SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16
OR 15D-16 OF THE SECURITIES EXCHANGE ACT OF 1934


For the month of February, 2015

(Commission File No. 1-14862 )

 

 
BRASKEM S.A.
(Exact Name as Specified in its Charter)
 
N/A
(Translation of registrant's name into English)
 


Rua Eteno, 1561, Polo Petroquimico de Camacari
Camacari, Bahia - CEP 42810-000 Brazil
(Address of principal executive offices)



Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F ___X___       Form 40-F ______

Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(1). _____

Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(7). _____

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes ______       No ___X___

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- _____.


 

 

PRESENTATION OF FINANCIAL STATEMENTS

 

Page

   

Management’s Report on Internal Controls Over Financial Reporting

 

Report of Independent Registered Public Accounting Firm

 

Consolidated Balance Sheets as of December 31, 2014 and 2013

1

Consolidated Statement of Operations for the years ended December 31, 2014, 2013 and 2012

3

Consolidated Statement of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012

4

Consolidated Statement of Changes in Equity for the years ended December 31, 2012 and 2013

5

Consolidated Statement of Changes in Equity for the year ended December 31, 2014

6

Consolidated Statement of Cash Flows for the years ended December 31, 2014, 2013 and 2012

7

Notes to the Consolidated Financial Statements

8

 

 

 

 

 


 

 

(a)  Management´s report on internal controls over financial reporting

  

The management of Braskem S.A.("Braskem" or the "Company"), including the CEO and CFO, is responsible for establishing and maintaining adequate internal controls over financial reporting, as defined on article 13a-15 (f) according “Exchange Act” of United States of America.

  

The 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 International Financial Reporting Standards - “IFRS” issued by International Accounting Standards Board - “IASB”. The Company´s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) 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 the effectiveness of internal control to future periods are 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.

Braskem’s management has assessed the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2014 based on the criteria established in Internal Control – “Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO” 2013) and, based on such criteria, Braskem´s management has concluded that, as of December 31, 2014, the Company´s internal control over financial reporting is effective.

  

(b)  Attestation report of the registered public accounting firm.

  

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2014 has been audited by PricewaterhouseCoopers Auditores Independentes, an independent registered public accounting firm, as stated in their report which appears herein.

  

  

February 12, 2015

  

  

      

   

By: /s/ Carlos José Fadigas de Souza Filho

 

/s/ Mario Augusto da Silva

Name: Carlos José Fadigas de Souza Filho

 

Name: Mario Augusto da Silva

Title: Chief Executive Officer

 

Title: Chief Financial Officer

 

 

 


 

 

 

Report of Independent Registered

Public Accounting Firm

 

 

To the Board of Directors and Shareholders of

Braskem  S.A.

 

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and comprehensive income, of shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of Braskem S.A. and its subsidiaries at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, 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 Report on Internal Control over Financial Reporting”.  Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  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 audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

 

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 (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) 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.

 

 

Salvador, February 12, 2015

 

 

 

/s/PricewaterhouseCoopers

Auditores Independentes

CRC 2SP000160/O-5 "F" BA

 

 

 

/s/Fábio Cajazeira Mendes

Contador CRC 1SP196825/O-0 “S BA


 

Braskem S.A.

 

Balance sheet at December 31

All amounts in thousands of reais                                                                                                                                                                                   

 

 

Assets

 

Note

 

2014

 

2013

     

2.1

     

Revised

Current assets

           
 

Cash and cash equivalents

 

5

 

3,993,359

 

4,335,859

 

Financial investments

 

6

 

89,729

 

86,719

 

Trade accounts receivable

 

7

 

2,692,612

 

2,810,520

 

Inventories

 

8

 

5,368,146

 

5,033,593

 

Taxes recoverable

 

10

 

2,129,837

 

2,237,213

 

Dividends and interest on capital

     

 

 

150

 

Prepaid expenses

     

99,469

 

62,997

 

Related parties

 

9

 

66,616

 

124,487

 

Insurance claims

 

16.2

 

33,555

 

34,101

 

Other receivables

 

 

 

287,876

 

233,808

         

 

 

 

     

 

 

14,761,199

 

14,959,447

     

 

       

Non-current assets held for sale

 

1(a)

 

 

 

37,681

               
     

 

 

14,761,199

 

14,997,128

               

Non-current assets

 

 

       
 

Financial investments

 

6

 

42,494

 

20,779

 

Trade accounts receivable

 

7

 

25,050

 

61,875

 

Advances to suppliers

 

8

 

68,988

 

116,714

 

Taxes recoverable

 

10

 

1,045,428

 

1,285,990

 

Deferred income tax and social contribution

 

19

 

870,206

 

1,123,313

 

Judicial deposits

 

 

 

230,945

 

209,910

 

Related parties

 

9

 

138,501

 

133,649

 

Insurance claims

 

 

 

143,932

 

139,497

 

Derivatives operations

 

16.2

 

39,350

 

137,345

 

Other receivables

 

 

 

91,905

 

141,526

 

Investments in subsidiaries and jointly-controlled investments

 

11

 

120,024

 

115,385

 

Other investments

 

 

 

6,511

 

6,501

 

Property, plant and equipment

 

12

 

29,001,490

 

25,413,548

 

Intangible assets

 

13

 

2,835,728

 

2,912,630

         

 

 

 

         

34,660,552

 

31,818,662

               

Total assets

     

49,421,751

 

46,815,790

        

 

The Management notes are an integral part of the financial statements.

 

1

 


 

Braskem S.A.

Balance sheet at December 31

All amounts in thousands of reais

Continued

 

 

Liabilities and shareholders' equity

 

Note

 

2014

 

2013

     

2.1

     

Revised

               

Current liabilities

           
 

Trade payables

     

10,852,410

 

10,421,687

 

Borrowings

 

14

 

1,418,542

 

1,248,804

 

Project finance

 

15

 

26,462

 

25,745

 

Derivatives operations

 

16.2

 

95,626

 

95,123

 

Payroll and related charges

 

 

 

533,373

 

490,816

 

Taxes payable

 

17

 

203,392

 

445,424

 

Dividends

 

 

 

215,888

 

131,799

 

Advances from customers

 

 

 

99,750

 

297,403

 

Sundry provisions

 

20

 

88,547

 

105,856

 

Post-employment benefits

 

21

 

336,357

 

158,137

 

Other payables

 

22

 

212,945

 

174,007

         

 

 

 

         

14,083,292

 

13,594,801

               

Non-current liabilities

           
 

Borrowings

 

14

 

18,918,021

 

17,353,687

 

Project finance

 

15

 

7,551,033

 

4,705,661

 

Derivatives operations

 

16.2

 

594,383

 

396,040

 

Taxes payable

 

17

 

30,699

 

902,875

 

Ethylene XXI Project Loan

 

18

 

792,188

 

370,420

 

Deferred income tax and social contribution

 

19

 

603,490

 

863,405

 

Post-employment benefits

 

21

 

69,176

 

44,054

 

Advances from customers

 

 

 

88,402

 

152,635

 

Sundry provisions

 

20

 

505,677

 

449,694

 

Other payables

 

22

 

291,040

 

301,184

         

 

 

 

         

29,444,109

 

25,539,655

               

Shareholders' equity

 

24

       
 

Capital

   

8,043,222

 

8,043,222

 

Capital reserve

   

232,430

 

232,430

 

Revenue reserves

   

736,180

 

410,149

 

Other comprehensive income

   

(2,924,057)

 

(1,092,691)

 

Treasury shares

   

(48,892)

 

(48,892)

       

 

 

 

 

Total attributable to the Company's shareholders

   

6,038,883

 

7,544,218

             
 

Non-controlling interest in Braskem Idesa

   

(144,533)

 

137,116

             

 

         

5,894,350

 

7,681,334

               

Total liabilities and shareholders' equity

     

49,421,751

 

46,815,790

                                                                

The Management notes are an integral part of the financial statements.

 

2

 


 

Braskem S.A.

 

Statement of operations

Years ended December 31

All amounts in thousands of reais, except earnings (loss) per share

 

     

Note

 

2014

 

2013

 

2012

     

 

           

Continued operations

 

26

           

Net sales revenue

     

46,031,389

 

40,969,490

 

36,160,327

 

Cost of products sold

 

 

 

(40,057,341)

 

(35,820,761)

 

(32,709,068)

     

 

         

 

Gross profit

 

 

 

5,974,048

 

5,148,729

 

3,451,259

     

 

         

 

Income (expenses)

 

 

         

 

 

Selling and distribution

 

30

 

(1,155,800)

 

(1,000,749)

 

(990,365)

 

General and administrative

 

30

 

(1,210,124)

 

(1,077,934)

 

(1,071,029)

 

Research and development

 

30

 

(138,441)

 

(115,812)

 

(106,197)

 

Results from equity investments

 

11(c)

 

3,929

 

(3,223)

 

(25,807)

 

Other operating income (expenses), net

 

28

 

95,596

 

(211,090)

 

333,457

     

 

         

 

Operating profit

 

 

 

3,569,208

 

2,739,921

 

1,591,318

     

 

         

 

Financial results

 

29

         

 

 

Financial expenses

 

 

 

(2,745,864)

 

(2,549,111)

 

(3,926,209)

 

Financial income

 

 

 

355,221

 

773,138

 

531,928

     

 

         

 

     

 

 

(2,390,643)

 

(1,775,973)

 

(3,394,281)

     

 

         

 

Profit (loss) before income tax and

 

 

         

 

social contribution

 

 

 

1,178,565

 

963,948

 

(1,802,963)

     

 

         

 

 

Current and deferred income tax and social contribution

 

19

 

(452,264)

 

(456,910)

 

783,111

     

 

 

(452,264)

 

(456,910)

 

783,111

     

 

         

 

Profit (loss) for the period of continued operations

 

 

 

726,301

 

507,038

 

(1,019,852)

     

 

         

 

Discontinued operations results

             

 

 

Profit from discontinued operations

 

 

 

 

 

 

 

424,860

 

Current and deferred income tax and social contribution

 

 

 

 

 

 

 

(143,313)

     

 

 

 

 

 

 

281,547

     

 

           

Profit (loss) for the year

 

 

 

726,301

 

507,038

 

(738,305)

     

 

           

Attributable to:

 

 

         

 

 

Company's shareholders

 

 

 

864,064

 

509,697

 

(731,143)

 

Non-controlling interest in Braskem Idesa

 

 

 

(137,763)

 

(2,659)

 

(7,162)

     

 

           

Profit (loss) for the year

 

 

 

726,301

 

507,038

 

(738,305)

 

 

                        The Management notes are an integral part of the financial statements.

 

3

 


 

Braskem S.A.

 

Statement of comprehensive income

Years ended December 31

All amounts in thousands of reais

 

     

Note

 

2014

 

2013

 

2012

                   
                   

Profit (loss) for the year

     

726,301

 

507,038

 

(738,305)

                   

Other comprehensive income or loss:

               

Items that will be reclassified subsequently to profit or loss

               
 

Fair value of cash flow hedge

     

(352,700)

 

(127,520)

 

16,238

 

Income tax and social contribution

     

116,532

 

40,120

 

(5,522)

         

(236,168)

 

(87,400)

 

10,716

                   
 

Exchange variation of foreign sales hedge

 

16.2.1(b.ii)

 

(2,775,852)

 

(2,303,540)

 

 

 

Income tax and social contribution

     

917,518

 

783,204

 

 

         

(1,858,334)

 

(1,520,336)

 

 

                   
 

Foreign currency translation adjustment

     

147,453

 

221,270

 

78,780

         

 

 

 

 

 

 

Total

     

(1,947,049)

 

(1,386,466)

 

89,496

                   

Items that will not be reclassified to profit or loss

               
 

Defined benefit plan actuarial (loss) gain

     

 

 

169

 

(18,204)

 

Income tax and social contribution

     

 

 

 

 

6,388

                   
 

Total

     

 

 

169

 

(11,816)

                   
         

(1,947,049)

 

(1,386,297)

 

77,680

                   

Total comprehensive income (loss) for the year

     

(1,220,748)

 

(879,259)

 

(660,625)

                   

Attributable to:

               
 

Company's shareholders - continued operations

     

(939,099)

 

(890,241)

 

(952,128)

 

Company's shareholders - discontinued operations

     

 

     

281,547

 

Non-controlling interest in Braskem Idesa

     

(281,649)

 

10,982

 

9,956

         

 

 

 

 

 

Total comprehensive income (loss) for the year

     

(1,220,748)

 

(879,259)

 

(660,625)

                   
                   
         

Basic and diluted

     

Note

 

2014

 

2013

 

2012

                   

Profit (loss) per share attributable to the shareholders of the Company

               

of continued operations at the end of the year (R$)

 

25

           
 

Earnings per share - common

 

 

 

1.0857

 

0.6403

 

(1.2718)

 

Earnings per share - preferred shares class "A"

 

 

 

1.0857

 

0.6403

 

(1.2718)

 

Earnings per share - preferred shares class "B"

     

0.6062

 

0.6062

 

 

     

 

           

Profit (loss) per share attributable to the shareholders of the Company

 

 

           

of discontinued operations at the end of the year (R$)

               
 

Earnings per share - common

             

0.3536

 

Earnings per share - preferred shares class "A"

     

 

 

 

 

0.3536

                   

Profit (loss) per share attributable to the shareholders of the Company

               

at the end of the year (R$)

               
 

Earnings per share - common

     

1.0857

 

0.6403

 

(0.9182)

 

Earnings per share - preferred shares class "A"

     

1.0857

 

0.6403

 

(0.9182)

 

Earnings per share - preferred shares class "B"

     

0.6062

 

0.6062

 

 

 

 

 

 

The Management notes are an integral part of the financial statements.

4

 


 

Braskem S.A.

 

Statement of changes in equity

All amounts in thousands of reais

 

 

     

Attributed to shareholders' interest

       
             

Revenue reserves

             

Total

       
                     

Unrealized

     

Additional

 

Other

         

Braskem

 

Non-controlling

 

Total

         

Capital

 

Legal

 

Tax

 

profit

 

Retained

 

dividends

 

comprehensive

 

Treasury

 

Accumulated

 

shareholders'

 

interest in

 

shareholders'

 

Note

 

Capital

 

reserve

 

reserve

 

incentives

 

reserve

 

earnings

 

proposed

 

income

 

shares

 

loss

 

interest

 

Braskem Idesa

 

equity

                                                       

At December 31, 2011

   

8,043,222

 

845,998

 

87,710

 

4,547

 

16,457

 

  

 

482,593

 

315,586

 

(60,217)

 

28,692

 

9,764,588

 

215,322

 

9,979,910

 

 

                                                   

Comprehensive income for the year:

                                                   

Loss for the year

       

 

   

(731,143)

 

(731,143)

 

(7,162)

 

(738,305)

Fair value of cash flow hedge, net of taxes

       

10,716

   

 

 

10,716

 

 

 

10,716

Foreign currency translation adjustment

 

  

                 

61,662

     

  

 

61,662

 

17,118

 

78,780

                       

72,378

     

(731,143)

 

(658,765)

 

9,956

 

(648,809)

                               

Equity valuation adjustments

                           

 

Realization of deemed cost of jointly-controlled investment, net of taxes

       

(952)

   

952

 

Realization of additional property, plant and equipment price-level restatement, net of taxes

       

(27,236)

   

27,236

 

Actuarial loss with post-employment benefits, net of taxes

                     

(11,816)

     

  

 

(11,816)

 

  

 

(11,816)

                              

(40,004)

     

28,188

 

(11,816)

 

 

 

(11,816)

                                   

Contributions and distributions to shareholders:

                               

Additional dividends approved at Shareholders’ Meeting

     

(482,593)

       

(482,593)

 

 

 

(482,593)

Capital loss from non-controlling interest in Braskem Idesa

             

 

 

(17,962)

 

(17,962)

Write-off non-controlling by investments sale

             

 

 

(125,420)

 

(125,420)

Loss on interest in subsidiary

       

(5,917)

     

(5,917)

 

5,917

 

 

Write-off gain on interest in subsidiary by sale

       

(4,632)

     

(4,632)

   

(4,632)

Repurchase of treasury shares

         

(36,694)

   

(36,694)

   

(36,694)

Cancellation of shares

   

(48,019)

 

 

 

 

 

 

       

48,019

   

 

   

Absorption of losses

     

  

 

(87,710)

 

(4,547)

 

(16,457)

     

  

     

  

 

108,714

 

  

       
        

(48,019)

 

(87,710)

 

(4,547)

 

(16,457)

     

(482,593)

 

(10,549)

 

11,325

 

108,714

 

(529,836)

 

(137,465)

 

(667,301)

                                                       

At December 31, 2012

   

8,043,222

 

797,979

 

  

 

  

 

  

 

  

 

  

 

337,411

 

(48,892)

 

(565,549)

 

8,564,171

 

87,813

 

8,651,984

                                                                  

Comprehensive income for the year:

                                                   

Profit for the year

   

 

   

509,697

 

509,697

 

(2,659)

 

507,038

Exchange variation of foreign sales hedge, net of taxes

   

(1,520,336)

     

(1,520,336)

 

 

 

(1,520,336)

Fair value of cash flow hedge, net of taxes

   

(85,020)

     

(85,020)

 

(2,380)

 

(87,400)

Foreign currency translation adjustment

                 

205,249

      

  

 

205,249

 

16,021

 

221,270

                   

(1,400,107)

     

509,697

 

(890,410)

 

10,982

 

(879,428)

                           

Equity valuation adjustments

                         

Realization of deemed cost of jointly-controlled investment, net of taxes

   

(27,236)

 

 

 

27,236

     

 

Realization of additional property, plant and equipment price-level restatement, net of taxes

   

(967)

   

967

     

 

Actuarial loss with post-employment benefits, net of taxes

                 

169

            

  

 

169

      

169

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,034)

          

28,203

 

169

      

169

                                                     

Contributions and distributions to shareholders:

                                                   

Absorption of losses

   

(565,549)

 

 

         

565,549

   

 

 

 

Capital loss from non-controlling interest in Braskem Idesa

     

 

             

38,321

 

38,321

Loss on interest in subsidiary

     

 

       

(1,961)

     

(1,961)

   

(1,961)

Legal reserve

     

26,895

           

(26,895)

 

 

   

 

Mandatory minimum dividends

     

 

           

(127,751)

 

(127,751)

   

(127,751)

Additional dividends proposed

     

 

     

354,842

     

(354,842)

     

Retained earnings

         

  

       

28,412

 

  

          

(28,412)

           
       

(565,549)

 

26,895

       

28,412

 

354,842

 

(1,961)

     

27,649

 

(129,712)

 

38,321

 

(91,391)

                                                     

At December 31, 2013

 

8,043,222

 

232,430

 

26,895

       

28,412

 

354,842

 

(1,092,691)

 

(48,892)

 

  

 

7,544,218

 

137,116

 

7,681,334

 

 

5

 


 

Braskem S.A.

 

Statement of changes in equity

All amounts in thousands of reais

 Continued

 
     

Attributed to shareholders' interest

       
             

Revenue reserves

             

Total

       
                     

Unrealized

     

Additional

 

Other

         

Braskem

 

Non-controlling

 

Total

         

Capital

 

Legal

 

Tax

 

profit

 

Retained

 

dividends

 

comprehensive

 

Treasury

 

Accumulated

 

shareholders'

 

interest in

 

shareholders'

 

Note

 

Capital

 

reserve

 

reserve

 

incentives

 

reserve

 

earnings

 

proposed

 

income

 

shares

 

loss

 

interest

 

Braskem Idesa

 

equity

At December 31, 2013

 

 

8,043,222

 

232,430

 

26,895

 

 

 

 

 

28,412

 

354,842

 

(1,092,691)

 

(48,892)

 

 

 

7,544,218

 

137,116

 

7,681,334

                                                       

Comprehensive income for the year:

                                                     

Profit for the year

   

 

 

 

 

 

         

 

 

 

 

 

 

 

 

864,064

 

864,064

 

(137,763)

 

726,301

Exchange variation of foreign sales hedge, net of taxes

   

 

 

 

 

 

         

 

 

 

 

(1,743,396)

 

 

 

 

 

(1,743,396)

 

(114,938)

 

(1,858,334)

Fair value of cash flow hedge, net of taxes

   

 

 

 

 

 

         

 

 

 

 

(204,647)

 

 

 

 

 

(204,647)

 

(31,521)

 

(236,168)

Foreign currency translation adjustment

   

 

 

 

 

 

         

 

 

 

 

144,880

 

 

 

 

 

144,880

 

2,573

 

147,453

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,803,163)

 

 

 

864,064

 

(939,099)

 

(281,649)

 

(1,220,748)

                                                       

Equity valuation adjustments

                                                     

Realization of additional property, plant and equipment price-level restatement, net of taxes

   

 

 

 

 

 

         

 

 

 

 

(27,238)

 

 

 

27,238

 

 

 

 

 

 

Realization of deemed cost of jointly-controlled investment, net of taxes

   

 

 

 

 

 

         

 

 

 

 

(965)

 

 

 

965

 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,203)

 

 

 

28,203

 

 

 

 

 

 

                                                       

Contributions and distributions to shareholders:

                                                     

Prescribed dividends

   

 

 

 

 

 

         

 

 

 

 

 

 

 

 

682

 

682

 

 

 

682

Additional dividends approved by the General Meeting

24(e.1)

 

 

 

 

 

 

         

 

 

(354,842)

 

 

 

 

 

 

 

(354,842)

 

 

 

(354,842)

Legal reserve

24(e.1)

 

 

 

 

 

44,647

         

 

 

 

 

 

 

 

 

(44,647)

 

 

 

 

 

 

Mandatory minimum dividends

24(e.1)

 

 

 

 

 

 

         

 

 

 

 

 

 

 

 

(212,076)

 

(212,076)

 

 

 

(212,076)

Additional dividends proposed

24(e.1)

 

 

 

 

 

 

         

 

 

270,517

 

 

 

 

 

(270,517)

 

 

 

 

 

 

Retained earnings

24(e.1)

 

 

 

 

 

 

         

365,709

 

 

 

 

 

 

 

(365,709)

 

 

 

 

 

 

     

 

 

 

 

44,647

 

 

 

 

 

365,709

 

(84,325)

 

 

 

 

 

(892,267)

 

(566,236)

 

 

 

(566,236)

                                                       

At December 31, 2014

   

8,043,222

 

232,430

 

71,542

 

 

 

 

 

394,121

 

270,517

 

(2,924,057)

 

(48,892)

 

 

 

6,038,883

 

(144,533)

 

5,894,350

 

The Management notes are an integral part of the financial statements.

 

6

 


 

Braskem S.A.

