Notes to the Consolidated Financial Statements
In millions of U.S. dollars, unless otherwise stated

28. SHAREHOLDERS' EQUITY


a) Capital

The authorized capital is divided into 1,000,000,000 common shares. The Company's subscribed and paid up capital at December 31, 2010 is US$1,438.0 and comprises 740,465,044 common shares, without par value, of which 16,800,000 shares are held in Treasury.

Each common share is entitled to one vote at Annual and Extraordinary General Meetings, subject to certain limitations specified in the Company's bylaws.

b) Brazilian Government Golden share

The Federal Government holds one special common share with the same voting rights as other holders of common shares but which grants it certain additional rights as established in article 9 of the Company's bylaws, including veto rights over decisions pertaining to the following matters:

I - Change of the Company's name or its corporate objective;
II - Alteration and/or application of the Company's logo;
III - Creation and/or modification of military programs (whether or not the Federal Republic of Brazil is involved);
IV - Training third parties in technology for military programs;
V - Interruption of the supply of maintenance and spare parts for military aircraft;
VI - Transfer of the Company's stock control;
VII - Any changes in (i) the provisions of the above-mentioned article or of article 4, the main clause of art. 11, arts 12, 15 and 16, sub-item III of art. 19, paragraphs 1 and 2 of art. 28, sub-item X of art. 34, sub-item XII of art. 40 or Chapter VII of the Company's bylaws; or (ii) the rights attributed by the bylaws to the special class share.


c) Interest on own capital

In meetings held in 2010, the Board of Directors approved the distribution of interest on own capital as follows:

Brazilian companies are permitted to pay interest on own capital to shareholders based on shareholders' equity, and treat such payments as a tax deductible expense for Brazilian income and social contribution tax purposes. Pursuant to the tax legislation, the interest on own capital of R$200,983 was recorded as financial expense. This notional interest distribution is treated for accounting purposes as a deduction from shareholders' equity in a manner similar to a dividend. A withholding tax is due and paid upon payments of interest on own capital to shareholders. Interest on own capital is treated as a dividend for purposes of the mandatory dividend payable if so approved by the shareholders.

The Company reclassified the amount of US$27.2 to shareholders' equity in respect of interest on own capital in excess of the minimum mandatory dividends of 25% not yet approved by the Shareholders' General Meeting.


d) Proposed dividends

 

The determination of the annual dividends, subject to the approval of the shareholders at the Annual General Meeting, is presented in Reais as Brazilian Corporate Law establishes that all dividends are determined and paid based on Reais amounts in the legal books, is shown below:

In millions of Brazilian reais 12.31.2010 12.31.2009
Net income for parent company in IFRS 573.6 912.1
IFRS adjustments - (21.7)
Net income for parent company under BR GAAP (Previous GAAP) 573.6 890.4
Invesment subsidy (15.3) (13.5)
Legal reserve (28.7) (44.5)
529.6 832.4
Minimum mandatory dividend (25%) 132.4 208.1
Interest on own capital, net of tax 176.9 152.9
Proposed dividends – complement - 55.2
Interest on own capital – excedent minimum mandatory dividend (i) (45.2) -
Total shareholder remuneration 131.7 208.1
 
Payments of the year (49.6) -
Total shareholder remuneration of open period 82.1 208.1
- -
Total shareholders remuneration of previos period 0.2  0.2 
Total shareholders remuneration – In millions of Brazilian reais 82.3 208.3
Total shareholders remuneration – In millions of US$ 49.4 119.6

(i) The excess amount is reclassified from current liabilities to the account additional dividends proposed in the revenue reserve in shareholder's equity.

e) Statutory reserve

The statutory reserve is recorded annually as an appropriation of 5% of the net income for the year. The reserve may not exceed 20% of capital, or 30% of capital and capital reserves.

f) Investment subsidy reserve

This reserve is determined in accordance with the terms of article 195-A of Brazilian Corporate Law (as amended by Law No. 11,638, of 2007), and corresponds to the appropriation of part of the retained earnings derived from government subsidies received for investments in research and development by the Company.

These subsidies are not included in the calculation of the minimum mandatory dividends.

g) Investment and working capital reserve

The purpose of this reserve is to: (i) shield funds for investments in property, plant and equipment, without detriment to retained earnings, pursuant to art. 196 of Law 6.404/76; and (ii) shield funds for the Company's working capital. The reserve may also be used to redeem, reimburse or purchase shares of the Company and to be distributed to the shareholders.

h) Treasury shares

Treasury shares are comprised of 16,800,000 common shares mainly acquired on April 4, 2008, amounting to US$183.7, charged to the Investment and working capital reserve. This transaction was carried out in accordance with the guidelines approved by the Board of Directors in a meeting held on December 7, 2007. The shares purchased will be held in Treasury during which time their voting and economic rights will be suspended.

At December 31, 2010, the fair value of the treasury shares was US$119.0 (2009 – US$91.8 and January 1st, 2009 – US$63.3).

i) Other Comprehensive Income



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