of the preferred class A preferred shares is executed outside a Brazilian stock exchange, the income tax rate will be 25%.
If the sale or other disposition of such shares is carried out on a Brazilian stock exchange, the capital gains on the sale or disposition will be taxed at a rate of 15%. This 15% rate applies to all transactions carried out on a BrazilianaBrazilian stock exchange by non-resident holders regardless of whether or not they are domiciled in a tax favorable jurisdiction (except to gains realized by a 4,373 Holder that is not resident or domiciled in a tax favorable jurisdiction as described above). In these transactions, the gain realized is calculated based on the amount registered with the Central Bank. As of January 1, 2005, a withholding tax of 0.005% will also be assessed on the sales price or other disposition value of shares sold or disposed of in transactions carried out on a Brazilian stock exchange. The withholding tax, to be offset against tax due on eventual capital gain, must be withheld by one of the following entities: (1) the agent receiving the sale or disposition order from the client; (2) the stock exchange responsible for registering the transactions; or (3) the entity responsible for the settlement and payment of the transactions. Such withholding does not apply to a 4,373 Holder that is not a resident of or domiciled in a favorable tax jurisdiction. 175
The deposit of class A preferred shares in exchange for ADSs is not subject to Brazilian tax, provided that these shares are held by the non-resident holder as a foreign portfolio investment under Resolution No. 4,373/14. In the event our class A preferred shares are held by the non-resident holder as a foreign direct investment under Law No. 4,131/62, the deposit of these shares in exchange for ADSs is subject to payment of Brazilian capital gains tax at the rate of 15% (25% in the case of a non-resident holder located in a tax favorable jurisdiction). The current preferential treatment for non-resident holders of ADSs and non-resident holders of class A preferred shares under Resolution No. 4,373/14 may not continue in the future. Any exercise of preemptive rights relating to our class A preferred shares will not be subject to Brazilian taxation. Gains on the sale or assignment of preemptive rights relating to our class A preferred shares by the depositary may be subject to Brazilian taxation. Tax authorities may attempt to tax such gains even when the sale or assignment of such rights takes place outside Brazil, based on the provisions of Law No. 10,833/03. These authorities may allege that the preemptive rights relate to assets located in Brazil (the class A preferred shares) and require payment of capital gains tax at the rate of 15% (or 25% if the beneficiary of the payments is resident of a tax favorable jurisdiction). If the preemptive rights are assigned or sold in Brazil, capital gains tax will apply at a rate of 15% (or 25% in the case of a non-resident holder located in a tax favorable jurisdiction). Sales or assignments of preemptive rights effected on Brazilian stock exchanges are exempt from income tax, provided that such preemptive rights relate to shares registered as a foreign portfolio investment under Resolution No. 4,373 and the non-resident holder is not a resident of or domiciled in a tax favorable jurisdiction. As of January 2017, Law No. 13,259 established new progressive income tax rates applicable to capital gains derived from the disposition of assets by Brazilian individuals. Law No. 13,259 established new rates that range from 15% to 22.5%, depending on the amount of the gain recognized by the Brazilian individual, as follows: (i) 15% on gains not exceeding R$5,000,000.00; (ii) 17.5% on gains that exceed R$5,000,000.00 and do not exceed R$10,000,000.00; (iii) 20% on gains that exceed R$10,000,000.00 and do not exceed R$30,000,000.00; and (iv) 22.5% on gains exceeding R$30,000,000.00. Pursuant to SectionArticle 18 of Law No. 9,249/95, the tax treatment applicable to capital gains earned by Brazilian individuals also applies to capital gains earned by non-Brazilian residents (except in cases that remain subject to specific rules). However, the Normative RulingInstruction No. 1,732/2017 established that the rates are applicable to legal entities located abroad that make any disposal of assets recorded as non-current assets in their balance sheet. As a result, it is not possible at this time to determine what position the tax authorities will adopt in the case of a non-resident individual who disposes of ADSs. Other Brazilian Taxes There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of class A preferred shares or ADSs by a non-resident holder except for gift and inheritance taxes imposed by some states of Brazil on gifts made or inheritances bestowed by individuals or entities not resident or domiciled inBrazil or domiciled within the state to individuals or entities resident or domiciled within such state in Brazil. There are no Brazilian stamp, issue, registration or similar taxes or duties payable by holders of class A preferred shares or ADSs.
Tax on Foreign Exchange and on Bonds and Securities Transactions Foreign Exchange Transactions Pursuant to Decree 6,306/07, the conversion of Brazilian currency into foreign currency and the conversion of foreign currency into Brazilian currency may be subject to the IOF/Exchange Tax. Currently, for most exchange transactions, the rate of IOF/Exchange is 0.38%. This is the rate applicable to the inflow and outflow of foreign direct investments for companies in Brazil according to Law 4,131/62 (other than trading portfolio investments in securities under Resolution 4,373/14). The IOF/Exchange Tax levies at 0% on the following capital inflows and outflows realized by non-residents: (1) investments for the constitution of an initial or additional security guarantee margin required by Brazilian stock exchange, futures and commodities exchanges; (2) investments in Brazilian stocks using funds derived from the cancelation of “depositary receipts”; (3) investments in the Brazilian financial and capital markets; (4) return of the investments realized in the Brazilian financial and capital markets to the non-resident; and (5) conversion of foreign direct investments in stocks under Law 4,131/62 into foreign investment in stocks under Resolution 4,373/14. The remittance abroad of dividends and interest on equity to non-Brazilian residents is subject to 0% IOF/Exchange tax. Additionally, the transfers of shares traded on the stock exchange with the purpose of enabling the issuance of ADSs are subject to the IOF/Bonds Tax at a rate of 1.5%, which is aimed at correcting an asymmetry created by the IOF/Exchange Tax. The Brazilian government may increase the rate of the IOF/Exchange Tax to a maximum of 25% of the amount of the foreign exchange transaction at any time, but such an increase would only apply to future foreign exchange transactions. The imposition of these taxes may discourage foreign investment in shares of Brazilian companies, including our company,Company, due to higher transaction costs, and may negatively impact the price and volatility of our ADSs and preferred shares on the NYSE and the B3. Registered Capital The amount of an investment in class A preferred shares held by a non-Brazilian holder as a foreign direct investment under Law No. 4,131/62 or a foreign portfolio investment under Resolution No. 4,373/14 or in ADSs held by the depositary representing such holder, as the case may be, is eligible for registration with the Central Bank; such registration (the amount so registered is referred to as “registered capital”) allows the remittance outside Brazil of foreign currency, converted at the commercial market rate, acquired with the proceeds of distributions on, and amounts realized with respect to disposition of, such class A preferred shares. The registered capital for class A preferred shares purchased in the form of ADSs, or purchased in Brazil and deposited with the depositary in exchange for an ADS, is equal to their purchase price in U.S. dollars paid by the purchaser. The registered capital for class A preferred shares that are withdrawn upon surrender of ADSs is the U.S. dollar equivalent of (1) the average price of our class A preferred shares on the Brazilian stock exchange on which the greatest number of such class A preferred shares was sold on the day of withdrawal, or (2) if no class A preferred shares were sold on such day, the average price of class A preferred shares that were sold in the fifteen trading sessions immediately preceding such withdrawal. The U.S. dollar value of our class A preferred shares is determined on the basis of the average commercial market rates quoted by the Central Bank on such date (or, if the average price of class A preferred shares is determined under clause (2) of the preceding sentence, the average of such average quoted rates on the same fifteen dates used to determine the average price of our class A preferred shares). A non-Brazilian holder of class A preferred shares may experience delays in effecting the registration of registered capital, which may delay remittances abroad. Such a delay may adversely affect the amount, in U.S. dollars, received by the non-Brazilian holder. See “—Exchange Controls” and “Item 3. Key Information—Risk Factors—Risks Relating to Our Class A Preferred SharesEquity and the ADSs.Debt Securities.”
U.S. Federal Income Tax Considerations The following is a discussion of the material U.S. federal income tax consequences that may be relevant with respect to the acquisition, ownership and disposition of our class A preferred shares or ADSs, which are evidenced by ADRs.evidencedby ADSs. This description addresses only the U.S. federal income tax considerations of U.S. holders (as defined below) that will hold class A preferred shares or ADSs as capital assets. This description does not address tax considerations applicable to holders that may be subject to special tax rules, such as banks, financial institutions, insurance companies, real estate investment trusts, grantor trusts, regulated investment companies, dealers or traders in securities or currencies, tax-exempt entities, pension funds, persons that received our class A preferred shares or ADSs pursuant to an exercise of employee stock options or rights or otherwise as compensation for the performance of services, persons that will hold our class A preferred shares or ADSs as a position in a “straddle” or as a part of a “hedging,” “conversion” or other risk reduction transaction for U.S. federal income tax purposes, persons that have a “functional currency” other than the U.S. dollar, persons that will own our class A preferred shares or ADSs through partnerships or other pass through entities, persons that are required to accelerate the recognition of any item of gross income with respect to our class A preferred shares or ADSs as a result of such income being recognized on an applicable financial statement, holders subject to the alternative minimum tax, certain former citizens or long-term residents of the United States or holders that own (or are deemed to own) 10% or more (by voting power or value) of our shares. 177
This description does not address any state, local or non-U.S. tax consequences of the acquisition, ownership and disposition of our class A preferred shares or ADSs. In addition, this description does not address the consequences of any U.S. federal tax other than income tax, including but not limited to the U.S. federal estate and gift taxes. This description is based on (1) the Internal Revenue Code of 1986, as amended (the “Code”), existing, proposed and temporary U.S. Treasury Regulations and judicial and administrative interpretations thereof, in each case as in effect and available on the date of this annual report and (2), in part, on the representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms. All of the foregoing are subject to change, which change could apply retroactively and could affect the tax consequences described below. As used below, a “U.S. holder” is a beneficial owner of a class A preferred share or ADS that is, for U.S. federal income tax purposes, (1) an individual citizen or resident of the United States, (2) a corporation organized under the laws of the United States, any state thereof or the District of Columbia, (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (4) a trust if (i) a court within the United States is able to exercise primary supervision over its administration and (ii) one or more U.S. persons have the authority to control all of the substantial decisions of such trust. As used below, a “Non-U.S. holder” is a beneficial owner of a class A preferred share or ADS that is neither a U.S. holder nor a partnership (or other entity treated as a partnership for U.S. federal income tax purposes). If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds class A preferred shares or ADSs, the tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. A partnership or its partners should consult their tax advisor as to its tax consequences. The class A preferred shares will be treated as equity for U.S. federal income tax purposes. In general, for U.S. federal income tax purposes, a holder of an ADR evidencing an ADS will be treated as the beneficial owner of our class A preferred shares represented by the applicable ADS. The U.S. Treasury Department has expressed concern that depositaries for ADSs, or other intermediaries between the holders of receipts or shares of an issuer and the issuer, may be taking actions that are inconsistent with the claiming of U.S. foreign tax credits by U.S. holders ofpersons that hold such receipts or shares. Such actions include, for example, a pre-release of an ADS by a depository.depositary. Accordingly, the analysis regarding the availability of a U.S. foreign tax credit for Brazilian taxes, the sourcing rules and the availability of the reduced tax rate for dividends received by certain non-corporate holders, each described below, could be affected by future actions that may be taken by the U.S. Treasury Department. Taxation of Dividends Subject to the discussion under “—Passive Foreign Investment Company Rules,” in general, the gross amount of a distribution made with respect to a class A preferred share or ADS (which for this purpose shall include distributions of interest attributable to shareholders’ equity before any reduction for any Brazilian taxes withheld therefrom) will, to the extent made from the current or accumulated earnings and profits of our company,Company, as determined under U.S. federal income tax principles, constitute a dividend to a U.S. holder for U.S. federalincome tax purposes. Non-corporate U.S. holders may be taxed on dividends from a qualified foreign corporation at the lower rates applicable to long-term capital gains (i.e.,gains with respect to capital assets held for more than one year). A foreign corporation is treated as a qualified foreign corporation with respect to dividends received from that corporation on shares or ADSs that are readily tradable on an “established securities market” in the United States. U.S. Treasury Department guidance indicates that the ADSs (which are listed on the NYSE), but not our class A preferred shares, are readily tradable on an established securities market in the United States. Thus,subject to the discussion below under “—Passive Foreign Investment Company Rules,” dividends that we pay on the ADSs, but not on our class A preferred shares, currently meet the conditions required for these reduced tax rates. There, however, can be no assurance that the ADSs will be considered readily tradable on an established securities market in later years. Furthermore, a U.S. holder’s eligibility for such preferential rate is subject to certain holding period requirements and the non-existence of certain risk reduction transactions with respect to the ADSs. Such dividends will not be eligible for the dividends received deduction generally allowed to corporate U.S. holders. In order for dividends on ADS backed by preferred shares to qualifybe reported as qualifying for the reduced rates of taxation, wea public SEC filing must certifycontain a statement that the preferred shares are equity. The United States Treasury Department and the Internal Revenue Service intend to issue regulations providing the appropriate certification procedure; however, it is expected that an annual certification in a public SEC filingwill be, should be, or a public statement with a copy filed with the Internal Revenue Servicemore likely than not will satisfy this requirement.be treated as equity rather than debt for U.S. federal income tax purposes. We have included the appropriate certificationstatement in this filing. In the future, we intend to file the required certification that is necessary for the preferred shares to continue to qualify for reduced rates of taxation. Subject to the discussion below under “—Passive Foreign Investment Company Rules,” if a distribution exceeds the amount of our company’sCompany’s current and accumulated earnings and profits, it will be treated as a non-taxable return of capital to the extent of the U.S. holder’s tax basis in our class A preferred share or ADS on which it is paid and thereafter as capital gain. Our companyCompany does not maintain calculations of our earnings and profits under U.S. federal income tax principles. Therefore, U.S. holders should expect that distributions by our companyCompany generally will be treated as dividends for U.S. federal income tax purposes.
A dividend paid inreais will be includible in the income of a U.S. holder at its value in U.S. dollars calculated by reference to the prevailing spot market exchange rate in effect on the day it is received by the U.S. holder in the case of our class A preferred shares or, in the case of a dividend received in respect of ADSs, on the date the dividend is received by the depositary, whether or not the dividend is converted into U.S. dollars. Assuming the payment is not converted at that time, the U.S. holder will have a tax basis inreais equal to that U.S. dollar amount, which will be used to measure gain or loss from subsequent changes in exchange rates. Any gain or loss realized by a U.S. holder that subsequently sells or otherwise disposes ofreais, which gain or loss is attributable to currency fluctuations after the date of receipt of the dividend, will be U.S. source ordinary gain or loss. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution. The gross amount of any dividend paid (which will include any amounts withheld in respect of Brazilian taxes) with respect to a class A preferred share or ADS will be subject to U.S. federal income taxation as foreign source dividend income, which may be relevant in calculating a U.S. holder’s foreign tax credit limitation. Subject to limitations under U.S. federal income tax law concerning credits or deductions for foreign taxes and certain exceptions for short-term and hedged positions, any Brazilian withholding tax will be treated as a foreign income tax eligible for credit against a U.S. holder’s U.S. federal income tax liability (or at a U.S. holder’s election, may be deducted in computing taxable income if the U.S. holder has elected to deduct all foreign income taxes for the taxable year). The limitation on foreign taxes eligible for the U.S. foreign tax credit is calculated separately with respect to specific “baskets” of income. For this purpose, the dividends should generally constitute “passive category income,” or in the case of certain U.S. holders, “general category income.” The rules with respect to foreign tax credits are complex, and U.S. holders are urged to consult their own tax advisors regarding the availability of the foreign tax credit under their particular circumstances. Sale, Exchange or Other Disposition of Class A Preferred Shares or ADSs A deposit or withdrawal of class A preferred shares by a holder in exchange for an ADS that represents such shares will not result in the realization of gain or loss for U.S. federal income tax purposes. ASubject to the discussion under “—Passive Foreign Investment Company Rules,” a U.S. holder generally will recognize capital gain or loss upon a sale, exchange or other disposition of a class A preferred share or ADS held by the U.S. holder or the depositary, as the case may be, in an amount equal to the difference between the U.S. holder’s adjusted basis in ourthe class A preferred share or ADS (determined in U.S. dollars) and the U.S. dollar amount realized on the sale, exchange or other disposition. If a Brazilian tax is withheld on the sale, exchange or other disposition of a class A preferred share or ADS, the amount realized by a U.S. holder will include the gross amount of the proceeds of that sale, exchange or other disposition before deduction of the Brazilian tax. In the case of anon-corporate U.S. holder, the maximum marginal U.S. federal income tax rate applicable to capital gain will generally be lower than the maximum marginal U.S. federal income tax rate applicable to ordinary income (other than, as discussed above, certain dividends) if such holder’s holding period for such class A preferred share or ADS exceeds one year (i.e., such gain is a long-term capital gain). Capital gain, if any, realized by a U.S. holder on the sale, exchange or exchangeother disposition of a class A preferred share or ADS generally will be treated as U.S. source income for U.S. foreign tax credit purposes. Consequently, in the case of a disposition or deposit of a class A preferred share or ADS that is subject to Brazilian tax, the U.S. holder may not be able to use the foreign tax credit for that Brazilian tax unless it can apply the credit against U.S. tax payable on other income from foreign sources in the appropriate income category, or, alternatively, it may take a deduction fordeductionfor the Brazilian tax if it elects to deduct all of its foreign income taxes. The deductibility of capital losses is subject to limitations under the Code.
The initial tax basis of class A preferred shares or ADSs to a U.S. holder that purchases such shares for non-U.S. currency is the U.S. dollar value of thereais-denominated purchase price determined on the date of purchase. If our class A preferred shares or ADSs are treated as traded on an “established securities market,” a cash basis U.S. holder, or, if it elects, an accrual basis U.S. holder, will determine the U.S. dollar value of the cost of any such class A preferred shares or ADSs by translating the amount paid at the spot rate of exchange on the settlement date of the purchase. The conversion of U.S. dollars toreais non-U.S. currency and the immediate use of that currency to purchase class A preferred shares or ADSs generally will not result in taxable gain or loss for a U.S. holder. With respect to the sale, exchange or exchangeother disposition of class A preferred shares or ADSs,for non-U.S. currency, the amount realized generally will be the U.S. dollar value of the payment received determined on (1) the date of receipt of payment in the case of a cash basis U.S. holder and (2) the date of disposition in the case of an accrual basis U.S. holder. If our class A preferred shares or ADSs are treated as traded on an “established securities market,” a cash basis taxpayer,U.S. holder, or, if it elects, an accrual basis taxpayer,U.S. holder, will determine the U.S. dollar value of the amount realizedpayment received on the sale, exchange or other disposition of any such class A preferred shares by translating the amount received at the spot rate of exchange on the settlement date of the sale.sale, exchange or other disposition. Passive Foreign Investment Company Rules A Non-U.S.non-U.S. corporation will be classified as a “passive foreign investment company,” or a PFIC, for U.S. federal income tax purposes in any taxable year in which, after applying certain look-through rules, either (1) at least 75 percent of its gross income is “passive income” or (2) at least 50 percent of the average value of its gross assets is attributable to assets that produce “passive income” or isare held for the production of passive income. Passive income for this purpose generally includes dividends, interest, royalties, rents and gains from commodities and securities transactions. Based on certain estimates of its gross income and gross assets and the nature of its business, our companyCompany believes that it will not be classified as a PFIC for its taxable year ended December 31, 2018. The company’s2019. Our Company’s status in future years will depend on its income, assets and activities in those years. The companyOur Company has no reason to believe that its income, assets or activities will change in a manner that would cause it to be classified as a PFIC for the taxable year ending December 31, 20182020 or any future year, but there can be no assurance that the companyour Company will not be considered a PFIC for any taxable year. If we were a PFIC, a U.S. holder of class A preferred shares or ADSs generally would be subject to imputed interest charges and other disadvantageous tax treatment with respect to any gain from the sale or exchangeother disposition of, and certain distributions with respect to, the class A preferred shares or ADSs (including the loss of the potentialADSs. In addition, non-corporate U.S. holders will not be eligible for reduced tax raterates on certainany dividends received from our Company (as described above). if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year. If we were a PFIC, a U.S. holder of class A preferred shares or ADSs couldmay be able to make a varietyone of certain elections that may alleviate certain of the tax consequences referred to above, and one of these elections may be made retroactively.above. However, it is expected that the conditions necessary for making certainone of such elections will not apply in the case of the class A preferred shares or ADSs. U.S. holders should consult their own tax advisors regarding the tax consequences that would arise if the companyour Company were treated as a PFIC. If a U.S. holder owns our class A preferred shares or ADSs during any year in which we were a PFIC, the U.S. holder generally must file IRS Form 8621 with respect to our company,Company, generally with the U.S. holder’s U.S. federal income tax return for that year. If our companyCompany was a PFIC for a given taxable year, then U.S. holders of class A preferred shares or ADSs should consult their tax advisoradvisors concerning their annual filing requirements.
Medicare Tax on “Net Investment Income” Certain U.S. Holdersholders who are individuals, estates or trusts are required to pay an additional 3.8% tax on, among other things, dividends and capital gains for the sale or other disposition of class A preferred shares and ADSs. 180
Foreign Asset Reporting Certain U.S. holders who are individuals are required to report information relating to an interest in our class A preferred shares or ADSs, subject to certain exceptions (including an exception for shares or ADSs held in custodial accounts maintained with a financial institution). U.S. holders of the class A preferred shares or ADSs are urged to consult their tax advisors regarding their information reporting obligations, if any, with respect to their ownership and disposition of our class A preferred shares or ADSs. Information Reporting and Backup Withholding U.S. backup withholding tax and information reporting requirements generally apply to certain payments to certain non-corporate holders of shares. Information reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemptionother disposition of, our class A preferred shares or the ADSs made within the United States or by a U.S. payor or U.S. middleman to a holder of our class A preferred shares or the ADSs, other than an exempt recipient, including a corporation, a payee that is not a U.S. person that provides an appropriate certification and certain other persons. Backup withholding tax will apply to any payments of dividends on, or the proceeds from the sale or redemptionother disposition of, our class A preferred shares or the ADSs within the United States or by a U.S. payor or U.S. middleman to a holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such backup withholding tax requirements. The backup withholding tax rate is currently 24%. Backup withholding is not an additional tax. Holders generally will be entitled to a credit for any amounts withheld under the backup withholding rules against their U.S. federal income tax liability or a refund of the amounts withheld, provided the required information is furnished to the IRSU.S. Internal Revenue Service in a timely manner. The above description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of class A preferred shares or ADSs. Prospective purchasers should consult their own tax advisors concerning the tax consequences of their particular situations. Documents on Display Statements contained in this annual report regarding the contents of any contract or other document filed as an exhibit to this annual report summarize their material terms, but are not necessarily complete, and each of these statements is qualified in all respects by reference to the full text of such contract or other document. We are subject to the periodic reporting and other informational requirements of the Exchange Act applicable to a foreign private issuer. Accordingly, we are required to file with or furnish to the SEC, reports and other information, including annual reports on Form 20-F and reports on Form 6-K. As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and members of our board of directors and board of executive officers and our principal shareholders are exempt from reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, as a foreign private issuer, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. You may inspect and copy reports and other information that we file with or furnish to the SEC at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington D.C. 20549. Copies of these materials may be obtained by mail from the SEC’s Public Reference Room at prescribed rates. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330. In addition, the SEC maintains an internet website atwww.sec.gov from which you can electronically access these materials.
We also file financial statements and other periodic reports with the CVM, which are available for investor inspection at the CVM’s offices located at Rua Sete de Setembro, 111, 2nd floor, Rio de Janeiro, RJ, and Rua Cincinato Braga, 340, 2nd, 3rd and 4th floors, São Paulo, SP. The telephone numbers of the CVM in Rio de Janeiro and São Paulo are +55-21-3554-8686 and +55-11-2146- 2097, respectively. 181
Copies of our annual report on Form 20-F and documents referred to in this annual report and our by-laws, as well as certain other documents that we are required to file with, or make availabe to, the SEC and the CVM, are available for inspection upon request at our headquarters at Rua Lemos Monteiro, 120 – 24° andar, Butantã—São Paulo—SP, CEP 05501-050, Brazil. Our filings are also available to the public through the internet on our website atwww.braskem-ri.com.br. The information included on our website or that might be accessed through our website is not included in this annual report and is not incorporated into this annual report by reference. Item 11. Quantitative and Qualitative Disclosures About Market Risk Market risk is the potential loss arising from adverse changes in market rates and prices. We are exposed to market risks arising from our normal business activities. These risks are beyond our control and consist, principally, in the possibility that changes in interest rates, exchange rates or commodity prices will adversely affect the value of our financial assets and liabilities or future cash flows and earnings. In order to mitigate the market risks to which we are exposed, we have used, and we may use, foreign currency, interest rate and commodity derivative instruments, as well as cash and receivables. As of December 31, 2018,2019, we had currency options with an aggregate notional amount of US$2,2321,928.8 million in puts and US$1,5941,402.8 million in calls. In addition, we had an interest rate swap related to Project Ethylene XXI with an aggregate notional amount of US$798.46703.7 million. These cross-currency and interest rate swaps match certain of our debt obligations. We assess the potential and consolidated impact of market risks and seek to mitigate assessed risks in accordance with our risk management policy. Our current risk management policy, adopted on March 30, 2017 by our board of directors and recently updated in September 2018,July 2019, covers cash flow management and liquidity, investment of cash and cash equivalents, funding activities and guarantees, and management of foreign exchange and commodity risks. This policy reflects our conservative financial practices and risk management procedures. Its objective is to manage and anticipate risks by continuously evaluating several key factors, including the overall financial health of the company,our Company, any financial operations we have with related parties, our ratings, counterparty risk and hedging strategy. Additionally, the policy aims to ensure the alignment of the objectives of the financial teams with the overall objectives of Braskem. We do not enter into derivative transactions with speculative purposes. As of December 31, 20182019 we had R$3,6624,722.8 million in foreign currency-denominated cash, cash equivalents and financial investments, which may partially offset the effects of a depreciation of the real against the foreign currency and, consequently, our ability to service our foreign currency-denominated debt to the extent of these foreign currency-denominated cash equivalents and other investments. Interest Rate Risk Our variable interest rate exposure is primarily subject to the variations of the LIBOR rate and, forreal-denominated borrowings and short-term cash investments, variations of the TLP rate, CDI rate and IPCA rate. With respect to Brazilian interest rates: ·the short-term domestic CDI rate decreased to 6.40% per annum as of December 31, 2018, from 6.89% per annum as of December 31, 2017 and 13.63% per annum as of December 31, 2016; and
·the TLP increased to 7.06% per annum as of December 31, 2018, from 7% per annum as of December 31, 2017 and 7.5% per annum as of December 31, 2016.
·the IPCA recorded in 2018 was 3.75%, increasing from 2.95% in 2017 and 6.29% in 2016.
· | the short-term domestic CDI rate decreased to 4.40% per annum as of December 31, 2019, from 6.40% per annum as of December 31, 2018 and 6.89% per annum as of December 31, 2017; and | 166·
| the TLP decreased to 5.09% per annum as of December 31, 2019, from 7.06% per annum as of December 31, 2018 and 7.0% per annum as of December 31, 2017. | · | the IPCA recorded in 2019 was 4.31%, increasing from 3.75% in 2018 and 2.95% in 2017. |
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The table below provides information about our significant interest-rate sensitive instruments: | Payment Schedule — Breakdown by Type of Interest Rate | | | As of December 31, 2018 | | | Expected Maturity Date | Expected Maturity Date as of December 31, 2019 | | | | | | | | | | | | | | | | | | | (in millions ofreais, unless otherwise indicated) | (in millions ofreais, unless otherwise indicated) | Liabilities: | | | | | | | | | | | | Loans and financings (excluding debentures): | | | | | | | | | | | | Fixed rate, denominated in U.S. dollars | 412,9 | 1,473.3 | 3,686.2 | 2,010.3 | 2,010.3 | 12,957.8 | 22,550.7 | 24,888.2 | 417.1 | — | 1,165.9 | 833.9 | 3,426.1 | 19,145.8 | 24,988.9 | 25,714.8 | Average interest rate | 5.9% | 6.9% | 5.7% | 5.3% | 3.5% | 5.9% | | 5.8% | — | 5.4% | 3.5% | 6.1% | 5.4% | — | Variable rate, denominated in U.S. dollars | 260.6 | 250.0 | 249.8 | 172.5 | 775.2 | 1,957.9 | 1,746.5 | 332.8 | 368.9 | 369.5 | 370.2 | 370.9 | 1,349.4 | 3,161.8 | 2,894.5 | Average interest rate (over LIBOR) | 1.1% | 1.1% | 1.1% | 1.1% | 1.1% | | 0.8% | 0.7% | 0.8% | — | Ethylene XXI Project finance fixed rate, denominated in U.S. dollars | 2,640.8 | - | - | - | - | 2,640.8 | 2,329.6 | 279.7 | 287.0 | 210.3 | 308.3 | 324.0 | 1,048.9 | 2,458.2 | 2,265.7 | Average interest rate | 4.8% | - | - | - | - | | 4.9% | 4.8% | 4.7% | — | Bond of Braskem Idesa (denominated in U.S. dollars) | | 21.0 | — | 3,619.4 | 3,640.4 | 3,870.5 | Average interest rate | | 7.5% | — | 7.5% | — | Ethylene XXI Project finance variable rate, denominated in U.S. dollars | 7,953.3 | - | - | - | - | 7,953.3 | 7,038.3 | 485.2 | 553.8 | 527.3 | 621.2 | 689.5 | 1,350.6 | 4,227.5 | 3,928.2 | Average interest rate | 3.9% | - | - | - | - | | | Average interest rate.. | | 3.5% | 3.4% | 3.5% | 3.7% | — | Fixed rate, denominated inreais | 120.0 | 84.6 | 51.7 | 46.4 | 14.6 | 12.3 | 329.6 | 293.7 | 59.5 | 26.2 | 20.8 | 12.4 | 5.0 | 7.3 | 131.2 | 121.8 | Average interest rate | 5.4% | 5.6% | 5.9% | 6.1% | 4.4% | 6.5% | | 4.6% | 4.1% | 4.0% | 4.6% | 6.5% | — | Variable rate, denominated in reais | 19.0 | 12.5 | 12.5 | 212.5 | 221.9 | 490.9 | 371.5 | 46.5 | 42.7 | 45.8 | 246.8 | 640.8 | 9.4 | 1,032.0 | 867.9 | Average interest rate ( CDI referenced) | 7.6% | 8.2% | 8.2% | 6.5% | 6.6% | | | Average interest rate (CDI) | | 4.7% | 4.5% | 4.4% | 5.6% | — | Variable rate, denominated inreais | 0.2 | 0.2 | 0.1 | - | - | - | 0.6 | 0.5 | 0.2 | 0.1 | — | 0.3 | Average interest rate (over TLP) | 6.0% | 6.0% | - | - | - | | | Average interest rate (over TJLP) | | 6.0% | — | Variable rate, denominated inreais | 15.3 | 33.9 | 38.1 | 38.1 | 38.1 | 47.6 | 211.2 | 186.0 | 39.1 | 65.1 | 67.4 | 173.3 | 479.7 | 397.6 | Average interest rate (over IPCA) | 6.0% | 6.0% | 6.0% | 6.0% | 6.0% | | | | | | | | | | | | | | 11,286.8 | 1,736.0 | 3,948.7 | 2,272.6 | 2,395.3 | 13,954.9 | 36,135.0 | 36,854.2 | | Total loans and financings | | | | | | | 1,681.3 | 1.343.7 | 2,407.0 | 2,460.1 | 5,523.7 | 26,704.1 | 40,119.9 | 40,061.2 | Assets: | | | | | | | | | | | | Cash and cash equivalents and other instruments: | | | | | | | | | Fixed rate, denominated in foreign currency | 3,661.8 | - | - | - | — | 3,661.8 | 4,722.8 | — | 4,722.8 | Variable rate, denominated inreais | 4,253.4 | - | - | - | — | 4,253.4 | | | | Total cash and cash equivalents and other investments | 7,915.2 | - | - | - | — | 7,915.2 | | | | | | | | | | | |
(1) Represents the net present value of the future cash flows from the obligations converted intoreais at fair market value as of December 31, 2018.2019. In the event that the average interest rate applicable to our financial assets and debt in 2019 were 12020 are one percentage point higher than the average interest rate in 2018,2019, our financial income would increase by R$ 79.284.7 million and our financial expenses would increase by R$ 361.3401.2 million. Foreign Currency Exchange Rate Risk Our liabilities that are exposed to foreign currency exchange rate risk are primarily denominated in U.S. dollars. To partially offset our risk of any devaluation of thereal against the U.S. dollar, we currently maintain available liquid assets denominated in U.S. dollars and enter into derivative contracts. Additionally, in order to provide a better representation of the actual exchange rate risk related to future exports, we designated part of our U.S.ourU.S. dollar-denominated liabilities as a hedging instrument, implementing the hedge accounting treatment on May 1, 2013. We borrow in the international markets to support our operations and investments; we are exposed to market risks from changes in foreign exchange rates and interest rates. 183
The table below provides information about our significant foreign currency exposures: | Expected Maturity Date as of December 31, 2019 | | | | | | | | | | | (in millions ofreais) | Liabilities: | | | | | | | | | Loans, financings and trade payables: | | | | | | | | | Loans and financings denominated in U.S. dollars | 1,535.8 | 1,209.6 | 2,273.1 | 2,133.6 | 4,810.5 | 26,514.1 | 38,476.7 | 38,673.7 | Accounts payable denominated in U.S. dollars | | | | | | | | | Total loans, financings and trade payables | 8,482.7 | 1,209.6 | 2,273.1 | 2,133.6 | 4,810.5 | 26,514.1 | 45,423.6 | 45,620.6 | Assets: | | | | | | | | | Cash and cash equivalents and other investments denominated in foreign currency | | | | | | | | | Total cash and cash equivalents and other investments | | | | | | | | | Hedge Accounting: | | | | | | | | | Hedge Accounting designated Exports/Sales | 3,643.7 | 2,196.3 | 738.8 | 1,737.1 | 3,791.8 | 27,196.7 | 39,304.4 | 39,304.4 |
Liabilities and Assets Schedule — Breakdown by Currency | | As of December 31, 2018
Expected Maturity Date | | | | | | | | | | | (in millions ofreais) | Liabilities: | | | | | | | | | Loans, financings and trade payables: | | | | | | | | | Loans and financings denominated in U.S. dollars | 11,267.5 | 1,723.2 | 3,936.1 | 2,260.1 | 2,182.8 | 13,733.0 | 35,102.8 | 28,262.5 | Accounts payable denominated in U.S. dollars | 5,841.7 | - | - | - | - | - | 5,841.7 | 5,841.7 | Total loans, financings and trade payables | 17,109.2 | 1,723.2 | 3,936.1 | 2,260.1 | 2,182.8 | 13,733.0 | 40,944.5 | 34,104.2 | Assets: | | | | | | | | | Cash, cash equivalents and other investments denominated in foreign currency | 3,661.8 | - | - | - | - | - | 3,661.8 | 3,661.8 | Total cash and cash equivalents and other investments | 3,661.8 | - | - | - | - | - | 3,661.8 | 3,661.8 | Hedge Accounting: | | | | | | | | | Hedge Accounting designated Exports/Sales | 3,730.8 | 3,836.8 | 3,947.7 | 3,765.2 | 4,071.8 | 12,650.0 | 32,002.2 | 32,002.2 |
(1) Represents the net present value of the future cash flows from the obligations converted intoreais at fair market value as of December 31, 2018.2019. Our foreign currency exposures give rise to market risks associated with exchange rate movements of thereal against the U.S. dollar. Foreign currency-denominated liabilities as of December 31, 20182019 consisted primarily of U.S. dollar-denominated debt. Our U.S. dollar-denominated debt, including short-term debt and current portion of long-term debt, was R$35,10338,476.7 million (US$9,0599,545.9 million) and R$32,15635,102.8 million (US$10,1429,059.3 million) as of December 31, 2017.2019. This foreign currency exposure is represented by debt in the form of notes, bonds, pre-export finance facilities and working capital loans. Our cash and funds available in U.S. dollars partially protect us against exposure arising from the U.S. dollar-denominated debt. Similarly, revenue from future sales and exports partially offsets this foreign currency exposure for U.S. dollar-denominated debt, and we therefore adopted hedge accounting treatment to provide a better representation of our actual exposure. Since 2016, Braskem has recognized the exchange rate variation, held on “Other Comprehensive Income”, to the income statement, following the future sales and exports designation schedule (for further information, see note 17 to ourauditedconsolidated financial statements elsewhere in this annual report). In the event that thereal depreciated by 10% against the U.S. dollar during 20182019 as compared to thereal/U.S. dollar exchange rate as of December 31, 2017,2019, our financial expenses indexed to the dollar in 20182020 would have increased by R$3,5103,847.7 million, and our financial income would have increased by R$366472.3 million. Commodity Prices We do not currently hedge our main exposure to changes in prices of naphtha, our principal raw material, which are linked to international market prices denominated in U.S. dollars of naphtha and other petroleum derivatives. We do not hedge this main exposure, in part, because a portion of our sales are exports payable in foreign currencies and linked to the international market prices of these commodities denominated in U.S. dollars and, in part, because the prices of our polyethylene, polypropylene and PVC products sold in domestic markets generally reflect changes in the international market prices of these products denominated in U.S. dollars, converted intoreais. In periods of high volatility in the U.S. dollar price of naphtha or thereal/U.S. dollar exchange rate, there is usually a lag between the time that the U.S. dollar price of naphtha increases or the U.S. dollar appreciates and the time that we can effectively pass on the resulting increased cost inreais to our customers in Brazil. Accordingly, if the U.S. dollar price of naphtha increases precipitously or thereal devalues precipitouslydevaluesprecipitously against the U.S. dollar in the future, we may not immediately be able to pass on all of the corresponding increases in our naphtha costs to our customers in Brazil, which could materially adversely affect our results of operations and financial condition. See “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Petrochemical Industry.”
Item 12. Description of Securities Other than Equity Securities The Bank of New York Mellon, which was designated our depositary in December 2016, collects its fees for the delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs or from intermediaries acting for them. The depositary also collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deductions from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid. Persons depositing or withdrawing shares must pay: · | US$5.00 for each 100 ADSs (or portion thereof) issued, delivered, reduced, cancelled or surrendered (as the case may be) plus any additional fees charged by any governmental authorities or other institutions such as the Brazilian Clearing and Depository Corporation (Companhia Brasileira de Liquidação e Custódia); ·a fee of US$0.04 or less per ADS for any cash distribution made pursuant to the Deposit Agreement;
·a fee of US$1.50 per ADR or ADRs for transfers made pursuant to paragraph;
·a fee for the distribution or sale of securities;
·an aggregate fee of US$0.04 or less per ADS per calendar year (or portion thereof) for services performed by the Depositary in administering the ADRs;
·a fee for the reimbursement of such fees, charges and expenses as are incurred by the Depositary and/or any of its agents; and
·transfer or registration fees for the registration or transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited Securities.
| · | a fee of US$0.04 or less per ADS for any cash distribution made pursuant to the Deposit Agreement; | · | a fee of US$1.50 per ADR or ADRs for transfers made pursuant to paragraph; | · | a fee for the distribution or sale of securities; | · | an aggregate fee of US$0.04 or less per ADS per calendar year (or portion thereof) for services performed by the Depositary in administering the ADRs; | · | a fee for the reimbursement of such fees, charges and expenses as are incurred by the Depositary and/or any of its agents; and | · | transfer or registration fees for the registration or transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited Securities. |
During the year ended December 31, 2018,2019, we receiveddid not receive any amount from the depositary of our ADSs US$685,217.03, which was used for general corporate purposes such as the payment of costs and expenses associated with (1) the preparation and distribution of proxy materials, (2) the preparation and distribution of marketing materials and (3) consulting and other services related to investor relations.ADSs. 185
PART II Item 13. Defaults, Dividend Arrearages and Delinquencies Not applicable. Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds Not applicable. 186
Item 15. Controls and Procedures Disclosure Controls and Procedures Our management, including our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2018.2019. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as a result of the material weaknesses in our internal control over financial reporting described below, as of December 31, 2018,2019, our disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act was being recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it was accumulated for and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding the required disclosures.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projectionsProjections of any evaluation of the effectiveness of internal control to future periods are also subject to the risk that controls may become inadequate because of changes in conditions, and that the degree of compliance with the policies or procedures may deteriorate. Our management, with the participation of the CEO and CFO, under the oversight of the Board of Directors, assessed the effectiveness of our internal control over financial reporting as of December 31, 20182019 based on criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management concluded that, as of December 31, 2018,2019, our internal control over financial reporting was not effective because of the material weaknesses described below. A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual consolidated financial statements will not be prevented or detected on a timely basis. Material Weaknesses in Internal Control over Financial Reporting
We identified a material weaknessin our control environmentas we had an insufficient complement of resources with an appropriate level of knowledge, training, expertise and skills commensurate with our financial reporting requirements in certain areas.requirements. This resulted in a material weakness in our risk assessment as we did not have the necessary resources to effectively implementdesign and executeperform our processes and controls over risk assessment. Additionally, as described below we had a number of ineffective controls that also indicated that we had material weaknesses in our information and communication and monitoring components of internal control over financial reporting. These material weaknesses resulted in or were as a result of the following control deficiencies that were material weaknesses or aggregated to material weaknesses: 187
(i) | Ineffective design and operation of general information technology controls (GITCs) related to user access and program change-management over certain ancillary IT operating systems, databases and applications that support our financial reporting processes, which resulted in business process controls that are dependent on the affected IT systems, in particular the completeness and accuracy of information from such systems, also being considered ineffective because they could have been adversely impacted. In addition, there were ineffective controls over reports from our ERP system and lack of controls over spreadsheets used in the operation of certain controls. | 170(ii)
| Ineffective design and operation of controls within the financial reporting process including consolidation, analysis of complex and unusual transactions , review of manual journal entries, and the preparation and review of the financial statements, including the technical application of generally accepted accounting principles and applicability of required disclosures; | (iii) | Ineffective operation of controls over legal contingencies related primarily to completeness of the legal contingences assessment; | (iv) | Ineffective operation of controls over the purchase of and payment for certain legal services. | (v) | Ineffective controls over the quantity of product shipped for sales transactions. |
(i)Ineffective design and operation of general information technology controls (GITCs) related to user access and program change-management over all IT operating systems, databases and applications that support our financial reporting processes, whichMaterial weaknesses (ii) resulted in business process controls that are dependent ona material misstatement to the affected IT systems also being considered ineffective because they could have been adversely impacted;
(ii)Ineffective design of controls over the purchase of raw materials;
(iii)Ineffective design of controls over the purchase of and payment for legal services;
(iv)Ineffective design and operation of controls over the provision for legal contingencies; and
(v)Ineffective design and operation of controls within the financial reporting process covering the analysis of complex and unusual transactions and the preparation and review of theconsolidated financial statements including the technical application of generally accepted accounting principles and applicability of required disclosures. In one instance, wethat was corrected. The other material weaknesses did not fully evaluate an agreement signed with the authorities in Brazil that led to an improper tax deduction under the Plea Agreement signed in 2016 with the U.S. authorities.
Material weaknesses (iv) and (v) above resultedresult in material misstatements that were correctedmisstatement, in the consolidated financial statements. Material weakness (i), (ii) and (iii) did not result in a material misstatement.
Our independent registered public accounting firm, KPMG Auditores Independentes, has issued an adverse audit opinion on the effectiveness of our internal control over financial reporting as of December 31, 2018,2019, which is included in this annual report.
Remediation Actions Addressing Material Weaknesses Reported in 20182019 Management has taken several actions to improve the control environment and continues to monitor the maturity and operating effectiveness of controls designed and implemented. In order to remediate the material weaknesses, we, led by our Chief Executive Officer and the Chief Financial Officer, are implementing and monitoring the following specific actions: Regarding the material weaknesses related to ourcontrol environment and risk assessment, we are focused on ensuring we have adequate accounting structuresresources with the technical skillsappropriate knowledge and resourcestraining needed to account for specific transactions and assess risk associated with financial reporting, and that the individuals involved in our risk assessment have the requisite time and technical skills to perform adequate risk evaluation over the financial statements. Additionally, as further described below we are focused on ensuring controls are effectively designed and operating to completely mitigate the risks associated with our financial statements by addressing all components and principles of internal control framework over financial reporting. The Company, led by our Chief Executive Officer and the Chief Financial Officer, are implementing and monitoring the following specific actions:actions are being implemented and monitored: (i) | Ineffective design and operation of GITCs over certain ancillary IT operating systems and completeness and accuracy of ERP reports: | | - | Review of internal procedures for users with generic and privileged accesses and redesign controls to monitor these users; | | - | Improvement on the controls over (a) approval of access, (b) changes to applications made by users with privileged access, (c) access management protocols (granting, changing or revoking access), (d) physical data environment and data management (backup and restore), (d) physical access to the infrastructure, (e) monitoring of automated routines (job schedule); and | | - | Implementation and improvement of parameters for change management, including segregation of duties (development and quality environments); | | - | Implementation of controls over completeness and accuracy of ERP reports in order to ensure the completeness and accuracy. | | | | (ii) | Ineffective design and operation of controls within the financial reporting process: | | - | Improvements on controls related to preparing financial statements and review of checklist on disclosures required in the financial statements; | | - | Hiring of new specialized team members for the Corporate Accounting department. | | - | Review of controls over significant unusual transactions and supporting documentation; and | | - | Improvement of communication by the Corporate Accounting with the other (business) departments. | | - | Assessment of the current manual journal entries process and implementation of appropriate measures to ensure the controls effectiveness. |
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(iii) | Ineffective operation of legal contingences controls: | | - | Review of legal contingencies and the information included in the litigation database; | | - | Review by the Company´s Legal Team of information provided by the external law firms. | | | | (iv) | Ineffective operation of controls over the purchase of and payment for legal services: | | - | Review of the contracting of external legal services process, ensuring the effectiveness of controls performed by Legal department; | | - | Implementation of new process for contracting carried out without the involvement of the proper team, requiring an approval by the Legal Vice President; | | - | Training of Legal team members on the procedure for contracting external legal services. | | | | (v) | Ineffective controls over the quantity of products shipped: | | - | Assessment of the current sales process and implementation of adequate measures to ensure the controls effectiveness. |
Remediation Actions Addressing Material Weaknesses Reported in 2018 We have implemented improved procedures and control activities, which allowed us to remediate certain material weaknesses described in our 2018 annual report on Form 20-F. Regarding the material weaknesses related to ourcontrol environment and risk assessment, we have implemented several actions to address the complete mitigation of risksassociated with our financial statements, however we believe we will be able fully cover all the components and principles of internal control framework over financial reporting only during 2020. Ineffective design and operation of GITCs: -internal procedures for users with privileged access and controlsBraskem has performed several actions related to monitor these users;
-controls for approval of access;
-controls over changes to applications made by users with privileged access;
-access management protocols (granting, changing or revoking access);
-parameters for change management; and
-segregation of duties between the development and migration of changes into the production environment.
(ii)Ineffective design of controls over the purchase of raw materials:
-review controls over the purchase and payment of raw materials;
-a quantitative and qualitative analysis of raw materials previously purchased; and
-monitoring controls to oversee the effectiveness of existing controls over the purchase of raw materials (including controls over the billing of purchase rebates and collectability of previously-billed purchase rebates).
(iii)Ineffective design of controls over the purchase of and payment for legal services:
-due diligence procedures for new third parties service providers;
-compliance training sessions for employees and third parties;
-review of the legal affairs policy;
-requiring appropriate support documentation for legal services;
-delegation of authority directive which establishes limits of approval; and
-hiring a head of legal operations, who is also responsible for overseeing and enhancing the processes and controls around payment of legal services to ensure that legal services had been rendered.
(iv)Ineffective design and operation of controls over the provision for legal contingencies:
-review controls over information containedimprovement in the litigation database to ensure its accuracy;
-analysis ofgeneral information used in the execution oftechnology controls over legal contingenciesenvironment. These efforts were able to ensure the completenessremediation of a material weakness regarding GITCs for our ERP system, however some controls applicable to other ancillary systems were not fully remediated in 2019, and accuracy of reports usedBraskem is committed to perform the controls;remediating these controls in 2020.
-reconciliation of litigation management system and the general ledger;
-controls over the timely updating of data in our litigation management system, based on information provided by external law firms; and
-communication protocols between our legal and accounting departments regarding legal provisions and related changes.
(v)Ineffective design and operation of controls within the financial reporting process:
-hiring an individual responsible for overseeing the processes and controls related toOur Accounting department has reviewed the financial reporting process;
-control to prepareprocess and review a checklist on disclosures requiredimplemented new controls in the financial statements;
-proper instructions to the accounting teams for the preparation and review of the reporting package for consolidation purposes, including cash flow and disclosures;
-review controls over significant unusual transactions;
-training covering corporate regulation and accounting standards; and
-improved communication by the corporate accounting department with the subsidiary accounting teams.
Remediation Actions Addressing Material Weaknesses Reported2019, however Management understands additional actions should be taken in 2017
We have implemented improved procedures and control activities, which allowed us to remediate certain material weaknesses described2020, in our 2017 annual report on Form 20-F.
Remediation efforts related to control environment – tone at the top and appointment of Board members
Braskem has performed several actions regarding compliance concepts, requirements and systemic toolsorder to improve the control environmenteffectiveness of financial reporting process.
Ineffective operation of controls over the provision for legal contingencies: In 2019, our Legal department has reviewed the legal contingencies process and significantly improved the controls, including thereconciliation of litigation process analysis and the decision making processgeneral ledger, the controls implemented by the Board members (tone at the top). In 2018 the Braskem`s BylawsLegal department were reviewed, some Board members were replaced, and a new control related to integrity due diligence was implementedalso able to ensure that all Board members are submitted to an analysis,the completeness and accuracy of contingencies, and the communication between our Legal and Accounting departments has improved. However, evidences of controls operation was not captured and evaluated, as part of the “Know your employee (KYE)” process. Additionally,performance of controls, the Board members have been attending training sessions regarding compliance matters, and there are compliance policiesCompany will further enhance the controls in place that impact variable compensation. The processes and controls have been implemented and tested resulting in management concluding this material weakness was remediated as of December 31, 2018.
2020. Remediation efforts related to anti-corruption compliance programIneffective operation of controls over the purchase of and controls:payment for legal services:
BraskemOur Legal department has developed a seriesdesigned controls over the purchase of structural actions to maintain an effective anti-corruption Compliance Program and Controls designed to preventpayment for legal services in 2019 and detect violations of the Foreign Corrupt Practices Act of 1977 (“FCPA”) and other applicable anti-corruption laws. The existing Compliance Program establish short, medium and long-term initiatives; and recommendations received by local and foreign authorities (i.e. external monitors) were implemented in a short-term, as a priority. There are remaining actions that were concluded later with the objective to provide strengthening and establish new improvements.
The following remediation efforts were implemented by December, 31 2018 related to Anti-corruption Compliance Program and related controls:
(i)Increase of the number of employees of the Compliance area, including a hiring of Compliance Officers to serve the Companies located in foreign countries (Mexico, United States and Netherlands and Germany);
(ii)Appointment of new independent members of the our Board of Directors to the Compliance Committee,is committed on enhancing the transparent and independent judgment;
(iii)Designation and contracting of an independent monitor with the Department of Justice “DOJ” and Ministério Público Federal “MPF”, and review of processes and documentation of the Company by the monitor;
(iv)Approval and/or review of normative documentation (policies, directives and procedures): Code of Conduct, Third Party Code of Conduct, Global Anti-corruption Policy, Directive and the Procedure for Relations with Public Agents, Global Risk Management Policy, Transactions with Related Parties of Braskem SA, Internal Audit Directive, Internal Controls Directive, Global Procurement Directive, Global Sales Directive, Sponsorship and Donations Directive, Delegation of Authority Directive, Third Party Integrity Due Diligence Directive, Disciplinary Measures Directive, Corporate Credit Card Directive, Treasury Payments Directive, Business Travel Directive, Personnel Selection Directive (hiring of employees), Payment of commissions to agents Procedure, Ethics Line Channel Research Protocols, Global Conflict of Interest Directive and others;
(v)Outsourcing of the “Ethics Line” (whistleblowing) Channel and improvements to the tool for receiving of complaints;
(vi)Continuation of the Training Program, based on the Compliance System for employees (including the Board) and for third parties;
(vii)Approval of a normative documentation related to interactions with politicians and executives of public companies;
(viii)Development of the corporate goal related to Compliance actions for all of our leaders;
(ix)Formal and effective participation in working groups: United Nation Anti-Corruption and ETHOS Integrity;
(x)Improvement of the integrity due diligence process for third parties;
(xi)Development and application of the Communication Plan to lead the business to operate with a commitment to ethical, integrity and transparency concepts;
(xii)Mapping of risks and controls and evaluations of the effectiveness of these controls forin 2020, in order to fully mitigate the most relevant corporate processesexisting process risks.
Ineffective design of companies with businessescontrols over the purchase of raw materials: In 2019, the Feedstock department implemented new controls related to oversight of purchases and payment of raw materials. This controls were able to ensure the raw material received from suppliers were adequate, in Brazil, USA, Mexico, Netherlandsterms of quantity and Germany; (xiii)Use of anti-corruption clauses in contracts with third parties;
(xiv)Implementation of improvements in relevant internal controls, includingquality. These efforts were able to ensure the remediation of deficiencies previously identified in our internal processes (mainly the material weaknesses and significant deficiencies);weakness.
(xv)Mapping of anti-bribery and anti-corruption controls and improvement of enterprise risk management for these matters;
(xvi)Inclusion of the anti-bribery and anti-corruption risks as scope of Internal Audit works;
(xvii)Definition and review of the corporate risk management methodology; and
(xviii)Conclusion of Internal Audit projects and communication of the issues found to our leaders. Several remediation plans were also implemented in response to these issues.
We have implemented this anti-corruption compliance program and successfully tested the related controls. Therefore, as of December 31, 2018, we have concluded that the material weakness has been remediated.
Remediation efforts related to Controls related to long-term debt:
In 2017, we took the following measures to remediate the material weakness related to non-financial covenants for long-term debt:
(i)Implementation of improvements to the monthly monitoring control relating to covenants;
(ii)Implementation of review controls over long-term debt and covenant clauses analyses;
(iii)Establishment of controls and procedures in the Finance and Accounting areas to ensure the correct recognition of debt (long and short-term obligations) on a timely basis.
We have implemented these remedial steps and successfully tested the related controls. Therefore, as of December 31, 2018, we have concluded that the material weakness has been remediated
Remediation efforts related to Braskem America:
Braskem America teams has taken several actions, in order to implement and improve processes and controls. That includes:
(i)improvements to manual journal entry controls;
(ii)review and implementation of reconciliation controls, based on a risk assessment analysis;
(iii)improvements to inventory count and monitoring controls;
(iv)creation of due diligence routines resulting in a more complete vendor master data process;
(v)improvements to revenue recognition controls;
(vi)improvements to supporting documentation related to internal controls in general.
We have implemented these remedial steps and successfully tested the related controls. Therefore, as of December 31, 2018, we have concluded that the material weaknesses have been remediated.
Changes in Internal Control over Financial Reporting Other than certain of the material weaknesses identified during the yearchanges and certain of the remediation activities described above, there were no changes tointernal control over financial reporting during the year ended December 31, 20182019 that would have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 189
Item 16A. Audit Committee Financial Expert Our fiscal council currently includes an “audit committee financial expert” within the meaning of this Item 16A. Our fiscal council has determined that Ismael Campos de Abreu is our fiscal council financial expert. Mr. Abreu’s biographical information is included in “Item 6. Directors, Senior Management and Employees—Directors and Senior Management—Fiscal Council.” Given that our board has not made a formal determination as to Mr. Abreu’s independence, as that term is defined in Rule 303A.02 of the New York Stock Exchange’s Listed Company Manual, he is not considered independent under that standard. However, he meets the standards of independence for fiscal council members under Brazilian Corporations Law. See “Item 6. Directors, Senior Management and Employees—Directors and Senior Management—Fiscal Council” for more information. Item 16B. Code of Ethics We have adopted a code of conduct that applies to members of our board of directors, fiscal council and board of executive officers, as well as to our other employees. Our current code of conduct was approved by our board of directors in April 2018 and amended in September 2018. A copy of our code of conduct may be found on our website atwww.braskem.com.br. The information included on our website or that might be accessed through our website is not included in this annual report and is not incorporated into this annual report by reference. Item 16C. Principal Accountant Fees and Services Audit and Non-Audit Fees The following table sets forth the fees billed to us by our independent registered public accounting firms,firm KPMG Auditores Independentes during the fiscal yearyears ended December 31, 2018,2019 and PricewaterhouseCoopers Auditores Independentes, during the fiscal year ended December 31, 2017.2018. | Year Ended December 31, | | | | | | | | (in millions ofreais) | (in millions ofreais) | | | | | Audit fees(1) | 11.9 | 39.7 | 12.7 | 11.9 | Audit-related fees | 0.0 | 2.0 | 2.1 | 0.0 | Tax fees(2)(3) | 1.9 | 1.2 | 1.9 | 1.9 | All other fees | | | | Total fees | | | | |
(1) Audit fees consist of the aggregate fees billed byourbyour independent registered public accounting firms in connection with the audit of our annual financial statements, interim reviews and related reserves in connection with the audit and review of financial statements and review of documents filed with the SEC. (2) Audit-related fees refer to services provided in connection with prior debt offerings. (3) Tax fees consist of the aggregate fees billed by ourbyour independent registered public accounting firms for tax compliance reviews.Pre-Approval Policies and Procedures Our fiscal council and board of directors have approved an Audit and Non-Audit Services Pre-Approval Policy that sets forth the procedures and the conditions pursuant to which services proposed to be performed by our independent auditors may be pre-approved. This policy is designed to (1) provide both general pre-approval of certain types of services through the use of an annually established schedule setting forth the types of services that have already been pre-approved for a certain year and, with respect to services not included in an annual schedule, special pre-approval of services on a case by case basis by our fiscal council and our independent auditors, and (2) assess compliance with the pre-approval policies and procedures. Our management periodically reports to our fiscal council the nature and scope of audit and non-audit services rendered by our independent auditors and is also required to report to our fiscal council any breach of this policy of which our management is aware.
Item 16D. Exemptions From the Listing Standards for Audit Committees We are relying on the general exemption from the listing standards relating to audit committees contained in Rule 10A-3(c)(3) under the Exchange Act for the following reasons: · we are a foreign private issuer that has a fiscal council, which is a board of auditors (or similar body) established and selected pursuant to and as expressly permitted under Brazilian law; ·Brazilian law requires our fiscal council to be separate from our board of directors;
·members of our fiscal council are not elected by our management, and none of our executive officers is a member of our fiscal council;
·Brazilian law provides standards for the independence of our fiscal council from our management;
·our fiscal council, in accordance with its charter, makes recommendations to our board of directors regarding the appointment, retention and oversight of the work of any registered public accounting firm engaged (including, the intermediation of disagreements between our management and our independent auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for our company, as Brazilian law requires that our board of directors appoint, retain and oversee the work of our independent public accountants;
·our fiscal council (1) has implemented procedures for receiving, retaining and addressing complaints regarding accounting, internal control and auditing matters, including the submission of confidential, anonymous complaints from employees regarding questionable accounting or auditing, and (2) has authority to engage independent counsel and other advisors as it determines necessary to carry out its duties; and
·we compensate our independent auditors and any outside advisors hired by our fiscal council and provides funding for ordinary administrative expenses incurred by the fiscal council in the course of its duties.
| we are a foreign private issuer that has a fiscal council, which is a board of auditors (or similar body) established and selected pursuant to and as expressly permitted under Brazilian law; | · | Brazilian law requires our fiscal council to be separate from our board of directors; | · | members of our fiscal council are not elected by our management, and none of our executive officers is a member of our fiscal council; | · | Brazilian law provides standards for the independence of our fiscal council from our management; | · | our fiscal council, in accordance with its charter, makes recommendations to our board of directors regarding the appointment, retention and oversight of the work of any registered public accounting firm engaged (including, the intermediation of disagreements between our management and our independent auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for our Company, as Brazilian law requires that our board of directors appoint, retain and oversee the work of our independent public accountants; | · | our fiscal council (1) has implemented procedures for receiving, retaining and addressing complaints regarding accounting, internal control and auditing matters, including the submission of confidential, anonymous complaints from employees regarding questionable accounting or auditing, and (2) has authority to engage independent counsel and other advisors as it determines necessary to carry out its duties; and | · | we compensate our independent auditors and any outside advisors hired by our fiscal council and provides funding for ordinary administrative expenses incurred by the fiscal council in the course of its duties. |
We do not believe that our reliance on this general exemption will materially adversely affect the ability of our fiscal council to act independently and to satisfy the other requirements of the listing standards relating to audit committees contained in Rule 10A-3 under the Exchange Act. Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs | Period: | | | | | From Aug 29, 2012 to Aug 28, 2013 | 262,300 | R$13.30 | 1.961000% | 13,376,161 | From Feb 19, 2015 to Feb 18, 2016 | 80,000 | R$11.58 | 0.030096% | 3,500,000 |
On August 13, 2012, our board of directors authorized a share repurchase program under which we are authorized to repurchase up to 13,376,161 “class A” preferred shares at market prices over the B3 at any time and from time to time prior to August 28, 2013. In 2012, we repurchased 262,300 shares under this program. In 2013 and 2014, we did not repurchase any shares.
On February 11, 2015, our board of directors approved the fifth program for the repurchase of shares effective for the period between February 19, 2015 and February 18, 2016, through which we may acquire up 3,500,000 “class A” preferred shares at market price. In April 20, 2015, we had repurchased 80,000 “class A” preferred shares for an aggregate of R$0.9 million. 191
Item 16F. Change in Registrant’s Certifying Accountant PricewaterhouseCoopers Auditores Independentes, or PwC, acted as our independent public accounting firm until fiscal year ended December 31, 2017. On March 28, 2018, our board of directors, as recommended by our Fiscal Council, approved the appointment of KPMG Auditores Independentes, or KPMG, as our independent registered public accounting firm for fiscal years ended December 31, 2018 and 2019. The change in auditors was made following the expiration of our contract with PwC and its dismissal effective upon the issuance of PwC’s audit report for the year ended December 31, 2017. The reports of PwC on our financial statements for each of the two years ended December 31, 2017 and 2016 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.
During the years ended December 31, 2017 and 2016 and the subsequent interim period through March 28, 2018, there were no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or scope of audit procedures, which disagreement, if not resolved to the satisfaction of PwC, would have caused PwC to make a reference to the subject matter of the disagreement in connection with its audit reports for such fiscal years.
During the years ended December 31, 2017 and 2016 and the subsequent interim period through March 28, 2018, date that our Fiscal Council approved the appointment of KPMG, there were no “reportable events” (as that term is defined in Item 16F(a)(1)(v) of Form 20-F), other than the identification of material weaknesses in our internal control over financial reporting, as described in the “Management’s Report on Internal Control over Financial Reporting” in each of our annual report on Form 20-F for 2016 and in this annual report on Form 20-F.
All material weaknesses identified were presented to our board of directors and PwC. We authorized PwC to respond fully to the inquiries of the new independent registered public accounting firm concerning these matters.
We have provided PwC with a copy of the foregoing disclosure, and have requested that they furnish us with a letter addressed to the U.S. Securities and Exchange Commission stating whether or not they agree with such disclosure. A copy of this letter is filed as Exhibit 16.1 to this Form 20-F.
Prior to the engagement of KPMG as our independent registered public accounting firm, we did not consult with KPMG as to: (i) the application of accounting principles to a specified transaction, either completed or proposed, (ii) the type of audit opinion that might be rendered on our financial statements; or (iii) any matter that was either the subject of a disagreement (as defined in Item 16F(a)(1)(iv) of Form 20-F) or a “reportable event” (as described in Item 16F(a)(1)(v) of Form 20-F) during our two most recent fiscal years or any subsequent interim period, including the interim period up to and including the date on which KPMG was engaged.Not applicable.
Item 16G. Corporate Governance On November 4, 2003, the SEC approved the final corporate governance rules established by the NYSE. According to these rules, foreign private issuers that are listed on the NYSE, such as Braskem, are subject to a more limited set of corporate governance requirements than those imposed on U.S. domestic issuers. As a foreign private issuer, Braskem must comply with the following four requirements imposed by the NYSE: ·Braskem must satisfy the audit committee requirements of Rule 10A-3 under the Exchange Act;
·Braskem’s chief executive officer must promptly notify the NYSE in writing if any executive officer of Braskem becomes aware of any material non-compliance with any of the applicable NYSE corporate governance rules;
· | Braskem must satisfy the audit committee requirements of Rule 10A-3 under the Exchange Act; | 176·
| Braskem’s chief executive officer must promptly notify the NYSE in writing if any executive officer of Braskem becomes aware of any material non-compliance with any of the applicable NYSE corporate governance rules; | · | Braskem must provide a brief description of any significant ways in which Braskem’s corporate governance practices differ from those required to be followed by U.S. domestic issuers under the NYSE corporate governance rules; and | · | Braskem must submit an executed written affirmation annually to the NYSE and an interim written affirmation to the NYSE each time a change occurs to Braskem’s board of directors or any committees of Braskem’s board of directors that are subject to Section 303A, in each case in the form specified by the NYSE. |
·Braskem must provide a brief description of any significant ways in which Braskem’s corporate governance practices differ from those required to be followed by U.S. domestic issuers under the NYSE corporate governance rules; and
·Braskem must submit an executed written affirmation annually to the NYSE and an interim written affirmation to the NYSE each time a change occurs to Braskem’s board of directors or any committees of Braskem’s board of directors that are subject to Section 303A, in each case in the form specified by the NYSE.
Significant Differences The significant differences between Braskem’s corporate governance practices and the NYSE’s corporate governance standards are mainly due to the differences between the U.S. and Brazilian legal systems. Braskem must comply with the corporate governance standards set forth under the Brazilian Corporations Law, the rules of the CVM and the applicable rules of the B3, as well as those set forth in Braskem’s by-laws. The significant differences between Braskem’s corporate governance practices and the NYSE’s corporate governance standards are set forth below. Independence of Directors and Independence Tests In general, the NYSE corporate governance standards require listed companies to have a majority of independent directors and set forth the principles by which a listed company can determine whether a director is independent. However, under the NYSE corporate governance standards, a listed company (whether U.S. or foreign) of which more than 50% of the voting power is held by another company (a “controlled company”), need not comply with the following NYSE corporate governance standards: · A controlled company need not have a majority of independent directors; ·A controlled company need not have a nominating/corporate governance committee composed of independent directors with a charter that complies with the NYSE corporate governance rules; and
·A controlled company need not have a compensation committee composed of independent directors with a charter that complies with the NYSE corporate governance rules.
| A controlled company need not have a majority of independent directors; | · | A controlled company need not have a nominating/corporate governance committee composed of independent directors with a charter that complies with the NYSE corporate governance rules; and | · | A controlled company need not have a compensation committee composed of independent directors with a charter that complies with the NYSE corporate governance rules. |
Because a majority of the voting power of Braskem’s capital stock is directly controlled by Odebrecht, Braskem is a controlled company, and would therefore not be required to have a majority of independent directors if it were a U.S. domestic issuer. Although Brazilian Corporations Law and Braskem’s by-laws establish rules in relation to certain qualification requirements of its directors, neither Brazilian Corporations Law nor Braskem’s by-laws require that Braskem have a majority of independent directors nor require Braskem’s board of directors or management to test thetestthe independence of Braskem’s directors before such directors are appointed. 192
Executive Sessions The NYSE corporate governance standards require non-management directors of a listed company to meet at regularly scheduled executive sessions without management. According to the Brazilian Corporations Law, up to 1/3one-third of the members of Braskem’s board of directors can be elected to management positions. With the exception of the CEO of the Company, currently all of Braskem’s directors are non-management directors. The remaining non-management directors are not expressly empowered to serve as a check on Braskem’s management, and there is no legal requirement that those directors meet regularly without management. Notwithstanding the foregoing, Braskem’s board of directors consists entirely of non-management directors, and therefore Braskem believes it would be in compliance with this NYSE corporate governance standard. Nominating/Corporate Governance and Compensation Committees The NYSE corporate governance standards require that a listed company have a nomination/corporate governance committee and a compensation committee, each composed entirely of independent directors and eachwith a written charter that addresses certain duties. However, as a controlled company, Braskem would not be required to comply with these requirements if it were a U.S. domestic company.
Braskem is not required under Brazilian law to have, and accordingly does not have, a nominating/corporate governance committee. Currently, all of Braskem’s directors are nominated by certain of its shareholders, including Odebrecht, pursuant to shareholders agreements and Braskem’s by-laws. Braskem is not required under Brazilian law to have a compensation committee. However, Braskem has a personnel and organization committee, which is a subcommittee of its board of directors which is responsible for, among other things, analyzing proposals and making recommendations to Braskem’s board of directors with respect to the total compensation paid to Braskem’s management, including Braskem’s chief executive officer. This committee contributes, along with the board of directors, to the annual evaluation of the chief executive officer performance, based on the goals and objectives previously defined and approved by the board of directors, and analyzes the results of the chief executive officer´s annual evaluation of the team members directly associated with him, which results shall be submitted to the board of directors. Under Brazilian Corporations Law, Braskem’s shareholders establish the aggregate compensation of its directors and executive officers, including benefits and allowances, at a general shareholder’s meeting based on the recommendation of Braskem’s board of directors. Audit Committee and Audit Committee Additional Requirements The NYSE corporate governance standards require that a listed company have an audit committee with a written charter that addresses certain specified duties and that is composed of at least three members, all of whom satisfy the independence requirements of Rule 10A-3 under the Exchange Act and Section 303A.02 of the NYSE’s Listed Company Manual. As a foreign private issuer that qualifies for the general exemption from the listing standards relating to audit committees set forth in Section 10A-3(c)(3) under the Exchange Act, Braskem is not subject to the independence requirements of the NYSE corporate governance standards. See “Item 16D. Exemptions From the Listing Standards for Audit Committees.” Shareholder Approval of Equity Compensation Plans The NYSE corporate governance standards require that shareholders of a listed company must be given the opportunity to vote on all equity compensation plans and material revisions thereto, subject to certain exceptions. Under CVM’s Resolution No. 567, shareholder pre-approval is required for the adoption and revision of any equity compensation plans. Braskem’s shareholders approved onOn March 21, 2018, the company’sour shareholders approved our Long Term Incentive Plan, which is an equity incentive compensation plan whichthat provides the yearly opportunity for certain members of the company,our Company, selected by the Board of Directors, to voluntarily adhere to the plan by acquisition of Braskem Sharesour shares and receive matching shares after the vesting period of three years provided the member continuously holds the shares acquired and remains a member of the company during the entire vesting period. 193
Corporate Governance Guidelines The NYSE corporate governance standards require that a listed company must adopt and disclose corporate governance guidelines that address certain minimum specified standards which include: (1) director qualification standards; (2) director responsibilities; (3) director access to management and independent advisors; (4) director compensation; (5) director orientation and continuing education; (6) management succession; and (7) annual performance evaluation of the board of directors. Braskem has adopted the B3 corporate governance rules for Level 1 companies and must also comply with certain corporate governance standards set forth under Brazilian Corporations Law. See “Item 9. The Offer and Listing—Trading on the B3.” The Level 1 rules do not require Braskem to adopt and disclose corporate governance guidelines covering the matters set forth in the NYSE’s corporate governance standards. However, certain provisions of Brazilian Corporations Law that are applicable to Braskem address certain aspects of director qualifications standards and director responsibilities. Code of Business Conduct and Ethics The NYSE corporate governance standards require that a listed company must adopt and disclose a code ofbusiness conduct and ethics for directors, officers and employees and promptly disclose any waivers of the code for directors or officers. Each code of business conduct and ethics should address the following matters: (1) conflicts of interest; (2) corporate opportunities; (3) confidentiality; (4) fair dealing; (5) protection and proper use of company assets; (6) compliance with laws, rules and regulations (including insider trading laws); and (7) encouraging the reporting of any illegal or unethical behavior.
Braskem has adopted a code of business conduct applicable to its directors, officers and employees, which addresses each of the items listed above. Braskem’s code of business conduct is available on Braskem’s website atwww.braskem.com.br. The information included on our website or that might be accessed through our website is not included in this annual report and is not incorporated into this annual report by reference. No waivers of the provisions of the code of business conduct are permitted, except that the restrictions on outside activities do not apply to Braskem’s directors and members of its fiscal council. Item 16H. Mine Safety Disclosure The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and this Item is included inexhibit 99.01. 194
PART III Item 17. Financial Statements We have responded to Item 18 in lieu of responding to this item. Item 18. Financial Statements Reference is made to Item 19 for a list of all financial statements filed as part of this annual report. Item 19. Exhibits (a) Financial Statements Independent Auditor’s Reports on the Financial Statements | F-2F-1
| Consolidated Statement of Financial Position as of December 31, 2019, 2018 and 2017 | F-7 | Consolidated Statement of Profit or Loss as of December 31, 2019, 2018 2017 and 2016 2017 | F-9 | Consolidated Statement of Comprehensive Income as of December 31, 2019, 2018 2017 and 20162017 | F-10 | Consolidated Statement of Changes in Equity as of December 31, 2019, 2018 2017 and 20162017 | F-11 | Consolidated Statement of Cash Flows as of December 31, 2019, 2018 2017 and 20162017 | F-13 | Notes to the Consolidated Financial Statements | F-14 |
(b) List of Exhibits | | | | | | 1.01 | Bylaws of Braskem S.A., as amended (English translation) (incorporated by reference to Exhibit 1 to Form 6-K of Braskem S.A. filed on October 22, 2018). | | 2.01 | Amended and Restated Form of Deposit Agreement, dated as of January 4, 2017, among Braskem S.A., The Bank of New York Mellon, as Depositary, and Owners and Holders of American Depositary Shares issued thereunder (incorporated by reference to Exhibit 1 to Form F-6 of Braskem S.A. filed on December 22, 2016). | | 2.02 | 3.01Description of Securities. | | 3.01 | Shareholders’ Agreement of BRK Investimentos Petroquímicos S.A. and Braskem S.A., dated as of February 8, 2010, among Odebrecht S.A., Odebrecht Serviços e Participações S.A., Petrobras Química S.A. – Petroquisa, Petróleo Brasileiro S.A. – Petrobras, and BRK Investimentos Petroquímicos S.A. and Braskem S.A., as intervening parties (English translation), as amended on September 24, 2018 and as adhered to by OSP Investimentos S.A. on December 31, 2018 (incorporated by reference to Exhibit 1 to Form 6-K of Braskem S.A. filed on February 28, 2019). | | 4.03 | Restricted Share Award Plan of Braskem S.A. approved at the Extraordinary Shareholders’ Meeting held on March 21, 2018 (English translation) (incorporated by reference to Exhibit 1 to Form 6-K of Braskem S.A. filed on March 22, 2018). | | 4.04 | Naphtha Purchase Agreement, dated as of December 23, 2015, between Petróleo Brasileiro S.A. - Petrobras and Braskem S.A. (English translation). (*Confidential treatment has been requested for certain portions omitted from this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Confidential portions of this Exhibit have been separately filed with the Securities and Exchange Commission.)Commission) (incorporated by reference to Exhibit 4.04 to Form 20-F of Braskem S.A. filed on May 5, 2016). | | 8.01 | List of subsidiaries (incorporated by reference to note 2.1.1 to our audited consolidated financial statements included elsewhere in this annual report). | 11.01 | Code of Conduct of Braskem S.A., as amended (English translation) (incorporated by reference to Exhibit 1 to Form 6-K of Braskem S.A. filed on December 17, 2018). | 12.01 | Certification of Principal Executive Officer dated October 17, 2019June 12, 2020 pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). | 12.02 | Certification of Principal Financial Officer dated October 17, 2019June 12, 2020 pursuant to Rules 13a-15(e) and 15d-15(e). | 13.01 | Certifications of Principal Executive Officer and Principal Financial Officer dated October 17, 2019June 12, 2020 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | 16.01
| Letter from PricewaterhouseCoopers Auditores Independentes to the Securities and Exchange Commission, dated October 7, 2019, regarding the change in independent public accounting firm.
| 99.01 | Disclosure of Mine Safety and Health Administration Safety Data. |
SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. October 17, 2019
Date: June 12, 2020 | BRASKEM S.A. By/s/ Fernando Musa
Name: Fernando Musa
| | | | | | | | By: | /s/Roberto Lopes Pontes Simões | | | | Name: | Roberto Lopes Pontes Simões | | | | Title: | Chief Executive Officer | |
196
INDEX TO FINANCIAL STATEMENTS Independent Auditors’s Reports on the Financial Statements | F-2F-1
| Consolidated Statement of Financial Position as of December 31, 2019, 2018 and 2017 | F-7 | Consolidated Statement of Profit or Loss as of December 31, 2019, 2018 2017 and 20162017 | F-9 | Consolidated Statement of Comprehensive Income as of December 31, 2019, 2018 2017 and 20162017 | F-10 | Consolidated Statement of Changes in Equity as of December 31, 2019, 2018 2017 and 20162017 | F-11 | Consolidated Statement of Cash Flows as of December 31, 2019, 2018 2017 and 20162017 | F-13 | Notes to the Consolidated Financial Statements | F-14 |
197
| | | | 12.012.02
| Description of Securities. | 12.01 | Certification of Principal Executive Officer dated October 17, 2019June 12, 2020 pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). | 12.02 | Certification of Principal Financial Officer dated October 17, 2019June 12, 2020 pursuant to Rules 13a-15(e) and 15d-15(e). | 13.01 | Certifications of Principal Executive Officer and Principal Financial Officer dated October 17, 2019June 12, 2020 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | 16.0199.01
| Letter from PricewaterhouseCoopers Auditores Independentes to the Securities and Exchange Commission, dated October 7, 2019, regarding the change in independent public accounting firm.
| 99.01
| Disclosure of Mine Safety and Health Administration Safety Data. |
198
Braskem S.A. FinancialConsolidated financial statements
at December 31, 20182019
and Independent Auditors' Report F - 1
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Braskem S.A.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statement of financial position of Braskem S.A. and subsidiaries (the Company) as of December 31, 2018, the related consolidated statements of profit or loss, comprehensive income, changes in equity, and cash flows for the year ended December 31, 2018, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated October 17, 2019, expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.