 

Statement of cash flows

Years ended December 31

All amounts in thousands of reais

 

 

   

Note

 

2014

 

2013

 

2012

                 

Profit (loss) before income tax and social contribution

             
 

and after of discontinued operations results

   

1,178,565

 

963,948

 

(1,378,103)

                 

Adjustments for reconciliation of profit (loss)

             
 

Depreciation, amortization and depletion

   

2,056,362

 

2,056,088

 

1,924,265

 

Results from equity investments

11(c)

 

(3,929)

 

3,223

 

25,807

 

Interest and monetary and exchange variations, net

   

2,183,896

 

1,341,770

 

2,442,973

 

Gain from divestment in subsidiary

28

 

(277,338)

 

 

   
 

Other

   

9,805

 

9,175

 

294,199

       

 

 

 

 

 

       

5,147,361

 

4,374,204

 

3,309,141

                 

Changes in operating working capital

             
 

Held-for-trading financial investments

   

(19,057)

 

97,693

 

16,716

 

Trade accounts receivable

   

144,087

 

(492,851)

 

(625,130)

 

Inventories

   

(270,351)

 

(927,435)

 

(566,025)

 

Taxes recoverable

   

486,082

 

(448,378)

 

(458,763)

 

Prepaid expenses

   

(36,472)

 

(8,915)

 

49,707

 

Other receivables

   

27,832

 

(27,019)

 

(529,103)

 

Trade payables

   

(419,476)

 

742,649

 

2,165,530

 

Taxes payable

   

(539,262)

 

(127,443)

 

(430,789)

 

Advances from customers

   

(261,886)

 

6,344

 

206,044

 

Sundry provisions

   

38,674

 

139,858

 

94,382

 

Other payables

   

677,071

 

307,603

 

384,224

       

 

 

 

 

 

Cash from operations

   

4,974,603

 

3,636,310

 

3,615,934

                 
 

Interest paid

   

(1,044,593)

 

(1,123,691)

 

(1,006,840)

 

Income tax and social contribution paid

   

(138,144)

 

(54,828)

 

(37,283)

       

 

 

 

 

 

Net cash generated by operating activities

   

3,791,866

 

2,457,791

 

2,571,811

                 

Proceeds from the sale of fixed assets

   

10,646

 

2,576

 

115,846

Proceeds from the sale of investments

1(a)

 

315,000

 

689,868

 

 

Cash effect of discontinued operations

   

-  

 

9,985

 

(141,348)

Acquisitions of investments in subsidiaries and associates

   

(55)

 

(86)

 

 

Acquisitions to property, plant and equipment

12(a)

 

(5,301,778)

 

(5,656,440)

 

(2,792,853)

Acquisitions of intangible assets

13

 

(30,269)

 

(25,748)

 

(15,734)

Held-for-maturity financial investments

   

29,380

 

25,645

 

(218)

       

 

 

 

 

 

Net cash used in investing activities

   

(4,977,076)

 

(4,954,200)

 

(2,834,307)

                 

Short-term and long-term debt

             
 

Obtained borrowings

   

6,174,678

 

6,317,022

 

6,665,938

 

Payment of borrowings

   

(6,692,638)

 

(7,300,718)

 

(5,493,015)

Project finance

15

         

 

 

Obtained funds

   

1,894,507

 

4,562,343

 

 

Dividends paid

   

(482,147)

 

(35)

 

(482,051)

Non-controlling interests in Braskem Idesa

   

-  

 

35,628

 

(20,295)

Repurchase of treasury shares

   

 

 

 

 

(36,694)

       

 

 

 

 

 

Net cash provided by financing activities

   

894,400

 

3,614,240

 

633,883

                 

Exchange variation on cash of foreign subsidiaries

   

(51,690)

 

(69,594)

 

(36,037)

       

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

   

(342,500)

 

1,048,237

 

335,350

                 

Represented by

             
 

Cash and cash equivalents at the beginning for the year

   

4,335,859

 

3,287,622

 

2,952,272

 

Cash and cash equivalents at the end for the year

   

3,993,359

 

4,335,859

 

3,287,622

       

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

   

(342,500)

 

1,048,237

 

335,350

 

    

The Management notes are an integral part of the financial statements.

7

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

1                    Operations

 

Braskem S.A. together with its subsidiaries (hereinafter “Braskem” or “Company”) is a public company headquartered in Camaçari, Bahia (“BA”), which jointly with its subsidiaries, operates 36 industrial units, 29 of which in the Brazilian states of Alagoas (“AL”), BA, Rio de Janeiro (“RJ”), Rio Grande do Sul (“RS”) and São Paulo (“SP”), five are located in the United States, in the states of Pennsylvania, Texas and West Virginia and two are located in Germany, in the cities Wesseling and Schkopau. These units produce thermoplastic resins – polyethylene (“PE”), polypropylene (“PP”) and polyvinyl chloride (“PVC”), as well as basic petrochemicals.

 

Additionally, Braskem is also engaged in the 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 a partner or as shareholder.

 

The 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 issue of these financial statements was authorized by the Company’s Board of Directors on February 11, 2015.

 

(a)               Significant corporate and operating events impacting these financial statements

 

On December 31, 2013, the Company entered into a share sales agreement with Odebrecht Ambiental (“OA”), through which it sold its interest in the subsidiary Distribuidora de Águas Triunfo S.A. (“DAT”) for R$315 million, which were received over the course of the second quarter of 2014. The assets of DAT were shown in the balance sheet of December 31, 2013 as “non-current assets held for sale.” The sale price agreed upon by the parties was evaluated by a specialized company, which issued a favorable opinion of the price.

 

On February 3, 2014, the Extraordinary Shareholders’ Meeting of DAT approved the change in its management and consequently the transfer of the management of the operations from Braskem to OA, upon the recognition of a gain of R$277,338 (Note 28).

 

(b)               Solvay Indupa

 

On December 17, 2013, the Company entered into a share sales agreement (“Agreement”) with Solvay Argentina S.A. (“Solvay Argentina”), through which it committed to acquire, upon the fulfillment of certain conditions provided for in the Agreement ("Acquisition"), 70.59% of the total and voting capital of Solvay Indupa S.A.I.C. (“Solvay Indupa”). On November 12, Brazil’s antitrust agency Conselho Administrativo de Defesa Econômica (“CADE”) rejected the transaction.

 

(c)               Naphtha agreement with Petrobras

 

On August 29, 2014, Braskem and Petrobras executed a new amendment to the naphtha supply agreement dated July 24, 2009. The amendment is valid through February 2015 and maintained the formula for determining the naphtha price provided for in said agreement. The amendment also established that if a new price formula is adopted in a new agreement, it would be applied to the purchases made during the period in which the amendment was valid. As of the date on which the issue of these financial statements was authorized, Braskem and Petrobras had not concluded their negotiations of a new agreement.

 

 

8

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

2                    Summary of significant accounting policies

 

The principal accounting policies applied consistently in the preparation of these financial statements are described in the notes of the items on which they have impacts.

 

2.1              Basis of preparation and presentation of the financial statements

 

The financial statements have been prepared under the historical cost convention and were adjusted, when necessary, to reflect the fair value of assets and liabilities.

 

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.

 

The Company started to include in its balance sheet the net value, per legal entity, of the amounts related to deferred income and social contribution tax assets and liabilities on its profit, due to due legal right of each entity to offset these amounts. The balance sheet at December 31, 2013 was revised to reflect such adjustment, as shown below:

 

     

 

 

 

 

2013

Balance sheet

     

Revised

   
     

Published

 

effects

 

Revised

Assets

           
 

Current

 

14,997,128

 

 

 

14,997,128

               
 

Non-current

           
 

Deferred income tax and social contribution

 

2,653,606

 

(1,530,293)

 

1,123,313

 

Other non-current assets

 

30,695,349

 

 

 

30,695,349

     

33,348,955

 

(1,530,293)

 

31,818,662

               

Total assets

 

48,346,083

 

(1,530,293)

 

46,815,790

               

Liabilities and equity

           
 

Current

 

13,594,801

 

 

 

13,594,801

               
 

Non-current

           
 

Deferred income tax and social contribution

 

2,393,698

 

(1,530,293)

 

863,405

 

Other liabilities

 

24,676,250

 

 

 

24,676,250

     

27,069,948

 

(1,530,293)

 

25,539,655

               
 

Equity

 

7,681,334

 

 

 

7,681,334

               

Total liabilities and equity

 

48,346,083

 

(1,530,293)

 

46,815,790

 

 

9

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

2.1.1        Consolidated 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”.

 

(a)               Consolidation

 

The consolidated financial statements comprise the financial statements of the Braskem S.A. and the following entities:

 

         

Total interest - %

                       
         

Headquarters

 

2014

 

2013

 

2012

Direct and Indirect subsidiaries

                   

Alclor Química de Alagoas Ltda ("Alclor")

     

Brazil

 

100.00

 

100.00

 

100.00

Braskem America Finance Company ("Braskem America Finance")

     

USA

 

100.00

 

100.00

 

100.00

Braskem America, Inc. (“Braskem America”)

     

USA

 

100.00

 

100.00

 

100.00

Braskem Argentina S.A. (“Braskem Argentina”)

     

Argentina

 

100.00

 

100.00

 

100.00

Braskem International GmbH ("Braskem Austria")

     

Austria

 

100.00

 

100.00

 

100.00

Braskem Austria Finance GmbH ("Braskem Austria Finance")

     

Austria

 

100.00

 

100.00

 

100.00

Braskem Chile Ltda. ("Braskem Chile")

     

Chile

 

100.00

 

100.00

 

100.00

Braskem Europe GmbH ("Braskem Alemanha")

     

Germany

 

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")

     

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 Importação e Exportação Ltda. ("Braskem Importação")

     

Brazil

 

100.00

 

100.00

 

100.00

Braskem Incoporated Limited ("Braskem Inc")

     

Cayman Islands

 

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")

     

Mexico

 

100.00

 

100.00

   

Braskem Netherlands B.V (“Braskem Holanda”)

     

Netherlands

 

100.00

 

100.00

 

100.00

Braskem Participações S.A. ("Braskem Participações")

     

Brazil

 

100.00

 

100.00

 

100.00

Braskem Petroquímica Chile Ltda. (“Petroquímica Chile”)

     

Chile

 

100.00

 

100.00

 

100.00

Braskem Petroquímica Ibérica, S.L. ("Braskem Espanha")

     

Spain

 

100.00

 

100.00

 

100.00

Braskem Petroquímica Ltda ("Braskem Petroquímica")

     

Brazil

 

100.00

 

100.00

 

100.00

Braskem Qpar S.A.

 

(i)

 

Brazil

 

 

 

100.00

 

100.00

Common Industries LTD. ("Common")

 

(ii)

 

Uruguay

 

 

 

100.00

 

100.00

DAT

 

(iii)

 

Brazil

 

 

 

100.00

   

IQ Soluções e Química S.A. ("Quantiq")

     

Brazil

 

100.00

 

100.00

 

100.00

IQAG Armazéns Gerais Ltda ("IQAG")

     

Brazil

 

100.00

 

100.00

 

100.00

Lantana Trading Co. Inc. (“Lantana”)

     

Bahamas

 

100.00

 

100.00

 

100.00

Norfolk Trading S.A. (“Norfolk”)

     

Uruguay

 

100.00

 

100.00

 

100.00

Politeno Empreendimentos Ltda. (“Politeno Empreendimentos”)

     

Brazil

 

100.00

 

100.00

 

100.00

Rio Polímeros S.A. ("Riopol")

     

Brazil

         

100.00

                       

Specific Purpose Entity ("SPE")

                   

Fundo de Investimento Multimercado Crédito Privado Sol (“FIM Sol”)

   

Brazil

 

100.00

 

100.00

 

100.00

 

 

 

 

 

 

           

 

(i)         Merged into the parent company in December 2014 (Note 1(a.ii)).

(ii)        Dissolved in September 2014.

(iii)      Divested in 2014 (Note 1(a.i)).

 

 

 

 

10

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(a.i)     Foreign currency translation

 

(a)               Functional and presentation currency

 

The functional and presentation currency of the Company is the real.

 

(b)               Functional currency other than the Brazilian real

 

Some subsidiaries and a jointly controlled subsidiary have a different functional currency from that of the Braskem S.A., as follows:

 

     

Functional currency

       

Subsidiaries

   
 

Braskem Alemanha, Braskem Austria e Braskem Austria Finance

 

Euro

 

Braskem America e Braskem America Finance

 

U.S.dollar

 

Braskem Idesa , Braskem Idesa Serviços, Braskem México e Braskem México Serviços

 

Mexican peso

       

Jointly-controlled investments

   
 

Propileno Del Sur S.A. ("Propilsur")

 

U.S.dollar

 

 

 

The other subsidiaries adopt the Brazilian real as functional currency.

 

(c)               Exchange variation effects

 

The main effects from exchange variation that impacted these financial statements are shown below:

 

 

End of period rate at December 31

 

Average rate

 

2014

 

2013

 

Variation

 

2014

 

2013

 

Variation

U.S. dollar - Brazilizan real

2.6562

 

2.3426

 

13.39%

 

2.3547

 

2.1605

 

8.99%

U.S. dollar - Mexican peso

14.7180

 

13.1005

 

12.35%

 

13.3113

 

12.7692

 

4.24%

U.S. dollar - Euro

0.8231

 

0.7261

 

13.37%

 

0.7545

 

0.7532

 

0.17%

 

 

2.2              New or revised pronouncements with first-time adoption in 2014

 

IFRS 10, IFRS 12 and IAS 27 – "Investment Entities" – Braskem does not have this type of investment.

 

IFRS 8 – “Segment Information” – in December 2013, the International Accounting Standards Board (IASB) issued a review that introduced two changes, namely: aggregations of operating segments and reconciliation of total reportable assets with the total assets of the Company. The adoption of these changes to the rule did not have any impact on these financial statements. 

 

IFRS 13 – “Fair value measurement” – in December 2013, a revision of this rule was issued that removed the paragraph addressing the measurement of short-term assets and liabilities without embedded interest rates reported by the invoiced amounts. The adoption did not have any impact on these financial statements.

 

IAS 24 – “Related parties” – in December 2013, as part of the review, the IASB revised the definition and the requirements for the disclosure of key managers. The adoption did not have any impact on these financial statements.

 

11

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

IAS 38 – “Intangible assets” – in December 2013, the IASB issued a review clarifying the accumulated amortization at the date of a revaluation. This change is not applicable to Braskem.

 

IAS 32 – “Financial Instruments: Presentation” – in December 2011, the IASB issued a review providing further clarification to the application guidance in IAS 32 on the requirement to offset financial assets and liabilities in the balance sheet. The adoption did not have any impact on these financial statements.

 

IFRIC 21 – “Levies” – in May 2013, the IASB issued an interpretation regarding the fees and taxes charged by public authorities on entities that operate in a specific market. The adoption of this rule did not have any impact on these financial statements.

 

2.3              Rules, changes and interpretations of standards that are not yet in force

 

Rules, changes and interpretations of standards that currently are not in force and have not been adopted early by the Company:

 

IAS 16 and IAS 38 – “Property, plant and equipment” and “Intangible assets” – in May 2014, said accounting rules were revised to clarify the prohibition of the use of revenue-based methods for depreciation or amortization. The Company conducted an evaluation of the changes, which did not have any impacts on the financial statements.

 

IFRS 10 and IAS 28 – “Consolidated financial statements” and “Investments in Associates, Subsidiaries and Jointly Controlled Entities” – in September 2014, a revision was issued proposing that gains or losses resulting from the sale or contribution of a subsidiary that does not constitute a business, as defined in IFRS 3, between an investor and its subsidiary or jointly-controlled company is recognized only in the share of the unrelated investors in the subsidiary or jointly-controlled companies.

 

IFRS 7 – “Financial Instruments: Disclosures” – in September 2014, the IASB revised rule IFRS 7, which adds additional guidance for servicing contracts to decide when said contract represents continuing involvement and that the additional disclosure requirements are not specifically for interim periods.

 

IFRS 9 – “Financial instruments” – in July 2014, a review of the rule introduced the classification and measurement, impairment and hedge accounting in a single document, following a single measurement and classification logic, reflecting a business model in which these are managed and the characteristics of cash flows. The concept of provisioning for losses based on future expectations recognition of the impairment of financial assets, will be at a more opportune moment.

 

IFRS 15 – “Revenue from contracts with customers” – in May 2014, the accounting standard for the recognition of revenue from contracts with customers was issued. The Company conducted an evaluation of the standard, believes that this did not have any impacts on the financial statements.  

 

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 that are presented in the respective notes, such as allowance for doubtful accounts, fair-value adjustment of inventories and provision for repairing environmental damage.

12

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

 

In order 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:

 

3.1              Deferred income tax and social contribution

 

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 annualy submitted for approval by the Board of Directors. This plan is prepared by the Executive Board using as main variables the price of the products manufactured by the Company, prices of raw materials, gross domestic product, exchange variation, interest rate, inflation rate and fluctuations in the supply and demand of inputs and finished products. These variables are obtained from expert external consultants, historical performance of the Company and its capacity to generate taxable income, internal programs focused on operational efficiency, and specific incentives from the Brazilian government for the petrochemical sector in Brazil.

 

3.2              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 high volatility of the foreign exchange and interest rate markets in Brazil caused, in certain periods, 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.

 

3.3              Useful life of assets

 

The Company recognizes the depreciation and depletion of its long-lived assets based on their useful life estimated by independent appraisers and approved by the Company’s technicians taking into consideration the experience of these professionals in the management of Braskem’s plants. The useful lives initially established by independent appraisers are reviewed at the end of every year by the Company’s technicians in order to check whether they need to be changed. This analysis indicated that the useful lives applied in 2014 should be maintained in 2015.

 

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.

 

 

13

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

The useful lives applied to the assets determined the following average depreciation and depletion rates:

 

 

(%)

 

2014

 

2013

Buildings and improvements

3.38

 

3.42

Machinery, equipment and installations

7.29

 

7.23

Mines and wells

8.83

 

8.96

Furniture and fixtures

10.82

 

10.28

IT equipment

20.15

 

21.21

Lab equipment

9.59

 

9.30

Security equipment

9.79

 

9.83

Vehicles

19.91

 

20.02

Other

18.19

 

15.86

 

 

3.4              Impairment test and analysis

 

(a)               Tangible and intangible assets with defined useful lives

 

On the balance sheet date, the Company makes an analysis to determine if there is indicators that the accounting blance of long-lived tangible assets and intangible assets with defined useful lives may not be recoverable. This analysis is conducted to assess the likelihood of scenarios that could adversely affect its cash flow and the recovering on the invested assets. The scenarios arise from issues of a macroeconomic, legal, competitive or technological nature.

 

Some significant aspects of 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 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 more strategic vision of the business and also remains in permanent contact with a team of external consultants. If the aforementioned variables indicate significant risks to cash flows, the Management of Braskem conducts impairment tests in accordance with Note 3.4(b).

 

The assets are allocated to the Cash Generating Units (“CGU”) as follows:

 

Basic petrochemicals operating segment:

 

·           CGU UNIB Bahia: represented by assets of the basic petrochemicals plants located in the state of Bahia;

·           CGU UNIB South: represented by assets of the basic petrochemicals plants located in the state of Rio Grande do Sul;

·           CGU UNIB Southeast: represented by assets of the basic petrochemicals plants located in the states of Rio de Janeiro and São Paulo;

 

 

14

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

Polyolefins operating segment:

 

·           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 Green PE plant located in Brazil;

 

Vinyls operating segment:

 

·           CGU Vinyls: represented by assets of PVC plants and chloride soda located in Brazil;

 

USA and Europe operating segment:

 

·           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 the Europe;

 

Chemical Distribution operating segment:

 

·           represented by assets of the subsidiaries Quantiq and IQAG.

 

(b)               Intangible assets with indefinite useful lives

 

The balances of goodwill from future profitability arising from business combinations and intangible assets with indefinite useful lives are tested for impairment once a year. These tests are based on the projected cash generation for a five-year period, which are extracted from the business plan of the Company and cited in Note 3.1. In addition to cash flow is also used discount rate based on the weighted average cost of capital (“WACC”). This rate, adjusted for inflation, is the rate to perpetuity, without real growth.

 

The goodwill allocated to the Polyolefins operating segment (Note 13) 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 allowed for the obtainment of 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 in the operating segment since the benefits of the synergies are associated with all units acquired.

 

The remaining existing goodwill is allocated to the UNIB South CGU and to the Vinyls operating segment (Note 13).

 

3.5              Provisions and contingent liabilities

 

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)       labor claims – the amount of the provision corresponds to the amount to be disbursed as estimated by the Company’s legal counsels;

 

15

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

 

(ii)     tax claims - the amount of the provision corresponds to the value of the matter plus charges corresponding to the variation in the Selic rate; and

 

(iii)   other claims – the amount of the provision corresponds to the value of the matter.

 

Possible loss – these are proceedings for which the possibility of loss is greater than remote. 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 of business combinations, the Company does not recognize a provision and mentions the most significant ones in a note to the financial statements (Note 23). 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 (Note 20). 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, as determined by our external counsels.

 

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.

 

3.6              Hedge accounting

 

The Company designated foreign-denominated liabilities (financing and trade accounts payable) to hedge future exports. The transaction involves two main critical estimates and judgments: sales and the refinancing, rollover or substitution of the designated liabilities. In the case of exports, these are provided for in the business plan of the Company (Note 3.1), since constitute part of its strategy and are inherent to its business. This is confirmed by the historical data series for exports. In the case of liabilities, the Company imports around 30% of the naphtha it consumes and has in the export market a permanent source for financing its projects to expand and maintain its production capacity. The maintenance of a minimum level of net liabilities in U.S. dollar is provided for in the Financial Policy of the Company.

 

Braskem Idesa designated all of the financing it obtained 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 are contemplated in the project that was presented to the lenders, which verified the consistency of the projection and in turn granted Braskem Idesa a financing line to be paid exclusively using the cash 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.

 

4                    Risk management

 

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 approved by the Board of Directors on August 9, 2010. The purpose of risk management is to protect the cash flows of Braskem and reduce the threats to the financing of its operating working capital and investment programs.

 

16

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

4.1              Market risks

 

Braskem prepares a sensitivity analysis for foreign exchange rate and interest rate risks to which it is exposed, which is presented in Note 16.4.

 

(a)               Exposure to commodity risks

 

Braskem is exposed to the variation in the prices of various commodities (naphta, PP, PE, PVC, etc.) and, in general, seeks to transfer the variations caused by fluctuations in market prices.

