Cyrela Brazil Realty S/A Empreendimentos e Participações. Financial Statements together with the Report of Independent Public Accountants 1/101

Transcrição

1 Cyrela Brazil Realty S/A Empreendimentos e Participações Financial Statements together with the Report of Independent Public Accountants December 31, 2009 and /101

2 Report of independent public accountants (Translation of the report originally issued in the Portuguese language. See Note 30 to the financial statements.) To the Management and shareholders of Cyrela Brazil Realty S/A Empreendimentos e Participações: 1. We have audited the (individual and consolidated) balance sheets of Cyrela Brazil Realty Empreendimentos e Participações as of December 31, 2009 and 2008, and the related statement of income, statements of changes in shareholders equity, statements of cash flows and statements of added value for the years then ended. These financial statements are under the responsibility of the Company s Management. Our responsibility is to express an opinion on these statements. 2. We conducted our audits in accordance with the auditing standards generally accepted in Brazil. Those standards require that we plan and perform the audit taking into consideration the work planning, the significance of the balances, volume of transactions and the accounting and internal control systems of the Company; examining, on a test basis, the evidence and records that support the amounts and the financial information disclosed, and assessing the most representative accounting practices and estimates adopted by the Company s Management, as well as the presentation of the financial statements taken as a whole. 3. In our opinion, the financial statements mentioned above fairly present, in all material respects, the (individual and consolidated) equity and financial position of Cyrela Brazil Realty S/A Empreendimentos e Participações as of December 31, 2009 and 2008, the result of its operations, the changes in its shareholders equity, the cash flows, and the added value for the years then ended, in accordance with the accounting practices adopted in Brazil. 4. Our audits were conducted with the purpose of issuing a report on the financial statements referred to in paragraph 1, taken as a whole, which were originally issued on March 25, However, as disclosed in Note 29, the Company s management decided to reissue these statements to include additional information, in order to allow additional analyses, are not required as an integral part of the basic financial statements, pursuant to the accounting practices adopted in Brazil. Accounting practices adopted in Brazil differ in certain significant aspects from International Financial Report Standards ( IFRS ). The Company has presented the nature and effect of such differences in Note 29 to the consolidated financial statements and the reconciliations of net income and shareholders equity for the years ended December 31, 2009 and 2008 between accounting practices adopted in Brazil and IFRS do not represent a first-time adoption of IFRS, since the Company has not presented a full set of financial statements prepared in accordance with IFRS and has not disclosed an explicit and unreserved statement of compliance with IFRS; accordingly, in the event the Company fully adopts IFRS in the future, the opening shareholders equity balance presented in such reconciliation may be different from that presented in Note 29. São Paulo, March 25, (April 30, 2010 just for Explanatory Note 29) José André Viola Ferreira Auditores Independentes Engagement Partner 2/101

3 CYRELA BRAZIL REALTY S.A. EMPREENDIMENTOS E PARTICIPAÇÕES Balance sheets as of December 31, 2009 and 2008 (Translation of the original issued in Portuguese.) (In thousands of Reais) Notes Parent company Consolidated Adjusted Adjusted Assets Current assets Cash and cash equivalents Financial investments Securities Accounts receivable Real estate for sale Current accounts with venture partners Taxes to be offset Selling expenses to be appropriated Prepaid expenses Other accounts receivable Noncurrent assets Long-term assets Accounts receivable Financial investments Accounts receivable due to expropriation Related parties Taxes to be offset Deferred income tax and social contribution Advances due to real estate acquisition Long-term real estate for sale Other accounts receivable Investments Investments in subsidiaries and affiliated companies Goodwill 8 (c) Fixed assets Intangible assets Total assets /101

4 CYRELA BRAZIL REALTY S.A. EMPREENDIMENTOS E PARTICIPAÇÕES Balance sheets as of December 31, 2009 and 2008 (Translation of the original issued in Portuguese.) (In thousands of Reais) Notes Parent company Consolidated Liabilities and shareholder's equity Current liabilities Loans and financing Interest on debentures Accounts payable to suppliers Taxes collectible Deferred taxes Salaries, social charges and profit sharing Accounts payable due to real estate acquisition Dividends payable 21 (d) Related parties Current accounts with venture partners Advances from clients Other accounts payable Noncurrent liabilities Long-term liabilities Loans and financing Debentures Accounts payable to suppliers Taxes payable Accounts payable due to real estate acquisition Payable taxes and labor claims Deferred income tax and social contribution Goodwill on investments Other accounts payable Minority interest Shareholders' equity Capital stock 21 (a) Treasury shares 21 (b) (11) (11) (11) (11) Capital reserves: Recognized granted options 23 ( c ) Profits reserves Legal reserve Realizable profits reserve Expansion reserve Accumulated translation adjustments 21 (7.575) (364) (7.575) (364) Patrimonio liquido Total liabilities and shareholders' equity /101