Changes in Accounting Principles
As discussed in Note 2.3 to the consolidated financial statements, the Company has changed its method of accounting for revenue and financial instruments as of January 1, 2018 due to the adoption of IFRS 15 –Revenue from Contracts with Customers and IFRS 9 –Financial Instruments, respectively.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
F - 2
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
KPMG Auditores Independentes
We have served as the Company’s auditor since 2018.
São Paulo, Brazil
October 17, 2019
F - 3
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Braskem S.A.:
Opinion on Internal Control Over Financial Reporting
We have audited Braskem S.A. and subsidiaries’(the Company) internal control over financial reporting as of December 31, 2018, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weaknesses, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2018, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of financial position of the Company as of December 31, 2018, the related consolidated statements of profit and loss, comprehensive income, changes in equity, and cash flows for the year ended December 31, 2018, and the related notes, and our report dated October 17, 2019 expressed,an unqualified opinion on those consolidated financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Material weaknesses have been identified and included in management’s assessment related to the Company’s control environment, risk assessment, information and communication, and monitoring activities along with material weaknesses related to the ineffective design, implementation, and operation of (i) general information technology controls (GITCs) in the areas of user access and program change-management over information technology systems that support the Company’s financial reporting processes, which resulted in business process controls that are dependent on the affected also being considered ineffective because they could have been adversely impacted; (ii)controls over the purchase of raw materials; (iii) controls over the purchase of and payment for legal services; (iv) controls over the provision for legal contingencies; and (v) controls within the financial reporting process covering the analysis of complex and unusual transactions, and the preparation and review of the financial statements, including the technical application of generally accepted accounting principles and applicability of required disclosures. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2018 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
F - 4
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
KPMG Auditores Independentes
São Paulo, Brazil
October 17, 2019
F - 5
Report of Independent Registered Public Accounting FirmTo the Shareholders and Board of Directors and Shareholders of
Braskem S.A.:
Opinion on theInternal Control Over Financial StatementsReporting We have audited the consolidated balance sheet of Braskem S.A. and its subsidiaries (the “Company”)subsidiaries’(the Company) internal control over financial reporting as of December 31, 2017, and2019, based on criteria established inInternal Control – Integrated Framework (2013) issued by the related consolidated statementsCommittee of operations, comprehensive income,changes in equity and cash flows for eachSponsoring Organizations of the two years in the period ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”).Treadway Commission. In our opinion, because of the effect of the material weaknesses, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2019, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements present fairly, in all material respects, thestatement of financial position of the Company as of December 31, 2017,2019 and 2018, the resultsrelated consolidated statements of its operationsprofit and itsloss, comprehensive income, changes in equity, and cash flows for each of the two years in the two-year period ended December 31, 20172019, and the related notes (collectively, theconsolidated financial statements), and our report dated June 12, 2020 expressedan unqualified opinion on those consolidated financial statements. A material weakness is a deficiency, or a combination of deficiencies, in conformity with International Financial Reporting Standardsinternal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented ordetected on a timely basis. Material weaknesses have been identified and included in management’s assessment related to the Company’s control environment, risk assessment, information and communication, and monitoring activities resulting in material weaknesses related to the ineffective design, implementation, and operation of (i) general information technology controls (GITCs) in the areas of user access and program change-management over information technology systems that support the Company’s financial reporting processes, as issuedwell as the completeness and accuracy of reports used by the International Accounting Standards Board. Company, which resulted in business process controls that are dependent on the affected GITCs also being considered ineffective because they could have been adversely impacted; (ii) controls within the financial reporting process including consolidation, the analysis of complex and unusual transactions, review of manual journal entries and the preparation of and review financial statements, including the technical application of generally accepted accounting principles and applicability of required disclosures; (iii) controls over the provision for legal contingencies, (iv) controls over the purchase of and payment for legal services and (v) controls over the quantity of product shipped for sales transactions.These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 consolidated financial statements, and this report does not affect our report on those consolidated financial statements. Basis for Opinion These consolidatedThe Company’s management is responsible for maintaining effective internal control over financial statements are the responsibilityreporting and for its assessment of the Company's management.effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reportingappearing under Item 15 of the Company’s Annual Report on Form 20-F. Our responsibility is to express an opinion on the Company’s consolidatedinternal control over financial statementsreporting based on our audits.audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
F-1
We conducted our auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. KPMG Auditores Independentes São Paulo, Brazil
June 12, 2020 F-2
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors Braskem S.A.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statement of financial position of Braskem S.A. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of profit or loss, comprehensive income, changes in equity, and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated June 12, 2020, expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting. Changes in Accounting Principles
As discussed in Note 2.3 to the consolidated financial statements, the Company has changed its method of accounting for lease arrangements as of January 1, 2019 due to the adoption of IFRS 16 “Leases”. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our auditsaudit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provideprovides a reasonable basis for our opinion. F-3
Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Evaluation of impairment of cash generating units that contain goodwill As discussed in notes 3.2.3 and 13 (a) to the consolidated financial statements, the balance of goodwill was R$ 2,058,873 thousand as of December 31, 2019. To evaluate the impairment of goodwill, the Company identifies its cash generating units (“CGU”), estimates the recoverable amount of each CGU, and compares this with its carrying value. The estimate of the recoverable value of the CGUs requires significant judgment on the part of the Company to make certain assumptions including those related to: the discount rate; the growth rates for the next 10 years; the inflation rate, which is used for cash flows to perpetuity; and, where the recoverable value is based on fair value less costs of disposal, future capital expenditure and its associated impact on costs. We identified the evaluation of impairment of CGUs that contain goodwill as a critical audit matter. The assessment of certain assumptions used in the estimates of recoverable values, specifically the discount rate, the growth rates for the next 10 years, the inflation rate and future capital expenditure, including its associated impact on costs, was complex and involved a high degree of subjectivity which required the application of greater auditor judgment. The primary procedures we performed to address this critical audit matter included the following: - We tested certain internal controls over the Company’s goodwill impairment assessment process, including the Company’s review of the calculation of the recoverable value for each CGU and the underlying assumptions, such as the discount rate, the growth rate for the next 10 years and the inflation rate. - We involved corporate finance professionals with specialized skills and knowledge, who assisted in: ·evaluating the discount rate used by the Company by comparing to a discount rate developed using an independent methodology; ·evaluating the growth rates for the next 10 years used by the Company by comparing to historic growth rates and market projections; ·evaluating the inflation rate used by the Company by comparing with market information; ·evaluating the future capital expenditure and its associated impact on costs by comparing to historic information; and ·performing sensitivity analyses on the interest rate and discount rate to assess their impact on the estimation of the recoverable value of each CGU. We compared the projected cash flows for 2019 made by the Company in the prior year with the Company’s actual cash flows for that year to assess the Company’s ability to accurately forecast. Evaluation of the provision and disclosures related to the salt mining activities in Alagoas As discussed in notes 3.2.5, 24.2 and 26 to the consolidated financial statements the Company has recorded a provision related to the geological phenomenon in the vicinity of the Company’s salt mining wells in the state of Alagoas of R$ 3,383,067 thousand as of December 31, 2019 and made disclosures in relation to civil lawsuits, related to the same geological phenomenon, to which it is a party. The provision is for the estimated future outflows of resources required to honor the Company’s commitments under an agreement signed with the Brazilian government authorities following the occurrence of the geological phenomenon. These commitments include taking measures to close and stabilize the salt mines as well as relocating and compensating residents and businesses in the region. The Company has determined that it is possible, but not probable, that it will be required to make payments under the civil lawsuits and therefore made disclosures but recorded no provisions as of December 31, 2019. F-4
We identified the evaluation of the provision and disclosures related to the salt mining activities in Alagoas as a critical audit matter. The evaluation of the estimates and assumptions used by the Company to determine the provision amount required challenging auditor judgment and the use of specialized skills and knowledge. Specifically, the key estimates and assumptions related to the extent and cost of the remediation actions required to stabilize and close the wells, the market value of the properties of residents and businesses in the region and the other costs to relocate and compensate the residents and business owners. In addition, subjective auditor judgment was required to assess the likelihood of an outflow of resources occurring as a result of the civil lawsuits. The primary procedures we performed to address this critical audit matter included the following: We tested certain internal controls over the Company’s litigation process, including controls related to the evaluation of information from external and internal legal counsel, as well as controls over the financial statement disclosures. We evaluated the expertise, objectivity and professional experience of the external legal counsel who assisted the Company in evaluating the likelihood of an outflow of economic resources as a result of the civil lawsuits and estimating the amounts involved. In addition, we obtained legal confirmation, directly from the Company’s legal counsel, that included an evaluation of the likelihood of loss and an estimation of the amounts involved, and compared these evaluations and estimates to those of the Company and with the disclosure made. We involved fixed asset and infrastructure valuation professionals, with specialized skills and knowledge, who assisted in: ·evaluating the technical appraisal reports regarding the stability of the salt mining wells and the required remediation actions to stabilize and close the wells, the remediation plans established by the Company and the Company’s estimate of the significant costs to implement these plans; ·evaluating the assumptions used by the Company to estimate the market value of properties and the significant components of the other costs to relocate and compensate the residents and business owners impacted by the geological phenomenon, by comparing them to internal and external information, as applicable, including publicly available information on real estate values in the region and property sizes, contracts with third party service providers and estimates received from external legal advisors; and ·performing a sensitivity analysis of certain of the assumptions used by the Company to estimate the market value of properties and the significant components of the other costs to relocate and compensate the residents and business owners impacted by the geological phenomenon. KPMG Auditores Independentes
We have served as the Company’s auditor since 2018. São Paulo, Brazil
June 12, 2020 F-5
Report ofIndependent Registered Public Accounting FirmTo the Board of Directors and Shareholders of Braskem S.A. Opinion on the Financial Statements
We have audited the consolidated statements of profit or loss, comprehensive income, changes in equity and cash flows of Braskem S.A. and its subsidiaries (the “Company”) for the year ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2017 in conformity with the International Financial Reporting Standards as issued by the International Accounting Standards Board. Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ PricewaterhouseCoopers Auditores Independentes Salvador, Bahia, Brazil October 7,07, 2019 We served as the Company's auditor from 2002 to 2019. F - 6
Braskem S.A. Statement of financial position at December 31 All amounts in thousands of reais
Assets | Note | | 2018 | | 2017 | | | | | | | | | Current assets | | | | | | | | Cash and cash equivalents | 5 | | 5,547,637 | | 3,775,093 | | | Financial investments | 6 | | 2,357,613 | | 2,302,672 | | | Trade accounts receivable | 7 | | 3,075,218 | | 3,281,196 | | | Inventories | 8 | | 8,486,577 | | 6,640,049 | | | Taxes recoverable | 10 | | 847,088 | | 982,629 | | | Dividends and interest on capital | 9 | | 890 | | 10,859 | | | Prepaid expenses | | | 239,500 | | 134,337 | | | Derivatives | 19.3.1 | | 27,714 | | 3,793 | | | Other receivables | | | 451,578 | | 288,391 | | | | | | | | | | | | | | 21,033,815 | | 17,419,019 | | | | | | | | | Non-current assets | | | | | | | | Financial investments | 6 | | 9,998 | | 10,336 | | | Trade accounts receivable | 7 | | 17,785 | | 37,496 | | | Advances to suppliers | 8 | | 31,394 | | 46,464 | | | Taxes recoverable | 10 | | 1,574,579 | | 987,236 | | | Deferred income tax and social contribution | 21.2(a) | | 1,104,158 | | 1,165,726 | | | Judicial deposits | | | 169,536 | | 289,737 | | | Insurance claims | | | 63,054 | | 39,802 | | | Derivatives | 19.3.1 | | 46,664 | | 32,666 | | | Other receivables | | | 189,724 | | 112,997 | | | Investments | 11 | | 65,954 | | 101,258 | | | Property, plant and equipment | 12 | | 31,759,890 | | 29,761,610 | | | Intangible assets | 13 | | 2,740,982 | | 2,727,497 | | | | | | | | | | | | | | 37,773,718 | | 35,312,825 | | | | | | | | | Total assets | | | 58,807,533 | | 52,731,844 |
Assets | Note | | 2019 | | 2018 | | | | | | | | | Current assets | 0 | | | | | | �� | Cash and cash equivalents | 5 | | 6,803,880 | | 5,547,637 | | | Financial investments | 6 | | 1,687,504 | | 2,357,613 | | | Trade accounts receivable | 7 | | 2,285,750 | | 3,075,218 | | | Inventories | 8 | | 7,625,084 | | 8,486,577 | | | Taxes recoverable | 10 | | 1,238,011 | | 423,188 | | | Income tax and social contribution | | | 439,933 | | 423,900 | | | Dividends and interest on capital | 9 | | 3,074 | | 890 | | | Prepaid expenses | | | 115,096 | | 239,500 | | | Derivatives | 20.3.1 | | 4,712 | | 27,714 | | | Judicial deposits | 26 | | 2,571,683 | | | | | Other receivables | | | 614,827 | | 451,578 | | | | | | | | | | | | | | 23,389,554 | | 21,033,815 | | | | | | | | | Non-current assets | | | | | | | | Financial investments | 6 | | 9,708 | | 9,998 | | | Trade accounts receivable | 7 | | 20,901 | | 17,785 | | | Inventories | 8 | | 16,325 | | 31,394 | | | Taxes recoverable | 10 | | 2,257,718 | | 1,332,791 | | | Income tax and social contribution | | | 239,847 | | 241,788 | | | Deferred income tax and social contribution | 22(b) | | 2,662,596 | | 1,104,158 | | | Judicial deposits | 26 | | 1,508,880 | | 169,536 | | | Insurance claims | | | 83,167 | | 63,054 | | | Derivatives | 20.3.1 | | 17,877 | | 46,664 | | | Other receivables | | | 175,698 | | 189,724 | | | Investments | 11 | | 63,843 | | 65,954 | | | Property, plant and equipment | 12 | | 32,315,181 | | 31,759,890 | | | Intangible assets | 13 | | 2,762,088 | | 2,740,982 | | | Right of use of assets | 14 | | 2,605,654 | | | | | | | | | | | | | | | | 44,739,483 | | 37,773,718 | | | | | | | | | Total assets | 0 | | 68,129,037 | | 58,807,533 |
The notes are an integral part of the consolidated financial statements.
Braskem S.A. Statement of financial position at December 31 All amounts in thousands of reais | Continued |
Liabilities and shareholders' equity | Liabilities and shareholders' equity | Note | | 2018 | | 2017 | Liabilities and shareholders' equity | Note | | 2019 | | 2018 | | | | | | | | | | | | | | | Current liabilities | Current liabilities | | | | | | Current liabilities | | | | | | | | | Trade payables | 15 | | 9,116,989 | | 8,341,252 | | | | Borrowings | 16 | | 774,924 | | 737,436 | | | | Braskem Idesa borrowings | 17 | | 744,408 | | 10,504,592 | | | | Debenture | 18 | | 46,666 | | 27,732 | | | Trade payables | 14 | | 8,341,252 | | 5,058,796 | Derivatives | 20.3.1 | | 49,251 | | 70,305 | | | Borrowings | 15 | | 737,436 | | 1,184,781 | Payroll and related charges | | | 623,723 | | 645,396 | | | Braskem Idesa borrowings | 16 | | 10,504,592 | | 9,691,450 | Taxes payable | 21 | | 322,886 | | 432,005 | | | Debenture | 17 | | 27,732 | | 27,183 | Income tax and social contribution | | | 34,856 | | 69,268 | | | Derivatives | 19.3.1 | | 70,305 | | 6,875 | Dividends | | | 6,502 | | 672,395 | | | Payroll and related charges | | | 645,396 | | 630,517 | Advances from customers | | | 355,764 | | 153,264 | | | Taxes payable | 20 | | 501,273 | | 894,769 | Leniency agreement | 25 | | 362,719 | | 288,123 | | | Dividends | | | 672,395 | | 3,850 | Sundry provisions | 23 | | 203,134 | | 191,536 | | | Advances from customers | | | 153,264 | | 353,222 | Other payables | | | 930,638 | | 623,007 | | | Leniency agreement | 23.3 | | 288,123 | | 257,347 | Provision - geological event in Alagoas | 26 | | 1,450,476 | | | | | Sundry provisions | 22 | | 191,536 | | 178,676 | Other financial liabilities | 28 | | 516,933 | | | | | Other payables | | | 632,774 | | 276,957 | Lease | 14(b) | | 676,291 | | 9,767 | | | | | | | | | | | | | | | | | | | | 22,766,078 | | 18,564,423 | | | | 16,216,160 | | 22,766,078 | | | | | | | | | | | | | | | Non-current liabilities | Non-current liabilities | | | | | | Non-current liabilities | | | | | | | | Trade payables | 14 | | 37,252 | | | Trade payables | 15 | | 3,837 | | 37,252 | | | Borrowings | 15 | | 24,160,720 | | 22,176,640 | Borrowings | 16 | | 28,242,052 | | 24,160,720 | | | Debenture | 17 | | 266,777 | | 286,141 | Braskem Idesa borrowings | 17 | | 9,237,318 | | | | | Derivatives | 19.3.1 | | 161,694 | | | Debenture | 18 | | 227,901 | | 266,777 | | | Taxes payable | 20 | | 85,904 | | 52,802 | Derivatives | 20.3.1 | | 169,513 | | 161,694 | | | Loan to non-controlling shareholders of Braskem Idesa | | | 2,183,830 | | 1,756,600 | Taxes payable | 21 | | 129,353 | | 85,904 | | | Deferred income tax and social contribution | 21.2(a) | | 381,582 | | 1,005,493 | Loan to non-controlling shareholders of Braskem Idesa | 9(a) | | 2,395,887 | | 2,183,830 | | | Post-employment benefits | 24.2 | | 206,373 | | 193,775 | Deferred income tax and social contribution | 22(b) | | 273,036 | | 381,582 | | | Contingencies | 23 | | 965,317 | | 1,092,645 | Post-employment benefits | 27 | | 389,075 | | 206,373 | | | Leniency agreement | 23.3 | | 1,554,395 | | 1,747,243 | Contingencies | 24.1 | | 1,151,524 | | 965,317 | | | Sundry provisions | 22 | | 233,006 | | 234,996 | Leniency agreement | 25 | | 1,379,549 | | 1,554,395 | | | Other payables | | | 149,935 | | 148,286 | Sundry provisions | 23 | | 302,072 | | 233,006 | | | | | | | | | Provision - geological event in Alagoas | 26 | | 1,932,591 | | | | | | | | 30,386,785 | | 28,694,621 | Other payables | | | 133,858 | | 59,145 | | | | | | | | | Lease | 14(b) | | 2,000,605 | | 90,790 | | | | | | | | | | | | | | | | 47,968,171 | | 30,386,785 | | | | | | | | | | Shareholders' equity | Shareholders' equity | 25 | | | | | Shareholders' equity | 29 | | | | | | | Capital | | | 8,043,222 | | 8,043,222 | Capital | | | 8,043,222 | | 8,043,222 | | | Capital reserve | | | 232,430 | | 232,430 | Capital reserve | | | 232,472 | | 232,430 | | | Revenue reserves | | | 4,673,220 | | 3,945,898 | Revenue reserves | | | 1,905,255 | | 4,673,220 | | | Additional paid in capital | | | (488,388) | | (488,388) | Additional paid in capital | | | (488,388) | | (488,388) | | | Other comprehensive income | | | (5,623,020) | | (5,165,492) | Other comprehensive income | | | (4,757,539) | | (5,623,020) | | | Treasury shares | | | (49,819) | | (49,819) | Treasury shares | | | (49,724) | | (49,819) | | | Accumulated losses | | | (256,575) | | (217,550) | Accumulated losses | | | | | (256,575) | | | | | | | | | | | | | | | | | Total attributable to the Company's shareholders | | | 6,531,070 | | 6,300,301 | Total attributable to the Company's shareholders | | | 4,885,298 | | 6,531,070 | | | | | | | | | | | | | | | | | Non-controlling interest in subsidiaries | | | (876,400) | | (827,501) | Non-controlling interest in subsidiaries | | | (940,592) | | (876,400) | | | | | | | | | | | | | | | | | | | | 5,654,670 | | 5,472,800 | | | | 3,944,706 | | 5,654,670 | | | | | | | | | | | | | | | Total liabilities and shareholders' equity | Total liabilities and shareholders' equity | | | 58,807,533 | | 52,731,844 | Total liabilities and shareholders' equity | | | 68,129,037 | | 58,807,533 |
The notes are an integral part of the consolidated financial statements. F - 8
Braskem S.A. Statement of profit or loss Years ended December 31 All amounts in thousands of reais, except earnings (loss) per share Continued operations | | Note | | 2018 | | 2017 | | 2016 | | | | | | | | | | | | Net revenue | | 27 | | 57,999,866 | | 49,260,594 | | 47,663,988 | | | Cost of products sold | | | | (46,431,220) | | (36,177,408) | | (34,985,569) | | | | | | | | | | | | | | | | | | 11,568,646 | | 13,083,186 | | 12,678,419 | | | | | | | | | | | | Income (expenses) | | | | | | | | | | | Selling and distribution | | | | (1,545,568) | | (1,459,608) | | (1,403,673) | | | General and administrative | | | | (1,633,003) | | (1,434,272) | | (1,285,613) | | | Research and development | | | | (199,821) | | (167,456) | | (162,010) | | | Results from equity investments | | 11(c) | | (888) | | 39,956 | | 30,078 | | | Other income (expenses), net | | 29 | | 90,852 | | (854,880) | | (3,905,954) | | | | | | | | | | | | | | | | | | 8,280,218 | | 9,206,926 | | 5,951,247 | | | | | | | | | | | | Financial results | | 30 | | | | | | | | | Financial expenses | | | | (3,007,551) | | (3,747,217) | | (3,570,962) | | | Financial income | | | | 589,052 | | 603,630 | | 690,122 | | | Exchange rate variations, net | | | | (2,256,983) | | (798,762) | | (3,210,417) | | | | | | | | | | | | | | | | | | (4,675,482) | | (3,942,349) | | (6,091,257) | | | | | | | | | | | | Profit (loss) before income tax and social contribution | | | | 3,604,736 | | 5,264,577 | | (140,010) | | | | | | | | | | | | | | Current and deferred income tax and social contribution | | 21.1 | | (736,551) | | (1,357,682) | | (616,046) | | | | | | | | | | | | Profit (loss) for the year of continued operations | | | | 2,868,185 | | 3,906,895 | | (756,056) | | | | | | | | | | | | Discontinued operations results | | | | | | | | | | | Profit from discontinued operations | | | | | | 13,499 | | 40,760 | | | Current and deferred income tax and social contribution | | | | | | (4,623) | | (13,901) | | | | | | | | | 8,876 | | 26,859 | | | | | | | | | | | | Profit (loss) for the year | | | | 2,868,185 | | 3,915,771 | | (729,197) | | | | | | | | | | | | Attributable to: | | | | | | | | | | | Company's shareholders | | | | 2,827,650 | | 3,865,440 | | (411,472) | | | Non-controlling interest in subsidiaries | | | | 40,535 | | 50,331 | | (317,725) | | | | | | | | | | | | Profit (loss) for the year | | | | 2,868,185 | | 3,915,771 | | (729,197) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic and diluted | | | | | Note | | 2018 | | 2017 | | 2016 | | | | | | | | | | | | Profit (loss) per share attributable to the shareholders of the Company | | | | | | | | | of continued operations at the end of the year (R$) | | 26 | | | | | | | | | Earnings (loss) per share - common | | | | 3.5543 | | 4.8479 | | (0.5511) | | | Earnings (loss) per share - preferred shares class "A" | | | | 3.5543 | | 4.8479 | | (0.5511) | | | Earnings per share - preferred shares class "B" | | | | 0.5910 | | 0.6069 | | | | | | | | | | | | | | Profit per share attributable to the shareholders of the Company | | | | | | | | | of discontinued operations at the end of the year (R$) | | | | | | | | | | | Earnings per share - common | | | | | | 0.0112 | | 0.0338 | | | Earnings per share - preferred shares class "A" | | | | | | 0.0112 | | 0.0338 | | | | | | | | | | | | Profit (loss) per share attributable to the shareholders of the Company | | | | | | | | | at the end of the year (R$) | | | | | | | | | | | Earnings (loss) per share - common | | | | 3.5543 | | 4.8590 | | (0.5173) | | | Earnings (loss) per share - preferred shares class "A" | | | | 3.5543 | | 4.8590 | | (0.5173) | | | Earnings per share - preferred shares class "B" | | | | 0.5910 | | 0.6069 | | |
| | | | | | | | Continued operations | | Note | | 2019 | | 2018 | | 2017 | | | | | 2.7 | | | | Restated | | | Net revenue | | 31 | | 52,323,525 | | 57,999,866 | | 49,260,594 | | | Cost of products sold | | 35 | | (45,879,118) | | (46,576,657) | | (36,177,408) | | | | | | | | | | | | Gross profit | | | | 6,444,407 | | 11,423,209 | | 13,083,186 | | | | | | | | | | | | Income (expenses) | | | | | | | | | | | Selling and distribution | | 35 | | (1,783,455) | | (1,689,179) | | (1,446,153) | | | (Loss) reversals for impairment of trade accounts receivable | | 35 | | (7,069) | | 87,008 | | (13,455) | | | General and administrative | | 35 | | (2,224,180) | | (1,793,185) | | (1,434,272) | | | Research and development | | 35 | | (247,730) | | (219,256) | | (167,456) | | | Results from equity investments | | 11(c) | | 10,218 | | (888) | | 39,956 | | | Other income | | 33 | | 2,408,434 | | 1,027,222 | | 314,934 | | | Other expenses | | 33 | | (4,446,942) | | (554,713) | | (1,169,814) | | | | | | | | | | | | Profit before net financial income (expense) and taxes | | | | 153,683 | | 8,280,218 | | 9,206,926 | | | | | | | | | | | | Financial results | | 34 | | | | | | | | | Financial expenses | | | | (3,882,785) | | (3,007,551) | | (3,747,217) | | | Financial income | | | | 850,554 | | 589,052 | | 603,630 | | | Exchange rate variations, net | | | | (1,724,520) | | (2,256,983) | | (798,762) | | | | | | | | | | | | | | | | | | (4,756,751) | | (4,675,482) | | (3,942,349) | | | | | | | | | | | | (Loss) profit before income tax and social contribution | | | | (4,603,068) | | 3,604,736 | | 5,264,577 | | | | | | | | | | | | | | Current and deferred income tax and social contribution | | 22(a) | | 1,962,670 | | (736,551) | | (1,357,682) | | | | | | | | | | | | (Loss) profit for the year of continued operations | | | | (2,640,398) | | 2,868,185 | | 3,906,895 | | | | | | | | | | | | Discontinued operations results | | | | | | | | | | | Profit from discontinued operations | | | | | | | | 13,499 | | | Current and deferred income tax and social contribution | | | | | | | | (4,623) | | | | | | | | | | | 8,876 | | | | | | | | | | | | (Loss) profit for the year | | | | (2,640,398) | | 2,868,185 | | 3,915,771 | | | | | | | | | | | | Attributable to: | | | | | | | | | | | Company's shareholders | | | | (2,540,995) | | 2,827,650 | | 3,865,440 | | | Non-controlling interest in subsidiaries | | | | (99,403) | | 40,535 | | 50,331 | | | | | | | | | | | | (Loss) profit for the year | | | | (2,640,398) | | 2,868,185 | | 3,915,771 | | | | | | | | | | | | (Loss) earnings per share - basic and diluted - R$ | | 30 | | | | | | | | Common | | | | (3.1922) | | 3.5543 | | 4.8479 | | | Preferred shares class "A" | | | | (3.1922) | | 3.5543 | | 4.8479 | | | Preferred shares class "B" | | | | (3.1922) | | 0.5910 | | 0.6069 |
The notes are an integral part of the consolidated financial statements.
Braskem S.A. Statement of comprehensive income Years ended December 31 All amounts in thousands of reaisContinued | | | | Note | | | 2018 | | 2017 | | 2016 | | | | | | | | | | | | | Profit (loss) for the year | | | | | 2,868,185 | | 3,915,771 | | (729,197) | | | | | | | | | | | | | Other comprehensive income: | | | | | | | | | | Items that will be reclassified subsequently to profit or loss | | | | | | | | | | | | Fair value of cash flow hedge | | | | | (151,718) | | 605,204 | | 215,510 | | | Income tax and social contribution | | | | | 54,481 | | (203,186) | | (75,333) | | | Fair value of cash flow hedge from jointly-controlled | | | | | (2,329) | | 3,534 | | (3,309) | | | | | | | | (99,566) | | 405,552 | | 136,868 | | | | | | | | | | | | | | | Exchange variation of foreign sales hedge | | 19.4(a.i) | | | (3,145,857) | | (397,045) | | 4,121,849 | | | Sales Hedge - transfer to profit or loss | | 19.4(a.i) | | | 1,022,782 | | 1,022,830 | | 1,297,910 | | | Income tax and social contribution on exchange variation | | | | | 721,845 | | (212,767) | | (1,842,718) | | | Exchange variation of foreign sales hedge - Braskem Idesa | | 19.4(a.ii) | | | 16,681 | | 472,717 | | (1,995,065) | | | Sales Hedge - transfer to profit or loss - Braskem Idesa | | 19.4(a.ii) | | | 236,570 | | 163,696 | | 59,834 | | | Income tax on exchange variation - Braskem Idesa | | | | | (75,975) | | (190,924) | | 581,304 | | | | | | | | (1,223,954) | | 858,507 | | 2,223,114 | | | | | | | | | | | | | | | Foreign subsidiaries currency translation adjustment | | | | | 801,223 | | (602) | | 339,296 | | | | | | | | | | | | | | | Total | | | | | (522,297) | | 1,263,457 | | 2,699,278 | | | | | | | | | | | | | Items that will not be reclassified to profit or loss | | | | | | | | | | | | Defined benefit plan actuarial loss, net of taxes | | | | | (1,289) | | (5,750) | | (4,119) | | Post-employment plans - Health plan, net of taxes | | | | | (280) | | (2,904) | | | | | Long term incentive plan, net of taxes | | | | | 6,406 | | | | | | | Loss on investments | | | | | (65) | | | | | | | | | | | | | | | | | | | Total | | | | | 4,772 | | (8,654) | | (4,119) | | | | | | | | | | | | | Total comprehensive income for the year | | | | | 2,350,660 | | 5,170,574 | | 1,965,962 | | | | | | | | | | | | | Attributable to: | | | | | | | | | | | | Company's shareholders | | | | | 2,398,250 | | 5,049,617 | | 2,355,580 | | | Non-controlling interest in Braskem Idesa | | | | | (47,590) | | 120,957 | | (389,618) | | | | | | | | | | | | | Total comprehensive income for the year | | | | | 2,350,660 | | 5,170,574 | | 1,965,962 |
| | | | Note | | | 2019 | | 2018 | | 2017 | | | | | | | | | | | | | (Loss) profit for the year of continued operations | | | | | (2,640,398) | | 2,868,185 | | 3,915,771 | | | | | | | | | | | | | Other comprehensive income: | | | | | | | | | | Items that will be reclassified subsequently to profit or loss | | | | | | | | | | | | Fair value of cash flow hedge | | | | | 55,274 | | (151,718) | | 605,204 | | | Income tax and social contribution - cash flow hedge | | | | | (19,805) | | 54,481 | | (203,186) | | | Fair value of cash flow hedge from jointly-controlled | | | | | (978) | | (2,329) | | 3,534 | | | | | | | | 34,491 | | (99,566) | | 405,552 | | | | | | | | | | | | | | | Exchange variation of foreign sales hedge | | 20.4(a.i) | | | (856,068) | | (3,145,857) | | (397,045) | | | Sales Hedge - transfer to profit or loss | | 20.4(a.i) | | | 1,385,121 | | 1,022,782 | | 1,022,830 | | | Income tax and social contribution on exchange variation | | - | | | (179,878) | | 721,845 | | (212,767) | | | Exchange variation of foreign sales hedge - Braskem Idesa | | 20.4(a.ii) | | | 464,806 | | 16,681 | | 472,717 | | | Sales Hedge - transfer to profit or loss - Braskem Idesa | | 20.4(a.ii) | | | 267,146 | | 236,570 | | 163,696 | | | Income tax on exchange variation - Braskem Idesa | | | | | (219,586) | | (75,975) | | (190,924) | | | | | | | | 861,541 | | (1,223,954) | | 858,507 | | | | | | | | | | | | | | | Foreign subsidiaries currency translation adjustment | | | | | 136,722 | | 801,223 | | (602) | | | | | | | | | | | | | | | Total | | | | | 1,032,754 | | (522,297) | | 1,263,457 | | | | | | | | | | | | | Items that will not be reclassified to profit or loss | | | | | | | | | | | | Defined benefit plan actuarial loss, net of taxes | | | | | (24,597) | | (1,289) | # | (5,750) | | | Post-employment plans - Health plan, net of taxes | | | | | (85,031) | | (280) | | (2,904) | | | Long term incentive plan, net of taxes | | | | | 13,921 | | 6,406 | # | - | | | Loss on investments | | | | | (84) | | (65) | # | - | | | | | | | | | | | | | | | Total | | | | | (95,791) | | 4,772 | # | (8,654) | | | | | | | | | | | | | Total comprehensive income for the year | | | | | (1,703,435) | | 2,350,660 | # | 5,170,574 | | | | | | | | | | | | | Attributable to: | | | | | | | | | | | | Company's shareholders | | | | | (1,644,368) | | 2,398,250 | | 5,049,617 | | | Non-controlling interest in subsidiaries | | | | | (59,067) | | (47,590) | | 120,957 | | | | | | | | - | | - | | - | Total comprehensive income for the year | | | | | (1,703,435) | | 2,350,660 | | 5,170,574 |
The notes are an integral part of the consolidated financial statements.
Braskem S.A. Statement of changes in equity All amounts in thousands of reais | | | | Attributed to shareholders' interest | | | | | | | | | | | | | | Revenue reserves | | | | | | | | | | Total | | | | | | | | | | | | | | | | | | | Additional | | Additional | | Other | | | | | | Braskem | | Non-controlling | | Total | | | | | | | Capital | | Legal | | Tax | | Retention | | dividends | | paid in | | comprehensive | | Treasury | | Accumulated | | shareholders' | | interest in | | shareholders' | | | Note | | Capital | | reserve | | reserve | | incentive | | of profits | | proposed | | capital | | income | | shares | | losses | | interest | | subsidiaries | | equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2015 | | | 8,043,222 | | 232,430 | | 229,992 | | | | 2,404,663 | | 247,364 | | | | (9,060,710) | | (49,819) | | (416,768) | | 1,630,374 | | (684,885) | | 945,489 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income for the year: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit for the year | | | | | | | | | | | | | | | | | | | | | (411,472) | | (411,472) | | (317,725) | | (729,197) | Exchange variation of foreign sales hedge, net of taxes | | | | | | | | | | | | | | | | | 2,561,596 | | | | | | 2,561,596 | | (338,482) | | 2,223,114 | Fair value of cash flow hedge, net of taxes | | | | | | | | | | | | | | | | | 145,878 | | | | | | 145,878 | | (9,010) | | 136,868 | Foreign subsidiaries currency translation adjustment | | | | | | | | | | | | | | | | | 63,697 | | | | | | 63,697 | | 275,599 | | 339,296 | | | | | | | | | | | | | | | | | | | 2,771,171 | | | | (411,472) | | 2,359,699 | | (389,618) | | 1,970,081 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity valuation adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Realization of additional property, plant and equipment price-level restatement, net of taxes | | | | | | | | | | | | | | | (27,236) | | | | 27,236 | | | | | | | Realization of deemed cost of jointly-controlled investment, net of taxes | | | | | | | | | | | | | | | | | (965) | | | | 965 | | | | | | | Actuarial loss with post-employment benefits, net of taxes | | | | | | | | | | | | | | | | | (4,119) | | | | | | (4,119) | | | | (4,119) | | | | | | | | | | | | | | | | | | | (32,320) | | | | 28,201 | | (4,119) | | | | (4,119) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Contributions and distributions to shareholders: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Absorption of losses and adjustments | | | | | | | | | | | (800,039) | | | | | | | | | | 800,039 | | | | | | | Capital increase | | | | | | | | | | | | | | | | | | | | | | | | | 56,623 | | 56,623 | Additional dividends approved by the General Meeting | | | | | | | | | | | | | (247,364) | | | | | | | | | | (247,364) | | | | (247,364) | Interim dividends approved by Board of Directors | | | | | | | | | | | (1,000,000) | | | | | | | | | | | | (1,000,000) | | | | (1,000,000) | | | | | | | | | | | | | (1,800,039) | | (247,364) | | | | | | | | 800,039 | | (1,247,364) | | 56,623 | | (1,190,741) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2016 | | | 8,043,222 | | 232,430 | | 229,992 | | | | 604,624 | | | | | | (6,321,859) | | (49,819) | | | | 2,738,590 | | (1,017,880) | | 1,720,710 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income for the year: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit for the year | | | | | | | | | | | | | | | | | | | | | 3,865,440 | | 3,865,440 | | 50,331 | | 3,915,771 | Exchange variation of foreign sales hedge, net of taxes | | | | | | | | | | | | | | | | | 747,135 | | | | | | 747,135 | | 111,372 | | 858,507 | Fair value of cash flow hedge, net of taxes | | | | | | | | | | | | | | | | | 394,251 | | | | | | 394,251 | | 11,301 | | 405,552 | Foreign subsidiaries currency translation adjustment | | | | | | | | | | | | | | | | | 51,445 | | | | | | 51,445 | | (52,047) | | (602) | | | | | | | | | | | | | | | | | | | 1,192,831 | | | | 3,865,440 | | 5,058,271 | | 120,957 | | 5,179,228 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity valuation adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Realization of additional property, plant and equipment price-level restatement, net of taxes | | | | | | | | | | | | | | | | | (26,847) | | | | 26,847 | | | | | | | Realization of deemed cost of jointly-controlled investment, net of taxes | | | | | | | | | | | | | | | | | (963) | | | | 963 | | | | | | | Actuarial gains post-employment benefits of subsidiaries , net of taxes | | | | | | | | | | | | | | | | | (5,750) | | | | | | (5,750) | | | | (5,750) | Post-employment benefits - health plan, net of taxes | | | | | | | | | | | | | | | | | (2,904) | | | | | | (2,904) | | | | (2,904) | Long-term incentive plan, net of taxes | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (36,464) | | | | 27,810 | | (8,654) | | | | (8,654) | Contributions and distributions to shareholders: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Lapsed dividends | | | | | | | | | | | | | | | | | | | | | 482 | | 482 | | | | 482 | Tax incentive reserve | | | | | | | | | 71,745 | | | | | | | | | | | | (71,745) | | | | | | | Prepaid dividends | | | | | | | | | | | | | | | | | | | | | (1,000,000) | | (1,000,000) | | | | (1,000,000) | Legal reserve | | | | | | | 204,150 | | | | | | | | | | | | | | (204,150) | | | | | | | Additional dividends proposed | | | | | | | | | | | | | 1,500,000 | | | | | | | | (1,500,000) | | | | | | | Retained earnings | | | | | | | | | | | 1,335,387 | | | | | | | | | | (1,335,387) | | | | | | | Goodwill on the acquisition of a subsidiary under common control | | | | | | | | | | | | | | | (488,388) | | | | | | | | (488,388) | | | | (488,388) | Non-controlling interest in subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | 69,422 | | 69,422 | | | | | | | | | 204,150 | | 71,745 | | 1,335,387 | | 1,500,000 | | (488,388) | | | | | | (4,110,800) | | (1,487,906) | | 69,422 | | (1,418,484) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2017 | | | 8,043,222 | | 232,430 | | 434,142 | | 71,745 | | 1,940,011 | | 1,500,000 | | (488,388) | | (5,165,492) | | (49,819) | | (217,550) | | 6,300,301 | | (827,501) | | 5,472,800 |
| | | | Attributed to shareholders' interest | | | | | | | | | | | | | | Revenue reserves | | | | | | | | | | Total | | | | | | | | | | | | | | | | | | | Additional | | Additional | | Other | | | | | | Braskem | | Non-controlling | | Total | | | | | | | Capital | | Legal | | Tax | | Retention | | dividends | | paid in | | comprehensive | | Treasury | | Retained | | shareholders' | | interest in | | shareholders' | | | Note | | Capital | | reserve | | reserve | | incentive | | of profits | | proposed | | capital | | income | | shares | | earnings | | interest | | subsidiaries | | equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2016 | | | 8,043,222 | | 232,430 | | 229,992 | | | | 604,624 | | | | | | (6,321,859) | | (49,819) | | | | 2,738,590 | | (1,017,880) | | 1,720,710 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income for the year: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit for the year | | | | | | | | | | | | | | | | | | | | | 3,865,440 | | 3,865,440 | | 50,331 | | 3,915,771 | Exchange variation of foreign sales hedge, net of taxes | | | | | | | | | | | | | | | | | 747,135 | | | | | | 747,135 | | 111,372 | | 858,507 | Fair value of cash flow hedge, net of taxes | | | | | | | | | | | | | | | | | 394,251 | | | | | | 394,251 | | 11,301 | | 405,552 | Foreign subsidiaries currency translation adjustment | | | | | | | | | | | | | | | | | 51,445 | | | | | | 51,445 | | (52,047) | | (602) | | | | | | | | | | | | | | | | | | | 1,192,831 | | | | 3,865,440 | | 5,058,271 | | 120,957 | | 5,179,228 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity valuation adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Realization of additional property, plant and equipment price-level restatement, net of taxes | | | | | | | | | | | | | | | | (26,847) | | | | 26,847 | | | | | | | Realization of deemed cost of jointly-controlled investment, net of taxes | | | | | | | | | | | | | | | | | (963) | | | | 963 | | | | | | | Actuarial gains post-employment benefits of subsidiaries , net of taxes | | | | | | | | | | | | | | | | | (5,750) | | | | | | (5,750) | | | | (5,750) | Post-employment benefits - health plan, net of taxes | | | | | | | | | | | | | | | | | (2,904) | | | | | | (2,904) | | | | (2,904) | Long-term incentive plan, net of taxes | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (36,464) | | | | 27,810 | | (8,654) | | | | (8,654) | Contributions and distributions to shareholders: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Lapsed dividends | | | | | | | | | | | | | | | | | | | | | 482 | | 482 | | | | 482 | Tax incentive reserve | | | | | | | | | 71,745 | | | | | | | | | | | | (71,745) | | | | | | | Prepaid dividends | | | | | | | | | | | | | | | | | | | | | (1,000,000) | | (1,000,000) | | | | (1,000,000) | Legal reserve | | | | | | | 204,150 | | | | | | | | | | | | | | (204,150) | | | | | | | Additional dividends proposed | | | | | | | | | | | | | 1,500,000 | | | | | | | | (1,500,000) | | | | | | | Retained earnings | | | | | | | | | | | 1,335,387 | | | | | | | | | | (1,335,387) | | | | | | | Goodwill on the acquisition of a subsidiary under common control | | | | | | | | | | | | | | | (488,388) | | | | | | | | (488,388) | | | | (488,388) | Non-controlling interest in subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | 69,422 | | 69,422 | | | | | | | | | 204,150 | | 71,745 | | 1,335,387 | | 1,500,000 | | (488,388) | | | | | | (4,110,800) | | (1,487,906) | | 69,422 | | (1,418,484) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2017 | | | 8,043,222 | | 232,430 | | 434,142 | | 71,745 | | 1,940,011 | | 1,500,000 | | (488,388) | | (5,165,492) | | (49,819) | | (217,550) | | 6,300,301 | | (827,501) | | 5,472,800 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income for the year: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit for the year | | | | | | | | | | | | | | | | | | | | | 2,827,650 | | 2,827,650 | | 40,535 | | 2,868,185 | Exchange variation of foreign sales hedge, net of taxes | | | | | | | | | | | | | | | | | (1,268,273) | | | | | | (1,268,273) | | 44,319 | | (1,223,954) | Fair value of cash flow hedge, net of taxes | | | | | | | | | | | | | | | | | (112,241) | | | | | | (112,241) | | 12,675 | | (99,566) | Foreign subsidiaries currency translation adjustment | | | | | | | | | | | | | | | | | 946,342 | | | | | | 946,342 | | (145,119) | | 801,223 | | | | | | | | | | | | | | | | | | | (434,172) | | | | 2,827,650 | | 2,393,478 | | (47,590) | | 2,345,888 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity valuation adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Realization of additional property, plant and equipment price-level restatement, net of taxes | | | | | | | | | | | | | | | | | (26,717) | | | | 26,717 | | | | | | | Realization of deemed cost of jointly-controlled investment, net of taxes | | | | | | | | | | | | | | | | | (962) | | | | 962 | | | | | | | Actuarial gain with post-employment benefits, net of taxes | | | | | | | | | | | | | | | | | (1,289) | | | | | | (1,289) | | | | (1,289) | Post-employment benefits - health plan, net of taxes | | | | | | | | | | | | | | | | | (280) | | | | | | (280) | | | | (280) | Long term incentive plan, net of taxes | | | | | | | | | | | | | | | | | 6,406 | | | | | | 6,406 | | 133 | | 6,539 | Fair value adjustments of trade accounts receivable, net of taxes | | | | | | | | | | | | | | | | | (449) | | | | | | (449) | | | | (449) | | | | | | | | | | | | | | | | | | | (23,291) | | | | 27,679 | | 4,388 | | 133 | | 4,521 | Contributions and distributions to shareholders: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Prescribed dividend | | | | | | | | | | | | | | | | | | | | | 460 | | 460 | | | | 460 | Additional dividends approved in the boar meeting | | | | | | | | | | | | | (1,500,000) | | | | | | | | (73) | | (1,500,073) | | (1,396) | | (1,501,469) | Reversal of fiscal incentive | | | | | | | | | (130) | | | | | | | | | | | | 130 | | | | | | | Legal reserve | | | | | | | 143,334 | | | | | | | | | | | | | | (143,334) | | | | | | | Tax incentive reserve | | | | | | | | | 81,863 | | | | | | | | | | | | (81,863) | | | | | | | Mandatory minimum dividends | | | | | | | | | | | | | | | | | | | | | (667,419) | | (667,419) | | | | (667,419) | Additional dividends proposed | | | | | | | | | | | | | 2,002,255 | | | | | | | | (2,002,255) | | | | | | | Loss on investments | | | | | | | | | | | | | | | | | (65) | | | | | | (65) | | 65 | | | Sale of investiments | | | | | | | | | | | | | | | | | | | | | | | | | (111) | | (111) | | | | | | | | | 143,334 | | 81,733 | | | | 502,255 | | | | (65) | | | | (2,894,354) | | (2,167,097) | | (1,442) | | (2,168,539) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2018 | | | 8,043,222 | | 232,430 | | 577,476 | | 153,478 | | 1,940,011 | | 2,002,255 | | (488,388) | | (5,623,020) | | (49,819) | | (256,575) | | 6,531,070 | | (876,400) | | 5,654,670 |
The notes are an integral part of theconsolidated financial statements. F-11 F - 11
Braskem S.A. Statement of changes in equity All amounts in thousands of reais | | | | Attributed to shareholders' interest | | | | | | | | | | | | | | Revenue reserves | | | | | | | | | | Total | | | | | | | | | | | | | | | | | | | Additional | | Additional | | Other | | | | | | Braskem | | Non-controlling | | Total | | | | | | | Capital | | Legal | | Tax | | Retention | | dividends | | paid in | | comprehensive | | Treasury | | Accumulated | | shareholders' | | interest in | | shareholders' | | | Note | | Capital | | reserve | | reserve | | incentive | | of profits | | proposed | | capital | | income | | shares | | losses | | interest | | subsidiaries | | equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2017 | | | 8,043,222 | | 232,430 | | 434,142 | | 71,745 | | 1,940,011 | | 1,500,000 | | (488,388) | | (5,165,492) | | (49,819) | | (217,550) | | 6,300,301 | | (827,501) | | 5,472,800 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income for the year: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit for the year | | | | | | | | | | | | | | | | | | | | | 2,827,650 | | 2,827,650 | | 40,535 | | 2,868,185 | Exchange variation of foreign sales hedge, net of taxes | | | | | | | | | | | | | | | | | (1,268,273) | | | | | | (1,268,273) | | 44,319 | | (1,223,954) | Fair value of cash flow hedge, net of taxes | | | | | | | | | | | | | | | | | (112,241) | | | | | | (112,241) | | 12,675 | | (99,566) | Foreign currency translation adjustment | | | | | | | | | | | | | | | | | 946,342 | | | | | | 946,342 | | (145,119) | | 801,223 | | | | | | | | | | | | | | | | | | | (434,172) | | | | 2,827,650 | | 2,393,478 | | (47,590) | | 2,345,888 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity valuation adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Realization of additional property, plant and equipment price-level restatement, net of taxes | | | | | | | | | | | | | | | | | (26,717) | | | | 26,717 | | | | | | | Realization of deemed cost of jointly-controlled investment, net of taxes | | | | | | | | | | | | | | | | | (962) | | | | 962 | | | | | | | Actuarial gains post-employment benefits of subsidiaries , net of taxes | | | | | | | | | | | | | | | | | (1,289) | | | | | | (1,289) | | | | (1,289) | Post-employment benefits - health plan, net of taxes | | | | | | | | | | | | | | | | | (280) | | | | | | (280) | | | | (280) | Long term incentive plan, net of taxes | | | | | | | | | | | | | | | | | 6,406 | | | | | | 6,406 | | 133 | | 6,539 | Fair value adjustments of trade accounts receivable | | | | | | | | | | | | | | | | | (449) | | | | | | (449) | | | | (449) | | | | | | | | | | | | | | | | | | | (23,291) | | | | 27,679 | | 4,388 | | 133 | | 4,521 | Contributions and distributions to shareholders: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Prescribed dividends | | | | | | | | | | | | | | | | | | | | | 460 | | 460 | | | | 460 | Additional dividends approved in the boar meeting | 25(d.2) | | | | | | | | | | | | (1,500,000) | | | | | | | | (73) | | (1,500,073) | | (1,396) | | (1,501,469) | Reversal of fiscal incentive | | | | | | | | | (130) | | | | | | | | | | | | 130 | | | | | | | Legal reserve | 25(d.1) | | | | | | 143,334 | | | | | | | | | | | | | | (143,334) | | | | | | | Tax incentive reserve | 25(d.1) | | | | | | | | 81,863 | | | | | | | | | | | | (81,863) | | | | | | | Mandatory minimum dividends | 25(d.1) | | | | | | | | | | | | | | | | | | | | (667,419) | | (667,419) | | | | (667,419) | Additional dividends proposed | 25(d.1) | | | | | | | | | | | | 2,002,255 | | | | | | | | (2,002,255) | | | | | | | Loss on investments | | | | | | | | | | | | | | | | | (65) | | | | | | (65) | | 65 | | | Sale of investments | | | | | | | | | | | | | | | | | | | | | | | | | (111) | | (111) | | | | | | | | | 143,334 | | 81,733 | | | | 502,255 | | | | (65) | | | | (2,894,354) | | (2,167,097) | | (1,442) | | (2,168,539) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2018 | | | 8,043,222 | | 232,430 | | 577,476 | | 153,478 | | 1,940,011 | | 2,002,255 | | (488,388) | | (5,623,020) | | (49,819) | | (256,575) | | 6,531,070 | | (876,400) | | 5,654,670 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Attributed to shareholders' interest | | | | | | | | | | | | | | Revenue reserves | | | | | | | | | | Total | | | | | | | | | | | | | | | | | | | Additional | | Additional | | Other | | | | | | Braskem | | Non-controlling | | Total | | | | | | | Capital | | Legal | | Tax | | Retention | | dividends | | paid in | | comprehensive | | Treasury | | Retained | | shareholders' | | interest in | | shareholders' | | | Note | | Capital | | reserve | | reserve | | incentive | | of profits | | proposed | | capital | | income | | shares | | earnings | | interest | | subsidiaries | | equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2018 | | | 8,043,222 | | 232,430 | | 577,476 | | 153,478 | | 1,940,011 | | 2,002,255 | | (488,388) | | (5,623,020) | | (49,819) | | (256,575) | | 6,531,070 | | (876,400) | | 5,654,670 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income for the year: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loss for the year | | | | | | | | | | | | | | | | | | | | | (2,540,995) | | (2,540,995) | | (99,403) | | (2,640,398) | Exchange variation of foreign sales hedge, net of taxes | | | | | | | | | | | | | | | | | 733,449 | | | | | | 733,449 | | 128,092 | | 861,541 | Fair value of cash flow hedge, net of taxes | | | | | | | | | | | | | | | | | 38,919 | | | | | | 38,919 | | (4,428) | | 34,491 | Foreign currency translation adjustment | | | | | | | | | | | | | | | | | 220,228 | | | | | | 220,228 | | (83,506) | | 136,722 | | | | | | | | | | | | | | | | | | | 992,596 | | | | (2,540,995) | | (1,548,399) | | (59,245) | | (1,607,644) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity valuation adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Realization of additional property, plant and equipment price-level restatement, net of taxes | 25(e.2) | | | | | | | | | | | | | | | | (26,717) | | | | 26,717 | | | | | | | Realization of deemed cost of jointly-controlled investment, net of taxes | | | | | | | | | | | | | | | | | (883) | | | | 883 | | | | | | | Actuarial loss with post-employment benefits, net of taxes | | | | | | | | | | | | | | | | | (109,492) | | | | | | (109,492) | | (136) | | (109,628) | Long term incentive plan, net of taxes | | | | | | | | | | | | | | | | | 13,573 | | | | | | 13,573 | | 348 | | 13,921 | Fair value adjustments of trade accounts receivable, net of taxes | | | | | | | | | | | | | | | | | 15 | | | | | | 15 | | | | 15 | Exchange variation in hyperinflationary economy, net of taxes | | | | | | | | | | | | | | | | | (3,561) | | | | | | (3,561) | | | | (3,561) | | | | | | | | | | | | | | | | | | | (127,065) | | | | 27,600 | | (99,465) | | 212 | | (99,253) | Contributions to shareholders: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Incentive long term plan payments with treasury shares | | | | | | | | | | | | | | | | | | | 95 | | | | 95 | | | | 95 | Retention of profits - non-approval of additonal dividends | 29(e) | | | | | | | | | | 2,002,255 | | (2,002,255) | | | | | | | | | | | | | | | Prescribed dividend | | | | | | | | | | | | | | | | | | | | | 2,005 | | 2,005 | | | | 2,005 | Additional dividends of subsidiary | | | | | | | | | | | | | | | | | | | | | | | | | (5,125) | | (5,125) | Loss on interest in subsidiary | | | | | | | | | | | | | | | | | (50) | | | | | | (50) | | (34) | | (84) | Absorption of losses | 29(c.ii) | | | | | | | | | | (2,767,965) | | | | | | | | | | 2,767,965 | | | | | | | Gain on transfer of shares in custody long term incentive plan | | | | | 42 | | | | | | | | | | | | | | | | | | 42 | | | | 42 | | | | | | | 42 | | | | | | (765,710) | | (2,002,255) | | | | (50) | | 95 | | 2,769,970 | | 2,092 | | (5,159) | | (3,067) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2019 | | | 8,043,222 | | 232,472 | | 577,476 | | 153,478 | | 1,174,301 | | | | (488,388) | | (4,757,539) | | (49,724) | | | | 4,885,298 | | (940,592) | | 3,944,706 |
The notes are an integral part of theconsolidated financial statements.
Braskem S.A. Statement of cash flows Years ended December 31 All amounts in thousands of reais | | | Note | | 2018 | | 2017 | | 2016 | | | | | | | | | | | Profit (loss) before income tax and social contribution and
for the result with discontinued operations | | | 3,604,736 | | 5,264,577 | | (99,250) | | | | | | | | | | | Adjustments for reconciliation of profit | | | | | | | | | | Depreciation, amortization and depletion | | | 2,990,577 | | 2,928,855 | | 2,683,100 | | | Results from equity investments | 12(c) | | 888 | | (39,956) | | (30,078) | | | Interest, monetary and exchange variations, net | | | 6,013,944 | | 3,697,714 | | 3,026,008 | | | Gain from divestment in subsidiary | | | | | (276,816) | | | | | Leniency agreement | | | | | 375,476 | | 2,853,230 | | | Reversal of provisions | | | 23,725 | | (223,340) | | | | | PIS and COFINS credits - exclusion of ICMS from the calculation basis | 10(c) | | (519,830) | | | | | | | Provision for losses and write-offs of long-lived assets | | | 72,470 | | 213,184 | | 41,016 | | | | | | | | | | | | | | | | 12,186,510 | | 11,939,694 | | 8,474,026 | | | | | | | | | | | Changes in operating working capital | | | | | | | | | | Financial investments | | | 98,349 | | (953,228) | | (649,535) | | | Trade accounts receivable | | | 130,113 | | (1,598,392) | | 1,007,875 | | | Inventories | | | (1,537,290) | | (1,351,028) | | 862,338 | | | Taxes recoverable | | | 1,022,242 | | 469,293 | | 1,058,104 | | | Prepaid expenses | | | (105,163) | | (30,521) | | 64,029 | | | Other receivables | | | (242,691) | | 25,802 | | 353,981 | | | Trade payables | | | 1,343,375 | | (1,642,649) | | (4,254,575) | | | Taxes payable | | | (977,248) | | (215,514) | | (292,131) | | | Advances from customers | | | (199,958) | | (13,512) | | 216,850 | | | Leniency agreement | 23.3(a) | | (330,006) | | (1,343,803) | | | | | Sundry provisions | | | (116,458) | | 194,596 | | 558,231 | | | Other payables | | | 833,227 | | 55,541 | | 38,464 | | | | | | | | | | | Cash from operations | | | 12,105,002 | | 5,536,279 | | 7,437,657 | | | | | | | | | | | | | Interest paid | | | (1,916,801) | | (2,154,053) | | (1,826,942) | | | Income tax and social contribution paid | | | (937,831) | | (920,606) | | (1,152,847) | | | | | | | | | | | Net cash generated by operating activities | | | 9,250,370 | | 2,461,620 | | 4,457,868 | | | | | | | | | | | Proceeds from the sale of fixed assets | | | 95,133 | | 39,660 | | 564 | Proceeds from the sale of investments | 1(a) | | 81,000 | | 450,000 | | | Funds received in the investments' capital reduction | | | 2,254 | | | | | Dividends received | | | 41,791 | | | | | Additions to investments in subsidiaries | | | | | (608,181) | | | Acquisitions to property, plant and equipment and intangible assets | | | (2,706,328) | | (2,273,197) | | (2,586,511) | Premium in the dollar put option | | | (2,167) | | (14,683) | | (4,856) | Held-for-maturity financial investments | | | | | | | 38,353 | | | | | | | | | | | Net cash used in investing activities | | | (2,488,317) | | (2,406,401) | | (2,552,450) | | | | | | | | | | | Short-term and Long-term debt | | | | | | | | | | Acquired | | | 4,301,626 | | 8,492,341 | | 4,107,626 | | | Payments | | | (6,592,197) | | (8,779,091) | | (4,901,593) | Derivative transactions | | | | | | | | | | Payments | | | | | (810,279) | | | Braskem Idesa borrowings | | | | | | | | | | Acquired | | | | | 187,959 | | 503,921 | | | Payments | | | (812,929) | | (1,080,502) | | (469,282) | Dividends paid | | | (1,499,900) | | (998,893) | | (1,997,984) | | | | | | | | | | | Net cash used in financing activities | | | (4,603,400) | | (2,988,465) | | (2,757,312) | | | | | | | | | | | Exchange variation on cash of foreign subsidiaries | | | (386,109) | | 6,475 | | 586,642 | | | | | | | | | | | Increase (decrease) in cash and cash equivalents | | | 1,772,544 | | (2,926,771) | | (265,252) | | | | | | | | | | | Represented by | | | | | | | | | | Cash and cash equivalents at the beginning of the year | | | 3,775,093 | | 6,701,864 | | 7,043,262 | | | Cash and cash equivalents at the end of the year | | | 5,547,637 | | 3,775,093 | | 6,778,010 | | | | | | | | | | | Increase (decrease) in cash and cash equivalents | | | 1,772,544 | | (2,926,771) | | (265,252) |
| | | Note | | 2019 | | 2018 | | 2017 | | | | | | | | | | | (Loss) profit before income tax and social contribution | | | (4,603,068) | | 3,604,736 | | 5,264,577 | | | | | | | | | | | Adjustments for reconciliation of profit | | | | | | | | | | Depreciation, amortization and depletion | | | 3,632,265 | | 2,990,577 | | 2,928,855 | | | Results from equity investments | 11(c) | | (10,218) | | 888 | | (39,956) | | | Interest foreign exchange gain/losses | | | 4,145,110 | | 6,013,944 | | 3,697,714 | | | Gain from divestment in subsidiary | | | | | | | (276,816) | | | Reversal of provisions | | | 320,439 | | 23,725 | | (223,340) | | | Provisions - Leniency agreement | 25 | | | | | | 375,476 | | | Provision - geological event in Alagoas | 26 | | 3,383,067 | | | | | | | PIS and COFINS credits - exclusion of ICMS from the calculation basis | 10(c) e 33 | | (1,904,206) | | (519,830) | | | | | Loss (reversals) for impairment of financial assets | | | 7,069 | | (87,008) | | 13,455 | | | Provision for losses and write-offs of long-lived assets | | | 225,204 | | 72,470 | | 213,184 | | | | | | | | | | | | | | | | 5,195,662 | | 12,099,502 | | 11,953,149 | | | | | | | | | | | Changes in operating working capital | | | | | | | | | | Judicial deposits - other financial assets | 26 | | (3,680,460) | | | | | | | Financial investments | | | 797,445 | | 98,349 | | (953,228) | | | Trade accounts receivable | | | 895,046 | | 223,418 | | (1,611,847) | | | Inventories | | | 867,817 | | (1,537,290) | | (1,351,028) | | | Taxes recoverable | | | 1,195,427 | | 1,022,242 | | 469,293 | | | Prepaid expenses | | | 202,732 | | (105,163) | | (30,521) | | | Other receivables | | | (273,665) | | (248,988) | | 25,802 | | | Trade payables | | | 282,445 | | 1,343,375 | | (1,642,649) | | | Taxes payable | | | (569,793) | | (977,248) | | (215,514) | | | Advances from customers | | | 197,965 | | (199,958) | | (13,512) | | | Leniency agreement | 25 | | (341,605) | | (330,006) | | (1,343,803) | | | Sundry provisions | | | (215,548) | | (116,458) | | 194,596 | | | Other payables | | | 362,203 | | 833,227 | | 55,541 | | | | | | | | | | | Cash generated (used) from operations | | | 4,915,671 | | 12,105,002 | | 5,536,279 | | | | | | | | | | | | | Interest paid | | | (2,238,445) | | (1,916,801) | | (2,154,053) | | | Income tax and social contribution paid | | | (411,951) | | (937,831) | | (920,606) | | | | | | | | | | | Net cash generated (used) from operating activities | | | 2,265,275 | | 9,250,370 | | 2,461,620 | | | | | | | | | | | Proceeds from the sale of fixed and intangible assets | | | 12,590 | | 95,133 | | 39,660 | Proceeds from the sale of investments | | | | | 81,000 | | 450,000 | Funds received in the investments' capital reduction | | | | | 2,254 | | | Dividends received | | | 3,513 | | 41,791 | | | Additions to investments in subsidiaries | | | | | | | (608,181) | Acquisitions to property, plant and equipment and intangible assets | | | (2,682,522) | | (2,706,328) | | (2,273,197) | Premium in the dollar put option | | | | | (2,167) | | (14,683) | | | | | | | | | | | Net cash used in investing activities | | | (2,666,419) | | (2,488,317) | | (2,406,401) | | | | | | | | | | | Short-term and Long-term debt | | | | | | | | | | Acquired | | | 20,586,103 | | 4,301,626 | | 8,492,341 | | | Payments | | | (17,425,409) | | (6,592,197) | | (8,779,091) | Derivative transactions | | | | | | | | | | Payments | | | | | | | (810,279) | Braskem Idesa borrowings | | | | | | | | | | Acquired | | | 3,497,622 | | | | 187,959 | | | Payments | | | (4,398,453) | | (812,929) | | (1,080,502) | Lease | 14(c) | | (454,190) | | | | | Dividends paid | | | (668,904) | | (1,499,900) | | (998,893) | Other financial liabilities | 28 | | 499,999 | | | | | | | | | | | | | | | Net cash generated (used) in financing activities | | | 1,636,768 | | (4,603,400) | | (2,988,465) | | | | | | | | | | Exchange variation on cash of foreign subsidiaries | | | 20,619 | | (386,109) | | 6,475 | | | | | | | | | | | Increase (decrease) in cash and cash equivalents | | | 1,256,243 | | 1,772,544 | | (2,926,771) | | | | | | | | | | | Represented by | | | | | | | | | | Cash and cash equivalents at the beginning of the year | | | 5,547,637 | | 3,775,093 | | 6,701,864 | | | Cash and cash equivalents at the end of the year | | | 6,803,880 | | 5,547,637 | | 3,775,093 | | | | | | | | | | | Increase (decrease) in cash and cash equivalents | | | 1,256,243 | | 1,772,544 | | (2,926,771) |
The notes are an integral part of the consolidated financial statements. F-13 F - 13
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
1Operations
Braskem S.A. is a public corporation headquartered in Camaçari, Bahia (“BA”), which, jointly with its subsidiaries (hereinafter referred to as “Braskem” or “Company”), is controlled by Odebrecht S.A. (“Odebrecht”), which directly and indirectly holds interests of 50.11% and 38.32% in its voting and total capital, respectively. The Company operates inhas 36 industrial unitsplants in Brazil, the United States, Germany and Mexico. TheseThe units produce thermoplastic resins, –namely polyethylene (“PE”), and polypropylene (“PP”) and, polyvinyl chloride (“PVC”), as well as basic petrochemicals. Braskem also is also engaged in the manufacture, trading,sale, import and export of chemicals, petrochemicals and fuels, the production, supply and sale of utilities such as steam, water, compressed air, industrial gases, as well as the provision of industrial services and the production, supply and sale of electric energy for its own use and use by other companies. Braskem also invests in other companies, either as equity method investees or associates. (a)| 2 | Accounting policiesSignificant corporate and operating events impacting these financial statements In April 2018, the Company received the amount of R$81,000, adjusted by inflation, related to the outstanding balance of the R$100 million provided for in the sale made, in 2017, of the subsidiaries Quantiq Distribuidora Ltda and IQAG Armazéns Gerais Ltda. The difference between the expected amount and the received amount was recognized in the second quarter of 2018 in the line “Other income (expenses), net,” in the amount of R$19,558, resulted from an adjustment provided in the agreement.
2Summary of significant accounting policies
|
Except for the changes that occurred with the adoption of the new standards (Note 2.3)2.5), the accounting practices were applied consistently in the preparation of these consolidated financial statements and are described in the respective notes. | 2.1 | Basis of preparation and presentation of the consolidated financial statementsBasis of preparation and presentation of the financial statements |
The consolidated financial statements have been prepared under the historical cost convention and were adjusted, when required, to reflect the fair value of assets and liabilities. The consolidated financial statements presented in this 20-F are not equivalent to the statutory financial statements of the Company as issued under the requirements of the Brazilian jurisdiction. The date of authorization for issue of these consolidated financial statements is different from the date when the consolidated financial statements were issued in Brazil, there are differences due to adjusting and non adjusting events after the reporting period, under IAS 10 – Events after the Reporting Period. The statutory financial statements (parent company and consolidated) for the year ended December 31, 20182019 were authorized for issue on March 11, 2019,April 3, 2020, in accordance with the accounting practices adopted in Brazil and the International Financial Reporting Standards (“IFRS”), filed with the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – “CVM”) on March 13, 2019.April 3, 2020. The preparation of financial statements requires the use of certain estimates. It also requires Management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3. IssueThe issue of these consolidated financial statements was authorized by the Executive Board on October 17, 2019.onJune 12, 2020.
| 2.1.1 | Consolidated financial statementsConsolidated financial statements |
The consolidated financial statements were prepared and presented in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”).
F - 14F-14
| Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
(a)Consolidation
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
The consolidated financial statements comprisecomprises the financial statements of the Braskem S.A. and the following entities: | | | | | | Total and voting interest - % | | | | | Total and voting interest - % | | | | | | Headquarters | | 2018 | | 2017 | | 2016 | | | | | Headquarters | | 2019 | | 2018 | | 2017 | Direct and Indirect subsidiaries | Direct and Indirect subsidiaries | | | | | | | | | | | Direct and Indirect subsidiaries | | | | | | | | | | | Alclor Química de Alagoas Ltda ("Alclor") | | (i) | | Brazil | | | | | | 100.00 | | BM Insurance Company Limited ("BM Insurance") | BM Insurance Company Limited ("BM Insurance") | | (ii) | | Bermuda | | 100.00 | | | | | BM Insurance Company Limited ("BM Insurance") | | (i) | | Bermuda | | 100.00 | | 100.00 | | | Braskem America Finance Company ("Braskem America Finance") | Braskem America Finance Company ("Braskem America Finance") | | | | EUA | | 100.00 | | 100.00 | | 100.00 | Braskem America Finance Company ("Braskem America Finance") | | | | EUA | | 100.00 | | 100.00 | | 100.00 | Braskem America, Inc. (“Braskem America”) | Braskem America, Inc. (“Braskem America”) | | | | EUA | | 100.00 | | 100.00 | | 100.00 | Braskem America, Inc. (“Braskem America”) | | | | EUA | | 100.00 | | 100.00 | | 100.00 | Braskem Argentina S.A. (“Braskem Argentina”) | Braskem Argentina S.A. (“Braskem Argentina”) | | | | Argentina | | 100.00 | | 100.00 | | 100.00 | Braskem Argentina S.A. (“Braskem Argentina”) | | | | Argentina | | 100.00 | | 100.00 | | 100.00 | Braskem Austria Finance GmbH ("Braskem Austria Finance") | | (iii) | | Austria | | | | | | 100.00 | | Braskem International GmbH ("Braskem Austria") | | (iv) | | Austria | | | | 100.00 | | 100.00 | | Braskem Europe GmbH ("Braskem Alemanha") | Braskem Europe GmbH ("Braskem Alemanha") | | | | Germany | | 100.00 | | 100.00 | | 100.00 | Braskem Europe GmbH ("Braskem Alemanha") | | | | Germany | | 100.00 | | 100.00 | | 100.00 | Braskem Finance Limited (“Braskem Finance”) | Braskem Finance Limited (“Braskem Finance”) | | | | Cayman Islands | | 100.00 | | 100.00 | | 100.00 | Braskem Finance Limited (“Braskem Finance”) | | | | Cayman Islands | | 100.00 | | 100.00 | | 100.00 | Braskem Idesa S.A.P.I. ("Braskem Idesa") | Braskem Idesa S.A.P.I. ("Braskem Idesa") | | | | Mexico | | 75.00 | | 75.00 | | 75.00 | Braskem Idesa S.A.P.I. ("Braskem Idesa") | | | | Mexico | | 75.00 | | 75.00 | | 75.00 | Braskem Idesa Servicios S.A. de CV ("Braskem Idesa Serviços") | Braskem Idesa Servicios S.A. de CV ("Braskem Idesa Serviços") | | | | Mexico | | 75.00 | | 75.00 | | 75.00 | Braskem Idesa Servicios S.A. de CV ("Braskem Idesa Serviços") | | | | Mexico | | 75.00 | | 75.00 | | 75.00 | Braskem Incorporated Limited ("Braskem Inc") | Braskem Incorporated Limited ("Braskem Inc") | | | | Cayman Islands | | 100.00 | | 100.00 | | 100.00 | Braskem Incorporated Limited ("Braskem Inc") | | | | Cayman Islands | | 100.00 | | 100.00 | | 100.00 | Braskem International GmbH ("Braskem Austria") | | Braskem International GmbH ("Braskem Austria") | | (ii) | | Austria | | | | | | 100.00 | Braskem Mexico Proyectos S.A. de C.V. SOFOM ("Braskem México Sofom") | Braskem Mexico Proyectos S.A. de C.V. SOFOM ("Braskem México Sofom") | | | Mexico | | 100.00 | | 100.00 | | 100.00 | Braskem Mexico Proyectos S.A. de C.V. SOFOM ("Braskem México Sofom") | | | | Mexico | | 100.00 | | 100.00 | | 100.00 | Braskem Mexico, S. de RL de CV ("Braskem México") | Braskem Mexico, S. de RL de CV ("Braskem México") | | | | Mexico | | 100.00 | | 100.00 | | 100.00 | Braskem Mexico, S. de RL de CV ("Braskem México") | | | | Mexico | | 100.00 | | 100.00 | | 100.00 | Braskem Mexico Servicios S. RL de CV ("Braskem México Serviços") | Braskem Mexico Servicios S. RL de CV ("Braskem México Serviços") | | | Mexico | | 100.00 | | 100.00 | | 100.00 | Braskem Mexico Servicios S. RL de CV ("Braskem México Serviços") | | | | Mexico | | 100.00 | | 100.00 | | 100.00 | Braskem Netherlands B.V. ("Braskem Holanda") | Braskem Netherlands B.V. ("Braskem Holanda") | | | | Netherlands | | 100.00 | | 100.00 | | 100.00 | Braskem Netherlands B.V. ("Braskem Holanda") | | | | Netherlands | | 100.00 | | 100.00 | | 100.00 | Braskem Netherlands Finance B.V. (“Braskem Holanda Finance”) | Braskem Netherlands Finance B.V. (“Braskem Holanda Finance”) | | | | Netherlands | | 100.00 | | 100.00 | | 100.00 | Braskem Netherlands Finance B.V. (“Braskem Holanda Finance”) | | | | Netherlands | | 100.00 | | 100.00 | | 100.00 | Braskem Netherlands Inc. B.V. (“Braskem Holanda Inc”) | Braskem Netherlands Inc. B.V. (“Braskem Holanda Inc”) | | | | Netherlands | | 100.00 | | 100.00 | | 100.00 | Braskem Netherlands Inc. B.V. (“Braskem Holanda Inc”) | | | | Netherlands | | 100.00 | | 100.00 | | 100.00 | Braskem Petroquímica Chile Ltda. (“Braskem Chile”) | Braskem Petroquímica Chile Ltda. (“Braskem Chile”) | | | | Chile | | 100.00 | | 100.00 | | 100.00 | Braskem Petroquímica Chile Ltda. (“Braskem Chile”) | | | | Chile | | 100.00 | | 100.00 | | 100.00 | Braskem Petroquímica Ltda. ("Braskem Petroquímica") | | (v) | | Brazil | | | | | | 100.00 | | Cetrel S.A. ("Cetrel") | Cetrel S.A. ("Cetrel") | | | | Brazil | | 63.66 | | 63.66 | | | Cetrel S.A. ("Cetrel") | | | | Brazil | | 63.70 | | 63.66 | | 63.66 | Distribuidora de Água Camaçari S.A. ("DAC") | Distribuidora de Água Camaçari S.A. ("DAC") | | | | Brazil | | 63.66 | | 63.66 | | | Distribuidora de Água Camaçari S.A. ("DAC") | | | | Brazil | | 63.70 | | 63.66 | | 63.66 | Lantana Trading Co. Inc. (“Lantana��) | | | | Bahamas | | 100.00 | | 100.00 | | 100.00 | | Lantana Trading Co. Inc. (“Lantana”) | | Lantana Trading Co. Inc. (“Lantana”) | | | | Bahamas | | 100.00 | | 100.00 | | 100.00 | | | | | | | | | | | | | | | | | | | | | | | | | Special Purpose Entity ("SPE") | | | | | | | | | | | | Specific Purpose Entity ("SPE") | | Specific Purpose Entity ("SPE") | | | | | | | | | | | Fundo de Investimento Caixa Júpiter Multimercado
Crédito Privado Longo Prazo ("FIM Júpiter") | Fundo de Investimento Caixa Júpiter Multimercado
Crédito Privado Longo Prazo ("FIM Júpiter") | | | | Brazil | | 100.00 | | 100.00 | | 100.00 | Fundo de Investimento Caixa Júpiter Multimercado Crédito Privado Longo Prazo ("FIM Júpiter") | | | | Brazil | | 100.00 | | 100.00 | | 100.00 | Fundo de Investimento Multimercado Crédito Privado Sol (“FIM Sol”) | | (vi) | | Brazil | | | | | | 100.00 | | Fundo de Investimento Santander Netuno Multimercado
Crédito PrivadoLongo Prazo("FIM Netuno") | Fundo de Investimento Santander Netuno Multimercado
Crédito PrivadoLongo Prazo("FIM Netuno") | | (vii) | | Brazil | | 100.00 | | - | | | Fundo de Investimento Santander Netuno Multimercado Crédito Privado Longo Prazo ("FIM Netuno") | | (iii) | | Brazil | | 100.00 | | 100.00 | | |
| (i) | Created in October 2018. | | (ii) | Terminated in June 2018. | | (iii) | Multi-asset fund created in December 2018. |
(i)Merged into the subsidiary Braskem Petroquímica in April 2016.