 

(b)               Exposure to foreign exchange risk

 

Braskem has commercial operations denominated in or pegged to foreign currencies. Braskem’s inputs and products have prices denominated in or strongly influenced by international prices of commodities, which are usually denominated in U.S. dollar. Additionally, Braskem has long-term loans in foreign currencies that expose it to variations in the foreign exchange rate between the functional currency (Brazilian real, Mexican peso and Euro) and the foreign currency, in particular the U.S. dollar. Braskem manages its exposure to foreign exchange risk through the combination of debt, financial investments, accounts receivable and raw material purchases denominated in foreign currencies and through derivative operations. Braskem’s financial policy for managing foreign exchange risks provides for the maximum and minimum coverage limits that must be observed and which are continuously monitored by its Management.

 

On December 31, 2014, Braskem prepared sensitivity analyses for exposures to the risk of fluctuation in U.S. dollar, as informed in Note 16.4.

 

(c)               Exposure 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 Long-Term Interest Rate (“TJLP”) and in the Interbank Certificate of Deposit (“daily CDI”) rate.

 

In the year, Braskem held swap contracts (Note 16.2.1) in which it: (i) receives the pre-contractual rate and pays the CDI overnight rate; and (ii) receives Libor and pays a fixed rate.

 

On December 31, 2014, Braskem prepared a sensitivity analysis for the exposure to the floating interest rates Libor, CDI and TJLP, as informed in Notes 16.4(b.1) and (b.2).

 

 

17

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

4.2              Exposure to credit risk

 

The transactions that subject Braskem to the concentration of credit risks are mainly in current 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, 2014, Braskem held netting contracts with Banco Citibank S.A., HSBC Bank Brasil S.A. – Banco Múltiplo, Banco Itaú BBA S.A., Banco Safra S.A., Banco Santander S.A.,  Banco Votorantim S.A., Banco West LB do Brasil S.A., Banco Caixa Geral – Brasil S.A., and Banco Bradesco S.A.  Approximately 31% of the amounts held in cash and cash equivalents (Note 5) and financial investments (Note 6) are contemplated by these agreements, whose related liabilities are accounted for under “borrowings” (Note 14). 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.

 

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, 2014, the balance of trade accounts receivable was net of allowance for doubtful accounts of R$322,831 (R$282,753 in 2013) (Note 7).

 

4.3              Liquidity risk

 

Braskem has a calculation methodology to determine operating cash and minimum cash 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. These amounts are calculated mainly based on the projected operating cash generation, less short-term debts and working capital needs.

 

Braskem has two revolving credit lines for the purpose of managing liquidity risks, which may be used without restrictions in the amounts of: (i) US$750 million for a period of five years as from December 2014; and (ii) US$500 million for a period of three years as from September 2014. These credit facilities enable Braskem to reduce the amount of cash it holds. As of December 31, 2014, none of these credit lines had been used.

 

The table below shows Braskem’s financial liabilities by maturity. These amounts are calculated from undiscounted cash flows and may not be reconciled with the balance sheet.

 

       

Maturity

   
       

Until

 

Between one and

 

Between two and

 

More than

   
   

Note

 

one year

 

two years

 

five years

 

five years

 

Total

                         

Trade payables

     

11,038,788

   

11,038,788

Borrowings

     

1,495,374

 

3,365,142

 

5,432,193

 

22,685,686

 

32,978,395

Project finance

     

40,949

 

668,275

 

1,342,785

 

9,514,958

 

11,566,967

Derivatives

     

95,626

 

(39,219)

 

633,602

 

 

 

690,009

Ethylene XXI Project Loan

       

792,188

 

792,188

Other payables

 

(i)

 

44,545

 

252,424

 

 

 

 

 

296,969

At December 31, 2014

     

12,715,282

 

4,246,622

 

7,408,580

 

32,992,832

 

57,363,316

 

(i)         Amounts payable to BNDES Participações S.A. (“BNDESPAR”) (Note 22).

 

 

18

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

4.4              Capital 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. 

 

5                    Cash and cash equivalents

 

     

2014

 

2013

         

 

Cash and banks (i)

 

227,237

 

987,824

Cash equivalents:

       
 

Domestic market

 

2,253,648

 

1,906,790

 

Foreign market (i)

 

1,512,474

 

1,441,245

Total

 

3,993,359

 

4,335,859

 

(i)         On December 31, 2014, it includes cash and banks of R$26,830 (R$656,427 in 2013) and cash equivalents of R$307,034 (R$153,448 in 2013) of the subsidiary Braskem Idesa, available for use in its project (Note 15).

 

Cash and cash equivalents include cash in hand, deposits held at call with banks and highly liquid investments with maturities of three months or less. They are convertible into a known amount and subject to an inmaterial risk of change in value.

 

Cash equivalents in Brazil are mainly represented by fixed-income instruments and time deposits held by the exclusive FIM Sol fund. The cash equivalents abroad comprise fixed–income instruments issued by first-class financial institutions (time deposit) with high market liquidity.

 

6                    Financial investments

 

     

2014

 

2013

Held-for-trading

       
 

Investments in FIM Sol

 

85,573

 

61,670

 

Other

 

4,155

 

4,943

Held-to-maturity

       
 

Quotas of investment funds in credit rights

 

42,495

 

40,696

 

Time deposit investment

 

 

 

189

 

Investments in foreign currency

(i)

399,005

 

469,376

 

Compensation of investments in foreign currency

(i)

(399,005)

 

(469,376)

Total

 

132,223

 

107,498

           

In current assets

 

89,729

 

86,719

In non-current assets

 

42,494

 

20,779

Total

 

132,223

 

107,498

 

 

19

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(i)         On December 31, 2014, Braskem Holanda had financial investments held to maturity that are irrevocably offset, by an export prepayment agreement of the Braskem S.A., in the amount of US$150 million, as provided for in the credit assignment agreement entered into between these two companies and Banco Bradesco. This accounting offset was carried out in accordance with IAS 32, which provide for the possibility of offsetting financial instruments when there is intent and rightfully executable right to realize an asset and settle a liability simultaneously.

 

7                    Trade accounts receivable

 

The Company’s billing period is generally 30 days; therefore, the amount of the trade accounts receivable corresponds to their fair value on the date of the sale. The Company realizes part of its trade accounts receivable through the sale of trade notes to funds that acquire receivables. These operations are not entitled to recourse, for which reason the trade notes are written-off at the moment of the operation.

 

     

2014

 

2013

Consumers

       
 

Domestic market

 

1,523,458

 

1,578,008

 

Foreign market

 

1,517,035

 

1,577,140

Allowance for doubtful accounts

 

(322,831)

 

(282,753)

Total

 

2,717,662

 

2,872,395

           

In current assets

 

2,692,612

 

2,810,520

In non-current assets

 

25,050

 

61,875

Total

 

2,717,662

 

2,872,395

 

 

The breakdown of trade accounts receivable by maturity is as follows:

  

     

2014

 

2013

         

 

Accounts receivables not past due

 

2,256,932

 

2,650,938

Past due securities:

       

Up to 90 days

 

531,966

 

246,740

91 to 180 days

 

45,271

 

8,393

As of 180 days

 

206,324

 

249,077

     

3,040,493

 

3,155,148

Allowance for doubtful accounts

 

(322,831)

 

(282,753)

Total customers portfolio

 

2,717,662

 

2,872,395

 

The changes in the balance of the allowance for doubtful accounts are presented below:

 

     

2014

 

2013

 

2012

         

 

 

 

Balance of provision at the beginning of the year

 

(282,753)

 

(256,884)

 

(253,607)

Provision in the year

 

(81,078)

 

(27,333)

 

(53,255)

Write-offs

 

41,000

 

23,250

 

27,374

Write-off by investment sale

 

 

     

818

Transfers (of) to non-current assets held for sale

     

(21,786) 

 

21,786

Balance of provision at the end of the year

 

(322,831)

 

(282,753)

 

(256,884)

 

 

The methodology adopted by the Company for recognizing the provision for impairment is based on the history of losses and considers the sum of (i) 100% of the amount of receivables past due for over 180 days; (ii) 50% of the amount of receivables past due for over 90 days; (iii) 100% of the amount of receivables under judicial collection (iv) all the receivables from the first renegotiation maturing within more than 24 months; and (v) 100% of the receivables arising from a second renegotiation with customers. Receivables from related parties are not considered in this calculation. This methodology is revised on an annual basis by the Management of the Company.

 

20

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

 

8                    Inventories

 

   

2014

 

2013

         

Finished goods

 

3,681,204

 

3,429,979

Raw materials, production inputs and packaging

 

1,067,512

 

1,113,272

Maintenance materials

 

247,327

 

230,822

Advances to suppliers

 

346,885

 

236,672

Imports in transit and other

 

94,206

 

139,562

Total

 

5,437,134

 

5,150,307

         

In current assets

 

5,368,146

 

5,033,593

In non-current assets

 

68,988

 

116,714

Total

 

5,437,134

 

5,150,307

 

Inventories are stated at the lower between the average acquisition or production cost or at the estimated retail or sales price, net of taxes, whichever is lower. The Company determines the cost of its production using the absorption method.

 

A portion of the final inventory of finished products and raw materials was adjusted to fair value is less than the cost of production/acquisition. This adjustment was R$83,265 (2013 – R$12,333). For this estimate, the Company considers the purchase/sale price projected for the period during which it expects to sell or consume the product. This period is determined based on the historical data for the turnover of the respective inventory.

 

Advances to suppliers and expenditures with imports in transit are mainly related to operations for the acquisition of raw materials.

 

9                    Related parties

 

The Company carries out transactions among themselves and with other related parties in the ordinary course of its operations and activities. The Company believes that all the conditions set forth in the contracts with related parties meet the Company’s interests. To ensure that these contracts present terms and conditions that are as favorable to the Company as those it would enter into with any other third parties is a permanent objective of Braskem’s management.

 

21

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

     

2014

 

2013

 

2012

     

Associated companies, Jointly-controlled investment and Related companies

 

Associated companies, Jointly-controlled investment and Related companies

 

Associated companies, Jointly-controlled investment and Related companies

         
     

Odebrecht and

 

Petrobras and

         

Odebrecht and

 

Petrobras and

         

Odebrecht and

 

Petrobras and

       

Balance sheet

 

subsidiaries

 

subsidiaries

 

Other

 

Total

 

subsidiaries

 

subsidiaries

 

Other

 

Total

 

subsidiaries

 

subsidiaries

 

Other

 

Total

Assets

                                               

Current

                                               
 

Cash and cash equivalents

 

 

 

 

 

1,486,360

 

1,486,360

 

 

 

 

 

1,396,323

 

1,396,323

               
 

Trade accounts receivable

 

4,347

 

104,857

 

33,009

 

142,213

 

440

 

99,018

 

26,503

 

125,961

               
 

Inventories

(i)

108,929

 

123,377

 

 

 

232,306

 

35,473

 

42,013

 

 

 

77,486

               
 

Related parties

 

55

 

66,375

 

186

 

66,616

 

78,068

 

46,232

 

187

 

124,487

               
 

Other

 

 

 

 

 

4,535

 

4,535

 

1,963

 

 

 

150

 

2,113

               
                                 

 

               

Non-current

                             

 

               
 

Advances to suppliers

 

68,988

 

 

 

 

 

68,988

 

116,714

 

 

 

 

 

116,714

               
 

Related parties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

               
 

Intracompany loan

 

 

 

138,501

 

 

 

138,501

 

 

 

67,348

 

 

 

67,348

               
 

Other receivabels

 

 

 

 

 

 

 

 

 

 

 

66,301

 

 

 

66,301

               
 

Other

(ii)

 

 

 

 

 

 

 

 

665,851

 

 

 

 

 

665,851

               

Total assets

 

182,319

 

433,110

 

1,524,090

 

2,139,519

 

898,509

 

320,912

 

1,423,163

 

2,642,584

 

 

 

 

 

 

 

 

                                                   

Liabilities

                                               

Current

                                               
 

Trade payables

 

459,412

 

1,497,675

 

 

 

1,957,087

 

533,498

 

1,833,040

 

3,106

 

2,369,644

             

 

Total liabilities

 

459,412

 

1,497,675

 

 

 

1,957,087

 

533,498

 

1,833,040

 

3,106

 

2,369,644

 

 

 

 

 

 

 

 

                                                   

Transactions

                                               
 

Sales of products

 

82,750

 

1,817,056

 

326,586

 

2,226,392

 

23,707

 

1,369,882

 

344,625

 

1,738,214

 

 

 

1,227,344

 

198,932

 

1,426,276

 

Purchases of raw materials, finished goods

 

-  

 

 

 

 

 

 

 

 

 

 

 

 

                   
 

services and utilities

 

3,631,198

 

18,183,600

 

70,700

 

21,885,498

 

284,433

 

15,980,040

 

44,265

 

16,308,738

 

276,193

 

16,783,645

 

286,963

 

17,346,801

 

Financial income (expenses)

 

 

 

964

 

 

 

964

 

 

 

4,525

 

 

 

4,525

     

4,304

 

786

 

5,090

 

General and administrative expenses

             

 

                               
 

Post-employment benefits

 

 

 

 

 

 

     

 

 

 

 

 

 

 

             

 

 

Odebrecht previdência Privada ("Odeprev")

 

 

 

 

 

20,695

 

20,695

 

 

 

 

 

19,703

 

19,703

         

24,898

 

24,898

 

Gain from divestment of asset

(iii)  

277,338

 

 

 

 

 

277,338

 

 

 

 

 

 

 

 

             

 

Total transactions

 

3,991,286

 

20,001,620

 

417,981

 

24,410,887

 

308,140

 

17,354,447

 

408,593

 

18,071,180

 

276,193

 

18,015,293

 

511,579

 

18,803,065

                                                   

(i) Amount related to advances to raw material suppliers.

(ii) Amount in "Property, plant and equipment", related to work in progress.

(iii) Amount related to divestment in subsidiary (Note 1(a)).

 

 

22

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

As provided for in the Company’s bylaws, the Board of Directors has the exclusive power to decide on any contract but those related to the supply of raw materials that exceed R$5,000 per operation or R$15,000 altogether per year. This provision encompasses contracts between the Braskem S.A. and its subsidiaries and any of its common shareholders, directors of the Company, its Braskem S.A. or subsidiary or its respective related parties. Additionally, the Company has a Finance and Investment Committee that, among other things, monitors the contracts with related parties that are approved by the Board of Directors.

 

Pursuant to Brazilian Corporations Law, 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 statutory authorization or the general meeting.

 

The related parties that have significant relationship with the Company are as follows:

 

·           Construtora Norberto Odebrecht S.A. (“CNO”): subsidiary of Odebrecht

·           Odebrecht Ambiental: subsidiary of Odebrecht

·           Petrobras: shareholder of Braskem

 

The transactions with related parties, except wholly owned subsidiaries of the Company, are summarized below:

 

·           CNO:

 

(i)       Braskem – in May 2014, an alliance agreement was signed for maintenance services with duration of four years and estimated value of R$121 million;

 

(ii)     Braskem Idesa – an agreement was executed on September 28, 2012, for the engineering, procurement and construction services of the Ethylene XXI Project for an estimated value of US$3 billion and duration through 2015; and

 

(iii)   Braskem – the lease agreement for the floors in the building where the offices of Braskem are located in São Paulo came into force as of January 1, 2014. The agreement is worth R$226,217 and is valid through December 2028.

 

·           Odebrecht Ambiental:

 

On September 30, 2009, the Company entered into an agreement for the acquisition of reuse water with Aquapolo (a special purpose entity formed by Odebrecht Ambiental and the water utility Companhia de Saneamento Básico do Estado de São Paulo – SABESP for the production of industrial reuse water) by the plants located in the São Paulo Petrochemical Complex. The agreement is valid through 2053 and has an estimated annual value of R$65 million.

 

 

23

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

·           Petrobras:

 

(i)       Naphtha

 

Braskem maintains an agreement with Petrobras for the acquisition of naphtha, as cited in Note 1.

 

(ii)     Propylene

 

Braskem has propylene supply agreements with Petrobras for the Company’s plants located in the Petrochemical Complexes of Triunfo, Rio de Janeiro and São Paulo. These agreements provide for the full supply of approximately 910,000 metric tons of propylene a year. The contracted propylene price is based on various international references linked to the most important markets for propylene and polypropylene, particularly the U.S., European and Asian markets.

 

(iii)   Ethane, propane, light refinery hydrocarbons (“HLR”) and electricity

 

The Company has an agreement with Petrobras for the supply of 392,500 metric tons of ethane a year, 392,500 metric tons of propane a year, 438,000 Nm³/year of HLR and 306.6 GWh of electricity a year in 2014 and 204.4 GWh a year in 2015.

 

(b)              Key management personnel

 

The Company considers “Key management personnel” to be the members of the Board of Directors and the Executive Board, composed of the CEO and vice-presidents. Not all the members of the Executive Board are members of the statutory board.

 

Non-current liabilities

 

2014

 

2013

   
             

Long-term incentives

 

-

 

2,333

   

Total

 

-

 

2,333

   
             
         

Income statement transactions

 

2014

 

2013

 

2012

Remuneration

           

Short-term benefits to employees and managers

 

35,963

 

35,380

 

35,026

Post-employment benefit

 

256

 

275

 

214

Long-term incentives

 

560

 

15

 

565

Total

 

36,779

 

35,670

 

35,805

 

 

(i)       In a meeting held on May 7, 2014, the Board of Directors approved the termination of the long-term incentive plan. The plan had been created in September 2005 and was not based on the Company’s shares. Through this plan, members of strategic programs could acquire securities issued by the Company called “Certificates of Investment Units”. These securities did not entitle their holder to the status of Braskem shareholder or to any rights or privileges inherent to such status, especially voting and other political rights. The amount paid to terminate the plan, including participants not designated as “Key management personnel” was R$14,002.

 

 

 

24

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

10                Taxes recoverable

 

     

2014

 

2013

Brazil

     

 

 

IPI

 

20,456

 

28,701

 

Value-added tax on sales and services (ICMS) - normal operations

(a)

413,066

 

729,500

 

ICMS - credits from PP&E

 

136,308

 

123,354

 

Social integration program (PIS) and social contribution on revenue (COFINS) - normal operations

(b)

675,983

 

710,357

 

PIS and COFINS - credits from PP&E

244,194

 

269,006

 

Income tax and social contribution (IR and CSL)

692,723

 

536,460

 

REINTEGRA program

(c)

263,771

 

267,049

 

Federal supervenience

(d)

170,264

 

231,432

 

Other

9,217

 

51,892

   

Other countries

 

Value-added tax

(e)

547,947

 

572,432

 

Other

 

1,336

 

3,020

Total

 

3,175,265

 

3,523,203

           

Current assets

 

2,129,837

 

2,237,213

Non-current assets

 

1,045,428

 

1,285,990

Total

 

3,175,265

 

3,523,203

 

(a)               ICMS – normal operations

 

The Company has accumulated ICMS credits over the past few years arising 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 their realization. These include the maintenance of the terms of the agreements with the states in which the Company produces petrochemical products in order to defer the ICMS tax levied on naphtha purchases, which increases the effective monetization of the balances.

 

(b)               PIS and COFINS

 

The Company has PIS and COFINS tax credits arising materially from the incentivized domestic outflows and exports.

 

The realization of these credits occurs in two ways: (i) offset of overdue or falling due liabilities related to taxes levied by the Federal Revenue Service; or (ii) cash reimbursement.

 

(c)               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 3% of all export revenue and such credits may be made 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.

 

In accordance with Provisional Presidential Decree (“MP”) 601/12, the program was valid until December 31, 2013. However, MP 651/14, which was converted into Federal Law 13,043/14, determined the new starting date of the program as from October 1, 2014, similarly to what had been established by MP 601.

 

25

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

In the fiscal year ended December 31, 2014, the Company recognized credits in the amount of R$65,701 (R$229,742 in 2013) and offset the amount of R$69,192 (R$180,468 in 2013). In the Statement of Operations, credits are recognized in the item “Cost of Products Sold.”

 

(d)               Federal supervenience

 

This item includes credits arising from legal discussions regarding the legality and constitutionality of various taxes and contributions in which the Company has already obtained a favorable ruling or has unquestionable jurisprudence in its favor.

 

(e)               Value added tax – subsidiaries abroad

 

On December 31, 2014, this line included:

 

(i)     R$16,185 from sales by Braskem Alemanha to other countries. These credits are reimbursed in cash by the local government; and

 

(ii)   R$483,668 from purchases of machinery and equipment for the Ethylene XXI project (Note 16). These credits will be reimbursed in cash by the local government after validating the credits according to established tax procedures. In the fourth quarter of 2014, Braskem Idesa was reimbursed in the amount of R$634,911 (US$250,454 thousand).