5 CYRELA BRAZIL REALTY S.A. EMPREENDIMENTOS E PARTICIPAÇÕES Statements of income for the years ended December 31, 2009 and 2008 (Translation of the original issued in Portuguese.) (In thousands of Reais) Notes Parent company Consolidated Gross operating revenue Real estate development and resale Plots of land Lease of properties Service rendering and other services Deductions from gross revenue (175) (1.892) ( ) ( ) Operating net revenue Costs of sales Of real estate sold and resold - (5.759) (12.009) ( ) ( ) Of ground plot (28.626) (12.725) Of services provided - (44) - (27.856) (28.308) (5.803) (12.009) ( ) ( ) Gross operating profit Operating income (expenses) Selling expenses - (13.953) (12.397) ( ) ( ) General and administrative expenses - ( ) ( ) ( ) ( ) Management fees 14(d) (3.737) (3.651) (9.189) (9.394) Result of equity interest Equity accounting and quota valuation 9(b) (542) Other results in investments (20.729) (42.213) Other operating income, net (21.405) Gross profit before financial income/losses Financial income/losses Financial expenses ( ) ( ) ( ) ( ) Financial revenues Income before income tax and social contribution, statutory interests and minority shareholders Income tax and social contribution Deferred taxes 21(a) - - (40.233) (36.247) Of the year 21( c) (4.674) - (73.894) (76.152) (4.674) - ( ) ( ) Profit before statutory interest Employees and management interest 24(b) (24.000) (2.325) (30.932) (4.055) Net income before minority interest Minority interest (97.549) (47.833) Net income for the period Outstanding shares (ex-treasury stock) in thousands Net income per thousand shares - R$ 1, , , , /101

6 CYRELA BRAZIL REALTY S.A. EMPREENDIMENTOS E PARTICIPAÇÕES Statements of changes in shareholders' equity for the years ended December 31, 2009 and 2008 (Translation of the original issued in Portuguese.) (In thousands of Reais) Reserve for Profit reserves Accumulated Shares in stock option Profit Accumulated translation Notes Capital stock treasury granting Legal retention profits adjustments Total As of December 31, (11) (2.032) Capital increase: Capital increase through shares granted 21 (a) Net income for the year: Originally calculated Adjustments to Law n (88.756) - (88.756) Adjusted net income for the year: Profit allocation Legal reserve (13.885) - - Proposed dividends 21 (d) (65.956) - (65.956) Profit retention reserve ( ) - - Share-based payment program Adjustment by translation of investments As of December 31, (11) (364) Capital increase: Capital increase - public subscriptiojn 21 (a) Capital increase through shares granted 21 (a) Capital increase - Merger Goldzstein Participações S.A. 21 (a) Expenses with public issue of shares 21 (a) (32.894) (32.894) Net income for the period: Income for the period Profit allocation: Legal reserve (36.468) - - Proposed dividends 21 (d) (25.687) ( ) - ( ) Profit retention reserve ( ) - - Share-based payment program 23 (c) Adjustment by translation of investments (7.211) (7.211) As of December 31, (11) (7.575) /101

7 CYRELA BRAZIL REALTY S.A. EMPREENDIMENTOS E PARTICIPAÇÕES Statements of cash flows for the years ended December 31, 2009 and 2008 (Translation of the original issued in Portuguese.) (In thousands of Reais) Parent company Consolidated FROM OPERATING ACTIVITIES: Income before income tax and social contribution provided by statutoriy and minority interest Expenses/(revenues) not affecting the cash flow: Depreciation and amortization of intangible and fixed assets Goodwill amortization (66.414) Equity accounting and quota valorization ( ) ( ) (28.715) 542 Increase (decrease) in long-term taxes payable - (2.755) - - Interest, monetary variations on loans Deferred taxes 737 (142) (23.384) Statutory provisions ( ) (65.956) ( ) (65.956) Changes in current and noncurrent assets and liabilities: ( ) ( ) Decrease (increase) in financial investments ( ) ( ) ( ) Decrease (increase) in accounts receivable (1.126) ( ) ( ) Decrease (increase) in real estate for sale (76.112) ( ) ( ) Decrease (increase) in current account with venture partners (22.797) Decrease (increase) in related parties ( ) (24.934) Decrease (increase) in other assets (19.901) Increase (decrease) in accounts payable due to real estate acquisition (26.238) ( ) Increase (decrease) in taxes payable (72) Increase (decrease) in taxes and contributions to be payable (288) 813 (53.109) Increase (decrease) in other liabilities Increase (decrease) in minority interest - - ( ) Net cash from operations ( ) ( ) ( ) Income tax and social contribution paid (3.827) - (76.706) (76.489) Net cash used in operating activities: ( ) ( ) ( ) FROM INVESTING ACTIVITIES: Acquisition of fixed assets (9.965) (41.120) (54.788) Acquisition of investments ( ) ( ) (70.729) Acquisition of intangible assets (20.619) (6.161) (54.014) Net cash used in investing activities: ( ) ( ) (77.901) FROM FINANCING ACTIVITIES: Entrance of new loans and financing Debentures Payment of loans and financing ( ) (24.492) ( ) ( ) Interest paid ( ) ( ) ( ) (96.029) ( ) FROM SHAREHOLDERS' ACTIVITIES: Dividends distribution Capital increase Increase (decrease) from merger and split-off capital Increase in cash and cash equivalents: (6.606) At the end of the year At the beginning of the year Increase in cash and cash equivalents: (6.606) /101