(ii)Created in October 2018.
(iii)Terminated in January 2016.
(iv)Terminated in June 2018.
(v)Merged into the Braskem in December 2017.
(vi)Contract terminated in 2016.
(vii)Multi-asset fund created in December 2018.
F - 15F-15
| Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
2.2Functional and foreign currency
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| 2.2 | Functional and foreign currency |
(a)Functional and presentation currency
| (a) | Functional and presentation currency |
The functional currency of the Company is the real. The presentation currency is also real.real, unless otherwise stated. All amounts have been rounded to the nearest thousand, unless otherwise indicated. | (b) | Functional currency other than the Brazilian real |
Transactions in foreign currencies are translated into the respective functional currency of the Braskem’s entities at the exchange rates on the transaction dates. Monetary assets and liabilities denominated and measured in foreign currency on the reporting date are re-translated into the functional currency at the exchange rate on said date. Non-monetary assets and liabilities measured at fair value in foreign currency are re-translated into the functional currency at the exchange rate on the date on which the fair value was determined. Non-monetary items that are measured based on the historical cost in foreign currencies are translated at the exchange rate on the date of the transaction. The differences in foreign currencies resulting from conversion are generally recognized in the profit or loss. (b)FunctionalAssets and liabilities from foreign operations are translated into Brazilian real at the exchange rates determined on the reporting date. Revenues and expenses from foreign operations are translated into Brazilian real at the exchange rates determined on the transaction dates. Differences in foreign currencies generated by translation into the reporting currency are recognized in other than the Brazilian realcomprehensive income and accrued in asset valuation adjustments in equity.
CertainThe results and financial position of an entity whose functional currency is not the currency of a hyperinflationary economy must be translated into the reporting currency. The assets and liabilities for each balance sheet reported (including the comparative balance sheets) must be translated using the closing quote of the exchange rate on the respective reporting dates, and the income and expenses for each comprehensive statement of operations or statement of operations reported (including comparative statements) must be translated using the exchange rates in effect on the transaction dates. All exchange variation gains and losses must be recognized in other comprehensive income.
The subsidiaries havewith a different functional currency different from that of the Braskem S.A., as follows: are listed below: | | | Functional currency | | | | | Subsidiaries | | | | Braskem Alemanha | | Euro | | BM Insurance, Braskem America, Braskem America Finance, Braskem Holanda,
Braskem Holanda Finance, Braskem Holanda Inc. and Braskem México Sofom
| | U.S.dollar | | Braskem Idesa , Braskem Idesa Serviços, Braskem México and Braskem México Serviços | | Mexican peso | | Braskem Argentina | | Argentinean peso | | Braskem Chile | | Chilenean peso |
The other subsidiaries adopt the Brazilian real as functional currency.F-16
(c)
| Braskem S.A.Exchange variation effects
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (c) | Exchange variation effects |
The effects from exchange variation on the Company’s transactions are mainly due to the variationvariations in the rates of the following currencies: | | End of period rate at December 31 | | Average rate | End of period rate at December 31 | | Average rate | | | | | | | | | | | | | | | Variation | | | | | | | | | | | | | | | Variation | | | 2018 | | 2017 | | Variation | | 2018 | | 2017 | | 2016 | | 2018 - 2017 | | 2017 - 2016 | 2019 | | 2018 | | Variation | | 2019 | | 2018 | | 2017 | | 2019-2018 | | 2018-2017 | U.S. dollar - Brazilizan real | 3.8748 | | 3.3080 | | 17.13% | | 3.6558 | | 3.1925 | | 3.4833 | | 14.51% | | -8.35% | 4.0307 | | 3.8748 | | 4.02% | | 3.9461 | | 3.6558 | | 3.1925 | | 7.94% | | 14.51% | Euro - Brazilian real | 4.4390 | | 3.9693 | | 11.83% | | 4.3094 | | 3.6089 | | 3.8543 | | 19.41% | | -6.37% | | Mexican peso - Brazilian real | 0.1972 | | 0.1681 | | 17.31% | | 0.1901 | | 0.1694 | | 0.1871 | | 12.24% | | -9.50% | | Euro - Brazilizan real | | 4.5305 | | 4.4390 | | 2.06% | | 4.4159 | | 4.3094 | | 3.6089 | | 2.47% | | 19.41% | Mexican peso - Brazilizan real | | 0.2134 | | 0.1972 | | 8.22% | | 0.2049 | | 0.1901 | | 0.1694 | | 7.80% | | 12.24% | U.S. dollar - Mexican peso | 19.6655 | | 19.6890 | | -0.12% | | 19.2363 | | 18.9142 | | 18.6987 | | 1.70% | | 1.15% | 18.8858 | | 19.6655 | | -3.96% | | 19.2568 | | 19.2363 | | 18.9142 | | 0.11% | | 1.70% | U.S. dollar - Euro | 0.8729 | | 0.8464 | | 3.13% | | 0.8471 | | 0.8871 | | 0.9041 | | -4.50% | | -1.89% | 0.8926 | | 0.8729 | | 2.26% | | 0.8930 | | 0.8471 | | 0.8871 | | 5.42% | | -4.50% |
| (d) | Hyperinflationary economy |
2.3Changes
In July 2018, the International Accounting Standards Board (IASB) issued a report updating the list of countries with hyperinflationary economies in accounting policieswhich Argentina was included. IAS 29 - Financial Reporting in Hyperinflationary Economies) details the procedures that must be carried out at Braskem Argentina after such change in scenario. According to IAS 21 – Effects of changes in foreign exchange rates and conversion of financial statements, the conversion procedure for a balance sheet from a hyperinflationary economy differs from the procedures for a non-inflationary economy. For converting the balance sheet of Braskem Argentina, assets, liabilities, equity, income and expenses (including comparative balances) must be translated into the reporting currency using the closing quote of the exchange rate on the reporting date. | 2.3.1 | Business combinations |
Business combinations are recognized using the acquisition method when control is transferred to the Company. The consideration transferred generally is measured at fair value, as also is the identifiable net assets acquired. Any goodwill arising from the transaction is tested annually for impairment loss. Gains on bargain purchase are immediately recognized in the profit or loss. Transaction costs are recognized into the result as incurred, except any costs associated with issuances of debt or equity instruments. Any contingent consideration payable is measured at its fair value on the acquisition date. If the contingent consideration is classified as an equity instruments, it is not remeasured and the settlement is recognized in equity. Other contingent considerations are remeasured at fair value on each reporting date and subsequent changes to fair value are recognized in the income statement for the fiscal year. The Company adopted IFRS 15 – Revenuecontrols an entity when it is exposed to, or entitled to, the variable returns originating from Contractsits involvement with Customers”the entity and “IFRS 9 – Financial Instruments”has the capacity to affect such returns by exercising its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements as from the date the Company obtains control until the date of January 1, 2018.the loss of control. Due to the transition methods chosen by the Company to apply these accounting standards, the comparative information throughout these financial statements has not been restated to reflect the requirements of the new standards.
The effects from the adoption of these standards are mainly due to the following:
·Change in the impairment calculation methodology in accordance with IFRS 9 (Note 7);
·Presentation of the variable considerations (bonuses) deducted directly from gross revenue (Note 27);
·Change in the classification and measurement of financial assets (Note 2.3(a.2.i));
F - 16F-17
| Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
·Change in the accounting of operations involving dollar put and call options designated for hedge accounting (Note 19.3.1(a.i)).
(a.1) | 2.3.3 | Investments in entities with accounting treatment using the equity methodIFRS 15 – Revenue from Contracts with Customers IFRS 15 introduces a comprehensive framework to determine if and when revenue must be recognized, and by how much the revenue is measured. IFRS 15 replaces the standards IAS 18 – Revenue.
|
The Company adopted IFRS 15Company’s investments in entities with accounting treatment using the cumulative effectequity method with initial applicationconsist of the standard on the initial date (i.e., January 1, 2018). As a result,their interests in associated companies. Associated companies are those over which the Company, diddirectly or indirectly, holds significant influence, but not applycontrol or joint control, over the requirements of IFRS 15financial and operational policies. Such investments are initially recognized at cost, which includes the expenses with the transaction. After initial recognition, the financial statements include the Company’s interest in the net profit or loss for the fiscal year and other comprehensive income in the investee until the date on which the significant influence or joint control ceases to exist. | 2.3.4 | Transactions eliminated in consolidation |
Intragroup balances and transactions and any unrealized revenues or expenses arising from intragroup transactions are eliminated. Unrealized gains originating from transactions with investees recorded using the equity method are eliminated against the investment proportionately to the comparative period reported (2017).Company’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment loss. | 2.4.1 | Short-term benefits for employees |
The Company did not incur significant changesobligations of short-term benefits for employees are recognized as personnel expenses as the corresponding service is rendered. The liability is recognized at the timeamount of the expected payment if the Company has a legal or when measuring its sales revenue forconstructive obligation to pay the performance obligations identified, which are:amount due to services rendered by an employee in the past and the obligation can be reliably estimated. ·Delivery of goods sold – the performance obligation ends when the ownership of the good is transferred to the client. For the Company, there was no difference between IAS 18 – Revenue and IFRS 15 upon recognition of the revenue associated with this performance obligation.
·Contracting freight to deliver goods - the performance obligation of the Company to contract freight to deliver the goods sold ends when the service is completed. The Company did not change the time of recognition, and continue to recognize at the time of the delivery of goods sold. The Company consider immaterial on its profit and loss any change in the time of recognition the performance obligation associated with freight.| 2.4.2 | Share-based payment agreement |
The Company adoptsfair value at the practiceissue date of contractingshare-based payments granted to employees is recognized as personnel expenses, with certain clients bonusesa corresponding increase in shareholders' equity, during the period the employees acquire the full right to the award. The amount recognized as an expense is adjusted to reflect the number of awards for achieving sales targets.which there is an expectation that the service and performance requirements will be fulfilled, so that the final amount recognized as an expense is based on the number of awards that effectively fulfill the service and performance conditions on the vesting date. For clientsshare-based payment awards with non-vesting conditions, the fair value at the grant date of the share-based awards is measured to reflect such conditions and no further adjustments are made for the differences between the expected and actual results. The fair value of the amount payable to employees related to rights on stock price appreciation, which are settled in cash, is recognized as an expense with a corresponding increase in liabilities during the period in which the Company expects will meet such targetsemployees acquire the full right to the payment. The liabilities are remeasured on each reporting date and accordingly will receive a bonus are accruedon the amounts duesettlement date, based on a monthly basis. This provision, which until December 31, 2017 was recognized as a deduction from sales revenue, is presented, as of January 1, 2018, as a deduction from gross revenue. The Company considers commercial discounts included on client invoices as part of the fair value of the revenuerights to stock price appreciation. Any changes in the fair value of the liability are recognized according to that established byin the accounting standard (IAS 18) applicable until December 31, 2017. Therefore, the commercial discounts included on client invoices did not result in any changesincome statement as a result of adoption or measurement of its accounting recognition in accordance with IFRS 15.personnel expenses.
F - 17F-18
| Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
(a.2) IFRS 9 – Financial Instruments
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| 2.4.3 | Defined benefit plan |
IFRS 9 – Financial Instruments establishes requirementsThe Company’s net obligation for recognition and measurementdefined benefit plans is calculated for each of financial assets, liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 – Financial Instruments: Recognition and Measurement.
(a.2.i) Classification – Financial Assets
IFRS 9 has a new approach for the classification and measurement of financial assets that reflects the business model in which assets are managed and its cash flow characteristics.
IFRS 9 has three main classification categories for financial assets: measured at amortized cost (“AC”), at fair value through other comprehensive income (“FVTOCI”) and at fair value through profit and loss (“FVTPL”). The standard eliminates IAS 39 classifications of held-to-maturity, loans and receivables and available-for-sale. IFRS 9 requires the classification of financial assetsplans based on the business modelestimated amount of future benefit that employees will receive in return for services rendered in the entity for managing their financial assets.
Pursuantcurrent and prior periods. Such amount is discounted to IFRS 9, embedded derivatives in contracts where the hostits present value and is a financial asset under the standard’s scope are never separated. Instead, the hybrid financial instrument is assessed in its entirety for classification.
Based on its assessment, the Company did not have a relevant impact on the accounting of its financial investments resulting from new requirements of IFRS9. However, because some trade accounts receivables are sold to financial institutions and derecognized before the maturity date (Note 7), the Company classified part of its trade accounts receivables that could be sold at fair value under FVTOCI. The effect of this new classification on January 1, 2018 was R$601.
The following table and corresponding notes explain the original measurement categories, in accordance with IAS 39 and the new categories of measurement in accordance with IFRS 9, for each class of financial asset on January 1, 2018.
The effect from the adoption of IFRS 9 on the accounting balance of financial assets as of January 1, 2018 is related to the following:
(i)New impairment calculation methodology
(ii)Calculationreported net of the fair value of any of the plan’s assets. The calculation of the obligation of the defined benefit plan is made annually by a qualified accountant using the projected unit credit method. When calculations results in a potential asset for receivables that, in accordance with the Company’s Business Model, mayCompany, the asset to be sold before their maturities.
F - 18
Braskem S.A.
Notesrecognized is limited to the financial statements
at December 31, 2018
All amountspresent value of economic benefits available as future plan reimbursements or as a reduction in thousands, except as otherwise stated
| | | Classification by category | | Book value | | | | IAS 39 | | IFRS 9 | | IAS 39 | | IFRS 9 | | | | | | | | | | | Cash and cash equivalents | | | | | | | | | Cash and banks | | Loans and receivables | | Amortized cost | | 1,428,766 | | 1,428,766 | Financial investments in Brazil | | Loans and receivables | | Fair value through profit or loss | | 1,706,784 | | 1,706,784 | Financial investments abroad | | Held-for-trading | | Fair value through profit or loss | | 639,543 | | 639,543 | | | | | | | | 3,775,093 | | 3,775,093 | | | | | | | | | | | Financial investments | | | | | | | | | LFT's and LF's | | Held-for-trading | | Fair value through profit or loss | | 1,816,889 | | 1,816,889 | Time deposit investments | | Loans and receivables | | Amortized cost | | 440,616 | | 440,616 | Time deposit investments | | Held-for-trading | | Fair value through profit or loss | | 15,764 | | 15,764 | Other | | Held-for-trading | | Fair value through profit or loss | | 39,739 | | 39,739 | | | | | | | | 2,313,008 | | 2,313,008 | | | | | | | | | | | Trade accounts receivable | | Loans and receivables | | Amortized cost | | 3,244,851 | | 3,235,463 | Trade accounts receivable | | Loans and receivables | | Fair value through other comprehensive income | | 73,841 | | 73,240 | | | | | | | | | | | Derivatives | | Financial assets measured at fair value | | Fair value through profit or loss | | 74,378 | | 74,378 |
(a.2.ii) Impairment – Financialfuture contributions to the plan. To calculate the present value of economic benefits, any applicable minimum cost requirements are taken into account. Remeasurements of net obligation, which include: actuarial gains and Contractual Assets
IFRS 9 replacedlosses, return on plan assets (excluding interest) and the “incurred loss” model from IAS 39 for a prospective model of "expected credit losses." This requires a relevant judgment regarding the way in which changes in economic factors affect the expected credit losses, which are determined based on weighted probabilities.
The new expected losses model will apply to financial assets measured at AC or FVTPL, excluding investments in equity instruments and contractual assets.
According to IFRS 9, provisions for expected losses are measured using oneeffects of the following bases:
·The 12-month expected credit losses, i.e. expected credit losses from possible default events within 12 months after the reporting date, and whose credit risk does not increase significantly since initial recognition; and
·The full lifetime expected credit losses (expected credit losses that result from all possible default events over the life of the financial instrument). The measurement of these credit losses applies when the credit risk of a financial asset at the reporting date has increased significantly since initial recognition.
The Company’s assessment indicated that the adoption of the expected credit loss model as required by IFRS 9 on January 1, 2018 resulted in an incremental amount of R$9,388, net of taxes.
The judgments of how changes in economic factors affect the expected credit losses of the Companycap (if any, excluding interest), are determined by stages that can be observed in Note 7.
(a.2.iii) Hedge Accounting
IFRS 9 requires that the Company ensure that hedge accounting relationships are aligned with the Company’s risk management objectives and strategies, and that a more qualitative and prospective approach is applied to assess hedge effectiveness. IFRS 9 also introduces new requirements for rebalancing hedge relations and prohibits the voluntary discontinuation of hedge accounting.
Upon adopting IFRS 9, the Company elected to account for changes to fair value of forward points separately, as hedge cost. Thus, as of January 1, 2018, these changes areimmediately recognized in other comprehensive income (loss) and accrued in a hedge cost reserve as a separate component in equity and subsequently accounted for in the same way as the cumulative gains or losses in the cash flow hedge reserve.income.
| 2.5 | Changes in key accounting policies |
F - 19
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
The types of hedge accounting relations presently designated byFor its transition, the Company meet the IFRS 9 requirements and are aligned with the organization's risk management objective and strategy.
(a.2.iv) Transition
The changes to accounting policies stemming from the adoption of IFRS 9 were applied prospectively, including:
(i)Allowed exemption to not restate comparative information from prior periods due to changes in classification and measurement financial instruments, including expected credit losses.
(ii)New requirements for hedge accounting.
(iii)The following assessments were made based on facts and circumstances in place on the adoption date:
·Determination of business model in which the financial asset is held.
·Designation and revoking of prior designations of specific financial assets and liabilities measured at FVTPL.
2.4New or revised pronouncements that are not yet effective
(a) IFRS 16 – Leases
This pronouncement replaces the previous standards on leases, including IAS 17 – Leases and the corresponding interpretations, such as IFRIC 4 / SIC 15 and SIC 27.
The standard introduces a single and standardized model for the accounting of leases in the balance sheet of the lessees, in which it recognizes a right-of-use asset representing the right to use the leased asset and a lease liability that represents the obligation to pay the lease are recognized. Exemptions from recognition will be allowed for low-value and short-term contracts.
In addition, the expenses related to these leases are no longer linear operating lease expense, going in accordance with IFRS 16 to be a cost of depreciation of use rights assets and interest expense on lease obligations.
The definition of leasing includes all contracts that entitle the use and control of an identifiable asset, including lease contracts and, potentially, some components of service agreements.
The variable elements of the payments related to leases (e.g., a machinery and/or equipment rental contract with part of the payments based on the asset’s productivity) are not considered in the calculation of the liability, and are recorded as operating expenses.
The Company will make the transition usingadopted the modified retrospective approach, i.e., it will applyapplied the requirements of the commercial lease standard to all existing agreements on the initial adoption date, i.e. January 1, 2019. Therefore, information and balances willwere not be restated for comparison purposes.
After the date of the first-time application, on January 1, 2019, leases were recognized as a right-of-use asset and a corresponding liability on the date on which the leased asset becomes available to the Company. For each right-of-use asset measured, an equivalent liability was recorded.The payment is recorded as a reduction of the lease liability. The financial cost of the lease liability is recorded in the profit and loss during the enforceable term of the lease, applying a constant interest rate on the remaining balance of the liability. The right-of-use asset is depreciated using the straight-line method considering the shortest period between the useful life of the asset and the enforceable term of the lease. F - 20Definition of a Lease
Previously, the Company determined at contract inception whether an arrangement was or contained a lease under IFRIC 4Determinig whether an Arrengement contains a Lease. The Company now assesses whether a contract is or contains a lease based on the definition of a lease, according to IFRS 16 Leases As a lessee To determine the enforceable term of the lease, the management considers all facts and circumstances that create an economic incentive for exercising the option of extension or create economic disincentives for not exercising the option of early termination. When adopting IFRS 16, the Company recognized its lease liabilities in relation to the lease agreements previously classified as “operating leases” under IAS 17. Up to the financial statements for 2018, the payments of these leases, net of any incentives received from the lessor, were recognized as profit or loss during the lease period. For leases previously classified as “financial leases” the Company recognized the lease asset and liability considering the amount immediately prior to the date of first-time adoption. F-19
| Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
The new accounting standard provides practical expedients whose election is optional. The Company intends to adopt the following accounting policies during the transition:
·Not to revaluate whether the contract is or contains any lease on the initial adoption date. Instead, will apply IAS 17 to agreements that have been previously identified as leases, using IAS 17 and IFRIC 4;
·Opt not to separate non-lease components from lease components, considering them, therefore, as a single lease component;
·Not to record contracts with terms above 12 months, that at the transition date, will end within 12 months as from the initial adoption date;
·Not to record low-value agreements (R$30 for the company in Brazil or US$10 for foreign subsidiaries), in accordance with the policy defined by the Management.
·Exclude the initial costs with measuring the asset from the right of use on the initial adoption date;
·Use hindsight, such as determining the term of the lease, if the contract contains options to postpone or terminate the lease, among others; and
·Apply a single discount rate to the lease portfolio with reasonably similar characteristics (such as leases with similar remaining lease terms, for a similar class of underlying asset in a similar economic environment and similar financing currencies – “portfolios”).
In this context, the Company expects the initial adoption of IFRS 16 to affect its financial statements and internal processes. The most significant impacts are related to:
(1) recognition of new assets of right-of-use assets and lease liabilities in the balance sheet;
(2) the disclosure of new significant information on lease activities.
The Company does not expect significant changes in lease activities in the period between the issuance of these financial statements andOn the date of initial adoption.
The effects expected asadoption, the assets and liabilities from lease agreements were measured at their present value, considering the outstanding payments of each agreement, discounting by the Company´s incremental borrowing rate on January 1, 2019 are as follows:
·Recognition of additional liabilities ranging between R$1,700,000 and R$1,900,000 as corresponding entries to2019. The weighted average incremental rate applied upon first-time adoption was 5.58% p.a.. The lease liability considers the recognition of right-of-use assets. The amounts reflect thenet present value of the remaining minimumfollowing lease payments:
| · | Fixed payments discounting any incentive received; | | · | Variable payments based on rates or indexes; | | · | Expected payables to the lessor referring to the guaranteed residual amount; | | · | Exercise price of a purchase option, if it is reasonably certain that lessee will exercise such option; and | | · | Payment of fines for termination of the lease if the contractual terms provide for lessee’s exercise option. |
Commitments of operating leases as of December 31, 2018 | 3,257,982 | | | Lease liability recognized on January 1, 2019 | | Lease commitments discounted at the incremental rate on the date of initial application | 2,177,138 | (Plus) Financial leases as of December 31, 2018 | 100,557 | (Minus): short-term leases recognized immediately in profit or loss | (103,929) | (Minus): low value contracts recognized immediately in profit or loss | (1,071) | (Plus): Extension options reasonably certain to be exercised | 119,770 | Total | 2,292,465 |
The right-of-use assets were measured by the amount of the rentlease liabilities, adjusted by any amount of existing operating leases;advanced payments and provisions for lease payments related to the lease recognized on January 1, 2019.There were no onerous leases that required adjustment to the right-of-use assets on the date of first-time adoption. ·The agreements that are exempt from recognition because they are short term and/or low value amount to an annual operating expense of approximately R$85,000.Upon first-time adoption, the Company used the following practical expedients permitted under IFRS 16:
Furthermore, as of the reporting date of these Financial Statements, the Company is developing processes and controls to meet the new requirements.
| · | Not to reevaluate whether the contract is or containsany lease on the initial adoption date. Instead, applied the standard to agreements that were previously identified as leases; | | · | Opt not to separate non-lease components from lease components, considering them, therefore, as a single lease component; | | · | Not to record contracts, that on the date of the initial adoption date, will end within 12 months;as long as the Company is not reasonably certain to exercise the purchase option at the end of the contract; | | · | Not to record low-value agreements (R$30 for companies in Brazil and US$10 for foreign subsidiaries), in accordance with the policy defined by Management; | | · | Excluded the direct initial costs from measuring the right of use asset on the initial adoption date; | | · | Used hindsight, such as determining the term of the lease, if the contract contains options to postpone or terminate the lease, among others; and |
F - 21F-20
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| · | Applied a single discount rate to the lease portfolio with reasonably similar characteristics (such as leases with similar remaining lease terms, for a similar class of underlying asset in a similar economic environment and similar financing currencies – “portfolios”). |
Notes to the financial statementsLeases classified as finance leases under IAS 17
The Company leases some equipments classified as finance leases under IAS 17. For these finance leases, the carrying amount of the right-of-use asset and the lease liability at December 31, 20181 January 2019 were determined at the carrying amount of the lease asset and lease liability under IAS 17 immediately before that date. All amounts in thousands, except as otherwise stated
| (b) | IFRIC 23 – Uncertainty on Income Tax Treatment |
(b)IFRIC 23 – Uncertainty on Income Tax Treatment
The new interpretation that Company is obliged to adopt starting from January 1, 2019, establishes requirements for recognition and measurement in situations where the Company has determined,defined, during the process of calculating taxes on net income (income tax and social contribution), the use of tax treatments that could be construed as uncertain and, therefore, could be questioned by the tax authorities. The Company concluded itsthe analyses of the adoptionapplication of this standard and did not identify any impacts on the consolidated financial statements. | 2.6 | New or revised pronouncements not yet in effective |
3Application
New standards and amendments of critical estimatesstandards come into force in annual periods starting after January 1, 2020 and judgmentstheir early adoption is permitted. The Company did not early adopt the following new standards and intepretations for preparing these consolidated financial statements: - Changes to references to the conceptual structure of IFRS; - Definition of business (changes to IFRS 13); - Definition of materiality (amendments to IAS 1 and IAS 8); - IFRS 17 – Insurance agreements. The amended standards and interpretations are not expected to produce a significant impact on the consolidated financial statements. | 2.7 | Change in the presentation of provision, expense method by function |
In the year ended December 31, 2019, the Company changed the classification of the profit sharing expenses in order to report the effects of this expense by function for better presentation of the consolidated financial statements. The Company has reclassified the prior year financial statements to conform to the current year presentation. In the year ended December 31, 2018, the amounts related to this item were reclassified from “Other expenses” (R$375,360) to “cost of goods sold” (R$145,437, “selling and distribution expenses” (R$50,306), “general and administrative expenses” (R$160,182) and research and development (R$19,435). For the year ended December 31, 2017 the effect of the reclassification was not material. F-21
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| 3 | Application of critical estimates and judgments |
Critical estimates and judgments are those that require the most difficult, subjective or complex judgments by management, usually as a result of the need to make estimates that affect issues that are inherently uncertain. Estimates and judgments are continually reassessed and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results can differ from planned results due to differences in the variables, assumptions or conditions used in making estimates. The Company makes a series of other estimates thatEstimates and underlying assumptions are presented in the respective notes, such as allowance for doubtful accounts and provision for repairing environmental damage.
In orderreviewed on an ongoing basis. Revisions to provide an understanding of the way the Company forms its judgments on future events, the variables and assumptions used in critical estimates are presented below:recognized prospectively.
3.1Deferred income tax (“IR”)
Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognized in the consolidated financial statements include the following: | (a) | Note 14.b – Leasing: if the Company is reasonably sure of exercising options to extend the lease term. |
| 3.2 | Uncertainties about assumptions and estimates |
Information about assumptions and social contribution (“CSL”)estimation uncertainties at December 31, 2019 that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next year are as follows: | 3.2.1 | Deferred income tax (“IR”) and social contribution (“CSL”) |
The recognition and the amount of deferred taxes assets depend on the generation of future taxable income, which requires the use of an estimate related to the Company’s future performance. These estimates are included in the business plan, which is annually prepared by the Executive Board and submitted to the Board of Directors for approval. This plan uses as main variables projections for the price of the products manufactured by the Company, price of inputs, growth of the gross domestic product of each country where the Company operates, exchange variation, interest rate, inflation rate and fluctuations in the supply and demand of inputs and finished products. TheseIn evaluating the plan, the Company uses its historical performance, strategic planning and market projections produced by specialized third party consulting firms, which are madereviewed and supplemented based on specialized external consulting firms and on the Company’s historical performance and in strategic planning.Management´s experience. Information on deferred income tax and social contribution is presented in Note 21(c)22(c). | 3.2.2 | Useful life of assets |
The Company recognizes the depreciation, amortization and depletion of its tangible and intangible assets with estimated useful life approved by the Company’s technicians with experience in the management of Braskem’s plants. The useful lives of assets are reviewed at the end of every year by the Company’s technicians in order to check whether they need to be changed. The main factors that are taken into consideration in the definition of the useful life of the assets that compose the Company’s industrial plants are the information of manufacturers of machinery and equipment, level of the plants’ operations, quality of preventive and corrective maintenance and the prospects of technological obsolescence of assets. F-22
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
The Company’s management also decided that (i) depreciation should cover all assets value because when the equipment and installations are no longer operational, the sales amount is close to the residual value; and (ii) land is not depreciated because it has an indefinite useful life. The useful lives applied to the assets determined the following average (%) depreciation, amortization and depletion rates: | | 2019 | | 2018 | Buildings and improvements | 3.42 | | 3.42 | Machinery, equipment and installations | 8.01 | | 8.04 | Mines and wells | 8.70 | | 8.84 | Furniture and fixtures | 10.00 | | 10.03 | IT equipment | 20.04 | | 20.13 | Lab equipment | 9.45 | | 9.53 | Security equipment | 9.45 | | 9.72 | Vehicles | 16.90 | | 17.83 | Other | 18.23 | | 18.82 |
Information on property, plant and equipment is presented in Note 12. | 3.2.3 | Impairment test and analysis |
| (a) | Tangible and intangible assets with definite useful lives |
Annually, or whenever there is any indication that the value of the asset could be impaire, the Company conducts an analysis to determine the existence of any indication that the book balance of tangible and intangible assets with definite useful lives may not be recoverable. This analysis is conducted to assess the existence of scenarios that could adversely affect its cash flow and, consequently, its ability to recover the investment in such assets. These scenarios arise from issues of a macroeconomic, legal, competitive or technological nature. Some significant and notable aspects considered by the Company in this analysis include: (i) the possibility of an oversupply of products manufactured by the Company or of a significant reduction in demand due to adverse economic factors; (ii) the prospects of material fluctuations in the prices of products and inputs; (iii) the likelihood of the development of new technologies or raw materials that could materially reduce production costs and consequently impact sales prices, ultimately leading to the full or partial obsolescence of the industrial facilities of the Company; and (iv) changes in the general regulatory environment that make the production process of Braskem infeasible or that significantly impact the sale of its products. For this analysis, the Company maintains an in-house team with a strategic vision of the business. If the aforementioned variables indicate any material risk to cash flows, the Management of Braskem conducts impairment tests in accordance with Note 3.2.3(b). For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs (“Cash Generating Units”). The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. The fair value less costs of disposal is estimated using discounted cash flows and discount rate in an orderly transaction between market participants at the measurement date under current market conditions, less incremental costs directly attributable to the disposal. F-23
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
Impairment loss is recognized in profit or loss if the book value of the asset or CGU exceeds its recoverable value. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (or group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (or group of CGUs) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. When identifying whether cash inflows from an asset (or group of assets) are largely independent of cash inflows from other assets (or groups of assets), the Company considers several factors, such as: product lines, individual locations and the way Management monitors and makes decisions about the continuity of the entity's operations. At December 31, 2019, assets are grouped according to the following CGUs: 3.2Brazil:
| · | CGU Northeastern petrochemical complex (NE): represented by assets of the ethylene, PE plants located in the Northeast region; | | · | CGU Vinyls: represented by assets of PVC and chlorine soda plants located in Brazil; | | · | CGU Southern petrochemical complex (South): represented by assets of the ethylene, propylene, PE and PP plants, located in the South region; | | · | CGU Rio de Janeiro petrochemical complex (RJ): represented by assets of the ethylene, propylene, PE and PP plants, located in Rio de Janeiro state; | | · | CGU São Paulo petrochemical complex (SP): represented by assets of the ethylene and PE plants, located in the cities of Santo André and Cubatão; | | · | CGU Paulínia: represented by assets of the PP plant; | | · | CGU ABC, greater São Paulo region: represented by assets of the PP plant. |
FairUnited States and Europe:
| · | CGUs Polypropylene USA: there are 5 PP plants located in the United States, the assets of each plant represent a UGC; | | · | CGUs Polypropylene Europe: there are 2 PP plants located in Germany, each plan represents a UGC. |
Mexico: | · | CGU Mexico: represented by the assets of the ethylene and PE plants located in Mexico. |
| (b) | Intangible assets with indefinite useful lives |
The balances of goodwill arising from business combinations are tested for impairment once a year. Goodwill from business combination is allocated to the CGUs or groups of CGUs that are expected to benefit from the synergies of the combination. These tests are based on the projected cash flow in each CGU or groups of CGUs, which are extracted from the business plan of the Company for a five-year period, mentioned in Note 3.2.1, and the Management plan for a period greater than 5 years to reflect industry cycle patterns, in a total projection period of 10 years. Perpetuity is also calculated based on the long-term vision and excluding real growth. Cash flows and perpetuity are adjusted to present value at a discount rate based on the Weighted Average Cost of Capital (“WACC”). Goodwill and results of impairment tests are presented in Note 13(a) and (b). F-24
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| 3.2.4 | Provisions and contingencies |
Provisions are recorded when there is a present obligation (legal or constructive) as a result of a past event, and it is more likely than not that an outflow of resources will be required to settle the obligation. Contingent liabilities are mainly related to discussions in the judicial and administrative spheres arising from primarily labor, corporate claims, civil and tax lawsuits. The Management of Braskem, based on its assessment and of its external legal advisors, classifies these proceedings in terms of probability of loss as follows: | (i) | Probable loss – these are proceedings for which there is a higher probability of loss than of a favorable outcome; | | | | | (ii) | Possible loss - these are proceedings for which the possibility of loss is greater than remote and lesser than probable. For these claims, the Company does not recognize a provision and discloses the most significant matters in Note 24.2. |
The provision for labor, corporate claims, civil and tax lawsuits correspond to the value of derivativethe claims plus charges by the estimated value of probable losses. On the acquisition date in business combination operations, in accordance with IFRS 3, a contingent liability is recorded when it represents a present obligation. The Company’s management believes that the estimates related to the outcome of the proceedings and non-derivativethe possibility of future disbursement may change in view of the following: (i) higher courts may decide in a similar case involving another company, adopting a final interpretation of the matter and, consequently, advancing the termination of the proceeding involving the Company, without any disbursement or without implying the need of any financial instrumentssettlement of the proceeding; and (ii) programs encouraging the payment of the debts implemented in Brazil at the Federal and State levels, in favorable conditions that may lead to a disbursement that is lower than the one that is recognized in the provision or lower than the value of the matter. The Company’s contingencies are presented in Note 24. | 3.2.5 | Provision of expenses – Geological event in Alagoas |
The provision arises from actions and security measures based on studies and dealings with the competent authorities as of the Term of Agreement to Support the Realocation of People in Risk Areas (“Term”), disclosed in Note 26.1 (i). The actions for closure and monitoring wells and support the evacuation of residents of the protection area involve various estimates in determining the future expenses for implementation of these measures. Therefore, factors such as the time taken to execute the action plans, results of future studies experts, changes in the structure of the wells, the outcome of ongoing legal actions, among others, may result in a material impact on the amount of the provision. F-25
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| 3.2.6 | Derivative and non-derivative financial instruments |
| (a) | Fair value of derivative and non-derivative financial instruments |
The Company evaluates the derivative financial instruments at their fair value and the main sources of information are the stock exchanges, commodities and futures markets, disclosures of the Central Bank of Brazil and quotation services like Bloomberg and Reuters. Nevertheless, the volatility of the foreign exchange and interest rate markets in Brazil has been causing significant changes in future rates and interest rates over short periods of time, leading to significant changes in the market value of swaps and other financial instruments. The fair values of non-derivative, quoted financial instruments are based on current bid prices. If the market for a financial asset and for unlisted securities is not active, the Company establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models that make maximum use of market inputs and rely as little as possible on information provided by the Company’s Management. Information on derivative and non-derivative financial instruments is presented in Note 19.20. F - 22
Braskem S.A.| (b) | Hedge accounting
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
3.3Useful life of assets
(a)The Company recognizes the depreciation and depletion of its tangible and intangible assets with defined useful lives based on their estimated useful life approved by the Company’s experts with experience in the management of Braskem’s plants. The useful lives of the assets are reviewed at the end of every year by the Company’s experts in order to confirm whether they need to be changed.
The main factors that are taken into consideration in the definition of the useful life of the assets that compose the Company’s industrial plants are the information of manufacturers of machinery and equipment, level of the plants’ operations, quality of preventive and corrective maintenance and the prospects of technological obsolescence of assets.
The Company’s management also decided that: (i) depreciation should cover all assets value because when the equipment and installations are no longer operational, they are sold by amounts that are immaterial; and (ii) land is not depreciated because it has an indefinite useful life.
The useful lives applied to the assets determined the following average (%) depreciation and depletion rates:
| | 2018 | | 2017 | Buildings and improvements | 3.42 | | 3.36 | Machinery, equipment and installations | 8.04 | | 8.34 | Mines and wells | 8.84 | | 8.84 | Furniture and fixtures | 10.03 | | 10.13 | IT equipment | 20.13 | | 20.09 | Lab equipment | 9.53 | | 9.56 | Security equipment | 9.72 | | 9.77 | Vehicles | 17.83 | | 17.51 | Other | 18.82 | | 18.17 |
Information on property, plant and equipment is presented in Note 12.
3.4Impairment test and analysis
(a)Tangible and intangible assets with defined useful lives
Annually or when there is an indication that an asset may be impaired, the Company conducts an analysis to determine the existence of any indication that the carrying amount of tangible assets and intangible assets with defined useful lives may not be recoverable. This analysis is conducted to assess the existence of scenarios that could adversely affect its cash flow and, consequently, its ability to recover the investment in such assets. These scenarios arise from issues of a macroeconomic, legal, competitive or technological nature.
Some significant and notable aspects considered by the Company in this analysis include: (i) the possibility of an oversupply of products manufactured by the Company or of a significant reduction in demand due to adverse economic factors; (ii) the prospects of material fluctuations in the prices of products and inputs; (iii) the likelihood of the development of new technologies or raw materials that could materially reduce production costs and consequently impact sales prices, ultimately leading to the full or partial obsolescence of the industrial facilities of the Company; and (iv) changes in the general regulatory environment that make the production process of Braskem infeasible or that significantly impact the sale of its products. For this analysis, the Company maintains an in-house team with a strategic vision of the business and also remains in permanent contact with a team of external consultants. If the aforementioned variables indicate any material risk to cash flows, the Management of Braskem conducts impairment tests in accordance with Note 3.4(b).
F - 23
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
The Company’s assets are grouped initially under operating Segments, based on product lines and production site location. Within each Segment, assets are grouped into Cash-Generating Units (“CGU”) as follows:
Reportable operating segments:
Chemicals:
·CGU Chemicals Bahia: represented by assets of the chemicals plants located in the state of Bahia;
·CGU Chemicals South: represented by assets of the chemicals plants located in the state of Rio Grande do Sul;
·CGU Chemicals Southeast: represented by assets of the chemicals plants located in the states of Rio de Janeiro and São Paulo;
Polyolefins:
·CGU Polyethylene: represented by assets of the PE plants located in Brazil;
·CGU Polypropylene: represented by assets of the PP plants located in Brazil;
·CGU Renewables: represented by the assets of the Green PE plant located in Brazil;
Vinyls:
·CGU Vinyls: represented by assets of PVC and chloride soda plants located in Brazil;
USA and Europe:
·CGU Polypropylene USA: represented by assets of PP plants located in the United States;
·CGU Polypropylene Europe: represented by assets of PP plants located in Germany;
Mexico:
·Represented by the assets of the ethylene and PE plants located in Mexico.
(b)Intangible assets with indefinite useful lives
The balances of goodwill from future profitability arising from business combinations are tested for impairment once a year. These tests are based on the projected cash generation in each operating segment (except for Chemicals Sul CGU which is tested at the cash generation unit level), for a five-year period, which are extracted from the business plan of the Company and cited in Note 3.1. In addition to the projected cash flow for the period from 2019 to 2023, perpetuity is also calculated based on the long-term vision and excluding real growth. Cash flows and perpetuity are adjusted to present value at a discount rate based on the Weighted Average Cost of Capital (“WACC”).
The goodwill allocated to the Polyolefins operating segment was generated in a business combination that resulted in the simultaneous acquisition of polypropylene and polyethylene plants. The main raw materials of these plants were already supplied by the Company, which resulted in significant synergies in the operation. These synergies were one of the main drivers of that acquisition. Accordingly, the Company’s management tested this goodwill for impairment, at operating segment level, since the benefits of the synergies are associated with all units acquired.
The remaining existing goodwill is allocated to the Chemicals Sul CGU and to the Vinyls operating segment.
Goodwill from future profitability are presented in Note 13. Said note also presents the results of impairment tests.
F - 24
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
3.5Contingencies
Existing contingent liabilities and provisions are mainly related to discussions in the judicial and administrative spheres arising from primarily labor, pension, civil and tax lawsuits and administrative procedures.
The Management of Braskem, based on the opinion of its external legal advisors, classifies these proceedings in terms of probability of loss as follows:
Probable loss – these are proceedings for which there is a higher probability of loss than of a favorable outcome, i.e., the probability of loss exceeds 50%. For these proceedings, the Company recognizes a provision that is determined as follows:
(i)tax and social security claims – the amount of the provision corresponds to the amount of the claim, plus interests and penalties; and
(ii)labor and other claims - the amount of the provision corresponds to the disbursement amount estimated, plus interests and penalties.
Possible loss – these are proceedings for which the possibility of loss is greater than remote and lesser than probable. The loss may occur, however, the elements available are not sufficient or clear to allow for a conclusion on whether the trend is for a loss or a gain. In percentage terms, the probability of loss is between 25% and 50%. For these claims, except for the cases arising from business combinations, the Company does not recognize a provision and mentions the most significant matters in a note to the financial statements (Note 23.2).
In business combination transactions, in accordance with the provision in IFRS 3, the Company records the fair value of the claims based on the assessment of loss. The amount of the provision corresponds to the value of the matter, plus charges corresponding to the variation in the Selic rate, multiplied by the probability of loss.
The Company’s management believes that the estimates related to the outcome of the proceedings and the possibility of future disbursement may change in view of the following: (i) higher courts may decide in a similar case involving another company, adopting a final interpretation of the matter and, consequently, advancing the termination of the of a proceeding involving the Company, without any disbursement or without implying the need of any financial settlement of the proceeding; and (ii) programs encouraging the payment of the debts implemented in Brazil at the Federal and State levels, in favorable conditions that may lead to a disbursement that is lower than the one that is recognized in the provision or lower than the value of the matter.
The Company’s contingencies are presented in Note 23.
3.6Hedge accounting
|
The Company designated non-derivate financial liabilities in foreign currency to hedge the future cash flows generated by its exports. This decision was based on two important concepts and judgments: (i) the performance of exports according to its business plan, which are inherent to the market and business where it operates, and (ii) the ability of the Company to refinance its liabilities in U.S. dollar, since the priority financing in U.S. dollar is part of the Company’s guidelines and strategy and the maintenance of a minimum level of net liabilities in U.S. dollar is envisaged in the Financial Policy of the Company. The subsidiary Braskem Idesa designated all of the financing it obtained from financial institutions for the construction of its industrial plant to protect part of its sales to be made in the same currency as said financing, the U.S. dollar. The sales estimate is included in the project that was presented to the banks/lenders, which, due to the consistency of the projection, granted Braskem Idesa a financing line should be paid exclusively using thecash generated by these sales. All the commercial considerations of the project were based on market studies conducted by expert consulting firms during the feasibility-analysis phase. F - 25
Braskem S.A.
Notes tophase, reviewed and approved by Management of the financial statementsCompany.
at December 31, 2018
All amounts in thousands, except as otherwise stated
All hedge transactions conducted by the Company are in compliance with the accounting procedures and practices adopted by Braskem, and effectiveness tests are conducted for each transaction every quarter, which prove the effectiveness of its hedge strategy. The Company determined that hedged items for the Braskem S.A. and the subsidiary Braskem Idesa will be characterized by the first sales in U.S. dollars in each quarter until the amount designated for each period is reached (Notes 19.4(a.i) e 19.4(a.ii)(Note 20.4(a.i) and 20.4(a.ii), respectively). The liabilities designated for hedge will be aligned with the hedging maturity schedule and the Company’s financial strategy. According to the Financial Policy, the Company may contract derivatives (swaps, NDFs, options, etc.) to hedge against the volatility of the foreign exchange and interest rate.rates. These derivatives may be designated for hedge accounting based on the judgment of Management and when such designation is expected to significantly improve the demonstration of the compensatory effect on the fluctuations in the items protected by the hedge. The Company currently has derivatives designated for cash flow hedge accounting, as reported in Note 19.3.20.3. 4F-26
| Braskem S.A.Risk management
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
Braskem is exposed to market risks arising from variations in commodity prices, foreign exchange rates and interest rates, credit risks of its counterparties in cash equivalents, financial investments and trade accounts receivable, and liquidity risks to meet its obligations from financial liabilities. Braskem adopts procedures for managing market and credit risks that are in conformity with its Financial Policy, which is periodically reviewed by the Board of Directors. The purpose of risk management is to protect the Company’s cash flows and reduce the threats to the financing of its operating working capital and investment programs. | 4.1 | Market risksMarket risks |
Braskem prepares a sensitivity analysis for foreign exchange rate and interest rate risks to which it is exposed, which is presented in Note 19.6(c.2)20.6(c.2). | (a) | Exposure to commodity risksExposure to commodity risks |
Most of Braskem’s feedstocks (naphtha, ethane, propane and propylene) and main products (PE, PP and PVC) are commodities quoted on international markets. A series of factors determine the dynamics of these quotes which directly impacts Braskem’s results and cash generation. Nevertheless, the Company believes such risk is inherent to the petrochemical business and, therefore, in general, it does not seek financial instruments to hedge against commodity price fluctuations. | (b) | Exposure to foreign exchange riskExposure to foreign exchange risk |
Considering the dynamics of the international petrochemical market, where prices are mostly pegged to international dollar-denominated references, even Braskem’s sales in Brazil are strongly correlated to the U.S. currency. Therefore, the maintenance of a portion of costs in Brazilian real (fixed expenses with personnel, freight and energy, etc.) tends to generate a net exposure loss to the local currency. Therefore, with the goal of partially mitigating the long-term exchange risk, as of September 2016, the Company started to contract financial derivatives to compose a Long-Term Foreign Exchange Hedge Program.The Program mainly aims to mitigate dollar call and put option contracts, hedging expected flows over a 24-month horizon, as described in greater detail in Note 19.3.20.3. F - 26
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
In addition to the Hedge Program, to balance the composition between dollar-denominated assets and liabilities, Braskem’s Financial Policy requires the Company to maintain a percentage of at least 70% of the dollar-denominated portion of net debt. If convenient, the company may maintain a percentage of more than 70%, although subject to a sensitivity analysis of key financial indicators and proof of the inexistence of significant risk of deterioration of these indicators. On December 31, 2018,2019, Braskem prepared a sensitivity analysis for its exposure to the fluctuation in the U.S. dollar, as informeddisclosed in Note 19.6.20.6. | (c) | Exposure to interest rate riskExposure to interest rate risk |
Braskem is exposed to the risk that a variation in floating interest rates causes an increase in its financial expense due to payments of future interest. Debt denominated in foreign currency subject to floating rates is mainly subject to fluctuations in Libor. Debt denominated in local currency is mainly subject to the variation in the Interbank Certificate of Deposit (“CDI”) rate. In 2018,2019, Braskem held swap contracts (Note 19.3.1)20.3.1) in which it:it receives Libor and pays a fixed rate. F-27
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
On December 31, 2018,2019, Braskem prepared a sensitivity analysis for the exposure to the floating interest rates Libor, CDI, IPCA, TJLP and TJLP,Selic, as informeddisclosed in Notes 19.6(c.1)20.6(c.1) and (c.2). | 4.2 | Exposure to credit riskExposure to credit risk |
The transactions that subject Braskem to the concentration of credit risks are mainly in currentbank checking accounts, with banks, financial investments and trade accounts receivable in which Braskem is exposed to the risk of the financial institution or customer involved. In order to manage this risk, Braskem maintains bank current accounts and financial investments with major financial institutions, weighting concentrations in accordance with the credit rating and the daily prices observed in the Credit Default Swap market for the institutions, as well as netting contracts that minimize the total credit risk arising from the many financial transactions entered into by the parties. On December 31, 2018, approximately 34.5%2019, 45.9% of the amounts recorded as “Cash and cash equivalents” (Note 5) and Financial investments“Financial Investments” (Note 6) were allocated to financial institutions that had offset agreements with the Company. The obligations under these agreements are accounted for under “Borrowings” (Note 15)16). The effective netting of these amounts is possible only in the event of default by one of the parties. With respect to the credit risk of customers, Braskem protects itself by performing a rigorous analysis before granting credit and obtaining secured and unsecured guarantees when considered necessary, including credit insurance. The maximum exposure to credit risk of non-derivative financial instruments on the reporting date is the sum of their carrying amounts less any provisions for impairment losses. On December 31, 2018,2019, the balance of trade accounts receivable was net of allowance for doubtful accounts (Note 7). F - 27
Braskem S.A.
Notes to the financial statements| 4.3 | Liquidity risk at December 31, 2018
All amounts in thousands, except as otherwise stated
4.3Liquidity risk
|
Braskem has a calculation methodology to determine a minimum cash “monthly vision” (30-day horizon) and a minimum cash “yearly vision” (up to 12-month horizon) for the purpose of, respectively: (i) ensuring the liquidity needed to comply with obligations of the following month; and (ii) ensuring that the Company maintains liquidity during potential crises. The amounts to determine the minimum cash “yearly vision” are calculated mainly based on the projected operating cash generation, less short-term debts and working capital needs. The amounts used for determining the minimum cash “monthly vision” consider the projected operating cash disbursement, debt service and contributions to projects, as well as the planned disbursement for derivatives maturing in the period, among other items. The Company uses as minimum cash in its financial policy the greater of these two references. In May 2018, the Company, in keeping with its commitment to maintain its financial liquidity, contracted an international revolving credit facility in the amount of US$1 billion, which expires in 2023.This line may be used without restrictions to improve the Company’s credit quality or in the event of deterioration in the macroeconomic scenario. The two facilities held by the Company before, in the amounts of R$750 million with expiration in December 2019 and of R$500 million with expiration in September 2019, were cancelled.
As of December 31, 2018, the2019, this new credit line had not been used. As per note 39(b), the credit line was withdrawal on April 1st, 2020.
On December 31, 2018, the subsidiary Braskem Idesa continued to record as current liabilities its financial obligations whose original maturities were long term. Such reclassification is due to the failure to comply with certain contractual covenants set forth in the financing contract of Braskem Idesa (Note 16). Note that Braskem Idesa has been settling all its obligations in accordance with the original debt maturity schedule and none of its creditors has requested or showed any intention of requesting the immediate reimbursement of said obligations or the early amortization of the debt.
In case Braskem Idesa’s group of lenders decide to request the early amortization of this debt,The table below shows Braskem’s financial liabilities by maturity, including the amounts due under the Leniency Agreement (Note 23.3), are as shown in the table below.25). These amounts are calculated fromgross and undiscounted cash flows and include contractual interest payments, therefore may not be reconciled with the balance sheet.
| | | Maturity | | | | | | Until | | Between one and | | Between two and | | More than | | | | | | one year | | two years | | five years | | five years | | Total | | | | | | | | | | | | | Trade payables | | 8,435,246 | | 37,252 | | | | | | 8,472,498 | Borrowings | | 806,418 | | 6,469,288 | | 5,479,526 | | 26,182,832 | | 38,938,064 | Debentures | | 34,760 | | 118,457 | | 141,972 | | 106,316 | | 401,505 | Braskem Idesa borrowings | | 10,504,592 | | | | | | | | 10,504,592 | Derivatives | | 76,355 | | 55,449 | | 128,765 | | | | 260,569 | Loan to non-controlling shareholder of Braskem Idesa | | | | | | | | 2,183,830 | | 2,183,830 | Leniency agreement (Note 23.3) | | 341,308 | | 341,308 | | 897,376 | | 409,876 | | 1,989,868 | At December 31, 2018 | | 20,198,679 | | 7,021,754 | | 6,647,639 | | 28,882,854 | | 62,750,926 |
Considering that Braskem Idesa’s group of lenders will remain not requesting the early amortization of this debt, Braskem’s financial liabilities by maturity, including the amounts due under the Leniency Agreement (Note 23.3), are as shown in the table below. These amounts are calculated from undiscounted cash flows and may not be reconciled with the balance sheet.
F - 28F-28
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
All amounts in thousands, except as otherwise stated |
| | | Maturity | | | Maturity | | | | | | Until | | Between one and | | Between two and | | More than | | | Until | | Between one and | | Between two and | | More than | | | | | | one year | | two years | | five years | | five years | | Total | one year | | two years | | five years | | five years | | Total | | | | | | | | | | | | | | | | | | | | | | Trade payables | | 8,435,246 | | 37,252 | | | | | | 8,472,498 | 9,194,081 | | 3,837 | | | | | | 9,197,918 | Borrowings | | 806,418 | | 6,469,288 | | 5,479,526 | | 26,182,832 | | 38,938,064 | 857,768 | | 2,277,351 | | 7,198,320 | | 40,087,917 | | 50,421,356 | Debentures | | 34,760 | | 118,457 | | 141,972 | | 106,316 | | 401,505 | 51,348 | | 126,754 | | 143,307 | | 28,703 | | 350,112 | Braskem Idesa borrowings | | 995,741 | | 2,482,602 | | 2,835,154 | | 7,353,752 | | 13,667,249 | 806,378 | | 1,743,252 | | 2,351,076 | | 9,504,803 | | 14,405,509 | Derivatives | | 76,355 | | 55,449 | | 128,765 | | | | 260,569 | 49,251 | | 76,791 | | 92,287 | | 435 | | 218,764 | Loan to non-controlling shareholder of Braskem Idesa | | | | | | | | 2,183,830 | | 2,183,830 | | | | | | | 2,395,887 | | 2,395,887 | Leniency agreement (Note 23.3) | | 341,308 | | 341,308 | | 897,376 | | 409,876 | | 1,989,868 | | At December 31, 2018 | | 10,689,828 | | 9,504,356 | | 9,482,793 | | 36,236,606 | | 65,913,583 | | Other financial liabilities | | 534,456 | | | | | | | | 534,456 | Leniency agreement (Note 25) | | 363,720 | | 376,294 | | 1,043,168 | | 175,058 | | 1,958,240 | Lease | | 665,164 | | 565,824 | | 1,174,827 | | 710,044 | | 3,115,859 | At December 31, 2019 | | 12,522,166 | | 5,170,103 | | 12,002,985 | | 52,902,847 | | 82,598,101 |
| 4.4 | Capital managementCapital management |
The ideal capital structure, according to Braskem’s Management, considers the balance between own capital and the sum of all payables less the amount of cash and cash equivalents and financial investments. This composition meets the Company’s objectives of perpetuity and of offering an adequate return to shareholders and other stakeholders. This structure also permits borrowing costs to remain at adequate levels to maximize shareholder remuneration. Due to the impact of the U.S. dollar on the Company’s operations, the Management of Braskem believes that the own capital used for capital management purposes should be measured in this currency and on a historical basis. Moreover, the Company may temporarily maintain a capital structure that is different from this ideal. This occurs, for example, during periods of growth, when the Company may finance a large portion of its projects through borrowings, provided that this option maximizes return for shareholders once the financed projects start operating. In order to adjust and maintain the capital structure, the Management of Braskem may also consider the sale of non-strategic assets, the issue of new shares or even adjustments to dividend payments. As is also the case of liquidity, capital is not managed at the Parent Company level, but ratheronly at the level of the consolidated balance sheet level, except forentities, with the exception of the liquidity and capital of Braskem Idesa, which are managed specifically withinwhose specific management is concentrated at the subsidiary.Braskem Idesa level. | 5 | Cash and cash equivalentsCash and cash equivalents |
| | | | | 2018 | | 2017 | | | 2019 | | 2018 | | | | | | | | | | | | | | Cash | Cash | | (i) | 2,228,964 | | 1,428,766 | Cash | | | | | | | | Domestic market | | 13,495 | | 47,735 | | | | Foreign market | (i) | 2,289,736 | | 2,181,229 | Cash equivalents: | Cash equivalents: | | | | | Cash equivalents: | | | | | | | Domestic market | | 1,754,561 | | 1,706,784 | Domestic market | | 1,963,185 | | 1,754,561 | | | Foreign market | (i) | 1,564,112 | | 639,543 | Foreign market | (i) | 2,537,464 | | 1,564,112 | Total | Total | | | 5,547,637 | | 3,775,093 | Total | | 6,803,880 | | 5,547,637 |
| (i)On December 31, 2018, cash includes R$963,357 (R$247,286 of cash and R$47,400 of cash equivalents on December 31, 2017) held by subsidiary Braskem Idesa, available for use exclusively in its subsidiary. | On December 31, 2019, it includes cash of R$598,591 and R$418,644 of cash equivalents (R$963,357 on December 31, 2018) of the subsidiary Braskem Idesa, which cannot be used by the other subsidiaries of the Company. |
This item includes cash, bank deposits and highly liquid financial investments available for redemption within three months.months from the date of purchase. These assets are convertible into a known cash amount and are subject to insignificant risk of change in value. F-29
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
Cash equivalents in Brazil are mainly represented by fixed-income instruments and time deposits held by the funds FIM Jupiter and FIM Netuno. Cash equivalents abroad mainly comprise fixed–income instruments issued by highly rated financial institutions (time deposit). F - 29
Braskem S.A.| 6 | Financial investments
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
6Financial investments
|
| | | | | 2018 | | 2017 | | | 2019 | | 2018 | Amortized cost | Amortized cost | | | | | | Amortized cost | | | | | | | Time deposit investments | (i) | 49,630 | | 440,616 | Time deposit investments | | 38,759 | | 49,630 | Fair value through profit or loss | Fair value through profit or loss | | | | | Fair value through profit or loss | | | | | | | Time deposit investments | | | | 15,764 | | | | Letras financeiras do tesouro - LFT´s and Letras Financeiras - LF´s | (ii) | 2,247,272 | | 1,816,889 | LFT´s and LF´s | (i) | 1,588,426 | | 2,247,272 | | | Restricted funds investments | (iii) | 9,998 | | 12,404 | Restricted funds investments | (ii) | 9,708 | | 9,998 | | | Other | | | 60,711 | | 27,335 | Other | | 60,319 | | 60,711 | Total | Total | | | 2,367,611 | | 2,313,008 | Total | | 1,697,212 | | 2,367,611 | | | | | | | | | | | | | | Current assets | Current assets | | | 2,357,613 | | 2,302,672 | Current assets | | 1,687,504 | | 2,357,613 | Non-current assets | Non-current assets | | | 9,998 | | 10,336 | Non-current assets | | 9,708 | | 9,998 | Total | Total | | | 2,367,611 | | 2,313,008 | Total | | 1,697,212 | | 2,367,611 |
| (i) | (i)In 2017, the amount of R$440,616 was given as guarantee to cover Braskem’s obligation related to the constitution of a reserve account for the project finance of the subsidiary Braskem Idesa. The guarantee was withdrawn in April 2018.
(ii)These refer to Brazilian floating-rate government bonds (“LFTs”) issued by the Brazilian federal government and floating-rate bonds (“LFs”) issued by financial institutions. These bonds have original maturity above three months, immediate liquidity in the secondary market and Management expects their realization in the short term.
(iii) Restricted funds represent bank deposits with yields of approximately 100% of the Interbank Deposit Rate (“CDI”), and their use is related to the fulfillment of the contractual obligations of the debentures.
| | (ii) | Restricted funds represent bank deposits with yields of approximately 100% of the Interbank Deposit Rate (“CDI”), and their use is related to the fulfillment of the contractual obligations of the debentures. |
| 7 | Trade accounts receivableTrade accounts receivable |
The Company’s billing period is generally 30 days; therefore, the amount of the trade accounts receivable corresponds to their fair value. The Company realizes part of its trade accounts receivable through the sale of trade notes to funds and financial institutions that acquire receivables. These operations are not entitled to recourse and the risks and benefits over the receivables are substantially transferred, for which reason the trade notes are written-off at the momentderecognized. At December 31, 2019, total amount of the sale.operation was R$ 2.0 billion. | | | | | 2018 | | 2017 | | | Note | | 2019 | | 2018 | Customers | Customers | | | | | | | Customers | | | | | | | Domestic market | | Domestic market | | | | | | | | Domestic market | | | | 1,425,444 | | 1,459,623 | Third parties | | | | 1,049,412 | | 1,402,638 | | Foreign market | | | | 1,901,184 | | 2,209,094 | Related parties | | 9 | | 8,814 | | 22,806 | Expected credit loss | | (i) | (233,625) | | (350,025) | | | | | | | | | 1,058,226 | | 1,425,444 | Foreign market | | Foreign market | | | | | | | | | | Third parties | | | | 1,477,748 | | 1,901,184 | | | | | | | | 1,477,748 | | 1,901,184 | Allowance for doubtful accounts | | Allowance for doubtful accounts | | (i) | | (229,323) | | (233,625) | Total | Total | | | | 3,093,003 | | 3,318,692 | Total | | | | 2,306,651 | | 3,093,003 | | | | | | | | | | | | | | | | Current assets | Current assets | | | | 3,075,218 | | 3,281,196 | Current assets | | | | 2,285,750 | | 3,075,218 | Non-current assets | Non-current assets | | | | 17,785 | | 37,496 | Non-current assets | | | | 20,901 | | 17,785 | Total | Total | | | | 3,093,003 | | 3,318,692 | Total | | | | 2,306,651 | | 3,093,003 |
| (i) | Company’s expected credit losses are determined based on the following stages: |
(i)As disclosed in Note 2.4, the IFRS 9 replaced, as from January 1, 2018, the “incurred losses” model of IAS 39 with a prospective model of “expected credit losses,” which requires greater judgment of how the changes in economic factors affect the expected credit losses, which are determined based on the following stages:F-30
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
Stage 1 – when the securities are still performing atin this stage, expected credit losses are calculated based on the actual experience of credit loss (write-off) over the last five years, segregating customers in accordance with their Operating Risk. Stage 2 – when there is deterioration in the credit risk of the customer since the initial recognition; atin this stage, the Company considers as deterioration of credit risk any credits that were renegotiated and that must be collected in court, regardless of their maturity. F - 30
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
Stage 3 – includes financial assets that have objective evidence of impairment; the trigger for evidence of impairment is an unprecedented delay of more than 90 days. The following table shows the Company’s expected credit loss for each stage: | | | | | Estimated loss
percentage | | Trade accounts receivable | | Allowance for
doubtful accounts | | | | Estimated loss
percentage | | Trade accounts receivable | | Allowance for
doubtful accounts | | | | | | | | | | | | | | | | | | | Stage 1
(Performing) | | Operation risk 1 | | No risk | | 1,977,941 | | | | Operation risk 1 | | Minimum risk | | 1,635,553 | | | | | Operation risk 2 | | No risk | | 635,549 | | | | Operation risk 2 | | Minimum risk | | 337,044 | | | | | Operation risk 3 | | 0.27% | | 268,156 | | 752 | | Operation risk 3 | | 0.24% | | 201,126 | | 485 | | | Operation risk 4 | | 0.63% | | 199,499 | | 1,218 | | Operation risk 4 | | 0.57% | | 126,250 | | 720 | | | Operation risk 5 | | 100% | | 24 | | 24 | | Operation risk 5 | | 100% | | 1,778 | | 1,778 | | | | | | | | 3,081,169 | | 1,994 | | | | | | 2,301,751 | | 2,983 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stage 2
(Significant Increase in Loss Risk) | | 1st Renegotiation lower than 24 months | | 12% or 100% | | 10,533 | | 1,554 | | 1st Renegotiation lower than 24 months | | 24% or 100% | | 6,631 | | 1,717 | | | 2nd Renegotiation greater than 24 months | | 91% or 100% | | 2,915 | | 2,876 | | 2nd Renegotiation greater than 24 months | | 91% or 100% | | 1,558 | | 1,558 | | | Legal | | 100% | | 172,189 | | 172,189 | | Legal | | 100% | | 170,698 | | 170,698 | | | | | | | | 185,637 | | 176,619 | | | | | | 178,887 | | 173,973 | | | | | | | | | | | | | | | | | | | Stage 3
(No payment performance
- Indicative of impairment) | | | | | | | | | | | | | | | | | | | Between 90 and 180 days | | 50% or 100% | | 10,014 | | 5,204 | | Between 90 and 180 days | | 50% or 100% | | 6,126 | | 3,157 | | | Above 180 days | | 100% | | 49,808 | | 49,808 | | Above 180 days | | 100% | | 49,210 | | 49,210 | | | | | | | 59,822 | | 55,012 | | | | | | 55,336 | | 52,367 | | | | | | | | | | | | | | | | | | | Total | | | | | | 3,326,628 | | 233,625 | | | | | | 2,535,974 | | 229,323 |
The changes in the expected credit loss are presented below:
| | | | | 2018 | | 2017 | | | | | | | | | Balance of provision at the beginning of the year | | (350,025) | | (380,559) | Reversal in the year | | | 99,975 | | 18,573 | Write-offs | | | 16,425 | | 22,878 | Addition through merger of Cetrel | | | | (10,917) | Balance of provision at the end of the year | | (233,625) | | (350,025) |
F - 31F-31
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
The changes in the allowance for doubtful accounts are presented below: Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
| | 2019 | | 2018 | | | | | | Balance of provision at the beginning of the year | (233,625) | | (350,025) | Provision in the year | (59,885) | | (24,604) | Reversal in the year | 45,501 | | 124,579 | Write-offs | 18,686 | | 16,425 | Balance of provision at the end of the year | (229,323) | | (233,625) |
The breakdown of trade accounts receivable by maturity is as follows: | | | | | 2018 | | 2017 | 2019 | | 2018 | | | | | | | | | | | | Accounts receivables not past due | Accounts receivables not past due | | 2,616,104 | | 2,886,546 | 2,001,326 | | 2,616,104 | Past due securities: | Past due securities: | | | | | | | | | Up to 90 days | Up to 90 days | | | 492,265 | | 567,590 | 318,852 | | 492,265 | 91 to 180 days | 91 to 180 days | | | 10,941 | | 3,673 | 15,368 | | 10,941 | As of 180 days | As of 180 days | | | 207,318 | | 210,908 | 200,428 | | 207,318 | | | | | | 3,326,628 | | 3,668,717 | 2,535,974 | | 3,326,628 | Expected credit loss | | (233,625) | | (350,025) | | Allowance for doubtful accounts | | (229,323) | | (233,625) | Total customers portfolio | Total customers portfolio | | 3,093,003 | | 3,318,692 | 2,306,651 | | 3,093,003 |
| | | 2018 | | 2017 | 2019 | | 2018 | | | | | | | | | | Finished goods | | 5,542,220 | | 4,255,114 | 4,634,192 | | 5,542,220 | Raw materials, production inputs and packaging | | 1,578,523 | | 1,715,757 | 1,665,797 | | 1,578,523 | Maintenance materials | | 465,684 | | 365,803 | 608,693 | | 465,684 | Advances to suppliers | | 93,445 | | 275,169 | 68,382 | | 93,445 | Imports in transit | | 838,099 | | 74,670 | 664,345 | | 838,099 | Total | | 8,517,971 | | 6,686,513 | 7,641,409 | | 8,517,971 | | | | | | | | | | In current assets | | 8,486,577 | | 6,640,049 | | In non-current assets | | 31,394 | | 46,464 | | Current assets | | 7,625,084 | | 8,486,577 | Non-current assets | | 16,325 | | 31,394 | Total | | 8,517,971 | | 6,686,513 | 7,641,409 | | 8,517,971 |
Inventories of finished products are stated at average cost of purchase or production or the estimated price of sale or acquisition, excluding taxes, whichever is lower.lower The value of finished products includes raw materials, ancillary and maintenance materials used, depreciation of industrial facilities, expenses with Company’s and third-party personnel involved in industrial production and maintenance, and logistics expenses with the transfer of these products from the plants to the sale terminals. Finished goods are measured at the lower of cost and net realizable value and, when necessary, a provision is recorded. For this estimate, the Company considers the sale price, projected, reduced by all costs of sale, projected for the period during which it expects to sell the product. This period is determined based on the historical data for the turnover of the respective inventory. In 2018, the net
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
The effect of thisthe provision for inventories in 2019 and 2018 is R$13,906.shown below: | | | | 2019 | | 2018 | Additions | | | (72,672) | | (23,674) | Reversals | | | 10,636 | | 14,721 | Total | | | (62,036) | | (8,953) | | | | | | | |
F - 32
F-33
| Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
9Related parties
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| | | | Balances at December 31, 2018 | | Balances at December 31, 2017 | | | | | | | | | | | | | Associates companies, Jointly-controlled investment and Related companies | | Associates companies, Jointly-controlled investment and Related companies | | | | | | | | | | | | | Odebrecht and | | | | | | | | Odebrecht and | | | | | | | | | | | | | | | | | | | subsidiaries | | Petrobras and | | | | | | subsidiaries | | Petrobras and | | | | | | | | | | | | | Balance sheet | | and associates | | subsidiaries | | Other | | Total | | and associates | | subsidiaries | | Other | | Total | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | | | | | | | | Current | | | | | | | | | | | | | | | | | | | | | | | | | | | Trade accounts receivable | | | | 20,119 | | 2,687 | | 22,806 | | 7,634 | | 45,184 | | 60,502 | | 113,320 | | | | | | | | | | | Inventories | | 8,665 | 9(c.i) and | 30,193 | | | | 38,858 | | 250,904 | | 118 | | | | 251,022 | | | | | | | | | | | Dividends and interest on capital | | | (c.ii) | | | 890 | | 890 | | | | | | 10,859 | | 10,859 | | | | | | | | | Total assets | | 8,665 | | 50,312 | | 3,577 | | 62,554 | | 258,538 | | 45,302 | | 71,361 | | 375,201 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | Current | | | | | | | | | | | | | | | | | | | | | | | | | | | Trade payables | | 16,851 | | 160,324 | | | | 177,175 | | 21,530 | | 149,058 | | 700 | | 171,288 | | | | | | | | | | | Other payables | | 2,841 | | 484 | | | | 3,325 | | 2,338 | | 562 | | 7,591 | | 10,491 | | | | | | | | | Total liabilities | | 19,692 | | 160,808 | | | | 180,500 | | 23,868 | | 149,620 | | 8,291 | | 181,779 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Twelve-month period ended December 31, 2018 | | Twelve-month period ended December 31, 2017 | | Twelve-month period ended December 31, 2016 | | | | | Associates companies, Jointly-controlled investment and Related companies | | Associates companies, Jointly-controlled investment and Related companies | | Associates companies, Jointly-controlled investment and Related companies | | | | | Odebrecht and | | | | | | | | Odebrecht and | | | | | | | | Odebrecht and | | | | | | | | | | | subsidiaries | | Petrobras and | | | | | | subsidiaries | | Petrobras and | | | | | | subsidiaries | | Petrobras and | | | | | | | | | and associates | | subsidiaries | | Other | | Total | | and associates | | subsidiaries | | Other | | Total | | and associates | | subsidiaries | | Other | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | Transactions | | | | | | | | | | | | | | | | | | | | | | | | | | | Sales of products | | | | 1,225,443 | | 736,192 | | 1,961,635 | | 27,467 | | 1,810,789 | | 629,302 | | 2,467,558 | | 49,051 | | 2,023,815 | | 562,709 | | 2,635,575 | | | Purchases of raw materials, finished goods | | | | | | | | | | | | | | | | | | | | | | | | | | | services and utilities | | 460,480 | | 15,540,144 | | 3,800 | | 16,004,424 | | 742,161 | | 12,795,819 | | 5,664 | | 13,543,644 | | 1,564,103 | | 12,291,190 | | 56,170 | | 13,911,463 | | | Financial income (expenses) | | | | (49) | | | | (49) | | 2,056 | | (39,433) | | | | (37,377) | | (21) | | 6,452 | | | | 6,431 | | | Other income | | 4,214 | | | | | | 4,214 | | | | | | | | | | | | | | | | | | | General and administrative expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | Post-employment benefits plan ("EPE") | | | | | | | | | | | | | | | | | | | | | | | | | | | Odebrecht Previdência Privada ("Odeprev") | | | | | | 48,514 | | | | | | | | 36,725 | | 36,725 | | | | | | 41,845 | | 41,845 | | | Acquisiton of subsidiary | | | | | | | | | | 610,000 | | | | | | 610,000 | | | | | | | | |
| | | | Balances at December 31, 2019 | | Balances at December 31, 2018 | | | | | | | | | | | | | Associates companies, Jointly-controlled investment and Related companies | | Associates companies, Jointly-controlled investment and Related companies | | | | | | | | | | | | | Odebrecht and | | | | | | | | Odebrecht and | | | | | | | | | | | | | | | | | | | subsidiaries | | Petrobras and | | | | | | subsidiaries | | Petrobras and | | | | | | | | | | | | | Balance sheet | | and associates | | subsidiaries | | Other | | Total | | and associates | | subsidiaries | | Other | | Total | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | | | | | | | | Current | | | | | | | | | | | | | | | | | | | | | | | | | | | Trade accounts receivable | | | | 4,257 | | 4,557 | | 8,814 | | | | 20,119 | | 2,687 | | 22,806 | | | | | | | | | | | Inventories | | | | 17,242 | | | | 17,242 | | 8,665 | | 30,193 | | | | 38,858 | | | | | | | | | | | Dividends and interest on capital | | | | | | 3,074 | | 3,074 | | | | | | 890 | | 890 | | | | | | | | | Total assets | | | | 21,499 | | 7,631 | | 29,130 | | 8,665 | | 50,312 | | 3,577 | | 62,554 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | Current | | | | | | | | | | | | | | | | | | | | | | | | | | | Trade payables | | 12,402 | | 133,759 | | 9,819 | | 155,980 | | 16,851 | | 160,324 | | | | 177,175 | | | | | | | | | | | Payable notes | | 58 | | | | | | 58 | | | | | | | | | | | | | | | | | | | Other payables | | | | 1,420 | | 136 | | 1,556 | | 2,841 | | 484 | | | | 3,325 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-current | | | | | | | | | | | | | | | | | | | | | | | | | | | Loan to non-controlling shareholders of Braskem Idesa | | | | | | 2,395,887 | | 2,395,887 | | | | | | 2,183,830 | | 2,183,830 | | | | | | | | | Total liabilities | | 12,460 | | 135,179 | | 2,405,842 | | 2,553,481 | | 19,692 | | 160,808 | | 2,183,830 | | 2,364,330 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Twelve-month period ended December 31, 2019 | | Twelve-month period ended December 31, 2018 | | Twelve-month period ended December 31, 2017 | | | | | Associates companies, Jointly-controlled investment and Related companies | | Associates companies, Jointly-controlled investment and Related companies | | Associates companies, Jointly-controlled investment and Related companies | | | | | Odebrecht and | | | | | | | | Odebrecht and | | | | | | | | Odebrecht and | | | | | | | | | | | subsidiaries | | Petrobras and | | | | | | subsidiaries | | Petrobras and | | | | | | subsidiaries | | Petrobras and | | | | | | | | | and associates | | subsidiaries | | Other | | Total | | and associates | | subsidiaries | | Other | | Total | | and associates | | subsidiaries | | Other | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | Transactions | | | | | | | | | | | | | | | | | | | | | | | | | | | Sales of products | | | | 665,417 | | 588,785 | | 1,254,202 | | | | 1,225,443 | | 736,192 | | 1,961,635 | | 27,467 | | 1,810,789 | | 629,302 | | 2,467,558 | | | Purchases of raw materials, finished goods | | | | | | | | | | | | | | | | | | | | | | | | | | | services and utilities | | 293,501 | | 12,584,453 | | 10,738 | | 12,888,692 | | 460,480 | | 15,540,144 | | 3,800 | | 16,004,424 | | 742,161 | | 12,795,819 | | 5,664 | | 13,543,644 | | | Financial income (expenses), net | | (96) | | (5) | | (10,967) | | (11,068) | | | | (49) | | (106,516) | | (106,565) | | 2,056 | | (39,433) | | | | (37,377) | | | Other income (expenses) | | (34,873) | | | | | | (34,873) | | 4,214 | | | | | | 4,214 | | | | | | | | | | | General and administrative expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | Post-employment benefits plan ("EPE") | | | | | | | | | | | | | | | | | | | | | | | | | | | Private pension ("Vexty", new name of Odeprev) | | | | | | 49,867 | | 49,867 | | | | | | 48,514 | | 48,514 | | | | | | 36,725 | | 36,725 | | | Acquisiton of subsidiary | | | | | | | | | | | | | | | | | | 610,000 | | | | | | 610,000 |
F - 33F-34
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (a) | New and/or renewed agreements with related companiesNew and/or renewed agreements with related companies |
As provided for in the Company’s bylaws, the Board of Directors has the exclusive power to decide on any contract with related parties that exceed R$20,000 per operationtransaction or R$60,000 altogethercollectively per fiscal year. This is valid for contracts between Braskem and its subsidiaries and: (i) direct or indirect subsidiaries of Braskem in whose capital an interest is held by the controlling shareholder, by any direct or indirect subsidiaries thereof or by Key Personnel of such entities; (ii) affiliatesassociates of Braskem and subsidiaries of such entities; and (iii) joint ventures in which Braskem participates and any subsidiaries thereof. Pursuant to Federal Law 6,404/76, officers and directors are prohibited from:(i) performing any acts of liberality with the use of the Company’s assets and in its detriment; (ii) intervening in any operations in which these officers and directors have a conflict of interest with the Company or in resolutions in which they participate; and (iii) receiving, based on their position, any type of personal advantage from third parties, directly or indirectly, without an authorization under the Bylaws or by the shareholders’ meeting. As part of its control to identify related parties, Key Personnel annually inform whether they, or their close relatives, hold full or shared control of any company. All companies that conducted transactions with Braskem and its subsidiaries are provided in this Note. The related parties that have significant relationship with the Company are as follows: Odebrecht and its direct and indirect subsidiaries: | · | Atvos Agroindustrial S.A. (“Atvos”) | | · | Agro Energia Santa Luzia S.A. (“USL”) | | · | Odebrecht Engenharia & Construção S.A. (“OEC”). | | · | Usina Conquista do Pontal S.A. (“UCP”) |
·Atvos Agroindustrial S.A. (“Atvos”).