 

 

 

26

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

11                Investments

 

(a)               Information on investments

 

         

Adjusted net profit (loss)

 

Adjusted

     

Interest in total

 

for the year

 

equity

     

capital (%) - 2014

 

2014

 

2013

 

2012

 

2014

 

2013

                     

Jointly-controlled investment

 

Refinaria de Petróleo Riograndense S.A.("RPR")

33.20

(3,166)

1,871

 

24,335

 

125,955

 

124,980

 

Odebrecht Comercializadora de Energia S.A. ("OCE")

20.00

129

402

 

 

 

734

 

689

 

Propilsur

49.00

(72)

(4,445)

 

(556)

 

121,547

 

109,300

   

Associates

                 
 

Borealis

20.00

7,246

5,492

 

16,102

 

174,433

 

166,746

 

Companhia de Desenvolvimento

 

Rio Verde ("Codeverde")

 

35.97

(596)

(596)

 

(596)

 

46,342

 

46,342

 

 

 

 

(b)               Changes in investments

 

           

Dividends

   

Currency

   
   

Balance at

 

Capital

 

and interest

 

Effect

 

translation

 

Balance at

   

Dec/2013

 

increase

 

on equity

 

of results

 

adjustments

 

Dec/2014

                         

Associates

                       

Borealis

 

33,349

         

1,538

 

 

 

34,887

   

33,349

 

 

 

 

 

1,538

 

 

 

34,887

                         

Jointly-controlled investments

                       

Propilsur

 

40,398

         

(29)

 

2,796

 

43,165

RPR

 

41,500

         

(1,050)

 

1,374

 

41,824

OCE

 

138

 

55

 

(3)

 

(42)

     

148

   

82,036

 

55

 

(3)

 

(1,121)

 

4,170

 

85,137

                         

Total

 

115,385

 

55

 

(3)

 

417

 

4,170

 

120,024

 

 

 

(c)                Breakdown of equity accounting results

 

   

Consolidated

   

2014

 

2013

 

2012

             

Equity in results of subsidiaries, associate and jointly-controlled investments

 

3,929

 

(3,223)

 

(22,199)

Other

 

 

     

(3,608)

   

3,929

 

(3,223)

 

(25,807)

 

 

 

 

 

27

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(d)               Summarized information of the subsidiary not full Braskem Idesa

 

Balance sheet

 

 

 

 

 

 

 

 

 

Assets

2014

 

2013

 

Liabilities

2014

 

2013

Current

       

Current

     
 

Cash and cash equivalents

333,864

 

809,875

   

Trade payables

620,953

590,429

 

Inventories

238,193

 

116,691

   

Project finance

26,462

25,745

 

Taxes recoverable

499,173

 

544,420

   

Other payables

101,596

87,519

 

Other receivables

96,350

 

144,160

     

749,011

703,693

   

1,167,580

 

1,615,146

         

Non-current

       

Non-current

   
 

Other receivables

219,010

 

142,699

   

Project finance

7,551,033

4,705,661

 

Property, plant and equipment

9,260,814

 

5,684,813

   

Loan agreements

2,921,275

1,481,359

   

9,479,824

 

5,827,512

   

Other payables

4,210

3,479

               

10,476,518

6,190,499

                   
           

Shareholders' equity

(578,125)

548,466

                   

Total assets

10,647,404

 

7,442,658

 

Total liabilities and shareholders' equity

10,647,404  

7,442,658

                 

-

                   

Statement of operations

 

 

 

 

Statement of cash flows

 

 

   

2014

 

2013

     

2014

2013

Gross profit

5,320

 

2,294

 

Cash flows from operating activities

   
 

Operating expenses, net

(52,834)

 

(31,113)

   

Cash generated by operating activities

812,826

(204,798)

 

Financial results

(420,512)

 

38,095

   

Interest paid

(336,998)

(98,272)

Profit (loss) before income tax

(468,026)

 

9,276

 

Net cash generated (used) by operating activities

475,828

(303,070)

 

Income tax

(83,030)

 

(19,911)

         

Loss for the year

(551,056)

 

(10,635)

 

Net cash used in investing activities

(3,465,621)

(4,052,864)

           

Net cash provided by financing activities

   
             

Project finance

1,894,507

4,562,343

             

Related parties

653,118

463,859

             

Capital increase

 

153,285

               

2,547,625

5,179,487

                   
           

Exchange variation on cash

(33,843)

(61,533)

                   
           

Increase (decrease) in cash and cash equivalents

(476,011)

762,020

                   
           

Represented by

   
             

Cash and cash equivalents at the beginning for the year

809,875

47,855

             

Cash and cash equivalents at the end for the year

333,864

809,875

                   
           

Increase (decrease) in cash and cash equivalents

(476,011)

762,020

 

 

28

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

12                Property, plant and equipment

 

(a)               Change

 

   

Land

 

Buildings and Improvements

 

Machinery, Equipment and Facilities

 

Projects and Stoppage in Progress

 

Other  

 

Total

                         

Cost

 

428,908

 

1,830,245

 

25,671,115

 

8,832,906

 

936,228

 

37,699,402

Accumulated depreciation/depletion

 

 

 

(783,084)

 

(11,044,102)

 

 

 

(458,668)

 

(12,285,854)

Balance as of December 31, 2013

 

428,908

 

1,047,161

 

14,627,013

 

8,832,906

 

477,560

 

25,413,548

                         

Acquisitions

   

28,630

 

107,855

 

4,540,352

 

1,779

 

4,678,616

Capitalized financial charges

   

623,162

 

 

 

623,162

Foreign currency translation adjustment

 

7,642

 

7,770

 

88,533

 

130,629

 

3,777

 

238,351

Transfers by concluded projects

 

 

 

32,373

 

779,078

 

(936,794)

 

125,343

 

 

Other, net of depreciation/depletion

 

(10)

 

 

 

(3,097)

 

(10,780)

 

1,736

 

(12,151)

Depreciation / depletion

 

 

 

(65,159)

 

(1,790,563)

 

 

 

(84,314)

 

(1,940,036)

Net book value

 

436,540

 

1,050,775

 

13,808,819

 

13,179,475

 

525,881

 

29,001,490

Cost

 

436,540

 

1,899,018

 

26,581,334

 

13,179,475

 

1,065,324

 

43,161,691

Accumulated depreciation/depletion

 

-

 

(848,243)

 

(12,772,515)

 

 

 

(539,443)

 

(14,160,201)

Balance as of December 31, 2014

 

436,540

 

1,050,775

 

13,808,819

 

13,179,475

 

525,881

 

29,001,490

 

 

On December 31, 2014, the main project in progress is located in Mexico, through the subsidiary Braskem Idesa (Note 15).

 

The financial charges are capitalized on the balance of the projects in progress using (i) an average funding rate of all borrowings; and (ii) the portion of the foreign exchange variation that corresponds to a possible difference between the average rate of financing in the internal market and the rate mentioned in item (i).

 

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 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 are recorded, 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.

 

Based on the analysis cited in Note 3.4(a), the Management of Braskem believes that the plants will operate at their full capacity, or close to it, within the projected period, therefore impairment tests of these assets were not necessary. The prices of products manufactured by the Company are quoted in international markets and adjust to the prices of raw materials to preserve the historical margins of the business.

 

 

29

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

13                Intangible assets

 

   

Goodwill

               
   

based on

         

Costumers

   
   

expected future

 

Brands

 

Software

 

and Suppliers

   
   

profitability

 

and Patents

 

licenses

 

Agreements

 

Total

Cost

 

3,187,722

 

208,574

 

473,560

 

712,499

 

4,582,355

Accumulated amortization

 

(1,128,804)

 

(82,176)

 

(244,924)

 

(213,821)

 

(1,669,725)

Balance as of December 31, 2013

 

2,058,918

 

126,398

 

228,636

 

498,678

 

2,912,630

                     

Acquisitions

   

10

 

30,058

 

201

 

30,269

Foreign currency translation adjustment

   

1,186

 

3,783

 

17,011

 

21,980

Other, net of amortization

   

3,267

 

(6,148)

 

 

 

(2,881)

Amortization

     

(8,951)

 

(50,766)

 

(66,553)

 

(126,270)

Net book value

 

2,058,918

 

121,910

 

205,563

 

449,337

 

2,835,728

Cost

 

3,187,722

 

213,031

 

497,813

 

729,711

 

4,628,277

Accumulated amortization

 

(1,128,804)

 

(91,121)

 

(292,250)

 

(280,374)

 

(1,792,549)

Balance as of December 31, 2014

 

2,058,918

 

121,910

 

205,563

 

449,337

 

2,835,728

                     

Average annual rates of amortization

     

5.93%

 

10.04%

 

6.00%

   

 

 

The Company adopts the following accounting practice for each class of intangible assets:

 

(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 IFRS pronouncements and represent the excess of the amount paid over the amount of equity of the entities acquired.

 

The Company’s goodwill was systematically amortized until December 2008. As from 2009, it has been subject to annual impairment tests in accordance with the provisions in IAS 36. On December 31, 2014, the goodwill of the Company is allocated at the CGU of UNIB-South and at the Polyolefins and Vinyls operating segments.

 

The CGU UNIB-South belongs to the Basic Petrochemicals operating segment, which is divided into three CGUs. The other CGU, called UNIB-Bahia and UNIB-Southeast do not have goodwill allocated.

 

In October 2014, Braskem conducted an impairment test of the goodwill using the value in use method (discounted cash flow) and did not identify any loss, as shown in the table below:

 

           

Book value

   
   

Allocated
goodwill

 

Cash flow
(CF)

 

(with goodwill and work capital)

 

CF/Book
value

CGU and operating segments

               

CGU - UNIB - South

 

926,854

 

8,132,990

 

1,965,601

 

4.1

Operating segment - Polyolefins

 

939,711

 

23,443,616

 

6,130,688

 

3.8

Operating segment - Vinyls

 

192,353

 

4,173,987

 

3,452,561

 

1.2

 

 

The premises adopted to determine the discounted cash flow are described in Note 3.4(a).The WACC used was of 13.76% p.a..

 

 

30

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(b)               Sensitivity analysis

 

Given the potential impact on cash flows of the “discount rate” and the “growth rate in perpetuity”, Braskem conducted a sensitivity analysis based on changes in these variables, with cash flows shown in the table below:

 

       

-0,5% on

   

+0,5% on

 

growth rate

   

discount rate

 

to perpetuity

CGU and operating segments

       

CGU - UNIB - South

 

7,702,066

 

7,670,081

Operating segment - Polyolefins

 

22,400,570

 

22,323,151

Operating segment - Vinyls

 

3,986,779

 

3,972,884

 

 

(c)               Intangible assets with defined useful lives

 

(c.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 defined 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 or loss as they are incurred.

 

(c.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 finite 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).

 

(c.3)     Software

All software booked has defined useful life estimated between 3 and 10 years and is amortized using the straight-line method. Costs associated with maintaining computer software programs are recognized in profit or loss as incurred.

 

 

31

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

14                Borrowings

 

     

Annual financial charges

       
         

Average interest (unless otherwise stated)

       
     

Monetary restatement

   

2014

 

2013

Foreign currency

             

 

 

Bonds and Medium term notes (MTN)

 

Note 14 (a)

 

Note 14 (a)

 

11,776,438

 

10,432,526

 

Advances on exchange contracts

 

US dollar exchange variation

 

0.88%

 

 

 

117,132

 

Export prepayment

 

Note 14 (b)

 

Note 14 (b)

 

427,074

 

540,744

 

BNDES

 

Note 14 (c)

 

Note 14 (c)

 

396,439

 

453,065

 

Export credit notes

 

Note 14 (d)

 

Note 14 (d)

 

956,010

 

843,060

 

Working capital

 

US dollar exchange variation

 

1.59% above Libor

 

633,104

 

633,632

 

Other

 

US dollar exchange variation

 

4.00% above Libor

 

 

 

1,268

 

Other

 

Exchange variation (UMBNDES)

           
 

Other

 

US dollar exchange variation

     

 

 

 

 

Transactions costs

         

(260,656)

 

(81,375)

                   

Local currency

               
 

Export credit notes

 

Note 14 (d)

 

Note 14 (d)

 

2,435,839

 

2,528,077

 

BNDES

 

Note 14 (c)

 

Note 14 (c)

 

3,137,035

 

2,464,987

 

BNB/ FINAME/ FINEP/ FUNDES

     

6.54%

 

762,757

 

658,372

 

BNB/ FINAME/ FINEP/ FUNDES

 

TJLP

 

0.47%

 

8,512

 

16,093

 

Fundo de Desenvolvimento do Nordeste (FDNE)

     

6.50%

 

51,090

 
 

Other

     

0.04%

 

26,928

 
 

Transactions costs

         

(14,007)

 

(5,090)

Total

         

20,336,563

 

18,602,491

                   

Current liabilities

         

1,418,542

 

1,248,804

Non-current liabilities

         

18,918,021

 

17,353,687

Total

         

20,336,563

 

18,602,491

 

(a)                 Bonds and MTN

 

     

Issue amount

     

Interest

   

Issue date

 

 

(US$ in thousands)

 

Maturity

 

(% per year)

 

2014

 

2013

July-1997

 

250,000

 

June-2015

 

9.38

 

149,394

 

152,328

January-2004

 

250,000

 

January-2014

 

11.75

 

 

 

178,897

September-2006

(i)

 

275,000

 

January-2017

 

8.00

 

165,863

 

305,006

June-2008

(i)

 

500,000

 

June-2018

 

7.25

 

381,567

 

1,000,375

May-2010

(i)

 

400,000

 

May-2020

 

7.00

 

127,945

 

940,780

May-2010

 

 

350,000

 

May-2020

 

7.00

 

939,251

 

828,360

October-2010

(ii)

 

450,000

 

no maturity date

 

7.38

 

1,216,348

 

1,072,742

April-2011

 

750,000

 

April-2021

 

5.75

 

2,009,294

 

1,772,070

July-2011

 

500,000

 

July-2041

 

7.13

 

1,369,631

 

1,207,927

February-2012

 

250,000

 

April-2021

 

5.75

 

672,005

 

592,666

February-2012

(ii)

 

250,000

 

no maturity date

 

7.38

 

675,749

 

595,968

May-2012

 

500,000

 

May-2022

 

5.38

 

1,339,601

 

1,181,443

July-2012

 

250,000

 

July-2041

 

7.13

 

684,815

 

603,964

Feb-2014

(i)

 

500,000

 

February-2024

 

6.45

 

1,363,317

   

May-2014

(i)

 

250,000

 

February-2024

 

6.45

 

681,658

   

Total

   

5,725,000

         

11,776,438

 

10,432,526

 

(i)       The Bonds issued in February and May 2014 were primarily to refinance the Bonds issued in September 2006, June 2008 and May 2010. The issues in 2014 were considered as refinancing of previous debt in accordance with IFRS 9, and hence all expenses involved in structuring the operations, including premiums paid to holders of the refinanced bonds, were deemed transaction costs. These expenses, in the amount of R$206,136 are being amortized as financial expenses on a straight-line basis over the duration of the new Bonds.

 

(ii)     The perpetual Bonds issued in October 2010 and February 2012 may be redeemed, at Braskem’s discretion, in full or part, at any time after October 4, 2015, at 100% of the value of the principal plus any unpaid interest. In the case of partial redemption, a minimum of US$100 million of the principal must remain outstanding.

32

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(b)                 Export prepayments (“EPP”)

 

     

Initial amount

               
     

of the transaction

           

Issue date

 

 

(US$ thousand)

 

Maturity

 

Charges (% per year)

 

2014

 

2013

December 2010

(i)

100,000

 

December-2017

 

US dollar exchange variation + semiannual Libor + 2.47

 

 

 

118,505

January 2013

   

200,000

 

November-2022

 

US dollar exchange variation + semiannual Libor + 2.47

 

427,074

 

422,239

Total

   

300,000

         

427,074

 

540,744

 

(i)       Settled early in June 2014.

 

(c)                 BNDES borrowings

 

Projects

 

Issue date

 

Maturity

 

Charges (% per year)

 

2014

 

2013

                     

Foreign currency

                   

Other

 

2006

 

October-2016

 

US dollar exchange variation + 6.90

 

4,795

 

6,533

Braskem Qpar expansion

 

2006/2007/2008

 

April-2016

 

US dollar exchange variation + 6.75 to 6.90

 

6,717

 

10,389

Green PE

 

2009

 

July-2017

 

US dollar exchange variation + 6.68

 

32,577

 

39,838

Limit of credit II

 

2009

 

January-2017

 

US dollar exchange variation + 6.68

 

61,946

 

80,826

New plant PVC Alagoas

 

2010

 

January-2020

 

US dollar exchange variation + 6.68

 

109,077

 

115,082

Limit of credit III

 

2011

 

October-2018

 

US dollar exchange variation + 6.52 to 6.55

 

141,894

 

159,917

Butadiene

 

2011

 

January-2021

 

US dollar exchange variation + 6.55

 

39,433

 

40,480

               

396,439

 

453,065

                     

Local currency

                   

Other

 

2006

 

September-2016

 

TJLP + 2.80

 

31,376

 

49,294

Braskem Qpar expansion

 

2006/2007/2008

 

February-2016

 

TJLP + 2.15 to 3.30

 

40,617

 

75,867

Green PE

 

2008/2009

 

June-2017

 

TJLP + 0.00 to 4.78

 

198,608

 

280,631

Limit of credit II

 

2009

 

January-2017

 

TJLP + 2.58 to 3.58

 

162,815

 

240,915

Limit of credit II

 

2009

 

January-2021

 

4.00 to 4.50

 

93,875

 

10,763

New plant PVC Alagoas

 

2010

 

December-2019

 

TJLP + 0.00 to 3.58

 

293,568

 

352,364

New plant PVC Alagoas

 

2010

 

December-2019

 

5.50

 

33,414

 

40,091

Limit of credit III

 

2011

 

October-2019

 

TJLP + 0.00 to 3.58

 

1,331,699

 

969,715

Limit of credit III

 

2011

 

October-2019

 

SELIC + 2.58 to 2.78

 

260,508

 

82,362

Limit of credit III

 

2011

 

November-2019

 

3.50 to 6.00

 

250,505

 

228,583

Butadiene

 

2011

 

December-2020

 

TJLP + 0.00 to 3.45

 

115,225

 

134,402

Finem

 

2014

 

March-2021

 

TJLP + 2.78

 

192,827

   

Finem

 

2014

 

March-2021

 

SELIC + 2.78

 

129,326

   

Finem

 

2014

 

March-2021

 

6.00

 

2,672

   
               

3,137,035

 

2,464,987

                     

Total

             

3,533,474

 

2,918,052

 

 

 

33

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(d)                 Export credit notes (“NCE”)

 

     

Initial amount

               

Issue date

 

 

of the transaction

 

Maturity

 

Charges (% per year)

 

2014

 

2013

                       

Foreign currency

                     

November-2006

#####

 

167,014

 

May-2018

 

Us dollar exchange variation + 8.10

 

209,561

 

184,778

April-2007

#####

 

101,605

 

March-2018

 

Us dollar exchange variation + 7.87

 

135,220

 

119,255

May-2007

#####

 

146,010

 

May-2019

 

Us dollar exchange variation + 7.85

 

200,518

 

176,806

January-2008

#####

 

266,430

 

February-2020

 

Us dollar exchange variation + 7.30

 

410,711

 

362,221

     

681,059

         

956,010

 

843,060

                       

Local currency

                     

April-2010

(i)

 

50,000

 

October-2021

 

105% of CDI

 

36,120

 

50,880

June-2010

(i)

 

200,000

 

October-2021

 

105% of CDI

 

144,481

 

203,521

February-2011

(i)

 

250,000

 

October-2021

 

105% of CDI

 

144,481

 

203,521

April-2011

(ii)

 

450,000

 

April-2019

 

112.5% of CDI

 

461,254

 

459,408

June-2011

(i)

 

80,000

 

October-2021

 

105% do CDI

 

57,792

 

81,408

August-2011

(ii)

 

400,000

 

August-2019

 

112.5% of CDI

 

404,309

 

403,513

June-2012

(i)

 

100,000

 

October-2021

 

105% of CDI

 

72,241

 

101,761

September-2012

(i)

 

300,000

 

October-2021

 

105% of CDI

 

216,722

 

305,282

October-2012

(i)

 

85,000

 

October-2021

 

105% of CDI

 

61,405

 

86,496

February-2013

(iii) e (v)

100,000

 

September-2017

 

8.00

 

101,161

 

101,183

February-2013

(iv)

 

50,000

 

February-2016

 

7.50

 

 

 

50,505

February-2013

(iii)

 

100,000

 

February-2016

 

8.00

 

101,161

 

101,010

February-2013

(iii) e (v)

50,000

 

September-2017

 

8.00

 

50,440

 

50,440

February-2013

(iii)

 

100,000

 

February-2016

 

8.00

 

101,096

 

100,923

March-2013

(iii)

 

50,000

 

March-2016

 

8.00

 

50,257

 

50,257

March-2013

(iv)

 

17,500

 

March-2016

 

8.00

   

17,583

August-2013

(iv)

 

10,000

 

August-2016

 

8.00

   

10,129

December-2013

(vi)

 

150,000

 

December-2016

 

8.00

   

150,257

June-2014

(iii)

 

50,000

 

June-2017

 

7.50

 

50,010

 

June-2014

(iii)

 

17,500

 

June-2017

 

8.00

 

17,504

 

June-2014

(iii)

 

10,000

 

June-2017

 

8.00

 

10,002

 

September-2014

-

 

100,000

 

August-2020

 

108% of CDI

 

103,579

 

November-2014

(iii)

 

150,000

 

November-2017

 

8.00

 

151,094

 

November-2014

-

 

100,000

 

April-2015

 

8.00

 

100,730

   

Total

   

2,970,000

         

2,435,839

 

2,528,077

 

(i)         In November 2014, the Company anticipated the installments for 2015 and 2016 of these contracts in the amount of R$290 million.

(ii)       The Company enters into swap transactions for these NCE contracts to offset the variation in the Interbank Certificate of Deposit (CDI) rate.

(iii)      The Company enters into swap transactions for these NCE contracts (67.10% to 92.70% of CDI).

(iv)      Financing settled early in June 2014.

(v)       In September 2014, these agreements were amended to change the expiration date from February 2016 to September 2017.

(vi)      Financing facility prepaid in November 2014.

 

 

34

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(e)                 Payment schedule

 

The maturity profile of the long-term amounts is as follows:

 

   

2014

 

2013

       

 

2015

 

 

 

1,121,998

2016

 

1,253,774

 

1,738,496

2017

 

1,528,616

 

1,576,790

2018

 

1,977,384

 

1,881,848

2019

 

1,997,887

 

1,479,686

2020

 

1,940,691

 

2,366,125

2021

 

2,947,526

 

2,561,516

2022

 

1,417,085

 

1,248,355

2023

 

7,652

 

1,676

2024

 

2,008,387

 

-

2025 and thereafter

 

3,839,019

 

3,377,197

Total

 

18,918,021

 

17,353,687

 

 

(f)                  Capitalized financial charges

 

In 2014, the Company capitalized financial charges presented in this note in the amount of R$95,542 (R$87,942 in 2013), including monetary variation and part of the exchange variation. The average rate of these charges in the year was 7.69% p.a. (7.40% p.a. in 2013).

 

(g)                 Guarantees

 

Braskem gave collateral for part of its borrowings as follows:

 

       

Total

 

Total

   

Loans

 

Maturity

 

debt 2014

 

guaranteed

 

Guarantees

                 

BNB

 

March-2023

 

488,052

 

488,052

 

Mortgage of plants, pledge of machinery and equipment

BNDES

 

January-2021

 

3,533,474

 

3,533,474

 

Mortgage of plants, land and property, pledge of machinery and equipment

FUNDES

 

June-2020

 

175,741

 

175,741

 

Mortgage of plants, land and property, pledge of machinery and equipment

FINEP

 

August-2023

 

104,751

 

104,751

 

Bank surety

FINAME

 

February-2022

 

2,725

 

2,725

 

Pledge of equipment

Total

     

4,304,743

 

4,304,743

   

 

 

 

 

35

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

15                Project finance

 

Braskem Idesa is constructing a plant in Mexico (Ethylene XXI Project), with capacity to produce around 750 kton of high-density polyethylene and 300 kton of low-density polyethylene using ethane as feedstock. The raw material will be supplied through an agreement with PEMEX-Gás for delivery of 66,000 barrels of ethane per day for 20 years.

 

In line with the Company’s financial policy, the investment is being financed under the Project finance mode, whereby the project loan must be paid exclusively with the cash generated by the project itself and shareholders provide limited guarantees. Thus, this financing has the usual guarantees of this type of operation such as assets, receivables, cash generation and other rights from the project, as well commitments by shareholders to inject a limited amount of capital to provide for eventual additional costs of the project.