·Agro Energia Snata Luzia S.A. (“USL”).
·Construtora Norberto Odebrecht S.A. (“CNO”).
·Usina Conquista do Pontal S.A. (“UCP”).
Petrobras and its direct and indirect subsidiaries: | · | ·Petróleo Brasileiro S.A. (“Petrobras”).
·Petrobras Distribuidora (“BR Distribuidora”).
| | · | Petrobras Distribuidora (“BR Distribuidora”). |
Joint ventures of Braskem: ·Refinaria de Petróleo Riograndense S.A. | · | Refinaria de Petróleo Riograndense S.A (“RPR”). |
Associate of Braskem: ·Borealis Brasil S.A. | · | Borealis Brasil S.A (“Borealis”). |
TheNon-controlling shareholders of Braskem Idesa:
| · | Etileno XXI, S.A. de CV. | | · | Grupo Idesa, S.A. de CV. |
During 2019 and 2018, the main transactions between the Company and related parties in the fiscal years ended December 31, 2018 and December 31, 2017, all conducted under normal market terms and conditions, (arm’s length basis), are as follows: | · | ·Odebrecht and its subsidiaries:
|
(i)In March 2017, the Company entered into an agreement for supply of hydrous ethanol with UCP and USL. Ethanol is the feedstock consumed by Braskem to produce green ethylene. The agreement is guaranteed by Atvos and Rio Claro Agroindustrial S.A.. The agreement also provides for a commercial discount and other flexibilities in the process of Braskem’s acquisition of the product.
| | (i) | In May 2018, Braskem entered into an agreement for caustic soda movement and storage services with Liquiport Vila Velha S.A., a wholly owned subsidiary of Odebrecht Transport S.A. The agreement has an estimated maximum value of R$93,000 and is valid for 10 years. In August 2019, the companyOdebrecht Transport S.A. sold Liquiport to the company Terminal Portuário de Espírito Santo. The payments made during the year to the date of sale amounted to R$5,633 (R$5,844 in 2018). |
F - 34F-35
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| | (ii) | In January 2019, the Company signed an amendment to the agreement entered into in December 2017 with Agro Energia Santa Luzia S.A. - USL, Usina Conquista do Pontal S. A. - UCP, Atvos Agroindustrial S. A. and Brenco Companhia Brasileira de Energia Renovável, for the purchase of feedstock for future delivery between January and March 2019. This amendment involved an advance of R$100,413, which, on December 31, 2019, did not record any balance. |
In December 2017, the Company entered into an amendment that changed the billing for raw material acquisitions to future delivery, so as to bring forward the billing of the volume of the goods to be delivered between January and March 2018. The amendment determines that the price practiced at time of delivery is the lesser of the ceiling established in the amendment and the reference established in the original contract.
| · | Petrobras and its subsidiaries: |
The agreement was valid until April 30, 2018.
| | (i) | Since December 2015, the Company has maintained an agreement with Petrobras for the annual supply of up to 7 million tons of petrochemical naphtha, which has a duration of five years. | | | | | | | (ii) | Since December 2000, Braskem has maintained feedstock supply agreements for ethane and propane with Petrobras. These agreements have different expiration dates, between May 2021 and April 2028, with prices based on international references to ensure the competitiveness of the feedstock. If renewed, the same terms and conditions currently in force will be maintained. | | | | | | | (iii) | Braskem maintains agreements for the sale of gasoline to Petrobras Distribuidora S.A., which is renewed on a monthly basis. Sales in 2019 amounted to R$1,011,839 (R$1,122,417 in 2018). | | | | | | | (iv) | In July 2019, Braskem entered into a natural gas purchase agreement with CDGN LOGÍSTICA S.A., whose effective term is five years and maximum value is estimated at R$210,000. | | | | | | | (v) | In December 2019, an amendment to the natural gas purchase agreement was signed with Companhia de Gás da Bahia (“Bahiagás”). The term of the agreement is from January to December 2020 and the amended agreement amount is R$820,000. |
| | (i) | In 2019, sales of gasoil to RPR amounted to R$37,873. The product is used as feedstock in the diesel production process (R$127,342 in 2018). | | | | | | | (ii) | Sales of gasoline to RPR ae negotiated monthly. In 2019, these sales amounted to R$257,295(R$440,801 in 2018). |
| · | Non-controlling shareholders of Braskem Idesa | | | | | | Loan payable, maturing December 2029 and 7% p.a., to the non-controlling shareholder. These proceeds were used by Braskem Idesa to fund its construction project. |
(ii)In December 2017, an agreement was entered into with USL, UCP, Atvos and Brenco Companhia Brasileira de Energia Renovável, with the purpose of ensuring the supply of hydrous ethanol volumes, which included a commercial discount on the supply and established contractual flexibilities for acquisition. The contract includes an advance of R$200,000, which is guaranteed by a pledge of the sugarcane crop, its products and sub-products at a net market value greater than the amount of the advance, with the pledged asset insured by a policy contracted from a premium insurer and with a provision for subrogation to the Company, with duration through April 30, 2019. The balance of the advance on December 31, 2018 is R$8,665.
(iii)In December 2017, the Company signed an industrial maintenance services agreement with CNO that encompassed boilers and the welding of tubing and static equipment, as well as operational and maintenance services on cargo machinery to be performed at the Braskem Units located in Rio Grande do Sul. The agreement has an estimated maximum amount of R$120,000 and is valid through December 1, 2021. In 2018, the transactions amounted to R$19,054.
(iv)In May 2018, Braskem entered into an agreement for caustic soda movement and storage services with Liquiport Vila Velha S.A., a wholly owned subsidiary of Odebrecht Transport S.A. The agreement has an estimated maximum value of R$93,000 and is valid for 10 years. Sales in the period amounted to R$5,844.
·Petrobras and its subsidiaries:
(i)Since December 2015, the Company has maintained an agreement with Petrobras for the annual supply of 7 million tons of petrochemical naphtha, which has a duration of five years.
(ii)Braskem maintains agreements for the sale of gasoline to BR Distribuidora, which is renewed on a monthly basis.
·Braskem joint venture:
(i)In 2018, sales of gasoil to RPR amounted to R$127,342. The product is used as feedstock in the diesel production process.
(ii)Braskem has maintained monthly negotiations for the sale of gasoline to RPR. Sales in fiscal year 2018 amounted to R$313,460.
F - 35F-36
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (b) | Key management personnelKey management personnel |
Income statement transactions | | 2018 | | 2017 | | 2016 | Remuneration | | | | | | | Short-term benefits | | 60,922 | | 60,303 | | 44,277 | Post-employment benefit | | 989 | | 664 | | 515 | Long term incentive plan | | 4,404 | | | | | Total | | 66,315 | | 60,967 | | 44,792 |
Statement of profit or loss transactions | | 2019 | | 2018 | | 2017 | Remuneration | | | | | | | Short-term benefits | | 70,366 | | 60,922 | | 60,303 | Post-employment benefit | | 1,104 | | 989 | | 664 | Long term incentive plan | | 14,724 | | 4,404 | | | Total | | 86,194 | | 66,315 | | 60,967 |
10Taxes recoverable
| | | | | | 2018 | | 2017 | | | | 2019 | | 2018 | | | | | | | | | | | | | | | | Parent Company and subsidiaries in Brazil | Parent Company and subsidiaries in Brazil | | | | | | Parent Company and subsidiaries in Brazil | | | | | | | | IPI | | | | 9,050 | | 18,226 | IPI | | | 477 | | 9,050 | | | Value-added tax on sales and services (ICMS) - normal operations | (a) | | 427,331 | | 483,248 | Value-added tax on sales and services (ICMS) - normal operations | (a) | | 255,945 | | 427,331 | | | ICMS - credits from PP&E | | | 170,998 | | 140,904 | ICMS - credits from PP&E | | | 166,824 | | 170,998 | | | Social integration program (PIS) and social contribution on revenue (COFINS) - normal operations | | | 482 | | 22,389 | Social integration program (PIS) and social contribution on revenue
(COFINS) - normal operations | | | 45,604 | | 482 | | | PIS and COFINS - credits from PP&E | | | 255,739 | | 223,297 | PIS and COFINS - credits from PP&E | | | 316,973 | | 255,739 | | | IR e CSL | | | | 553,740 | | 691,697 | REINTEGRA program | (b) | | 19,848 | | 20,615 | | | REINTEGRA program | (b) | | 20,615 | | 102,166 | Federal tax credits | (c) | | 2,459,293 | | 688,111 | | | Federal supervenience | (c) | | 688,111 | | 140,537 | Other | | | 5,434 | | 2,852 | | | Other | | | | 2,852 | | 4,322 | | | | | | | | | | | | | | | | | Foreign subsidiaries | Foreign subsidiaries | | | | | | Foreign subsidiaries | | | | | | | | Value-added tax ("IVA") | | | 173,051 | | 92,119 | | | | IR | | | | 111,948 | | 46,939 | Value-added tax ("IVA") | | | 217,630 | | 173,051 | | | Other | | | | 7,750 | | 4,021 | Other | | | 7,701 | | 7,750 | Total | Total | | | | 2,421,667 | | 1,969,865 | Total | | | 3,495,729 | | 1,755,979 | | | | | | | | | | | | | | | | Current assets | Current assets | | | | 847,088 | | 982,629 | Current assets | | | 1,238,011 | | 423,188 | Non-current assets | Non-current assets | | | 1,574,579 | | 987,236 | Non-current assets | | | 2,257,718 | | 1,332,791 | Total | Total | | | | 2,421,667 | | 1,969,865 | Total | | | 3,495,729 | | 1,755,979 |
| (a) | ICMS – normal operationsICMS – normal operations |
Accumulated ICMS credits over the past few years arises mainly from domestic sales subject to deferred taxation and export sales. The Management of the Company has been prioritizing a series of actions to maximize the use of these credits and currently does not expect losses on the realization of cumulative balances. F - 36
Braskem S.A.| (b) | REINTEGRA Program
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
(b)REINTEGRA Program
|
The REINTEGRA program aims to refund to exporters the federal taxes levied on the production chain for goods sold abroad. The amount to be refunded is equivalent to the following percentages of all export revenue, in accordance with Federal Law 13,043/14 and Executive Order 8,543/15: | (i) | 3%, between October 1, 2014 and February 28, 2015; | | (ii) | 1%, between March 1, 2015 and November 30, 2015; | | (iii) | 0.1% between December 1, 2015 and December 31, 2016; | | (iv) | 2% between January 1, 2017 and May 31, 2018; and | | (v) | (i) 3%, between October 1, 2014 and February 28, 2016;
(ii) 1%, between March 1, 2016 and November 30, 2016;
(iii) 0.1% between December 1, 2016 and December 31, 2016;
(iv) 2% between January 1, 2017 and May 31, 2018; and
(v) 0.1% as of June 1, 2018.
|
F-37
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
Such credits may be realized in two ways: (i) by offsetting own debits overdue or undue related to taxes levied by the Federal Revenue Service; or (ii) by a cash reimbursement. InAt the fiscal year ended December 31, 2018,2019, the Company recognizedrecorded credits in the amount of R$9,157 (R$69,055 (R$178,716 in 2017)2018) and offset the amount of R$9,532 (R$144,957 (R$138,531 in 2017)2018). In the Statement of profit or loss,Operations, credits were recognized in the item “Cost of products sold.Products Sold.”
| (c) | Recovery of Federal Tax Credits |
(c)Recovery of Federal Tax Credits
In March 2017,The main tax credit refers to the Federal Supreme Court (STF) decided, in connection with the Extraordinary Appeal indicated by STF itself as the leading caseexclusion of this discussion, that ICMS tax should not be included infrom the calculation basePIS/COFINS tax base. During 2019, a lawsuit of PIS/COFINS. DespiteBraskem S.A. and lawsuits of acquired companies were certified as final and unappealable, the filingoldest period retroactive to 1991. The effects of a motion for clarificationthese decisions were assessed by the Federal Government requesting the prospective effectsCompany and, during 2019, a total of the decision, the STF itself and all Regional Federal Appellate Courts in Brazil have applied the decision of the lead case indiscriminately. On December 31, 2018, the Extraordinary Appeal of the Federal Government, filed in a lawsuit brought by Braskem S/A itself,R$2,048,782 was ruled moot, therefore increasing the legal certainty of the Company for recognizing its right. In this scenario, Braskem recognized as of December 31, 2018, a tax credit in the amount of R$519,830 related to PIS and COFINS for the period from March 2017 to November 2018,taxes, of which R$265,4381,904,206 was recorded under “Net revenue,”, R$235,919 under “Other operating income (expenses)” and R$18,473207,582 under “Financial income.”
The balance on December 31, 2019 is R$2,350,817 (current assets of R$783,199 and non current assets of R$1,567,618). F - 37The Company has lawsuits related to other acquired companies discussing the same tax matter, for which there was no final judgment yet. The oldest period of these lawsuits retroactive to February 1999, the calculations to estimate the tax credit have not been finalized.
| (a) | Information on investments |
| | | | Interest in total and | | Net profit (loss) | | | | | | | voting capital (%) | | for the year | | Equity | | | | | Direct and indirect | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | | | | | | | | | | | | | | | Jointly-controlled investment | | | | | | | | | | | | | | | RPR | (i) | 33.20 | | 29,687 | | 6,358 | | 106,109 | | 93,025 | | 99,672 | | | Odebrecht Comercializadora de Energia S.A. ("OCE") | (ii) | | | | | (48) | | (543) | | | | | | | | | | | | | | | | | | | | Associate | | | | | | | | | | | | | | | Borealis | (iii) | 20.00 | | 17,622 | | (2,900) | | 17,752 | | 164,086 | | 163,884 |
| (i) | RPR – its main activities are the refine, processing and sale and import of oil, its byproducts and correlated products. | | (ii) | Terminated in June 2018. | | (iii) | Borealis – its main activities are the production and commercialization of petrochemical byproducts and correlated products. |
| (b) | Changes in investments |
| | | | Dividends | | | | Equity | | | | | | | Balance at | | and interest | | Equity in results | | valuation | | | | Balance at | | | 2018 | | on equity | | of investees | | adjustments | | Other | | 2019 | Domestic associate | | | | | | | | | | | | Borealis | 32,776 | | (3,002) | | 3,042 | | | | | | 32,816 | RPR | 33,094 |
| (4,295) |
| 9,857 |
| (7,769) |
| | | 30,887 | Other | 84 |
| - |
| |
| |
| 56 | | 140 | | | 65,954 | | (7,297) | | 12,899 | | (7,769) | | 56 | | 63,843 |
F-38
| Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
11Investments
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
(a)Information on investments
| | | | | | | Interest in total and | | Net profit (loss) | | | | | | | | | | voting capital (%) - 2018 | | for the year | | Equity | | | | | | | | Direct and indirect | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | | | | | | | | | | | | | | | | | | Jointly-controlled investment | | | | | | | | | | | | | | | | | RPR | | | | | 33.20 | | 6,358 | | 106,109 | | 86,682 | | 99,672 | | 201,038 | | | Odebrecht Comercializadora de Energia S.A. ("OCE") | (i) | | | (48) | | (543) | | (5,720) | | | | 5,178 | | | | | | | | | | | | | | | | | | | Associates | | | | | | | | | | | | | | | | | Borealis | | | | 20.00 | | (2,900) | | 17,752 | | 10,538 | | 163,884 | | 166,630 |
(i)Terminated in June, 2018.
(b)Changes in investments
| | | | | | Equity in results | | | | | | | | | | | Dividends | | of investees | | | | Equity | | | | | Balance at | | and interest | | Effect | | Goodwill | | valuation | | Balance at | | | 2017 | | on equity | | of results | | amortization | | adjustments | | 2018 | Domestic associate | | | | | | | | | | | | Borealis | 33,325 | | | | (549) | | | | | | 32,776 | OCE | 1,036 | | | | (9) | | (1,027) | | | | | RPR | 66,752 | | (32,060) | | 2,106 | | | | (3,704) | | 33,094 | Other | 145 | | | | | | (61) | | | | 84 | | | 101,258 | | (32,060) | | 1,548 | | (1,088) | | (3,704) | | 65,954 |
F - 38
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
(c)Impact on the consolidation of Braskem Idesa
| (c) | Impact on the consolidation of Braskem Idesa |
In compliance with IFRS 12, the Company is presenting the financial informationstatements of the subsidiary in which there is interest held bythe non-controlling shareholder withholds interest, and the material effects inon the Company’s consolidated statements. Balance sheet | | Consolidated Braskem | | | | | | | | | | without the effect of
Braskem Idesa consolidated | | Braskem Idesa consolidated (i) | | Eliminations | | Consolidated | | | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | Assets | | | | | | | | | | | | | | | | | Curent | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | 5,786,645 | | 4,584,280 | | 1,017,235 | | 963,357 | | | | | | 6,803,880 | | 5,547,637 | | Financial investments | | 1,687,504 | | 2,357,613 | | | | | | | | | | 1,687,504 | | 2,357,613 | | Trade accounts receivable | | 1,973,414 | | 2,574,791 | | 331,838 | | 627,879 | | (19,502) | | (127,452) | | 2,285,750 | | 3,075,218 | | Inventories | | 7,028,641 | | 7,907,429 | | 596,443 | | 579,148 | | | | | | 7,625,084 | | 8,486,577 | | Taxes recoverable | | 1,084,055 | | 313,499 | | 153,956 | | 109,689 | | | | | | 1,238,011 | | 423,188 | | Income tax and social contribution | | 439,933 | | 423,900 | | | | | | | | | | 439,933 | | 423,900 | | Derivatives | | 4,712 | | 6,714 | | | | 21,000 | | | | | | 4,712 | | 27,714 | | Judicial deposits | | 2,571,683 | | | | | | | | | | | | 2,571,683 | | | | Other receivables | | 393,593 | | 372,846 | | 339,404 | | 319,122 | | | | | | 732,997 | | 691,968 | | | | | | | | | | | | | | | | | | | | | | 20,970,180 | | 18,541,072 | | 2,438,876 | | 2,620,195 | | (19,502) | | (127,452) | | 23,389,554 | | 21,033,815 | | | | | | | | | | | | | | | | | | | Non-current | | | | | | | | | | | | | | | | | | Taxes recoverable | | 2,257,652 | | 1,332,730 | | 66 | | 61 | | | | | | 2,257,718 | | 1,332,791 | | Income tax and social contribution | | 239,847 | | 241,788 | | | | | | | | | | 239,847 | | 241,788 | | Deferred tax | | 1,713,837 | | 114,000 | | 948,759 | | 990,158 | | | | | | 2,662,596 | | 1,104,158 | | Related parties | | 6,729,486 | | 6,137,206 | | | | | (ii) | (6,729,486) | | (6,137,206) | | | | | | Derivatives | | 17,877 | | | | | | 46,664 | | | | | | 17,877 | | 46,664 | | Judicial deposits | | 1,508,880 | | 169,536 | | | | | | | | | | 1,508,880 | | 169,536 | | Other receivables | | 369,137 | | 377,356 | | 505 | | 553 | | | | | | 369,642 | | 377,909 | | Property, plant and equipment | | 20,488,870 | | 20,102,981 | | 12,537,615 | | 12,365,063 | (iii) | (711,304) | | (708,154) | | 32,315,181 | | 31,759,890 | | Intangible | | 2,568,347 | | 2,562,722 | | 193,741 | | 178,260 | | | | | | 2,762,088 | | 2,740,982 | | Right of use of assets | | 2,309,506 | | | | 296,148 | | | | | | | | 2,605,654 | | | | | | | | | | | | | | | | | | | | | | | | 38,203,439 | | 31,038,319 | | 13,976,834 | | 13,580,759 | | (7,440,790) | | (6,845,360) | | 44,739,483 | | 37,773,718 | | | | | | | | | | | | | | | | | | | Total assets | | 59,173,619 | | 49,579,391 | | 16,415,710 | | 16,200,954 | | (7,460,292) | | (6,972,812) | | 68,129,037 | | 58,807,533 | | | | | | | | | | | | | | | | | | | Liabilities and shareholders' equity | | | | | | | | | | | | | | | | | Current | | | | | | | | | | | | | | | | | | Trade payables | | 8,903,168 | | 8,099,755 | | 233,323 | | 368,949 | | (19,502) | | (127,452) | | 9,116,989 | | 8,341,252 | | Borrowings | | 774,924 | | 737,436 | | | | | | | | | | 774,924 | | 737,436 | | Debentures | | 46,666 | | 27,732 | | | | | | | | | | 46,666 | | 27,732 | | Braskem Idesa Borrowings | | | | | | 744,408 | | 10,504,592 | | | | | | 744,408 | | 10,504,592 | | Payroll and related charges | | 598,147 | | 617,079 | | 25,576 | | 28,317 | | | | | | 623,723 | | 645,396 | | Taxes payable | | 306,453 | | 419,204 | | 16,433 | | 12,801 | | | | | | 322,886 | | 432,005 | | Income tax and social contribution | | 34,856 | | 69,268 | | | | | | | | | | 34,856 | | 69,268 | | Lease | | 619,217 | | 9,767 | | 57,074 | | | | | | | | 676,291 | | 9,767 | | Provision - geological event in Alagoas | | 1,450,476 | | | | | | | | | | | | 1,450,476 | | | | Other financial liabilities | | 516,933 | | | | | | | | | | | | 516,933 | | | | Other payables | | 1,798,865 | | 1,922,781 | | 109,143 | | 75,849 | | | | | | 1,908,008 | | 1,998,630 | | | | | | | | | | | | | | | | | | | | | | 15,049,705 | | 11,903,022 | | 1,185,957 | | 10,990,508 | | (19,502) | | (127,452) | | 16,216,160 | | 22,766,078 | | | | | | | | | | | | | | | | | | | Non-current | | | | | | | | | | | | | | | | | | Loan agreements | | 28,242,052 | | 24,160,720 | | | | | | | | | | 28,242,052 | | 24,160,720 | | Braskem Idesa Borrowings | | | | | | 9,237,318 | | | | | | | | 9,237,318 | | | | Debentures | | 227,901 | | 266,777 | | | | | | | | | | 227,901 | | 266,777 | | Accounts payable to related parties | | | | | | 6,714,236 | | 6,147,768 | (ii) | (6,714,236) | | (6,147,768) | | | | | | Loan to non-controlling shareholders of Braskem Idesa | | | | | (v) | 2,395,887 | | 2,183,830 | | | | | | 2,395,887 | | 2,183,830 | | Deferred income tax and social contribution | | 273,036 | | 381,582 | | | | | | | | | | 273,036 | | 381,582 | | Provision for losses on subsidiaries | | 3,082,173 | | 2,871,819 | | | | | (iv) | (3,082,173) | | (2,871,819) | | | | | | Lease | | 1,767,314 | | 90,790 | | 233,291 | | | | | | | | 2,000,605 | | 90,790 | | Provision - geological event in Alagoas | | 1,932,591 | | | | | | | | | | | | 1,932,591 | | | | Other payables | | 3,625,695 | | 3,292,738 | | 33,086 | | 10,348 | | | | | | 3,658,781 | | 3,303,086 | | | | | | | | | | | | | | | | | | | | | | 39,150,762 | | 31,064,426 | | 18,613,818 | | 8,341,946 | | (9,796,409) | | (9,019,587) | | 47,968,171 | | 30,386,785 | | | | | | | | | | | | | | | | | | | Shareholders' equity | | | | | | | | | | | | | | | | | | Attributable to the Company's shareholders | | 4,886,089 | | 6,531,070 | | (3,384,065) | | (3,131,500) | | 3,383,274 | | 3,131,500 | | 4,885,298 | | 6,531,070 | | Non-controlling interest in subsidiaries | | 87,063 | | 80,873 | | | | | | (1,027,655) | | (957,273) | | (940,592) | | (876,400) | | | | | | | | | | | | | | | | | | | | | | 4,973,152 | | 6,611,943 | | (3,384,065) | | (3,131,500) | | 2,355,619 | | 2,174,227 | | 3,944,706 | | 5,654,670 | | | | | | | | | | | | | | | | | | | Total liabilities and shareholders' equity | | 59,173,619 | | 49,579,391 | | 16,415,710 | | 16,200,954 | | (7,460,292) | | (6,972,812) | | 68,129,037 | | 58,807,533 |
Balance sheet | | Consolidated Braskem | | | | | | | | | | | without the effect of
Braskem Idesa consolidated | | Braskem Idesa consolidated (i) | | Eliminations | | Consolidated | | | | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 | Assets | | | | | | | | | | | | | | | | | Curent | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | 4,584,280 | | 3,480,407 | | 963,357 | | 294,686 | | | | | | 5,547,637 | | 3,775,093 | | | Financial investments | | 2,357,613 | | 2,302,672 | | | | | | | | | | 2,357,613 | | 2,302,672 | | | Trade accounts receivable | | 2,574,791 | | 2,809,034 | | 627,879 | | 620,531 | | (127,452) | | (148,369) | | 3,075,218 | | 3,281,196 | | | Inventories | | 7,907,429 | | 6,293,324 | | 579,148 | | 346,725 | | | | | | 8,486,577 | | 6,640,049 | | | Taxes recoverable | | 737,399 | | 919,600 | | 109,689 | | 63,029 | | | | | | 847,088 | | 982,629 | | | Other receivables | | 379,560 | | 392,750 | | 340,122 | | 44,630 | | | | | | 719,682 | | 437,380 | | | | | | | | | | | | | | | | | | | | | | | | 18,541,072 | | 16,197,787 | | 2,620,195 | | 1,369,601 | | (127,452) | | (148,369) | | 21,033,815 | | 17,419,019 | | | | | | | | | | | | | | | | | | | | Non-current | | | | | | | | | (ii) | | | | | | | | | | Taxes recoverable | | 1,574,518 | | 987,184 | | 61 | | 52 | | | | | | 1,574,579 | | 987,236 | | | Deferred tax | | 114,000 | | 129,469 | | 990,158 | | 1,036,257 | | | | | | 1,104,158 | | 1,165,726 | | | Related parties | | 6,137,206 | | 5,051,706 | | | | | (ii) | (6,137,206) | | (5,051,706) | | | | | | | Other receivables | | 546,892 | | 637,549 | | 47,217 | | 33,207 | | | | | | 594,109 | | 670,756 | | | Property, plant and equipment | | 20,102,981 | | 19,180,263 | | 12,365,063 | | 11,228,346 | (iii) | (708,154) | | (646,999) | | 31,759,890 | | 29,761,610 | | | Intangible | | 2,562,722 | | 2,575,567 | | 178,260 | | 151,930 | | | | | | 2,740,982 | | 2,727,497 | | | | | | | | | | | | | | | | | | | | | | | | 31,038,319 | | 28,561,738 | | 13,580,759 | | 12,449,792 | | (6,845,360) | | (5,698,705) | | 37,773,718 | | 35,312,825 | | | | | | | | | | | | | | | | | | | | Total assets | | 49,579,391 | | 44,759,525 | | 16,200,954 | | 13,819,393 | | (6,972,812) | | (5,847,074) | | 58,807,533 | | 52,731,844 | | | | | | | | | | | | | | | | | | | | Liabilities and shareholders' equity | | | | | | | | | | | | | | | | | Current | | | | | | | | | | | | | | | | | | | Trade payables | | 8,099,755 | | 5,047,293 | | 368,949 | | 159,872 | | (127,452) | | (148,369) | | 8,341,252 | | 5,058,796 | | | Borrowings | | 737,436 | | 1,184,781 | | | | | | | | | | 737,436 | | 1,184,781 | | | Debentures | | 27,732 | | 27,183 | | | | | | | | | | 27,732 | | 27,183 | | | Braskem Idesa Borrowings | | | | | | 10,504,592 | | 9,691,450 | | | | | | 10,504,592 | | 9,691,450 | | | Payroll and related charges | | 617,079 | | 609,883 | | 28,317 | | 20,634 | | | | | | 645,396 | | 630,517 | | | Taxes payable | | 488,472 | | 881,702 | | 12,801 | | 13,067 | | | | | | 501,273 | | 894,769 | | | Other payables | | 1,932,548 | | 1,019,346 | | 75,849 | | 57,581 | | | | | | 2,008,397 | | 1,076,927 | | | | | | | | | | | | | | | | | | | | | | | | 11,903,022 | | 8,770,188 | | 10,990,508 | | 9,942,604 | | (127,452) | | (148,369) | | 22,766,078 | | 18,564,423 | | | | | | | | | | | | | | | | | | | | Non-current | | | | | | | | | | | | | | | | | | | Loan agreements | | 24,160,720 | | 22,176,640 | | | | | | | | | | 24,160,720 | | 22,176,640 | | | Braskem Idesa Borrowings | | 266,777 | | 286,141 | | | | | | | | | | 266,777 | | 286,141 | | | Accounts payable to related parties | | | | | | 6,147,768 | | 5,065,971 | (ii) | (6,147,768) | | (5,065,971) | | | | | | | Loan to non-controlling shareholders of Braskem Idesa | | | | | (v) | 2,183,830 | | 1,756,600 | | | | | | 2,183,830 | | 1,756,600 | | | Provision for losses on subsidiaries | | 2,871,819 | | 2,689,769 | | | | | (iv) | (2,871,819) | | (2,689,769) | | | | | | | Other payables | | 3,765,110 | | 4,467,398 | | 10,348 | | 7,842 | | | | | | 3,775,458 | | 4,475,240 | | | | | | | | | | | | | | | | | | | | | | | | 31,064,426 | | 29,619,948 | | 8,341,946 | | 6,830,413 | | (9,019,587) | | (7,755,740) | | 30,386,785 | | 28,694,621 | | | | | | | | | | | | | | | | | | | | Shareholders' equity | | | | | | | | | | | | | | | | | | | Attributable to the Company's shareholders | | 6,531,070 | | 6,300,300 | | (3,131,500) | | (2,953,624) | | 3,131,500 | | 2,953,625 | | 6,531,070 | | 6,300,301 | | | Non-controlling interest om subsidiaries | | 80,873 | | 69,089 | | | | | | (957,273) | | (896,590) | | (876,400) | | (827,501) | | | | | | | | | | | | | | | | | | | | | | | | 6,611,943 | | 6,369,389 | | (3,131,500) | | (2,953,624) | | 2,174,227 | | 2,057,035 | | 5,654,670 | | 5,472,800 | | | | | | | | | | | | | | | | | | | | Total liabilities and shareholders' equity | | 49,579,391 | | 44,759,525 | | 16,200,954 | | 13,819,393 | | (6,972,812) | | (5,847,074) | | 58,807,533 | | 52,731,844 |
(i)Consolidation of Braskem Idesa with its direct subsidiary Braskem Idesa Serviços.
(ii)Loan from Braskem Holanda as part of shareholders’ contribution to the Braskem Idesa project.
(iii)Adjustment corresponding to the capitalization of a portion of financial charges of the abovementioned loan.
(iv)Provision recorded in the subsidiary Braskem Holanda for the negative shareholders' equity of Braskem Idesa.
(v)Loan owed to the non-controlling shareholder as part of shareholders’ contribution to the project.
| (i) | Consolidation of Braskem Idesa with its direct subsidiary Braskem Idesa Serviços. | | (ii) | Loan from Braskem Holanda as part of shareholders’ contribution to the Braskem Idesa project. | | (iii) | Adjustment corresponding to the capitalization of a portion of financial charges of the abovementioned loan. | | (iv) | Provision recorded in the subsidiary Braskem Holanda for the negative shareholders' equity of Braskem Idesa. | | (v) | Loan payable, maturing December 2029 and 7% p.a., to the non-controlling shareholder. These proceeds were used by Braskem Idesa to fund its construction project. |
F - 39F-39
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
Statement of profit or loss | Statement of profit or loss | | | | | | | | | | | | | | | | | | | | | | | | | Statement of profit or loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated Braskem | | | | | | | | | | | | | | | | | Consolidated Braskem | | | | | | | | | | | | | | | Ex consolidated Braskem Idesa | | Braskem Idesa consolidated | | Eliminations | | Consolidated | | | | | Ex consolidated Braskem Idesa | | Braskem Idesa consolidated | | Eliminations | | Consolidated | | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 | | | | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 | | | | | Restated | | | | | | | | | | | | | | | | | | Restated | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net revenue | Net revenue | | 54,851,243 | | 46,207,109 | | 46,343,171 | | 3,766,371 | | 3,656,801 | | 1,495,018 | | (617,748) | | (603,316) | | (174,201) | | 57,999,866 | | 49,260,594 | | 47,663,988 | Net revenue | | 49,961,286 | | 54,851,243 | | 46,207,109 | | 3,050,420 | | 3,766,371 | | 3,656,801 | | (688,181) | | (617,748) | | (603,316) | | 52,323,525 | | 57,999,866 | | 49,260,594 | | | Cost of products sold | | (44,783,284) | | (34,675,494) | | (34,040,770) | | (2,314,998) | | (2,125,031) | | (1,109,020) | | 667,062 | | 623,117 | | 164,221 | | (46,431,220) | | (36,177,408) | | (34,985,569) | Cost of products sold | | (44,111,980) | | (44,928,721) | | (34,675,494) | | (2,509,060) | | (2,314,998) | | (2,125,031) | | 741,922 | | 667,062 | | 623,117 | | (45,879,118) | | (46,576,657) | | (36,177,408) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 10,067,959 | | 11,531,615 | | 12,302,401 | | 1,451,373 | | 1,531,770 | | 385,998 | | 49,314 | | 19,801 | | (9,980) | | 11,568,646 | | 13,083,186 | | 12,678,419 | | | 5,849,306 | | 9,922,522 | | 11,531,615 | | 541,360 | | 1,451,373 | | 1,531,770 | | 53,741 | | 49,314 | | 19,801 | | 6,444,407 | | 11,423,209 | | 13,083,186 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income (expenses) | Income (expenses) | | | | | | | | | | | | | | | | | | | | | | | | | Income (expenses) | | | | | | | | | | | | | | | | | | | | | | | | | | | Selling and distribution | | (1,355,986) | | (1,287,817) | | (1,286,558) | | (189,582) | | (171,791) | | (117,115) | | | | | | | | (1,545,568) | | (1,459,608) | | (1,403,673) | Selling and distribution | | (1,582,794) | | (1,495,507) | | (1,274,362) | | (200,661) | | (193,672) | | (171,791) | | | | | | | | (1,783,455) | | (1,689,179) | | (1,446,153) | | | General and administrative | | (1,524,480) | | (1,336,072) | | (1,201,489) | | (108,191) | | (122,043) | | (123,855) | | (332) | | 23,843 | | 39,731 | | (1,633,003) | | (1,434,272) | | (1,285,613) | (Loss) reversals for impairment
of trade accounts receivable | | (4,772) | | 87,008 | | (13,455) | | (2,297) | | | | | | | | | | | | (7,069) | | 87,008 | | (13,455) | | | Research and development | | (199,821) | | (167,456) | | (162,010) | | | | | | | | | | | | | | (199,821) | | (167,456) | | (162,010) | General and administrative | | (2,082,002) | | (1,669,277) | | (1,336,072) | | (141,269) | | (123,576) | | (122,043) | | (909) | | (332) | | 23,843 | | (2,224,180) | | (1,793,185) | | (1,434,272) | | | Results from equity investments | | 76,821 | | 191,949 | | (923,096) | | | | | | | | (77,709) | | (151,993) | | 953,174 | | (888) | | 39,956 | | 30,078 | Research and development | | (247,730) | | (219,256) | | (167,456) | | | | | | | | | | | | | | (247,730) | | (219,256) | | (167,456) | | | Other income (expenses), net | | (208,252) | | (887,185) | | (3,913,567) | | 299,104 | | 32,305 | | 7,613 | | | | | | | | 90,852 | | (854,880) | | (3,905,954) | Results from equity investments | | (326,427) | | 76,821 | | 191,949 | | | | | | | | 336,645 | | (77,709) | | (151,993) | | 10,218 | | (888) | | 39,956 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other income | | 2,102,684 | | 656,725 | | 282,629 | | 305,750 | | 370,497 | | 32,305 | | | | | | | | 2,408,434 | | 1,027,222 | | 314,934 | | | | | 6,856,241 | | 8,045,034 | | 4,815,681 | | 1,452,704 | | 1,270,241 | | 152,641 | | (28,727) | | (108,349) | | 982,925 | | 8,280,218 | | 9,206,926 | | 5,951,247 | Other expenses | | (4,466,450) | | (502,795) | | (1,169,814) | | 19,508 | | (51,918) | | | | | | | | | | (4,446,942) | | (554,713) | | (1,169,814) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (758,185) | | 6,856,241 | | 8,045,034 | | 522,391 | | 1,452,704 | | 1,270,241 | | 389,477 | | (28,727) | | (108,349) | | 153,683 | | 8,280,218 | | 9,206,926 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial results | Financial results | | | | | | | | | | | | | | | | | | | | | | | | | Financial results | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial expenses | | (2,227,544) | | (3,044,668) | | (3,054,334) | | (1,090,019) | | (973,952) | | (688,868) | | 310,012 | | 271,403 | | 172,240 | | (3,007,551) | | (3,747,217) | | (3,570,962) | Financial expenses | | (3,009,471) | | (2,227,544) | | (3,044,668) | | (1,205,412) | | (1,090,019) | | (973,952) | | 332,098 | | 310,012 | | 271,403 | | (3,882,785) | | (3,007,551) | | (3,747,217) | | | Financial income | | 867,185 | | 850,367 | | 955,423 | | 31,879 | | 24,666 | | 3,193 | | (310,012) | | (271,403) | | (268,494) | | 589,052 | | 603,630 | | 690,122 | Financial income | | 1,135,118 | | 867,185 | | 850,367 | | 47,534 | | 31,879 | | 24,666 | | (332,098) | | (310,012) | | (271,403) | | 850,554 | | 589,052 | | 603,630 | | | Exchange rate variations, net | | (2,014,205) | | (936,804) | | (2,115,993) | | (232,064) | | 132,186 | | (1,094,424) | | (10,714) | | 5,856 | | | | (2,256,983) | | (798,762) | | (3,210,417) | Exchange rate variations, net | | (1,768,850) | | (2,014,205) | | (936,804) | | 75,610 | | (232,064) | | 132,186 | | (31,280) | | (10,714) | | 5,856 | | (1,724,520) | | (2,256,983) | | (798,762) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (3,374,564) | | (3,131,105) | | (4,214,904) | | (1,290,204) | | (817,100) | | (1,780,099) | | (10,714) | | 5,856 | | (96,254) | | (4,675,482) | | (3,942,349) | | (6,091,257) | | | (3,643,203) | | (3,374,564) | | (3,131,105) | | (1,082,268) | | (1,290,204) | | (817,100) | | (31,280) | | (10,714) | | 5,856 | | (4,756,751) | | (4,675,482) | | (3,942,349) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit before income tax | | | | | | | | | | | | | | | | | | | | | | | | | | Profit (loss) before income tax | | Profit (loss) before income tax | | | | | | | | | | | | | | | | | | | | | | | | | and social contribution | and social contribution | | 3,481,677 | | 4,913,929 | | 600,777 | | 162,500 | | 453,141 | | (1,627,458) | | (39,441) | | (102,493) | | 886,671 | | 3,604,736 | | 5,264,577 | | (140,010) | and social contribution | | (4,401,388) | | 3,481,677 | | 4,913,929 | | (559,877) | | 162,500 | | 453,141 | | 358,197 | | (39,441) | | (102,493) | | (4,603,068) | | 3,604,736 | | 5,264,577 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | IR and CSL - current and deferred | | (639,394) | | (1,057,699) | | (1,039,107) | | (97,157) | | (299,983) | | 423,061 | | | | | | | | (736,551) | | (1,357,682) | | (616,046) | IR and CSL - current and deferred | | 1,873,207 | | (639,394) | | (1,057,699) | | 89,463 | | (97,157) | | (299,983) | | | | | | | | 1,962,670 | | (736,551) | | (1,357,682) | | | | | (639,394) | | (1,057,699) | | (1,039,107) | | (97,157) | | (299,983) | | 423,061 | | | | | | | | (736,551) | | (1,357,682) | | (616,046) | | | 1,873,207 | | (639,394) | | (1,057,699) | | 89,463 | | (97,157) | | (299,983) | | | | | | | | 1,962,670 | | (736,551) | | (1,357,682) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit (loss) for the year of continued operations | 2,842,283 | | 3,856,230 | | (438,330) | | 65,343 | | 153,158 | | (1,204,397) | | (39,441) | | (102,493) | | 886,671 | | 2,868,185 | | 3,906,895 | | (756,056) | | Profit (loss)for the year | | Profit (loss)for the year | | (2,528,181) | | 2,842,283 | | 3,856,230 | | (470,414) | | 65,343 | | 153,158 | | 358,197 | | (39,441) | | (102,493) | | (2,640,398) | | 2,868,185 | | 3,906,895 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Discontinued operations results | Discontinued operations results | | | | | | | | | | | | | | | | | | | | | | | | | Discontinued operations results | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit from discontinued operations | | | | 13,499 | | 40,760 | | | | | | | | | | | | | | | | 13,499 | | 40,760 | Profit (loss) from discontinued operations | | | | | | 13,499 | | | | | | | | | | | | | | | | | | 13,499 | | | IR and CSL - current and deferred | | | | (4,623) | | (13,901) | | | | | | | | | | | | | | | | (4,623) | | (13,901) | IR and CSL - current and deferred | | | | | | (4,623) | | | | | | | | | | | | | | | | | | (4,623) | | | | | | | 8,876 | | 26,859 | | | | | | | | | | | | | | | | 8,876 | | 26,859 | | | | | | | 8,876 | | | | | | | | | | | | | | | | | | 8,876 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit (loss) for the year | Profit (loss) for the year | | 2,842,283 | | 3,865,106 | | (411,471) | | 65,343 | | 153,158 | | (1,204,397) | | (39,441) | | (102,493) | | 886,671 | | 2,868,185 | | 3,915,771 | | (729,197) | Profit (loss) for the year | | (2,528,181) | | 2,842,283 | | 3,865,106 | | (470,414) | | 65,343 | | 153,158 | | 358,197 | | (39,441) | | (102,493) | | (2,640,398) | | 2,868,185 | | 3,915,771 |
F - 40F-40
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
Statement of cash flows | | Consolidated Braskem | | | | | | | | | | | | | | | | | | | | | | Ex consolidated Braskem Idesa | | Braskem Idesa consolidated | | Eliminations | | Consolidated | | | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit (loss) before income tax and social contribution | | (4,401,388) | | 3,481,677 | | 4,913,929 | | (559,877) | | 162,500 | �� | 453,141 | | 358,197 | | (39,441) | | (102,493) | | (4,603,068) | | 3,604,736 | | 5,264,577 | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjustments for reconciliation of profit (loss) | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation, amortization and depletion | | 2,732,181 | | 2,228,978 | | 2,230,466 | | 952,916 | | 810,581 | | 742,033 | | (52,832) | | (48,982) | | (43,644) | | 3,632,265 | | 2,990,577 | | 2,928,855 | | Results from equity investments | | 326,427 | | (76,821) | | (191,949) | | | | | | | | (336,645) | | 77,709 | | 151,993 | | (10,218) | | 888 | | (39,956) | | Interest and monetary and exchange variations, net | | 3,050,987 | | 4,658,342 | | 2,900,745 | | 1,062,843 | | 1,344,888 | | 802,825 | | 31,280 | | 10,714 | | (5,856) | | 4,145,110 | | 6,013,944 | | 3,697,714 | | Gain from divestment in subsidiary | | | | | | (276,816) | | | | | | | | | | | | | | | | | | (276,816) | | Reversal of provisions | | 320,439 | | 23,725 | | (223,340) | | | | | | | | | | | | | | 320,439 | | 23,725 | | (223,340) | | Provisions - Leniency agreement | | | | | | 375,476 | | | | | | | | | | | | | | | | | | 375,476 | | Provision - geological event in Alagoas | | 3,383,067 | | | | | | | | | | | | | | | | | | 3,383,067 | | | | | | PIS and COFINS credits - exclusion of ICMS from the calculation basis | | (1,904,206) | | (519,830) | | | | | | | | | | | | | | | | (1,904,206) | | (519,830) | | | | Loss (reversals) for impairment of trade accounts receivable | | 7,069 | | (87,008) | | 13,455 | | | | | | | | | | | | | | 7,069 | | (87,008) | | 13,455 | | Provision for losses and write-offs of long-lived assets | | 224,825 | | 69,270 | | 212,759 | | 379 | | 3,200 | | 425 | | | | | | | | 225,204 | | 72,470 | | 213,184 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,739,401 | | 9,778,333 | | 9,954,725 | | 1,456,261 | | 2,321,169 | | 1,998,424 | | | | | | | | 5,195,662 | | 12,099,502 | | 11,953,149 | | | | | | | | | | | | | | | | | | | | | | | | | | | Changes in operating working capital | | | | | | | | | | | | | | | | | | | | | | | | | | Other financial assets | | (3,680,460) | | | | | | | | | | | | | | | | | | (3,680,460) | | | | | | Financial investments | | 797,445 | | 98,349 | | (953,228) | | | | | | | | | | | | | | 797,445 | | 98,349 | | (953,228) | | Trade accounts receivable | | 677,176 | | 251,683 | | (1,317,929) | | 325,820 | | (7,348) | | (373,066) | | (107,950) | | (20,917) | | 79,148 | | 895,046 | | 223,418 | | (1,611,847) | | Inventories | | 825,236 | | (1,337,618) | | (1,387,696) | | 42,581 | | (199,672) | | 36,668 | | | | | | | | 867,817 | | (1,537,290) | | (1,351,028) | | Taxes recoverable | | 1,216,225 | | 1,068,637 | | 415,923 | | (20,798) | | (46,395) | | 53,370 | | | | | | | | 1,195,427 | | 1,022,242 | | 469,293 | | Prepaid expenses | | 85,549 | | (67,051) | | (21,732) | | 117,183 | | (38,112) | | (8,789) | | | | | | | | 202,732 | | (105,163) | | (30,521) | | Other receivables | | (242,727) | | (12,596) | | 34,500 | | (30,938) | | (236,392) | | (8,698) | | | | | | | | (273,665) | | (248,988) | | 25,802 | | Trade payables | | 330,633 | | 1,113,381 | | (1,444,468) | | (156,138) | | 209,077 | | (119,033) | | 107,950 | | 20,917 | | (79,148) | | 282,445 | | 1,343,375 | | (1,642,649) | | Taxes payable | | (485,309) | | (828,222) | | (132,697) | | (84,484) | | (149,026) | | (82,817) | | | | | | | | (569,793) | | (977,248) | | (215,514) | | Advances from customers | | 176,189 | | (218,623) | | (3,089) | | 21,776 | | 18,665 | | (10,423) | | | | | | | | 197,965 | | (199,958) | | (13,512) | | Leniency agreement | | (341,605) | | (330,006) | | (1,343,803) | | | | | | | | | | | | | | (341,605) | | (330,006) | | (1,343,803) | | Sundry provisions | | (226,519) | | (116,458) | | 194,596 | | 10,971 | | | | | | | | | | | | (215,548) | | (116,458) | | 194,596 | | Other payables | | 348,916 | | 415,468 | | (70,546) | | 13,287 | | 417,759 | | 126,087 | | | | | | | | 362,203 | | 833,227 | | 55,541 | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash generated (used) from operations | | 3,220,150 | | 9,815,277 | | 3,924,556 | | 1,695,521 | | 2,289,725 | | 1,611,723 | | | | | | | | 4,915,671 | | 12,105,002 | | 5,536,279 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest paid | | (1,576,526) | | (1,328,420) | | (1,648,971) | | (661,919) | | (588,381) | | (505,082) | | | | | | | | (2,238,445) | | (1,916,801) | | (2,154,053) | | Income tax and social contribution paid | | (403,614) | | (937,557) | | (919,236) | | (8,337) | | (274) | | (1,370) | | | | | | | | (411,951) | | (937,831) | | (920,606) | | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash generated (used) by operating activities | | 1,240,010 | | 7,549,300 | | 1,356,349 | | 1,025,265 | | 1,701,070 | | 1,105,271 | | | | | | | | 2,265,275 | | 9,250,370 | | 2,461,620 | | | | | | | | | | | | | | | | | | | | | | | | | | | Proceeds from the sale of fixed assets and intangible assets | | 12,590 | | 95,133 | | 39,660 | | | | | | | | | | | | | | 12,590 | | 95,133 | | 39,660 | Proceeds from the sale of investments | | | | 81,000 | | 450,000 | | | | | | | | | | | | | | | | 81,000 | | 450,000 | Funds received in the investments' capital reduction | | | | 2,254 | | | | | | | | | | | | | | | | | | 2,254 | | | Dividends received | | 3,513 | | 41,791 | | | | | | | | | | | | | | | | 3,513 | | 41,791 | | | Additions to investments in subsidiaries | | | | | | (608,181) | | | | | | | | | | | | | | | | | | (608,181) | Acquisitions to property, plant and equipment and intangible assets | | (2,578,558) | | (2,635,906) | | (2,185,567) | | (103,964) | | (70,422) | | (87,630) | | | | | | | | (2,682,522) | | (2,706,328) | | (2,273,197) | Other investments | | | | (2,167) | | (14,683) | | | | | | | | | | | | | | | | (2,167) | | (14,683) | | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash used in investing activities | | (2,562,455) | | (2,417,895) | | (2,318,771) | | (103,964) | | (70,422) | | (87,630) | | | | | | | | (2,666,419) | | (2,488,317) | | (2,406,401) | | | | | | | | | | | | | | | | | | | | | | | | | | | Short-term and long-term debt | | | | | | | | | | | | | | | | | | | | | | | | | | Acquired | | 20,586,103 | | 4,301,626 | | 8,492,341 | | | | | | | | | | | | | | 20,586,103 | | 4,301,626 | | 8,492,341 | | Payments | | (17,425,409) | | (6,592,197) | | (8,779,091) | | | | | | | | | | | | | | (17,425,409) | | (6,592,197) | | (8,779,091) | Derivative transactions | | | | | | | | | | | | | | | | | | | | | | | | | | Payments | | | | | | (810,279) | | | | | | | | | | | | | | | | | | (810,279) | Braskem Idesa borrowings | | | | | | | | | | | | | | | �� | | | | | | | | | | | Acquired | | | | | | | | 3,497,622 | | | | 187,959 | | | | | | | | 3,497,622 | | | | 187,959 | | Payments | | | | | | | | (4,398,453) | | (812,929) | | (1,080,502) | | | | | | | | (4,398,453) | | (812,929) | | (1,080,502) | Related parties | | | | | | | | | | | | | | | | | | | | | | | | | | Acquired loans (payment of loans ) | | | | 72,880 | | 20,637 | | | | (72,880) | | (20,637) | | | | | | | | | | | | | Lease | | (407,320) | | | | | | (46,870) | | | | | | | | | | | | (454,190) | | | | | Dividends paid | | (668,904) | | (1,499,900) | | (998,893) | | | | | | | | | | | | | | (668,904) | | (1,499,900) | | (998,893) | Other financial liabilities | | 499,999 | | | | | | | | | | | | | | | | | | 499,999 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash generated (used) in financing activities | | 2,584,469 | | (3,717,591) | | (2,075,285) | | (947,701) | | (885,809) | | (913,180) | | | | | | | | 1,636,768 | | (4,603,400) | | (2,988,465) | | | | | | | | | | | | | | | | | | | | | | | | | | | Exchange variation on cash of foreign subsidiaries | | (59,659) | | (309,941) | | 17,849 | | 80,278 | | (76,168) | | (11,374) | | | | | | | | 20,619 | | (386,109) | | 6,475 | | | | | | | | | | | | | | | | | | | | | | | | | | | Increase in cash and cash equivalents | | 1,202,365 | | 1,103,873 | | (3,019,858) | | 53,878 | | 668,671 | | 93,087 | | | | | | | | 1,256,243 | | 1,772,544 | | (2,926,771) | | | | | | | | | | | | | | | | | | | | | | | | | | | Represented by | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents at the beginning for the year | | 4,584,280 | | 3,480,407 | | 6,500,265 | | 963,357 | | 294,686 | | 201,599 | | | | | | | | 5,547,637 | | 3,775,093 | | 6,701,864 | | Cash and cash equivalents at the end for the year | | 5,786,645 | | 4,584,280 | | 3,480,407 | | 1,017,235 | | 963,357 | | 294,686 | | | | | | | | 6,803,880 | | 5,547,637 | | 3,775,093 | | | | | | | | | | | | | | | | | | | | | | | | | | | Increase in cash and cash equivalents | | 1,202,365 | | 1,103,873 | | (3,019,858) | | 53,878 | | 668,671 | | 93,087 | | | | | | | | 1,256,243 | | 1,772,544 | | (2,926,771) |
Statement of cash flows | | Consolidated Braskem | | | | | | | | | | | | | | | | | | | | | | | Ex consolidated Braskem Idesa | | Braskem Idesa consolidated | | Eliminations | | Consolidated | | | | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit (loss) before income tax and social contribution and
for the result with discontinued operations | | 3,481,677 | | 4,913,929 | | 641,537 | | 162,500 | | 453,141 | | (1,627,458) | | (39,441) | | (102,493) | | 886,671 | | 3,604,736 | | 5,264,577 | | (99,250) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjustments for reconciliation of profit (loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation, amortization and depletion | | 2,228,978 | | 2,230,466 | | 2,381,160 | | 810,581 | | 742,033 | | 331,691 | | (48,982) | | (43,644) | | (29,751) | | 2,990,577 | | 2,928,855 | | 2,683,100 | | | Results from equity investments | | (76,821) | | (191,949) | | 923,096 | | | | | | | | 77,709 | | 151,993 | | (953,174) | | 888 | | (39,956) | | (30,078) | | | Interest and monetary and exchange variations, net | | 4,658,342 | | 2,900,745 | | 1,851,033 | | 1,344,888 | | 802,825 | | 1,229,219 | | 10,714 | | (5,856) | | (54,244) | | 6,013,944 | | 3,697,714 | | 3,026,008 | | | Gain on sale of investment in subsidiary | | | | (276,816) | | | | | | | | | | | | | | | | | | (276,816) | | | | | Leniency agreement | | | | 375,476 | | 2,853,230 | | | | | | | | | | | | | | | | 375,476 | | 2,853,230 | | | Reversal of provisions | | 23,725 | | (223,340) | | | | | | | | | | | | | | | | 23,725 | | (223,340) | | | | | PIS and COFINS credits - exclusion of ICMS from the calculation basis | (519,830) | | | | | | | | | | | | | | | | | | (519,830) | | | | | | | Provision for losses and write-offs of long-lived assets | | 69,270 | | 212,759 | | 40,530 | | 3,200 | | 425 | | 486 | | | | | | | | 72,470 | | 213,184 | | 41,016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 9,865,341 | | 9,941,270 | | 8,690,586 | | 2,321,169 | | 1,998,424 | | (66,062) | | | | | | (150,498) | | 12,186,510 | | 11,939,694 | | 8,474,026 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Changes in operating working capital | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial investments | | 98,349 | | (953,228) | | (649,535) | | | | | | | | | | | | | | 98,349 | | (953,228) | | (649,535) | | | Trade accounts receivable | | 158,378 | | (1,304,474) | | 1,083,117 | | (7,348) | | (373,066) | | (126,617) | | (20,917) | | 79,148 | | 51,375 | | 130,113 | | (1,598,392) | | 1,007,875 | | | Inventories | | (1,337,618) | | (1,387,696) | | 966,974 | | (199,672) | | 36,668 | | (104,636) | | | | | | | | (1,537,290) | | (1,351,028) | | 862,338 | | | Taxes recoverable | | 1,068,637 | | 415,923 | | 976,770 | | (46,395) | | 53,370 | | 81,334 | | | | | | | | 1,022,242 | | 469,293 | | 1,058,104 | | | Prepaid expenses | | (67,051) | | (21,732) | | 64,029 | | (38,112) | | (8,789) | | | | | | | | | | (105,163) | | (30,521) | | 64,029 | | | Other receivables | | (6,299) | | 34,500 | | 332,673 | | (236,392) | | (8,698) | | 21,308 | | | | | | | | (242,691) | | 25,802 | | 353,981 | | | Trade payables | | 1,113,381 | | (1,444,468) | | (4,052,705) | | 209,077 | | (119,033) | | (150,495) | | 20,917 | | (79,148) | | (51,375) | | 1,343,375 | | (1,642,649) | | (4,254,575) | | | Taxes payable | | (828,222) | | (132,697) | | (674,466) | | (149,026) | | (82,817) | | 382,335 | | | | | | | | (977,248) | | (215,514) | | (292,131) | | | Advances from customers | | (218,623) | | (3,089) | | 207,020 | | 18,665 | | (10,423) | | 9,830 | | | | | | | | (199,958) | | (13,512) | | 216,850 | | | Leniency agreement | | (330,006) | | (1,343,803) | | | | | | | | | | | | | | | | (330,006) | | (1,343,803) | | | | | Other payables | | 299,010 | | 124,050 | | 430,714 | | 417,759 | | 126,087 | | 165,981 | | | | | | | | 716,769 | | 250,137 | | 596,695 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash from operations | | 9,815,277 | | 3,924,556 | | 7,375,177 | | 2,289,725 | | 1,611,723 | | 212,978 | | | | | | (150,498) | | 12,105,002 | | 5,536,279 | | 7,437,657 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest paid | | (1,328,420) | | (1,648,971) | | (1,611,718) | | (588,381) | | (505,082) | | (215,224) | | | | | | | | (1,916,801) | | (2,154,053) | | (1,826,942) | | | Income tax and social contribution paid | | (937,557) | | (919,236) | | (1,152,847) | | (274) | | (1,370) | | | | | | | | | | (937,831) | | (920,606) | | (1,152,847) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash generated by operating activities | | 7,549,300 | | 1,356,349 | | 4,610,612 | | 1,701,070 | | 1,105,271 | | (2,246) | | | | | | (150,498) | | 9,250,370 | | 2,461,620 | | 4,457,868 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Proceeds from the sale of fixed assets and intangible assets | | 95,133 | | | | | | | | | | | | | | | | | | 95,133 | | | | | Proceeds from the sale of investments | | 81,000 | | 450,000 | | | | | | | | | | | | | | | | 81,000 | | 450,000 | | | Funds received in the investments´ capital reduction | | 2,254 | | | | | | | | | | | | | | | | | | 2,254 | | | | | Dividends received | | 41,791 | | | | | | | | | | | | | | | | | | 41,791 | | | | | Additions to investments in subsidiaries | | | | (608,181) | | | | | | | | | | | | | | | | | | (608,181) | | | Acquisitions to property, plant and equipment and intangible assets | | (2,635,906) | | (2,185,567) | | (1,844,510) | | (70,422) | | (87,630) | | (892,499) | | | | | | 150,498 | | (2,706,328) | | (2,273,197) | | (2,586,511) | Other investments | | (2,167) | | 24,977 | | 34,061 | | | | | | | | | | | | | | (2,167) | | 24,977 | | 34,061 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash used in investing activities | | (2,417,895) | | (2,318,771) | | (1,810,449) | | (70,422) | | (87,630) | | (892,499) | | | | | | 150,498 | | (2,488,317) | | (2,406,401) | | (2,552,450) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Short-term and long-term debt | | | | | | | | | | | | | | | | | | | | | | | | | | | Acquired | | 4,301,626 | | 8,492,341 | | 4,107,626 | | | | | | | | | | | | | | 4,301,626 | | 8,492,341 | | 4,107,626 | | | Payments | | (6,592,197) | | (8,779,091) | | (4,901,593) | | | | | | | | | | | | | | (6,592,197) | | (8,779,091) | | (4,901,593) | Derivative transactions - payments | | | | (810,279) | | | | | | | | | | | | | | | | | | (810,279) | | | Braskem Idesa borrowings | | | | | | | | | | | | | | | | | | | | | | | | | | | Acquired | | | | | | | | | | 187,959 | | 503,921 | | | | | | | | | | 187,959 | | 503,921 | | | Payments | | | | | | | | (812,929) | | (1,080,502) | | (469,282) | | | | | | | | (812,929) | | (1,080,502) | | (469,282) | Related parties | | | | | | | | | | | | | | | | | | | | | | | | | | | Acquired loans (payment of loans) | | 72,880 | | 20,637 | | (882,158) | | (72,880) | | (20,637) | | 882,158 | | | | | | | | | | | | | Dividends paid | | (1,499,900) | | (998,893) | | (1,997,984) | | | | | | | | | | | | | | (1,499,900) | | (998,893) | | (1,997,984) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net provided (used) in financing activities | | (3,717,591) | | (2,075,285) | | (3,674,109) | | (885,809) | | (913,180) | | 916,797 | | | | | | | | (4,603,400) | | (2,988,465) | | (2,757,312) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exchange variation on cash of foreign subsidiaries | | (309,941) | | 17,849 | | 541,734 | | (76,168) | | (11,374) | | 44,908 | | | | | | | | (386,109) | | 6,475 | | 586,642 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Increase (decrease) in cash and cash equivalents | | 1,103,873 | | (3,019,858) | | (332,212) | | 668,671 | | 93,087 | | 66,960 | | | | | | | | 1,772,544 | | (2,926,771) | | (265,252) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Represented by | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents at the beginning of the year | | 3,480,407 | | 6,500,265 | | 6,908,623 | | 294,686 | | 201,599 | | 134,639 | | | | | | | | 3,775,093 | | 6,701,864 | | 7,043,262 | | | Cash and cash equivalents at the end of the year | | 4,584,280 | | 3,480,407 | | 6,576,411 | | 963,357 | | 294,686 | | 201,599 | | | | | | | | 5,547,637 | | 3,775,093 | | 6,778,010 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Increase (decrease) in cash and cash equivalents | | 1,103,873 | | (3,019,858) | | (332,212) | | 668,671 | | 93,087 | | 66,960 | | | | | | | | 1,772,544 | | (2,926,771) | | (265,252) |
F - 41
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
12Property, plant and equipment
(a)Change
| | | Land | | Buildings and Improvements | | Machinery, Equipment and Facilities | | Projects and Stoppage in Progress (i) | | Other | | Total | | | | | | | | | | | | | | | Cost | | 471,655 | | 5,530,714 | | 36,804,409 | | 3,495,965 | | 1,404,759 | | 47,707,502 | Accumulated depreciation/depletion | | | | (1,111,642) | | (16,595,497) | | | | (663,653) | | (18,370,792) | Balance as of December 31, 2016 | | 471,655 | | 4,419,072 | | 20,208,912 | | 3,495,965 | | 741,106 | | 29,336,710 | | | | | | | | | | | | | | | Acquisitions | | | | | | 149,018 | | 2,090,157 | | 6,066 | | 2,245,241 | Additions for acquisition of subsidiary | | 14,937 | | 122,846 | | 63,081 | | 46,833 | | 92,052 | | 339,749 | Capitalized financial charges | | | | | | | | 130,272 | | | | 130,272 | Foreign currency translation adjustment | | 5,600 | | 168,554 | | 387,757 | | 56,425 | | 4,877 | | 623,213 | Transfers by concluded projects | | 29,703 | | 145,622 | | 2,216,704 | | (2,539,041) | | 147,012 | | | Disposals | | (21,249) | | (5,149) | | (166,585) | | (5,946) | | (12,342) | | (211,271) | Cost | | (21,249) | | (7,444) | | (525,724) | | (5,946) | | (21,368) | | (581,731) | Depletion | | | | 2,295 | | 359,139 | | | | 9,026 | | 370,460 | Depreciation / depletion | | | | (280,448) | | (2,275,788) | | | | (146,068) | | (2,702,304) | Net book value | | 500,646 | | 4,570,497 | | 20,583,099 | | 3,274,665 | | 832,703 | | 29,761,610 | Cost | | 500,646 | | 6,058,259 | | 39,211,042 | | 3,274,665 | | 1,755,092 | | 50,799,704 | Accumulated depreciation/depletion | | | | (1,487,762) | | (18,627,943) | | | | (922,389) | | (21,038,094) | Balance as of December 31, 2017 | | 500,646 | | 4,570,497 | | 20,583,099 | | 3,274,665 | | 832,703 | | 29,761,610 | | | | | | | | | | | | | | | Cost - previously disclosed | | 500,646 | | 6,058,259 | | 39,211,042 | | 3,274,665 | | 1,755,092 | | 50,799,704 | Cost - reclassification | | 68,902 | | (70,296) | | 1,038,042 | | 186,606 | | (92,650) | | 1,130,604 | Cost - reclassified | | 569,548 | | 5,987,963 | | 40,249,084 | | 3,461,271 | | 1,662,442 | | 51,930,308 | | | | | | | | | | | | | | | Accumulated depreciation/depletion - previously disclosed | | | | (1,487,762) | | (18,627,943) | | | | (922,389) | | (21,038,094) | Accumulated depreciation/depletion - reclassification | | | | (88,244) | | (964,517) | | | | (77,843) | | (1,130,604) | Accumulated depreciation/depletion - reclassified | | | | (1,576,006) | | (19,592,460) | | | | (1,000,232) | | (22,168,698) | Balance as of January 1, 2018 | | 569,548 | | 4,411,957 | | 20,656,624 | | 3,461,271 | | 662,210 | | 29,761,610 | | | | | | | | | | | | | | | Acquisitions | | | | 372 | | 201,492 | | 2,439,286 | | 13,199 | | 2,654,349 | Capitalized financial charges | | | | | | | | 178,055 | | | | 178,055 | Foreign currency translation adjustment | | 32,751 | | 593,228 | | 1,433,855 | | 137,551 | | 30,411 | | 2,227,796 | Cost | | 32,751 | | 674,720 | | 1,727,164 | | 137,551 | | 52,242 | | 2,624,428 | Depletion | | | | (81,492) | | (293,309) | | | | (21,831) | | (396,632) | Transfers by concluded projects | | | | 16,477 | | 1,022,560 | | (1,106,975) | | 67,938 | | | Cost | | | | 16,477 | | 1,022,560 | | (1,106,975) | | 67,938 | | | Depletion | | | | | | | | | | | | | Transfers to intangible | | | | | | | | (2,922) | | (1,539) | | (4,461) | Cost | | | | | | | | (2,922) | | (1,539) | | (4,461) | Depreciation | | | | | | | | | | | | | Other | | | | (2,009) | | (40,503) | | (3,873) | | (1,675) | | (48,060) | Depreciation / depletion | | | | (370,035) | | (2,487,820) | | | | (151,544) | | (3,009,399) | Net book value | | 602,299 | | 4,649,990 | | 20,786,208 | | 5,102,393 | | 619,000 | | 31,759,890 | Cost | | 602,299 | | 6,676,549 | | 43,024,738 | | 5,102,393 | | 1,784,807 | | 57,190,786 | Accumulated depreciation/depletion | | | | (2,026,559) | | (22,238,530) | | | | (1,165,807) | | (25,430,896) | Balance as of December 31, 2018 | | 602,299 | | 4,649,990 | | 20,786,208 | | 5,102,393 | | 619,000 | | 31,759,890 |
(i)On December 31, 2018, the main amounts recorded under this item corresponded to expenses with scheduled maintenance shutdowns in Brazil and at overseas plants that are either in the preparation phase or ongoing (R$975,509), capitalized financial charges (R$293,697), inventories of spare parts (R$441,133), strategic projects in Brazil (R$125,541) and the strategic projects of Braskem America (R$1,547,870). The remainder corresponds mainly to various operational projects for maintaining the production capacity of plants.
F - 42F-41
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| 12 | Property, plant and equipment |
| | | Land | | Buildings and Improvements | | Machinery, Equipment and Facilities | | Projects and Stoppage in Progress (i) | | Other | | Total | | | | | | | | | | | | | | | Balance as of December 31, 2017 | | 500,646 | | 4,570,497 | | 20,583,099 | | 3,274,665 | | 832,703 | | 29,761,610 | | | | | | | | | | | | | | | Cost - previously disclosed | | 500,646 | | 6,058,259 | | 39,211,042 | | 3,274,665 | | 1,755,092 | | 50,799,704 | Cost - reclassification | | 68,902 | | (70,296) | | 1,038,042 | | 186,606 | | (92,650) | | 1,130,604 | Cost - reclassified | | 569,548 | | 5,987,963 | | 40,249,084 | | 3,461,271 | | 1,662,442 | | 51,930,308 | | | | | | | | | | | | | | | Accumulated depreciation/depletion - previously disclosed | | | | (1,487,762) | | (18,627,943) | | | | (922,389) | | (21,038,094) | Accumulated depreciation/depletion - reclassification | | | | (88,244) | | (964,517) | | | | (77,843) | | (1,130,604) | Accumulated depreciation/depletion - reclassified | | | | (1,576,006) | | (19,592,460) | | | | (1,000,232) | | (22,168,698) | Balance as of January 1, 2018 | | 569,548 | | 4,411,957 | | 20,656,624 | | 3,461,271 | | 662,210 | | 29,761,610 | | | | | | | | | | | | | | | Acquisitions | | | | 372 | | 201,492 | | 2,439,286 | | 13,199 | | 2,654,349 | Capitalized financial charges | | | | | | | | 178,055 | | | | 178,055 | Foreign currency translation adjustment | | 32,751 | | 593,228 | | 1,433,855 | | 137,551 | | 30,411 | | 2,227,796 | Cost | | 32,751 | | 674,720 | | 1,727,164 | | 137,551 | | 52,242 | | 2,624,428 | Depreciation, amortization and depletion | | | | (81,492) | | (293,309) | | | | (21,831) | | (396,632) | Transfers by concluded projects | | | | 16,477 | | 1,022,560 | | (1,106,975) | | 67,938 | | | Transfers to intangible | | | | | | | | (2,922) | | (1,539) | | (4,461) | Disposals | | | | (2,009) | | (40,503) | | (3,873) | | (1,675) | | (48,060) | Cost | | | | (2,983) | | (175,562) | | (3,873) | | (9,475) | | (191,893) | Depreciation, amortization and depletion | | | | 974 | | 135,059 | | | | 7,800 | | 143,833 | Depreciation, amortization and depletion | | | | (370,035) | | (2,487,820) | | | | (151,544) | | (3,009,399) | Net book value | | 602,299 | | 4,649,990 | | 20,786,208 | | 5,102,393 | | 619,000 | | 31,759,890 | Cost | | 602,299 | | 6,676,549 | | 43,024,738 | | 5,102,393 | | 1,784,807 | | 57,190,786 | Accumulated depreciation, amortization and depletion | | | | (2,026,559) | | (22,238,530) | | | | (1,165,807) | | (25,430,896) | Balance as of December 31, 2018 | | 602,299 | | 4,649,990 | | 20,786,208 | | 5,102,393 | | 619,000 | | 31,759,890 | | | | | | | | | | | | | | | Acquisitions | | | | 1,280 | | 61,213 | | 2,658,070 | | 3,701 | | 2,724,264 | Capitalized financial charges | | | | | | | | 198,201 | | | | 198,201 | Foreign currency translation adjustment | | 11,508 | | 289,118 | | 675,400 | | 105,701 | | 3,536 | | 1,085,263 | Cost | | 11,508 | | 366,939 | | 860,672 | | 105,701 | | 10,109 | | 1,354,929 | Depreciation, amortization and depletion | | | | (77,821) | | (185,272) | | | | (6,573) | | (269,666) | Transfers by concluded projects | | | | 21,382 | | 884,606 | | (993,024) | | 87,036 | | | Transfers to inventory | | | | | | | | (47,696) | | (2,866) | | (50,562) | Transfers to intangible | | | | | | | | (6,433) | | | | (6,433) | Cost | | | | | | | | (6,433) | | | | (6,433) | Disposals | | | | (634) | | (223,514) | | (7,739) | | (3,659) | | (235,546) | Cost | | | | (1,178) | | (392,033) | | (7,739) | | (31,264) | | (432,214) | Depreciation, amortization and depletion | | | | 544 | | 168,519 | | | | 27,605 | | 196,668 | Depreciation, amortization and depletion | | | | (388,869) | | (2,534,637) | | | | (138,395) | | (3,061,901) | Transfers to right of use of assets | | | | | | | | | | (97,995) | | (97,995) | Cost | | | | | | | | | | (125,497) | | (125,497) | Amortization | | | | | | | | | | 27,502 | | 27,502 | Net book value | | 11,508 | | (77,723) | | (1,136,932) | | 1,763,008 | | 473,224 | | 32,315,181 | Cost | | 613,807 | | 7,064,972 | | 44,439,196 | | 7,009,473 | | 1,726,026 | | 60,853,474 | Accumulated depreciation, amortization and depletion | | | | (2,492,705) | | (24,789,920) | | | | (1,255,668) | | (28,538,293) | Balance as of December 31, 2019 | | 613,807 | | 4,572,267 | | 19,649,276 | | 7,009,473 | | 470,358 | | 32,315,181 |
| (i) | On December 31, 2019, the main amounts recorded under this item corresponded to expenses with scheduled maintenance shutdowns in Brazil and at overseas plants that are either in the preparation phase or ongoing (R$1,400,667), capitalized financial charges (R$419,244), inventories of spare parts (R$430,418), strategic projects ongoing in Brazil (R$98,879) and in Braskem America (R$2,611,034). The remainder corresponds mainly to various projects for maintaining the production capacity of plants. |
The machinery, equipment and facilities of the Company require inspections, replacement of components and maintenance in regular intervals. The Company makes shutdowns in regular intervals that vary from two to six years to perform these activities. These shutdowns can involve the plant as a whole, a part of it, or even only relevant pieces of equipment, such as industrial boilers, turbines and tanks. Shutdowns that take place every six years, for example, are usually made for the maintenance of industrial plants as a whole. Expenses with each scheduled shutdown are included in property, plant and equipment items that were the subject matter of the stoppage and are fully depreciated until the beginning of the following related stoppage. The expenditures with personnel, the consumption of small materials, maintenance and the related services from third parties arerecorded, when incurred, as production costs. Property, plant and equipment items are depreciated on a straight-line basis. Projects in progress are not depreciated. Depreciation begins when the assets are available for use. F-42
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
Based on the analysis cited in Note 3.4(a)3.2.3(a), the Management of Braskem believes that the plants will operate at their full capacity, or close to it, within the projected period, therefore additional impairment tests of these assets were not necessary. The prices of products manufactured by the Company are quoted in international markets, in the short or medium term, and adjust to the prices of raw materials to preserve the historical margins of the business. Financial charges are capitalized on the balance of ongoing projects, of Braskem and its subsidiaries, using: (i) the average rate of allthe financings; and (ii) the exchange variation portion that corresponds to any positive difference between the average rate of financing in the domestic market and the rate cited in item (i). In 2018,2019, charges amounting to R$198,201 (R$178,055 (R$130,272 in 2017)2018) were capitalized. The average rate of these charges in the year was 8.78%6.47% p.a. (7.78%(8.78% p.a. in 2017)2018). (b)Property,In compliance with IFRS 7.43, at December 31, 2019, acquisition of property, plant and equipment by countrywith payment installments is R$ 103,315.
| | | 2018 | | 2017 | | | | | | | Brazil | | 16,278,608 | | 16,665,988 | Mexico | | 11,656,910 | | 10,581,347 | United States of America | | 3,539,495 | | 2,275,987 | Germany | | 273,987 | | 229,328 | Other | | 10,890 | | 8,960 | | | | 31,759,890 | | 29,761,610 |
| (b) | Property, plant and equipment by country |
| | 2019 | | 2018 | | | | | | Brazil | 15,682,081 | | 16,278,608 | Mexico | 11,826,309 | | 11,656,910 | United States of America | 4,545,974 | | 3,539,495 | Germany | 258,291 | | 273,987 | Other | 2,526 | | 10,890 | | | 32,315,181 | | 31,759,890 |
F - 43F-43
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| 13 | Intangible assetsIntangible assets |
| | Goodwill | | | | | | | | | | | | | | | Customers | | | | | based on | | | | | | Customers | | | | | Brands | | Software | | and Suppliers | | | | | expected future | | Brands | | Software | | and Suppliers | | | Goodwill | | and Patents | | licenses | | Agreements | | Total | Balance as of December 31, 2017 | | 2,058,874 | | 230,087 | | 192,140 | | 246,396 | | 2,727,497 | | | profitability | | and Patents | | licenses | | Agreements | | Total | | | | | | | | | | Cost | 3,187,722 | | 339,512 | | 566,673 | | 772,888 | | 4,866,795 | | Accumulated amortization | (1,128,848) | | (110,880) | | (364,336) | | (453,644) | | (2,057,708) | | Balance as of December 31, 2016 | 2,058,874 | | 228,632 | | 202,337 | | 319,244 | | 2,809,087 | | Cost - previously disclosed | | 3,187,722 | | 349,316 | | 607,528 | | 772,253 | | 4,916,819 | Cost - reclassification | | (44) | | 58,515 | | 117,743 | | 121,861 | | 298,075 | Cost - reclassified | | 3,187,678 | | 407,831 | | 725,271 | | 894,114 | | 5,214,894 | | | | | | | | | | | | | Accumulated amortization - previously disclosed | | (1,128,848) | | (119,229) | | (415,388) | | (525,857) | | (2,189,322) | Accumulated amortization - reclassification | | 44 | | (61,252) | | (108,644) | | (128,223) | | (298,075) | Accumulated amortization - reclassified | | (1,128,804) | | (180,481) | | (524,032) | | (654,080) | | (2,487,397) | Balance as of January 1, 2018 | | 2,058,874 | | 227,350 | | 201,239 | | 240,034 | | 2,727,497 | | | | | | | | | | | | | | | | | | | | | Acquisitions | | | 340 | | 27,319 | | 297 | | 27,956 | | | | | 51,707 | | 272 | | 51,979 | Additions through acquisition on subsidiary | | | | | 1,316 | | 402 | | 1,718 | | Foreign currency translation adjustment | | | 8,357 | | 4,759 | | (932) | | 12,184 | | | 23,966 | | 10,037 | | (185) | | 33,818 | Other | | | 1,107 | | (124) | | | | 983 | | Cost | | | | 27,021 | | 21,053 | | 94,351 | | 142,425 | Amortization | | | | (3,055) | | (11,016) | | (94,536) | | (108,607) | Transfers by projects and stoppage in progress | | | | 2,532 | | 1,929 | | | | 4,461 | Disposals | | | | | | | | (1,003) | | (1,003) | Cost | | | 1,107 | | 269 | | | | 1,376 | | | | | | | (596,557) | | (596,557) | Amortization | | | | | (393) | | | | (393) | | | | | | | 595,554 | | 595,554 | Amortization | | | (8,349) | | (43,467) | | (72,615) | | (124,431) | | | (7,551) | | (30,780) | | (37,439) | | (75,770) | Net book value | 2,058,874 | | 230,087 | | 192,140 | | 246,396 | | 2,727,497 | 2,058,874 | | 246,297 | | 234,132 | | 201,679 | | 2,740,982 | Cost | 3,187,722 | | 349,316 | | 607,528 | | 772,253 | | 4,916,819 | 3,187,678 | | 437,384 | | 799,960 | | 392,180 | | 4,817,202 | Accumulated amortization | (1,128,848) | | (119,229) | | (415,388) | | (525,857) | | (2,189,322) | (1,128,804) | | (191,087) | | (565,828) | | (190,501) | | (2,076,220) | Balance as of December 31, 2017 | 2,058,874 | | 230,087 | | 192,140 | | 246,396 | | 2,727,497 | | | | | | | | | | | | | | Cost - reclassification | (44) | | 58,515 | | 117,743 | | 121,861 | | 298,075 | | Cost - reclassified | 3,187,678 | | 407,831 | | 725,271 | | 894,114 | | 5,214,894 | | | | | | | | | | | | | | Accumulated amortization - reclassification | 44 | | (61,252) | | (108,644) | | (128,223) | | (298,075) | | Accumulated amortization - reclassified | (1,128,804) | | (180,481) | | (524,032) | | (654,080) | | (2,487,397) | | Balance as of January 1, 2018 | 2,058,874 | | 227,350 | | 201,239 | | 240,034 | | 2,727,497 | | Balance as of December 31, 2018 | | 2,058,874 | | 246,297 | | 234,132 | | 201,679 | | 2,740,982 | | | | | | | | | | | | | | | | | | | | | Acquisitions | | | | | 51,707 | | 272 | | 51,979 | | | 112 | | 61,414 | | | | 61,526 | Foreign currency translation adjustment | | | 23,966 | | 10,037 | | (185) | | 33,818 | | | 12,957 | | 2,704 | | | | 15,661 | Cost | | | 27,021 | | 21,053 | | 94,351 | | 142,425 | | | 13,919 | | 6,356 | | | | 20,275 | Amortization | | | (3,055) | | (11,016) | | (94,536) | | (108,607) | | | (962) | | (3,652) | | | | (4,614) | Transfers from property, plant and equipment
projects and stoppage in progress | - | | 2,532 | | 1,929 | | | | 4,461 | | | | | 6,433 | | | | 6,433 | Other | | | | | | | (1,003) | | (1,003) | | | | | | | | | | Cost | | | | | | | (596,557) | | (596,557) | | | | | (4) | | | | (4) | Amortization | | | | | | | 595,554 | | 595,554 | | | | | 4 | | | | 4 | Amortization | | | (7,551) | | (30,780) | | (37,439) | | (75,770) | | | (7,751) | | (32,747) | | (22,016) | | (62,514) | Net book value | 2,058,874 | | 246,297 | | 234,132 | | 201,679 | | 2,740,982 | 2,058,874 | | 251,615 | | 271,936 | | 179,663 | | 2,762,088 | Cost | 3,187,678 | | 437,384 | | 799,960 | | 392,180 | | 4,817,202 | 3,187,678 | | 451,415 | | 874,159 | | 392,180 | | 4,905,432 | Accumulated amortization | (1,128,804) | | (191,087) | | (565,828) | | (190,501) | | (2,076,220) | (1,128,804) | | (199,800) | | (602,223) | | (212,517) | | (2,143,344) | Balance as of December 31, 2018 | 2,058,874 | | 246,297 | | 234,132 | | 201,679 | | 2,740,982 | | Balance as of December 31, 2019 | | 2,058,874 | | 251,615 | | 271,936 | | 179,663 | | 2,762,088 | | | | | | | | | | | | | | | | | | | | | Average annual rates of amortization | | | 4.96% | | 11.71% | | 6.00% | | | | | 4.96% | | 12.40% | | 6.00% | | |
The Company adopts the following accounting practice for each class of intangible assets: F - 44
Braskem S.A.| (a) | Goodwill
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
(a)Goodwill based on future profitability
|
The existing goodwill was determined in accordance with the criteria established by the accounting practices adopted in Brazil before the adoption of the IASB pronouncements and represent the excess of the amount paid over the amount of equity of the companies acquired. Such goodwill was systematically amortized until December 2008. As from 2009, it has been subject to annual impairment tests. In November 2018, Braskem conducted an impairment test F-44
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
On December 31, 2019, the Company tested the balances of the goodwill using the value in use method (discounted cash flow) and did not identify any loss, as shown in the table below: below for impairment: | | | | | | | Book value | | | | | | Allocated | | Cash flow | | (with goodwill | | | | | | goodwill | | (CF) | | and work capital) | | CF/Book value | CGU and operating segments | | | | | | | | | CGU - Chemicals South | | 926,854 | | 9,628,209 | | 2,479,778 | | 3.9 | Operating segment - Polyolefins | | 939,667 | | 21,750,937 | | 8,189,204 | | 2.7 | Operating segment - Vinyls | | 192,353 | | 4,617,326 | | 2,763,882 | | 1.7 |
| | Goodwill | CGU | | | Southern petrochemical complex | | 1,390,741 | Northeastern petrochemical complex | | 475,780 | Vinyls unity | | 192,353 |
(i)The carrying amount includes, in addition to goodwill, tangible and intangible assets with defined useful lives and working capital from each operating segment.
The determination of value in use involves judgements and assumptions adopted to determine the discounted cash flow areas described in Note 3.4(b)3.2.3(b). The WACC used was 11.72%10.69% p.a. The inflation rate considered for perpetuity was 3.7%3.5%. The recoverable amount is based on the fair value less cost of disposal, future capital expenditure and its associated costs, based on the discounted cash flow consistent with a market participant perspective, less incremental costs directly attributable to the disposal. The main assumptions consider a post-tax discount rate under current market conditions and an average growth rate of 2% p.a. Given the potential impact on cash flows of the “discount rate” and “perpetuity”, Braskemthe Company conducted a sensitivity analysis based on changes in these variables with cash flows shownconsidering +0.5% on discount rate and -0.5% on perpetuity. Based on the analyses conducted by Management, there was no need to record impairment losses for the balances of these assets in the table below:year ended December 31, 2019. | | | | | | | +0.5% on | | -0.5% on | | | | | | | | discount rate | | perpetuity | CGU and operating segments | | | | | | | | | CGU - Chemicals South | | | | | | 9,099,954 | | 9,249,202 | Operating segment - Polyolefins | | | | | | 20,455,434 | | 20,798,767 | Operating segment - Vinyls | | | | | | 4,351,801 | | 4,424,347 |
The main assumptions used for projecting cash flows are related to the projection of macroeconomic indicators, international prices and global and local demand in the countries where Braskem has operational production plants. Macroeconomic indicators are provided by a widely recognized consulting firm and include items such as: exchange, inflation and interest rates, among others. Prices for key petrochemical products are obtained from projections madeproduced by an internationalspecialized third party consulting firm. However,firm, which are reviewed and supplemented based on Management´s experience. Also, final prices take into consideration meetings of specific internal committees and the knowledge of the Company’s experts in preparing the benchmarks for each market. In most cases, for the projected period, the internally projected prices have gone through a new revision compared to those originally projected by the internationalspecialized third party consulting firm. Similar to for prices, global demand also is contracted from a specific consulting firm and, in the markets where the Company operates more directly, they consider additional variables for the composition of local demand. In the Vinyls segment, whose main product is PVC, the projected cash flow exceeded the book value of assets by 67%. The main variables impacting this business are related to fluctuations in the exchange rate, internationalspreads (especially those related to the prices of naphtha, PVC and Caustic Soda) and Brazilian demand. Effective deviations of these important variables from the Company’s projections could lead to cash flows being lower than the value of the assets.
F - 45F-45
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (b) | Intangible assets with definite useful lives |
| (b.1) | Trademarks and patents |
(b)Intangible assets with defined useful lives
(b.1) Trademarks and patents
The technologies acquired from third parties, including those acquired through business combination, are recorded at the cost of acquisition and/or fair value and other directly attributed costs, net of accumulated amortization and provision for impairment, when applicable. Technologies that have defineddefinite useful lives and are amortized using the straight-line method based on the term of the purchase agreement (between 10 and 20 years). Expenditures with research and development are accounted for in profit andor loss as they are incurred.incurred, and development expenses are capitalized when projects are viable. | (b.2) | Contractual customer and supplier relationships |
(b.2) Contractual customer and supplier relationships
Contractual customer and supplier relationships arising from a business combination were recognized at fair value at the respective acquisition dates. These contractual customer and supplier relationships have a finitedefinite useful life and are amortized using the straight-line method over the term of the respective purchase or sale agreement (between 14 and 28 years). (b.3) Software
All software booked has defineddefinite useful life estimated between 35 and 10 years and is amortized using the straight-line method. Costs associated with maintaining computer software programs are recognized in profit andor loss as incurred. (c)| (c) | Intangible assets by country |
| | 2019 | | 2018 | | | | | | Brazil | 2,521,941 | | 2,510,503 | Mexico | 193,741 | | 178,261 | United States of America | 24,313 | | 26,791 | Germany | 22,077 | | 25,373 | Other | 16 | | 54 | | | 2,762,088 | | 2,740,982 |
| 14 | Right-of-use assets and Lease Liability |
The Company leases various offices, railars, vessels, pieces of equipment and vehicles. Such leases are negotiated individually and are subject to various terms and conditions. The right-of-use asset is measured at the cost composed of: | · | Amount initially measured of the lease liabilities; | | · | Any payment made up to the start of the lease, deducting any incentive received; | | · | Any initial direct cost; and | | · | Renovation costs. |
F-46
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
Changes in right-of-use assets in 2019: | | | | | Transfer of | | Initial Adoption | | | | | | | | Foreign currency | | | | | | 2018 | | fixed assets | | 01/01/2019 | | Addition | | Depreciation | | Disposal | | translation adjustment | | 2019 | | | | | | | | | | | | | | | | | | | Buildings and constructions | | | | | 207,524 | | 153,771 | | (27,759) | | (122,488) | | 1,122 | | 212,170 | Computer equipment and goods | | | 2,726 | | 4,932 | | 6,179 | | (1,446) | | | | 132 | | 12,523 | Machinery and equipment | | | 7,956 | | 526,318 | | 344,928 | | (136,615) | | | | 661 | | 743,248 | Ships | | | | | 906,495 | | 150,670 | | (191,778) | | | | | | 865,387 | Rail cars | | | 87,313 | | 633,492 | | 103,169 | | (132,728) | | | | 54,794 | | 746,040 | Vehicles | | | | | 35,479 | | 1,073 | | (10,493) | | | | 227 | | 26,286 | Total | | | 97,995 | | 2,314,240 | | 759,790 | | (500,819) | | (122,488) | | 56,936 | | 2,605,654 |
The expense for the short-term leases recognized in the 12-month period ended December 31, 2019 was R$103,929. The expense related to low-value leases recognized in the 12-month period ended December 31, 2019 was R$1,070. To optimize lease costs during the lease term, the Company must provide guaranteed residual amounts for the leased asset. For certain lease agreements for freight cars, which were classified until December 31, 2018 as financial leases, the Company guaranteed any difference between the flow of contractual payments and the fair value of these assets upon the end of the enforceable term, limited to R$50,622 (US$12,559) as of December 31, 2019 and R$48,664 (US$12,559) as of December 31, 2018. The lease payments are deducted using the interest rate of the agreement. If this rate cannot be determined, the Company’s incremental borrowing rate, which corresponds to the rate the Company would pay to take out any loan with similar term and guarantee, for obtaining a similar asset in a similar economic environment and conditions. Extension Options Some leases contains extension options exercisable by the Company. The extension options held are exercisable only by the Company and not by the lessors. The Company assesses at lease commencement date whether it is reasonably certain to exercise the options if there is a significant event or significant changes in circumstances within its control.
F-47
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
Changes in lease liability | 2019 | | | Balance at December 31, 2018 | 100,557 | | | Initial adoption IFRS 16 | 2,191,908 | Balance at January 01, 2019 | 2,292,465 | | | Acquired | 911,619 | Disposals | (122,488) | Interests and monetary and exchange variations, net | 121,061 | Currancy translation adjustments | 56,805 | Payments | (454,190) | Interest paid | (128,376) | Balance at December 31, 2019 | 2,676,896 | | | Current liability | 676,291 | Non-current liability | 2,000,605 | Total | 2,676,896 |
Payment Schedule | | | 2018 | | 2017 | | | | | | | Brazil | | 2,510,503 | | 2,502,231 | Mexico | | 178,261 | | 151,930 | United States of America | | 26,791 | | 47,357 | Germany | | 25,373 | | 25,948 | Other | | 54 | | 31 | | | | 2,740,982 | | 2,727,497 |
| | 2019 | | | | 2021 | 484,956 | 2022 | 421,163 | 2023 | 316,218 | 2024 | 293,363 | 2025 | 177,118 | 2026 thereafter | 307,787 | Total | 2,000,605 |
| (c) | Non-cash investing and financing activity transactions: |
Net effect of additions/acquired and disposals of leasing that not affect the cash flow in 2019, in compliance with IFRS 16, is R$ 580,055. 14Trade account payables
F-48 | | | | 2018 | | 2017 | Trade payables: | | | | | Domestic market | | 1,551,554 | | 2,287,767 | Foreign market | (i) | 6,934,598 | | 2,817,917 | Present value adjustment - foreign market | | (107,648) | | (46,888) | | | | | 8,378,504 | | 5,058,796 | | | | | | | | Current liabilities | | 8,341,252 | | 5,058,796 | Non-current liabilities | | 37,252 | | | | | | | 8,378,504 | | 5,058,796 |
(i) | Braskem S.A.Considers R$5.6 billion in purchases of raw material maturing in up to 360 days, for which the Company provides letters of credit issued by financial institutions, where suppliers are the beneficiaries.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| | | Note | | 2019 | | 2018 | Trade payables: | | | | | | Domestic market | | | | | | Third parties | | | 1,081,076 | | 1,374,379 | Related parties | 9 | | 155,980 | | 177,175 | | | | | | 1,237,056 | | 1,551,554 | Foreign market | | | | | | Third parties | (i) | | 7,964,536 | | 6,934,598 | Present value adjustment - foreign market | (ii) | | (80,766) | | (107,648) | | | | | | 9,120,826 | | 8,378,504 | | | | | | | | | Current liabilities | | | 9,116,989 | | 8,341,252 | Non-current liabilities | | | 3,837 | | 37,252 | | | | | | 9,120,826 | | 8,378,504 |
F - 46
| (i) | Considers R$6.5 billion (R$5.6 billion in 2018) in raw material purchases due in up to 360 days for which the Company provides letters of credit issued by financial institutions that indicate the suppliers as beneficiaries. | | | | | (ii) | The rate for calculating the Present Value Adjustment applied to the external market payments with terms equal to or longer than 90 day is calculated based on the average rate for lengthening the term of trade payables. |
F-49
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| | | | Annual financial charges | | 2019 | | 2018 | Foreign currency | | | | | | | | | Bonds | | Note 16 (b) | | 24,583,325 | | 21,930,575 | | | Export prepayment | | Note 16 (c) | | 863,293 | | 810,542 | | | Working capital | | Argentine Peso exchange variation | | | | 48 | | | Investments | | Note 16 (d) | | 751,376 | | 620,160 | | | Other | | Note 16 (e) | | 1,952,667 | | 1,147,397 | | | Transactions costs | | | | (499,194) | | (346,921) | | | | | | | 27,651,467 | | 24,161,801 | | | | | | | | | | | | Current liabilities | | | | 676,831 | | 610,922 | | | Non-current liabilities | | | | 26,974,636 | | 23,550,879 | | | Total | | | | 27,651,467 | | 24,161,801 | | | | | | | | | | Local currency | | | | | | | | | Export credit notes | | 100.00 of CDI + 0.70 | | 405,642 | | 406,258 | | | Commercial notes | | 100.00 of CDI + 0.85 | | 554,307 | | | | | BNDES | | 4.00 | | 19,998 | | 52,081 | | | BNDES | | IPCA + 6.04 | | 270,520 | | | | | BNB/ FINEP/ FUNDES/FINISA/FINAME | | 6.01 | | 78,776 | | 239,969 | | | FINAME | | TLP + 6.00 | | 324 | | 555 | | | BNB-FNE (Fundo Constitucional de Financiamentos do Nordeste) | IPCA + interest between 2.39 and 2.78 | | 5,582 | | | | | Fundo de Desenvolvimento do Nordeste (FDNE) | | 6.50 | | 32,152 | | 37,099 | | | Other | | 19.14 | | 237 | | 426 | | | Transactions costs | | | | (2,029) | | (33) | | | | | | | 1,365,509 | | 736,355 | | | | | | | | | | | | Current liabilities | | | | 98,093 | | 126,514 | | | Non-current liabilities | | | | 1,267,416 | | 609,841 | | | Total | | | | 1,365,509 | | 736,355 | | | | | | | | | | Foreign currency and local currency | | | | | | | | | Current liabilities | | | | 774,924 | | 737,436 | | | Non-current liabilities | | | | 28,242,052 | | 24,160,720 | | | Total | | | | 29,016,976 | | 24,898,156 |
| (i) | At December 31, 2109, the Company complied with all covenants. |
F-50
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| | | | Issue amount | | | | Interest | | | | | Issue date | | | US$ | | Maturity | | (% per year) | | 2019 | | 2018 | | | | | | | | | | | | | | May-2010 | | (i) | 400,000 | | May-2020 | | 7.00 | | | | 81,434 | May-2010 | | (i) | 350,000 | | May-2020 | | 7.00 | | | | 1,370,156 | October-2010 | | | 450,000 | | no maturity date | | 7.38 | | 1,025,428 | | 985,767 | April-2011 | | (i) | 750,000 | | April-2021 | | 5.75 | | | | 2,676,195 | July-2011 | | | 500,000 | | July-2041 | | 7.13 | | 2,078,372 | | 1,997,984 | February-2012 | | (i) | 250,000 | | April-2021 | | 5.75 | | | | 980,304 | February-2012 | | | 250,000 | | no maturity date | | 7.38 | | 1,025,428 | | 985,767 | May-2012 | | (ii) | 500,000 | | May-2022 | | 5.38 | | 1,175,799 | | 1,954,177 | July-2012 | | | 250,000 | | July-2041 | | 7.13 | | 1,039,186 | | 998,992 | February-2014 | | | 500,000 | | February-2024 | | 6.45 | | 2,068,790 | | 1,988,773 | May-2014 | | | 250,000 | | February-2024 | | 6.45 | | 1,034,395 | | 994,387 | October-2017 | | (iii) | 500,000 | | January-2023 | | 3.50 | | 847,715 | | 1,969,609 | October-2017 | | | 1,250,000 | | January-2028 | | 4.50 | | 5,145,440 | | 4,947,030 | November-2019 | | (iv) | 1,500,000 | | January-2030 | | 4.50 | | 6,090,640 | | | November-2019 | | (v) | 750,000 | | January-2050 | | 5.88 | | 3,052,132 | | | Total | | | 8,450,000 | | | | | | 24,583,325 | | 21,930,575 |
| (i) | Prepaid. | | (ii) | Partially prepaid (US$210,735). | | (iii) | Partially prepaid (US$293,105). | | (iv) | The effective interest rate including transaction costs is 4.70% p.a. | | (v) | The effective interest rate including transaction costs is 5.95% p.a. |
The Company and its subsidiaries may, from time to time, acquire in the secondary marketbonds issued by the Company and/or its subsidiaries.
| | | | Initial amount | | | | | | | | | | | | | of the transaction | | | | | | | Issue date | | | (US$ thousand) | | Maturity | | Charges (% per year) | | 2019 | | 2018 | January-2013 | | (i) | 200,000 | | November-2022 | | US dollar exchange variation + semiannual Libor + 1.10 | | | | 311,082 | September-2017 | | 135,000 | | March-2027 | | US dollar exchange variation + semiannual Libor + 1.61 | | 457,712 | | 499,460 | October-2019 | | | 100,000 | | October-2024 | | US dollar exchange variation + semiannual Libor + 1.75 | | 405,581 | | | Total | | | 435,000 | | | | | | 863,293 | | 810,542 |
| (i) | Prepaid in November 2019. |
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
15Borrowings
(a)Borrowings
| | | | Annual financial charges | | 2018 | | 2017 | Foreign currency | | | | | | | | | | | Bonds | | Note 15 (b) | | | | 21,930,575 | | 20,082,588 | | | Export prepayment | | Note 15 (c) | | | | 810,542 | | 781,573 | | | Export credit notes | | Exchange variation + 7.30 | | | (i) | | | 679,895 | | | Working capital | | US dollar exchange variation + 3.15% | | | | | 883,181 | | | Working capital | | Argentine Peso exchange variation | | | | 48 | | | | | Investments | | Note 15 (d) | | | | 620,160 | | | | | Other - SACE | | Note 15 (e) | | | | 1,147,397 | | | | | Transactions costs | | | | | | (346,921) | | (285,657) | | | | | | | | | 24,161,801 | | 22,141,580 | | | | | | | | | | | | | | Current liabilities | | | | | | 610,922 | | 985,639 | | | Non-current liabilities | | | | | | 23,550,879 | | 21,155,941 | | | Total | | | | | | 24,161,801 | | 22,141,580 | | | | | | | | | | | | Local currency | | | | | | | | | | | Export credit notes | | 100.00 of CDI + 0.70 | | | | 406,258 | | | | | Export credit notes | | 105.00 and 108.00 of CDI | | | (i) | | | 508,146 | | | BNDES | | TJLP + interest between 0.00 and 2.62 | | (i) | | | 31,347 | | | BNDES | | SELIC + 2.32 | | | (i) | | | 22,039 | | | BNDES | | Interest between 3.50 and 4.00 | | | (ii) | 52,081 | | 132,020 | | | BNB/ FINEP/ FUNDES/FINISA/FINAME | | 5.83% | | | (iii) | 239,969 | | 486,227 | | | FINAME | | TJLP + 6.00 | | | | 555 | | 2,293 | | | Fundo de Desenvolvimento do Nordeste (FDNE) | | 6.5% | | | | 37,099 | | 42,045 | | | Other | | 19.14% | | | | 426 | | 655 | | | Transactions costs | | | | | | (33) | | (4,931) | | | | | | | | | 736,355 | | 1,219,841 | | | | | | | | | | | | | | Current liabilities | | | | | | 126,514 | | 199,142 | | | Non-current liabilities | | | | | | 609,841 | | 1,020,699 | | | Total | | | | | | 736,355 | | 1,219,841 | | | | | | | | | | | | Foreign currency and local currency | | | | | | | | | | | Current liabilities | | | | | | 737,436 | | 1,184,781 | | | Non-current liabilities | | | | | | 24,160,720 | | 22,176,640 | | | Total | | | | | | 24,898,156 | | 23,361,421 |
(i)Contracts with advanced settlement.
(ii)Contracts partially settled in advance in the amount of R$32.287.
(iii)Contracts partially settled in advance in the amount of R$138.230.
F - 47F-51
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (d) | Capital raised for construction of new plant in United States |
(b)Bonds
| | | | Issue amount | | | | Interest | | | | | Issue date | | | US$ | | Maturity | | (% per year) | | 2018 | | 2017 | June-2008 | | | 500,000 | | June-2018 | | 7.25 | | | | 440,274 | May-2010 | | | 400,000 | | May-2020 | | 7.00 | | 81,434 | | 159,341 | May-2010 | | | 350,000 | | May-2020 | | 7.00 | | 1,370,156 | | 1,169,732 | October-2010 | | (i) | 450,000 | | no maturity date | | 7.38 | | 985,767 | | 1,514,826 | April-2011 | | | 750,000 | | April-2021 | | 5.75 | | 2,676,195 | | 2,502,351 | July-2011 | | | 500,000 | | July-2041 | | 7.13 | | 1,997,984 | | 1,705,722 | February-2012 | | | 250,000 | | April-2021 | | 5.75 | | 980,304 | | 836,907 | February-2012 | | | 250,000 | | no maturity date | | 7.38 | | 985,767 | | 841,570 | May-2012 | | | 500,000 | | May-2022 | | 5.38 | | 1,954,177 | | 1,668,323 | July-2012 | | | 250,000 | | July-2041 | | 7.13 | | 998,992 | | 852,861 | February-2014 | | | 500,000 | | February-2024 | | 6.45 | | 1,988,773 | | 1,697,859 | May-2014 | | | 250,000 | | February-2024 | | 6.45 | | 994,387 | | 848,929 | October-2017 | | | 500,000 | | January-2023 | | 3.50 | | 1,969,609 | | 1,667,025 | October-2017 | | | 1,250,000 | | January-2028 | | 4.50 | | 4,947,030 | | 4,176,868 | Total | | | 6,700,000 | | | | | | 21,930,575 | | 20,082,588 |
(i)Part of the contracts settled in the amount of R$825,720.
(c)Export pre-payment
| | | | Initial amount | | | | | | | | | | | | | of the transaction | | | | | | | Issue date | | | (US$ thousand) | | Maturity | | Charges (% per year) | | 2018 | | 2017 | January-2013 | | | 200,000 | | November-2022 | | US dollar exchange variation + semiannual Libor + 1.10 | | 311,082 | | 331,701 | September-2017 | | 135,000 | | March-2017 | | US dollar exchange variation + semiannual Libor + 1.61 | | 499,460 | | 449,872 | Total | | | 335,000 | | | | | | 810,542 | | 781,573 |
(d)Capital raised for investments
The subsidiary Braskem America contracted a credit facility in the amount of up to US$225 million (R$ 900 million) that is secured by Euler Hermes, a German export credit agency, which will be used to finance a portion of the investment in the new PP plant located in La Porte, Texas, United States.Texas. The funds will be released in accordance with the progress of the project’s construction and the total amount funded is expected to be disbursed by December 30, 2020. | | | | Initial amount | | | | | | | | | | | Initial amount | | | | | | | | | | | | | of the transaction | | | | | | | | | of the transaction | | | | | | | Issue date | | | (US$) | | Maturity | | Charges (% per year) | | 2018 | | 2017 | | | (US$) | | Maturity | | Charges (% per year) | | 2019 | | 2018 | July-2018 | | (i) | 158,150 | | December-2028 | | Us dollar exchange variation + semianual Libor + 0.65 | | 620,160 | | | | (i) | 179,398 | | December-2028 | | Us dollar exchange variation + semianual Libor + 0.65 | | 751,376 | | 620,160 | Total | | | 158,150 | | | | | | 620,160 | | | | | 179,398 | | | | | | 751,376 | | 620,160 |
(i)US$130,650 released in July 2018, US$13,677 released in September 2018 and US$13,823 released in December 2018.
F - 48
| (i) | US$130,650 released in July 2018, US$13,677 in September 2018, US$13,823 in December 2018, US$7,688 in March 2019, US$6,231 in June 2019, US$4,549 in September 2019 and US$2,780 in December 2019. |
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
| | | | | | Initial amount | | | | | | | | | | | | | | | of the transaction | | | | | | | Identification | | Issue date | | | (US$) | | Maturity | | Charges (% per year) | | 2019 | | 2018 | SACE | (i) | November-2018 | 295,125 | | November-2028 | Us dollar exchange variation + semianual Libor + 0.90 | | 1,073,526 | | 1,147,397 | SACE | (i) | December-2019 | 150,000 | | December-2029 | Us dollar exchange variation + semianual Libor + 0.90 | | 605,448 | | | MONFORTE | (ii) | April-2019 | | | 72,345 | | April-2026 | | Us dollar exchange variation + semianual Libor + 1.00 | | 273,693 | | | | | | Total | | | 517,470 | | | | | | 1,952,667 | | 1,147,397 |
(e)Others - SACE
The subsidiary Braskem Netherlands B.V. secured a financing facility of US$295 million guaranteed by SACE Covered Facility Agreement, the Italian export credit agency.
| | | | Initial amount | | | | | | | | | | | | | of the transaction | | | | | | | Issue date | | | (US$) | | Maturity | | Charges (% per year) | | 2018 | | 2017 | November-2018 | 295,125 | | November-2028 | Us dollar exchange variation + semianual Libor + 0.90 | | 1,147,397 | | | Total | | | 295,125 | | | | | | 1,147,397 | | |
| (i) | Credit facility contracted by the subsidiary Braskem Netherlands B.V. with guarantee from SACE Covered Facility Agreement, an Italian export credit agency. | | (ii) | Credit facility contracted by Braskem S.A. with a term of 7 years. To consummate this facility, certain assets of the Company’s plants were pledged to the financial institution in amount higher than financing. |
(f)Payment schedule
The maturity profile of the long-term amounts is as follows: | | | 2018 | | 2017 | | | | 2019 | | 2018 | | | | | | | | | | | | | 2019 | | | | 1,245,895 | | 2020 | | 1,748,531 | | 2,199,869 | | | | | | 1,748,531 | 2021 | | 3,933,857 | | 3,655,465 | | | | 380,324 | | 3,933,857 | 2022 | | 2,256,444 | | 1,801,844 | | | | 1,549,976 | | 2,256,444 | 2023 | | 2,355,549 | | 1,709,587 | | | | 1,416,730 | | 2,355,549 | 2024 | | 3,336,032 | | 2,539,216 | | | | 4,418,409 | | 3,336,032 | 2025 | | 234,270 | | 45,994 | | | | 369,725 | | 234,270 | 2026 | | 234,296 | | 44,239 | | | | 350,320 | | 234,296 | 2027 | | 205,157 | | 17,586 | | | | 297,382 | | 205,157 | 2028 and thereafter | | 9,856,584 | | 8,916,945 | | 2028 | | | | | 5,314,976 | | 5,028,265 | 2029 | | | | | 71,326 | | | 2030 and thereafter | | | | | 14,072,884 | | 4,828,319 | Total | | 24,160,720 | | 22,176,640 | | | | 28,242,052 | | 24,160,720 |
(g)F-52
| Braskem S.A.Guarantees
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
Braskem gave collateral for part of its borrowings as follows: | | | | | Total | | Total | | | | | | Total | | Total | | | Loans | | Maturity | | debt 2018 | | guaranteed | | Guarantees | | Maturity | | debt 2019 | | guaranteed | | Guarantees | | | | | | | | | | | | | | | | | | | BNB | | December-2022 | | 88,909 | | 88,909 | | Mortgage of plants, pledge of machinery and equipment | | March-2023 | | 24,542 | | 24,542 | | Bank surety | BNB | | March-2023 | | 32,093 | | 32,093 | | Bank surety | | BNDES | | January-2021 | | 52,081 | | 52,081 | | Mortgage of plants, land and property, pledge of machinery and equipment | | January-2021 | | 19,998 | | 19,998 | | Mortgage of plants, land and property, pledge of machinery and equipment | FUNDES | | June-2020 | | 47,929 | | 47,929 | | Mortgage of plants, land and property, pledge of machinery and equipment | | June-2020 | | 15,976 | | 15,976 | | Mortgage of plants, land and property, pledge of machinery and equipment | FINEP | | July-2024 | | 61,725 | | 61,725 | | Bank surety | | July-2024 | | 33,783 | | 33,783 | | Bank surety | FINEP | | December-2019 | | 2,872 | | 2,872 | | Bank surety, pledge of equipment and current account lockout (restricted fund). | | FINAME | | April-2021 | | 1,496 | | 1,496 | | Pledge of equipment | | April-2021 | | 324 | | 324 | | Pledge of equipment | FINISA | | December-2023 | | 5,500 | | 5,500 | | Bank surety | | December-2023 | | 4,475 | | 4,475 | | Bank surety | OTHER | | July-2021 | | 424 | | 424 | | Pledge of equipment | | BNB-FNE | | | December-2027 | | 5,582 | | 5,582 | | Bank surety and pledge of reserve liquidity fund. | Other | | | July-2021 | | 237 | | 237 | | Pledge of equipment | Total | | | | 293,029 | | 293,029 | | | | | | 104,917 | | 104,917 | | |
Braskem S.A. has fully and unconditionally guaranteed the debt securities issued by Braskem Finance, Braskem America Finance and Braskem Netherlands Finance B.V. 100-percent-owned subsidiaries of Braskem. There are no significant restrictions on the ability of Braskem to obtain funds from these subsidiaries. F - 49
| 17 | Braskem Idesa financing |
| | | Principal amount US$ | | | | | | | | | Identification | | | Maturity | | Charges (% per year) | | 2019 | | 2018 | | | | | | | | | | | | | Project finance | | | | | | | | | | | Project finance I | | 700,000 | | February-2027 | | US dollar exchange variation + quarterly Libor + 3.25 | (i) | 2,149,002 | | 2,335,825 | Project finance II | | 210,000 | | February-2027 | | US dollar exchange variation + 6.17 | | 608,260 | | 657,689 | Project finance III | | 600,000 | | February-2029 | | US dollar exchange variation + 4.33 | (ii) | 1,849,896 | | 1,983,113 | Project finance IV | | 660,000 | | February-2029 | | US dollar exchange variation + quarterly Libor + 3.88 | (iii) | 2,078,545 | | 2,225,042 | Project finance V | | 400,000 | | February-2029 | | US dollar exchange variation + quarterly Libor + 4.65 | (iv) | | | 1,326,901 | Project finance VI | | 89,994 | | February-2029 | | US dollar exchange variation + quarterly Libor + 2.73 | (iv) | | | 297,158 | Project finance VII | | 533,095 | | February-2029 | | US dollar exchange variation + quarterly Libor + 4.64 | (iv) | | | 1,768,389 | Total under current liabilities | 3,193,089 | | | | | | 6,685,703 | | 10,594,117 | | | | | | | | | | | | | Bond | | 900,000 | | November-2029 | | US dollar exchange variation + 7.45 | | 3,640,381 | | | | | | | | | | | | | | | Transactions costs | | | | | | | | (344,358) | | (89,525) | | | | | | | | | | | | | Total | | | | | | | | 9,981,726 | | 10,504,592 | | | | | | | | | | | | | Current liabilities | | | | | | | | 744,408 | | 10,504,592 | Non-current liabilities | | | | | | | | 9,237,318 | | | Total | | | | | | | | 9,981,726 | | 10,504,592 |
| (i) | Partial prepayment of US$10,344. | | (ii) | Partial prepayment of US$8,866. | | (iii) | Partial prepayment of US$12,856. | | (iv) | Prepaid. |
On December 2, 2019, Braskem Idesa issued US$900 million in bonds (R$3,796 million) with maturity in November 2029 and interest rate of 7.45% p.a. The issue was priced at 99.65% of face value, which represents a yield of 7.5% p.a. The transaction costs associated with the bond issue, in the amount of approximately US$71 million (R$299 million) were registered initially as a reduction in liabilities, so the debt is amortized over the term of the agreement by its effective interest rate (8.24% p.a.). F-53
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
16The proceeds from the issue were used to fully settle or to partially prepay of installments of the Project Finance debt contracted for the capital expenditures in the Braskem Idesa Financingpetrochemical complex.
| | | Initial value | | | | | | | | | | | | of operation | | | | | | | | | Identification | | US$ | | Maturity | | Charges (% per year) | | 2018 | | 2017 | | | | | | | | | | | | | Project finance | | | (i) | | | | | | | | Project finance I | | 700,000 | | February-2027 | | Us dollar exchange variation + quarterly Libor + 3.25 | | 2,335,825 | | 2,179,981 | Project finance II | | 210,000 | | February-2027 | | Us dollar exchange variation + 6.17 | | 657,689 | | 621,140 | Project finance III | | 600,000 | | February-2029 | | Us dollar exchange variation + 4.33 | | 1,983,113 | | 1,827,811 | Project finance IV | | 660,000 | | February-2029 | | Us dollar exchange variation + quarterly Libor + 3.88 | | 2,225,042 | | 2,032,093 | Project finance V | | 400,000 | | February-2029 | | Us dollar exchange variation + quarterly Libor + 4.65 | | 1,326,901 | | 1,221,997 | Project finance VI | | 89,994 | | February-2029 | | Us dollar exchange variation + quarterly Libor + 2.73 | | 297,158 | | 273,887 | Project finance VII | | 533,095 | | February-2029 | | Us dollar exchange variation + quarterly Libor + 4.64 | | 1,768,389 | | 1,627,479 | Transactions costs | | | | | | | | (89,525) | | (92,938) | Total | | 3,193,089 | | | | | | 10,504,592 | | 9,691,450 | | | | | | | | | | | | | Current liabilities | | | | | | | | 10,504,592 | | 9,691,450 | Total | | | | | | | | 10,504,592 | | 9,691,450 |
In keepingline with the Company’s Financial Policy, the investment in the Braskem Idesa petrochemical complex has beenwas financed under a Project Finance structure, inmodel, under which the construction loan must be repaidis paid exclusively using exclusively the cash generated by Braskem Ideathe company itself and with the shareholders pledgingprovide limited guarantees. Accordingly, thisThis financing structure includes the guarantees typical to Project Finance transactions, of this kind, such as assets, receivables, cash generation and other rights of Braskem Idesa. Project Finance borrowings include The financing also contains various contractual obligations (covenants) that areother covenants typical into contracts of this kind.
On the reporting date of the consolidated financial statements as of December 31, 2018, certain non-monetary obligations established in the company remains in breach of part of its non-financial contractual obligations.contracts remained unfulfilled. As a result, remains the reclassificationCompany continued to theclassify to current liabilityliabilities the entire balance of the non-current portion of the loan, outstanding, in the amount of R$9,554,476, in accordancecompliance with IAS 1 (Presentation of Financial Statements). In accordance with the aforementioned accounting standards, reclassification is required in situations in which the breach of certain contractual obligations entitles creditors to request from Braskem Idesa the prepayment of obligations in the short term. In this context, note that none of the creditors requested said prepayment of obligations and that Braskem Idesa has been settling its debt service obligations in accordance with their original maturity schedule. As described in note 35.l, onOn October 9, 2019, a Waivers & Consent package was approved by the Intercreditor Agend on behalf of the Lenders, thus extending the dates for achieving the Guaranteed Physical Completion Date from November 30, 2016 to December 31, 2020 and the Guaranteed Financial Completion Date from December 31, 2016 to December 31, 2020. The approval of the Waivers & Consent package allows Braskem Idesa obtainedto reclassify the waiver for such breaches with its creditors, therefore the long term debt will be reclassifiedSenior Debt from current liabilities back to non-current liabilities inaccording to the next annual financial statementsoriginal maturity.
The following amortization schedule presents the original long-term maturities excludingon December 31, 2019. In 2018, part of the reclassification todebt was presented in current liabilities, with early maturities arising from the aforementioned breach of contractual obligations.obligations: | | | 2019 | | 2018 | | | | | | | 2020 | | | | 1,016,916 | 2021 | | 800,752 | | 1,161,108 | 2022 | | 699,090 | | 968,519 | 2023 | | 892,568 | | 1,280,154 | 2024 | | 978,479 | | 1,385,087 | 2025 | | 883,333 | | 1,381,192 | 2026 | | 743,566 | | 1,194,964 | 2027 | | 329,718 | | 582,393 | 2028 | | 257,117 | | 482,038 | 2029 and thereafter | | 3,652,695 | | 102,105 | Total | | 9,237,318 | | 9,554,476 |
F-54
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
F - 50
Issue date | | Issuer | | Series | | Maturity | | Annual financial charges (%) | | 2019 | | 2018 | March-2013 | | DAC | | Single | | March-2025 | | IPCA + 6% | | 202,992 | | 210,506 | September-2013 | | Cetrel | | Single | | September-2025 | | 126.5% of CDI | | 71,575 | | 84,003 | | | | | | | | | | | | 274,567 | | 294,509 | | | | | | | | | | | | | | | Current liabilities | | | | | | | | | | 46,666 | | 27,732 | Non-current liabilities | | | | | | | | | 227,901 | | 266,777 | Total | | | | | | | | | | 274,567 | | 294,509 |
The maturity profile of the long-term debentures is as follows: | | | | | 2019 | | 2018 | | | | | | | | | 2020 | | | | | | 44,811 | 2021 | | | | 52,078 | | 50,722 | 2022 | | | | 52,100 | | 50,745 | 2023 | | | | 52,125 | | 50,769 | 2024 | | | | 52,153 | | 50,796 | 2025 | | | | 19,445 | | 18,934 | Total | | | | 227,901 | | 266,777 |
The issuers entered into agreements for the fiduciary sale of credit rights, in which attached accounts are maintained to cover debt service for the three months of the installments coming due, under the terms of the instruments of assignment.
F-55
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| | | 2018 | | 2017 | | | | | | | 2019 | | | | 748,071 | 2020 | | 1,016,916 | | 877,450 | 2021 | | 1,161,108 | | 1,002,270 | 2022 | | 968,519 | | 835,009 | 2023 | | 1,280,154 | | 1,105,295 | 2024 | | 1,385,087 | | 1,195,682 | 2025 | | 1,381,192 | | 1,195,096 | 2026 | | 1,194,964 | | 1,052,156 | 2027 | | 582,393 | | 474,438 | 2028 and thereafter | | 584,143 | | 422,266 | Total | | 9,554,476 | | 8,907,733 |
| 19 | Reconciliation of borrowing activities in the statement of cash flow |
| | |
Current and non-current | | | | Borrowings, debentures and Braskem Idesa financing | | | | | | | | | | | | | | Total | | | | | | | | | | | | | | | | borrowings | | Braskem Idesa | | | | | | Other financial | | | | Borrowings | | Debentures | | and debentures | | financing | | Lease | | Dividends | | liabilities | | | | | | | | | | | | | | | | | Balance at December 31, 2018 | 24,898,156 | | 294,509 | | 25,192,665 | | 10,504,592 | | 100,557 | | 672,395 | | | | | | | | | | | | | | | | | | | Acquired | 20,586,103 | | | | 20,586,103 | | 3,497,622 | | | | | | 499,999 | Payments | (17,402,284) | | (23,125) | | (17,425,409) | | (4,398,453) | | (454,190) | | (668,904) | | | Cash used in financing activities | 3,183,819 | | (23,125) | | 3,160,694 | | (900,831) | | (454,190) | | (668,904) | | 499,999 | | | | | | | | | | | | | | | | | Other changes | | | | | | | | | | | | | | Interest paid | (1,440,754) | | (22,488) | | (1,463,242) | | (646,827) | | (128,376) | | | | | Interest and monetary and exchange variations, net | 2,292,120 | | 25,671 | | 2,317,791 | | 203,450 | | 121,061 | | | | 16,934 | Initial adoption on January 1, 2019 | | | | | | | | | 2,191,908 | | | | | Acquired | | | | | | | | | 911,619 | | | | | Disposal | | | | | | | | | (122,488) | | | | | Currency translation adjustments | 83,635 | | | | 83,635 | | 821,342 | | 56,805 | | | | | Additional dividends of subsidiary | | | | | | | | | | | 5,125 | | | Prescribed dividends | | | | | | | | | | | (2,009) | | | Other | | | | | | | | | | | (105) | | | | | | 935,001 | | 3,183 | | 938,184 | | 377,965 | | 3,030,529 | | 3,011 | | 16,934 | | | | | | | | | | | | | | | | | Balance at December 31, 2019 | 29,016,976 | | 274,567 | | 29,291,543 | | 9,981,726 | | 2,676,896 | | 6,502 | | 516,933 |
17Debentures
Issue date | | Series | | Maturity | | Annual financial charges (%) | | 2018 | | 2017 | March-2013 | | Single | | March-2025 | | IPCA + 6% | | 210,506 | | 216,968 | September-2013 | | Single | | September-2025 | | 126,5% of CDI | | 84,003 | | 96,356 | | | | | | | | | | 294,509 | | 313,324 | | | | | | | | | | | | | Current liabilities | | | | | | | | 27,732 | | 27,183 | Non-current liabilities | | | | | | | 266,777 | | 286,141 | Total | | | | | | | | 294,509 | | 313,324 |
(a)Payment schedule
The amount of debentures with long-term maturities, is as follows:
| | | 2018 | | 2017 | | | | | | | 2019 | | | | 26,629 | 2020 | | 44,811 | | 43,674 | 2021 | | 50,722 | | 49,326 | 2022 | | 50,745 | | 49,326 | 2023 | | 50,769 | | 49,326 | 2024 | | 50,796 | | 49,326 | 2025 | | 18,934 | | 18,534 | Total | | 266,777 | | 286,141 |
F - 51F-56
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| 20 | Financial instruments | | | | (a) | Recognition and initial measurement |
(b)Guarantees
The Company entered into agreements foradopted IFRS 9 - Financial Instruments to replace IAS 39 - Financial Instruments: Recognition and Measurement on January 1, 2018. The changes made to the fiduciary assignment of receivables, withCompany's accounting policies are described below, as well as their impacts on the maintenance of collection accounts in order to meet the debt service equivalent for up to three months of future installments, in accordance with the respective assignment agreements.consolidated financial statements.
| (b) | Classification and subsequent measurement |
18Financial Assets
On initial recognition, a financial asset is classified as measured at: amortised cost; fair value through other comprehensive income (FVOCI) – debt investment; FVOCI – equity investment; or fair value through profit or loss (FVTPL). The standard eliminates the following categories that exist under IAS 39: held to maturity, held for trading, loans and receivables and available for sale. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: | (i) | It is held within a business model whose objective is to hold assets to collect contractual cash flows; and | | (ii) | Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: | (i) | Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. ReconciliationFinancial assets – Subsequent measurement and gains and losses
For subsequent measurement purposes, financial assets are classified into four categories: | (i) | Financial assets at amortized cost (debt instruments); | | (ii) | Financial assets at fair value through other comprehensive income with reclassification of accumulated gains and losses (debt instruments); | | (iii) | Financial assets designated at fair value through other comprehensive income, without reclassification of gains and losses accumulated at the time of derecognition (equity instruments); and | | (iv) | Financial assets at fair value through profit or loss. |
Financial liabilities - Classification, subsequent measurement and gains and losses Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss.
F-57
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
Financial Asset The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of financing activitiesthe risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. The Company enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognised. Financial Liabilities The Company derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss. Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. | (e) | Deratives financial instruments and hedge accounting |
The Company holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met. Derivatives are initially measured at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognised in profit or loss. The Company designates certain derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates and interest rates and certain derivatives and non-derivative financial liabilities as hedges of foreign exchange risk on a net investment in a foreign operation. At inception of designated hedging relationships, the Company documents the risk management objective and strategy for undertaking the hedge. The Company also documents the economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other. F-58
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
Cash flow hedge When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in OCI and accumulated in the hedging reserve. The effective portion of changes in the fair value of the derivative that is recognised in OCI is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in the hedging reserve remains in equity until, for a hedge of a transaction resulting in the recognition of a non-financial item, it is included in the non-financial item’s cost on its initial recognition or, for other cash flow hedges, it is reclassified to profit or loss in the same period or periods as the hedged expected future cash flows affect profit or loss. If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in the hedging reserve and the cost of hedging reserve are immediately reclassified to profit or loss. | | | Current and non-current | | | | Borrowings, debentures and Braskem Idesa financing | | | | | | | | | | | | | | | | | | | | | | | | Totalborrowings | | Braskem Idesa | | | | | | | | Borrowings | | Debentures | | and debentures | | financing | | Total | | Dividends | | | | | | | | | | | | | | | Balance at December 31, 2017 | 23,361,421 | | 313,324 | | 23,674,745 | | 9,691,450 | | 33,366,195 | | 3,850 | | | | | | | | | | | | | | | Acquired | 4,301,626 | | | | 4,301,626 | | | | 4,301,626 | | | Payments | (6,569,073) | | (23,124) | | (6,592,197) | | (812,929) | | (7,405,126) | | (1,499,900) | Cash used in financing activities | (2,267,447) | | (23,124) | | (2,290,571) | | (812,929) | | (3,103,500) | | (1,499,900) | | | | | | | | | | | | | | | Other changes | | | | | | | | | | | | Interest paid | (1,304,811) | | (23,609) | | (1,328,420) | | (588,381) | | (1,916,801) | | | Interest and monetary and exchange variations, net | 3,703,892 | | 27,918 | | 3,731,810 | | 604,837 | | 4,336,647 | | | Currency translation adjustments | 1,405,101 | | | | 1,405,101 | | 1,609,615 | | 3,014,716 | | | Additional dividends approved in the boar meeting | | | | | | | | | | | 1,500,000 | Mandatory minimum dividends | | | | | | | | | | | 667,419 | Prescribed dividends / other | | | | | | | | | | | 1,026 | | | | 3,804,182 | | 4,309 | | 3,808,491 | | 1,626,071 | | 5,434,562 | | 2,168,445 | | | | | | | | | | | | | | | Balance at December 31, 2018 | 24,898,156 | | 294,509 | | 25,192,665 | | 10,504,592 | | 35,697,257 | | 672,395 |
| 20.1 | Fair Value | | | | (a) | Fair value calculation |
19Financial instruments
19.1Fair Value
(a)Fair value calculation
The fair value of financial assets and liabilities is estimated as the amount for which a financial instrument could be exchanged in an arm’s length transaction and not in a forced sale or settlement. The following methods and assumptions were used to estimate the fair value: | (i) | (i)Financial assets classified as fair value through profit and loss or as fair value through other comprehensive income are measured in accordance with the fair value hierarchy (Level 1 and Level 2), with inputs used in the measurement processes obtained from sources that reflect the most recent observable market prices.
(ii)Trade accounts receivable and trade payables, mostly classified as amortized cost, corresponds to their respective carrying amounts due to the short-term maturity of these instruments. When purchase or sale prices include material financial charges, the securities are adjusted to their present value.
(iii)The fair value of borrowings is estimated by discounting future contractual cash flows at the market interest rate, which is available to Braskem in similar financial instruments.
(iv)The fair value of bonds is based on prices negotiated in financial markets, plus the respective carrying amount of interests.
| | | | | (ii) | Trade accounts receivable and trade payables, mostly classified as amortized cost, corresponds to their respective carrying amounts due to the short-term maturity of these instruments. When purchase or sale prices include material financial charges, the securities are adjusted to their present value. | | | | | (iii) | The fair value of borrowings is estimated by discounting future contractual cash flows at the market interest rate, which is available to Braskem in similar financial instruments. | | | | | (iv) | The fair value of bonds is based on prices negotiated in financial markets, plus the respective carrying amount of interests. |
The fair values of the remaining assets and liabilities correspond to their carrying amount. F - 52
F-59
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
(b)Fair value hierarchy
The Company adopts IFRS 7 to measure the fair value of financial instruments recorded in the balance sheet; this requires disclosure in accordance with the following fair value measurement hierarchy: Level 1 – fair value obtained through prices quoted (without adjustments) in active markets for identical assets or liabilities, such as the stock exchange; and Level 2 – fair value obtained from financial models using directly observable market data, such as discounted cash flow, when the instrument is a forward purchase/sale or a swap contract, or such as the Black-Scholes model, when the instrument has the characteristics of an option. To measure the credit risk of the parties involved in derivative instruments, Braskem uses CVA (Credit Valuation Adjustment) or DVA (Debt Valuation Adjustment) models, applied flow by flow on the mark-to-market value of each instrument. The Company adopts the ratingsof the other parties for positive flows and its own rating for negative flows, both available in the market and disclosed by renowned rating agencies, as a necessary assumption to define the probability of default. F - 53F-60
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| 20.2 | Non-derivative financial instruments and other liabilities |
19.2Non-derivative financial instruments and leniency agreement (Note 23.3)
| | | | | | | Fair value | | Book value | | Fair value | | | | Note | | Classification by category | | hierarchy | | 2019 | | 2018 | | 2019 | | 2018 | | | | | | | | | | | | | | | | | Cash and cash equivalents | | 5 | | | | | | | | | | | | | Cash and banks | | | | Amortized cost | | | | 2,303,231 | | 2,228,964 | | 2,303,231 | | 2,228,964 | Financial investments in Brazil | | | | Fair value through profit or loss | | Level 2 | | 1,963,185 | | 1,754,561 | | 1,963,185 | | 1,754,561 | Financial investments abroad | | | | Fair value through profit or loss | | Level 2 | | 2,537,464 | | 1,564,112 | | 2,537,464 | | 1,564,112 | | | | | | | | | | 6,803,880 | | 5,547,637 | | 6,803,880 | | 5,547,637 | | | | | | | | | | | | | | | | | Financial investments | | 6 | | | | | | | | | | | | | LFT´s and LF´s | | | | Fair value through profit or loss | | Level 2 | | 1,588,426 | | 2,247,272 | | 1,588,426 | | 2,247,272 | Time deposit investments | | | | Amortized cost | | Level 2 | | 38,759 | | 49,630 | | 38,759 | | 49,630 | Other | | | | Fair value through profit or loss | | Level 2 | | 70,027 | | 70,709 | | 70,027 | | 70,709 | | | | | | | | | | 1,697,212 | | 2,367,611 | | 1,697,212 | | 2,367,611 | | | | | | | | | | | | | | | | | Trade accounts receivable | | 7 | | Amortized cost | | | | 2,246,248 | | 3,045,463 | | 2,246,248 | | 3,045,463 | Trade accounts receivable | | 7 | | Fair value through profit or loss | | Level 2 | | 60,403 | | 47,540 | | 60,403 | | 47,540 | | | | | | | | | | | | | | | | | Trade payables | | 15 | | Amortized cost | | | | 9,120,826 | | 8,378,504 | | 9,120,826 | | 8,378,504 | | | | | | | | | | | | | | | | | Borrowings | | 16 | | Amortized cost | | | | | | | | | | | Foreign currency - Bond | | | | | | Level 1 | | 24,583,325 | | 21,930,575 | | 25,790,532 | | 22,028,040 | Foreign currency - other borrowings | | | | | | Level 2 | | 3,567,336 | | 2,578,147 | | 3,218,410 | | 2,277,069 | Local currency | | | | | | Level 2 | | 1,367,538 | | 736,388 | | 1,075,803 | | 598,926 | | | | | | | | | | 29,518,199 | | 25,245,110 | | 30,084,745 | | 24,904,035 | | | | | | | | | | | | | | | | | Braskem Idesa borrowings | | 17 | | Amortized cost | | | | | | | | | | | Project Finance | | | | | | Level 2 | | 6,685,703 | | 10,594,117 | | 6,116,434 | | 9,367,878 | Bond | | | | | | Level 1 | | 3,640,381 | | | | 3,892,878 | | - | | | | | | | | | | 10,326,084 | | 10,594,117 | | 10,009,312 | | 9,367,878 | | | | | | | | | | | | | | | | | Debentures | | 18 | | Amortized cost | | Level 2 | | 274,567 | | 294,509 | | 293,282 | | 239,976 | | | | | | | | | | | | | | | | | Loan to non-controlling
shareholder of Braskem Idesa | | 9 | | Amortized cost | | | | 2,395,887 | | 2,183,830 | | 2,395,887 | | 2,183,830 | | | | | | | | | | | | | | | | | Leniency agreement | | 25 | | Amortized cost | | | | 1,742,268 | | 1,842,518 | | 1,742,268 | | 1,842,518 | | | | | | | | | | | | | | | | | Provision - geological event in Alagoas | | 26 | | Amortized cost | | | | 3,383,067 | | | | 3,383,067 | | | | | | | | | | | | | | | | | | | Other financial liabilities | | 28 | | Amortized cost | | | | 516,933 | | | | 516,933 | | |
| | | | | | | Fair value | | Book value | | Fair value | | | | Note | | Classification by category | | hierarchy | | 2018 | | 2017 | | 2018 | | 2017 | | | | | | | | | | | | | | | | | Cash and cash equivalents | | 5 | | | | | | | | | | | | | Cash and banks | | | | Amortized cost | | | | 2,228,964 | | 1,428,766 | | 2,228,964 | | 1,428,766 | Financial investments in Brazil | | | | Fair value through profit or loss | | Level 2 | | 1,754,561 | | 1,706,784 | | 1,754,561 | | 1,706,784 | Financial investments abroad | | | | Fair value through profit or loss | | Level 2 | | 1,564,112 | | 639,543 | | 1,564,112 | | 639,543 | | | | | | | | | | 5,547,637 | | 3,775,093 | | 5,547,637 | | 3,775,093 | | | | | | | | | | | | | | | | | Financial investments | | 6 | | | | | | | | | | | | | Letras financeiras do tesouro - LFT | | | | Fair value through profit or loss | | Level 2 | | 2,247,272 | | 1,816,889 | | 2,247,272 | | 1,816,889 | Time deposit investments | | | | Amortized cost | | Level 2 | | 49,630 | | 440,616 | | 49,630 | | 440,616 | Time deposit investments | | | | Fair value through profit or loss | | Level 2 | | | | 15,764 | | | | 15,764 | Other | | | | Fair value through profit or loss | | Level 2 | | 70,709 | | 39,739 | | 70,709 | | 39,739 | | | | | | | | | | 2,367,611 | | 2,313,008 | | 2,367,611 | | 2,313,008 | | | | | | | | | | | | | | | | | Trade accounts receivable | | 6 | | Amortized cost | | | | 3,045,463 | | 3,244,851 | | 3,045,463 | | 3,244,851 | Trade accounts receivable | | 6 | | Fair value through profit or loss | | Level 2 | | 47,540 | | 73,841 | | 47,540 | | 73,240 | | | | | | | | | | | | | | | | | Trade payables | | 14 | | Amortized cost | | | | 8,378,504 | | 5,058,796 | | 8,378,504 | | 5,058,796 | | | | | | | | | | | | | | | | | Borrowings | | 15 | | Amortized cost | | | | | | | | | | | Foreign currency - Bond | | | | | | Level 1 | | 21,930,575 | | 20,082,588 | | 22,028,040 | | 21,230,567 | Foreign currency - other borrowings | | | | | | Level 2 | | 2,578,147 | | 2,344,649 | | 2,277,069 | | 2,228,608 | Local currency | | | | | | Level 2 | | 736,388 | | 1,224,772 | | 598,926 | | 1,039,873 | | | | | | | | | | 25,245,110 | | 23,652,009 | | 24,904,035 | | 24,499,048 | | | | | | | | | | | | | | | | | Braskem Idesa borrowings | | 16 | | Amortized cost | | Level 2 | | 10,594,117 | | 9,784,388 | | 9,367,878 | | 8,675,711 | | | | | | | | | | | | | | | | | Debentures | | 17 | | Amortized cost | | Level 2 | | 294,509 | | 313,324 | | 239,976 | | 214,815 | | | | | | | | | | | | | | | | | Loan ton non-controlling shareholder of Braskem Idesa | | | | Amortized cost | | | | 2,183,830 | | 1,756,600 | | 2,183,830 | | 1,756,600 | | | | | | | | | | | | | | | | | Leniency agreement | | 23.3 | | Amortized cost | | | | 1,842,518 | | 2,004,590 | | 1,842,518 | | 2,004,590 |
F - 54F-61
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| 20.3 | Derivative financial instruments | | | | 20.3.1 | Changes |
19.3Derivative financial instruments
19.3.1Changes
| | | | | | | | | | | | | Net | | | | | | Net | | | | | | | | | | | | Net | | | | | | Net | | | | | | | | Operation characteristics | | | | (Asset)/ | | | | | | (Asset)/ | | | | | | Operation characteristics | | | | (Asset)/ | | | | | | (Asset)/ | | | | | | Fair value | | Principal exposure | | | | Accumulated | | Liability | | Change in | | Financial | | Liability | | | | Fair value | | Principal exposure | | | | Accumulated | | Liability | | Change in | | Financial | | Liability | Identification | | Note | | hierarchy | | Derivatives | | OCI (equity) | | 2017 | | fair value | | settlement | | 2018 | | Note | | hierarchy | | Derivatives | | OCI (equity) | | 2018 | | fair value | | settlement | | 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-hedge accounting transactions | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exchange swap | | | | Level 2 | | Argentine peso | | Dollar | | | | | | 752 | | (235) | | 517 | | | | Level 2 | | Argentine peso | | Dollar | | | | 517 | | 172 | | (393) | | 296 | NCE swap | | | | Level 2 | | Real | | Dollar | | | | | | 5,231 | | | | 5,231 | | | | Level 2 | | Real | | Dollar | | | | 5,231 | | 14,484 | | 5,889 | | 25,604 | | | | | | | | | | | | | | | | 5,983 | | (235) | | 5,748 | | | | | | | | | | | | 5,748 | | 14,656 | | 5,496 | | 25,900 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Hedge accounting transactions | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Dollar put option | | 19.3.1 (a.i) | | Level 2 | | Real | | Dollar | | (40,338) | | (3,793) | | 39,932 | | | | 36,139 | | (a.i) | | Level 2 | | Real | | Dollar | | 2,297 | | 36,139 | | (38,437) | | | | (2,298) | Dollar swap | | 19.3.1 (a.ii) | | Level 2 | | CDI | | Dollar+Interests | | (183,808) | | | | 183,398 | | | | 183,398 | | (a.ii) | | Level 2 | | Real | | Dollar+Fixed rates | | (38,620) | | 183,398 | | (64,133) | | (80,645) | | 38,620 | Interest rate swaps | | 19.3.1 (a.iii) | | Level 2 | | Libor | | Fixed rates | | (209,067) | | (25,791) | | (41,590) | | (283) | | (67,664) | | (a.iii) | | Level 2 | | Libor | | Fixed rates | | (234,372) | | (67,664) | | 77,998 | | 16,373 | | 26,707 | Dollar swap CDI | | | (a.ii) | | Level 2 | | Real | | Dollar+Fixed rates | | (107,246) | | | | 107,246 | | | | 107,246 | | | | | | | | | | | | (433,213) | | (29,584) | | 181,740 | | (283) | | 151,873 | | | | | | | | | | (377,941) | | 151,873 | | 82,674 | | (64,272) | | 170,275 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivatives | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current assets | | | | | | | | | | | | (3,793) | | | | | | (27,714) | | | | | | | | | | | | (27,714) | | | | | | (4,712) | Non-current assets | | | | | | | | | | | | (32,666) | | | | | | (46,664) | | | | | | | | | | | | (46,664) | | | | | | (17,877) | Current liabilities | | | | | | | | | | | | 6,875 | | | | | | 70,305 | | | | | | | | | | | | 70,305 | | | | | | 49,251 | Non-current liabilities | | | | | | | | | | | | | | | | | | 161,694 | | | | | | | | | | | | 161,694 | | | | | | 169,513 | | | | | | | | | | | | | | (29,584) | | | | | | 157,621 | | | | | | | | | | | | 157,621 | | | | | | 196,175 |
The counterparties in these contracts are constantly monitored based on the analysis of their respective ratings and Credit Default Swaps – CDS. Braskem has many bilateral risk mitigators in its derivative contracts, such as the possibility of depositing or requesting deposits of a guarantee margin from the counterparties it deems convenient. Derivative financial instruments designated for hedge accounting are presented in the balance sheet at their fair value in an asset or liability account depending on whether the fair value represents a positive or a negative balance to Braskem, respectively, and are necessarily classified as "fair value through profit and loss". All hedge financial instruments held at December 31, 20182019 were contracted on Over the Counter - OTC markets with large financial counterparties under global derivative contracts in Brazil or abroad. Braskem’s Financial Policy provides for the active management and continued protection against undesired fluctuations in currencies and rates arising from its operations and financial items, with the possibility of contracting derivative instruments (swaps, NDFs, options, etc.). The other market risks are addressed on a case-by-case basis for each transaction. In general, Braskem assesses the need for hedging in the analysis of prospective transactions and seeks to customize the hedge and keeps it in place for the same period of the hedged transaction. Braskem may elect derivatives for the application of hedge accounting in accordance with IFRS 9. The hedge designation is not mandatory. In general, Braskem will elect to designate financial instruments as hedges when the application is expected to provide a significant improvement in the presentation of the offsetting effect on the changes in the hedged items. The effective portion of the changes in the fair value of hedge derivatives and of the exchange variation of financial liabilities designated and qualified as sales flow hedge is recognized in equity, under “Other comprehensive income”. These amounts are transferred to profit and loss for the periods in which the hedgeditem affects the financial results. The ineffective portion is recognized immediately in profit and loss as “Financial result.” F - 55F-62
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
When a hedge instrument matures or is sold or when it no longer meets the criteria for hedge accounting, it is prospectively discontinued and any cumulative gain or loss in equity remains in equity and is recognized in financial result when the hedged item or transaction affects profit and loss. If the hedged item or transaction is settled in advance, discontinued or is not expected to occur, the cumulative gain or loss in equity is immediately transferred to financial result. | (a) | Hedge accounting transactions | | | | (a.i) | Dollar call and put option |
(a)Hedge accounting transactions
(a.i) Dollar call and put option
On December 31, 2018,2019, Braskem held a total notional amount of put options of R$2.21.9 billion, with an average strike price of 3.293.55 R$/US$. Simultaneously, the Company also held a total notional amount of call options of R$1.61.4 billion, with an average strike price of R$/US$4.61.4.88. The operations have a maximum term of 24 months. Dollar-denominated future sales in Brazilian real were designated for hedge accounting, with the months of revenue recognition always coinciding with the months of the options. According to IFRS 9, the accounting standard in force as from January 1, 2018, the amount of the mark-to-market (“MtM”) adjustment, as well as the amount of the premium of the operation, is recognized as “Other comprehensive income” (“OCI”) under shareholders' equity. The fair value of the options is composed of the notional value of the operations multiplied by the sum of the intrinsic value, which refers to the amount by which the option exceeded the exercise price at the time of evaluation, and the time value of the derivative until its maturity. From the beginning of operations and their respective designations as hedge accounting, the Company began to recognize in OCI all possible premiums paid on the options purchased, in the form of hedge costs. On December 31, 2018, the amount recorded in OCI as cost of hedge is R$4.1 million.