 

The financing structure was concluded in December 2012, at the ratio of 70% debt and 30% equity. The total financing contracted to meet construction expenses and start project operation was US$3,193,095 thousand. In 2014, a total of R$1,894,507 (US$848,123 thousand) was released.

 

In 2014, Braskem Idesa capitalized the interest on this financing in the amount of R$527,620 (R$274,586 in 2013). The average rate of charges in the year was 7.76% p.a.

 

The breakdown of charges and final maturities is as follows:

 

   

US$ thousands

               

Identification

 

Contract value

 

Value received

 

Maturity

 

Charges (% per year)

 

2014

 

2013

Project finance I

 

700,000

 

643,626

 

February-2027

 

Us dollar exchange variation + quarterly Libor + 3.25

 

1,716,943

 

1,141,515

Project finance II

 

210,000

 

141,637

 

February-2027

 

Us dollar exchange variation + 6.17

 

378,992

 

121,387

Project finance III

 

600,000

 

519,801

 

February-2029

 

Us dollar exchange variation + 4.33

 

1,388,166

 

621,410

Project finance IV

 

660,000

 

658,298

 

February-2029

 

Us dollar exchange variation + quarterly Libor + 3.88

 

1,757,438

 

1,298,791

Project finance V

 

400,000

 

367,787

 

February-2029

 

Us dollar exchange variation + quarterly Libor + 4.65

 

982,688

 

653,288

Project finance VI

 

90,000

 

57,624

 

February-2029

 

Us dollar exchange variation + quarterly Libor + 2.73

 

153,762

 

79,630

Project finance VII

 

533,095

 

490,163

 

February-2029

 

Us dollar exchange variation + quarterly Libor + 4.64

 

1,311,104

 

866,581

Transactions costs

               

(111,598)

 

(51,196)

Total

 

3,193,095

 

2,878,936

         

7,577,495

 

4,731,406

                         

Current liabilities

                 

26,462

 

25,745

Non-current liabilities

             

7,551,033

 

4,705,661

Total

                 

7,577,495

 

4,731,406

 

 

 

36

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

The maturity profile of this long-term financing, by year of maturity, is as follows:

 

   

2014

 

2013

         

2016

 

137,360

 

85,068

2017

 

417,129

 

254,883

2018

 

511,886

 

313,944

2019

 

533,244

 

327,391

2020

 

630,543

 

389,584

2021

 

722,211

 

447,535

2022

 

603,387

 

377,156

2023

 

797,728

 

493,770

2024

 

863,811

 

534,866

2025 and thereafter

 

2,333,734

 

1,481,464

Total

 

7,551,033

 

4,705,661

 

 

16                Financial instruments

 

16.1          Non-derivative financial instruments measured at fair value

  

           

Fair value

 

Book value

 

Fair value

   

Note

 

Classification by category

 

hierarchy

 

2014

 

2013

 

2014

 

2013

                             

Cash and cash equivalents

 

5

                       

Cash and banks

             

227,237

 

987,824

 

227,237

 

987,824

Financial investments in Brazil

     

Held-for-trading

 

Level 2

 

1,146,880

 

687,938

 

1,146,880

 

687,938

Financial investments in Brazil

     

Loans and receivables

     

1,106,768

 

1,218,852

 

1,106,768

 

1,218,852

Financial investments abroad

     

Held-for-trading

 

Level 2

 

1,512,474

 

1,441,245

 

1,512,474

 

1,441,245

               

3,993,359

 

4,335,859

 

3,993,359

 

4,335,859

                             

Financial investments

 

6

                       

FIM Sol investments

     

Held-for-trading

 

Level 2

 

85,573

 

61,670

 

85,573

 

61,670

Other

     

Held-for-trading

 

Level 2

 

4,155

 

3,773

 

4,155

 

3,773

Investments in foreign currency

     

Held-to-maturity

       

189

   

189

Shares

     

Held-for-trading

 

Level 1

   

1,170

   

1,170

Quotas of receivables investment fund

     

Held-to-maturity

     

42,495

 

40,696

 

42,495

 

40,696

               

132,223

 

107,498

 

132,223

 

107,498

                             

Trade accounts receivable

 

7

         

2,717,662

 

2,872,395

 

2,717,662

 

2,872,395

                             

Related parties credits

 

9

 

Loans and receivables

     

205,117

 

258,136

 

205,117

 

258,136

                             

Trade payables

             

10,852,410

 

10,421,687

 

10,852,410

 

10,421,687

                             

Borrowings

 

14

                       

Foreign currency - Bond

         

Level 1

 

11,776,438

 

10,432,526

 

11,900,361

 

10,241,359

Foreign currency - other borrowings

             

2,412,627

 

2,588,901

 

2,412,627

 

2,588,901

Local currency

             

6,422,161

 

5,667,529

 

6,422,161

 

5,667,529

               

20,611,226

 

18,688,956

 

20,735,149

 

18,497,789

                             

Project finance

 

15

         

7,689,093

 

4,782,602

 

7,689,093

 

4,782,602

                             

Ethylene XXI Project Loan

 

18

         

792,188

 

370,420

 

792,188

 

370,420

                             

Other payables

 

22

         

296,969

 

275,743

 

296,969

 

275,743

 

 

 

37

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(a)               Fair value

 

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)      Held-for-trading and available-for-sale financial assets 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 approximate their respective carrying amount due to the short-term maturity of these instruments.

 

(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 values of the remaining assets and liabilities correspond to their book value.

 

(b)               Fair value hierarchy

 

The Company adopts IFRS 7 for financial instruments that are measured in the balance sheet; this requires disclosure of measurements by level of 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 discounted cash flow models, when the instrument is a forward purchase or sale or a swap contract, or valuation models of option contracts, such as the Black-Scholes model, when the derivative has the characteristics of an option.

 

38

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

16.2          Financial hedge instruments designated and not designated for hedge accounting

 

16.2.1    Changes

 

           

Operation characteristics

               
       

Fair value

 

Principal exposure

     

Balance at

 

Change in

 

Financial

 

Balance at

Identification

 

Note

 

hierarchy

   

Derivatives

 

2013

 

fair value

 

settlement

 

2014

                                 

Non-hedge accounting transactions

                               

Commodity swap - Naphtha

 

0

 

Level 2

 

Fixed price

 

Variable price

 

(470)

 

5

 

465

 

 

Exchange swap

 

0

 

Level 2

 

Argentine peso

 

Dollar

 

 

 

1,383

 

 

 

1,383

Interest rate swaps

 

16.2.1 (a.i)

 

Level 2

 

Fixed rate

 

CDI

 

20,751

 

(12,966)

 

10,803

 

18,588

Deliverable Forward

 

0

 

Level 2

 

Euro

 

Dollar

 

(5,022)

 

2,448

 

4,804

 

2,230

                   

15,259

 

(9,130)

 

16,072

 

22,201

                                 

Hedge accounting transactions

                               

Exchange swap

 

16.2.1 (b.i)

 

Level 2

 

CDI

 

Dollar+Interests

 

367,559

 

224,583

 

(31,314)

 

560,828

Commodity swap - ethylene

 

0

 

Level 2

 

Variable price

 

Fixed price

 

(69)

 

(72)

 

141

 

Commodity swap - PGP

 

0

 

Level 2

 

Fixed price

 

Variable price

 

(59)

 

(132)

 

191

 

Interest rate swaps

 

0

 

Level 2

 

Libor

 

Fixed rates

 

(110,253)

 

78,362

 

35,433

 

3,542

Deliverable Forward

 

16.2.1 (c.i.i)

 

Level 2

 

Mexican peso

 

Dollar

 

47,280

 

19,567

 

(36,314)

 

30,533

                   

304,458

 

322,308

 

(31,863)

 

594,903

                                 

Derivatives operations

                               

Current assets

                 

(34,101)

         

(33,555)

Non current assets

                 

(137,345)

         

(39,350)

Current liabilities

                 

95,123

         

95,626

Non current liabilities

                 

396,040

         

594,383

                   

319,717

         

617,104

 

 

The counterparties in these contracts are daily 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.

 

Financial instruments designated and not 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. Financial instruments are necessarily classified as "held-for-trading". The regular changes in the fair value are recognized as financial income or expense in the period in which they occur, except when designated and qualified for hedge accounting.

 

All financial instruments held at December 31, 2014 were contracted on Over the Counter - OTC markets with large financial counterparties under global derivative contracts in Brazil or abroad and its fair value is classified as Level 2.

 

Braskem’s Financial Policy provides for a continuous short-term hedging program for foreign exchange rate risk arising from its operations and financial items. 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 for each operation and keeps it in place for the whole period of the hedged transaction.

 

Braskem may elect derivatives for the application of hedge accounting in accordance with IAS 39-32 and IFRS 7. 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.

 

39

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

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 or loss for the periods in which the hedged item affects the financial results. The ineffective portion is recognized immediately in the statement of operations as “financial result”.

 

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 or 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)               Non-hedge accounting transactions

 

The Company has operations that were not designated as hedge accounting, when the relation between the instrument and the object is already fairly stated in the Company’s profit or loss.

 

The regular changes in the fair value of these swaps are recorded as financial income or expenses in the same period in which they occur.

 

Derivatives not designated as hedge instruments are classified as current assets or liabilities. Changes in the fair value of these derivative instruments are recognized immediately in the statement of operations under “financial results”.

 

(a.i)     Interest rate swap linked to NCE

 

            The Braskem S.A. has contracted financing facilities in the form of NCE (Note 14(d)) with fixed interest payments. Considering that the cash in Brazilian real is largely invested in the overnight rate (CDI)-indexed investments, the company contracted swaps to match financial charges with cash yields.

 

Identification

 

 

 

Hedge

 

Maturity

 

 

 

Fair value

 

Nominal value

 

(interest rate)

 

 

2014

 

2013

Swap NCE I

 

100,000

 

90.65% CDI

 

February-2016

 

3,576

 

4,086

Swap NCE II

 

50,000

 

88.20% CDI

 

February-2016

 

1,879

 

2,243

Swap NCE III

 

100,000

 

92.64% CDI

 

February-2016

 

3,773

 

4,435

Swap NCE IV

 

50,000

 

92.70% CDI

 

February-2016

 

1,928

 

2,315

Swap NCE V

 

100,000

 

91.92% CDI

 

February-2016

 

3,781

 

4,407

Swap NCE VI

 

50,000

 

92.25% CDI

 

March-2016

 

1,911

 

2,310

Swap NCE VII

 

17,500

 

91.10% CDI

 

March-2016

 

640

 

765

Swap NCE VIII

 

10,000

 

77.52% CDI

 

August-2016

 

241

 

190

Swap NCE IX

 

50,000

 

68.15% CDI

 

December-2016

 

360

 

Swap NCE X

 

50,000

 

67.15% CDI

 

December-2016

 

251

 

Swap NCE XI

 

50,000

 

67.10% CDI

 

December-2016

 

248

   

Total

 

627,500

         

18,588

 

20,751

                     

Derivatives operations

                   

Current liabilities

 

 

 

 

 

 

 

18,588

 

20,751

Total

 

 

 

 

 

18,588

 

20,751

 

 

40

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(b)               Hedge accounting transactions

 

(b.i)     Swaps related to NCE

 

In line with the Company’s risk management strategy and based on its financial policy, the Management contracted swap operations to offset the interest rate and currency risks arising from the financings mentioned in Note 14(d), by maintaining its exposure to long-term financial liabilities in the U.S. dollar.

 

 

Identification

     

 

 

Hedge

 

Maturity

 

Fair value

 

Nominal value

 

US$ mil

 

interest rate per year

   

2014

 

2013

Swap NCE I

(i)

200,000

 

122,100

 

6.15%

 

August 2019

 

155,961

 

101,904

Swap NCE II

(i)

100,000

 

60,187

 

6.15%

 

August 2019

 

75,373

 

48,414

Swap NCE III

(i)

100,000

 

59,588

 

6.15%

 

August 2019

 

73,565

 

46,642

Swap NCE IV

 

100,000

 

56,205

 

5.50%

 

April 2019

 

57,906

 

39,005

Swap NCE V

 

100,000

 

56,180

 

5.50%

 

April 2019

 

57,831

 

38,939

Swap NCE VI

 

150,000

 

82,372

 

5.43%

 

April 2019

 

80,506

 

52,745

Swap NCE VII

 

100,000

 

58,089

 

4.93%

 

April 2019

 

59,686

 

39,910

Total

 

850,000

 

494,721

         

560,828

 

367,559

 

Derivatives operations         

Current assets

 

(33,555)

 

(28,481)

Non current liabilities

 

594,383

 

396,040

Total

 

560,828

 

367,559

 

(i)       Over the course of 2014, the Company as part of its financial strategy assigned the respective derivatives to a new counterparty and as a result, it made a new designation for hedge accounting.The Company,

(b.ii)     Non-derivative liabilities designated to export hedge accounting

 

(b.ii.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 will be offset by the foreign exchange variation on the designated liabilities, partly eliminating the volatility of results.

 

Hedged exports amounted to US$6,757,231, as shown below:

 

 

 

Total nominal value

 

 

US$ thousands

 

 

 

2016

 

839,447

2017

 

829,685

2018

 

787,894

2019

 

733,980

2020

 

724,000

2021

 

716,000

2022

 

719,000

2023

 

718,372

2024

 

688,853

 

 

6,757,231

 

 

41

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

The Company considers these exports in the selected period (2016/2024) as highly probable, based on the following factors:

 

  • In the last five years, Braskem S.A. exported an average US$2,4 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, 2014, the original maturities of the financial liabilities designated as this hedge, within the scope of the consolidated balance sheet, were as follows:

 

 

 

Total nominal value

   

US$ thousands

 

 

 

2015

 

2,458,717

2016

 

33,576

2017

 

87,103

2018

 

1,139,510

2019

 

183,684

2020

 

567,677

2021

 

1,016,964

2022

 

520,000

2024

 

750,000

 

 

6,757,231

 

 

As the preceding chart shows, a portion of export flows has longer maturities than the financial liabilities that hedge them. To ensure the continuity of the proposed relationship, the Company, in keeping with its hedge strategy, plans to refinance and/or substitute these hedge instruments to adjust them to the schedule and value of the hedged exports. In this regard, the financing facilities considered in the hedge position (export credit notes, bonds and export prepayment agreements) will be renegotiated in accordance with the needs of the Company and in line with its strategy The Company may also substitute financing facilities designated as hedge, always seeking to maintain the proposed protection. Trade payables, especially naphtha, were also considered in the transaction. The rollover or substitution of these liabilities are also considered in the strategy of this hedge. The rollover or replacement of the hedge instrument are provided for in IAS 39(paragraph 91). It is important to note that the long period of export flows does not affect the ability of the Company to rollover and/or refinance its liabilities. If the refinancing and/or rolling over of these liabilities does not occur, the exchange variation related to the period in which the hedge was in effect will be recorded under “other comprehensive income” until the exports are realized.

 

Given favorable market conditions, the Company may prepay or lengthen the maturity of designated liabilities to beyond the periods of the hedged exports. If these transactions do come to occur and cause any inefficiency to the hedge position, they must be discontinued due to their ineffectiveness. In this case, the exchange variation related to the period in which the hedge was effective will be recorded under “other comprehensive income” until the exports are realized.

 

For the purposes of analyzing the prospective and retroactive effectiveness of the transactions, the Company used the dollar offset and volatility reduction methods, respectively.

 

 

 

42

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(b.ii.ii)   Liabilities related to the Project Finance of future sales in U.S. dollar

 

On October 1, 2014, Braskem Idesa designated its liabilities related to Project Finance, denominated in U.S. dollar, as hedge instruments to protect highly probably future sales flows. Therefore, the impact of exchange variation on future cash flows 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 exports are highly probable, based on the following:

 

  • The hedged flow corresponds to only 13.5% of the planned revenue flow of the project over the designated period.
  • The financing was obtained through a Project Finance structure and will be paid exclusively through the cash generation of the project (Note 15). Therefore, the existence of the debit is directly associated with the highly probable nature of the future sales in U.S. dollar.
  • In Mexico, domestic sales can be made in U.S. dollar. As part of its commercial strategy, Braskem Idesa began, in 2013, to sell in the domestic market products imported from Brazil and other countries (“pre-marketing”). Confirming the feasibility of invoicing sales in the domestic market in U.S. dollar, virtually all of the sales in the pre-marketing phase are being carried out in said currency.
  • The plant will supply products mainly to Mexico, a market characterized by a shortfall of polyethylene and the supply of feedstock at prices below the reference price adopted by its main competitors. These factors favor its sales in the market.

 

On December 31, 2014, hedged sales and the maturities of financial liabilities amounted to US$2,878,936 thousand and were distributed as follows:

 

 

 

Total nominal value

   

US$ thousands

 

 

 

2016

 

60,862

2017

 

165,217

2018

 

200,138

2019

 

206,844

2020

 

240,596

2021

 

273,942

2022

 

229,136

2023

 

300,853

2024

 

324,902

2025

 

322,097

2026

 

278,065

2027

 

136,576

2028

 

111,765

2029

 

27,943

 

 

2,878,936

 

For the purposes of analyzing the prospective and retroactive effectiveness of the transactions, the Company used the dollar offset and volatility reduction coefficient methods, respectively.

 

 

43

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(c)               Hedge operations by Braskem Idesa related to project finance

 

The hedge operations of Braskem Idesa follow the same mode as project finance, whereby the project loan must be paid exclusively with the cash generated by the project itself and shareholders provide limited guarantees (limited recourse project finance) (Note 15).

 

(c.i)      Operations designated for hedge accounting

 

(c.i.i)    Currency futures contract– Mexican Peso

 

Braskem Idesa contracted currency purchase transactions through futures contracts to hedge its future obligations in Mexican peso (local trade payables, payroll, taxes and etc.). Since the cash of this subsidiary is maintained in U.S. dollar, these operations were contracted to ensure cash flow balance.

  

                     

Identification

 

Nominal value

 

Hedge

 

Maturity

 

 

 

Fair value

 

US$ thousands

 

(foreign exchange)

   

2014

 

2013

Deliverable Forward

 

41,020

 

12.6185

 

jan-2014

   

3,620

Deliverable Forward

 

35,453

 

12.5394

 

feb-2014

   

3,815

Deliverable Forward

 

39,206

 

12.5926

 

mar-2014

   

4,065

Deliverable Forward

 

54,084

 

12.8643

 

apr-2014

   

3,468

Deliverable Forward

 

52,182

 

12.9268

 

jun-2014

   

3,164

Deliverable Forward

 

51,191

 

12.8909

 

jun-2014

   

3,624

Deliverable Forward

 

46,889

 

12.8789

 

jul-2014

   

3,612

Deliverable Forward

 

45,959

 

12.9465

 

sep-2014

   

3,281

Deliverable Forward

 

36,561

 

12.9044

 

sep-2014

   

2,988

Deliverable Forward

 

37,215

 

12.9570

 

oct-2014

   

2,923

Deliverable Forward

 

31,908

 

12.9465

 

dec-2014

   

2,707

Deliverable Forward

 

28,169

 

12.9881

 

dec-2014

   

2,344

Deliverable Forward

 

23,381

 

12.9518

 

feb-2014

 

7,723

 

2,202

Deliverable Forward

 

29,047

 

13.1969

 

mar-2015

 

8,485

 

1,788

Deliverable Forward

 

18,625

 

13.0980

 

mar-2015

 

5,841

 

1,519

Deliverable Forward

 

10,230

 

13.0490

 

apr-2015

 

3,334

 

961

Deliverable Forward

 

5,897

 

13.1167

 

jun-2015

 

1,878

 

525

Deliverable Forward

 

7,014

 

13.4329

 

jun-2015

 

1,947

 

317

Deliverable Forward

 

2,245

 

13.2538

 

jul-2015

 

708

 

176

Deliverable Forward

 

1,847

 

13.1486

 

aug-2015

 

617

 

181

Total

 

598,123

         

30,533

 

47,280

                     

Derivatives operations

                   

Current liabilities

             

30,533

 

47,280

Total

             

30,533

 

47,280

 

(d)               Estimated maximum loss

 

The value at risk of the derivatives held by Braskem as of December 31, 2014, which is defined as the loss that could result in one month with a 5% probability and under normal market conditions, was estimated at US$54,404  thousand for the foreign exchange NCE swap (Note 16.2.1 (b.i)) and at R$1,206 for the interest rate NCE swap (Note 16.2.1 (a.i)).

 

 

44

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

16.3          Credit quality of financial assets

 

(a)               Trade accounts receivable

 

Virtually none of Braskem’s clients have risk ratings assigned by credit rating agencies. For this reason, Braskem developed its own credit rating system for all accounts receivable from domestic clients and for part of the accounts receivable from foreign clients. Braskem does not apply this rating to all of its foreign clients because most accounts receivable from them are covered by an insurance policy or letters of credit issued by banks. On December 31, 2014, the credit ratings for the domestic market were as follows:

 

 

 

 

 

 

(%)

 

 

 

2014

 

2013

1

Minimum risk

 

5.09

 

16.56

2

Low risk

 

40.23

 

32.61

3

Moderate risk

 

30.81

 

23.54

4

High risk

 

23.15

 

26.26

5

Very high risk

(i)

0.72

 

1.03

 

 

 

 

 

 

(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 for the periods ended:

 

 

Last 12 months

 

Domestic market

 

Export market

 

 

December 31, 2014

0.65%

 

0.18%

December 31, 2013

0.14%

 

0.13%

December 31, 2012

0.28%

 

0.37%

 

 

 

 

(b)               Other financial assets

 

In order to determine the credit ratings of counterparties in financial assets classified as cash and cash equivalents, held-for-trading, held-to-maturity and loans and receivables, Braskem uses the following credit rating agencies: Standard & Poor’s, Moody’s and Fitch Ratings.

 

45

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

   

2014

 

2013

Financial assets with risk assessment

     

 

AAA

 

3,765,527

 

3,436,378

AA

 

65,304

 

93,955

A+

 

53,229

 

 

A

 

180,233

 

865,105

A-

 

13,648

 

1,485

   

4,077,941

 

4,396,923

Financial assets without risk assessment

       

Quotas of investment funds in credit rights (i)

 

42,495

 

40,696

Sundry funds (ii)

 

3,056

 

3,773

Other financial assets with no risk assessment

 

2,090

 

1,965

   

47,641

 

46,434

         

Total

 

4,125,582

 

4,443,357

 

(i)         Financial assets with no internal or external ratings and approved by the Management of the Company.

(ii)       Investment funds with no internal and external risk assessment whose portfolio is composed of assets from major financial institutions and that comply with Braskem’s financial policy.

 

Braskem’s financial policy determines “A-” as the minimum rating for financial investments.

 

16.4          Sensitivity 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, 2014, the main risks that can affect the value of Braskem’s financial instruments are:

 

·      Brazilian real/U.S. dollar exchange rate;

·      Libor floating interest rate;

·      CDI interest rate; and

·      TJLP interest rate.

 

For the purposes of the risk sensitivity analysis, Braskem 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.

 

(b)               Selection of scenarios

 

In accordance with CVM Instruction No. 475/08, Braskem included three scenarios in the sensitivity analysis, with one that is probable and two that represent adverse effects to the Company. In the preparation of the adverse scenarios, only the impact of the variables on the financial instruments, including derivatives, and on the items covered by hedge transactions, was considered. The overall impacts on Braskem’s operations, such as those arising from the revaluation of inventories and revenue and future costs, were not considered. Since Braskem manages its exposure to foreign exchange rate risk on a net basis, adverse effects from depreciation in the Brazilian real in relation to the U.S. dollar can be offset by opposing effects on Braskem’s operating results.

 

46

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(b.1)    Probable scenario

 

The Market Readout published by the Central Bank of Brazil on December 26, 2014 was used to create the probable scenario for the U.S. dollar/Brazilian real exchange rate and the CDI interest rate, using the reference date of December 31, 2014. The Focus market readout presents the findings of a market survey covering the forecasts made by financial and non-financial institutions. According to Focus, at the end of 2015 the U.S. dollar will have gained 5.41% against the real compared to end-2014, and the CDI rate will reach 12.50%.

 

The probable scenario for the TJLP is an increase of 0.50% from the current rate of 5%, in line with the scale of the government’s most recent decisions to increase or decrease the rate, whereas the CDI rate is expected to increase 0.75% by end-2015. Focus does not publish forecasts for the Libor interest rate. Hence, to determine the probable scenario, Braskem considered a 5% increase over current market levels.

 

(b.2)    Possible and extreme adverse scenarios

 

The sensitivity values in the table below are the changes in the value of the financial instruments in each scenario.

 

       

Possible adverse

 

Extreme adverse

Instrument / Sensitivity

 

Probable

(25%)

 

(50%)

             

Brazilian real/U.S. dollar exchange rate

           

Bonds and MTN

 

(624,353)

 

(2,883,181)

 

(5,766,363)

BNDES

 

(21,462)

 

(99,110)

 

(198,220)

Working capital / structured operations

 

(86,031)

 

(397,278)

 

(794,557)

Export prepayments

 

(22,203)

 

(102,533)

 

(205,066)

Project finance

 

(410,227)

 

(1,894,374)

 

(3,788,747)

Financial investments abroad

 

79,834

 

368,662

 

737,324

Swaps

 

(79,593)

 

(287,956)

 

(655,504)

             

Mexican peso/U.S. dollar exchange rate

           

Deliverable Forward

 

(5,510)

 

(45,897)

 

(76,512)

             

Libor floating interest rate

           

Working capital / structured operations

 

(1,928)

 

(9,639)

 

(19,277)

Export prepayments

 

(3,128)

 

(15,641)

 

(31,281)

             

CDI interest rate

           

Swaps Export credit notes

 

(32,762)

 

(133,723)

 

(282,682)

Swaps NCE

 

(24,808)

 

(100,210)

 

(208,865)

Agricultural credit note

 

(21,873)

 

(90,999)

 

(197,475)

Foreign loans / other in local currency

 

(2,692)

 

(10,732)

 

(21,987)

Financial investments in local currency

 

18,956

 

74,289

 

148,696

   

 

 

 

 

 

   

Probable

 

Possible adverse

 

Extreme adverse

Instrument / Sensitivity

 

5.5%

 

6.0%

 

6.5%

             

TJLP interest rate

           

BNDES

 

(43,070)

 

(86,715)

 

(130,939)

 

 

 

 

 

47

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

17                Taxes payable

 

     

2014

 

2013

         

 

Brazil

       
 

IPI

 

53,536

 

81,282

 

Income tax and social contribution

 

31,474

 

52,226

 

ICMS

 

99,328

 

120,941

 

Federal tax payment program - Law 11,941/09

(a)  

 

 

1,024,127

 

Other

 

45,177

 

68,295

           

Other countries

       
 

Other

 

4,576

 

1,428

Total

 

234,091

 

1,348,299

           

Current liabilities

 

203,392

 

445,424

Non-current liabilities

 

30,699

 

902,875

Total

 

234,091

 

1,348,299

 

(a)               Installment payments under Federal Law 11,941/09

 

In November 2014, Braskem fully settled the outstanding balance of this installment payment program, in the amount of R$1,022,698, which included R$71,754 in new contingencies included in the program of November and recorded in “Other operating income (expenses), net.” The conditions for this transaction were established by Federal Law 13,043/14. This prepayment generated a discount of R$95,191, which was broken down and recorded as follows: (i) R$79,636 under “Other operating income and expenses;” and (ii) R$15,555 under “Financial income.” After the deduction, the outstanding balance was paid with (i) R$238,438 in cash; and (ii) R$689,069 in tax credits held by the Braskem S.A. and its subsidiaries. The use of the credits of the subsidiaries led to the recording of R$98,263 under “Other operating income (expenses), net.”

 

18                Ethylene XXI Project Loan

 

The contribution made by the shareholders to the Braskem Idesa project (Note 15) can be made via capital or subordinated loan (loan). This loan is owed to the non-controlling shareholder of Braskem Idesa, and will be paid exclusively with the cash generation from the project.

 

 

48

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

19                Income tax (“IR”) and social contribution (“CSL”)

 

19.1          Reconciliation of the effects of income tax and social contribution on profit or loss

 

   

2014

 

2013

 

2012

           

 

Income (loss) before IR and CSL and after discontinued operations

 

1,178,565

 

963,948

 

(1,802,963)

             

IR and CSL at the rate of 34%

 

(400,712)

 

(327,742)

 

613,007

             

Permanent adjustments to the IR and CSL calculation basis

           

IR and CSL on equity in results of investees

 

23,815

 

(1,096)

 

(7,548)

Effects from pre-payment of taxes

 

41,046

 

8,539

 

27,374

IR and CSL accrued in previous years

 

 

 

1,236

 

1,652

Other permanent adjustments

 

(116,413)

 

(137,847)

 

5,313

             

Effect of IR and CSL on results of operations

 

(452,264)

 

(456,910)

 

639,798

             

Breakdown of IR and CSL:

           
             

Current IR and CSL / continued operations

 

(57,806)

 

(45,218)

 

(29,165)

Current IR and CSL

 

(57,806)

 

(45,218)

 

(29,165)

             

Deferred IR and CSL / continued operations

 

(394,458)

 

(411,692)

 

812,276

Deferred IR and CSL / discontinued operations

 

 

     

(143,313)

Deferred IR and CSL

 

(394,458)

 

(411,692)

 

668,963

             

Total

 

(452,264)

 

(456,910)

 

639,798

 

(i)       Includes the impact from the difference between the tax rates of the countries of the subsidiaries and the tax rate in Brazil (34%) used for the calculation of this note.

 

The nominal income tax (IR) rates of subsidiaries abroad differ from those in Brazil, of 34% (IR – 25% and CSL 9%), as shown below:

  

   

Official rate - %

   

Headquarters

   
   

(Country)

 

2014

         

Direct and Indirect subsidiaries

       

Braskem America and Braskem America Finance

 

USA

 

35.00

Braskem Argentina

 

Argentina

 

35.00

Braskem Austria and Braskem Austria Finance

 

Austria

 

25.00

Braskem Alemanha

 

Germany

 

31.90

Braskem Idesa, Braskem Idesa Serviços, Braskem México and Braskem México Serviços

 

Mexico

 

30.00

Braskem Holanda

 

Netherland

 

25.00

Petroquímica Chile

 

Chile

 

20.00

Braskem Espanha

 

Spain

 

30.00

Norfolk

 

Uruguay

 

25.00

 

 

 

49

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

19.2          Deferred 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 operations, except to the extent they relate to items recorded in equity.

 

Deferred income tax and social contribution are recognized on the following bases: (i) tax losses and social contribution tax loss carryforwards; (ii) temporarily non-taxable and nondeductible income and expenses, respectively; (iii) tax credits and expenses that will be reflected in the books in subsequent periods; and (iv) asset and liability amounts arising from business combinations that will be treated as income or expenses in the future and that will not affect the calculation of income tax and social contribution.

 

(a)               Breakdown of and changes in deferred IR and CSL

 

   

 

 

 

 

 

 

 

 

Consolidated

Assets

 

As of December 31, 2013

 

Impact on the P&L

 

Impact on the equity

 

Use for settlement Federal tax payment program - Law 11,941/09

 

As of December 31, 2014

Tax losses (IR) and negative base (CSL)

 

1,015,587

 

19,625

   

(590,806)

 

444,406

Goodwill amortized

 

12,065

 

(4,654)

     

7,411

Exchange variations

 

791,508

 

511,293

     

1,302,801

Temporary adjustments

 

408,233

 

329,932

 

51,165

   

789,330

Business combination

 

232,039

 

(44,180)

     

187,859

Pension plan

 

61,927

 

42,300

     

104,227

Deferred charges - write-off

 

37,971

 

(13,117)

     

24,854

Investments in subsidiaries

 

94,276

 

(94,276)

         

 

   

2,653,606

 

746,923

 

51,165

 

(590,806)

 

2,860,888

                     

Liabilities

                   
                     

Amortization of goodwill based on future profitability

 

643,050

 

56,129

     

699,179

Tax depreciation

 

541,325

 

152,714

     

694,039

Exchange variations

 

 

 

(1,273)

     

(1,273)

Temporary differences

 

426,186

 

(16,972)

 

7,016

   

416,230

Business combination

 

585,250

 

(352,949)

     

232,301

Write-off negative goodwill of incorporated subsidiaries

 

1,187

 

(593)

     

594

Additional indexation PP&E

 

140,157

 

(15,395)

     

124,762

Hedge accounting

 

 

 

889,752

 

(889,752)

   

 

Amortization of fair value adjustments on the assets from the acquisiton of Quattor

 

 

 

313,422

 

 

   

313,422

Other

 

56,543

 

116,546

 

(58,171)

     

114,918

   

2,393,698

 

1,141,381

 

(940,907)

 

 

 

2,594,172

                     

Net

 

259,908

 

(394,458)

 

992,072

 

(590,806)

 

266,716

                     

Assets presented in Balance Sheet

 

1,123,313

       

870,206

(-) Liabilities presented in Balance Sheet

 

863,405

             

603,490

   

259,908

             

266,716

 

  

 

 

50

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(b)               Net balance of deferred income and social contribution tax assets and liabilities

(c)                                        

     

 

 

2014

     

Headquarters

 

 

 

IR and CSL

 

 

   

(Country)

 

Asset

 

Liability

 

Balance

                 

Assets

               

Braskem S.A.

 

Brazil

 

2,328,160

 

(1,834,857)

 

493,303

Braskem Argentina

 

Argentina

 

3,772

   

3,772

Braskem Alemanha

 

Germany

 

88,999

   

88,999

Braskem Idesa

 

Mexico

 

231,504

 

(52,463)

 

179,041

Quantiq

 

Brazil

 

8,393

 

(1,392)

 

7,001

Braskem Petroquímica - business combination effects

 

Brazil

 

98,090

 

 

 

98,090

         

2,758,918

 

(1,888,712)

 

870,206

Liabilities

               

Braskem Petroquímica - business combination effects

 

Brazil

 

 

 

(150,951)

 

(150,951)

Braskem Petroquímica

 

Brazil

 

101,919

 

(149,897)

 

(47,978)

Petroquímica Chile

 

Chile

 

51

 

(84)

 

(33)

Braskem America

 

USA

 

 

 

(404,528)

 

(404,528)

                   
       

101,970

 

(705,460)

 

(603,490)

                   
                   
                   
     

 

 

2013

     

Headquarters

 

 

 

IR and CSL

 

 

     

(Country)

 

Asset

 

Liability

 

Balance

                   

Assets

               

Braskem S.A.

 

Brazil

 

1,769,683

 

(1,095,410)

 

674,273

Braskem Argentina

 

Argentina

 

5,552

   

5,552

Braskem Alemanha

 

Germany

 

67,910

   

67,910

Braskem Idesa

 

Mexico

 

57,613

 

(52,554)

 

5,059

Braskem Petroquímica

 

Brazil

 

215,348

 

(129,022)

 

86,326

Braskem Qpar

 

Brazil

 

390,017

 

(253,307)

 

136,710

Petroquímica Chile

 

Chile

 

123

   

123

IQAG

 

Brazil

 

23

   

23

Quantiq

 

Brazil

 

5,069

   

5,069

Braskem Petroquímica and Braskem Qpar - business combination effects

 

Brazil

 

142,268

   

142,268

         

2,653,606

 

(1,530,293)

 

1,123,313

                   

Liabilities

               

Braskem Qpar e Braskem Petroquímica - efeitos combinação de negócios

 

Brazil

 

 

 

(501,699)

 

(501,699)

Braskem America

 

USA

 

  

 

(361,706)

 

(361,706)

         

   

 

(863,405)

 

(863,405)

 

       

The tax losses and negative social contribution bases do not expire under the Brazilian taxation regime, as do tax losses in Germany.

                 

 

51

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(c)        Realization of deferred income tax and social contribution

                  

 

 

 

 

Balance at

 

Realization

       

December 31,

     

2016 and

 

2018 and

 

2020

Assets

 

Note

 

2014

 

2015

 

2017

 

2019

 

thereafter

                         

Tax losses (IR) and negative base (CSL)

 

3.1

 

444,406

 

28,561

 

161,788

 

159,966

 

94,091

Goodwill amortized

 

 

 

7,411

 

1,358

 

2,242

 

1,188

 

2,623

Exchange variations

 

(i)

 

1,302,801

 

 

   

1,302,801

Temporary adjustments

 

(ii)

 

789,330

 

347,670

 

18,950

 

12,504

 

410,206

Business combination

 

(iii)

 

187,859

 

 

   

187,859

Pension plan

 

(iv)

 

104,227

 

104,227

   

 

Deferred charges - write-off

 

(v)

 

24,854

 

11,055

 

13,799

     

Total assets

     

2,860,888

 

492,871

 

196,779

 

173,658

 

1,997,580

                         

Liabilities

                       
                         

Amortization of goodwill based on future profitability

 

(vi)

 

699,179

   

699,179

Tax depreciation

 

(vii)

 

694,039

   

694,039

Exchange variations

 

 

 

(1,273)

 

(1,273)

   

 

Temporary differences

 

(viii)

 

416,230

 

43,197

 

86,395

 

87,664

 

198,974

Business combination

 

(ix)

 

232,301

 

16,063

 

32,126

 

32,126

 

151,986

Write-off negative goodwill of incorporated subsidiaries

 

 

 

594

 

297

 

297

 

Additional indexation PP&E

 

(x)

 

124,762

 

12,490

 

24,980

 

24,980

 

62,312

Amortization of fair value adjustments on the assets from the acquisiton of Quattor

 

(ix)

 

313,422

 

72,087

 

72,087

 

72,087

 

97,161

Other

 

 

 

114,918

         

114,918

Total liabilities

     

2,594,172

 

142,861

 

215,885

 

216,857

 

2,018,569

                         

Net

     

266,716

 

350,010

 

(19,106)

 

(43,199)

 

(20,989)

 

Basis for constitution and realization:

 

(i)         Exchange variation of assets and liabilities denominated in foreign currency, whose tax realization is recognized upon their receipt or settlement.

(ii)       Accounting expenses not yet deductible for calculating income tax and social contribution, whose recognition for tax purposes occurs in subsequent periods.

(iii)      Refers to: tax-related goodwill, and contingencies recognized from business combinations. Tax realization of goodwill will occur upon the merger of the investments and contingencies arising from write-offs due to the settlement or reversal of the processes involved.

(iv)     Provision for the Petros Copesul plan (Note 21), with realization projected for 2015.

(v)       Amounts constituted based on the deferred assets written off due to the adoption of Law 11,638/07. Tax realization is based on the application of the amortization rate used prior to the adoption of this law.

(vi)     Goodwill for the future profitability of the merged companies not amortized since the adoption of Law 11,638/07. Tax realization is associated with the impairment or realization of assets related to goodwill.

(vii)    Difference between the accounting and tax depreciation rates in accordance with Normative Rule 1 of July 29, 2011.

(viii)  Revenues whose taxation will occur in subsequent periods.

(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)       Adjustments to the additional indexation of property, plant and equipment, whose tax realization is based on the depreciation of assets.

 

According to tax laws, which limit to 30% in Brazil and 60% in Germany, the amount of tax loss and negative social contribution base to be offset using the taxable income of each year, and considering the known impacts on the position of deferred taxes, the Company estimates that it will be necessary to generate taxable income of around R$4,032,409 in the following years to realize its deferred tax assets on the tax losses registered on December 31, 2014.

52

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

 

Annually, the Company revises its projection of taxable income based on the business plan (Note 3.1). If this projection indicates that the taxable income will not be sufficient to absorb the deferred taxes, the amount corresponding to portion of the asset that will not be recovered is written off.

 

19.3          Federal Law 12,973/14

 

Federal Law 12,973 of May 13, 2014, which converts Provisional Presidential Decree 627 of November 11, 2013, revoked the Transitional Tax System (RTT) and included additional measures, the main ones being:  (i) changes in the federal tax laws related to income and social contribution, PIS/PASEP and COFINS taxes in order to align tax accounting with corporate accounting; (ii) provisions on the calculation of interest on capital payable; (iii) considerations on investments valued using the equity accounting method; (iv) provision regarding the tax treatment of dividends calculated based on the results in the period from January 2008 to December 2013; and (v) new rules on taxation of profits earned abroad. The provisions in this law are applicable as from 2015, except in the event of early adoption as form 2014.

 

Later, in the fourth quarter of 2014, Brazil’s Federal Revenue Service issued a few normative instructions to regulate the provisions of Federal Law 12,973/14, notable among them being IN RFB 1,515/14, which specifically addressed the effects of the cancellation of RTT, and IN 1,520/14, which regulated the provisions on taxation of profits earned abroad.

 

With regard to the exercise of the option by applying the effects of Law 12,973/14 for calendar year 2014, in November 2014, with the submission of the Declaration of Federal Contributions and Taxes (DCTF) for August 2014, the Company did not opt for the early adoption of the effects of said law, both with regard to articles 1, 2 and 4 through 70 and articles 76 to 92.

 

However, this decision was not final since, in accordance with IN RFB 1,499/14, the option of early adoption of the effects of Law 12,973/14 in calendar year 2014 could still be irrevocably confirmed or changed in the DCTF for December 2014, which must be submitted on or before February 24, 2015.

 

20                Sundry provisions

 

     

2014

 

2013

Measures to

       

 

Provision for customers rebates

(a)

 

66,702

 

45,060

Provision for recovery of environmental damages

(b)

 

102,534

 

132,762

Judicial and administrative provisions

(c)

 

412,811

 

362,896

Other

   

12,177

 

14,832

Total

   

594,224

 

555,550

           

Current liabilities

   

88,547

 

105,856

Non-current liabilities

   

505,677

 

449,694

Total

   

594,224

 

555,550

 

 

 

 

53

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(a)               Provision for client bonus

 

Some sales agreements of Braskem provide for a rebate, in products, should some sales volumes be achieved within the year, six-month period or three-month period, depending on the agreement. The rebate is monthly recognized 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 recovery 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 and most conservative estimate of the expenses required to repair the damages. Considering these assumptions, the technicians of the Company involved in the matter believe that five years is the limit for this projection.

 

(c)               Judicial and administrative provisions

 

     

2014

 

2013

         

 

Labor claims

(c.1)

 

141,240

 

125,887

           

Tax claims

(c.2)

       

Income tax and social contribution

(i)

 

35,682

 

32,319

PIS and COFINS

(ii)

 

39,145

 

35,634

ICMS - interstate purchases

(iii)

 

94,732

 

86,233

ICMS - other

 

12,559

 

11,432

Other

 

88,202

 

61,372

         

Societary claims and other

 

1,251

 

10,019

     

412,811

 

362,896

 

 

(c.1)     Labor claims

 

The provision, on December 31, 2014 is related to 350 labor claims, including occupational health and security cases (358 in 2013). The Company’s 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. The Company’s management believes that the chances of having to increase the existing provision amount are remote.

 

(c.2)     Tax claims

 

On December 31, 2014, the main claims are the following:

 

(i)                 IR and CSL

 

The provisioned derives from assessments in the administrative level of income tax and social contribution on the foreign exchange variation in the account of investments in foreign subsidiaries in 2002. This assessment of Braskem Petroquímica involves other issues for which provisions have not been accrued. There is no judicial deposit or other type of guarantee for this claim. The Company’s management expects this case to be concluded by 2016.

           

 

54

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(ii)               PIS and COFINS taxes

 

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-complience of 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.

 

Guarantees were offered for these claims in the form of bank guarantee and finished products manufactured by Braskem Petroquímica, which, together, cover the amount of the claims. The Company’s management estimates that these cases should be terminated by 2020.

 

(iii)             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:

 

·                Use of tax credits in the periods from February 2004 to August 2005, November 2005 to February 2006, and September 2006 to January 2008, arising from the bookkeeping of credits that were presented in the purchase invoices of products acquired from another company, since the operations were aimed at the export of the products and, as such, they would not be subject to ICMS;

 

·                Issue of invoices without registering the shipment of the goods from its facilities for storage; and

 

·                Non-presentation of the tax documents requested by inspection authorities.

 

No judicial deposits or other types of security were accrued for this procedure. Management estimates that this case should be terminated by 2019.