(a.ii)Dollar Swap
To remain aligned with its risk management strategy,In 2018, the Company contracted foreign exchange derivative operations (“swaps”) in the aggregate amount of R$1.3 billion, with annual maturities over the following 5 years starting January 30, 2019. The amount payable in January 2020 will be subject to the variation in the IPCA index. The remaining maturities are subject to the variation in the CDI. These operations were designated to cash flow hedge accounting, where the hedging instruments are foreign exchange derivatives and the hedged objects are highly probable future revenues in the domestic market subject to fluctuations in Brazilian real/U.S. dollar price. Accordingly, the mark-to-market adjustment of the effective portion of the hedge will be recognized under shareholders equity in the line “Other comprehensive income” and will be recognized in the financial result only upon the maturity of each installment.
| (a.iii) | Hedge operation by the subsidiary Braskem Idesa related to Project Finance |
F - 56
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
(a.iii)Hedge operation by Braskem Idesa related to Project finance
Interest rate swap linked to Libor Identification | | Nominal value | | Hedge | | Maturity | | | | Fair value | | Nominal value | | Hedge | | Maturity | | | | Fair value, net | | | US$ | | (interest rate per year) | | 2018 | | 2017 | | US$ | | (interest rate per year) | | 2019 | | 2018 | Swap Libor I to VI | | 1,312,892 | | 1.9825% | | May-2025 | | (67,664) | | (25,791) | | 761,153 | | 1.9825% | | Aug-2025 | | 26,707 | | (67,664) | Total | | 1,312,892 | | | | | | (67,664) | | (25,791) | | 761,153 | | | | | | 26,707 | | (67,664) | | | | | | | | | | | | | | | | | | | | | | | Derivatives | | | | | | | | | | | | | | | | | | | | | Current assets | | | | | | | | (21,000) | | | | | | | | | | | | (21,000) | Non-Current assets | | | | | | | | (46,664) | | (32,666) | | | | | | | | | | (46,664) | Current liabilities | | | | | | | | | | 6,875 | | | | | | | | 5,768 | | | Non-Current liabilities | | | | | | | | | 20,939 | | | Total | | | | | | | | (67,664) | | (25,791) | | | | | | | | 26,707 | | (67,664) |
Braskem Idesa contracted swap operations with the purpose of offsetting part of the Libor variation arising from the financings mentioned in Note 16. This hedge operation shares the same guarantees with the Project finance.Finance. F-63
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
19.4| 20.4 | Non-derivative financial liabilities designated to hedge accountingNon-derivative financial liabilities designated to hedge accounting (a.i) Future exports in U.S. dollars
| | | | (a.i) | Future exports in U.S. dollars |
On May 1, 2013, Braskem S.A. designated non-derivative financial instrument liabilities, denominated in U.S. dollars, as hedge for the flow of its highly probable future exports. Thus, the impact of exchange rates on future cash flows in dollars derived from these exports is offset by the foreign exchange variation on the designated liabilities, partly eliminating the volatility of results. The exchange rate on the date of the designation was
US$ 1: R$2.0017. In addition to this hedge accounting, on October 10, 2017, Braskem S.A. designated new financial instruments for the hedging of future sales, which mature in 2028. The hedged exchange rate was US$1: R$3.1688. The main actions carried out in 2019 are detailed below: | · | February 2, 2019: Designation of US$0.2 billion of future sales with maturity in 2025 (hedged exchange rate of US$1: R$3.6694). | | · | May 2, 2019: Designation of US$0.2 billion of future sales with maturity in 2025 (hedged exchange rate of US$1: R$3.9650). | | · | November 1, 2019: Discontinuation of hedge accounting of U$$1.6 billion of flows between 2021 and 2023 (discontinuation rate of US$1: R$3.9786). | | · | November 1, 2019: Designation of US$1.8 billion of future sales with maturity between 2030 and 2032 (hedged exchange rate of US$1: R$3.9786). |
Therefore, on December 31, 2018,2019, exports that were designated not yet realized and not discontinued are shown below: | | | | | Total nominal value | | | | | | Total nominal value | | | | | US$ | | | | | | US$ | | | | | | | | | | | | | 2019 | | | | | | 733,980 | | 2020 | | | | | | 723,999 | | | | | | 724,000 | 2021 | | | | | | 716,000 | | | | | | 336,000 | 2022 | | | | | | 719,000 | | 2023 | | | | | | 718,372 | | | | | | 200,000 | 2024 | | | | | | 688,854 | | | | | | 688,854 | 2025 | | | | | | | 400,000 | 2028 | | | | | | 1,250,000 | | | | | | 1,250,000 | 2030 | | | | | | | 800,000 | 2031 | | | | | | | 800,000 | 2032 | | | | | | | 200,000 | | | | | | | | 5,550,205 | | | | | | 5,398,854 |
There were noF-64
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
The following table shows the changes in financial instruments designated for this hedge in the period ended December 31, 2018.year: F - 57
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
| | | | | | | | | US$ | | | | | | Hedge | | | | | | | | 2018 | | discontinued | | Designations | | 2019 | | | | | | | | | | | Designated balance | | 5,550,205 | | (2,351,351) | | 2,200,00 | | 5,398,854 |
The Company considers these exports in the selected period (2019/2028)(2020/2032) as highly probable, based on the following factors: In recent years, Braskem S.A. exported an average US$3.1 billion per year, which represents around 3 to 4 times the annual exports of the hedged exports.Hedged exports represent between 20% and 30% of the export flows planned by the Company.
| · | In recent years, Braskem S.A. exported an average US$3.1 billion per year, which represents around 3 to 4 times the annual exports of the hedged exports. | | · | Hedged exports represent between 20% and 30% of the export flows planned by the Company. |
The exports of the Company are not sporadic or occasional, but constitute an integral part of its strategy and of the petrochemical business, in which competition is global. On December 31, 2018,2019, the maturities of financial liabilities designated, within the scope of the consolidated balance sheet, were as follows: | | | Total nominal value | | | | | | Total nominal value | | | | US$ | | | | | | US$ | | | | | | | | | | | 2019 | | 733,980 | | 2020 | | 723,999 | | | | | | 724,000 | 2021 | | 716,000 | | | | | | 336,000 | 2022 | | 719,000 | | 2023 | | 718,372 | | | | | | 200,000 | 2024 | | 688,854 | | | | | | 688,854 | 2025 | | | | | | | 400,000 | 2028 | | 1,250,000 | | | | | | 1,250,000 | 2030 | | | | | | | 800,000 | 2031 | | | | | | | 800,000 | 2032 | | | | | | | 200,000 | | | | 5,550,205 | | | | | | 5,398,854 |
The following table provides the balance of discontinued hedge accounting in the year ended December 31, 2019 (US$1,617,371), which is recorded in Braskem Idesa’s shareholders’ equity under “Other comprehensive income” and will be transferred to financial income (expenses) in accordance with the schedule of future hedged sales: | | | | | Conversion rate | | | | | | | | Total nominal | | at Inception | | Closing rate | | Gross nominal | | | | value US$ | | R$/US$ | | R$/US$ | | value | | | | | | | | | | | Hedge descontinued - Fourth quarter 2019 | 1,617,371 | | 2.0017 | | 3.9786 | | 3,197,381 | | | | 1,617,371 | | | | | | 3,197,381 |
F-65
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
To ensure the continuity of the hedging relationship, the Company plans to refinance and/or substitutereplace these hedge instruments to adjust them to the schedule and value of the hedged exports. The rollover or replacement of the hedge instrument are provided for in IFRS 9. This explains the fact that liabilities designated for hedge are not necessarily equivalent to the exports designated in the year. The following table provides the balances of exchange variation recognized in the Company’s net financial income (expenses) due to the realization of exports designated, for this hedge in the 12-month period ended December 31, 2018:2019: | | | | | Conversion rate | | | | | | | | Conversion rate | | | | | | | | Total nominal | | at Inception | | Closing rate | | Gross nominal | | Total nominal | | at Inception | | Closing rate | | Gross nominal | | | | value US$ | | R$/US$ | | R$/US$ | | value | | value US$ | | R$/US$ | | R$/US$ | | value | | | | | | | | | | | | | | | | | | | First quarter | | 189,325 | | 2.0017 | | 3.3082 | | 247,353 | | 150,000 | | 2.0017 | | 3.7448 | | 261,465 | Second quarter | | 208,405 | | 2.0017 | | 3.2769 | | 265,758 | | 183,495 | | 2.0017 | | 3.9043 | | 349,118 | Third quarter | | 193,190 | | 2.0017 | | 3.3080 | | 252,364 | | 183,495 | | 2.0017 | | 3.7734 | | 325,098 | Fourth quarter | | 196,973 | | 2.0017 | | 3.3080 | | 257,307 | | 216,990 | | 2.0017 | | 4.0729 | | 449,430 | | | | 787,893 | | | | | | 1,022,782 | | 733,980 | | | | | | 1,385,111 |
F - 58
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
The changes in foreign exchange variation and Income Tax and Social Contribution under “Other comprehensive income” of this hedge are as follows: | | Exchange | | | | Net | | | variation | | IR and CSL | | effect | | | | | | | | At December 31, 2017 | (6,814,142) | | 2,316,808 | | (4,497,334) | Exchange variation recorded in the period on OCI / IR and CSL | (3,145,857) | | 1,069,591 | | (2,076,266) | Exchange variation transferred to profit or loss / IR and CSL | 1,022,782 | | (347,746) | | 675,036 | At December 31, 2018 | (8,937,217) | | 3,038,653 | | (5,898,564) |
| | Exchange | | Income tax and | | Net | | | variation | | social contribution | | effect | | | | | | | | At December 31, 2018 | (8,937,217) | | 3,038,653 | | (5,898,564) | | | | | | | | Exchange variation recorded in the period on OCI / Income tax and social contribution | (856,068) | | 291,063 | | (565,005) | | | | | | | | Exchange variation transferred to profit or loss / Income tax and social contribution | 1,385,121 | | (470,941) | | 914,180 | | | | | | | | At December 31, 2019 | (8,408,164) | | 2,858,775 | | (5,549,389) |
The realizationsrealization expected for 20192020 will occur through the payments of financial instruments in conformity with exports made, and the exchange variation recorded in “Other comprehensive income” will be written offrecycled to the financial results. For all quarters of the year, realizationsrealization will be made at the discounted cash flow rates. The quarterly schedule of hedged exports in 2019the next quarter of 2020 follows: | | | | | | Total nominal | | | | | | | | value US$ | | | | | | | | First quarter | | 150,000 | | | | 181,000 | Second quarter | | 183,495 | | | | 181,000 | Third quarter | | 183,495 | | | | 181,000 | Fourth quarter | | 216,990 | | | | 181,000 | | | | | | | | 733,980724,000 |
(a.ii) Liabilities related to the Project finance of future sales in U.S. dollarF-66
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (a.ii) | Liabilities related to the Project Finance of future sales in U.S. dollar |
On October 1, 2014, the subsidiary Braskem Idesa designated its liabilities in the amount of R$2,878,936 related to Project Finance, denominated in U.S. dollar, as hedge instruments to protect highly probably future sales flows. Due to the disbursements by the project's financierslenders in 2015, Braskem Idesa designated new amounts in April and September 2015, of US$290,545 and US$23,608, respectively, for hedge accounting. Therefore, the impact of exchange variation on future flows of sales in U.S. dollar derived from these sales in dollar will be offset by the exchange variation on the designated liabilities, partially eliminating the volatility in the results of the subsidiary. The Management of Braskem Idesa believes these future sales are highly probable, based on the following: | · | In Mexico, domestic sales can be made in U.S. dollar. In 2016, the company began to operate and sell products, including sales in U.S. dollar in the domestic and international markets. The hedged flow corresponds to less than 35% of the planned revenue flow of the project over the designated period. The current amount of sales already meets the volume of designated hedge, which confirms the highly probably nature of the designated cash flow.The financing was obtained through a Project Finance structure and will be repaid exclusively through the cash generation of the project (Note 16). Therefore, the existence of the debit is directly associated with the highly probable nature of the future sales in U.S. dollar.
| | · | The hedged flow corresponds to less than 35% of the planned revenue flow of the project over the designated period. The current amount of sales already meets the volume of designated hedge, which confirms the highly probably nature of the designated cash flow. | | · | The financing was obtained through a Project Finance structure and will be repaid exclusively through the cash generation of the project (Note 17). Therefore, the existence of the debit is directly associated with the highly probable nature of the future sales in U.S. dollar. |
F - 59
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
As of December 31, 2018,2019, designated and unrealized sales were as follows: | | | | | Nominal value | | | | | | Nominal value | | | | | | US$ | | | | | | US$ | | | | | | | | | | | | | 2019 | | | | | | 229,270 | | 2020 | | | | | | 266,690 | | | | | | 179,982 | 2021 | | | | | | 303,392 | | | | | | 208,901 | 2022 | | | | | | 253,204 | | | | | | 183,300 | 2023 | | | | | | 333,093 | | | | | | 230,967 | 2024 | | | | | | 359,559 | | | | | | 251,869 | 2025 | | | | | | 357,903 | | | | | | 227,716 | 2026 | | | | | | 309,240 | | | | | | 192,592 | 2027 | | �� | | | | 152,103 | | | | | | 89,963 | 2028 | | | | | | 124,654 | | | | | | 71,898 | 2029 | | | | | | 31,164 | | | | | | 15,219 | 2030 | | | | | | | 225,000 | 2031 | | | | | | | 225,000 | 2032 | | | | | | | 225,000 | 2033 | | | | | | | 225,000 | | | | | | 2,720,272 | | | | | | 2,552,407 |
F-67
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
The following table shows the changes in financial instruments designated for this hedge in the year: | | | | | | | | US$ | | | | | Sales in | | Hedge | | | | | 2017 | | the year | | discontinued | | 2018 | | | | | | | | | | Designated balance | 2,930,246 | | (221,790) | | 400 | | 2,708,856 |
| | | | | | | | | | | US$ | | | | | | Discontinued | | Realization of the | | New | | | | | | 2018 | | hedge | | discontinued hedge | | designations | | 2019 | | | | | | | | | | | | | Designated balance | | 2,708,856 | | (1,056,869) | | 420 | | 900,000 | | 2,552,407 |
In 2018,2019, the maturities of designated financial liabilities to hedge future sales were distributed as follows: | | | | | Nominal value | | | | | | Nominal value | | | | | US$ | | | | | | US$ | | | | | | | | | | | | | 2019 | | | | | | 228,850 | | 2020 | | | | | | 266,187 | | | | | | 179,982 | 2021 | | | | | | 302,816 | | | | | | 208,901 | 2022 | | | | | | 252,723 | | | | | | 183,300 | 2023 | | | | | | 332,458 | | | | | | 230,967 | 2024 | | | | | | 358,873 | | | | | | 251,869 | 2025 | | | | | | 357,221 | | | | | | 227,716 | 2026 | | | | | | 308,650 | | | | | | 192,592 | 2027 | | | | | | 150,419 | | | | | | 89,963 | 2028 | | | | | | 124,347 | | | | | | 71,898 | 2029 | | | | | | 26,312 | | | | | | 15,219 | 2030 | | | | | | | 225,000 | 2031 | | | | | | | 225,000 | 2032 | | | | | | | 225,000 | 2033 | | | | | | | 225,000 | | | | | | | | 2,708,856 | | | | | | 2,552,407 |
F - 60
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
The following table provides the amounts of hedge accounting discontinued in the year ended December 31, 20182019 (US$11,416)838,596), which is recorded in Braskem Idesa’s shareholders’ equity under “Other comprehensive income” and will be transferred to financial income (expenses) according to the schedule of future hedged sales as they occur: | | | | | Conversion rate | | | | | | | | | | Total nominal | | at Inception | | Closing rate | | Total nominal | | Gross nominal | | | | value US$ | | MXN/US$ | | MXN/US$ | | value MXN | | value | | | | | | | | | | | | | Hedge descontinued | 11,416 | | 13.4541 | | 17.9915 | | 51,799 | | 8,707 | | | | | | | | | | 51,799 | | 8,707 |
| | | | | Conversion rate | | | | | | | | | | Total nominal | | at Inception | | Closing rate | | Total nominal | | Gross nominal | | | | value US$ | | MXN/US$ | | MXN/US$ | | value MXN | | value | | | | | | | | | | | | | Hedge discontinued in May-2016 | 10,996 | | 13.4541 | | 17.9915 | | 49,893 | | 10,647 | Hedge discontinued in Dec-2019 | 795,533 | | 13.6663 | | 19.6113 | | 4,729,441 | | 1,009,263 | Hedge discontinued in Dec-2019 | 32,066 | | 13.4541 | | 19.3247 | | 188,247 | | 40,172 | | | | 838,595 | | | | | | 4,967,581 | | 1,060,082 |
F-68
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
The following table provides the balances of exchange variation recognized in Braskem Idesa’s financial income (expenses) due to the realization of sales designated for this hedge in the year ended December 31, 2018:2019: | | | | | Conversion rate | | | | | | | | | | Conversion rate | | | | | | | | | | Total nominal | | at Inception | | Closing rate | | Total nominal | | Gross nominal | | Total nominal | | at Inception | | Closing rate | | Total nominal | | Gross nominal | | | | value US$ | | MXN/US$ | | MXN/US$ | | value MXN | | value | | value US$ | | MXN/US$ | | MXN/US$ | | value MXN | | value | | | | | | | | | | | | | | | | | | | | | | | First quarter | | 53,889 | | 13.6649 | | 18.6631 | | 269,348 | | 46,934 | | 56,383 | | 13.6544 | | 19.2153 | | 313,540 | | 60,811 | Second quarter | | 55,136 | | 13.6560 | | 19.4484 | | 319,370 | | 59,371 | | 56,383 | | 13.6544 | | 19.0768 | | 305,731 | | 63,995 | Third quarter | | 56,383 | | 13.6536 | | 18.8320 | | 291,974 | | 60,810 | | 57,629 | | 13.6547 | | 19.6178 | | 343,647 | | 70,181 | Fourth quarter | | 56,382 | | 13.6537 | | 20.2473 | | 371,757 | | 69,455 | | 58,875 | | 13.6549 | | 19.3564 | | 335,676 | | 72,159 | | | | 221,790 | | | | | | 1,252,449 | | 236,570 | | 229,270 | | | | | | 1,298,594 | | 267,146 |
The changes in foreign exchange variation and Income Tax and Social Contribution under “Other comprehensive income” are as follows: | | Exchange | | | | Net | | | variation | | IR | | effect | | | | | | | | At December 31, 2017 | (3,545,639) | | 1,064,426 | | (2,481,213) | Exchange variation recorded in the period on OCI / IR | 16,681 | | (5,004) | | 11,677 | Exchange variation transferred to profit or loss / IR | 236,570 | | (70,971) | | 165,599 | At December 31, 2018 | (3,292,388) | | 988,451 | | (2,303,937) |
| | Exchange | | | | Net | | | variation | | Income tax | | effect | | | | | | | | At December 31, 2018 | (3,292,388) | | 988,451 | | (2,303,937) | | | | | | | | Exchange variation recorded in the period on OCI / Income tax | 464,806 | | (139,442) | | 325,364 | | | | | | | | Exchange variation transferred to profit or loss / Income tax | 267,146 | | (80,144) | | 187,002 | | | | | | | | At December 31, 2019 | (2,560,436) | | 768,865 | | (1,791,571) |
Effectiveness tests were conducted as set forth in IFRS 9 and all operations were deemed effective in reducing the dispersion of revenue from sales designated for hedge, when evaluated in Pesos. F - 61
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
The realizationsrealization expected for 20192020 will occur in accordance with the payments under the project finance, and the exchange variation recorded in “Other comprehensive income” will be written off to the financial results. Below is the quarterly schedule of hedged sales in U.S. dollars in 2019:2020: | | | | | | | Nominal value | | | | | | | | US$ | | | | | | | | | First quarter | | | | | | 56,38261,369 | Second quarter | | | | | | 56,38365,612 | Third quarter | | | | | | 57,62969,855 | Fourth quarter | | | | | | 58,87669,855 | | | | | | | | 229,270266,691 |
19.5F-69
| Braskem S.A.Credit quality of financial assets
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
(a)| 20.5 | Credit quality of financial assetsTrade accounts receivable | | | | (a) | Trade accounts receivable |
Virtually none of Braskem’sCompany’s clients have risk ratings assigned by credit rating agencies. For this reason, Braskemthe Company developed its own credit rating system for all accounts receivable from clients in Brazil and abroad. On December 31, 2019 and 2018, considering the stages 1, 2 and 3 of expected credit losses, the percentage of trade accounts receivable by risk ratings for the domestic and foreign market werewas as follows: | | | (%) | | | | | (%) | | | | 2018 | | | 2019 | | 2018 | 1 | Minimum risk | | 67.50 | Minimal Risk | | 74.23 | | 67.50 | 2 | Low risk | | 18.60 | Low Risk | | 14.89 | | 18.60 | 3 | Moderate risk | | 7.61 | Medium Risk | | 7.82 | | 7.61 | 4 | High risk | | 5.02 | High Risk | | 1.06 | | 5.02 | 5 | Very high risk | (i) | 1.27 | Very High Risk | (i) | 1.99 | | 1.27 |
On December 31, 2017, the credit ratings for the domestic market were as follows:
| | | (%) | | | | 2017 | 1 | Minimum risk | | 18.84 | 2 | Low risk | | 50.84 | 3 | Moderate risk | | 13.33 | 4 | High risk | | 13.40 | 5 | Very high risk | (i) | 3.59 |
(i) Most clients in this group are inactive and the respective accounts are in the process of collection actions in the courts. Clients in this group that are still active buy from Braskem and pay in advance. Default indicators: | Last 12 months | Last 12 months | | Domestic market | | Export market | Domestic | | External | | | market | | market | December 31, 2019 | | 0.05% | | 0.17% | December 31, 2018 | 0.08% | | 0.45% | 0.08% | | 0.45% | December 31, 2017 | 0.08% | | 0.19% | 0.08% | | 0.19% | December 31, 2016 | 0.18% | | 0.04% | |
This calculation considers the amount of accounts receivablesreceivable overdue more than 5 days for the domestic market and 30 days, for the international market, divided by consolidated gross revenue in the last 12 months. F - 62F-70
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (b) | Other financial assets |
(b)Other financial assets
In order to determine the credit ratings of counterparties of financial assets classified under cash and cash equivalents, and financial investments, Braskemthe Company uses the risk rating of agencies Standard & Poor’s, Moody’s and Fitch Ratings, within the limits established in its financial policy approved by the Board of Directors. | | | | 2018 | | 2017 | | | 2019 | | 2018 | Financial assets with risk assessment | | | | | | | | | | | AAA | | | 4,294,100 | | 3,569,392 | | | 5,475,075 | | 4,294,100 | AA+ | | | 1,175,098 | | 27,094 | | | 109,933 | | 1,175,098 | AA | | | 79,136 | | 8,047 | | | | | 79,136 | AA- | | | 1,076 | | 209,389 | | | 1,458,424 | | 1,076 | A+ | | | 1,103,647 | | 1,465,107 | | | 159,848 | | 1,103,647 | A | | | 165,899 | | 349,823 | | | 121,132 | | 165,899 | A- | | | 169,580 | | | | | 1,171,746 | | 169,580 | BBB+ | | | 917,541 | | 453,367 | | | | | 917,541 | BB+ | | | 252 | | | | | | | 252 | BB- | | | 29 | | | | | | | 29 | | | | | 7,906,358 | | 6,082,219 | | | 8,496,158 | | 7,906,358 | Financial assets without risk assessment | | | | | | | | | | | Other financial assets with no risk assessment | | (i) | 8,890 | | 5,882 | | (i) | 4,934 | | 8,890 | | | | | 8,890 | | 5,882 | | | 4,934 | | 8,890 | | | | | | | | | | | | | Total | | | 7,915,248 | | 6,088,101 | | | 8,501,092 | | 7,915,248 |
| (i) | Investments approved by the Management of the Company, in accordance with the financial policy. |
(i)Investments approved by the Management of the Company, in accordance with the financial policy.
19.6| 20.6 | Sensitivity analysisSensitivity analysis |
Financial instruments, including derivatives, may be subject to changes in their fair value as a result of the variation in commodity prices, foreign exchange rates, interest rates, shares and share indexes, price indexes and other variables. The sensitivity of the derivative and non-derivative financial instruments to these variables are presented below: (a)Selection of risks
On December 31, 2018,2019, the main risks that can affect the value of Braskem’sCompany’s financial instruments are: | · | U.S. dollar/Brazilian real exchange rate; | | · | Mexican peso/Brazilian real exchange rate; | | · | Euro/Brazilian real exchange rate; | | · | U.S. dollar/Euro exchange rate; | | · | Libor floating interest rate; | | · | Selic interest rate; | | · | CDI interest rate; | | · | TJLP interest rate; and | | · | IPCA interest rate. |
·Brazilian U.S. dollar/real exchange rate;
·Mexican peso/Brazilian real exchange rate;F-71
·Euro/Brazilian real exchange rate;
·Libor floating interest rate;
·Selic interest rate;
·CDI interest rate;
·TJLP interest rate; and
·IPCA interest rate.
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
For the purposes of the risk sensitivity analysis, Braskemthe Company presents the exposures to currencies as if they were independent, that is, without reflecting in the exposure to a foreign exchange rate the risks of the variation in other foreign exchange rates that could be directly influenced by it. F - 63
Braskem S.A.| (b) | Value at risk
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
|
(b)Value at risk
The value at risk of the derivatives held by Braskemthe Company which is defined as the loss that could result in one month as from December 31, 2018,2019, with a probability of 5%, and under normal market conditions, was estimated by the Company at US$8,27915,885 for put options and call options (Note 19.3.120.3.1 (a.i)), US$38,5734,456 for the swap of Libor related to Braskem Idesa project, US$27,75632,646 for Dollar swap (Note 19.3.1(a.ii)20.3.1(a.ii)) and US$8,5038,226 for NCE swap. | (c) | Selection of scenariosSelection of scenarios |
(c.1) TheFocus Market Readout published by the Central Bank of Brazil on was used to create the probable scenario for the U.S. dollar/Brazilian real exchange rate, the Selic interest rate and the CDI interest rate, based on December 28, 2018.31, 2019. According to the Market Readout, at the end of 2019,2020, the U.S. dollar will depreciate by 1.93% against the year-end PTAX exchange rate on December 31, 2018,remain at approximately R$4.08, while the Selic rate will reach 7.13%should remain at 4.50% p.a. The Selic rate is used as benchmark for sensitivity analysis of the CDI rate. The probable scenario for the TJLP is an increase of 0.63 percentage point fromremaining at the current ratelevel of 7.06%, i.e., considering5.09%. Since the same pace of decrease in the Selic basic interest rate. The Market Readout survey does not publishinclude consensus forecasts for the Libor interest rate. Therefore, to determinerate, the probable scenario, Braskem considered a 5% increase.average projection of the U.S. Federal Reserve for the Federal Funds rate was used, published in December 2019, plus the historical difference between such rate and Libor. For adverse scenarios, Braskem consideredincreases of 25% and 50% increases onfrom current market levels.levels were adopted. F - 64F-72
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (c.2) | Possible and extreme adverse scenario |
(c.2) Possible and extreme adverse scenario
The sensitivity values in the table below are the changes in the value of the financial instruments in each scenario. | | | Gain (losses) | | | | | | Possible adverse | | Extreme adverse | Instrument / Sensitivity | | Probable | (25%) | | (50%) | | | | | | | | | Brazilian real/U.S. dollar exchange rate | | | | | | | Bonds | | 418,995 | | (5,426,211) | | (10,852,422) | Braskem Idesa borrowings | | 204,511 | | (2,648,529) | | (5,297,058) | Export prepayments | | 15,647 | | (202,635) | | (405,271) | Investments | | 11,972 | | (155,040) | | (310,080) | Sace | | 22,150 | | (286,849) | | (573,699) | Dollar put option | | 31,532 | | (708,357) | | (2,000,912) | Dollar swap | | 38,308 | | (353,647) | | (717,505) | Swap NCE | | 7,865 | | (101,872) | | (203,747) | Financial investments abroad | | 70,689 | | (915,461) | | (1,830,922) | | | | | | | | | Libor floating interest rate | | | | | | | Export prepayments | | (5,133) | | (25,665) | | (51,330) | Swaps | | 13,747 | | 67,773 | | 133,197 | Braskem Idesa borrowings | | (82,386) | | (411,928) | | (823,857) | | | | | | | | | CDI interest rate | | | | | | | Export credit notes | | (884) | | (21,986) | | (58,762) | Debentures | | 9,416 | | 232 | | (10,035) | Financial investments in local currency | | 26,228 | | 67,665 | | 135,371 | | | | | | | | IPCA interest rate | | | | | | | Debentures | | (5,879) | | (21,556) | | (44,125) | | | | | | | | | TJLP interest rate | | | | | | | FINAME | | (5) | | (15) | | (31) |
| | | Gain (losses) | | | | | | Possible adverse | | Extreme adverse | Instrument / Sensitivity | | Probable | (25%) | | (50%) | | | | | | | | | Brazilian real/U.S. dollar exchange rate | | | | | | | Bonds | | (345,206) | | (7,055,927) | | (14,111,853) | Braskem Idesa borrowings | | (81,773) | | (1,671,426) | | (3,342,851) | Export prepayments | | (10,559) | | (215,823) | | (431,647) | Investments | | (9,190) | | (187,844) | | (375,688) | SACE | | (20,536) | | (419,744) | | (839,487) | Dollar put option | | (9,931) | | (478,958) | | (1,685,285) | Dollar swap | | (4,033) | | (82,372) | | (164,742) | Swap NCE | | (5,271) | | (107,743) | | (215,486) | Dollar swap x CDI | | (16,809) | | (345,832) | | (691,949) | Financial investments abroad | | (45,323) | | (926,395) | | (1,852,791) | | | | | | | | | Libor floating interest rate | | | | | | | Export prepayments | | (7,625) | | (38,124) | | (76,248) | Swaps | | (5,730) | | 37,283 | | 73,854 | Braskem Idesa borrowings | | (89,189) | | (445,944) | | (891,887) | | | | | | | | | CDI interest rate | | | | | | | Export credit notes | | 12,982 | | (20,906) | | (41,331) | Debentures | | 5,778 | | (6,495) | | (13,154) | Financial investments in local currency | | | | 41,830 | | 83,679 | | | | | | | | IPCA interest rate | | | | | | | Debentures | | 11,644 | | (18,569) | | (37,943) | | | | | | | | | | | | | | | | | TLP interest rate | | | | | | | FINAME | | | | (4) | | (7) | | | | | | | | Selic interest rate | | | | | | | Leniency agreement | | | | (53,042) | | (106,946) |
F - 65F-73
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
20Taxes payable
| | | | | | 2019 | | 2018 | | | | | | | | | | Brazil | | | | | | | | | IPI | | | | 58,945 | | 64,672 | | | ICMS | | | | 184,728 | | 239,126 | | | PIS and COFINS | | | | 150,664 | | 145,090 | | | Other | | | | 37,857 | | 36,454 | | | | | | | | | | Other countries | | | | | | | | | Value-added tax | | | | 11,933 | | 7,482 | | | Other | | | | 8,112 | | 25,085 | Total | | | | 452,239 | | 517,909 | | | | | | | | | | Current liabilities | | | | 322,886 | | 432,005 | Non-current liabilities | | | 129,353 | | 85,904 | Total | | | | 452,239 | | 517,909 |
| | | | | | 2018 | | 2017 | | | | | | | | | | Brazil | | | | | | | | | IPI | | | | 64,672 | | 60,917 | | | IR and CSL | | | | 57,664 | | 405,567 | | | ICMS | | | | 239,126 | | 257,720 | | | PIS and COFINS | | | | 145,090 | | 82,140 | | | Other | | | | 36,454 | | 52,926 | | | | | | | | | | Other countries | | | | | | | | | IR | | | | 11,604 | | 66,059 | | | Value-added tax | | | | 7,482 | | 22,242 | | | Other | | | | 25,085 | | | Total | | | | 587,177 | | 947,571 | | | | | | | | | | Current liabilities | | | | 501,273 | | 894,769 | Non-current liabilities | | | 85,904 | | 52,802 | Total | | | | 587,177 | | 947,571 |
| 22 | Income tax (“IR”) and social contribution (“CSL”) | | | | (a) | Reconciliation of the effects of income tax and social contribution on profit and loss |
21Income tax (“IR”) and social contribution (“CSL”)
21.1Reconciliation of the effects of income tax and social contribution on profit and loss
| | | 2018 | | 2017 | | 2016 | | | 2019 | | 2018 | | 2017 | | | | | | | | | | | | | | | | | Income before IR and CSL and after discontinued operations | | 3,604,736 | | 5,264,577 | | (140,010) | | Income (loss) before IR and CSL | | | | (4,603,068) | | 3,604,736 | | 5,264,577 | | | | | | | | | | | | | | | | IR and CSL at the rate of 34% | | (1,225,610) | | (1,789,956) | | 47,603 | | | 1,565,043 | | (1,225,610) | | (1,789,956) | | | | | | | | | | | | | | | | Permanent adjustments to the IR and CSL calculation basis | | | | | | | | | | | | | | IR and CSL on equity in results of investees | | (302) | | 2,201 | | 10,227 | | | 3,469 | | (302) | | 2,201 | IR and CSL accrued in previous years | | | | | | (46,460) | | Thin capitalization | | | | (221,337) | | | | | Deferred tax losses and negative base | | | | 39,092 | | | | | | | | | 39,092 | Tax benefits (Sudene and PAT) | | | | 87,186 | | | | | | | | | 87,186 | Difference of rate applicable to each country | (i) | 468,129 | | 250,130 | | 81,638 | | (i) | 293,647 | | 468,129 | | 250,130 | Fine in leniency agreement | | | | (117,140) | | (692,299) | | | (25,390) | | | | (117,140) | Other permanent adjustments | | 21,232 | | 170,805 | | (16,755) | | | 347,238 | | 21,232 | | 170,805 | | | | | | | | | | | | | | | | Effect of IR and CSL on results of operations | | (736,551) | | (1,357,682) | | (616,046) | | | 1,962,670 | | (736,551) | | (1,357,682) | | | | | | | | | | | | | | | | Breakdown of IR and CSL: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current IR and CSL | | (509,774) | | (869,493) | | (898,845) | | Deferred IR and CSL | | (226,777) | | (488,189) | | 282,799 | | Current IR and CSL expense | | | | | | | | | Current year | | | | (251,641) | | (512,951) | | (869,493) | Changes in estimates related to prior years | | | | 22,696 | | 3,177 | | | | | | | | (228,945) | | (509,774) | | (869,493) | | | | | | | | | | | Deferred IR and CSL expense | | | | | | | | | Origination and reversal of temporary differences | | | | 2,062,501 | | (369,546) | | (488,189) | Tax losses (IR) and negative base (CSL) | | | | 129,114 | | 142,769 | | | | | | | | 2,191,615 | | (226,777) | | (488,189) | | | | | | | | | | | Total | | (736,551) | | (1,357,682) | | (616,046) | | | 1,962,670 | | (736,551) | | (1,357,682) | | | | | | | | | | | | | | | | Effective rate | | | | 42.6% | | 20.4% | | 25.8% |
(i)Includes the impact from the difference between IR/CSL tax rate in Brazil (34%) used for the preparation of this note and the tax rates in countries where the subsidiaries abroad are located, as follows:
F - 66F-74
| Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (i) | Includes the impact from the difference between IR/CSL tax rate in Brazil (34%) used for the preparation of this note and the tax rates in countries where the subsidiaries abroad are located, as follows: |
| | | Official rate - % | | | | | | | Headquarters | | | | | | | | | (Country) | | 20182019
| | | | | | | | | Braskem Alemanha | | | | Germany | | 31.18 | Braskem America e Braskem America Finance | | (i)
| | USA | | 21.00 | Braskem Argentina | | | | Argentina | | 30.00 | Braskem Chile | | | | Chile | | 27.00 | Braskem Holanda, Braskem Holanda Finance and Braskem Holanda Inc | | | | Netherlands | | 25.00 | Braskem Idesa, Braskem Idesa Serviços, Braskem México | | | | | | | Braskem México Serviços and Braskem México Proyectos | | | | Mexico | | 30.00 |
(i)In fiscal year 2018, the rate was changed from 35.00% to 21.00%.
| (b) | Deferred income tax and social contribution |
21.2Deferred income tax and social contribution
The income tax (“IR”) and social contribution (“CSL”) recorded in the year are determined on the current and deferred tax basis. These taxes are calculated on the basis of the tax laws enacted at the balance sheet date in the countries where the Company operates and are recognized in the statement of profit or loss,operations, except to the extent they relate to items directly recorded in equity.
| (b.i) | Changes in balances of deferred tax assets and liabilities |
Assets | | As of December
31, 2017 | | Impact on the
P&L | | Impact on the
equity | | As of December
31, 2018 | | Impact on the
P&L | | Other
comprehensive
income | | Other | | As of December
31, 2019 | | | | | | | | | | | | | | | | | | | Tax losses (IR) and negative base (CSL) | | 1,878,809 | | 142,769 | | | | 2,021,578 | | 129,114 | | | | | | 2,150,692 | Goodwill amortized | | 59,335 | | (20,053) | | | | 39,282 | | (17,605) | | | | | | 21,677 | Exchange variations | | 388,293 | | (348,334) | | | | 39,959 | | 1,092,392 | | | | | | 1,132,351 | Temporary adjustments (i) | | 155,540 | | 646,630 | | | | 802,170 | | 1,555,097 | | | | | | 2,357,267 | Business combination | | 183,785 | | (24,213) | | | | 159,572 | | (74,033) | | | | | | 85,539 | Tax credits | | | | 176,290 | | | | 176,290 | | 110,080 | | | | (236,537) | | 49,833 | Other | | | | | | | | | | 62,288 | | | | | | 62,288 | | | | 2,665,762 | | 573,089 | | | | 3,238,851 | | 2,857,333 | | | | (236,537) | | 5,859,647 | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | Amortization of goodwill based on future profitability | 712,873 | | 10,463 | | | | 723,336 | | (651) | | | | | | 722,685 | Tax depreciation | | 960,202 | | 49,710 | | | | 1,009,912 | | 893,115 | | | | | | 1,903,027 | Exchange variations | | | | | | | | | | | | | | | | | Temporary adjustments | | 231,822 | | 44,878 | | | | 276,700 | | 155,887 | | | | | | 432,587 | Business combination | | 9,664 | | (8,362) | | | | 1,302 | | | | | | | | 1,302 | Present value adjustment and amortized cost | | 67,072 | | (9,905) | | | | 57,167 | | (45,891) | | | | | | 11,276 | Hedge accounting | | | | 700,351 | | (700,351) | | | | (419,269) | | 419,269 | | | | | Amortization of fair value adjustments on
the assets from the acquisiton of Braskem Qpar | | 519,623 | | (75,548) | | | | 444,075 | | (50,302) | | | | | | 393,773 | Long term incentive plan - LTI | | | | (2,072) | | 2,072 | | | | (5,843) | | 5,843 | | | | | Health care | | | | | | | | | | 43,734 | | (43,734) | | | | | Other | | 4,273 | | 90,351 | | (90,841) | | 3,783 | | 94,938 | | (93,284) | | | | 5,437 | | | | 2,505,529 | | 799,866 | | (789,120) | | 2,516,275 | | 665,718 | | 288,094 | | | | 3,470,087 | | | | | | | | | | | | | | | | | | | Net | | 160,233 | | (226,777) | | 789,120 | | 722,576 | | 2,191,615 | | (288,094) | | (236,537) | | 2,389,560 | | | | | | | | | | | | | | | | | | | Presentation in the balance sheet: | | | | | | | | | | | | | | | | | Non-current assets | | 1,165,726 | | | | | | 1,104,158 | | | | | | | | 2,662,596 | (-) Non-current liabilities | | 1,005,493 | | | | | | 381,582 | | | | | | | | 273,036 |
F - 67
| (i) | Temporary adjustments refers to the provision for geological events in Alagoas, contingencies, impairment of assets, among other provisions. |
F-75
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (b.ii) | Offset for the purpose of presentation in the balance sheet |
(a) Movement in deferred tax balance
Assets | | As of December 31, 2016 | | Impact on the P&L | | Impact on the equity | | Cetrel consolidated | | As of December 31, 2017 | | Impact on the P&L | | Impact on the equity | | As of December 31, 2018 | | | | | | | | | | | | | | | | | | | Tax losses (IR) and negative base (CSL) | | 2,420,376 | | (590,037) | | | | 48,470 | | 1,878,809 | | 142,769 | | | | 2,021,578 | Goodwill amortized | | 4,624 | | (708) | | | | 55,419 | | 59,335 | | (20,053) | | | | 39,282 | Exchange variations | | 464,947 | | (76,654) | | | | | | 388,293 | | (348,334) | | | | 39,959 | Temporary adjustments | | 717,868 | | (564,239) | | (7,946) | | 9,857 | | 155,540 | | 646,630 | | | | 802,170 | Business combination | | 191,250 | | (7,465) | | | | | | 183,785 | | (24,213) | | | | 159,572 | Tax credits | | | | | | | | | | | | 176,290 | | | | 176,290 | | | | 3,799,065 | | (1,239,103) | | (7,946) | | 113,746 | | 2,665,762 | | 573,089 | | | | 3,238,851 | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | Amortization of goodwill based on future profitability | | 767,277 | | (54,404) | | | | | | 712,873 | | 10,463 | | | | 723,336 | Tax depreciation | | 867,922 | | 92,280 | | | | | | 960,202 | | 49,710 | | | | 1,009,912 | Temporary adjustments | | 316,991 | | (85,169) | | | | | | 231,822 | | 44,878 | | | | 276,700 | Business combination | | 198,381 | | (197,079) | | | | 8,362 | | 9,664 | | (8,362) | | | | 1,302 | Additional indexation PP&E | | 118,202 | | (51,130) | | | | | | 67,072 | | (9,905) | | | | 57,167 | Hedge accounting | | | | (606,877) | | 606,877 | | | | | | 700,351 | | (700,351) | | | Deferred on health plans | | | | 15,269 | | (15,269) | | | | | | | | | | | Amortization of fair value adjustments on
the assets from the acquisiton of Quattor | | 263,808 | | 255,815 | | | | | | 519,623 | | (75,548) | | | | 444,075 | Long term incentive plan - LTI | | | | | | | | | | | | (2,072) | | 2,072 | | | Other | | 123,892 | | (104,350) | | (15,269) | | | | 4,273 | | 90,351 | | (90,841) | | 3,783 | | | | 2,656,473 | | (750,914) | | 591,608 | | 8,362 | | 2,505,529 | | 799,866 | | (789,120) | | 2,516,275 | | | | | | | | | | | | | | | | | | | Net | | 1,142,592 | | (488,189) | | (599,554) | | 105,384 | | 160,233 | | (226,777) | | 789,120 | | 722,576 | | | | | | | | | | | | | | | | | | | Presentation in the balance sheet: | | | | | | | | | | | | | | | | | Non-current assets | | 1,653,115 | | | | | | | | 1,165,726 | | | | | | 1,104,158 | (-) Non-current liabilities | | 510,523 | | | | | | | | 1,005,493 | | | | | | 381,582 |
| | | | | 2019 | | | | Headquarters | | | | IR and CSL | | | | | | (Country) | | Tax calculation | | Offsetting | | Balance | | | | | | | | | | | Assets | | | | | | | | | Braskem S.A. | | Brazil | | 3,679,547 | | (2,072,130) | | 1,607,417 | Braskem Argentina | | Argentina | | 1,010 | | | | 1,010 | Braskem Alemanha | | Germany | | 28,176 | | | | 28,176 | Braskem Chile | | Chile | | 162 | | (162) | | - | Braskem Idesa | | Mexico | | 2,056,723 | | (1,117,641) | | 939,082 | Braskem México Serviços | | Mexico | | 9,677 | | | | 9,677 | Cetrel | | Brazil | | 24,313 | | (5,846) | | 18,467 | DAC | | Brazil | | 60,039 | | (1,272) | | 58,767 | | | | | | 5,859,647 | | (3,197,051) | | 2,662,596 | | | | | | | | | | | Liabilities | | | | | | | | | Braskem S.A | | Brazil | | 2,072,130 | | (2,072,130) | | | Braskem America | | USA | | 271,285 | | | | 271,285 | Braskem Chile | | Chile | | 1,913 | | (162) | | 1,751 | Braskem Idesa | | Mexico | | 1,117,641 | | (1,117,641) | | | Cetrel | | Brazil | | 5,846 | | (5,846) | | | DAC | | Brazil | | 1,272 | | (1,272) | | | | | | | | 3,470,087 | | (3,197,051) | | 273,036 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | | | Headquarters | | | | IR and CSL | | | | | | (Country) | | Tax calculation | | Offsetting | | Balance | | | | | | | | | | | Assets | | | | | | | | | Braskem S.A. | | Brazil | | 2,126,658 | | (2,126,658) | | | Braskem Argentina | | Argentina | | 11,337 | | | | 11,337 | Braskem Alemanha | | Germany | | 11,251 | | | | 11,251 | Braskem Chile | | Chile | | 308 | | (268) | | 40 | Braskem Idesa | | Mexico | | 980,762 | | | | 980,762 | Braskem México Serviços | | Mexico | | 9,409 | | | | 9,409 | Cetrel | | Brazil | | 26,478 | | (6,645) | | 19,833 | DAC | | Brazil | | 72,648 | | (1,122) | | 71,526 | | | | | | 3,238,851 | | (2,134,693) | | 1,104,158 | | | | | | | | | | | Liabilities | | | | | | | | | Braskem S.A | | Brazil | | 2,239,727 | | (2,126,658) | | 113,069 | Braskem America | | USA | | 268,513 | | | | 268,513 | Braskem Chile | | Chile | | 268 | | (268) | | | Cetrel | | Brazil | | 6,645 | | (6,645) | | | DAC | | Brazil | | 1,122 | | (1,122) | | | | | | | | 2,516,275 | | (2,134,693) | | 381,582 |
F - 68F-76
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (c) | Realization of deferred income tax and social contribution |
(b) Offset for the purpose of presentation in the balance sheet
| | | | | 2018 | | | | Headquarters | | | | IR and CSL | | | | | | (Country) | | Tax calculation | | Compensation | | Balance | | | | | | | | | | | Assets | | | | | | | | | Braskem S.A. | | Brazil | | 2,126,658 | | (2,126,658) | | | Braskem Argentina | | Argentina | | 11,337 | | | | 11,337 | Braskem Alemanha | | Germany | | 11,251 | | | | 11,251 | Braskem Chile | | Chile | | 308 | | (268) | | 40 | Braskem Idesa | | Mexico | | 980,762 | | | | 980,762 | Braskem México Serviços | | Mexico | | 9,409 | | | | 9,409 | Cetrel | | Brazil | | 26,478 | | (6,645) | | 19,833 | DAC | | Brazil | | 72,648 | | (1,122) | | 71,526 | | | | | | 3,238,851 | | (2,134,693) | | 1,104,158 | | | | | | | | | | | Liabilities | | | | | | | | | Braskem S.A | | Brazil | | 2,239,727 | | (2,126,658) | | 113,069 | Braskem America | | USA | | 268,513 | | | | 268,513 | Braskem Petroquímica Chile | | Chile | | 268 | | (268) | | | Cetrel | | Brazil | | 6,645 | | (6,645) | | | DAC | | Brazil | | 1,122 | | (1,122) | | | | | | | | 2,516,275 | | (2,134,693) | | 381,582 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 | | | | Headquarters | | | | IR and CSL | | | | | | (Country) | | Tax calculation | | Compesation | | Balance | | | | | | | | | | | Assets | | | | | | | | | Braskem S.A. | | Brazil | | 1,491,423 | | (1,491,423) | | | Braskem Argentina | | Argentina | | 3,398 | | | | 3,398 | Braskem Alemanha | | Germany | | 19,353 | | | | 19,353 | Braskem Chile | | Chile | | 251 | | (251) | | | Braskem Idesa | | Mexico | | 1,036,257 | | | | 1,036,257 | Braskem México Serviços | | Mexico | | 1,334 | | | | 1,334 | Cetrel | | Brazil | | 29,268 | | (7,454) | | 21,814 | DAC | | Brazil | | 84,478 | | (908) | | 83,570 | | | | | | 2,665,762 | | (1,500,036) | | 1,165,726 | | | | | | | | | | | Liabilities | | | | | | | | | Braskem S.A | | Brazil | | 2,272,775 | | (1,491,423) | | 781,352 | Braskem America | | USA | | 223,635 | | | | 223,635 | Braskem Chile | | Chile | | 757 | | (251) | | 506 | Cetrel | | Brazil | | 7,454 | | (7,454) | | | DAC | | Brazil | | 908 | | (908) | | | | | | | | 2,505,529 | | (1,500,036) | | 1,005,493 |
F - 69
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
| | | | Balance at | | Realization | | | | | | December 31, | | | | | | | | | | | | 2025 | | 2028 | Assets | | Note | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | to 2027 | | thereafter | | | | | | | | | | | | | | | | | | | | | Tax losses (IR) and negative base (CSL) | | (i) | | 2,150,692 | | 166,865 | | 287,200 | | 200,515 | | 219,314 | | 449,772 | | 818,425 | | 8,601 | Goodwill amortized | | | | 21,677 | | 2,223 | | 2,223 | | 2,223 | | 2,223 | | 2,223 | | 2,224 | | 8,338 | Exchange variations | | (ii) | | 1,132,351 | | 107,843 | | 107,843 | | 107,843 | | 107,843 | | 166,325 | | 387,626 | | 147,028 | Temporary adjustments | | (iii) | | 2,357,267 | | 536,934 | | 660,491 | | 113,454 | | 66,930 | | 495,380 | | 484,078 | | | Business combination | | (iv) | | 85,539 | | 28,510 | | 28,510 | | 28,510 | | | | | | | | 9 | Tax credits | | (v) | | 49,833 | | 35,746 | | 14,087 | | | | | | | | | | | Other | | | | 62,288 | | | | | | | | | | | | | | 62,288 | | | | | | 5,859,647 | | 878,121 | | 1,100,354 | | 452,545 | | 396,310 | | 1,113,700 | | 1,692,353 | | 226,264 | | | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | Amortization of goodwill based on future profitability | (vi) | | 722,685 | | | | | | | | | | | | | | 722,685 | Tax depreciation | | (vii) | | 1,911,214 | | 135,128 | | 135,128 | | 135,128 | | 135,128 | | 135,128 | | 135,128 | | 1,100,446 | Business combination | | (ix) | | 1,302 | | | | | | | | | | | | | | 1,302 | Present value adjustment and amortized cost | | (x) | | 11,276 | | 6,959 | | 4,317 | | | | | | | | | | | Amortization of fair value adjustments on the assets from the acquisiton of Braskem Qpar | | | | 393,773 | | 44,825 | | 44,825 | | 44,825 | | 44,825 | | 44,825 | | 44,825 | | 124,823 | Other | | | | 5,437 | | | | | | | | | | | | | | 5,437 | | | | | | 3,470,087 | | 283,581 | | 303,184 | | 200,379 | | 192,003 | | 269,141 | | 267,106 | | 1,954,693 | | | | | | | | | | | | | | | | | | | | | Net | | | | 2,389,560 | | 594,540 | | 797,170 | | 252,166 | | 204,307 | | 844,559 | | 1,425,247 | | (1,728,429) |
(c)Realization of deferred income tax and social contribution
| | | | Balance at | | Realization | | | | | | December 31, | | | | | | | | | | | | 2024 | Assets | | Note | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | thereafter | | | | | | | | | | | | | | | | | | | Tax losses (IR) and negative base (CSL) | | (i) | | 2,021,578 | | 95,076 | | 122,790 | | 307,069 | | 505,880 | | 990,763 | | | Goodwill amortized | | | | 39,282 | | 3,654 | | 3,654 | | 3,654 | | 3,654 | | 3,655 | | 21,011 | Exchange variations | | (ii) | | 39,959 | | | | | | | | | | | | 39,959 | Temporary adjustments | | (iii) | | 802,170 | | 135,622 | | 72,550 | | 33,556 | | 12,882 | | 11,331 | | 536,229 | Business combination | | (iv) | | 159,572 | | 33,666 | | 33,666 | | 33,666 | | 29,287 | | 29,287 | | | Tax credits | | (v) | | 176,290 | | 176,290 | | | | | | | | | | | Total assets | | | | 3,238,851 | | 444,308 | | 232,660 | | 377,945 | | 551,703 | | 1,035,036 | | 597,199 | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | Amortization of goodwill based on future profitability | (vi) | | 723,336 | | | | | | | | | | | | 717,529 | Tax depreciation | | (vii) | | 1,009,912 | | 213,070 | | 326,919 | | 445,962 | | 23,961 | | | | | Temporary differences | | (viii) | | 276,700 | | 65,560 | | 23,374 | | 10,811 | | 4,150 | | 3,651 | | 169,154 | Business combination | | (ix) | | 1,302 | | 187 | | 187 | | 187 | | 187 | | 187 | | 6,174 | Additional indexation PP&E | | (x) | | 57,167 | | 4,573 | | 4,573 | | 4,573 | | 4,573 | | 4,573 | | 34,302 | Amortization of fair value adjustments on
the assets from the acquisiton of Quattor | | | | 444,075 | | 35,526 | | 35,526 | | 35,526 | | 35,526 | | 35,526 | | 266,445 | Other | | | | 3,783 | | | | | | | | | | | | 3,783 | Total liabilities | | | | 2,516,275 | | 318,916 | | 390,579 | | 497,059 | | 68,397 | | 43,937 | | 1,197,387 | | | | | | | | | | | | | | | | | | | Net | | | | 722,576 | | 125,392 | | (157,919) | | (119,114) | | 483,306 | | 991,099 | | (600,188) |
Basis for constitution and realization: | (i) | In Brazil, the use of tax loss has limitlosses is limited to 30% of 30% to the amount of taxable incomeprofit for the year, butyear; however, the balance does not expire. InMeanwhile, in Mexico there is no limit foron the year,amount that can be used in the year; however, the tax loss expireslosses expire in 10 years. The realization of Tax Losses consider the taxable profit expected by the company over a 10-year horizon. | (ii) | (ii) | In Brazil, the Company opted to tax exchange variation of assets and liabilities denominated in foreign currency under the cash method. Thus, this variation will be realized as assets and liabilities are received/paid. For accounting purposes, exchange variation is recognized under the accrual basis, reason why it is recordedwhich results in the recognition of deferred IR and CSL. | (iii) | (iii) | Accounting expenses not yet deductible for calculating income tax and social contribution, whose recognition for tax purposes occurs in subsequent periods. For 2019, the provisioning of expenses with contingencies and damages in Alagoas produced a material impact. | | (iv) | Refers to: tax-related goodwill and contingencies recognized from business combinations. Tax realization of goodwill will occuroccurs upon the merger of the investments and contingencies arising from write-offs due to the settlement or reversal of the processes involved. | (v) | (v) | Tax credits arising from the balance of tax paid on profit abroad.abroad and the worker’s food program. | (vi) | (vi) | Goodwill for the future profitability of the merged companies is not amortized since the adoption of Law 11,638/07. Tax realization is associated with the write-off of goodwill due to impairment or upon divestment. | (vii) | (vii) | For calculation of IR and CSL, assets are depreciated at rates higher than those used for accounting purposes. As tax depreciation is exhausted, these deferred IR and CSL start to be realized. | | (viii) | Accounting provisionsProvisions whose taxation will occur in subsequent periods.
| (ix) | (ix) | Fair value adjustments on property, plant and equipment and intangible assets identified in business combinations, whose tax realization is based on the depreciation and amortization of these assets. | | (x) | Additional adjustment, upon adoption of Law 11,638/07, of property, plant and equipment, whose tax realization is based on the depreciation of assets.assets, as well as adjustment to present value of assets and liabilities overdue more than 89 days. |
Annually, the Company revises its projection of taxable income based on its Business Plan (Note 3.1)3.2.1). If this projection indicates that the taxable income will not be sufficient to absorb the deferred taxes, the amount corresponding to portion of the assetdeferred tax that will not be recovered is written off. F - 70F-77
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
22Sundry provisions
| | | Note | | 2018 | | 2017 | | 2019 | | 2018 | Provision for customers rebates | Provision for customers rebates | | (a) | | 88,026 | | 87,913 | | 84,110 | | 88,026 | Provision for recovery of environmental damages | | (b) | | 307,546 | | 300,249 | | Provision for environmental damages | | | 365,155 | | 307,546 | Other | | | | 28,970 | | 25,510 | | 55,941 | | 28,970 | Total | | | | 424,542 | | 413,672 | | 505,206 | | 424,542 | | | | | | | | | | | | | Current liabilities | | | | 191,536 | | 178,676 | | 203,134 | | 191,536 | Non-current liabilities | Non-current liabilities | | | | 233,006 | | 234,996 | | 302,072 | | 233,006 | Total | | | | 424,542 | | 413,672 | | 505,206 | | 424,542 |
(a)Client bonus
Some sales agreements of Braskem provide for a rebate, in products, should somecertain sales volumes be achieved within the year, six-month period or three-month period, depending on the agreement. The bonus is recognized monthly in a provision, assuming that the minimum contractual amount will be achieved. As it is recognized based on contracts, the provision is not subject to significant uncertainties with respect to their amount or settlement. | (b) | Provision for environmental damagesRecovery of environmental damages |
Braskem has a provision for future expenses for the recovery of environmental damages in some of its industrial plants. The amount provisioned corresponds to the best estimate of the expenses required to repair the damages. | (c) | Changes in provisionsChanges in provisions |
| | | | Recovery of | | | | | | | Recovery of | | | | | | | | | environmental | | | | | | | environmental | | | | | | | Bonus | | damage | | Other | | Total | Bonus | | damage | | Other | | Total | | | | | | | | | | | | | | | | | December 31, 2017 | 87,913 | | 300,249 | | 25,510 | | 413,672 | 87,913 | | 300,249 | | 25,510 | | 413,672 | | | | | | | | | | | Additions, inflation adjustments and exchange variation, net | 104,431 | | 89,395 | | 8,593 | | 202,419 | 104,431 | | 89,395 | | 8,593 | | 202,419 | Write-offs through usage and payments | (104,318) | | (82,098) | | (5,133) | | (191,549) | (104,318) | | (82,098) | | (5,133) | | (191,549) | | | | | | | | | | | December 31, 2018 | 88,026 | | 307,546 | | 28,970 | | 424,542 | 88,026 | | 307,546 | | 28,970 | | 424,542 | | | | | | | | | | | Additions, inflation adjustments and exchange variation, net | | 74,299 | | 144,617 | | 34,194 | | 253,110 | Write-offs through usage and payments | | (78,215) | | (87,008) | | (7,223) | | (172,446) | | | | | | | | | | | December 31, 2019 | | 84,110 | | 365,155 | | 55,941 | | 505,206 |
23F-78
| Braskem S.A.Contingencies
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
Braskem is a defendant in lawsuits and administrative proceedings arising from the normal course of its business. These claims are of a tax, labor and social security, civil and corporate nature. Proceedings assessed as having a probable chance of loss are provisioned for, as described in Note 3.5.3.2.4. Proceedings assessed as having a possible chance of loss are not provisioned for, except in relevantfor. In addition, Braskem also is a plaintiff to several lawsuits. In these cases, involving business combinations. the Company discloses the contingent asset when the receipt of economic benefits is probable, see note 10.c. However, when the realization of the benefit is virtually certain, the related asset no longer constitutes a contingent asset, and as such amount is recognized. Any changes in the court’s understanding of the position could cause future impacts on the consolidated financial statements of the Company due to such proceedings. | 24.1 | Claims with probable chance of loss and contingent liabilities arising from business combinations |
F - 71
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
| | | | | 2019 | | 2018 | Labor claims | | (a) | | 315,437 | | 177,751 | | | | | | | | | Tax claims | | (b) | | | | | Normal operations | | | | | | | IR and CSL | | | | 22,284 | | 20,717 | PIS and COFINS | | (i) | | 196,356 | | 156,796 | ICMS | | | | 70,645 | | 64,468 | Other tax claims | | | | 18,475 | | 23,237 | | | | | | 307,760 | | 265,218 | | | | | | | | | Business Combination | | | | | | | IR and CSL | | | | 3,581 | | 1,500 | PIS and COFINS | | (ii) | | 63,291 | | 59,739 | ICMS - interstate purchases | | (iii) | | 297,456 | | 280,622 | | | | | | 364,328 | | 341,861 | | | | | | | | | Corporate claims | | (c) | | 118,485 | | 111,049 | | | | | | | | | Civil claims and other | | | | 45,514 | | 69,438 | | | | | | | | | | | | | | 1,151,524 | | 965,317 |
23.1| (a) | Labor claimsClaims with probable chance of loss and claims arising from business combinations with possible loss
| | | | 2018 | | 2017 | Labor claims | (a) | | 177,751 | | 250,075 | | | | | | | | Tax claims | (b) | | | | | Normal operations | | | | | | IR and CSL | | | 20,717 | | 17,313 | PIS and COFINS | (i) | | 156,796 | | 155,681 | ICMS | (ii) | | 64,468 | | 76,342 | Other tax claims | | | 23,237 | | 13,117 | | | | | 265,218 | | 262,453 | | | | | | | | Business Combination | | | | | | IR and CSL | | | 1,500 | | 50,051 | PIS and COFINS | (iii) | | 59,739 | | 56,135 | ICMS - interstate purchases | (iv) | | 280,622 | | 263,538 | | | | | 341,861 | | 369,724 | | | | | | | | Corporate claims | (c) | | 111,049 | | 135,779 | | | | | | | | Civil claims and other | | | 69,438 | | 74,614 | | | | | | | | | | | | 965,317 | | 1,092,645 |
(a) Labor claims
|
The provision on December 31, 20182019 is related to 477604 labor claims, including occupational health and security cases (599(477 in 2017)2018). The Company’sManagement of Braskem, based on its assessment and of its external legal advisors, estimate that the term for the termination of these types of claims in Brazil exceeds five years. The estimates related to the outcome of proceedings and the possibility of future disbursement may change in view of new decisions in higher courts. (b) Tax claimsF-79
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
On December 31, 2018,2019, the main claims are the following: | (i) | Non-cumulative PIS and COFINSNon-cumulative PIS and COFINS |
The Company is charged amounts arising from the compensation of Non-Cumulative PIS and COFINS tax credits that were not approved by the Federal Revenue Service of Brazil (“RFB”) in Offsetting Statements (“DCOMPs”), with credits in amounts that exceeded those declared in the respective Statement of Calculation of Social Contributions (“DACONs”). In October 2017, through the federal tax amnesty program (PERT), the itemsmainly related to non-acceptance of the credits were settled, due to the following reasons: (i) differences between the amounts reported in the DACONs and those in the electronic files of tax invoices; (ii) amounts not recorded in the interim balance sheets, acquisitions not taxed for contributions, recording of a credit on a portion of IPI, failure to submit tax documents; and (iii) nonpayment of amounts stated as due in tax documents. Said amounts were provisioned for.topics:
| · | Offsetting Statements (“DCOMPs”), with credits in amounts that exceeded those declared in the respective Statement of Calculation of Social Contributions (“DACONs”); | | · | freight expenses: not associated with sales operations and/or operations without proven association and contracted in the country, but concerning imported products; | | · | credits arising from the acquisition of property, plant and equipment mostly related to acquired companies, whose documentation was not found; | | · | taxation of taxable revenues incorrectly classified as tax exempt, subject to zero tax rate or not taxed. |
F - 72
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
On December 31, 2018,2019, the balance of this provision was R$154,673.193,139 (R$154,673 in 2018). The Company’sManagement of Braskem, based on its assessment and of its external legal advisors, after considering the precedents on the matters at the Administrative Council of Tax Appeals (“CARF”), assessed that the disputes related to such matters have a probable likelihood of loss and estimated the conclusion of administrative procedures in 2020.2022. There are no deposits or any other type of guarantee for these procedures, since they are still being discussed at the administrative level. (ii)ICMS – Decree 38,394/2000
The main claims provisioned in 2018 is related to the tax deficiency notice received by the Company in 2017 from the Tax Authority of the State of Alagoas, for the administrative collection by an ICMS tax that allegedly was paid below the amount due, in the period from August 2012 to April 2016, in accordance with Article 9 of Decree 38.394/2000.
On December 31, 2018, the balance of this provision was R$45,027.
The Company’s external legal advisors, considering the behavior of the administrative bodies judging the case, assessed that the disputes related to the highlighted matters have a probable likelihood of loss and estimated the conclusion of administrative proceedings in 2021.
There are no deposits or any other type of guarantee for these procedures, since they are still being discussed at the administrative level.
(iii)PIS and COFINS
The Company is assessed for the payment of these taxes in many claims, such as: | ·Insufficient payment of COFINS for the period from March 1999 to December 2000, from February 2001 to March 2002, from May to July 2002 and September 2002 due to alleged calculation errors, and non-compliance with the widening the tax calculation base and increasing the contribution rate envisaged in Law 9,718/98; | Insufficient payment of COFINS for the period from March 1999 to December 2000, from February 2001 to March 2002, from May to July 2002 and September 2002 due to alleged calculation errors, and non-compliance with the widening the tax calculation base and increasing the contribution rate envisaged in Law 9,718/98; | | · | Offset of the COFINS dues relating to September and October 1999 using the credit resulting from the addition of 1% to the COFINS rate; | | · | Rejection of the offset of PIS and COFINS dues relating to the period from February to April 2002 using the PIS credits under Decree-Laws 2,445 and 2,449, calculated between June 1990 and October 1995, under the argument that the time period for using said credits had expired; and | | · | Alleged non-taxation of revenue from foreign exchange variations, determined as a result of successive reductions in the capital of the associated company. |
·Offset of the COFINS dues relating to September and October 1999 using the credit resulting from the addition of 1% to the COFINS rate;F-80
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
·RejectionOn December 31, 2019, the balance of the offset of PIS and COFINS dues relating to the period from February to April 2002 using the PIS credits under Decree-Laws 2,445 and 2,449, calculated between June 1990 and October 1995, under the argument that the time period for using said credits had expired; and
·Alleged non-taxation of revenue from foreign exchange variations, determined as a result of successive reductionsthis provision was R$63,291 (R$59,739 in the capital of the associated company.2018).
The Company’sManagement of Braskem, based on its assessment and of its external legal advisors, assessed that the disputes related to the highlighted matters have a possible likelihood of loss andgreater than 50%, estimated the conclusion of administrative proceedings in 2020.2023 and of court decisions in 2030. Guarantees were offered for these claims in the form of bank guarantee and finished products, which, together, cover the amount of court claims. F - 73
Braskem S.A.| (iii) | ICMS - interstate purchases
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
(iv)ICMS - interstate purchases
|
In 2009, the merged company Braskem Qpar was assessed by the Finance Department of the State of São Paulo for the payment, at the administrative level, of ICMS in view of allegedly committing the following violations: | ·Undue use of ICMS tax credits (i) in the amount of R$53,478, in the periods from February 2004 to August 2005, November 2005 to February 2006, and September 2006 to January 2008, due to the recording of credits indicated on the invoices for the sale of “acrylonitrile,” issued by Acrinor Acrilonitrila do Nordeste S/A; (ii) in the amount of R$1,581, in the period from December 2004 to August 2005, arising from the undue recording of credits on invoices for the sale of methyl acrylate, issued by Proquigel Química S/A; and (iii) in the amount of R$3,105, in the period from August 2004 to November 2005, arising from the undue recording of credits in invoices for the sale of methyl methacrylate, issued by Proquigel Química S/A, since the products were to be exported, and therefore were exempt from payment of ICMS tax; ·The fine for the abovementioned tax offense corresponds to 100% of the principal value recorded, as per Article 527, item II, sub-item “j” jointly with paragraphs 1 and 10 of RICMS/SP;
·Fine in the amount of 30% on R$480,389, which corresponds to the sum of the amounts indicated in tax documents whose outflow of goods was not identified by the tax authority, entered based on the provisions of Article 527, item IV, sub-item “b” jointly with paragraphs 1 and 10 of RICMS/SP; and
·Fine due to lack of presentation of tax documents requested under a specific deficiency notice, as per Article 527, item IV, sub-item “j” jointly with paragraphs 8 and 10 of RICMS/SP.
| Undue use of ICMS tax credits (i) in the amount of R$53,478, in the periods from February 2004 to August 2005, November 2005 to February 2006, and September 2006 to January 2008, due to the recording of credits indicated on the invoices for the sale of “acrylonitrile,” issued by Acrinor Acrilonitrila do Nordeste S/A; (ii) in the amount of R$1,581, in the period from December 2004 to August 2005, arising from the undue recording of credits on invoices for the sale of methyl acrylate, issued by Proquigel Química S/A; and (iii) in the amount of R$3,105, in the period from August 2004 to November 2005, arising from the undue recording of credits in invoices for the sale of methyl methacrylate, issued by Proquigel Química S/A, since the products were to be exported, and therefore were exempt from payment of ICMS tax; | | · | The fine for the abovementioned tax offense corresponds to 100% of the principal value recorded, as per Article 527, item II, sub-item “j” jointly with paragraphs 1 and 10 of RICMS/SP; | | · | Fine in the amount of 30% on R$480,389, which corresponds to the sum of the amounts indicated in tax documents whose outflow of goods was not identified by the tax authority, entered based on the provisions of Article 527, item IV, sub-item “b” jointly with paragraphs 1 and 10 of RICMS/SP; and | | · | Fine due to lack of presentation of tax documents requested under a specific deficiency notice, as per Article 527, item IV, sub-item “j” jointly with paragraphs 8 and 10 of RICMS/SP. |
Discussions in the administrative sphere were ended in 2016,2015, with the Company proposing lawsuits. Due to the favorable injunctions granted to the Company: (i) in one of the claims, the São Paulo Treasury Department rectified the amount of the debt to apply interest for late payment and inflation adjustment limited to the SELIC basic interest rate, which resulted in the debitdebt being reduced by 20% and (ii) in the other claim, the tax liability was suspended. On December 31, 2019, the balance of this provision was R$297,456 (R$280,622 in 2018). The Company’sManagement of Braskem, based on its assessment and of its external legal advisors, have assessed that the disputes related to the highlighted matters remain withhave a possible likelihood of loss greater than 50% and estimateestimated the conclusion of legal proceedings in 2025. A performance bond was offered asThese lawsuits are secured by a guarantee for these claims.insurance. (c) Corporate claimsF-81
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
On December 31, 2018,2019, the main claim is related to an ordinary collection claim combined with a request for damages for losses, requesting the payment of dividends and a share bonus arising from theclass "A" preferred shares of the terminateddissolved companySalgema Indústrias Químicas S.A. Once the claim wasclaims were granted, the amount effectively owed by Braskem began to be calculated. During this phase, the judge recognized that dividends and bonus related to fiscalthe years prior to 1987 had become time-barred and were no longer owed by Braskem. time-barred. However, the Alagoas State Court of Appeals reviewed the decision and considered that amounts priorrelated to such period also were owed.owed by Braskem. Against the decision, Braskem filed a Special Appeal with the Superior Court of Justice (“STJ”), which was partially granted, so that the possibility that the statute of limitation will be recognized in a procedure of liquidation of the award will be submitted to the STJ. In April 2019, the case was distributed and held by the Judge-Rapporteur under advisement. On December 31, 2019, Braskem recognized a provision of R$64,305. F - 74
| (d) | Changes in claims with probable chance of loss |
| | | | | | Corporate | | Civil claims | | | | | Labor claims | | Tax claims | | claims | | and other | | Total | | | | | | | | | | | | December 31, 2017 | 250,075 | | 632,177 | | 135,779 | | 74,614 | | 1,092,645 | | | | | | | | | | | | Additions, inflation adjustments and exchange variation | 80,685 | | 77,236 | | 8,676 | | 5,001 | | 171,598 | Payments | (70,553) | | (40,768) | | (31,680) | | (173) | | (143,174) | Reversals | (82,456) | | (61,566) | | (1,726) | | (10,004) | | (155,752) | | | | | | | | | | | | December 31, 2018 | 177,751 | | 607,079 | | 111,049 | | 69,438 | | 965,317 | | | | | | | | | | | | Additions, inflation adjustments and exchange variation | 322,102 | | 98,618 | | 7,436 | | 11,465 | | 439,621 | Payments | (83,189) | | (6,348) | | | | (3,918) | | (93,455) | Reversals | (101,227) | | (27,261) | | | | (31,471) | | (159,959) | | | | | | | | | | | | December 31, 2019 | 315,437 | | 672,088 | | 118,485 | | 45,514 | | 1,151,524 |
F-82
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| 24.2 | Claims with possible chance of loss |
| | Note | | 2019 | | 2018 | | | | | | | | Civil claims - Alagoas | 26 | | 33,973,320 | | | Civil claims - Other | (a) | | 769,126 | | 691,636 | Tax claims | (b) | | 6,199,283 | | 7,125,071 | Labor claims | | | 642,229 | | 860,061 | Other lawsuits | (c) | | 546,743 | | 643,982 | Total | | | 42,130,701 | | 9,320,750 |
On December 31, 2018, the balance of this provision is R$59,577 and there is no guarantee related to this claim.
(d) Changes in claims with probable chance of loss
| | | | | | Corporate | | Civil claims | | | | | Labor claims | | Tax claims | | claims | | and other | | Total | | | | | | | | | | | | December 31, 2017 | 250,075 | | 632,177 | | 135,779 | | 74,614 | | 1,092,645 | | | | | | | | | | | | Additions, inflation adjustments and exchange variation | 80,685 | | 77,236 | | 8,676 | | 5,001 | | 171,598 | Payments | (70,553) | | (40,768) | | (31,680) | | (173) | | (143,174) | Reversals | (82,456) | | (61,566) | | (1,726) | | (10,004) | | (155,752) | | | | | | | | | | | | December 31, 2018 | 177,751 | | 607,079 | | 111,049 | | 69,438 | | 965,317 |
23.2Claims with possible chance of loss
| | | 2018 | | 2017 | | | | | | | Tax claims | | 6,082,336 | | 6,048,462 | Labor claims | | 992,205 | | 812,400 | Civil claims | | 579,145 | | 693,188 | Social security tax claims | | 125,338 | | 91,824 | Other lawsuits | | 535,802 | | 285,944 | Total | | 8,314,826 | | 7,931,818 |
(a)Civil
(i)Excess weight
Public-Interest Civil Action filed by the Federal Prosecution Office in Brasilia, with the objective of holding the company liable for damages caused to federal roads by trucks carrying excess weight.weight, involving the amount of R$61.2 million. The action claims damagesseeks to indemnify the country for materialcollective pecuniary damages and collective pain and suffering,suffering. A decision was rendered in the amountprincipal case denying all claims made by the Federal Prosecution Office (MPF). Against such decision, the MPF filed a civil appeal, which was dismissed by majority of R$71 million, on December 31, 2018.the Fifth Panel of the Regional Federal Appellate Court – 1st Region. Therefore, under Article 942 of the Brazilian Code of Civil Procedure, the record was referred to the 5th Extended Panel, which also, by majority vote, dismissed the MPF’s appeal and upheld the decision. The actionMPF filed special appeal, which was denieddismissed. Against such decision, the MPF filed interlocutory appeal in special appeal, which was received by the lower court.STJ and registered as AREsp 1614987/DF. Since November 18, 2019, the case has been held by the Chief Justice of the STJ under advisement. | (ii) | Caustic soda transportation |
(ii)Caustic soda transportation
The Company is the defendant in civil lawsuits filed by the owner of a former distributor of caustic soda and by the shipping company that provided services to this former distributor, which, at December 31, 2018,2019, totaled R$99.265.8 million. The claimants seek indemnity for damages related to the alleged non-performance of the distribution agreement by the Company. Management's evaluation, supported by the opinion of its external legal advisors who are responsible for the cases, is that the lawsuits will possibly be dismissed within a period of 8 years. No judicial deposit or other form of guarantee was accrued for these lawsuits. F - 75
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
(iii)Resale of solvents
In January 2017, the Company became defendant in a civil lawsuit filed by former reseller of solvents, claiming alleged breach of a tacit distribution agreement. On December 31, 2018,2019, the damages claimed in the lawsuit amounted to R$185.6204.6 million. BasedThe Management of Braskem, based on the opinionits assessment and of its external legal counsel accompanying the case, the Managementadvisors, believes that the lawsuit has a possible risk of loss within an eight-year period.
No judicial deposit or other form of security was made for these suits. F-83 (iv)
| Braskem S.A.Hashimoto Public-Interest Civil Action
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (iv) | Hashimoto Public-Interest Civil Action |
The Public-Interest Civil Action was filed in June 2018 by the São Paulo State Public Prosecutor’s Office against the Company and other firms that operate in the Capuava Petrochemical Complex, claiming the reparation and/or remediation of environmental damages supposedly arising from the emission of pollutants into the air, as well as the joint judgement of companies that comprise said complex seeking environmental moral damages in the inflation-adjusted amount of R$107.6126.5 million. The term for filing an answer has not yet begun, which will happen only after all defendants have been summoned. Based on the opinion of the external legal counsel handling the case, the Management believes that the lawsuit possibly will be dismissed within a period of eight years. No judicial deposit or other form of security was accrued for the case. | (v) | Recourse action of insurer |
(v)Redress proceeding
Compensation actionAction for indemnity filed by the insurer of a client of the Company. The insurer seeks, in return, therecourse, reimbursement offor the amount paid to the customer due toclient under the insurance contractagreement entered into with the client, whose amount up toadjusted as of December 31, 20182019 is R$73.877.7 million. According to the insurer,Insurer, the losses incurredsustained by the customer, for which it wasclient, reimbursed would have beenby the insurer, allegedly were caused by the supplyproducts supplied by Braskem outside of off specification products by Braskem.specifications.
The Management's evaluation, based onManagement believes, supported by the opinion of the external legal counselcounsels responsible for conductinghandling the cases, is that the lawsuits maypossibly will be dismissed inwithin a period of up to 8eight years. There is noNo judicial deposit or any other type of guarantee has been made for the process.this case.