 

 

55

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(d)               Changes in provisions

 

     

Recovery of

           
     

environmental

 

Legal

       
 

Bonus

 

damage

 

provisions

 

Other

 

Total

                   

December 31, 2011

13,577

 

36,777

 

266,302

 

5,067

 

321,723

Additions, inflation adjustments and exchange variation, net

58,387  

 

18,622

 

68,268

 

3,780

 

149,057

Write-offs through usage and payments

(31,298) 

 

(22,455)

 

(1,352)

 

 

 

(55,105)

December 31, 2012

40,666

 

32,944

 

333,218

 

8,847

 

415,675

                   

Additions, inflation adjustments and exchange variation, net

58,794  

 

96,589

 

92,575

 

5,985

 

253,943

Write-offs through usage and payments

(54,400) 

 

3,229

 

(62,897)

 

 

 

(114,068)

December 31, 2013

45,060

 

132,762

 

362,896

 

14,832

 

555,550

                   

Additions, inflation adjustments and exchange variation, net

53,794  

 

30,741

 

97,553

 

357

 

182,445

Write-offs through usage and payments

(32,152) 

 

(60,969)

 

(47,638)

 

(3,012)

 

(143,771)

December 31, 2014

66,702

 

102,534

 

412,811

 

12,177

 

594,224

 

21                Post-employment benefits

 

21.1          Defined contribution plan - ODEPREV

 

The Braskem S.A. and the subsidiaries in Brazil sponsor a defined contribution plan for its employees managed by ODEPREV, a private pension plan entity. ODEPREV offers its participants, 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. As soon as the contributions are paid, the sponsors do not have any further obligations related to additional payments.

 

At December 31, 2014, the number of active participants in this plan totals 5,545 (5,451 in 2013). The contributions made by the sponsors in the year amount to R$28,245 (2013 - R$19,703) and the contributions made by the participants amounted to R$50,227 (R$46,411 in 2013).

 

21.2          Defined benefit plans

 

(a)               Novamont

 

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. At December 31, 2014, the plan has 53 active participants and 152 assisted participants (54 active participants and 149 assisted participants in 2013). Neither Braskem America nor the participants made contributions in 2014 and 2013.

 

(b)               Braskem Alemanha

 

Braskem Alemanha is the sponsor of the defined benefit plan of the employees of the plants located in that country. At December 31, 2014, the plan has 136 active participants (136 active participants in 2013). Neither Braskem Alemanha nor the participants made contributions in 2014 and 2013.

 

The defined benefit plan of Braskem Alemanha is a non-contribution plan, that is, the contributions of the sponsor are managed directly by the company and this type of plan is allowed by legislation of that country.

 

56

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

21.3          Petros Copesul and PQU Plans

 

Braskem, as the company that merged Copesul and Quattor, became the sponsor of the Petros Copesul and Petros PQU plans.

 

In August and October 2012, the Brazilian Private Pension Plan Superintendence (PREVIC - Superintendência Nacional de Previdência Complementar) approved the withdrawal of the sponsorship by Braskem of these plans, which required the payment of the mathematical reserves of the respective beneficiaries and in turn the monetization of the assets of the plans administered by Petros. In view of the default of Petros in monetizing the assets within the deadline agreed and established in the Withdrawal instrument, and after almost two years since the approval by PREVIC, the Management of the Company had no alternative but to file for a court order to resume sponsorship of the plans. This decision was formalized through a legal instrument, on April 3, 2014, to preserve the rights of Braskem and participants

 

PREVIC, after becoming aware of all the facts, decided, through the Rules 619 and 621, of November 26, 2014, to establish, for a period of 180 days, a special administration regime, giving it powers to intervene in the Petros Copesul and Petros PQU plans.

 

The primary consequence of these acts was the resumption, by the intervening party, of the process to withdraw the sponsorship of the plans. Therefore, on December 23, the intervening party issued an official letter to the president of Petros requesting the monetization of the assets of the plan on December 31, 2014. On January 6, 2015, the same intervening party issued an official letter to the Management of Braskem requesting the contribution related to the capital deficit of the Petros Copesul Plan on the date of the withdrawal of the sponsorship (October 2012), restated by the IPCA consumer price index + 6% p.a. through December 31, 2014. The value of this deficit, in October 2012, amounted to R$259,932. This amount, restated as cited above, comes to R$336,357. Before receiving said official letter, Braskem had accrued a provision of R$259,149 for this plan, already including R$24,017 to cover probable losses arising from lawsuits filed by participants against the fund. To adjust the obligation to the required amount, the Company restated the provision by recognizing a financial expense of R$77,208. The amount provisioned was transferred to Current Liabilities.

 

To date the Petros PQU Plan does not require any further contribution by Braskem, since the plan registers a surplus.

 

21.3.1    Composition and changes in the balances of the defined benefit plans

 

(a)               Amounts in balance sheet

 

   

2014

 

2013

Defined benefit

       

Novamont Braskem America

 

18,356

 

9,554

Braskem Alemanha

 

50,820

 

34,515

   

69,176

 

44,069

         

Benefit obligations

 

(100,398)

 

(67,668)

Fair value of plan assets

 

31,222

 

23,599

Funded status of the plan

 

(69,176)

 

(44,069)

Consolidated net balance

 

(69,176)

 

(44,069)

         

In non-current liability

 

(69,176)

 

(44,069)

 

 

57

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(b)               Change in obligations

  

   

2014

 

2013

 

2012

             

Balance at beginning of year

 

67,668

 

56,338

 

37,166

Current service cost

 

2,943

 

2,593

 

1,255

Interest cost

 

3,277

 

2,561

 

2,138

Special retirement

 

-

 

Benefits paid

 

(1,927)

 

(1,693)

 

(2,561)

Actuarial losses (gain)

 

20,766

 

(909)

 

14,769

Exchange variation

 

4,295

 

8,778

 

3,571

Balance at the end of the year

 

100,398

 

67,668

 

56,338

 

(c)               Change in fair value plan assets

  

   

2014

 

2013

 

2012

             

Balance at beginning of year

 

23,599

 

19,736

 

18,981

Actual return on plan assets

 

3,343

 

1,158

 

314

Employer contributions

 

3,166

 

1,392

 

178

Current expenses

   

(39)

Benefits paid

 

(1,894)

 

(1,619)

 

(1,406)

Exchange variation

 

3,008

 

2,932

 

1,708

Balance at the end of the year

 

31,222

 

23,599

 

19,736

 

(d)               Amounts recognized in profit or loss

  

   

2014

 

2013

 

2012

             

Current service cost

 

2,957

 

2,593

 

1,255

Interest cost

 

3,277

 

2,547

 

2,138

Expected return on plan assets

 

(2,045)

 

(1,614)

 

(1,489)

Amortization of actuarial loss

 

135

 

675

 

74

Amortization of unrecognized service cost

 

119

 

119

 

104

Actuarial losses

 

12,511

 

-

   
   

16,954

 

4,320

 

2,082

 

The amounts recognized in the statement of operations refer to transactions involving the defined benefit pension plans that are recognized in “other operating (revenues) expenses, net” and in “financial results”, depending on their nature.

 

 

58

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(e)               Actuarial assumptions

      

   

(%)

   

2014

 

2013

 

2012

   

United

     

United

     

United

   
   

States

 

Germany

 

States

 

Germany

 

States

 

Germany

                         

Discount rate

 

4.20

 

3.75

 

5.00

 

3.75

 

5.00

 

5.75

Inflation rate

 

3.00

 

2.00

 

3.00

 

1.51

 

3.00

 

2.00

Expected return on plan assets

 

7.50

 

n/a

 

7.50

 

n/a

 

7.50

 

n/a

Rate of increase in future salary levels

 

n/a

 

3.00

 

n/a

 

3.00

 

n/a

 

3.00

Rate of increase in future pension plan

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

 

(f)                Hierarchy of fair value assets

 

On December 31, 2014, 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.

 

22                Other accounts payable

 

(a)               Non-current

 

(i)    On August 9, 2010, as part of the business combination of the companies of the Quattor group BNDESPAR exercised its option to sell the shares in Riopol, incorporated by Braskem Qpar in August, 2013. The balance, on December 31, 2014, is R$296,970 (R$275,743 in 2013).

 

The purchase price will be paid in 3 installments, with restatement by the TJLP, as follows:

 

·                On June 11, 2015, the amount corresponding to 15% of the purchase price;

·                On June 11, 2016, the amount corresponding to 35% of the purchase price; and

·                On June 11, 2017, the amount corresponding to 50% of the purchase price.

 

23                Contingencies

 

Braskem has contingent liabilities related to lawsuits and administrative proceedings arising from the normal course of its business. These contingencies are of a labor and social security, tax, civil and corporate nature and involve risks of losses that are classified as possible. No provisions have been accrued for these lawsuits, except in relevant cases involving business combinations.

 

The balance of contingent liabilities as of December 31, 2014 and 2013 is as follows:

 

     

2014

 

2013

           

Labor claims

(a)

 

463,001

 

606,166

Tax claims

(b)

 

5,477,192

 

3,399,794

Other lawsuits

(c)

 

447,411

 

389,352

Total

   

6,387,604

 

4,395,312

           

 

 

 

 

59

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(a)               Labor

 

The amount at December 31, 2014 is related to 1,430 indemnity and labor claims. Among these claims are:

 

(a.1)    Class actions filed by the Union of Workers in the Petrochemical and Chemical Industries in Triunfo (RS), in the second quarter of 2005, claiming the payment of overtime amounting to R$40 million. The Management of the Company does not expect further disbursements to terminate these lawsuits.

 

All lawsuits in progress are with the Superior Labor Court and Management expects them to be judged in 2015.

There are judicial deposits related to these claims.

 

(a.2)    Class actions filed by the Union of Workers in the Petrochemical and Chemical Industries in Triunfo (RS) in the third quarter of 2010 claiming the payment of overtime referring to work breaks and integration into base salary of the remunerated weekly day-off amounting to R$338 million. The Management of the Company does not expect to disburse any amounts upon their closure.

 

The claims are in the fact-finding and appeals phase and they are expected to be granted a final and unappealable decision in the last quarter of 2014. No judicial deposit or other form of security was accrued for these claims.

 

(b)               Tax

 

On December 31, 2014, the main tax contingencies, grouped by matter and totaling, at least, R$60 million, are the following

 

(b.1)    ICMS

 

The Company is involved in many ICMS collection claims related to assessment notices drawn up mainly by the Finance Department of the States of São Paulo, Rio Grande do Sul, Bahia and Alagoas. On December 31, 2014, the adjusted amounts of these claims total R$629 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 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.;

 

·           transfer of goods 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;

 

60

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, 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; and

 

·           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).

 

The Company’s legal advisors estimate that: (i) these judicial proceedings are expected to be terminated in 2020, and (ii) in the event of an unfavorable decision to the Company, which is not expected, these contingencies could be settled for up to 40% 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. No judicial deposit or other form of security was accrued for these claims.

 

(b.2)    PIS and COFINS sundry

 

The Company is involved in collection actions related to PIS and COFINS assessments, which discuss alleged undue offsetting of credits discussed in administrative proceedings and lawsuits, including: (i) negative balance of income tax; (ii) FINSOCIAL; (iii) taxes on net income; (iv) PIS-Decrees; and (v) the COFINS tax arising from the undue payment or payment in excess, as well the as COFINS levied on Interest on Capital.

 

On December 31, 2014, the adjusted amounts involved of these assessments total R$281 million.

 

The Company’s external legal advisors estimate that: (i) these judicial proceedings are expected to be terminated in 2018; 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 in guarantee, in the amount of R$54 million, which cover the amount involved in these claims.

 

(b.3)    PIS, COFINS, IR and CSL: 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 MP 470. In the specific case of PIS/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.

 

On December 31, 2014, the tax deficiency notices amounted to R$1,3 billion. No guarantees have been accrued for these assessments.

 

The Company’s legal advisors estimate that: (i) the administrative level of these judicial proceedings is expected to be concluded by 2018; and (ii) in the event of an unfavorable decision to the Company, which is not expected, these contingencies could be settled for up to 40% 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.

 

61

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

 

 (b.4)   IPI – presumed credit

 

The Company was involved in tax assessments that questioned the undue use of presumed IPI credit as a way to offset the payment of PIS and COFINS levied on the acquisitions of raw materials, intermediate products and packaging material used in the industrialization of exported products. The Revenue Service understands that only the inputs that have been in contact with or have a direct influence on the final product are entitled to the presumed credit. On December 31, 2014, the adjusted amount involved of these assessments was R$111 million.

 

In July 2014, this contingency was fully included in the Refis tax amnesty program (“REFIS”) reopened by the federal government under Federal Law 12,973/2014. 

 

(b.5)    Non-cumulative PIS and COFINS

 

The Company received a deficiency notice from the Brazilian Federal Revenue Service due to the use of non-cumulative PIS and COFINS tax credits. The matters whose chance of loss is deemed as possible are mainly related to the following: (i) expenditures with treatment of effluents; (ii) charges on transmission of electricity; (iii) freight for storage of finished products; and (iv) extemporaneous credits from acquisitions of property, plant and equipment. These matters have already been contested at the administrative level and comprise the period from 2006 to 2011, and as of December 31, 2014 totaled R$761 million, of which R$366 million related to principal and R$394 million of fine and interest.

 

The Company's legal counsel, in view of the recent decisions by the Tax Resources Administrative Board and the evidence provided by the Company, assess as possible the chances of loss at the administrative and legal levels. Any changes in the court’s understanding of the position could cause future impacts on the financial statements of the Company due to such proceedings.

 

The Company’s external legal counsel expect the proceedings at administrative level to conclude in 2020.

 

No judicial deposit or other form of guarantee was accrued for this claim.

 

(b.6)    IR and CSL – Charges with goodwill amortization and other

 

The Company was served by the Federal Revenue Service for deducting amortization charges, from 2007 to 2012, relating to goodwill originated from acquisitions of shareholding interests in calendar year 2002. In that year, several business groups divested their petrochemical assets, which were consolidated to enable the consequent foundation of Braskem. The current value of these notices on December 31, 2014, was R$1,1 billion of income tax and social contribution. The Company also received a tax deficiency notice due to the inclusion in the income tax and social contribution calculation base of interest and exchange variation expenses related to obligations assumed in business combinations.

 

There is no judicial deposit or any other type of guarantee for these proceedings.

 

The Management, based on the opinion of its legal advisors, assess the probability of the loss of these cases as possible, therefore no provision has been accrued, with conclusion expected by 2022. This conclusion 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.

 

62

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

 

(c)               Other court disputes involving the Company and its subsidiaries

 

(c.1)     Civil

 

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, 2014, totaled R$113 million. The claimants seek indemnity for damages related to the alleged non-performance of the distribution agreement by the Company.

 

No judicial deposit or other form of guarantee was accrued for these lawsuits.

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.

 

24                Equity

 

(a)                Capital

 

On December 31, 2014, the Company's subscribed and paid up capital stock amounted to R$8,043,222 and comprised 797,265,348 shares with no par value, distributed as follows:

 

             

Preferred

     

Preferred

           
     

Common

     

shares

     

shares

           
     

shares

 

%

 

class A

 

%

 

class B

 

%

 

Total

 

%

                                   

OSP e Odebrecht

   

226,334,623

 

50.11%

 

79,182,498

 

22.95%

   

305,517,121

 

38.32%

Petrobras

   

212,426,952

 

47.03%

 

75,243,737

 

21.81%

   

287,670,689

 

36.08%

BNDESPAR

     

40,102,837

 

11.62%

   

40,102,837

 

5.03%

ADR

(i)

   

33,634,266

 

9.75%

   

33,634,266

 

4.22%

Other

   

12,907,077

 

2.86%

 

115,684,782

 

33.53%

 

593,818

 

100.00%

 

129,185,677

 

16.20%

Total

   

451,668,652

 

100.00%

 

343,848,120

 

99.67%

 

593,818

 

100.00%

 

796,110,590

 

99.86%

Braskem shares owned by subsidiary of Braskem Petroquímica

(ii)

 

 

     

1,154,758

 

0.33%

 

 

     

1,154,758

 

0.14%

Total

   

451,668,652

 

100.00%

 

345,002,878

 

100.00%

 

593,818

 

100.00%

 

797,265,348

 

100.00%

 

(i)       American Depositary Receipts traded on the New York Stock Exchange (USA);

(ii)     These share are considered “treasury shares” in the consolidated shareholders’ equity, amounting to R$48,892.

 

(b)               Share rights

 

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. Only class “A” preferred shares will have the same claim on the remaining profit as common shares 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 class “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.

 

63

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

In the event of liquidation of the Company, class “A” and “B” preferred shares will have priority in the reimbursement of capital.

 

Shareholders are entitled to receive a mandatory minimum dividend of 25% on profit for the year, adjusted under Brazilian Corporation Law.

 

(c)               Capital reserve

 

This reserve is recorded goodwill recorded in various Company's capital increases. The possible uses of this reserve are contained in Article 200 of the Law of Business Corporations.

 

(d)               Legal reserve

 

Under Brazilian Corporation Law, companies must transfer 5% of net profit for the year, determined in accordance with the accounting practices adopted in Brazil, 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.

 

(e)               Dividends proposed and appropriation of profit

 

Under the Company’s bylaws, profit for the year, adjusted according to Law 6,404/76, is appropriated as follows:

 

(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 Brazilian Corporation Law, it is the full payment of the mandatory dividend.

 

Any surplus remaining after the payment of the priority dividend will be used to:

 

·      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.

 

 

64

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(e.1)     Profit or loss in 2014 and dividends proposed

 

   

2014

     

Net income for the year of Company's shareholders

 

864,064

Amounts recorded directly to retained earnings

 

Realization of additional property, plant and equipment

 

28,203

Prescribed dividends

 

682

   

892,949

Legal reserves distribution

 

(44,647)

   

848,302

Destinations:

   

Proposed dividends

(i)

(482,593)

Portion allocated to unrealized profit reserves

(ii)

(365,709)

   

(848,302)

     

Composition of the total proposed dividends

   

Minimum dividends - 25% adjusted net income

(iii)

(212,076)

Additional proposed dividends

(iv)

(270,517)

Total dividends

 

(482,593)

     

 

(i)       Unit dividend of R$0.6061888020 for all types of shares;

(ii)     The retained earnings reserve was accrued pursuant to Article 196 of Federal Law 6,404/76, for use in future investments, which will be submitted for approval by shareholders assembled in a Shareholders’ Meeting.

(iii)    Recorded in current liabilities;

(iv)    Recorded in shareholders' equity, under the item “proposed additional dividend”.

 

(e.2)     Dividend payment

 

The Annual Shareholders’ Meeting held on April 9, 2014 approved the declaration of dividends in the amount of R$482,593, the payment of which started to be paid on April 22, 2014, of which R$273,796 was paid to holders of common shares and R$208,437 and R$360 to holders of class A and class B preferred shares, respectively.

 

 

65

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(f)                Other comprehensive income – Equity

 

             

Defined

     

Foreign

       
     

Additional

 

Deemed

 

benefit

     

currency

 

Gain (loss)

   
     

indexation of

 

cost of

 

plan actuarial

 

Fair value

 

translation

 

on interest

   
     

PP&E

 

PP&E

 

Gain (loss)

 

of hedge

 

adjustment

 

in subsidiary

   
     

(i)

 

(i)

 

(ii)

 

(iii)

 

(iv)

 

(v)

 

Total

As of December 31, 2011

 

326,541

 

21,159

 

 

 

(10,716)

 

(24,504)

 

3,106

 

315,586

                               

Additional indexation

   

 

 

 

 

 

 

 

 

 

 

 

 

 

Realization by depreciation or write-off assets

 

(41,268)

 

 

 

 

 

 

 

 

 

 

 

(41,268)

 

Income tax and social contribution

 

14,032

 

 

 

 

 

 

 

 

 

 

 

14,032

       

 

 

 

 

 

 

 

 

 

 

 

 

Deemed cost of jointly-controlled investment

   

 

 

 

 

 

 

 

 

 

 

 

 

 

Realization by depreciation or write-off assets

 

 

 

(1,442)

 

 

 

 

 

 

 

 

 

(1,442)

 

Income tax and social contribution

 

 

 

490

 

 

 

 

 

 

 

 

 

490

       

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit plan actuarial loss

   

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

 

 

 

 

(18,204)

 

 

 

 

 

 

 

(18,204)

 

Income tax and social contribution

 

 

 

 

 

6,388

 

 

 

 

 

 

 

6,388

       

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of Cash flow hedge

   

 

 

 

 

 

 

 

 

 

 

 

 
 

Change in fair value

 

 

 

 

 

 

 

1,948

 

 

 

 

 

1,948

 

Transfer to result

 

 

 

 

 

 

 

14,290

 

 

 

 

 

14,290

 

Income tax and social contribution

 

 

 

 

 

 

 

(5,522)

 

 

 

 

 

(5,522)

       

 

 

 

 

 

 

 

 

 

 

 

 

Loss on interest in subsidiary

 

 

 

 

 

 

 

 

 

 

 

(5,917)

 

(5,917)

                               

Write-off gain on interest in subsidiary

 

 

 

 

 

 

 

 

 

 

 

(4,632)

 

(4,632)

                               

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

61,662

 

 

 

61,662

                               

On December 31, 2012

 

299,305

 

20,207

 

(11,816)

 

 

 

37,158

 

(7,443)

 

337,411

                               

Additional indexation

                           
 

Realization by depreciation or write-off assets

 

(41,268)

 

 

 

 

 

 

 

 

 

 

 

(41,268)

 

Income tax and social contribution

 

14,032

 

 

 

 

 

 

 

 

 

 

 

14,032

                               

Deemed cost of jointly-controlled investment

                           
 

Realization by depreciation or write-off assets

 

 

 

(1,465)

 

 

 

 

 

 

 

 

 

(1,465)

 

Income tax and social contribution

 

 

 

498

 

 

 

 

 

 

 

 

 

498

                       

 

     

Foreign sales hedge

                           
 

Exchange rate

 

 

 

 

 

 

 

(2,303,540)

 

 

 

 

 

(2,303,540)

 

Income tax and social contribution

 

 

 

 

 

 

 

783,204

 

 

 

 

 

783,204

                               

Fair value of Cash flow hedge

                           
 

Change in fair value

 

 

 

 

 

 

 

(83,413)

 

 

 

 

 

(83,413)

 

Transfer to result

 

 

 

 

 

 

 

(41,727)

 

 

 

 

 

(41,727)

 

Income tax and social contribution

 

 

 

 

 

 

 

40,120

 

 

 

 

 

40,120

                               

Gain on interest in subsidiary

 

 

 

 

 

169

 

 

 

 

 

 

 

169

                               

Write-off gain on interest in subsidiary

 

 

 

 

 

 

 

 

 

 

 

(1,961)

 

(1,961)

                               

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

205,249

 

 

 

205,249

                               

On December 31, 2013

 

272,069

 

19,240

 

(11,647)

 

(1,605,356)

 

242,407

 

(9,404)

 

(1,092,691)

                               

Additional indexation

                           
 

Realization by depreciation or write-off assets

 

(41,268)

 

 

 

 

 

 

 

 

 

 

 

(41,268)

 

Income tax and social contribution

 

14,030

 

 

 

 

 

 

 

 

 

 

 

14,030

       

 

 

 

                 

Deemed cost of jointly-controlled investment

   

 

 

 

                 
 

Realization by depreciation or write-off assets

 

 

 

(1,464)

 

 

 

 

 

 

 

 

 

(1,464)

 

Income tax and social contribution

 

 

 

499

 

 

 

 

 

 

 

 

 

499

                               

Foreign sales hedge

                           
 

Exchange rate

 

 

 

 

 

 

 

(2,611,655)

 

 

 

 

 

(2,611,655)

 

Income tax and social contribution

 

 

 

 

 

 

 

868,259

 

 

 

 

 

868,259

                               

Fair value of Cash flow hedge

                           
 

Change in fair value

 

 

 

 

 

 

 

(332,695)

 

 

 

 

 

(332,695)

 

Transfer to result

 

 

 

 

 

 

 

26,472

 

 

 

 

 

26,472

 

Income tax and social contribution

 

 

 

 

 

 

 

101,576

 

 

 

 

 

101,576

                               

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

144,880

 

 

 

144,880

                               

On December 31, 2014

 

244,831

 

18,275

 

(11,647)

 

(3,553,399)

 

387,287

 

(9,404)

 

(2,924,057)

                               

(i)

Realization as the asset is depreciated or written-off.