(b)Tax
| (i) | PIS, COFINS, IR and CSL: taxation of tax losses and reductions in debits in connection with the installment payment program under MP 470/09PIS and COFINS: taxation of tax losses and reductions in debits in connection with the installment payment program under MP 470/09 |
The Company was assessed for not recording as taxable the amounts of the credits from tax losses and social contribution tax loss carryforwards used to settle tax debits paid in installments under Provisional Presidential Decree 470/09. In the specific case of PIS and COFINS taxes, the assessment also includes the reductions applied to fines and interest arising from the adoption of the installment payment plan. Said tax credits and reductions of debits were not taxed, given the understanding of the Company that they did not represent taxable income. F - 76
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
In November 2018, the tax-deficiency notice related to IR/IRPJ/CSL was fully denied in a final and unappealedunappealable decision issued by CARF. In August 2019, part of the notification related to PIS/COFINS taxes was denied in a final and unappealable decision issued by CARF. On December 31, 2018,2019, the inflation-adjusted amountupdated value of taxes recorded and tax effects of disallowances of income tax losses and social contribution tax loss carryforwards through said tax deficiency notices isthe assessment amounted R$842883 million. The Company’sManagement of Braskem, based on its assessment and of its external legal advisors, estimateestimates that the administrative proceeding should be concluded by 2020. F-84
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
There are no deposits or any other type of guarantee for these procedures,this procedure, since they areit is still being discussed at the administrative level.
| (ii) | IR and CSL – Charges with goodwill amortizationIncome Tax (“IR”) and Social Contribution (“CSL”) – Charges with goodwill amortization
|
The Company was served by the Brazilian Federal Revenue Service (“RFB”)RFB for deducting amortization charges, from 2007 to 2013, relating to goodwill originated from acquisitions of shareholding interests in 2002. In that year, several business groups divested their petrochemical assets, which were consolidated to enable the consequent foundation of Braskem. In May 2018 oneand November 2019, two of the proceedings was deemed validpartially invalid in a final and unappealedunappealable decision issued by CARF, which reduced liabilities by R$166403 million. On December 31, 2018,2019, the updated value of the taxes recorded in said tax deficiency notices amounted to R$1.21 billion. The assessment of riskpossible loss in these claims is based on the following: (i) the equity interests were acquired with effective payment, business purpose and the participation of independent parties; and (ii) the real economic nature of the transactions that resulted in the recording of interest and exchange variation expenses. The Company’sManagement of Braskem, based on its assessment and of its external legal advisors, estimateestimates that the administrative proceeding should be concluded by 2022. There are no deposits or any other type of guarantee for these procedures, since they are still being discussed.discussed at the administrative level.
| (iii) | Non-cumulative PIS and COFINS taxesNon-cumulative PIS and COFINS taxes
|
The Company received a deficiency notice from the RFB due to the use of non-cumulative PIS and COFINS tax credits in the acquisition of certain goods and services consumed in its production process. The matters whose chance of loss is deemed as possible are mainly related to the following: (i) effluent treatment services; (ii) charges on transmission of electricity; (iii) freight for storage of finished products; and (iv) extemporaneous credits from acquisitions ofvarious acquisitions; and (v) property, plant and equipment. These matters have already been contested at the administrative level and comprise the period from 2006 to 2011. 2016. On December 31, 2018,2019, the amount under discussion of these notices is R$1.2 billion.million. The Company’sManagement of Braskem, based on its assessment and of its external legal advisors, estimateestimates that: (i) the administrative proceedings should be concluded by 2022;2024, while the lawsuits should be concluded by 2030; and (ii) in the event of an adverse ruling for the Company, which is not expected, these contingenciescould be settled for up to 50% of the amounts in dispute. These estimates are based on the probability of loss of the Company's defense thesis, based on previous administrative and court precedents. F - 77
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
There areis no depositsdeposit or any other type of guarantee for these procedures, since theyproceedings that are still being discussed atpending in the administrative level. (iv)IRinstance, and CSL – Unlimited offsettingthe only lawsuit is secured by a guarantee insurance in the amount of R$30 million.
| (iv) | Income Tax (IR) and Social Contribution (CSL) – Unlimited offsetting |
In December 2009, December 2013 and March 2017, the Company received tax deficiency notices claiming that the methodology used to offset tax losses and tax loss carryforwards that failed to observe the limit of 30% of the Taxable Profit and Social Contribution calculation base when offsetting such liabilities with Corporate Income Tax and Social Contribution liabilities in merger operations, respectively, in November 2007,2017, September 2008and August 2013. F-85
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
In April 2019, one of the notices was dismissed in full by a final and unappealable decision issued by CARF, which resulted in a reduction of this contingency by R$407 million. On December 31, 2018,2019, the restatedupdated value of the taxes recordedremainingtax deficiency notices amounted to R$348 million. The Company’s external legal advisors estimate that the administrative proceedings should be concluded by 2020. The only proceeding currently under litigation is expected to be concluded in 2027. There are no deposits or any other type of guarantee for these procedures, since they are still being discussed at the administrative level and the only one being disputed in court has had its payment suspended by a preliminary injunction, confirmed by a court decision. (v)ICMS
The Company is involved in many ICMS collection claims drawn up in the States of São Paulo, Rio de Janeiro, Rio Grande do Sul, Bahia, Pernambuco and Alagoas. On December 31, 2018,2019, the adjusted amounts of these claims total R$644740 million and the claims include the following matters: | ·ICMS credit on the acquisition of assets that are considered by the Revenue Services as being of use and consumption. The Revenue Service understands that the asset has to be a physically integral part of the final product to give rise to a credit. Most of the inputs questioned do not physically compose the final product. However, the Judicial branch has a precedent that says that the input must be an integral part of the product or be consumed in the production process. | ICMS credit on the acquisition of assets that are considered by the Revenue Services as being of use and consumption. The Revenue Service understands that the asset has to be a physically integral part of the final product to give rise to a credit. Most of the inputs questioned do not physically compose the final product. However, the Judicial branch has a precedent that says that the input must be an integral part of the product or be consumed in the production process. | | · | ICMS credit arising from the acquisition of assets to be used in property, plant and equipment, which is considered by the Revenue Services as not being related to the production activity, such as laboratory equipment, material for the construction of warehouses, security equipment, etc. | | · | internal transfer of finished products for an amount lower than the production cost; | | · | omission of the entry or shipment of goods based on physical count of inventories; | | · | lack of evidence that the Company exported goods so that the shipment of the goods is presumably taxed for the domestic market; | | · | non-payment of ICMS on the sale of products subject to tax substitution and credit from acquisitions of products subject to tax substitution; | | · | fines for the failure to register invoices; | | · | nonpayment of ICMS tax on charges related to the use of the electricity transmission system in operations conducted in the Free Market (ACL) of the Electric Power Trading Chamber (CCEE); and | | · | usage of ICMS tax base below the level envisaged in legislation for internal transfers to another unit in the State of Alagoas of DCE (dichloroethane), between January 2013 and May 2016, which is a product that is not subject to deferral in such transactions. The payment represents 30% of the total contingency. |
·ICMS credit arising from the acquisition of assets to be used in property, plant and equipment, which is considered by the Revenue Services as not being related to the production activity, such as laboratory equipment, material for the construction of warehouses, security equipment, etc.
·internal transfer of finished products for an amount lower than the production cost;
·omission of the entry or shipment of goods based on physical count of inventories;
·lack of evidence that the Company exported goods so that the shipment of the goods is presumably taxed for the domestic market;
F - 78F-86
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
·non-payment of ICMS on the sale of products subject to tax substitution and credit from acquisitions of products subject to tax substitution;
·fines for the failure to register invoices;
·nonpayment of ICMS tax on charges related to the use of the electricity transmission system in operations conducted in the Free Market (ACL) of the Electric Power Trading Chamber (CCEE); and
·usage of ICMS tax base below the level envisaged in legislation for internal transfers to another unit in the State of Alagoas of DCE (dichloroethane), between January 2013 and May 2016, which is a product that is not subject to deferral in such transactions. The payment represents 30% of the total contingency.
The Company’sManagement of Braskem, based on its assessment and of its external legal advisors, estimateestimates that: (i) these judicial proceedings are expected to be terminated in 2023, and (ii) in the event of an unfavorable decision to the Company, which is not expected, these contingencies could be settled for up to 50% of the amounts in dispute. This estimate is based on the probability of loss of the Company’s defense theory taking into consideration the case law at the administrative and judicial levels. The Company offered assets for pledgeguarantee insurance in the amount of R$62148 million, supporting exclusively the amounts involved in the lawsuits. (vi)IOF
The Company is a party to claims for the collection of IOF tax debits in administrative proceedings and lawsuits, which claim: (i) non-payment of IOF on operations relating to Advances for Future Capital Increase (AFAC) and checking accounts conducted by the merged companies Quattor Participações S.A. and Quattor Química S.A., which were considered loans by tax authorities; and (ii) requirement to pay IOF/credit on international fund transfers between the Company and CPN Incorporated through a checking account contract and single cash management related to the period from May 2002 to April 2004. The current value of these notices on December 31, 2018, is2019, was R$175167 million. The Company offered a guarantee of R$59 million. The Company’s external legal advisors estimate that the claims in the judicial sphere will be concluded by 2022.2024. The Company offered a guarantee of R$59 million, which supports the amount involved exclusively in the claims.
| (vii) | PIS and COFINS sundryPIS and COFINS sundry |
The Company is involved in collection actions related to PIS and COFINS assessments in the administrative and judicial courts, which discuss the alleged undue offsetting of credits arising from other administrative proceedings and lawsuits, including: (i) Income Tax prepayments; (ii) FINSOCIAL; (iii) tax on net income (ILL); (iv) PIS-Decrees;PIS-Decrees – Federal Laws 2,445 and 2,449; and (v) the COFINS tax arising from the undue payment or payment in excess. The current valueOn December 31, 2019, the adjusted amounts involved of these notices on December 31, 2018, isassessments total R$144148 million.
The Company’sManagement of Braskem, based on its assessment and of its external legal advisors, estimateestimates that: (i) these judicial proceedings are expected to be terminated in 2022;2024; and (ii) in the event of an unfavorable decision to the Company, which is not expected, these contingencies could be settled for up to 50% of the amounts in dispute. This estimate is based on theprobability of loss of the Company’s defense theory taking into consideration the case law at the administrative and judicial levels. F - 79
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
The Company offered assets in guarantee, in the amount of R$144 million, that cover the entire amount ofexclusively involved in the claims.claim. | (viii) | IRRF, IR and CSL – Commission expenses |
(viii)IRRF, IR and CSL – Commission expenses
In December 2017, the Company received a tax deficiency notice from the RFB arising from: (i) the disallowance of commission expenses paid by Braskem in 2011; (ii) the disallowance of commission expenses paid by Braskem Inc. in 2013 and 2014; (iii) lack of payment of withholding income tax (IRRF) on the payments referred to in the previous item; and (iv) the disallowance of advertising expenses incurred in 2013. On December 31, 2018,2019, the restated amount of taxes and tax effects from disallowances of income tax losses and social contribution tax loss carryforwards through said tax deficiency notice is R$122133 million. F-87
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
The assessment of success in this claim is based on the following: (i) the expenses incurred in 2011 already are subject to the statute of limitations. Furthermore, the tax credit recognized by the Tax Authority considered the sum of the disallowances disputed in other administrative proceedings that are pending a final decision, which do not belong in the claim in question; (ii) the expenses incurred by Braskem INC already were paid by the Company itself, which led only to the reduction of its tax loss backlog, without the need to pay additional taxes; (iii) the IRRF claimed by the Tax Authority aims to reach a taxpayer located abroad, which as such is not subject to Brazilian tax law; and (iv) the disallowed advertising expenses are related to the Company’s business activities. The Company’s external legal advisors estimate that the administrative proceeding should be concluded in 2022. There are no judicial deposits or any other type of guarantee for this procedure, since it is still being discussed at the administrative level. | (ix) | IR and CSL – Exchange variation on naphtha imports |
(ix)IR and CSL – Exchange variation on naphtha imports
In December 2017, the Company received a tax deficiency notice related to the disallowance of exchange variation expenses between the due date of commercial invoices and the effective payment of obligations related to naphtha imports. The Company disallowed expenses in calendar year 2012, since they were considered unnecessary, which caused adjustments in the tax loss and in social contribution tax loss carryforwards. On December 31, 2018,2019, the restated value of this deficiency notice amounted to R$104103 million. The Company’s external legal advisors estimate that the administrative proceeding should be concluded in 2022. There are no deposits or any other type of guarantee for these procedures, since they are still being discussed at the administrative level. F - 80
Braskem S.A.| (x) | Isolated fine – failure to ratify DCOMPS
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
(x)Isolated fine – failure to ratify DCOMPS
|
In 2016 through 2018,2019, the Company was notifiedreceived notifications of isolatedindividual fines correspondingimposed due to 50%the use of non-cumulative COFINS tax credits:credits from: i) non-cumulative PIS/COFINS;COFINS taxes; ii) Negative Balancenegative balances of IR/CSL;IRPJ/CSLL taxes; iii) REINTEGRA credits; and iv) other credits, which were offset with federal taxes andfor offsets not approved by the RFB.Brazilian Federal Revenue. The matter is assessed as having a possible chance of loss due to favorable court precedents on the matter. On December 31, 2018,2019, the restated value of these deficiency notices amounted to R$215289 million. The Company’s external legal counsels estimate that the conclusion in the administrative level will occur in 2022.2024. No deposit or other form of security was accrued for most of these claims, as they are still being discussed administratively. (xi)
F-88
| Braskem S.A.IR/CSL – Negative Balance – Offset
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (xi) | IRPJ/CSLL – Negative Balance – Offset |
The Company claims, at the administrative level, that RFB denies Offset Statementsoffsets seeking to settle federal taxes with credits arising from negative balance of IRIRPJ and CSL.CSLL. On December 31, 2018,2019, the restated value of the taxes whose offset was not approved amounted to R$182196 million. The Company’s external legal advisors estimate that the administrative proceeding should be concluded by 2022.2024. There are no deposits or any other type of guarantee for this proceeding, since it is still being disputed at the administrative level. (xii) | (xii) | IPI and II – Customs differenceIPI and II – Customs difference |
In October 2002, the merged company Ipiranga Petroquímica received a tax-deficiency notice from RFB for contracting two different companies, one to provide parts and technology and the other to provide specialized labor for technical support, on the occasion of the construction of an industrial plant in Rio Grande do Sul, which, according to RFB, was allegedly conducted only to reduce the price of parts and technology used and, consequently, decrease the IPI and II payable. F - 81
Braskem S.A.
Notes toAfter the financial statements
at December 31, 2018
All amountsadministrative proceeding was concluded with an unfavorable decision for the Company, the case was filed in thousands, except as otherwise statedthe courts.
On December 31, 2018,2019, the restated value of the taxestax credit under discussion recorded amounted to R$6882 million. The Company’s external legal advisors estimate that the administrative proceedinglawsuit should be concluded by 2022.2030. There are no judicial depositsThe Company offered to the Court a guarantee insurance that secures the entire amount in dispute.
| (xiii) | PIS and COFINS – DCide-Fuels Tax Offset |
The Company is a party to lawsuits claiming PIS and COFINS tax liabilities arising from their offset using Cide-Fuels tax credits, as authorized under Federal Law 10,336/2001. On December 31, 2019, the adjusted value of these cases was R$144 million. The Company’s legal advisors estimate that these lawsuits will be concluded by 2030. The Company offered property in guarantee of all liabilities related to this matter. | (xiv) | Exports – Customs Fine – Fraudulent Interposition – IRPJ/CSLL – Income Not Reported |
In November 2018, the Company received a tax deficiency notice claiming corporate income tax (IRPJ) and social contribution on profits (CSLL) on products exported by Braskem Qpar S/A to Braskem Incorporated Limited, which resold such products abroad. The Federal Revenue Service understands that Braskem Incorporated Limited failed to report revenue when it made sales to clients abroad in an amount above that recorded in its accounting records. This allegedly unreported revenue was attributed directly to the Company, as the successor by merger of Braskem Qpar. Subsequently, based on this premise of income not reported, the tax authorities issued a second tax deficiency notice to impose a fine arising from the interposition of exports. F-89
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
On December 31, 2019, the adjusted value of these deficiency notices was R$75 million. The external legal advisors of the Company estimate that the administrative proceedings should be concluded by 2023. No deposit or any other type of guarantee for this procedure,these proceedings have been made, since it isthey are still being discussed atpending in the administrative level.instance. (c)Corporate
The Company currently is subject to a settlement of judgementjudgment related to ana lawsuit filed in 1988, which sentenced Polialden Petroquímica S.A., merged into Braskem, to pay its non-controlling preferred shareholders the distribution of the remaining profits of the company. The purposeliquidation aims to assess the amount of the liquidation is to determine the value of the award, calculated in accordance with the sentence, which will occur through an arbitration procedure, as determined by the court, and was appealed against by the judgment winner, which is pending trial. The procedure is awaiting the beginning of the expert analysis. court. The plaintiffs filed interlocutory appeal, which has not yet been tried, given the decision ordering an expert examination. The parties are currently awaiting the expert examination in the principal lawsuit. The Management of Braskem, based on its assessment and of its external legal advisors, the amount of provision on December 31, 20182019 is R$1615,345 million. The amount in dispute with a possible likelihood of loss is R$186 million. (d) Other lawsuits
| (i) | Social Security Contributions – Withholding of 11% |
(i)Social Security Contributions – Withholding of 11%
The Company was assessed by the RFB for allegedly withholding social security at the rate of 11% on the gross amount of invoices, bills or trade notes related to services executed through assigned labor, in the period from February 1999 to June 2002, amounting to approximately R$5253 million, on December 31, 2018.2019. The Company's legal advisors,This loss is deemed as possible in the administrative court, in view of prior decisions by the Administrative Council of Tax Appeals (CARF) and the evidence provided by the Company, assess as possible the chances of loss at the administrative level. The conclusion is supported, among other things, by the following: (i) the nullity and time-barring of the debits; (ii) the mismatch between the service provided and the tax substitution system under Article 31 of Federal Law 8,212/1991; (iii) the lack of the requirements to characterize assignment of labor, and other matters that would have to be evidenced through a tax diligence.Company.
The Company’s external legal advisors estimate that the administrative proceeding should be concluded still in 2019.2020. | (ii) | Social security – hazardous agents |
The Company is a party to other administrative proceedings and lawsuits, which claim: (i) payments related to tax-deficiency notices for additional contribution for Occupational Accident Risk (“RAT”) to fund the special retirement plan due to the alleged exposure of workers to hazardous agents; as well as financial penalty for not disclosing it in GFIP (from April 1999 to February 2006); and (ii) the claim in a tax foreclosure, of said additional payment for RAT (periods from November 2000 to January 2001 and from November 2001 to June 2002). The total approximate amount involved in these proceedings, as of December 31, 2019, is R$47 million. F - 82F-90
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
The external legal advisors of the Company estimate that these administrative proceedings should be concluded by 2022, and the only lawsuit should be concluded by 2027. No deposit or any other type of guarantee for the proceedings still pending in the administrative instance have been made, and the only lawsuit is secured by aguarantee insurance in the amount of R$3.7 million. 23.3Leniency Agreement
(a) Global Settlement with authorities
In the context of the allegations of undue payments in connection with Operation Car Wash in Brazil, the Company has engagedhired external experts in internal investigationsinvestigation to conduct an independent investigation into such allegations (“Investigation”) and to report their findings. The Company has cooperated and continues to cooperate with government authorities infrom various jurisdictions, including the U.S. Department of Justice of the United States (DoJ), the U.S. Securities and Exchange Commission of the United States (SEC), the Federal Prosecution Office of Brazil (MPF) and the Swiss Office of the Attorney General in Switzerland (OAG). In December 2016, the Company entered into a Leniency Agreement (“Agreement”)Agreements with the Federal Prosecution Office (“MPF Agreement”) and with theU.S. and Swiss authorities in the United States and Switzerland (“Global Settlement”), in the approximate valueamount of US$957 million (approximately R$3.1 billion, at the time), which were approvedofficially ratified as follows: | | 1. | 1.In Brazil, the MPF Agreement was ratified by the 5th Coordination and Review Chamber of the MPF on December 15, 2016, with ratification by the 13th Federal Court of Curitiba on June 6, 2017.
2.The agreement with the U.S. Department of Justice (“DoJ”) was confirmed by a U.S. court ruling on January 26, 2017.
3.The agreement with the Securities and Exchange Commission (“SEC”) was confirmed on February 28, 2017.
4.The agreement with Swiss authorities did not require ratification to produce effect. On December 21, 2016, the OAG concluded its investigations and issued an order to close the case based on the Company's collaboration.
| | | 2. | The agreement with the U.S. Department of Justice (“DoJ”) was confirmed by a U.S. court ruling on January 26, 2017 (“Plea Agreement”). | | | 3. | The agreement with the Securities and Exchange Commission (“SEC”) was confirmed on February 28, 2017. | | | 4. | The agreement with the Swiss authorities did not require ratification to produce effects; on December 21, 2016, the OAG concluded its investigations and issued an order to conclude the case based on the Company’s collaboration. |
The MPF agreed to allocate mostOf the aggregate amount of the amounts received under the MPF Agreement to reparation of the victims of the wrongdoings, including other authorities and government agencies, and to coordinate with these third parties with which Braskem can begin negotiations related to the facts described in the Global Settlement, with the goal of avoiding duplicate payment of reparations.Company already has paid approximately R$2.2 billion, as follows:
| | 1. | US$94,894 (R$296,591) to the DoJ, paid on February 8, 2017; | | | 2. | US$65,000 (R$206,460) to the SEC, paid on April 27, 2017; | | | 3. | CHF30,240 (R$104,307) to the Swiss Office of the Attorney General, paid on June 27, 2017; | | | 4. | R$736,445 to the MPF, paid on July 6, 2017; | | | 5. | R$267,985 to the MPF, related to the first of six annual installments due by 2023, paid on January 30, 2018; | | | 6. | CHF16,065 (R$62,021) to the Swiss Office of the Attorney General, related to the first of four annual installments due by 2021, paid on June 28, 2018; | | | 7. | R$278,034 to the MPF, related to the second of six annual installments payable until 2023, paid on January 30, 2019; and | | | 8. | CHF16,065 (R$58,034) to the Swiss Office of the Attorney General, related to the second of four annual installments payable until 2021, paid on June 27, 2019. | | | 9. | R$257,256 paid on January 30, 2020 to the Federal Government corresponding to the annual installment of the leniency agreements entered into with the MPF and with the CGU and AGU, as described above. |
F-91
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
In this respect,sense, as per the noticeinformed to the market datedon July 10, 2018 and as per the material fact notice datedon May 27, 2019, the Company engaged in a process of cooperation and negotiation process with the Ministry of Transparency and the Office of theOf The Federal Controller General (“CGU”) and the Office of the Attorney General Counsel for the Federal Government (“AGU”), which culminated in the signingexecution of athe leniency agreement with saidsuch authorities on May 31, 2019 (“CGU/AGU Agreement” and, jointly with the Global Settlement, “Agreements”). The CGU/AGU Agreement addresses the same facts that are the subject of the Global Settlement entered into in December 2016 and provides for an additional disbursement of approximately R$410 million (net effect of present value recorded at December 31, 2018 is R$ 399.5 million) due to the calculations and parameters adopted by CGU/AGU. In response to a request by the Company and the MPF, the Federal Courts ratified the allocation of funds under the MPF Agreement to the payment of the CGU/AGU Agreement, with theAgreement. The outstanding installments of the MPF Agreement will benefit from CGU/AGU Agreement and will now be restated by the variation ofin the SELIC basic interest rate as of the execution of the CGU/AGU Agreement. The additional disbursement of approximately R$410 million will be paid in two annual installments at the end of the payment schedule of the MPF Agreement, in 2024 and 2025. The AGU, CGU and MPF agreed to allocate most of the amounts received under the Agreements to the reparation of victims of the wrongdoings, including other public authorities and agencies, and to adopt monitoring measures of such third parties with which Braskem comes to start negotiations in connection with the matters under the Agreements, seeking to avoid the duplication of compensation. The amount of outstanding installments, after the CGU/AGU Agreement, jointly withdiscounting the Global Settlement are referred to as the “Agreements.” Until December 31, 2018 of the aggregate amount of the Global Settlement, the Company already has paid approximately R$2.0 billion, as follows:
1.US$94,894 (R$296,591) to the DoJ, paid on February 8, 2017;
2.US$65,000 (R$206,460) to the SEC, paid on April 27, 2017;
3.CHF30,240 (R$104,307) to the Swiss Office of the Attorney General, paid on June 27, 2017;
4.R$736,445 to the MPF, paid on July 6, 2017;
5.R$267,985 to the MPF, related to the first of six annual installments due by 2023,installment paid on January 30, 2018;
6.CHF16,065 (R$62,021) to the Swiss Office of the Attorney General, related to the first of four annual installments due by 2021, paid on June 28, 2018;
F - 83
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
7.R$278,034 to the MPF, related to the second of six annual installments due by 2023, paid on January 30, 2019; and
8.CHF 16,065 (R$58,034) to the Swiss Office of the Attorney General, related to the second of four annual installments due by 2021, paid on June 27, 2019.
The outstanding amount on the date of issuance of these financial statements, of2020, is approximately R$1.61.5 billion and will be paid as follows:
| | 1. | CHF32,130 (R$ 133,428) to the Swiss Office of the Attorney General, relatedcorresponding to three remainingfour outstanding annual installments of CHF16,065 (R$ 66,714) due on June 30 of each year as from 2020; | | | 2. | Approximately R$1 billion as a result of900 million under the MPF Agreement and the CGU/AGU Agreement, in fourthree annual, equal annual and successive installments adjusted by the variation in the SELIC duerate , payable on January 30 of each year as from 2020.2021. To guarantee payment of the installments of these installments coming due, Braskem gave as collateral assets from its property, plant and equipment corresponding to one annual installment;and | | | 3. | R$409,876 as a result ofunder the CGU/AGU Agreements,Agreement, adjusted by the variation in the SELIC rate as from the execution date of such agreement, with the first installment of R$284,665 duepayable on January 30, 2024 and the second, installment of R$125,211, duepayable on January 30, 2025. |
Braskem has been complyingThe Company also began negotiations with its obligations provided forthe Bahia State Prosecution Office, which also adhered to the MPF Agreement. The Company also began negotiations with the Rio Grande do Sul State Prosecution Office, which also adhered to the MPF Agreement. No additional payment is expected to be made by the Company to both offices. The Company concluded the process of adherence of authorities to the MPF Agreement. It will continue to collaborate with the competent authorities, while observing the confidentiality requirement established in the Global Settlement and collaborating with authorities.said agreements.
(b) ReimbursementThe Agreements do not exempt the company from other third parties, with legitimate interest, seeking indemnity for damages and other considerations
A significant portion of the total of R$2.2 billion of the Agreement entered into with MPF will be allocated to paying redress to third parties for damages incurred due tocaused by the facts that arecovered by the subject-matter of the Agreement.
Under the Agreement, the MPF undertook to coordinate actions withAgreements, including other authorities or government agencies, as well as state-owned companies and state-controlled companies with which Braskem comes to negotiate for entering into agreements based on the subject-matter of the collaboration.
Furthermore, other authorities with jurisdiction over the Company maythat seek to impose additional monetarynew pecuniary sanctions or fines or commenceinitiate new investigations againstinto the Braskem. Finally, as a result of the Global Settlement,Company. Therefore, even if the Company maydoes not anticipate the need for any additional payment, it cannot guarantee that the total amount agreed will be subject to increased operating costs in connection with its obligations to improve its governance and anti-corruption practices. In this context, as communicated to the market on July 10, 2018, the Company is currently negotiating with the Ministrysufficient for full reparation of Transparency, Supervision and Controller General (CGU) and with the Office of the General Counsel of the Federal Government (AGU) to enter into a similar agreement with regard to the object of the Global Settlement.all victims.
Under the Global Settlement, theThe Company will continue to cooperate with the competent public authorities, and to implement improvements towhile improving its compliance practices and efforts to combat corruption. The Company is subject to external monitorship for a period of three years, two of which already have transpired, during which period the monitors will verify compliance with the Global Settlement, including the efficacy of controls, policies and internal procedures to reduce the risk of any breach of anticorruption law. The monitorship period could end earlier or be extended for another year, at the discretion of the authorities, depending on the progress made by the Company in its compliance with the Global Settlement.anti-corruption practices.
It is not possible to predict the impacts on Braskem of others investigations or any decision or action taken by authorities involving its largest shareholders, namely Odebrecht S.A. and Petróleo Brasileiro S.A. – Petrobras, or any of their subsidiaries.
In connection with the execution of the CGU/AGU Agreement, Braskem originally took a tax deduction in its 2019 quarterly financial statements for the full amount of the payments to be paid under the CGU/AGU Agreement, as under Brazilian tax law the execution of such agreement provides a right to take a tax deduction on the compensation amount that is due to be paid in Brazil under this type of agreement. The plea agreement entered into with the DoJ as part of the Global Settlement prohibits Braskem from seeking tax deduction in connection with the payment of any part of the aggregate amount of the total criminal penalty contained in the plea agreement, which includes a credit for a portion of the payments to be made in Brazil. After further consideration, in light of the language in the plea agreement, Braskem voluntarily decided to reverse such tax deduction so that no part of the prior tax deduction would be inconsistent with the plea agreement entered into with DOJ. Under the Plea Agreement, it is the DoJ´s sole discretion to determine whether the Company has breached the Plea Agreement and to determine the consequences of such breach. Currently, based on the advice of its counsel, the Company believes that it is unlikely that it will incur in losses as a result of this matter.
F - 84F-92
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
(c) Class action
On July 1, 2015, a putative class action lawsuit was filed inIn March 2020, based on the United States District Court forcertification report issued by the Southern Districtindependent monitors, the MPF confirmed the end of New York against the Company and certain of its then-current and former officers and directors. Inmonitorship, the current lawsuit, entitledIn Re Braskem Securities Litigation, the Lead Plaintiff, Boilermaker-Blacksmith National Pension Trust, alleges that the Defendants made misrepresentations or omissions that inflated the priceeffectiveness of the Company’s stock in violationcompliance program and the fulfillment of U.S. securities laws.the obligations under the MPF Agreement.
AfterSubsequently, on May 13, 2020, the decisionDoJ and the SEC confirmed the conclusion of the monitorship established under the agreements signed on December 21, 2016 (“Agreements”) with said authorities. As per the motion to dismiss filedMaterial Fact notice disclosed by the Company partially grantingat the time, “the decision of the DoJ and SEC was based on a final report by the independent monitors that attested to the implementation, by the Company, of all the recommendations for structuring and executing its arguments,compliance program and that found said program in compliance with the standards established in the Agreements.
The Company is in compliance with all of its obligations under the Agreements. | 26 | Geological phenomenon - Alagoas |
The Company operated, unti May 2019, salt mining wells located in the city of Maceió, state of Alagoas, with the purpose of supplying raw material to its chlor-alkali and dichloroethane plant. Right after a geological phenomenon in the region in March 2018, the Company started studies through independent specialist institutions to identify the causes of the geological phenomenon and measures to be taken. In May 2019, the Brazilian Geological Service (CRPM) issued a report on the phenomenon claiming its causes were related to Braskem’s salt mining operations. This geological phenomenon of unknown causes is being investigated, which requires a series of studies. Given the soil instability in the districts of Pinheiro, Mutange, Bebedouro and Bom Parto and the risk for residents in the region, on May 9, 2019, Braskem decided to suspend its salt mining activities and the operation of its chlor-alkali and dichloroethane plant. With support from independent institutions and nationally and internationally renowned specialists, the Company conducted and has been conducting studies focusing on (i) identifying the causes of the geological phenomenon; and (ii) analyzing the situation of the wells. The studies have been shared with the National Mining Agency (ANM), with which the Company has been maintaining constant dialogue. On November 14, 2019, Braskem presented to the ANM measures for definitively shutting down its salt mining activities in Maceió, with the closure of its wells, and proposed the creation of a protective area surrounding certain wells as a precautionary measure to ensure public safety. These measures are based on a study conducted by the Institute of Geomechanics of Leipzig (IFG), in Germany, an international reference in the geomechanics of salt wells, and are being adopted in coordination with the Brazilian Civil Defense and other authorities. On December 31, 2019, based on its assessment and on that of its external legal advisors, and considering the existing information, the dialogue with authorities and the best estimate of expenses with the various safety measures for residents, the Company recorded a provision of R$3,383.067, of which R$1,450.476 is under current liabilities and R$1,932,591 is under non-current liabilities. Due to the inherent change in the assumptions related to the provisions arising from new facts and circumstances, execution time and extent of the action plans, the findings of future studies conducted by experts and the outcome of pending lawsuits, the provision may be adjusted over time to reflect new developments. The aggregate amount of this provision could vary in accordance with the current phase of ongoing negotiations with the authorities for reaching a potential environmental agreement involving especially a solution for stabilizing the salt wells located in the region affected by the geological phenomena. For Braskem, the goal of a potential agreement is to afford greater legal security for its plan involving the actions being studied, with the suspension and/or termination of the processes currently in place for this material. The potential agreement isstill highly uncertain and subject to the conclusion of ongoing negotiations and to approval by the Company and the Lead Plaintiff signedcompetent Authorities. Therefore, the proposed settlementprovisions recognized in these consolidated financial statements do not include the result of this potential agreement, (“Proposed Settlement”), which was ratified bysince it is not possible to reliably estimate the applicable Court, which issued a final decision ending all claims from all membersamount or to ensure that the ongoing negotiations will be successful. The estimate of the classeconomic impact of Investors (as defined below).the potential agreement will depend on (i) any agreement on the environmental recovery plan and a detailed assessment of the estimates of the amounts to be disbursed, (ii) an analysis of the detailed scope of this plan to determine its correspondence to the initiatives and amounts for which provisions already have been accrued; and (iii) the moment of the execution of the plan and expenditures, which will impact the present value of obligations. All accounting impacts, if any, will be recognized in the period in which such agreement is executed. F-93
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
The main factors of the provision result from: | a. | Support for relocating and compensation for the residents of the Risk Areas, under the Agreement entered into with the State Prosecution Office (MPE), the State Public Defender’s Office (DPE), the Federal Prosecution Office (MPF) and the Federal Public Defender’s Office (DPU), see details of the Agreement entered into in item (i) below, as well as of the Protection Area, which was demarcated based on the extension of the radius of the wells with anomalies that were identified using sonar. |
The provision in the amount of R$1,687,700 encompasses expenses with actions such as: | | · | Reallocation, rent allowance, household goods transportation and furniture storage; | | | · | Negotiation of individual settlements for compensation of the residents affected. |
| b. | Actions for closing and monitoring the salt wells: based on the findings of sonars and geomechanics studies, Braskem has planned stabilization and monitoring actions for all 35 existing salt mining wells: |
| | · | For four of them, the recommendation is that they be filled with solid material, a process that should take three years; | | | · | For the other 31 wells, the recommended actions are conventional closure, confirmation of the status of natural filling and monitoring; | | | · | For 15 wells, including the four to be filled with solid material, the recommendation is that a protection area be created in the surrounding area and that they be monitored. |
The total expenses estimated for implementation of these measures in the 35 wells is R$1,011,695, calculated based on the existing techniques and possible solutions for the current conditions of the wells, which could change in the future based on new studies and natural alterations in the structure of the wells over time; | c. | Other measures not covered by the Agreement are (i) actions related to the Technical Cooperation Agreements entered into with the Civil Defense; (ii) agreement with the Labor Prosecution Office (MPT) in the amount of R$40 million (note 26.1 (ii)); (iii) matters classified as a present obligation for the Company, even if not yet formalized; and (iv) expenses with engaging external advisors and experts to conduct studies for understanding the geological phenomenon and supporting the execution of the actions recommended by the studies. The expenses estimated and included in the accounting provision related to these additional measures amount to R$683,672 and are subject to changes as the studies and actions in the region advance. |
F-94
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
Under the terms of the Proposed Settlement, Braskem paid US$10 million (approximately R$31,680) to resolve all claims arising outAgreement, after the transfer of or relating to the subject matterownership of the class action ofproperties, the Company undertakes to hire a settlement class consisting of all persons who purchased or otherwise acquired a legal or beneficial ownership interestthird party specialized in Braskem American Depositary Receipts (“ADRs”) between July 15, 2010private surveillance for the care and March 11, 2015 (“Investors”), inclusive. The amountsafety of the agreement was depositedarea and to adopt necessary measures to prevent proliferation of vectors of diseases to people and animals. The definition of the necessary measures for the recovery of areas potentially impacted by Braskem insalt mining activities depends on diagnosis of the account designated byarea and further discussion between the judge (“Escrow Account”) on October 2, 2017.Company and the competent authorities (including ANM). On February 21, 2018, a hearing was held in which a decision was handed down forAll obligations assumed under the final approvalAgreement do not constitute the recognition of the agreement regarding the entire class of investors and the dismissal of the case. Said decision became final and unappealable. The individual distribution of the amount of the agreement is the responsibility of the manager of the Escrow Account, as determined by the Court and in accordance with the ratified allocation plan.
The Proposed Settlement was signed solely to avoid the risk, uncertainty, and expense of further litigation and does represent the admission of any wrongdoingculpability or liability by Braskem.the Company for the relocation of the people from the risk areas. Braskem will continue to collaborate with the authorities, with the support of independent experts, to identify the causes of the geological events and the implementation of actions to ensure the safety of the communities in the affected districts.
The Company may be named as a defendant in other legal actions. The Company may be required, in accordanceis negotiating with any applicable legal and regulatory limits, to indemnify directors, officers and employees thatits insurers the coverage of its insurance policies. These negotiations are defendants in this securities class action and any other related actions that may arise in the future.early stages. Therefore, the payment of compensation will depend on an assessment of the insurance coverage under these policies. Given the uncertainties regarding the matter, no payment of compensation was recognized in the consolidated financial statements of the Company. 24Benefits offered
In the context of this event, the following lawsuits were filed against the Company: | (i) | Public-Interest Civil Action (ACP) filed by the Alagoas State Prosecution Office (MPE) and the Alagoas State Public Defender’s Office (DPE) – Reparation for residents |
This action sought a preliminary injunction for the freezing of R$3.7 billion and the award of damages for losses caused to team membersthe residents of the districts of Pinheiro, Mutange and Bebedouro, which was estimated by Plaintiffs at R$7.1 billion. 24.1On January 3, 2020, the court ratified the Agreement to Support the Relocation of People in Risk Areas (“Agreement”), entered into by Braskem and the State Prosecution Office (“MPE”), the State Public Defender’s Office (“DPE”), the Federal Prosecution Office (“MPF”) and the Federal Public Defender’s Office (“DPU”). The Agreement was ratified by the Federal Judge of the 3rd Court of the State of Alagoas and produced the following effects:Short-term benefits
| | 2018 | | 2017 | | 2016 | | | | | | | | Health care | 162,338 | | 140,553 | | 139,412 | Private pension | 84,525 | | 67,008 | | 61,593 | Transport | 64,714 | | 58,825 | | 55,223 | Feeding | 33,537 | | 30,916 | | 28,874 | Training | 27,463 | | 18,285 | | 20,589 | Other | 18,271 | | 16,173 | | 13,237 | | | 390,848 | | 331,760 | | 318,928 |
| (i) | Unfreezing of R$3.7 billion (*) previously frozen from the cash balance of Braskem in the context of the Public-Interest Civil Action, | | (ii) | Substitution of theguarantee insurance already offered by the Company to the Court, in the amount of approximately R$6.4 billion, by twoguarantee insurance in the aggregate amount of approximately R$3 billion, of which R$2 billion is to secure the Public-Interest Civil Action filed by the DPE and MPE and R$1 billion is to secure the Public-Interest Civil Action filed by the MPF; | | (iii) | Elimination of the risk of another freezing of accounts in connection with the Public-Interest Civil Action; | | (iv) | Dismissal of the action in part with regard to the residents of the area envisaged in the Agreement who opt to enter into individual settlements with the Company to receive financial compensation for relocating from the area. |
(*) The unfreezing took place in January 2020. On December 31, 2019, the updated amount is presented in the caption judicial deposits in current assets in the amount of R$2,571,683 and in non-current assets in the amount of R$1,174,424 corresponding to the long-term portion of the payment schedule. F - 85
F-95
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
The Agreement aims to regulate cooperative actions for the relocation of residents from the risk areas and for ensuring their safety without any recognition of fault or causal connection between the geological phenomenon and the activities of the Company. The Agreement area encompasses approximately 4,500 real properties and 17,000 residents, who will be benefited by the Financial Compensation and Support for Relocation Program (“Program”) previously implemented by Braskem only for residents affected by the implementation of the protection area. The Program provides for relocation allowance, rent allowance, household goods transportation, costs with real estate agency, furniture storage costs and assistance from psychologists and social workers. A Residents Center was created with a structure dedicated exclusively to serving and supporting the residents of the districts located in the risk area. Three Technical Cooperation Agreements were entered into with the Municipal Government of Maceió and the Civil Defense with the aim of establishing a mutual cooperation between the parties for activities to mitigate risks and to ensure public safety. The agreements encompass the execution of studies to understand the phenomenon (high-resolution seismic survey, analysis and seismic survey of the lake, airborne gravimetry, etc.), structure of the monitoring network in the districts and region of the salt wells, installation of a meteorological station, donation of equipment to the Municipal Civil Defense, among other things. To implement the actions envisaged in the Agreement, the Company undertook to maintain R$1.7 billion in a checking account, with minimum working capital of R$100 million, whose transactions will be verified by an external audit company. | (ii) | Public-Interest Civil Action filed by the Alagoas State Labor Prosecution Office (MPT-AL) – Reparation for workers |
Public-Interest Civil Action with a preliminary injunction to freeze a total of R$2.5 billion to guarantee any indemnification for material damages to workers affected by the geological phenomenon. In said lawsuit, the MPT-AL also claims indemnification of the workers for moral damages of R$1 billion and other obligations in the amount of R$125 million, totaling the value of R$3.6 billion. On October 10, 2019, the tenured judge of the lawsuit denied the injunction sought by the MPT-AL. On February 14, 2020, the Company entered into an agreement with the Labor Prosecution Office (MPT) in the amount of R$40 million for implementation of the Program for Recovery of Business and Promotion of Educational Activities for residents and workers from the districts affected by the geological phenomenon. The program consists of support for the construction of daycare centers and schools and for administering professional training programs, as well as support for the Civil Defense to hire skilled professionals to continue monitoring the risk areas in the districts affected. With the agreement, the MPT agreed to end the public-interest civil action, releasing Braskem from all claims after the Company makes a judicial deposit of R$40 million, which will be done within 10 business days as from ratification of the agreement by the judge, what occurred on March 3, 2020. F-96
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (iii) | Public-Interest Civil Action filed by the Alagoas State Federal Prosecution Office (MPF-AL) – Social-environmental reparation |
Public-Interest Civil Action against Braskem and other defendants seeking approximately R$28.7 billion for social, environmental and property damages, as well as various other corrective and environmental compliance measures, safety plans and the suspension of the Company’s government benefits. In the preliminary injunction phase, the following main claims were made: (i) the accrual of an own private fund in the initial amount of R$3.1 billion for the execution of social and environmental programs and of emergency measures, and the maintenance in said fund of working capital in the amount of R$2 billion or, after the financial schedule is approved, an amount equivalent to 100% of the expenses projected for the subsequent 12-month period; (ii) the presentation of guarantees in the amount of R$R$20,5 billion; (iii) a prohibition on the encumbrance or divestment of any of the Company’s fixed assets and on the distribution of profits; (iv) a court-ordered freeze of any profits not distributed as of the date hereof; and (v) a suspension of financing with the Brazilian Development Bank (BNDES) and of government incentives, as well as on the prepayment of financial transactions with the BNDES. In January 2020, the judge of the 3rd Federal Court of Alagoas denied the preliminary requests of the Alagoas State Federal Prosecution Office against the Company stated above. The Management, supported by the opinion of the external legal advisors, classifies the probability of loss in this case as possible. | (iv) | Action for Damages – Pinheiro District Property |
Action for Damages filed by Construtora H. Lobo (under court-supervised reorganization), a Contractor that claimed it suffered damages and loss of profits due to an agreement to purchase from Braskem a property in the District of Pinheiro. Said agreement was terminated by Braskem due to lack of payment by the Contractor. Nevertheless, the Contractor claims that Braskem omitted information on the existence of structural problems in the deactivated salt mining wells located on said property. The plaintiff is claiming damages of R$141 million. The Management, supported by the opinion of the external legal advisors, classifies the probability of loss in this case as possible. Due to the shutting down of its salt mining activities, the Company written-off the property, plant and equipment related to the wells in the amount of R$35,078. NotesSince the shutdown of its salt mining activities, the Company has been working to adapt its chlor-alkali plant to operate with solid salt to be acquired in the financial statementsdomestic market and/or imported from other regions. The Company expects to resume its industrial activities during the first half of 2020.
at December 31, 2018
F-97
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| 27 | Benefits offered to team members |
| | 2019 | | 2018 | | 2017 | | | | | | | | Health care | 181,466 | | 162,338 | | 140,553 | Private pension | 90,687 | | 84,525 | | 67,008 | Transport | 67,761 | | 64,714 | | 58,825 | Feeding | 35,677 | | 33,537 | | 30,916 | Life insurance | 7,997 | | 5,964 | | | Training | 26,261 | | 27,463 | | 18,285 | Other | 12,164 | | 12,307 | | 16,173 | | | 422,013 | | 390,848 | | 331,760 |
(a)
| Long-term incentive plan (“ILP Plan”) |
On March 21, 2018, the Extraordinary Shareholders' Meeting approved the ILP Plan, which aims to align the interests of its participants with those of the Company’s shareholders and to encourage participants’ retention at the Company by offering eligible participants an opportunity to receive restricted shares in the Company by voluntarily investing own funds and holding such shares through the end of the three-year vesting period. On March 28, 2018,13, 2019, the Board of Directors approved a new program, the “ILP Plan 2018,2019,” in accordance with the terms and conditions of the ILP Plan, which includes the list of eligible persons, the deadline for acquiring own shares by participants and the number of restricted shares to be delivered to participants as matching contribution for each own share acquired. The maximum number of shares the Company expects to deliver to the participants of the ILP Program 2018,2019, after the vesting period and subject to compliance with all necessary requirements, is 727,688approximately 573,000 shares. The program’s grant date is April 6, 2018.March 19, 2019. The shares to be delivered by the Company to participants of the ILP Program 2018 are those currently held in treasury or acquired through repurchase programs, and in the event said shares cannot be delivered, the Company will pay participants in cash the amount corresponding to the shares, based on the quote on the stock exchange on the second business day immediately prior to the respective payment date. The fair value of the Company’s matching contribution is calculated in accordance with the market priceorigin of the equity instruments quoted on the grant date.agreement. For eligible persons of the Company,Braskem S.A., the fair value is based on the quoted price of the class “A” preferred shares (R$46.62)53.75). For eligible persons of subsidiaries abroad, the fair value is based on the quoted price of the American Depository Receipts - ADR (US$27.56).14.80) at December 31, 2019. The fair value, net of taxes, recorded on equity at December 31, 2018,2019, is R$6,406.13,573 (R$6,406 at December 31, 2018). 24.2Post-employment benefitsF-98
24.2.1Retirement plans - defined benefit plans and health plants
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| 27.2. | Post-employment benefits |
| 27.2.1. | Retirement plans and health plans |
For each of the below plans, based on the expertsCompany engaged a specialized company to prepare an actuarial report the Company measuresfor measuring its future obligations. The assumptions adopted arecomply in full compliance with IAS 19.
(a)Braskem America
The subsidiary Braskem America is the sponsor of Novamont, which is a defined benefit plan of the employees of the plant located in the State of West Virginia. AtOn December 31, 2018,2019, the plan hashad 38 active participants and 171 assisted participants (38 active participants and 172 assisted participants (39 active participants and 166 assisted participants in 2017)2018). The contributions by Braskem America, indue to the year amountcurrent financing level of the pension plan, was not required to R$20,544 (R$4,069 in 2017). The participants madecontribute during 2019. Therefore, there were no contributions in 2019 (R$20,544 in 2018). During 2019 and 2018, and 2017.there were no contributions from participants.
(b)Braskem Alemanha and Braskem Holanda
| (b) | BraskemAlemanha (“Germany”) |
The subsidiariessubsidiary Braskem Alemanha and Braskem Holanda areis the sponsor of the defined benefit plans and defined contribution plans of its employees. At December 31, 2018,2019, the plan has 158 participants (139(152 in 2017)2018) and no contributions were made by Braskem Alemanha in 2019 and Braskem Holanda in 2018 and 2017.2018. The participants made no contributions in 20182019 and 2017.2018. | (c) | Braskem Holanda (“Netherlands”) |
The subsidiary Braskem Holanda is the sponsor of the defined contribution plans of its employees. At December 31, 2019, the plan has 8 participants (6 in 2018) and no contributions were made by Braskem Holanda in 2019 and 2018. The participants made no contributions in 2019 and 2018. (c)The subsidiary Braskem Idesa Servicios
Braskem Idesa employees are granted a government retirementis the sponsor of defined benefit plan when they retire or reach retirement age.for its team members. On December 31, 2018, all 812 employees2019, the plan was composed of 823 active participants (821 in 2018).The contributions Braskem Idesa made in the year amounted to R$2,056 (R$2,343 in 2018).During 2019 and 2018, there were active participants in this government retirement plan. On May 2018, Braskem Idesa implemented a private pension plan (defined benefit obligation); by the end of that year we had the participation of 339 employees out of 812.no contributions from participants.
F - 86
Braskem S.A.| (e) | Health plan
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
(d)Health plan
|
According to Brazilian laws, the type of health plan offered by the Company, named contributory plan, ensures to the participant who retires or is dismissed without cause the right to remain in the plan with the same assistance coverage conditions they had during the employment term, provided they assume the full payment of the plan (company’s part + participant’s part). (i)Amounts in balance sheet
| | | | | | Consolidated | | | 2018 | | 2017 | | Defined benefit | | | | | Novamont Braskem America | 68,904 | | 62,963 | | Braskem Alemanha and Netherlands | 114,705 | | 93,994 | | | 183,609 | | 156,957 | | Health care | | | | | Bradesco saúde | 90,679 | | 83,233 | | | | | | | Total obligations | 274,288 | | 240,190 | | | | | | | Fair value of plan assets | | | | | Novamont Braskem America | (66,073) | | (44,823) | | Braskem Alemanha | (1,842) | | (1,592) | | | (67,915) | | (46,415) | | | | | | | Consolidated net balance (non-current liabilities) | 206,373 | | 193,775 |
(ii)Change in obligations
| | | 2018 | | 2017 | | 2016 | | | | | | | | | Balance at beginning of year | 240,190 | | 201,516 | | 216,632 | Health care | | 7,446 | | 11,334 | | 2,203 | Current service cost | 5,842 | | 5,058 | | 4,576 | Interest cost | | 4,906 | | 4,139 | | 3,983 | Benefits paid | | (3,845) | | (3,399) | | (3,156) | Change plan | | 1,391 | | | | | Actuarial losses (gain) | (3,713) | | 9,661 | | 3,590 | Exchange variation | 22,071 | | 11,881 | | (26,312) | Balance at the end of the year | 274,288 | | 240,190 | | 201,516 |
F - 87F-99
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (i) | Amounts in balance sheet |
| | | 2019 | | 2018 | Defined benefit | | | | | Novamont Braskem America | | 80,593 | | 68,904 | Braskem Idesa | | 11,408 | | | Braskem Alemanha and Netherlands | | 153,564 | | 114,705 | | | | 245,565 | | 183,609 | Health care | | | | | Bradesco saúde | | 224,852 | | 90,679 | | | | | | | Total obligations | | 470,417 | | 274,288 | | | | | | | Fair value of plan assets | | | | | Novamont Braskem America | | (79,784) | | (66,073) | Braskem Alemanha | | (1,558) | | (1,842) | | | | (81,342) | | (67,915) | | | | | | | Consolidated net balance (non-current liabilities) | | 389,075 | | 206,373 |
| (ii) | Change in obligations |
| | | 2019 | | 2018 | | 2017 | | | | | | | | | Balance at beginning of year | | 274,366 | | 240,190 | | 201,516 | Health care | | 5,817 | | 7,446 | | 11,334 | Current service cost | | 8,233 | | 5,842 | | 5,058 | Interest cost | | 14,796 | | 4,906 | | 4,139 | Benefits paid | | (4,677) | | (3,845) | | (3,399) | Change plan | | 4,948 | | 1,391 | | | Actuarial losses (gain) | | 161,250 | | (3,713) | | 9,661 | Exchange variation | | 5,684 | | 22,149 | | 11,881 | Balance at the end of the year | | 470,417 | | 274,366 | | 240,190 |
| (iii) | Change in fair value plan assets |
| | | 2019 | | 2018 | | 2017 | | | | | | | | | Balance at beginning of year | | 67,993 | | 46,415 | | 39,380 | Actual return on plan assets | | 14,329 | | (3,200) | | 5,115 | Employer contributions | | 285 | | 20,544 | | 4,069 | Benefits paid | | (3,966) | | (3,712) | | (2,915) | Exchange variation | | 2,701 | | 7,868 | | 766 | Balance at the end of the year | | 81,342 | | 67,915 | | 46,415 |
Notes to the financial statementsF-100
at December 31, 2018
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (iv) | Amounts recognized in profit and loss |
(iii)Change in fair value plan assets
| | | | 2018 | | 2017 | | 2016 | | | | | | | | | | Balance at beginning of year | | 46,415 | | 39,380 | | 46,395 | Actual return on plan assets | | (3,200) | | 5,115 | | 221 | Employer contributions | | 20,544 | | 4,069 | | 3,569 | Benefits paid | | | (3,712) | | (2,915) | | (3,087) | Exchange variation | | 7,868 | | 766 | | (7,718) | Balance at the end of the year | | 67,915 | | 46,415 | | 39,380 |
| | | 2019 | | 2018 | | 2017 | | | | | | | | | Health care | | 5,817 | | 7,446 | | 11,334 | Current service cost | | 8,233 | | 5,842 | | 5,058 | Interest cost | | 14,796 | | 4,906 | | 4,139 | Actuarial losses | | | | 2,077 | | 6,041 | | | | 28,846 | | 20,271 | | 26,572 |
(iv)Amounts recognized in profit and loss
| | | | 2018 | | 2017 | | 2016 | | | | | | | | | | Health care | | | 7,446 | | 11,334 | | 2,203 | Current service cost | | 5,842 | | 5,058 | | 4,576 | Interest cost | | | 4,906 | | 4,139 | | 3,983 | Expected return on plan assets | | | | (28) | | (31) | Actuarial losses | | | 2,077 | | 6,069 | | 2,472 | | | | | 20,271 | | 26,572 | | 13,203 |
(v)Actuarial assumptions
| | | (%) | |
(%) | | | | 2018 | | 2017 | | 2016 | |
2019 | |
2018 | |
2017 | | | | Health | | United | | | | | | Health | | United | | | | | | Health | | United | | | | | | Health | | United | | | | | | | | Health | | United | | | | | | Health | | United | | | | | | | | insurance | | States | | Germany | | Netherlands | | insurance | | States | | Germany | | Netherlands | | insurance | | States | | Germany | | Netherlands | | insurance | | States | | Mexico | | Germany | | Netherlands | | insurance | | States | | Germany | | Netherlands | | insurance | | States | | Germany | | Netherlands | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Discount rate | | 5.03 | | 4.45 | | 2.00 | | 2.00 | | 5.45 | | 3.70 | | 2.00 | | 2.00 | | 4.18 | | 4.35 | | 2.00 | | n/a | | 3.60 | | 3.35 | | 7.25 | | 2.00 | | 2.00 | | 5.03 | | 4.45 | | 2.00 | | 2.00 | | 5.45 | | 3.70 | | 2.00 | | 2.00 | Inflation rate | | 4.50 | | n/a | | 2.00 | | 2.00 | | 4.50 | | n/a | | n/a | | n/a | | 6.00 | | n/a | | 2.00 | | n/a | | 4.00 | | n/a | | 4.00 | | 2.00 | | 2.00 | | 4.50 | | n/a | | 2.00 | | 2.00 | | 4.50 | | n/a | | n/a | | n/a | Expected return on plan assets | Expected return on plan assets | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | Rate of increase in future salary levels | Rate of increase in future salary levels | n/a | | n/a | | 3.00 | | 3.00 | | n/a | | n/a | | 2.50 | | 2.50 | | n/a | | n/a | | 3.00 | | n/a | | n/a | | n/a | | 5.00 | | 3.00 | | 3.00 | | n/a | | n/a | | 3.00 | | 3.00 | | n/a | | n/a | | 2.50 | | 2.50 | Rate of increase in future pension plan | Rate of increase in future pension plan | n/a | | n/a | | 1.75 | | 1.75 | | n/a | | n/a | | 1.75 | | 1.75 | | n/a | | n/a | | 1.75 | | n/a | | n/a | | n/a | | n/a | | 1.75 | | 1.75 | | n/a | | n/a | | 1.75 | | 1.75 | | n/a | | n/a | | 1.75 | | 1.75 | Aging factor | | 2.50 | | n/a | | n/a | | n/a | | 2.50 | | n/a | | n/a | | n/a | | 2.50 | | n/a | | n/a | | n/a | | 2.50 | | n/a | | n/a | | n/a | | n/a | | 2.50 | | n/a | | n/a | | n/a | | 2.50 | | n/a | | n/a | | n/a | Medical inflation | | 3.50 | | n/a | | n/a | | n/a | | 3.50 | | n/a | | n/a | | n/a | | 3.50 | | n/a | | n/a | | n/a | | 3.50 | | n/a | | n/a | | n/a | | n/a | | 3.50 | | n/a | | n/a | | n/a | | 3.50 | | n/a | | n/a | | n/a | Duration | | 19.66 | | n/a | | n/a | | n/a | | 18.84 | | n/a | | n/a | | n/a | | 29.24 | | n/a | | n/a | | n/a | | 15.32 | | n/a | | n/a | | n/a | | n/a | | 19.66 | | n/a | | n/a | | n/a | | 18.84 | | n/a | | n/a | | n/a |
| (v) | Fair value of assets hierarchy |
(vi)Hierarchy of fair value assets
On December 31, 2018,2019, the balance of the fair value of assets is represented by the assets of the Novamont defined benefit plan, which has a level-1 fair value hierarchy. | | | Impact on the defined benefit obligation | | | | Premise change | |
Premise increase | |
Premise reduction | | | | Health | | United | | | | | | | | Health | | United | | | | | | | | Health | | United | | | | | | | | | | insurance | | States | | Mexico | | Germany | | Netherlands | | insurance | | States | | Mexico | | Germany | | Netherlands | | insurance | | States | | Mexico | | Germany | | Netherlands | Discount rate | | 1.0% | | 1.0% | | 1.0% | | 0.5% | | 0.5% | | 27,923 | | 8,999 | | 1,040 | | 15,037 | | 766 | | (34,866) | | (11,012) | | (1,246) | | (16,701) | | (852) | Real medical inflation | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | Rate of increase in future salary levels | n/a | | n/a | | n/a | | 0.5% | | 0.5% | | n/a | | n/a | | n/a | | 9,033 | | 460 | | n/a | | n/a | | n/a | | (8,519) | | (434) | Rate of increase in future pension plan | 1% | | n/a | | n/a | | 0.25% | | 0.25% | | (5,559) | | n/a | | n/a | | 4,452 | | 227 | | 5,559 | | n/a | | n/a | | (4,320) | | (220) | Life expectancy | | 1% | | n/a | | n/a | | 1 year | | 1 year | | 42,480 | | n/a | | n/a | | 3,819 | | 195 | | (33,494) | | n/a | | n/a | | (3,986) | | (203) | Mortality rate | | n/a | | 10% | | n/a | | n/a | | n/a | | n/a | | 2,554 | | n/a | | n/a | | n/a | | n/a | | (2,814) | | n/a | | n/a | | n/a | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Health insurance - Impact on cost of services and interests costs | | | | | | | | | | | | | | | | | | | | | |
Premise change | |
Premise increase | |
Premise reduction | | | | | | | | | | | | | | | | | | | | | | Cost of | | Iterests | | Cost of | | Iterests | | Cost of | | Iterests | | | | | | | | | | | | | | | | | | | | | | services | | costs | | services | | costs | | services | | costs | Discount rate | | | | | | | | | | | | | | | | | | | | 1.0% | | 1.0% | | 739 | | 157 | | (967) | | (41) | Life expectancy | | | | | | | | | | | | | | | | | | | | 1.0% | | 1.0% | | 614 | | 3,290 | | (511) | | (2,594) | Rate of increase in future pension plan | | | | | | | | | | | | | | | | | | | 1.0% | | 1.0% | | 116 | | 430 | | (116) | | (430) |
| 27.2.2. | Retirement plan - defined contribution |
F - 88
The Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
(vii)Sensitivity analysis
| | | Impact on the defined benefit obligation | | | | Premise change | | Premise increase | | Premise reduction | | | | Health | | United | | | | | | Health | | United | | | | | | Health | | United | | | | | | | | insurance | | States | | Germany | | Netherlands | | insurance | | States | | Germany | | Netherlands | | insurance | | States | | Germany | | Netherlands | Discount rate | | 1.0% | | 1.0% | | 0.5% | | 0.5% | | 10,428 | | 7,261 | | 10,802 | | 563 | | (12,868) | | (8,802) | | (11,971) | | (626) | Real medical inflation | n/a | | n/a | | n/a | | n/a | | 15,698 | | n/a | | n/a | | n/a | | (12,454) | | n/a | | n/a | | n/a | Rate of increase in future salary levels | n/a | | n/a | | 1% | | 1% | | n/a | | n/a | | 6,256 | | 336 | | n/a | | n/a | | (5,934) | | (318) | Rate of increase in future pension plan | 1% | | n/a | | 0% | | 0% | | n/a | | n/a | | 3,087 | | 166 | | n/a | | n/a | | (3,006) | | (161) | Life expectancy | | 1% | | n/a | | 1 year | | 1 year | | n/a | | n/a | | 2,848 | | 144 | | n/a | | n/a | | (2,973) | | (150) | Mortality rate | | n/a | | 10% | | n/a | | n/a | | n/a | | 1,984 | | n/a | | n/a | | n/a | | (2,164) | | n/a | | n/a |
| | | | Health insurance - Impact on cost of services and interests costs | | | | | | | Premise change | | | | Premise increase | | | | Premise reduction | | | | | Cost of | | Iterests | | Cost of | | Iterests | | Cost of | | Iterests | | | | | services | | costs | | services | | costs | | services | | costs | Discount rate | | 1.0% | | 1.0% | | 381 | | 198 | | (488) | | (193) | Real medical inflation | | 1.0% | | 1.0% | | 344 | | 1,532 | | (288) | | (1,215) | Rate of increase in future pension plan | | 1.0% | | 1.0% | | 66 | | 216 | | (67) | | (221) |
24.2.2Retirement plan - defined contribution
The Company and the subsidiaries in Brazil sponsor a defined contribution plan for its team members managed by ODEPREV,Vexty, a private pension plan entity. ODEPREVVexty offers its participants, which are employees of the sponsoring companies, an optional defined contribution plan in which monthly and additional participant contributions and monthly and annual sponsor contributions are made to individual pension savings accounts. For this plan, the sponsors pay contributions to private pension plan on contractual or voluntary bases. As soon as the contributions are paid, the sponsors do not have any further obligations related to additional payments.
F-101
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
At December 31, 2018,2019, the number of active participants in ODEPREVVexty totals 5,725 (5,2805,550 (5,725 in 2017)2018) and the contributions made by the sponsors in the year amount to R$49,866 (R$50,610 (R$38,332 in 2017)2018) and the contributions made by the participants amounted to R$72,970 (R$69,058 (R$60,038 in 2017)2018). | 28 | Other financial liabilities |
25Equity
The Company received, in June 2019, R$499,999 from the assignment of an agreement for the supply of ethylene to a client. The product must be supplied from January to December 2020, and such supply is considered “highly probable” given the ongoing relationship with the client in terms of volumes higher than the supply flow of such agreement. The Company is not responsible for the solvency of the client. (a)Capital
The assignment of this agreement has no recourse or co-obligation for the Company, which is not responsible for repaying to the assignee, a financial agent, the amount received for the assignment if it complies with its obligation to supply ethylene. On December 31, 2018,2019, the Company's subscribed and paid up capital stock amounted to R$8,043,222 and comprised 797,218,554 shares with no par value, distributed as follows: | | | Amount of shares | | Amount of shares | | | | | | | | Preferred | | | | Preferred | | | | | | | | | | | | Preferred | | | | Preferred | | | | | | | | | | Common | | | | shares | | | | shares | | | | | | | | Common | | | | shares | | | | shares | | | | | | | | | | shares | | % | | class A | | % | | class B | | % | | Total | | % | | shares | | % | | class A | | % | | class B | | % | | Total | | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Odebrecht | | 226,334,623 | | 50.11 | | 79,182,498 | | 22.95 | | | | | | 305,517,121 | | 38.32 | | 226,334,623 | | 50.11 | | 79,182,498 | | 22.95 | | | | | | 305,517,121 | | 38.33 | Petrobras | | 212,426,952 | | 47.03 | | 75,761,739 | | 21.96 | | | | | | 288,188,691 | | 36.15 | | 212,426,952 | | 47.03 | | 75,761,739 | | 21.96 | | | | | | 288,188,691 | | 36.15 | ADR | (i) | | | | | | 48,780,072 | | 14.14 | | | | | | 48,780,072 | | 6.12 | (i) | | | | | | 33,984,766 | | 9.85 | | | | | | 33,984,766 | | 4.26 | Alaska | | | | | | | 21,898,500 | | 6.35 | | | | | | 21,898,500 | | 2.75 | Other | | 12,907,077 | | 2.86 | | 140,090,605 | | 40.59 | | 500,230 | | 100.00 | | 153,497,912 | | 19.26 | | 12,907,077 | | 2.86 | | 132,995,570 | | 38.53 | | 500,230 | | 100.00 | | 146,402,877 | | 18.36 | Total | | 451,668,652 | | 100.00 | | 343,814,914 | | 99.64 | | 500,230 | | 100.00 | | 795,983,796 | | 99.85 | | 451,668,652 | | 100.00 | | 343,823,073 | | 99.64 | | 500,230 | | 100.00 | | 795,991,955 | | 99.85 | Treasury shares | | | | | | | 1,234,758 | | 0.36 | | | | | | 1,234,758 | | 0.15 | | | | | | | 1,226,599 | | 0.36 | | | | | | 1,226,599 | | 0.15 | Total | | 451,668,652 | | 100.00 | | 345,049,672 | | 100.00 | | 500,230 | | 100.00 | | 797,218,554 | | 100.00 | | 451,668,652 | | 100.00 | | 345,049,672 | | 100.00 | | 500,230 | | 100.00 | | 797,218,554 | | 100.00 |
| (i) | American Depositary Receipts traded on the New York Stock Exchange (USA). |
(i)American Depositary Receipts traded on
This reserve includes part of the New York Stock Exchange (USA); shares issued in Subsidiary’s several capital increases. This reserve can be used to absorb losses, to redeem, reimburse or purchase shares, and to incorporate into the capital stock.
F - 89
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
(b)Legal reserve
Under Brazilian Corporation Law, companies must transfer 5% of net profit for the year to a legal reserve until this reserve is equivalent to 20% of the paid-up capital. The legal reserve can be used for capital increase or absorption of losses. (c)F-102
| Braskem S.A.Share rights
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
Under Brazilian Corporation Law, portions of the net income of the year not allocated for distribution to the shareholders or other reserve accounts must be allocated to the income retention account. At the end of the year 2019, the Company used R$2,767,965 of the balance of this reserve to absorb the adjusted loss in the period of 2019.On December 31, 2019, the balance of this reserve was R$1,174,301. Preferred shares carry no voting rights but they ensure priority, non-cumulative annual dividend of 6% of their unit value, according to profits available for distribution. The unit value of the shares is obtained through the division of capital by the total number of outstanding shares. OnlyAs common shares, only class “A” preferred shares will have the same claim on the remaining profit as common sharesthat exceed the minimum mandatory dividend of 6% and will be entitled to dividends only after the priority dividend is paid to preferred shareholders. Only class “A” preferred shares also have the same claim as common shares on the distribution of shares resulting from capitalization of other reserves. Only classClass “A” preferred shares can be converted into common shares upon resolution of majority voting shareholders present at a General Meeting. Class “B” preferred shares can be converted into class “A” preferred shares at any time, at the ratio of two class “B” preferred shares for one class “A” preferred share, upon a simple written request to the Company, provided that the non-transferability period provided for in specific legislation that allowed for the issue and payment of such shares with tax incentive funds has elapsed. In 2018, 78,100 class “B" preferred shares were converted into 39,050 class “A" preferred shares.
In the event of liquidation ofperiod, 8,159 treasury shares were delivered as payment for the Company, class “A” and “B” preferred shares will have priority inLTI Program for employees who left the reimbursement of capital.Company. Shareholders are entitled to receive a mandatory minimum dividend of 25% on profit for the year, adjusted under Federal Law 6,404/76.
(d)| (e) | Profit allocation and dividends proposed to fiscal year 2018Profit allocation and payment of dividends |
UnderOn October 3, 2019, the Company’s bylaws, profit for the year, adjusted according to Federal Law 6,404/76, is appropriated as follows:
Annual Shareholders Meeting approved (i)5% to a legal reserve; (ii)25% to pay for mandatory, non-cumulative dividends, provided that the legal and statutory advantages of the Class “A” and “B” preferred shares are observed. When the amount of the priority dividend paid to class “A” and “B” preferred shares is equal to or higher than 25% of profit for the year calculated under Article 202 of Federal Law 6,404/76, it is the full payment of the mandatory dividend.
Any surplus remaining after the payment of the priority dividend will be used to:minimum mandatory dividends regarding the net profit assessed for the year 2018, in the amount of R$667,419, paid on December 30, 2019; (ii) the capital budget for 2019; and (iii) the retention of R$2,002,255, under Article 196 of Brazilian Corporation Law.
·pay dividends to common shareholders up to the limit of the priority dividends of preferred shares; and
·if there still is any surplus, distribute additional dividends to common shareholders and class “A” preferred shareholders so that the same amount of dividends is paid for each common share or class “A” preferred share.
F - 90F-103
Braskem S.A.
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
(d.1) Profit allocation and dividends proposed
| | | 2018Braskem S.A.
| | | | Net income for
Notes to the year of Company's shareholdersconsolidated financial statements | | 2,866,675at December 31, 2019
| Amounts recorded directly to retained earningsAll amounts in thousands, except as otherwise stated
| | | Legal reserves distribution
| | (143,334)
| Tax incentive reserve distribution
| | (81,863)
| Realization of additional property, plant and equipment
| | 27,679
| Prescribed dividends / other
| | 517
| | | 2,669,674
| Allocations:
| | | Minimum dividends - 25% adjusted net income
| | (667,419)
| Additional dividends proposed
| | (2,002,255)
| | | (2,669,674)
|
| (f) | Other comprehensive income |
Per-share dividend of R$3.35565826658 per common and class “A” preferred share and R$0.60628536320 per class “B” preferred share.
| | | | | | | Attributed to shareholders' interest | | | | | | | | Deemed cost | | Fair value | | | | | | | | Defined | | Foreign | | | | | | | | | | and additional | | adjustments of | | Gain (loss) | | Foreign | | | | benefit | | currency | | Total | | | | | | | | indexation of | | trade accounts | | on interest | | sales | | Fair value | | plans actuarial | | translation | | Braskem | | Non-controlling | | | | | | PP&E | | receivable | | in subsidiary | | hedge | | of hedge | | Gain (loss) | | adjustment | | shareholders' | | interest in | | | | | | (ii) | | (iii) | | (i) | | (iv) | | (iv) | | (v) | | (vi) | | interest | | Braskem Idesa | | Total | | | | | | | | | | | | | | | | | | | | | | | On December 31, 2016 | 206,703 | | | | (9,404) | | (7,105,377) | | (539,518) | | (43,351) | | 1,169,088 | | (6,321,859) | | (548,601) | | (6,870,460) | | | | | | | | | | | | | | | | | | | | | | | Additional indexation | | | | | | | | | | | | | | | | | | | | | | Realization by depreciation or write-off assets | (40,678) | | | | | | | | | | | | | | (40,678) | | | | (40,678) | | | Income tax and social contribution | 13,831 | | | | | | | | | | | | | | 13,831 | | | | 13,831 | | | | | | | | | | | | | | | | | | | | | | | Deemed cost of jointly-controlled investment | | | | | | | | | | | | | | | | | | | | | | Realization by depreciation or write-off assets | (1,459) | | | | | | | | | | | | | | (1,459) | | | | (1,459) | | | Income tax and social contribution | 496 | | | | | | | | | | | | | | 496 | | | | 496 | | | | | | | | | | | | | | | | | | | | | | | Foreign sales hedge | | | | | | | | | | | | | | | | | | | | | | Exchange rate | | | | | | | (42,507) | | | | | | | | (42,507) | | 118,179 | | 75,672 | | | Transfer to result | | | | | | | 1,145,602 | | | | | | | | 1,145,602 | | 40,924 | | 1,186,526 | | | Income tax and social contribution | | | | | | | (355,960) | | | | | | | | (355,960) | | (47,731) | | (403,691) | | | | | | | | | | | | | | | | | | | | | | | Fair value of Cash flow hedge | | | | | | | | | | | | | | | | | | | | | | Change in fair value | | | | | | | | | 876,636 | | | | | | 876,636 | | 6,513 | | 883,149 | | | Transfer to result | | | | | | | | | (287,576) | | | | | | (287,576) | | 9,632 | | (277,944) | | | Income tax and social contribution | | | | | | | | | (198,343) | | | | | | (198,343) | | (4,844) | | (203,187) | | | | | | | | | | | | | | | | | | | | | | | Fair value of cash flow hedge from jointly-controlled | | | | | | | | | 3,534 | | | | | | 3,534 | | | | 3,534 | | | | | | | | | | | | | | | | | | | | | | | Actuarial loss with post-employment benefits, net of taxes | | | | | | | | | | | (8,654) | | | | (8,654) | | | | (8,654) | | | | | | | | | | | | | | | | | | | | | | | Goodwill on the acquisition of a subsidiary under common control | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation adjustment | | | | | | | | | | | | | 51,445 | | 51,445 | | (52,047) | | (602) | | | | | | | | | | | | | | | | | | | | | | | On December 31, 2017 | 178,893 | | | | (9,404) | | (6,358,242) | | (145,267) | | (52,005) | | 1,220,533 | | (5,165,492) | | (477,975) | | (5,643,467) | | | | | | | | | | | | | | | | | | | | | | | Additional indexation | | | | | | | | | | | | | | | | | | | | | | Realization by depreciation or write-off assets | (40,481) | | | | | | | | | | | | | | (40,481) | | | | (40,481) | | | Income tax and social contribution | 13,764 | | | | | | | | | | | | | | 13,764 | | | | 13,764 | | | | | | | | | | | | | | | | | | | | | | | Deemed cost of jointly-controlled investment | | | | | | | | | | | | | | | | | | | | | | Realization by depreciation or write-off assets | (1,458) | | | | | | | | | | | | | | (1,458) | | | | (1,458) | | | Income tax and social contribution | 496 | | | | | | | | | | | | | | 496 | | | | 496 | | | | | | | | | | | | | | | | | | | | | | | Fair value adjustments | | | | | | | | | | | | | | | | | | | | | | Accounts receivable | | | (449) | | | | | | | | | | | | (449) | | | | (449) | | | | | | | | | | | | | | | | | | | | | | | Foreign sales hedge | | | | | | | | | | | | | | | | | | | | | | Exchange rate | | | | | | | (3,133,346) | | | | | | | | (3,133,346) | | 4,170 | | (3,129,176) | | | Transfer to result | | | | | | | 1,200,209 | | | | | | | | 1,200,209 | | 59,143 | | 1,259,352 | | | Income tax and social contribution | | | | | | | 664,864 | | | | | | | | 664,864 | | (18,994) | | 645,870 | | | | | | | | | | | | | | | | | | | | | | | Fair value of Cash flow hedge | | | | | | | | | | | | | | | | | | | | | | Change in fair value | | | | | | | | | (196,790) | | | | | | (196,790) | | 7,722 | | (189,068) | | | Transfer to result | | | | | | | | | 26,964 | | | | | | 26,964 | | 10,386 | | 37,350 | | | Income tax and social contribution | | | | | | | | | 59,914 | | | | | | 59,914 | | (5,433) | | 54,481 | | | | | | | | | | | | | | | | | | | | | | | Fair value of cash flow hedge from jointly-controlled (RPR) | | | | | | | | | (2,329) | | | | | | (2,329) | | | | (2,329) | | | | | | | | | | | | | | | | | | | | | | | Actuarial loss with post-employment benefits, net of taxes | | | | | | | | | | | (1,569) | | | | (1,569) | | | | (1,569) | | | | | | | | | | | | | | | | | | | | | | | ILP PLan fair value | | | | | | | | | | | | | | | | | | | | | | Change in fair value | | | 9,297 | | | | | | | | | | | | 9,297 | | 133 | | 9,430 | | | Income tax and social contribution | | | (2,891) | | | | | | | | | | | | (2,891) | | | | (2,891) | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation adjustment | | | | | | | | | | | | | 946,342 | | 946,342 | | (145,119) | | 801,223 | | | | | | | | | | | | | | | | | | | | | | | (Loss) gain from investments | | | | | (65) | | | | | | | | | | (65) | | 65 | | | | | | | | | | | | | | | | | | | | | | | | | On December 31, 2018 | 151,214 | | 5,957 | | (9,469) | | (7,626,515) | | (257,508) | | (53,574) | | 2,166,875 | | (5,623,020) | | (565,902) | | (6,188,922) |
(d.2) Additional dividends related to fiscal year 2017
The Annual Shareholders’ Meeting held on April 30, 2018 approved the declaration of additional dividends on profit related to fiscal year 2017 in the amount of R$ 1,500,000, the payment of which commenced on May 10, 2018, of which R$851,729 was paid to holders of common shares and R$648,271 to holders of class “A” preferred shares.
F - 91F-104
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| | | | | Attributed to shareholders' interest | | | | | | | Deemed cost | | Fair value | | | | | | | | Defined | | Foreign | | | | | | | | | and additional | | adjustments of | | Gain (loss) | | Foreign | | | | benefit | | currency | | Total | | | | | | | indexation of | | trade accounts | | on interest | | sales | | Fair value | | plans actuarial | | translation | | Braskem | | Non-controlling | | | | | PP&E | | receivable | | in subsidiary | | hedge | | of hedge | | Gain (loss) | | adjustment | | shareholders' | | interest in | | | | | (ii) | | (iii) | | (i) | | (iv) | | (iv) | | (v) | | (vi) | | interest | | Braskem Idesa | | Total | | | | | | | | | | | | | | | | | | | | | | On December 31, 2018 | 151,214 | | 5,957 | | (9,469) | | (7,626,515) | | (257,508) | | (53,574) | | 2,166,875 | | (5,623,020) | | (565,902) | | (6,188,922) | | | | | | | | | | | | | | | | | | | | | | Additional indexation | | | | | | | | | | | | | | | | | | | | | Realization by depreciation or write-off assets | (40,481) | | | | | | | | | | | | | | (40,481) | | | | (40,481) | | Income tax and social contribution | 13,764 | | | | | | | | | | | | | | 13,764 | | | | 13,764 | | | | | | | | | | | | | | | | | | | | | | Deemed cost of jointly-controlled investment | | | | | | | | | | | | | | | | | | | | | Realization by depreciation or write-off assets | (1,338) | | | | | | | | | | | | | | (1,338) | | | | (1,338) | | Income tax and social contribution | 455 | | | | | | | | | | | | | | 455 | | | | 455 | | | | | | | | | | | | | | | | | | | | | | Fair value adjustments | | | | | | | | | | | | | | | | | | | | | Accounts receivable | | | 15 | | | | | | | | | | | | 15 | | | | 15 | | | | | | | | | | | | | | | | | | | | | | Foreign sales hedge | | | | | | | | | | | | | | | | | | | | | Exchange rate | | | | | | | (507,464) | | | | | | | | (507,464) | | 116,202 | | (391,262) | | Transfer to result | | | | | | | 1,585,480 | | | | | | | | 1,585,480 | | 66,787 | | 1,652,267 | | Income tax and social contribution | | | | | | | (344,567) | | | | | | | | (344,567) | | (54,897) | | (399,464) | | | | | | | | | | | | | | | | | | | | | | Fair value of Cash flow hedge | | | | | | | | | | | | | | | | | | | | | Change in fair value | | | | | | | | | 7,150 | | | | | | 7,150 | | (23,078) | | (15,928) | | Transfer to result | | | | | | | | | 54,450 | | | | | | 54,450 | | 16,752 | | 71,202 | | Income tax and social contribution | | | | | | | | | (21,703) | | | | | | (21,703) | | 1,898 | | (19,805) | | | | | | | | | | | | | | | | | | | | | | Fair value of cash flow hedge from jointly-controlled (RPR) | | | | | | | | | (978) | | | | | | (978) | | | | (978) | | | | | | | | | | | | | | | | | | | | | | Actuarial loss with post-employment benefits, net of taxes | | | | | | | | | | | (109,492) | | | | (109,492) | | | | (109,492) | | | | | | | | | | | | | | | | | | | | | | ILP PLan fair value | | | | | | | | | | | | | | | | | | | | | Change in fair value | | | 19,415 | | | | | | | | | | | | 19,415 | | 348 | | 19,763 | | Income tax and social contribution | | | (5,842) | | | | | | | | | | | | (5,842) | | | | (5,842) | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation adjustment | | | | | | | | | | | | | 220,228 | | 220,228 | | (83,506) | | 136,722 | | | | | | | | | | | | | | | | | | | | | | Loss on interest in subsidiary | | | | | | | | | | | | | (50) | | (50) | | (34) | | (84) | | | | | | | | | | | | | | | | | | | | | | Effect of CPC 42 / IAS 29 - hyperinflation | | | | | | | | | | | | | (3,561) | | (3,561) | | | | (3,561) | | | | | | | | | | | | | | | | | | | | | | On December 31, 2019 | 123,614 | | 19,545 | | (9,469) | | (6,893,066) | | (218,589) | | (163,066) | | 2,383,492 | | (4,757,539) | | (525,430) | | (5,282,969) | | | | | | | | | | | | | | | | | | | | | |
(i) | Transfer to the income statement when divestment or transfer of control of subsidiary. | (ii) | Transfer to retained earnings as the asset is depreciated or written-off/sold. | (iii) | For receivables classified as fair value through other comprehensive income, transfer to the income statement when attainment of jurisdiction or early liquidation. For the ILP Plan, Transfer to retained earnings according to the grace period of the plan. | (iv) | Transfer to the income statement when maturity, prepayment or loss of efficacy for hedge accounting. | (v) | Transfer to retained earnings when the extinction of the plan. | (vi) | Transfer to the income statement when write-off of subsidiary abroad. |
(e)Other comprehensive income
| | | | | | | | | | | | | | | | | | | | | | | | |
Attributed to shareholders' interest | | | | | | | | Deemed cost | | Fair value | | | | | | | | Defined | | Foreign | | | | | | | | | | and additional | | adjustments of | | Gain (loss) | | Foreign | | | | benefit | | currency | | Total | | | | | | | | indexation of | | trade accounts | | on interest | | sales | | Fair value | | plans actuarial | | translation | | Braskem | | Non-controlling | | | | | | PP&E | | receivable | | in subsidiary | | hedge | | of hedge | | Gain (loss) | | adjustment | | shareholders' | | interest in | | | | | | (ii) | | (iii) | | (i) | | (iv) | | (iv) | | (v) | | (vi) | | interest | | Braskem Idesa | | Total | | | | | | | | | | | | | | | | | | | | | | | On December 31, 2015 | 234,904 | | | | (9,404) | | (9,666,973) | | (685,396) | | (39,232) | | 1,105,391 | | (9,060,710) | | (476,708) | | (9,537,418) | | | | | | | | | | | | | | | | | | | | | | | Additional indexation | | | | | | | | | | | | | | | | | | | | | | Realization by depreciation or write-off assets | (41,268) | | | | | | | | | | | | | | (41,268) | | | | (41,268) | | | Income tax and social contribution | 14,032 | | | | | | | | | | | | | | 14,032 | | | | 14,032 | | | | | | | | | | | | | | | | | | | | | | | Deemed cost of jointly-controlled investment | | | | | | | | | | | | | | | | | | | | | | Realization by depreciation or write-off assets | (1,461) | | | | | | | | | | | | | | (1,461) | | | | (1,461) | | | Income tax and social contribution | 496 | | | | | | | | | | | | | | 496 | | | | 496 | | | | | | | | | | | | | | | | | | | | | | | Foreign sales hedge | | | | | | | | | | | | | | | | | | | | | | Exchange rate | | | | | | | 2,625,551 | | | | | | | | 2,625,551 | | (498,767) | | 2,126,784 | | | Transfer to result | | | | | | | 1,342,785 | | | | | | | | 1,342,785 | | 14,959 | | 1,357,744 | | | Income tax and social contribution | | | | | | | (1,406,740) | | | | | | | | (1,406,740) | | 145,326 | | (1,261,414) | | | | | | | | | | | | | | | | | | | | | | | Fair value of Cash flow hedge | | | | | | | | | | | | | | | | | | | | | | Change in fair value | | | | | | | | | 247,815 | | | | | | 247,815 | | (736) | | 247,079 | | | Transfer to result | | | | | | | | | (19,434) | | | | | | (19,434) | | (12,135) | | (31,569) | | | Income tax and social contribution | | | | | | | | | (79,194) | | | | | | (79,194) | | 3,861 | | (75,333) | | | | | | | | | | | | | | | | | | | | | | | Fair value of cash flow hedge from jointly-controlled | | | | | | | | | (3,309) | | | | | | (3,309) | | | | (3,309) | | | | | | | | | | | | | | | | | | | | | | | Actuarial loss with post-employment benefits, net of taxes | | | | | | | | | | | (4,119) | | | | (4,119) | | | | (4,119) | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation adjustment | | | | | | | | | | | | | 63,697 | | 63,697 | | 275,599 | | 339,296 | | | | | | | | | | | | | | | | | | | | | | | On December 31, 2016 | 206,703 | | | | (9,404) | | (7,105,377) | | (539,518) | | (43,351) | | 1,169,088 | | (6,321,859) | | (548,601) | | (6,870,460) | | | | | | | | | | | | | | | | | | | | | | | Additional indexation | | | | | | | | | | | | | | | | | | | | | | Realization by depreciation or write-off assets | (40,678) | | | | | | | | | | | | | | (40,678) | | | | (40,678) | | | Income tax and social contribution | 13,831 | | | | | | | | | | | | | | 13,831 | | | | 13,831 | | | | | | | | | | | | | | | | | | | | | | | Deemed cost of jointly-controlled investment | | | | | | | | | | | | | | | | | | | | | | Realization by depreciation or write-off assets | (1,459) | | | | | | | | | | | | | | (1,459) | | | | (1,459) | | | Income tax and social contribution | 496 | | | | | | | | | | | | | | 496 | | | | 496 | | | | | | | | | | | | | | | | | | | | | | | Foreign sales hedge | | | | | | | | | | | | | | | | | | | | | | Exchange rate | | | | | | | (42,507) | | | | | | | | (42,507) | | 118,179 | | 75,672 | | | Transfer to result | | | | | | | 1,145,602 | | | | | | | | 1,145,602 | | 40,924 | | 1,186,526 | | | Income tax and social contribution | | | | | | | (355,960) | | | | | | | | (355,960) | | (47,731) | | (403,691) | | | | | | | | | | | | | | | | | | | | | | | Fair value of Cash flow hedge | | | | | | | | | | | | | | | | | | | | | | Change in fair value | | | | | | | | | 876,636 | | | | | | 876,636 | | 6,513 | | 883,149 | | | Transfer to result | | | | | | | | | (287,576) | | | | | | (287,576) | | 9,632 | | (277,944) | | | Income tax and social contribution | | | | | | | | | (198,343) | | | | | | (198,343) | | (4,844) | | (203,187) | | | | | | | | | | | | | | | | | | | | | | | Fair value of cash flow hedge from jointly-controlled | | | | | | | | | 3,534 | | | | | | 3,534 | | | | 3,534 | | | | | | | | | | | | | | | | | | | | | | | Actuarial loss with post-employment benefits, net of taxes | | | | | | | | | | | (8,654) | | | | (8,654) | | | | (8,654) | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation adjustment | | | | | | | | | | | | | 51,445 | | 51,445 | | (52,047) | | (602) | | | | | | | | | | | | | | | | | | | | | | | On December 31, 2017 | 178,893 | | | | (9,404) | | (6,358,242) | | (145,267) | | (52,005) | | 1,220,533 | | (5,165,492) | | (477,975) | | (5,643,467) |
F - 92F-105
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| | | Attributed to shareholders' interest | | | | |
|
| Deemed cost and additional indexation of PP&E (ii) |
| Fair value adjustments of trade accounts receivable (iii) |
| Gain (loss) on interest in subsidiary (i) | | Foreign sales hedge (iv) | |
Fair value of hedge (iv) | | Defined benefit plans actuarial Gain (loss) (v) | | Foreign currency translation adjustment (vi) | | Total Braskem shareholders' interest | | Non-controlling interest in Braskem Idesa | | Total | |
|
|
|
| | | | | | | | | | | | | | | | | | | | | | On December 31, 2017 | 178,893 | | | | (9,404) | | (6,358,242) | | (145,267) | | (52,005) | | 1,220,533 | | (5,165,492) | | (477,975) | | (5,643,467) | | | | | | | | | | | | | | | | | | | | | | | Additional indexation | | | | | | | | | | | | | | | | | | | | | | Realization by depreciation or write-off assets | (40,481) | | | | | | | | | | | | | | (40,481) | | | | (40,481) | | | Income tax and social contribution | 13,764 | | | | | | | | | | | | | | 13,764 | | | | 13,764 | | | | | | | | | | | | | | | | | | | | | | | Deemed cost of jointly-controlled investment | | | | | | | | | | | | | | | | | | | | | | Realization by depreciation or write-off assets | (1,458) | | | | | | | | | | | | | | (1,458) | | | | (1,458) | | | Income tax and social contribution | 496 | | | | | | | | | | | | | | 496 | | | | 496 | | | | | | | | | | | | | | | | | | | | | | | Fair value adjustments | | | | | | | | | | | | | | | | | | | | | | Accounts receivable | | | | | | | | | | | | | | | (449) | | | | (449) | | | | | | | | | | | | | | | | | | | | | | | Foreign sales hedge | | | | | | | | | | | | | | | | | | | | | | Exchange rate | | | | | | | (3,133,346) | | | | | | | | (3,133,346) | | 4,170 | | (3,129,176) | | | Transfer to result | | | | | | | 1,200,209 | | | | | | | | 1,200,209 | | 59,143 | | 1,259,352 | | | Income tax and social contribution | | | | | | | 664,864 | | | | | | | | 664,864 | | (18,994) | | 645,870 | | | | | | | | | | | | | | | | | | | | | | | Fair value of Cash flow hedge | | | | | | | | | | | | | | | | | | | | | | Change in fair value | | | (449) | | | | | | (196,790) | | | | | | (196,790) | | 7,722 | | (189,068) | | | Transfer to result | | | | | | | | | 26,964 | | | | | | 26,964 | | 10,386 | | 37,350 | | | Income tax and social contribution | | | | | | | | | 59,914 | | | | | | 59,914 | | (5,433) | | 54,481 | | | | | | | | | | | | | | | | | | | | | | | Fair value of cash flow hedge from jointly-controlled | | | | | | | | | (2,329) | | | | | | (2,329) | | | | (2,329) | | | | | | | | | | | | | | | | | | | | | | | Actuarial loss with post-employment benefits, net of taxes | | | | | | | | | | | (1,569) | | | | (1,569) | | | | (1,569) | | | | | | | | | | | | | | | | | | | | | | | ILP PLan fair value | | | | | | | | | | | | | | | | | | | | | | Change in fair value | | | 9,297 | | | | | | | | | | | | 9,297 | | 133 | | 9,430 | | | Income tax and social contribution | | | (2,891) | | | | | | | | | | | | (2,891) | | | | (2,891) | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation adjustment | | | | | | | | | | | | | 946,342 | | 946,342 | | (145,119) | | 801,223 | | | | | | | | | | | | | | | | | | | | | | | (Loss) investment gains | | | | | (65) | | | | | | | | | | (65) | | 65 | | | | | | | | | | | | | | | | | | | | | | | | | On December 31, 2018 | 151,214 | | 5,957 | | (9,469) | | (7,626,515) | | (257,508) | | (53,574) | | 2,166,875 | | (5,623,020) | | (565,902) | | (6,188,922) | | | | | | | | | | | | | | | | | | | | | | | (i) | Transfer to the income statement when divestment or transfer of control of subsidiary. | (ii) | Transfer to retained earnings as the asset is depreciated or written-off/sold. | (iii) | For receivables classified as fair value through other comprehensive income, transfer to the income statement when attainment of jurisdiction or early liquidation. | | | For the ILP Plan, Transfer to retained earnings according to the grace period of the plan. | (iv) | Transfer to the income statement when maturity, prepayment or loss of efficacy for hedge accounting. | (v) | Transfer to retained earnings when the extinction of the plan. | (vi) | Transfer to the income statement when write-off of subsidiary abroad. |
F - 93
Braskem S.A.| 30 | Earnings per share
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
26Earnings per share
|
Basic and diluted earnings (loss) per share is calculated by means of the division of adjusted profit for the year attributable to the Company’s common and preferred shareholders by the weighted average number of these shares held by shareholders, excluding those held in treasury and following the rules for the distribution of dividends provided for in the Company’s bylaws, as described in Note 25(d)29(e), particularly in relation to the limited rights enjoyed by class “B” preferred shares.In view of these limited rights, this class of share does not participate in losses. In this case, the diluted result takes into account the conversion of two class "B" preferred shares into one class “A” preferred share, as provided for in the bylaws of the Company. Class “A”A preferred shares participate in dividends with common shares after the mandatory dividends has been attributed in accordance with the formula provided for in the Company’s bylaws, as described in Note 25(c)29(d) and there is no highest limit for their participation. Diluted and basic earnings (losses) per share are equal when there is profit in the year, since Braskem has not issued convertible financial instruments. As required by IAS 33, the table below show the reconciliation of profit (loss) for the period adjusted to the amounts used to calculate basic and diluted earnings (loss) per share. | | | Basic and diluted | | | | 2018 | | 2017 | | 2016 | | | | | | | | | Profit (loss) for the year attributed to Company's shareholders | | | | | | | of continued operations | | 2,827,650 | | 3,856,564 | | (442,430) | | | | | | | | | Distribution of priority dividends attributable to: | | | | | | | Preferred shares class "A" | | 208,450 | | 208,416 | | | Preferred shares class "B" | | 303 | | 351 | | | | | | 208,753 | | 208,767 | | | | | | | | | | | Distribution of 6% of unit value of common shares | | 273,840 | | 273,827 | | | | | | | | | | | Distribution of plus income, by class: | | | | | | | Common shares | | 1,331,513 | | 1,915,805 | | | Preferred shares class "A" | | 1,013,544 | | 1,458,165 | | | | | | 2,345,057 | | 3,373,970 | | | | | | | | | | | Reconciliation of income available for distribution, by class (numerator): | | | | | | | Common shares | | 1,605,353 | | 2,189,632 | | (251,222) | Preferred shares class "A" | | 1,221,994 | | 1,666,581 | | (191,208) | Preferred shares class "B" | | 303 | | 351 | | | | | | 2,827,650 | | 3,856,564 | | (442,430) | | | | | | | | | Weighted average number of shares, by class (denominator): | | | | | | | Common shares | | 451,668,652 | | 451,668,652 | | 451,668,652 | Preferred shares class "A" | | 343,808,699 | | 343,775,864 | | 343,771,165 | Preferred shares class "B" | | 512,660 | | 578,330 | | | | | | 795,990,011 | | 796,022,846 | | 795,439,817 | | | | | | | | | Profit (loss) per share (in R$) | | | | | | | Common shares | | 3.5543 | | 4.8479 | | (0.5562) | Preferred shares class "A" | | 3.5543 | | 4.8479 | | (0.5562) | Preferred shares class "B" | | 0.5910 | | 0.6069 | | |
F - 94F-106
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
The table below shows the reconciliation of profit or loss for the period adjusted for the amounts used to calculate basic and diluted earnings (loss) per share. | |
Basic and diluted | | | 2019 | | 2018 | | 2017 | | | | | | | | (Loss) profit for the year attributed to Company's shareholders of continued operations | (2,540,995) | | 2,827,650 | | 3,856,564 | | | | | | | | Distribution of priority dividends attributable to: | | | | | | Preferred shares class "A" | | | 208,450 | | 208,416 | Preferred shares class "B" | | | 303 | | 351 | | | | | 208,753 | | 208,767 | | | | | | | | Distribution of 6% ??of unit price of common shares | | | 273,840 | | 273,827 | | | | | | | | Distribution of excess profits, by class: | | | | | | Common shares | | | 1,331,513 | | 1,915,805 | Preferred shares class "A" | | | 1,013,544 | | 1,458,165 | | | | | 2,345,057 | | 3,373,970 | | | | | | | | Reconciliation of income available for distribution, by class (numerator): | | | | | | Common shares | (1,441,839) | | 1,605,353 | | 2,189,632 | Preferred shares class "A" | (1,097,559) | | 1,221,994 | | 1,666,581 | Preferred shares class "B" | (1,597) | | 303 | | 351 | | | (2,540,995) | | 2,827,650 | | 3,856,564 | | | | | | | | Weighted average number of shares, by class (denominator): | | | | | | Common shares | 451,668,652 | | 451,668,652 | | 451,668,652 | Preferred shares class "A" | 343,820,162 | | 343,808,699 | | 343,775,864 | Preferred shares class "B" | 500,230 | | 512,660 | | 578,330 | | | 795,989,044 | | 795,990,011 | | 796,022,846 | | | | | | | | (Loss) earnings per share (in R$) | | | | | | Common shares | (3.1922) | | 3.5543 | | 4.8479 | Preferred shares class "A" | (3.1922) | | 3.5543 | | 4.8479 | Preferred shares class "B" | (3.1922) | | 0.5910 | | 0.6069 |
F-107
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
| | | | | | | | 2018 | | | | | | | | Preferred shares | | | | | | Class "A" | | | | Class "B" | | | | Outstanding | | Weighted | | Outstanding | | Weighted | | | | shares | | average | | shares | | average | | | | | | | | | | Amount at beginning of year | | 343,775,864 | | 343,775,864 | | 578,330 | | 578,330 | | | | | | | | | | Conversion of preferred shares class "B" to "A" | | 39,050 | | 32,835 | | (78,100) | | (65,670) | | | | | | | | | | Amount at the end of the year | | 343,814,914 | | 343,808,699 | | 500,230 | | 512,660 | | | | | | | | | | | | | | | | | | | 2016 | | | | | | | | | | Preferred shares | | | | | | | | | | Preferred shares Class "A" | | | | | | | | Outstanding | | Weighted | | | | | | | | shares | | average | | | | | | | | | | | Amount at beginning of year | | | | | | 343,768,220 | | 343,768,220 | | | | | | | | | | Conversion of preferred shares class "B" to "A" | | | | | | 7,644 | | 2,945 | | | | | | | | | | Amount at the end of the year | | | | | | 343,775,864 | | 343,771,165 |
27Net revenuesWeighing of shares
| | | | | 2018 | | 2017 | | 2016 | Sales revenue | | | | | | | | | | Domestic market | | | | | | | | | | Revenue | | | 42,189,365 | | 34,983,265 | | 32,293,042 | | | Rebates | | | (45,290) | | (35,538) | | (25,400) | | | | | | 42,144,075 | | 34,947,727 | | 32,267,642 | | | Foreign market | | | | | | | | | | Revenue | | | 26,577,433 | | 23,297,304 | | 23,084,703 | | | Rebates | | | (58,188) | | (60,990) | | (23,820) | | | | | | 26,519,245 | | 23,236,314 | | 23,060,883 | | | | | | 68,663,320 | | 58,184,041 | | 55,328,525 | | | | | | | | | | | Sales and services deductions | | | | | | | Taxes | | | | | | | | | | Domestic market | | | (10,219,138) | | (8,663,707) | | (7,316,325) | | | Foreign market | | | (36,562) | | (33,798) | | (102,831) | Sales returns | | | | | | | | | | Domestic market | | | (148,918) | | (125,153) | | (168,625) | | | Foreign market | | | (258,836) | | (100,789) | | (76,756) | | | | | | | | | | | | | | | | (10,663,454) | | (8,923,447) | | (7,664,537) | Net sales and services revenue | | 57,999,866 | | 49,260,594 | | 47,663,988 |
| | | | | | |
2019 | | | | | | | | Preferred shares | | | | | | | |
Class "A" | | | | | | | | Outstanding | | Weighted | | | | | | | | shares | | average | | | | | | | | | | Amount at beginning of year | | | | | | 343,814,914 | | 343,814,914 | | | | | | | | | | Incentive long term plan payments with treasury shares | | | | | | 8,159 | | 5,248 | | | | | | | | | | Amount at the end of the year | | | | | | 343,823,073 | | 343,820,162 | | | | | | | | | | | | | | | | | | | | | | |
2018 | | | |
Preferred shares | | | |
Class "A" | |
Class "B" | | | | Outstanding | | Weighted | | Outstanding | | Weighted | | | | shares | | average | | shares | | average | | | | | | | | | | Amount at beginning of year | | 343,775,864 | | 343,775,864 | | 578,330 | | 578,330 | | | | | | | | | | Conversion of preferred shares class "B" to "A" | | 39,050 | | 32,835 | | (78,100) | | (65,670) | | | | | | | | | | Amount at the end of the year | | 343,814,914 | | 343,808,699 | | 500,230 | | 512,660 |
| | | | 2019 | | 2018 | | 2017 | Sales revenue | | | | | | | | | Domestic market | | | | | | | | | Revenue | | 38,391,132 | | 42,189,365 | | 34,983,265 | | | Rebates | | (57,315) | | (45,290) | | (35,538) | | | | | 38,333,817 | | 42,144,075 | | 34,947,727 | | | Foreign market | | | | | | | | | Revenue | | 23,998,067 | | 26,577,433 | | 23,297,304 | | | Rebates | | (47,723) | | (58,188) | | (60,990) | | | | | 23,950,344 | | 26,519,245 | | 23,236,314 | | | | | 62,284,161 | | 68,663,320 | | 58,184,041 | | | | | | | | | | Sales and services deductions | | | | | | | Taxes | | | | | | | | | Domestic market | | (9,704,712) | | (10,219,138) | | (8,663,707) | | | Foreign market | | (31,427) | | (36,562) | | (33,798) | Sales returns | | | | | | | | | Domestic market | | (138,749) | | (148,918) | | (125,153) | | | Foreign market | | (85,748) | | (258,836) | | (100,789) | | | | | | | | | | | | | | (9,960,636) | | (10,663,454) | | (8,923,447) | Net sales and services revenue | | 52,323,525 | | 57,999,866 | | 49,260,594 |
Sales revenues represent the fair value of the amount received or receivable from the sale of products and services during the normal course of the Company’s activities. Revenues from sales of products are recognized when (i) the amount of sales can be reliably measured and the Company does not have control over the products sold; (ii) it is probable that the Company will received theeconomic benefits; and (iii) risks and benefits of product ownership are substantially transferred to the client. The Company does not make sales with continued management involvement. Most of Braskem’s sales are made to industrial customers and, in a lower volume, to resellers. F - 95F-108
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
The moment when the legal right, as well as the risks and benefits, are substantially transferred to the client is determined as follows: | (i) | (i)for contracts under which the Company is responsible for the freight and insurance, the legal right and the risks and benefits are transferred to the client as soon as the risk of the goods is responsible for the freight and insurance, the legal right and the risks and benefits are transferred to the client as soon as the risk of the goods are delivered at the destination established in the contract;
(ii)for agreements under which the freight and insurance are a responsibility of the client, risks and benefits are transferred as soon as the products are delivered to the client’s carrier; and
(iii)for contracts under which product delivery involves the use of pipelines, especially basic petrochemicals, the risks and benefits are transferred immediately after the Company’s official markers, which is the point of delivery of the products and transfer of their ownership.
| | | | | (ii) | for agreements under which the freight and insurance are a responsibility of the client, risks and benefits are transferred as soon as the products are delivered to the client’s carrier; and | | | | | (iii) | for contracts under which product delivery involves the use of pipelines, especially basic petrochemicals, the risks and benefits are transferred immediately after the Company’s official markers, which is the point of delivery of the products and transfer of their ownership. |
The cost of freight services related to sales, transfers to storage facilities and finished product transfers between Braskem establishments are included in cost of sales. F - 96F-109
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (a) | Net revenue by country |
| | | 2019 | | 2018 | | 2017 | | | | | | | | | Brazil | | 28,523,327 | | 31,801,222 | | 26,147,559 | United States | | 9,416,558 | | 9,887,701 | | 8,539,972 | Mexico | | 2,335,198 | | 4,168,140 | | 3,408,385 | Singapore | | 1,162,432 | | 756,069 | | 542,866 | Germany | | 1,157,431 | | 1,385,482 | | 1,192,287 | Argentina | | 1,104,044 | | 1,166,191 | | 1,336,440 | Switzerland | | 759,189 | | 315,254 | | 415,729 | Italy | | 690,422 | | 650,605 | | 604,546 | Chile | | 610,454 | | 686,646 | | 554,237 | Peru | | 551,967 | | 540,495 | | 493,654 | China | | 542,209 | | 884,233 | | 692,558 | Luxembourg | | 526,768 | | 546,524 | | 247,007 | Netherlands | | 516,409 | | 293,315 | | 333,134 | United Kingdom | | 359,937 | | 366,328 | | 202,830 | Uruguay | | 359,049 | | 155,571 | | 122,251 | Spain | | 344,433 | | 329,458 | | 282,854 | Sweden | | 296,601 | | 270,062 | | 256,911 | South Korea | | 279,900 | | 314,517 | | 339,430 | Japan | | 240,579 | | 245,208 | | 126,956 | Bolivia | | 231,848 | | 250,048 | | 163,862 | France | | 225,986 | | 135,094 | | 166,314 | Canada | | 201,635 | | 290,453 | | 235,612 | Poland | | 200,563 | | 260,449 | | 231,716 | Colombia | | 200,370 | | 363,497 | | 340,396 | Paraguay | | 194,859 | | 214,959 | | 174,783 | Taiwan | | 191,593 | | 274,566 | | 301,692 | Belgium | | 179,648 | | 122,230 | | 324,222 | Ecuador | | 119,070 | | 313,857 | | 316,134 | Other | | 801,046 | | 1,011,692 | | 1,166,258 | | | | 52,323,525 | | 57,999,866 | | 49,260,594 |
Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
(a)Net revenue by country
| | | 2018 | | 2017 | | 2016 | | | | | | | | | Brazil | | 31,801,222 | | 26,147,559 | | 24,640,077 | United States | | 9,887,701 | | 8,539,972 | | 7,965,209 | Argentina | | 1,166,191 | | 1,336,440 | | 1,244,267 | United Kingdom | | 366,328 | | 202,830 | | 589,725 | Germany | | 1,385,482 | | 1,192,287 | | 1,198,760 | Mexico | | 4,168,140 | | 3,408,385 | | 2,075,695 | Italy | | 650,605 | | 604,546 | | 667,265 | Netherlands | | 293,315 | | 333,134 | | 262,289 | Singapore | | 756,069 | | 542,866 | | 1,101,156 | Switzerland | | 315,254 | | 415,729 | | 227,504 | Colombia | | 363,497 | | 340,396 | | 369,359 | Spain | | 329,458 | | 282,854 | | 342,154 | Chile | | 686,646 | | 554,237 | | 522,796 | Peru | | 540,495 | | 493,654 | | 397,186 | Uruguay | | 155,571 | | 122,251 | | 122,783 | Japan | | 245,208 | | 126,956 | | 1,631,564 | Poland | | 260,449 | | 231,716 | | 252,508 | Paraguay | | 214,959 | | 174,783 | | 185,432 | France | | 135,094 | | 166,314 | | 236,727 | Bolivia | | 250,048 | | 163,862 | | 211,382 | Canada | | 290,453 | | 235,612 | | 242,492 | South Korea | | 314,517 | | 339,430 | | 254,512 | Other | | 3,423,164 | | 3,304,781 | | 2,923,146 | | | | 57,999,866 | | 49,260,594 | | 47,663,988 |
(b)Net revenue by product
| | | 2018 | | 2017 | | 2016 | | | | | | | | | PE/PP | | 37,979,148 | | 33,105,714 | | 30,790,364 | Ethylene, Propylene | | 4,283,709 | | 3,351,805 | | 2,906,796 | Naphtha, condensate and crude oil | | 248,313 | | 135,165 | | 2,582,257 | Benzene, toluene and xylene | | 2,785,400 | | 2,683,406 | | 2,411,031 | PVC/Caustic Soda/EDC | | 3,167,390 | | 3,066,879 | | 3,016,390 | ETBE/Gasoline | | 2,928,993 | | 2,433,360 | | 2,058,952 | Butadiene | | 2,023,465 | | 1,819,387 | | 1,315,892 | Cumene | | 909,409 | | 578,482 | | 501,958 | Solvents | | 476,311 | | 401,455 | | 379,745 | Other | | 3,197,729 | | 1,684,941 | | 1,700,603 | | | | 57,999,866 | | 49,260,594 | | 47,663,988 |
F - 97F-110
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (b) | Net revenue by product |
| | | 2019 | | 2018 | | 2017 | | | | | | | | | PE/PP | | 34,287,597 | | 37,979,148 | | 33,105,714 | Ethylene, Propylene | | 3,743,581 | | 4,283,709 | | 3,351,805 | PVC/Caustic Soda/EDC | | 2,692,778 | | 3,167,390 | | 3,066,879 | Benzene, toluene and xylene | | 2,503,667 | | 2,785,400 | | 2,683,406 | ETBE/Gasoline | | 2,319,253 | | 2,928,993 | | 2,433,360 | Butadiene | | 1,609,264 | | 2,023,465 | | 1,819,387 | Cumene | | 723,469 | | 909,409 | | 578,482 | Naphtha, condensate and crude oil | | 505,804 | | 476,311 | | 135,165 | Solvents | | 676,044 | | 248,313 | | 401,455 | Other | | 3,262,068 | | 3,197,728 | | 1,684,941 | | | | 52,323,525 | | 57,999,866 | | 49,260,594 |
(c)Main clients
The Company does not have any revenue arising from transactions with only one client that is equal to or higher than 10% of its total net revenue. In 2018,2019, the most significant revenue from a single client amounts to approximately 2.4% of total net revenues of the Company and refers to the Chemical segment.segment 28| 32 | Tax incentivesTax incentives |
Since 2015, the Company obtained grant in lawsuits claiming the reduction of 75% of IR on income from the following industrial units: (i) PVC and Chlor-Alkali (Cloro Soda), established in the state of Alagoas; and (ii) Chemicals, PE, PVC and Chlor-Alkali units, established in the city of Camaçari (BA). The realization period is 10 years. In 2018,2019, the operations in Brazil recorded tax loss, therefore it is not possible to make any deductions as a tax incentive. | (b) | PRODESIN - ICMSPRODESIN - ICMS |
The Company has ICMS tax incentives granted by the state of Alagoas, through the state of Alagoas Integrated Development Program – PRODESIN, which are aimed at implementing and expanding a plant in that state.This incentive is considered an offsetting entry to sales taxes. In fiscal year 2018,2019, the amount was R$67,796 (R$81,863 (R$95,704 in 2017).Since 2018, through Complementary Law 160/2017, the amount recorded is now allocated to reserve the tax incentives in stockholders' equity,in accordance with Article 195-A of Federal Law 6,404/762018). 29Other income (expenses), net
| | Note | | 2018 | | 2017 | | 2016 | | | | | | | | | | Bonus to employees | | | (375,360) | | (399,828) | | (361,796) | Expenses from fixed assets | | | (40,061) | | (205,929) | | (53,774) | Allowance for judicial and labor claims | | | (83,280) | | (119,919) | | (169,973) | Fine on supply contract of raw material, net | (i) | | 336,533 | | | | | PIS and COFINS credits - exclusion of ICMS from the calculation basis | 10(c) | | 235,919 | | | | | Capital gain - sale of Quantiq | | | | | 276,816 | | | Recovery of environmental damages | | | (89,395) | | (102,466) | | (182,600) | Leniency agreement | 23.3(a) | | | | (375,476) | | (2,860,402) | Other | | | 106,496 | | 71,922 | | (277,409) | | | | | 90,852 | | (854,880) | | (3,905,954) |
(i)The contractual penalty for failing to supply feedstock to the subsidiary Braskem Idesa is R$338,125.
F - 98F-111
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| 33 | Other income (expenses), net |
| | Note | | 2019 | | 2018 | | 2017 | | | 2.7 | | | | Restated | | | Other income | | | | | | | | PIS and COFINS credits - exclusion of ICMS from the calculation basis | 10(c) | | 1,904,206 | | 235,919 | | | Fine on supply contract of raw material, net | (i) | | 375,020 | | 386,020 | | | Insurance indemnity | | | 18,286 | | 100,876 | | | Fixed assets disposal results | | | 11,140 | | 93,814 | | | Tax Credits recovery | | | 3,094 | | 46,179 | | | Capital gain - sale of Quantiq | | | | | | | 276,816 | Other | | | 96,688 | | 164,414 | | 38,118 | | | | | 2,408,434 | | 1,027,222 | | 314,934 | | | | | | | | | | Other expenses | | | | | | | | Provision - geological event in Alagoas | 26 | | (3,383,067) | | | | | Leniency agreement | 25 | | | | | | (375,476) | Provision for losses on the fixed asset | | | (158,320) | | (44,420) | | (205,929) | Recovery of environmental damage | | | (141,536) | | (89,396) | | (102,466) | Allowance for judicial claims | | | (136,135) | | (83,280) | | (119,919) | Programmed stop in plants | | | (108,192) | | (91,380) | | | Fine on sales contracts | | | (104,179) | | (49,487) | | | Other | | | (415,513) | | (196,750) | | (366,024) | | | | | (4,446,942) | | (554,713) | | (1,169,814) |
30Financial results
| (i) | The contractual penalty charged from a supplier for failing to supply feedstock to the subsidiary Braskem Idesa is R$335,281 (R$338,125 in 2018). |
| | | | 2018 | | 2017 | | 2016 | Financial income | | | | | | | | | Interest income | | 530,007 | | 512,051 | | 646,727 | | | Other | | 59,045 | | 91,579 | | 43,395 | | | | | 589,052 | | 603,630 | | 690,122 | | | | | | | | | | Financial expenses | | | | | | | | | | | (2,084,780) | | (2,219,503) | | (2,447,481) | | | Monetary variations on fiscal debts | | (33,429) | | (191,101) | | (249,578) | | | Customer discounts granted | | (141,223) | | (137,389) | | (108,606) | | | Loans transaction costs | | (89,982) | | (64,771) | | (56,020) | | | Adjustment to present value | | (296,065) | | (284,992) | | (507,744) | | | | | (362,072) | | (849,461) | | (201,533) | | | | | (3,007,551) | | (3,747,217) | | (3,570,962) | | | | | | | | | | Exchange rate variations, net | | | | | | | | | On financial assets | | 1,268,741 | | 216,381 | | (1,139,676) | | | On financial liabilities | | (3,525,724) | | (1,015,143) | | (2,070,741) | | | | | (2,256,983) | | (798,762) | | (3,210,417) | | | | | | | | | | | | | | (4,675,482) | | (3,942,349) | | (6,091,257) |
31Expenses by nature and function
| | | | 2018 | | 2017 | | 2016 | | | | | | | | | | Classification by nature: | | | | | | | | | Raw materials other inputs | | (38,889,949) | | (29,364,996) | | (28,197,875) | | | Personnel expenses | | (2,412,118) | | (2,173,640) | | (2,576,107) | | | Outsourced services | | (2,306,048) | | (2,120,001) | | (2,135,412) | | | Depreciation, amortization and depletion | | (2,990,577) | | (2,928,855) | | (2,677,672) | | | Freights | | (2,275,375) | | (2,058,574) | | (1,918,973) | | | Costs of idle industrial plants | | (138,242) | | (67,593) | | (60,944) | | | Other income (expenses), net | | (706,451) | | (1,379,965) | | (4,175,836) | | | Total | | (49,718,760) | | (40,093,624) | | (41,742,819) | | | | | | | | | | Classification by function: | | | | | | | | | Cost of products sold | | (46,431,220) | | (36,177,408) | | (34,985,569) | | | Selling and distribution | | (1,545,568) | | (1,459,608) | | (1,403,673) | | | General and administrative | | (1,633,003) | | (1,434,272) | | (1,285,613) | | | Research and development | | (199,821) | | (167,456) | | (162,010) | | | Other income (expenses), net | | 90,852 | | (854,880) | | (3,905,954) | | | Total | | (49,718,760) | | (40,093,624) | | (41,742,819) |
F - 99F-112
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| | | | 2019 | | 2018 | | 2017 | Financial income | | | | | | | | | Interest income | | 708,542 | | 530,007 | | 512,051 | | | Other | | 142,012 | | 59,045 | | 91,579 | | | | | 850,554 | | 589,052 | | 603,630 | | | | | | | | | | Financial expenses | | | | | | | | | Interest expenses | | (2,191,765) | | (2,084,780) | | (2,219,503) | | | Monetary variations on fiscal debts | | (232,612) | | (33,429) | | (191,101) | | | Discounts granted | | (80,404) | | (141,223) | | (137,389) | | | Loans transaction costs - amortization | | (465,000) | | (89,982) | | (64,771) | | | Adjustment to present value - appropriation | | (348,930) | | (296,065) | | (284,992) | | | Interest expense on leases | | (137,903) | | | | | | | Other | | (426,171) | | (362,072) | | (849,461) | | | | | (3,882,785) | | (3,007,551) | | (3,747,217) | | | | | | | | | | Exchange rate variations, net | | | | | | | | | On financial assets | | (31,137) | | 1,268,741 | | 216,381 | | | On financial liabilities | | (1,693,383) | | (3,525,724) | | (1,015,143) | | | | | (1,724,520) | | (2,256,983) | | (798,762) | | | | | | | | | | | | Total | | (4,756,751) | | (4,675,482) | | (3,942,349) |
| 35 | Expenses by nature and function |
| | | | 2019 | | 2018 | | 2017 | | | | | | | Restated | | | Classification by nature: | | | | | | | | | Raw materials other inputs | | (37,380,310) | | (38,889,949) | | (29,364,996) | | | Personnel expenses | | (3,004,762) | | (2,412,118) | | (2,173,640) | | | Outsourced services | | (3,242,373) | | (2,306,048) | | (2,120,001) | | | Depreciation, amortization and depletion | | (3,632,265) | | (2,990,577) | | (2,928,855) | | | Freights | | (2,204,453) | | (2,275,375) | | (2,058,574) | | | Costs of idle industrial plants | | (309,742) | | (138,242) | | (67,593) | | | Provision - geological event in Alagoas | | (3,383,067) | | | | | | | PIS and COFINS credits - exclusion of ICMS from the calculation basis | | 1,904,206 | | | | | | | Leniency agreement | | | | | | (375,476) | | | Other general and administrative expenses | | (927,294) | | (706,451) | | (1,004,489) | | | Total | | (52,180,060) | | (49,718,760) | | (40,093,624) | | | | | | | | | | Classification by function: | | | | | | | | | Cost of products sold | | (45,879,118) | | (46,576,657) | | (36,177,408) | | | Selling and distribution | | (1,783,455) | | (1,689,179) | | (1,446,153) | | | (Loss) reversals for impairment of trade accounts receivable | | (7,069) | | 87,008 | | (13,455) | | | General and administrative | | (2,224,180) | | (1,793,185) | | (1,434,272) | | | Research and development | | (247,730) | | (219,256) | | (167,456) | | | Other income | | 2,408,434 | | 1,027,222 | | 314,934 | | | Other expenses | | (4,446,942) | | (554,713) | | (1,169,814) | | | Total | | (52,180,060) | | (49,718,760) | | (40,093,624) |
Notes to the financial statementsF-113
at December 31, 2018
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
32Segment information
Braskem’s organizational structure was formed by the following segments: | ·Chemicals: comprises the activities related to the production ofethylene, propylene butadiene, toluene, xylene, cumene and benzene, as well as gasoline, diesel and LPG (Liquefied Petroleum Gas), and other petroleum derivatives and the supply of electric energy, steam, compressed air and other inputs to second-generation producers located in the Camaçari, Triunfo, São Paulo and Rio de Janeiro petrochemical complexes. ·Polyolefins: comprises the activities related to the production of PE and PP in Brazil.
·Vinyls: comprises the activities related to the production of PVC, caustic soda and chloride in Brazil.
·United States and Europe:operations related to PP production in the United States and Europe, through the subsidiaries Braskem America and Braskem Alemanha, respectively.
·Mexico:comprises the activities relation to the production of PE in Mexico, through the subsidiary Braskem Idesa.
(a)Presentation, measurement and reconciliation of segment results
| Chemicals: comprises the activities related to the production ofethylene, propylene butadiene, toluene, xylene, cumene and benzene, as well as gasoline, diesel and LPG (Liquefied Petroleum Gas), and other petroleum derivatives and the supply of electric energy, steam, compressed air and other inputs to second-generation producers located in the Camaçari, Triunfo, São Paulo and Rio de Janeiro petrochemical complexes. | | · | Polyolefins: comprises the activities related to the production of PE and PP in Brazil. | | · | Vinyls: comprises the activities related to the production of PVC, caustic soda and chloride in Brazil. | | · | United States and Europe:operations related to PP production in the United States and Europe, through the subsidiaries Braskem America and Braskem Alemanha, respectively. | | · | Mexico:comprises the activities relation to the production of PE in Mexico, through the subsidiary Braskem Idesa. |
| (a) | Presentation, measurement and reconciliation of segment results |
Information by segment is generated in accounting records, which are reflected in the consolidated financial statements. The eliminations stated in the operating segment information, when compared with the consolidated balances, are represented by transfers of inputs between segments that are measured as arm’s length sales. The operating segments are stated based on the results of operations, which does not include financial results, and current and deferred income tax and social contribution expenses. The Company does not disclose assets by segment since this information is not presented to its Chief Operating Decision Maker (“CODM”). F - 100
F-114
Braskem S.A.
Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (b) | Results by segmentResults by segment |
| | | | | | | | | | | | | | | | 2018 | | | | | | | | | | | | | | | 2019 | | | | | | | | | | | Operating expenses | | | | | | | | | | | Operating expenses | | | | | | | Net | | Cost of | | | | Selling, general | | Results from | | Other operating | | | | | Net | | Cost of | | | | Selling, general | | Results from | | Other operating | | | | | | | sales | | products | | Gross | | and distribuition | | equity | | income | | Operating | | | sales | | products | | Gross | | and distribuition | | equity | | income | | Consolidated | | | | | revenue | | sold | | profit | | expenses | | investments | | (expenses), net | | profit (loss) | | | revenue | | sold | | profit | | expenses | | investments | | (expenses), net | | Reporting segments | Reporting segments | | | | | | | | | | | | | | | Reporting segments | | | | | | | | | | | | | | | | | Chemicals | | 31,111,650 | | (27,464,046) | | 3,647,604 | | (756,719) | | | | (139,393) | | 2,751,492 | Chemicals | | 27,172,288 | | (25,349,921) | | 1,822,367 | | (1,069,867) | | | | (269,363) | | 483,137 | | | Vinyls | | 3,167,390 | | (2,889,519) | | 277,871 | | (169,377) | | | | (18,416) | | 90,078 | Vinyls | | 2,692,778 | | (3,069,301) | | (376,523) | | (437,153) | | | | (3,673,139) | | (4,486,815) | | | Polyolefins | | 22,483,866 | | (19,255,377) | | 3,228,489 | | (1,310,080) | | | | (93,465) | | 1,824,944 | Polyolefins | | 21,191,851 | | (18,494,520) | | 2,697,331 | | (1,439,229) | | | | (151,351) | | 1,106,751 | | | USA and Europe | | 11,724,776 | | (9,126,392) | | 2,598,384 | | (610,384) | | | | 10,656 | | 1,998,656 | USA and Europe | | 10,044,306 | | (8,233,079) | | 1,811,227 | | (786,096) | | | | 9,215 | | 1,034,346 | | | Mexico | | 3,770,506 | | (2,333,849) | | 1,436,657 | | (296,391) | | | | 305,457 | | 1,445,723 | Mexico | | 3,051,440 | | (2,504,012) | | 547,428 | | (351,199) | | | | 324,682 | | 520,911 | Total | Total | | 72,258,188 | | (61,069,183) | | 11,189,005 | | (3,142,951) | | | | 64,839 | | 8,110,893 | Total | | 64,152,663 | | (57,650,833) | | 6,501,830 | | (4,083,544) | | | | (3,759,956) | | (1,341,670) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other segments | Other segments | | 292,435 | | (173,608) | | 118,827 | | (34,819) | | | | (103) | | 83,905 | Other segments | | 296,286 | | (188,335) | | 107,951 | | (44,548) | | | | 3,364 | | 66,767 | Corporate unit | Corporate unit | | 265,438 | (i) | | | 265,438 | | (200,622) | | (888) | | 26,116 | (i) | 90,044 | Corporate unit | | | | | | | | (217,958) | | 10,218 | | 1,775,246 | (i) | 1,567,506 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Braskem consolidated before
eliminations and reclassifications | Braskem consolidated before
eliminations and reclassifications | | 72,816,061 | | (61,242,791) | | 11,573,270 | | (3,378,392) | | (888) | | 90,852 | | 8,284,842 | Braskem consolidated before
eliminations and reclassifications | | 64,448,949 | | (57,839,168) | | 6,609,781 | | (4,346,050) | | 10,218 | | (1,981,346) | | 292,603 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Eliminations and reclassifications | Eliminations and reclassifications | | (14,816,195) | | 14,811,571 | | (4,624) | | | | | | | | (4,624) | Eliminations and reclassifications | | (12,125,424) | | 11,960,050 | | (165,374) | | 83,616 | | | | (57,162) | | (138,920) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | Total | | 57,999,866 | | (46,431,220) | | 11,568,646 | | (3,378,392) | | (888) | | 90,852 | | 8,280,218 | Total | | 52,323,525 | | (45,879,118) | | 6,444,407 | | (4,262,434) | | 10,218 | | (2,038,508) | | 153,683 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 | | | | | | | | | | | | | | | 2018 | | | | | | | | | | | Operating expenses | | | | | | | | | | | Operating expenses | | | | | | | Net | | Cost of | | | | Selling, general | | Results from | | Other operating | | | | | Net | | Cost of | | | | Selling, general | | Results from | | Other operating | | | | | | | sales | | products | | Gross | | and distribuition | | equity | | income | | Operating | | | sales | | products | | Gross | | and distribuition | | equity | | income | | Consolidated | | | | | revenue | | sold | | profit | | expenses | | investments | | (expenses), net | | profit (loss) | | | revenue | | sold | | profit | | expenses | | investments | | (expenses), net | | Reporting segments | Reporting segments | | | | | | | | | | | | | | | Reporting segments | | | | | | | | | | | | | | Restated | | | Chemicals | | 25,179,288 | | (20,478,914) | | 4,700,374 | | (773,396) | | | | (197,275) | | 3,729,703 | Chemicals | | 31,111,650 | | (27,523,702) | | 3,587,948 | | (784,450) | | | | (52,006) | | 2,751,492 | | | Vinyls | | 3,066,879 | | (2,572,774) | | 494,105 | | (162,989) | | | | (163,374) | | 167,742 | Vinyls | | 3,167,390 | | (2,908,371) | | 259,019 | | (177,344) | | | | 8,403 | | 90,078 | | | Polyolefins | | 19,650,398 | | (15,432,179) | | 4,218,219 | | (1,321,575) | | | | (177,518) | | 2,719,126 | Polyolefins | | 22,483,866 | | (19,295,855) | | 3,188,011 | | (1,328,047) | | | | (35,020) | | 1,824,944 | | | USA and Europe | | 9,854,496 | | (7,419,261) | | 2,435,235 | | (582,672) | | | | (21,279) | | 1,831,284 | USA and Europe | | 11,724,776 | | (9,152,847) | | 2,571,929 | | (642,006) | | | | 68,733 | | 1,998,656 | | | Mexico | | 3,600,820 | | (2,097,471) | | 1,503,349 | | (283,318) | | | | 27,914 | | 1,247,945 | Mexico | | 3,770,506 | | (2,333,845) | | 1,436,661 | | (313,526) | | | | 322,588 | | 1,445,723 | Total | Total | | 61,351,881 | | (48,000,599) | | 13,351,282 | | (3,123,950) | | | | (531,532) | | 9,695,800 | Total | | 72,258,188 | | (61,214,620) | | 11,043,568 | | (3,245,373) | | | | 312,698 | | 8,110,893 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other segments | Other segments | | 83,720 | | (65,743) | | 17,977 | | (13,391) | | | | (2,430) | | 2,156 | Other segments | | 292,435 | | (173,608) | | 118,827 | | (34,819) | | | | (103) | | 83,905 | Corporate unit | Corporate unit | | | | | | | | (61,384) | | 39,956 | | (320,918) | (ii) | (342,346) | Corporate unit | | 265,438 | | | | 265,438 | | (334,420) | | (888) | | 159,914 | | 90,044 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Braskem consolidated before
eliminations and reclassifications | Braskem consolidated before
eliminations and reclassifications | | 61,435,601 | | (48,066,342) | | 13,369,259 | | (3,198,725) | | 39,956 | | (854,880) | | 9,355,610 | Braskem consolidated before
eliminations and reclassifications | | 72,816,061 | | (61,388,228) | | 11,427,833 | | (3,614,612) | | (888) | | 472,509 | | 8,284,842 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Eliminations and reclassifications | Eliminations and reclassifications | | (12,175,007) | | 11,888,934 | | (286,073) | | 137,389 | | | | | | (148,684) | Eliminations and reclassifications | | (14,816,195) | | 14,811,571 | | (4,624) | | | | | | | | (4,624) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | Total | | 49,260,594 | | (36,177,408) | | 13,083,186 | | (3,061,336) | | 39,956 | | (854,880) | | 9,206,926 | Total | | 57,999,866 | | (46,576,657) | | 11,423,209 | | (3,614,612) | | (888) | | 472,509 | | 8,280,218 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2016 | | | | | | | | | | | | | | | 2017 | | | | | | | | | | | Operating expenses | | | | | | | | | | | Operating expenses | | | | | | | Net | | Cost of | | | | Selling, general | | Results from | | Other operating | | | | | Net | | Cost of | | | | Selling, general | | Results from | | Other operating | | | | | | | sales | | products | | Gross | | and distribuition | | equity | | income | | Operating | | | sales | | products | | Gross | | and distribuition | | equity | | income | | Operating | | | | | revenue | | sold | | profit | | expenses | | investments | | (expenses), net | | profit (loss) | | | revenue | | sold | | profit | | expenses | | investments | | (expenses), net | | Consolidated | Reporting segments | Reporting segments | | | | | | | | | | | | | | | Reporting segments | | | | | | | | | | | | | | | | | Chemicals | | 25,062,602 | | (20,248,175) | | 4,814,427 | | (680,083) | | | | (409,920) | | 3,724,424 | Chemicals | | 25,179,288 | | (20,478,914) | | 4,700,374 | | (773,396) | | | | (197,275) | | 3,729,703 | | | Vinyls | | 3,016,390 | | (2,815,184) | | 201,206 | | (236,771) | | | | (71,880) | | (107,445) | Vinyls | | 3,066,879 | | (2,572,774) | | 494,105 | | (162,989) | | | | (163,374) | | 167,742 | | | Polyolefins | | 20,307,367 | | (15,980,935) | | 4,326,432 | | (1,284,665) | | | | (199,098) | | 2,842,669 | Polyolefins | | 19,650,398 | | (15,432,179) | | 4,218,219 | | (1,321,575) | | | | (177,518) | | 2,719,126 | | | USA and Europe | | 8,896,071 | | (6,080,722) | | 2,815,349 | | (497,810) | | | | (71,000) | | 2,246,539 | USA and Europe | | 9,854,496 | | (7,419,261) | | 2,435,235 | | (582,672) | | | | (21,279) | | 1,831,284 | | | Mexico | | 1,586,927 | | (1,152,047) | | 434,880 | | (231,795) | | | | (4,805) | | 198,280 | Mexico | | 3,600,820 | | (2,097,471) | | 1,503,349 | | (283,318) | | | | 27,914 | | 1,247,945 | Total | Total | | 58,869,357 | | (46,277,063) | | 12,592,294 | | (2,931,124) | | | | (756,703) | | 8,904,467 | Total | | 61,351,881 | | (48,000,599) | | 13,351,282 | | (3,123,950) | | | | (531,532) | | 9,695,800 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other segments | Other segments | | 12,202 | | (14,760) | | (2,558) | | (1,876) | | | | (20,864) | | (25,298) | Other segments | | 83,720 | | (65,743) | | 17,977 | | (13,391) | | | | (2,430) | | 2,156 | Corporate unit | Corporate unit | | | | | | | | (33,582) | | 30,078 | | (3,128,387) | (iii) | (3,131,891) | Corporate unit | | | | | | | | (61,384) | | 39,956 | | (320,918) | (ii) | (342,346) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Braskem consolidated before
eliminations and reclassifications | Braskem consolidated before
eliminations and reclassifications | | 58,881,559 | | (46,291,823) | | 12,589,736 | | (2,966,582) | | 30,078 | | (3,905,954) | | 5,747,278 | Braskem consolidated before
eliminations and reclassifications | | 61,435,601 | | (48,066,342) | | 13,369,259 | | (3,198,725) | | 39,956 | | (854,880) | | 9,355,610 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Eliminations and reclassifications | Eliminations and reclassifications | | (11,217,571) | | 11,306,254 | | 88,683 | | 115,286 | | | | | | 203,969 | Eliminations and reclassifications | | (12,175,007) | | 11,888,934 | | (286,073) | | 137,389 | | | | | | (148,684) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | Total | | 47,663,988 | | (34,985,569) | | 12,678,419 | | (2,851,296) | | 30,078 | | (3,905,954) | | 5,951,247 | Total | | 49,260,594 | | (36,177,408) | | 13,083,186 | | (3,061,336) | | 39,956 | | (854,880) | | 9,206,926 |
| (i) | Includes the amount of R$1,904,206 related to PIS and COFINS tax credits – exclusion of ICMS from the calculation base (Nota 10(c)). | | (ii) | Includes gain from sale of “Chemicals distribution” segment in the amount of R$276,816. |
(i) Includes the amount of R$501.357 (R$265,438 in “Net revenue" and R$235,919 in “Other operating income (expenses), net”) related to PIS and COFINS tax credits – exclusion of ICMS from the calculation basis (note 10(c)).
(ii) Includes gain from sale of “Chemicals distribution” segment in the amount of R$276,816.
(iii) Inclusion of the provision for the Leniency Agreement in the amount of R$2,860,402.
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Notes to the financial statements
at December 31, 2018 | Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| (c) | Property, plant and equipment and intangible assets by segment |
| | | | 2019 | | 2018 | Reporting segments | | | | | | | Chemicals | | 10,410,524 | | 10,916,874 | | | Polyolefins | | 5,077,335 | | 4,985,337 | | | Vinyls | | 2,121,085 | | 2,334,270 | | | USA and Europe | | 4,852,760 | | 3,875,566 | | | Mexico | | 12,020,051 | | 11,835,170 | Total | | 34,481,755 | | 33,947,217 | | | Unallocated amounts | | 595,514 | | 553,655 | Total | | 35,077,269 | | 34,500,872 |
(c)Property, plant and equipment and intangible assets by segment
| | | | 2018 | | 2017 | Reporting segments | | | | | | | Chemicals | | 10,916,874 | | 11,136,125 | | | Polyolefins | | 4,985,337 | | 5,072,162 | | | Vinyls | | 2,334,270 | | 2,433,882 | | | USA and Europe | | 3,875,566 | | 2,587,302 | | | Mexico | | 11,835,170 | | 10,733,277 | Total | | 33,947,217 | | 31,962,748 | | | Unallocated amounts | | 553,655 | | 526,359 | Total | | 34,500,872 | | 32,489,107 |
33Insurance coverage
Braskem contracts insurance policies to cover the domestic and international operations of its plants, as detailed below. In addition, also contracts other insurance policies, including general civil liability, the civil liability of directors and offices (D&O), and Environmental Civil Liability, domestic and international charter operations, charter's liability, etc. The Insurance Program maintained by the Company is consistent with the standards adopted by petrochemical companies operating globally. The All Risks Program provides coverage for material damages and consequent loss of profit of all Braskem plants through an “All Risks” program. The program is divided into three different policies that ensure coverage of the operations in Brazil, Mexico and the United States/Germany and Mexico, which are valid through April 2020.October 2021. The following table presents additional information on the policies in force. Each has maximum indemnity limits (“MIL”) per event to cover possible claims in view of the nature of the Company’s activities and benchmarks, as well estimated maximum loss studies prepared by external advisors. | | | | | |
Maximum indemnity limit | |
Amount insured | | | | | Maturity | | US$ million | | R$ million | | US$ million | | R$ million | Units in Brazil | | April 10, 2020 | | 3,375 | | 13,077 | | 26,406 | | 102,318 | Units in United States and Germany | April 10, 2020 | | 500 | | 1,937 | | 2,037 | | 7,893 | Units in Mexico | | April 10, 2020 | | 2,936 | | 11,376 | | 6,068 | | 23,512 | Total | | | | | | | | 34,511 | | 133,723 |
| | | | Maximum indemnity limit | | Amount insured | | | Maturity | | US$ million | | R$ million | | US$ million | | R$ million | Units in Brazil | | October8, 2021 | | 3,500 | | 18,195 | | 27,962 | | 145,364 | Units in United States and Germany | October8, 2021 | | 480 | | 2,495 | | 2,189 | | 11,381 | Units in Mexico | | October8, 2021 | | 2,642 | | 13,735 | | 5,679 | | 29,524 | Total | | | | | | | | 35,830 | | 186,269 |
The risk assumptions adopted are not part of the audit scope and, therefore, were not subject to reviewaudit by our independent accountants.auditors. F-116
| Braskem S.A.
Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
These policies provide coverage for material losses arising from accidents related to fire, explosion and machinery breakdown, etc., and consequential loss of profit, with maximum indemnity periods ranging from 12 and 33 months, depending on the plant and/or coverage. F - 102
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Notes to the financial statements
at December 31, 2018
All amounts in thousands, except as otherwise stated
Braskem also carries an insurance policy against general civil liability that guarantees any damages caused to third parties from its operations and products, including any losses caused by sudden pollution. The Company’s new projects are covered by specific Engineering Risk policies and/or construction and assembly clauses included in theboth Operational Risks policies.
34Information related to guaranteed securities issued by subsidiaries
Braskem S.A. has fully and unconditionally guaranteed the debt securities issued by Braskem Finance, Braskem America FinanceEnvironmental and Braskem Holanda Finance 100-percent-owned subsidiaries of Braskem. There are no significant restrictions on the ability of Braskem to obtain funds from these subsidiaries.General Civil Liability policies.
35Subsequent events
| (a) | As disclosed in note 26.1(i), in January 2020 there was the unfreezing of R$3.7 billion previously frozen from the cash balance of Braskem, and in note 26.1(ii), on February 14, 2020, the Company entered into an agreement with the Labor Prosecution Office (MPT) in the amount of R$40 million for implementation of the Program for Recovery of Business and Promotion of Educational Activities for residents and workers from the districts affected by the geological phenomenon. The program consists of support for the construction of daycare centers and schools and for administering professional training programs, as well as support for the Civil Defense to hire skilled professionals to continue monitoring the risk areas in the districts affected. |
| (b) | On March 19, 2020, the Board of Directors approved a new program, the “ILP Plan 2020,” in accordance with the terms and conditions of the ILP Plan, which includes the list of eligible persons, the deadline for acquiring own shares by participants and the number of restricted shares to be delivered to participants as matching contribution for each own share acquired. The maximum number of shares the Company expects to deliver to the participants of the ILP Program 2020, after the vesting period and subject to compliance with all necessary requirements, is approximately 1,548,000 shares. The program’s grant date is April 1, 2020. The shares to be delivered by the Company to participants are those currently held in treasury or acquired through repurchase programs, and in the event said shares cannot be delivered, the Company will pay participants in cash the amount corresponding to the shares, based on the quote on the stock exchange on the second business day immediately prior to the respective payment date. |
| (c) | Braskem has been closely monitoring the impacts from the COVID-19 pandemic on its business and surrounding communities. As disclosed in the Notice to the Market dated March 20, 2020, Braskem has formed a crisis committee to establish global procedures focusing mainly on the health of people and the continuity of its operations. Some of the measures taken by the Company follow: |
| (i) | Recommending that all team members and contractors work from home; | | (ii) | Reducing by around 50% the number of team members and contractors working on its industrial assets, with operations using the smallest possible teams, while considering all rules for ensuring personal safety and maintaining operational reliability; | | (iii) | Recommending the suspension of visits by non-routine third parties and suppliers to Braskem’s facilities, and banning access to Braskem’s facilities by visitors or third parties returning from high risk areas; | | (iv) | Creating an agenda with clients and local communities to verify the products in its portfolio with a view to support the fight against the pandemic. |
(a)On January 30, 2019, Braskem receivedMoreover, in line with its primary value, Safety, the first installment of R$266 million relatedCompany started operating its industrial assets with minimal teams. Capacity utilization rates in Brazil and the United States were temporarily reduced to adjust for the onlending transactionweaker demand and the destocking trends in the petrochemical and plastics production chains. The capacityutilization rates will accompany market demand and any new export opportunities that arise in other regions, especially with the BNDESrestart of economies in the aggregate amount of R$476 million at an interest rate of 11.57% p.a. and with maturity on January 15, 2031, which was taken out on December 26, 2018.Asia. The Company will receive the remaining amounts by the end of fiscal year 2019.
(b)In2019 the courts issued a final and unappealable decisions on the lawsuit brought by Braskem S.A. and of merged companies, which determines the exclusion of ICMS tax from the calculation base of PIS/COFINS taxes and earliest period of the tax credit of these lawsuits is retroactive to the year 1991. Themain effects of these decisions were assessed by the Company which recognized in the first half of 2019 the amount of R$2,038,938 related to PIS and COFINS taxes of which R$1,850,965 was recorded under “Other income (expenses)” and R$187,973 under “Financial income”.were:
(c)On March 13, 2019, the Board of Directors approved the Long-Term Share Incentive Plan, in accordance with the terms and conditions of the ILP Plan approved by the Extraordinary Shareholders Meeting held at March 21, 2018, which includes the list of eligible persons, the deadline for acquiring own shares by participants and the number of restricted shares to be delivered to participants as matching contribution for each own share acquired.
The maximum number of shares the Company expects to deliver to the participants of the ILP Program 2019, after the vesting period and subject to compliance with all necessary requirements, is 573,345 shares. The shares to be delivered by the Company to participants of the ILP Program 2019 are those currently held in treasury or acquired through repurchase programs, and in the event said shares cannot be delivered, the Company will pay participants in cash the amount corresponding to the shares, based on the quote on the stock exchange on the second business day immediately prior to the respective payment date.
This plan will be accounted for in accordance with CPC 10 – Share-Based Payment and its corresponding standard IFRS 2, which requires the Company to calculate the value of equity instruments granted based on the fair value thereof on the grant date. The corresponding expense will be recognized by the accrual method over the vesting period for exercising the instruments.
(d)InApril 2019, the public-interest civil action was filed by the Alagoas State Prosecution Office and the Alagoas State Public Defender’s Office seeking the freezing of Braskem's assets to ensure the payment of any environmental and collective damages the Company may be ordered to pay due to its past mining activities in the city of Maceió.
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| Braskem S.A. Notes to the consolidated financial statements at December 31, 2019 All amounts in thousands, except as otherwise stated |
| · | Brazil: ethylene production reduced to approximately 65% of the total annual capacity of 3.6 million tons; | | · | United States: polypropylene production reduced to approximately 85% of the total annual capacity of 1.6 million tons. |
In this context, the Company has been adopting a series of cash-preservation measures to ensure the financial statements at December 31, 2018
All amounts in thousands, except as otherwise stated
The plaintiffs requested a provisional remedy to freeze Braskem’s assets in the amountsolidity and resilience of R$6.7 billion. The court’s A preliminary decision ordered the freezing of R$100 million in the Braskem’s bank accounts,its business, which already has been carried out.include:
After both parties filed Interlocutory Appeals, the Alagoas State Court of Appeals granted the appeal filed by the State Prosecution Office, ordering the suspension of the distribution of dividends to shareholders, under penalty of freezing R$2.7 billion. The decision was revised by a Suspension of Injunction and Order, through a decision of the presiding judge of the Superior Court of Justice (STJ), which authorized the decision involving the distribution of dividends conditioned to Braskem effectively issuing an insurance guarantee.
On June 26, 2019, the Alagoas State Prosecution Office and the Alagoas State Public Defender’s Office amended the action to change the boundaries of the claim, which involved excluding the alleged environmental damages and reducing the request for immediate freeze of assets to R$3.7 billion, which would correspond to the sum of the pecuniary damages caused to the residents of the districts affected by the geological event. Immediately thereafter, the presiding judge of the Alagoas State Court of Appeals issued, during a courthouse vacation, a decision ordering the freezing of R$3.7 billion.
On August 9, 2019, the decision of the presiding judge of the STJ lifted the freezing of cash, conditioned upon the effective presentation of a new insurance guarantee in the same amount by Braskem to the court.
| · | Drawing down the Revolving Credit Facility in the amount of US$1 billion (R$5.2 billion on March 31, 2020), which is due in 2023; | | · | Reducing fixed costs by around 10%; | | · | Paring back the investments planned for 2020 from US$721 million (R$3.7 billion) to approximately US$600 million (R$3.1 billion); | | · | Postponing the payment of social contribution charges in Brazil; and | | · | Optimizing working capital. |
The Company continuesalso highlights the actions carried out jointly with its clients and partner companies to collaborate withtransform chemicals and plastic resins into items that are essential for combatting COVID-19, which include surgical masks, packaging for liquid and gel alcohol, bleach and 3D printing of bands for protective face shields; donations of LPG to field hospitals; actions to support the authoritieschain of clients and suppliers, particularly small and midsized companies; and donations of hygiene kits and food staples to identify the environmental causes of damages, with the support of independent experts, and is committed to implementing solutions.local communities. (e)As perIn the notice dated July 25, 2019, Braskem was informedfirst quarter of 2020, the Brazilian real depreciated 29% against the U.S. dollar. The negative exchange variation will produce a cash effect upon maturity of the Public-Interest Civil Action filed against it byCompany’s liabilities, and as such is concentrated in the Labor Public Prosecutorlong term given the debt maturity profile and does not put at risk the liquidity position in context of the State of Alagoas ("MPT-AL"), with an injunctionefforts to freezecontain the amount of R$2.5 billion to guarantee payment of any pecuniary damages to workers affected by the geological phenomenon observed in Maceió. In said action, MPT-AL further claims the compensation of workers for pain and suffering.COVID-19 pandemic.
On October 10, 2019,Due to the Judgeuncertainties arising from the COVID-19 pandemic with regard to the global economy, it is not possible to accurately predict the adverse impacts on the equity and financial position of the 7th Labor Court of Maceió deny the preliminary injunctions filed by the MPT-AL.
The Company informs will keep the market informed of any material developments in the matter.
(f)As per the notice dated August 19, 2019, Braskem was informed that, in connection with the geological events in the State of Alagoas, the Company is aware of the filing of a Public-Interest Civil Action by the Federal Prosecution Office ("MPF") against the Company and other plaintiffs, withits subsidiaries after the reporting date. The following main claims for interlocutory relief: (i)areas are more susceptible to impacts resulting from COVID-19 pandemic given the accrual of an own private fundsignificant changes in the initial amount of R$3.075 billionrisks to which the company is exposed, among others: accounting estimates for the executionrealization of socialassets, including the estimates for losses on trade accounts receivables, inventory impairment loss, deferred tax assets and environmental programsother assets, or those related to the provision for liabilities.
| (d) | Naphtha Agreements with Petrobras |
In June 2020, Braskem entered into new agreements with Petrobras for the supply of petrochemical naphtha to Braskem's industrial units in Bahia and of emergency measures, and the maintenance in said fund of working capital in the amount of R$2 billion or,Rio Grande do Sul. The agreements, which term is around five years after the financial schedule is approved,expiration date of the current agreement, establish the supply of a minimum annual volume of 650 kton and, at the option of Petrobras, an amount equivalentadditional volume of up to 2.8 million tons per year, at the price of 100% of the expenses projected for the subsequent 12-month period; (ii) the presentation of guarantees in the amount of R$20.5 billion; (iii) a prohibition on the encumbrance or divestment of any of the Company's fixed assets and on the distribution of profits, whether in dividends, interest on equity or any other form; (iv) a court-ordered freeze of any profits not distributed; and (v) a suspension on financing from BNDES (state-owned bank) and government incentives, as well as acceleration of existing debts with BNDES. international reference ARA.
So far, there is no decision about the injunction requested.
The Company informs that it has taken all applicable measures within the legal periods and will keep the market informed of any relevant development in this matter.
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NotesIn addition, to guarantee access to the financial statements
at December 31, 2018
All amountsnaphtha logistics system in thousands, except as otherwise stated
(g)SinceRio Grande do Sul, Braskem also renewed the Company was not able to file Form 20-F, for the year ended December 31, 2017, until the date granted by SEC and no further extensions have been granted pursuant to Section 802.01E of the NYSE Listed Company Manual, on May 13, 2019, the New York Stock Exchange suspended trading of the Registrant's American Depositary Shares and had initiated delisting procedures.
The Company appealed the decision, whichis scheduled by the NYSE for October 17, 2019.
On October 7, 2019 the Company filed Form 20-F for the year ended December 31, 2017.
(h)As per the Material Fact notice dated June 4, 2019, Braskem was informed by Odebrecht of its decision taken jointlystorage agreement with LyondellBasell to terminate negotiations for a potential transaction involving the transfer to LyondellBasell of the entire interest held by Odebrecht in the capital of Braskem. Those negotiations were started on June 15, 2018.
(i)As per the Material Fact notice dated June 18, 2019, Braskem was informed that in view of the court-supervised reorganization filed by Odebrecht S.A. and other companies of the Odebrecht Group, including the controlling shareholder of the Company, OSP Investimentos S.A., the Company was informed that there has been no change whatsoever in the controlling interest held in Braskem, with the totality of the common and preferred shares in the Company held by OSP Investimentos S.A. in fiduciary assignment agreement to the creditors of Odebrecht.
The Company further informs that it has no relevant amounts receivable from Odebrecht and that the court-supervised reorganization does not trigger the early termination of any of its liabilities.
(j)In 2019, the Company reversed the provision for a controversial portion of the 2015 and 2016 CDE (energy development account) quota based on two consumer-friendly injunctions issued in 2018 and 2019 in the amount of R$223,340.
(k)OnOctober 3, 2019, the Extraordinary General Meeting approved: (i) the payment of the mandatory dividend, in the amount of R$667 million, to be paid until December 31, 2019; (ii) the capital budget for the fiscal year of 2019; and (iii) withheld by the Company, the remaining amount of the net profit, of R$2,002 million, pursuant to article 196 of the Brazilian Corporation Law.
(l)As of October 9, 2019, a Waivers & Consent package was approved by the Intercreditor Agent on behalf of the Lenders, thus extending the dates for achieving the Guaranteed Physical Completion Date of Braskem Idesa from November 30, 2016 to December 31, 2020Petrobras and the Guaranteed Financial Completion Date from December 31, 2016 to December 31, 2020.transport and storage agreement with Petrobras Transporte S.A.
The approval of the Waivers & Consent package allows Braskem Idesa to reclassify the Senior Debt from current to non-current liabilities.
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