(ii)

Realization upon extinction of the plan.

(iii)

Realization upon maturity, prepayment or loss of efficacy for hedge accounting.

(iv)

Realization upon write-off of subsidiary abroad.

(v)

Realization upon divestment or transfer of control of subsidiary.

 

 

 

66

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

25                Earnings 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 24(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.

 

The weighted average numbers per share is calculated based on the number of outstanding common and Class “A” preferred shares at the beginning of the period, adjusted by the number of shares repurchased or issued in the period, multiplied by a weighting time factor. There has been no change in the number of shares in fiscal year 2014 and 2013. The calculation of the weighted average in 2012 is shown below:

 

     

Total of outstanding shares

 

Weighted average

 

Note

 

Common shares

 

Preferred shares class "A"

 

Total of weighted average

 

Common shares

 

Preferred shares class "A"

 

Total of weighted average

 

 

 

 

 

 

 

 

 

 

 

 

   

As of December 31, 2011

 

 

451,668,652

 

345,300,320

 

796,968,972

 

451,668,652

 

346,451,489

 

798,120,141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase of shares

(i)

 

 

 

(1,452,200)

 

(1,452,200)

 

 

 

(700,738)

 

(700,738)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2012

 

 

451,668,652

 

343,848,120

 

795,516,772

 

451,668,652

 

344,599,582

 

796,268,234

 

(i)    The shares repurchased were not considered in the calculation of earnings per share since they are not entitled to dividends.

 

Class 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 24(e). 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.

 

 

67

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

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

   

2014

 

2013

 

2012

             
             

Profit (loss) for the period attributed to Company's shareholders

           

of continued operations

 

864,064

 

509,697

 

(1,012,690)

             

Distribution of dividends attributable to priority:

           

Preferred shares class "A"

 

208,437

 

208,437

 

 

Preferred shares class "B"

 

360

 

360

 

 

   

208,797

 

208,797

 

 

             

Distribution of 6% ​​of unit value of common shares

 

273,796

 

273,796

 

 

             

Distribution of plus income, by class

           

Common shares

 

216,587

 

15,389

 

 

Preferred shares class "A"

 

164,884

 

11,715

 

 

   

381,471

 

27,104

 

 

             

Reconciliation of income available for distribution, by class (numerator):

           

Common shares

 

490,383

 

289,185

 

(574,430)

Preferred shares class "A"

 

373,321

 

220,152

 

(438,260)

Preferred shares class "B"

 

360

 

360

 

 

   

864,064

 

509,697

 

(1,012,690)

             

Weighted average number of shares, by class (denominator):

           

Common shares

 

451,668,652

 

451,668,652

 

451,668,652

Preferred shares class "A"

(i)

343,848,120

 

343,848,120

 

344,599,582

Preferred shares class "B"

 

593,818

 

593,818

 

 

   

796,110,590

 

796,110,590

 

796,268,234

             

Profit (loss) per share (in R$)

           

Common shares

 

1.0857

 

0.6403

 

(1.2718)

Preferred shares class "A"

 

1.0857

 

0.6403

 

(1.2718)

Preferred shares class "B"

 

0.6062

 

0.6062

 

 

 

 

68

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

26                Net sales revenues

 

   

Note

 

2014

 

2013

 

2012

                 

Sales revenue

             
 

Domestic market

   

32,964,432

 

30,236,855

 

27,409,691

 

Foreign market

   

20,117,322

 

17,532,783

 

15,572,798

       

53,081,754

 

47,769,638

 

42,982,489

Sales deductions

             

 

Taxes

   

(6,657,794)

 

(6,414,524)

 

(6,487,401)

 

Customers rebates

20(a)

 

(59,818)

 

(57,236)

 

(58,583)

 

Sales returns

   

(332,753)

 

(328,388)

 

(276,178)

       

(7,050,365)

 

(6,800,148)

 

(6,822,162)

                 

Net sales revenue

   

46,031,389

 

40,969,490

 

36,160,327

 

 

Sales revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Company’s activities. Revenue is shown net of taxes, returns and rebates.

 

Revenue from the sale of goods is recognized when (i) the amount of revenue can be reliably measured and the Company no longer has control over the goods sold; (ii) it is probable that future economic benefits will be received by the Company; and (iii) all legal rights and risks and rewards of ownership have been transferred to the customer. 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.

 

The moment when the legal right, as well as the risks and benefits, are substantially transferred to the client is determined as follows:

 

(i)      for contracts in which the Company is responsible for the freight and insurance, the legal right and the risks and benefits are transferred to the client when the goods are delivered at the destination established in the contract;

(ii)     for agreements in which the freight and insurance are the responsibility of the client, the risks and benefits are transferred when the products are delivered to the client’s carrier; and

(iii)   for contracts in which product delivery involves the use of pipelines, especially basic petrochemicals, the risks and benefits are transferred immediately after the Company’s official meters, which is the point of delivery of products and transfer of their ownership.

 

The cost of freight services related to sales, transfers to storage facilities and finished products transfers are included in cost of sales.

 

 

69

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

27                Tax incentives

 

(a)               Income Tax

 

The benefit of the 75% reduction in the income tax from the sale of production applies to one Camaçari PE plant, in Bahia, and the PVC plant, in Marechal Deodoro (AL), until 2016 and 2019 respectively. The other industrial plants located in the states of Bahia and Alagoas are in the process of requesting for renewal of this benefit. The Management of the Company expects to obtain the renewal of this benefit in 2016.

 

(b)               PRODESIN - 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 (Note 26). In 2014, the amount of this incentive was R$60,033 (R$50,908 in 2013).

 

28                Other operating income (expenses), net

 

In fiscal year 2014, the main effects on this item were as follows:

 

Gain/Incomes  – (i) gain from the divestment of DAT (Note 1 (a.i)) – R$277,338; (ii) revenue from the recognition of credits of subsidiaries to settle the installment payment (Note 17(a)) – R$98,263; and (iii) discount from the prepayment of the tax installment (Note 17(a)) - R$79,636.

 

Expenses – (i) additional provision for the Petros Copesul - R$65,000; (ii) depreciation and maintenance of idle plants – R$119,834; (iii) adjustment of inventory and losses of raw materials – R$50,025; (iv) new contingencies included in the installment payment plan (Note 17(a)) – R$71,754; and (v) provision for recovery of environmental damages – R$30,741.

 

29                Financial results

 

     

2014

 

2013

 

2012

               

Financial income

           
 

Interest income

 

282,837

 

281,669

 

220,169

 

Monetary variations

 

74,675

 

24,117

 

40,599

 

Exchange rate variations

 

(46,173)

 

333,424

 

219,757

 

Other

 

43,882

 

133,928

 

51,403

     

355,221

 

773,138

 

531,928

               

Financial expenses

           
 

Interest expenses

 

(1,272,839)

 

(1,121,761)

 

(973,195)

 

Monetary variations

 

(320,497)

 

(300,310)

 

(274,881)

 

Exchange rate variations

 

(38,901)

 

(78,510)

 

(1,898,677)

 

Inflation adjustments on fiscal debts

 

(221,582)

 

(173,864)

 

(208,186)

 

Tax expenses on financial operations

 

(28,614)

 

(32,884)

 

(17,289)

 

Discounts granted

 

(110,535)

 

(89,495)

 

(58,859)

 

Loans transaction costs - amortization

 

(44,824)

 

(6,200)

 

(27,221)

 

Adjustment to present value - appropriation

 

(527,703)

 

(592,413)

 

(310,525)

 

Other

 

(180,369)

 

(153,674)

 

(157,376)

     

(2,745,864)

 

(2,549,111)

 

(3,926,209)

               
 

Total

 

(2,390,643)

 

(1,775,973)

 

(3,394,281)

 

   

70

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

 

   

2014

 

2013

 

2012

             

Interest income

           

Held for sale

 

26,012

 

13,416

 

5,023

Loans and receivables

 

168,259

 

102,623

 

139,580

Held-to-maturity

 

34,881

 

31,147

 

17,841

   

229,152

 

147,186

 

162,444

Other assets not classifiable

 

53,685

 

134,483

 

57,725

Total

 

282,837

 

281,669

 

220,169

 

The Company calculates the adjustment to present value whose amount has material impact on its financial statements. 

 

30                Expenses by nature

 

The Company chose to present its expenses by function in the statement of operations. As required by IAS 1, the breakdown of expenses by nature is presented below:

 

     

2014

 

2013

 

2012

               

Raw materials other inputs

 

(34,579,173)

 

(30,515,643)

 

(27,812,462)

Personnel expenses

 

(2,215,484)

 

(1,953,194)

 

(1,772,097)

Outsourced services

 

(1,699,325)

 

(1,570,320)

 

(1,633,747)

Tax expenses

 

(11,822)

 

(9,847)

 

(8,293)

Depreciation, amortization and depletion

 

(2,041,048)

 

(2,038,366)

 

(1,902,475)

Freights

 

(1,555,125)

 

(1,471,853)

 

(1,302,899)

Other expenses, net

 

(364,133)

 

(667,123)

 

(111,229)

Total

 

(42,466,110)

 

(38,226,346)

 

(34,543,202)

 

 

31                Segment information

 

Management defined the organizational structure of Braskem based on the types of business, the main products, markets and production processes, and identified five operating and reportable segments - four production segments and one distribution segment.

 

On December 31, 2014 and 2013, the organizational structure of Braskem was formed by the following segments:

 

·      Basic petrochemicals: comprises the activities related to the production of ethylene, 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.

 

·      Vinyls: comprises the activities related to the production of PVC, caustic soda and chloride.

 

·      United States and Europe: operations related to PP production in the United States and Europe, through subsidiaries Braskem America and Braskem Alemanha, respectively.

 

71

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

 

·      Chemical distribution: consists of Quantiq’s operations related to the distribution of petroleum-based solvents, intermediate chemicals, special chemicals and pharmacons.

 

(a)               Presentation, measurement and conciliation of results

 

Information by segment is generated in accounting records maintained in accordance with the accounting principles and practices adopted in Brazil, according to IFRS, and 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 transfer or raw materials between segments, that are treated and 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 decision maker.

 

(b)               Concentration of sales

 

In 2014 and 2013, 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 2014, the most significant revenue from a single client amounts to approximately 3% of total net revenues of the Company and refers to the basic petrochemical segment.

 

72

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(c)               Results of operations by segment

 

 

   

2014

   

Reporting segments

 

Total

         

Braskem

       
   

Basic

         

USA and

 

Chemical

 

reportable

 

Other

 

Corporate

 

consolidated

     

Braskem

   

petrochemicals

 

Polyolefins

 

Vinyls

 

Europe

 

distribution

 

segments

 

segments (i)

 

unit

 

before eliminations

 

Eliminations

 

consolidated

                                             

Net sales revenue

 

25,576,275

 

18,502,238

 

2,709,491

 

7,934,281

 

842,715

 

55,565,000

 

402,655

 

 

 

55,967,655

 

(9,936,266)

 

46,031,389

Cost of products sold

 

(23,252,820)

 

(15,599,615)

 

(2,551,464)

 

(7,477,507)

 

(700,917)

 

(49,582,323)

 

(284,269)

 

 

 

(49,866,592)

 

9,809,251

 

(40,057,341)

Gross profit

 

2,323,455

 

2,902,623

 

158,027

 

456,774

 

141,798

 

5,982,677

 

118,386

 

 

 

6,101,063

 

(127,015)

 

5,974,048

                                             

Operating expenses

                                           

Selling, general and distribution expenses

 

(692,662)

 

(965,737)

 

(205,343)

 

(294,923)

 

(105,242)

 

(2,263,907)

 

(169,976)

 

(70,482)

 

(2,504,365)

 

 

 

(2,504,365)

Results from equity investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,929

 

3,929

 

 

 

3,929

Other operating income (expenses), net

 

190,292

(ii)

(53,226)

 

57,268

 

(82,515)

 

(28,783)

 

83,036

 

(4,135)

 

16,695

 

95,596

 

 

 

95,596

   

(502,370)

 

(1,018,963)

 

(148,075)

 

(377,438)

 

(134,025)

 

(2,180,871)

 

(174,111)

 

(49,858)

 

(2,404,840)

 

 

 

(2,404,840)

                                             

Operating profit (loss)

 

1,821,085

 

1,883,660

 

9,952

 

79,336

 

7,773

 

3,801,806

 

(55,725)

 

(49,858)

 

3,696,223

 

(127,015)

 

3,569,208

                                             

(ii) Includes the gain on disposal of DAT (Note 1 (a.i) and Note 28).

   

2013

   

Reporting segments

 

Total

         

Braskem

       
   

Basic

         

USA and

 

Chemical

 

reportable

 

Other

 

Corporate

 

consolidated

     

Braskem

   

petrochemicals

 

Polyolefins

 

Vinyls

 

Europe

 

distribution

 

segments

 

segments (i)

 

unit

 

before eliminations

 

Eliminations

 

consolidated

                                             

Net sales revenue

 

25,037,780

 

16,944,709

 

2,581,076

 

6,748,502

 

891,734

 

52,203,801

 

130,289

 

 

 

52,334,090

 

(11,364,600)

 

40,969,490

Cost of products sold

 

(22,561,151)

 

(14,694,326)

 

(2,384,543)

 

(6,419,523)

 

(761,136)

 

(46,820,679)

 

(133,690)

 

 

 

(46,954,369)

 

11,133,608

 

(35,820,761)

Gross profit

 

2,476,629

 

2,250,383

 

196,533

 

328,979

 

130,598

 

5,383,122

 

(3,401)

 

 

 

5,379,721

 

(230,992)

 

5,148,729

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     

 

 

 

Selling, general and distribution expenses

 

(534,896)

 

(852,680)

 

(174,072)

 

(282,880)

 

(96,673)

 

(1,941,201)

 

(68,576)

 

(184,718)

 

(2,194,495)

 

 

 

(2,194,495)

Results from equity investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,223)

 

(3,223)

 

 

 

(3,223)

Other operating income (expenses), net

 

(67,835)

 

(30,673)

 

(11,179)

 

(37,621)

 

(6,537)

 

(153,845)

 

196

 

(57,441)

 

(211,090)

 

 

 

(211,090)

   

(602,731)

 

(883,353)

 

(185,251)

 

(320,501)

 

(103,210)

 

(2,095,046)

 

(68,380)

 

(245,382)

 

(2,408,808)

 

 

 

(2,408,808)

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     

 

 

 

Operating profit (loss)

 

1,873,898

 

1,367,030

 

11,282

 

8,478

 

27,388

 

3,288,076

 

(71,781)

 

(245,382)

 

2,970,913

 

(230,992)

 

2,739,921

                                             
   

 

   

2012

   

Reporting segments

 

Total

         

Braskem

       
   

Basic

         

USA and

 

Chemical

 

reportable

 

Other

 

Corporate

 

consolidated

     

Braskem

   

petrochemicals

 

Polyolefins

 

Vinyls

 

Europe

 

distribution

 

segments

 

segments (i)

 

unit

 

before eliminations

 

Eliminations

 

consolidated

                                             

Net sales revenue

 

23,603,038

 

14,456,827

 

2,019,884

 

5,465,180

 

898,786

 

46,443,715

 

72,652

 

 

 

46,516,367

 

(10,356,040)

 

36,160,327

Cost of products sold

 

(21,793,497)

 

(13,131,842)

 

(1,947,749)

 

(5,272,065)

 

(751,013)

 

(42,896,166)

 

(88,052)

 

 

 

(42,984,218)

 

10,275,150

 

(32,709,068)

Gross profit

 

1,809,541

 

1,324,985

 

72,135

 

193,115

 

147,773

 

3,547,549

 

(15,400)

 

 

 

3,532,149

 

(80,890)

 

3,451,259

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     

 

 

 

Selling, general and distribution expenses

 

(491,999)

 

(868,410)

 

(129,696)

 

(243,300)

 

(94,796)

 

(1,828,201)

 

(37,823)

 

(301,567)

 

(2,167,591)

 

 

 

(2,167,591)

Results from equity investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,807)

 

(25,807)

 

 

 

(25,807)

Other operating income (expenses), net

 

(64,050)

 

(20,012)

 

1,808

 

364,798

 

(265)

 

282,279

 

(98,298)

 

149,476

 

333,457

 

 

 

333,457

   

(556,049)

 

(888,422)

 

(127,888)

 

121,498

 

(95,061)

 

(1,545,922)

 

(136,121)

 

(177,898)

 

(1,859,941)

 

 

 

(1,859,941)

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     

 

 

 

Operating profit (loss)

 

1,253,492

 

436,563

 

(55,753)

 

314,613

 

52,712

 

2,001,627

 

(151,521)

 

(177,898)

 

1,672,208

 

(80,890)

 

1,591,318

                                             

(i) The other segments, includes the results of the subsidiary Braskem Idesa.

 

 

73

 


 

 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(d)               Net sales revenue by country

 

   

2014

 

2013

 

2012

             

Brazil

 

26,077,194

 

23,548,870

 

20,840,355

United States

 

9,125,441

 

7,981,211

 

5,642,946

Argentina

 

1,264,787

 

1,222,729

 

1,195,728

United Kingdom

 

1,111,454

 

578,351

 

406,132

Germany

 

1,067,563

 

536,343

 

583,952

Mexico

 

949,423

 

680,054

 

764,244

Italy

 

860,765

 

318,357

 

282,671

Netherlands

 

713,301

 

1,099,945

 

913,208

Singapore

 

671,222

 

1,514,216

 

561,669

Switzerland

 

467,104

 

211,371

 

1,725,665

Colombia

 

444,040

 

299,287

 

219,405

Spain

 

332,148

 

186,354

 

216,405

Chile

 

331,744

 

282,231

 

224,956

Peru

 

288,051

 

247,427

 

200,952

Uruguay

 

263,648

 

243,672

 

263,163

Japan

 

236,171

 

190,729

 

269,672

Poland

 

206,803

 

221,433

 

232,004

Paraguay

 

187,208

 

136,393

 

 

France

 

174,503

 

117,429

 

136,664

Bolivia

 

167,729

 

154,473

 

 

Canada

 

135,164

 

145,378

 

 

South Korea

 

70,683

 

90,531

 

143,036

Venezuela

 

 

 

90,595

 

152,870

Other

 

885,243

 

872,111

 

1,184,628

   

46,031,389

 

40,969,490

 

36,160,327

 

 

(e)               Net sales revenue by product

 

   

2014

 

2013

 

2012

             

PE/PP

 

26,436,519

 

23,693,211

 

19,922,007

Ethylene, Propylene

 

3,274,529

 

2,875,381

 

2,502,111

Naphtha, condensate and crude oil

 

3,092,262

 

2,240,950

 

2,019,884

Benzene, toluene and xylene

 

3,084,916

 

2,974,235

 

2,727,659

PVC/Caustic Soda/EDC

 

2,709,491

 

2,548,457

 

2,417,416

ETBE/Gasoline

 

2,128,225

 

2,015,749

 

1,751,961

Butadiene

 

1,196,602

 

1,194,839

 

1,643,172

Specialty chemicals and drugs

 

822,790

 

879,801

 

889,190

Cumene

 

745,252

 

729,999

 

646,286

Solvents

 

620,986

 

527,083

 

515,130

Other

 

1,919,817

 

1,289,785

 

1,125,511

   

46,031,389

 

40,969,490

 

36,160,327

 

 

 

75

 


 

Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

(f)                Property plant and equipment and intangible assets by country

 

   

2014

 

2013

         

Brazil

 

21,060,399

 

21,238,537

Mexico

 

9,260,814

 

5,684,813

United States of America

 

1,291,557

 

1,160,186

Germany

 

222,998

 

241,069

Other

 

1,450

 

1,573

   

31,837,218

 

28,326,178

 

 

32                Insurance coverage

 

Braskem has a comprehensive program to manage risks and insurances, in accordance with the policy approved by the Board of Directors. The risk assessment practices and procedures set forth in the policy apply to the entire Company.

 

In April 2014, the All Risks insurance policies were renewed for the units in Brazil, the United States and Germany. In 2012, Braskem Idesa contracted insurance to cover the risks related to the construction of its industrial plant.

 

Braskem's All Risks policies have Maximum Indemnity Limits per event, established based on the amounts of maximum possible loss, considered sufficient to cover any claims given the nature of the Company's activity and the advice of consultants.

 

Information about All Risks policies in force is provided below:

 

       

Maximum indemnity limit

 

Amount insured

   

Maturity

 

US$ million

 

US$ million

Units in Brazil

October 8, 2015

 

2,000

 

23,859

Units in United States and Germany

October 8, 2015

 

250

 

2,187

Braskem Idesa

September 30, 2015

 

4,148

 

4,148

Quantiq

May 30, 2015

 

78

 

78

Total

       

30,272

 

 

Additionally, the Company contracted civil liability, transportation, sundry risk and vehicle insurance. The risk assumptions adopted are not part of the audit scope and, therefore, were not subject to review by our independent accountants.

 

 

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Braskem S.A.

 

Management notes to the financial statements

at December 31, 2014

All amounts in thousands of reais, except as otherwise stated

 

 

33                Information related to guaranteed securities issued by subsidiaries

 

Braskem S.A. has fully and unconditionally guaranteed the debt securities issued by Braskem Finance, a 100-percent-owned finance subsidiary of Braskem. There are no siginificant restrictions on the abilitiy of Braskem to obtain funds from Braskem Finance.

 

 

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: February 13, 2015
  BRASKEM S.A.
 
 
  By:      /s/     Mario Augusto da Silva
 
    Name: Mario Augusto da Silva
    Title: Chief Financial Officer

 

FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates offuture economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.