8 CYRELA BRAZIL REALTY S.A. EMPREENDIMENTOS E PARTICIPAÇÕES Statements of value added for the years ended December 31, 2009 and 2008 (Translation of the original issued in Portuguese.) (In thousands of Reais) Parent company Consolidated (Adjusted) (Adjusted) Revenues Sale of goods, products and services Other revenues Allowance for doubtful accounts Raw materials acquired from third-parties (inlude ICMS and IPI) Cost of products, goods and services sold Materials, energy, third-party services and other Loss/recovery of asset amounts Other Gross value added (1-2) (40.354) (45.652) (42.327) Retentions (28.266) (11.996) (15.994) (70.828) (21.777) (1.943) - Depreciation, amortization and depletion (4.792) (2.421) (1.662) (40.965) (3.897) (1.943) - Amortization of investment goodwill (23.474) (9.575) (14.332) (29.863) (17.880) Net value added generated by the Entity (3-4) (68.620) (57.648) (58.321) Value added received in transfers Equity accounting result (542) - - Other income/loss with investments (11.154) (24.333) Financial revenues (expenses) Financial expenses (13.581) (6.794) (11.735) (43.468) (15.646) (44.825) - Financial revenues Total value added to distribute (5 + 6) Distribution of value added Personnel and charges Salaries and charges Sales commissions 244 (203) Management fees Employee profit sharing Retirement plan (pension) Taxes, fees and contributions Interests and rental Remuneration of own capital Interest on own capital Dividends Retained earnings/losses for the year Minority interest in retained earnings /101

9 Notes to the individual and consolidated financial statements as of December 31, 2009 and 2008 (In thousands of Reais) 1. Operating context Cyrela Brazil Realty S/A Empreendimentos e Participações ( Company ) is a publicly-held business corporation headquartered in the City of São Paulo, State of São Paulo, with its shares traded on the São Paulo Stock Exchange (BOVESPA) - Novo Mercado - under the ticker CYRE3. The Company has as corporate purpose and main activity the development and construction of residential real estate, mainly jointly with other partners through the interest in integrally subsidiaries or companies under shared control, associated companies and in joint ventures. The subsidiaries share the corporate, managerial and operational structures and costs of the Company or of the partner, as per each case. 2. Presentation of financial statements and main accounting practices adopted 2.1. Main accounting practices adopted in preparing these financial statements The financial statements were prepared in accordance with the accounting practices adopted in Brazil, based on the provisions contained in the Brazilian Corporation Law (Law n. 6,404/76 and changes arising from Laws n /07 and n /09), on the standards and instructions issued by the Brazilian Exchange and Securities Commission (CVM), on the technical pronouncements issued by Brazilian Independent Auditors Institute and Interpretations (IBRACON) issued by the Brazilian Accounting Standards Board (CPC) required for the years ended December 31, 2009 and The Company s functional currency is the Real, the same currency for the preparation of these financial statements. The approval of these financial statements and their disclosure was given by the Company s Board as of March 25, /101

10 2.2. Summary of the main accounting practices adopted in preparing these financial statements The main accounting practices adopted for the preparation of these financial statements are described as follows: (a) Cash and cash equivalents The Company and its subsidiaries classified as Cash equivalents the short-term investments, of high liquidity, which are immediately convertible into a known cash amount and which are subject to an insignificant risk of change in value. Investments in investment funds are stated at the value of the quota on the balance sheet date, plus the yield earned, less, when applicable, the provision for adjustment to its net realizable value. (b) Financial investments The financial investments to be held up to their maturity date are stated at cost, increased by the yield earned up to the balance sheet date. Those investments that are intended for trading are stated at cost and adjusted by a provision that might be necessary so that they are not stated in an amount higher than the market value. (c) Determination of income regarding the development activities and sales of real estate, among others The procedures and standards established by Resolution CFC n. 963 of the Federal Accounting Council and Guidance Pronouncement CPC-O-01 are observed: (i) For credit sales of completed units: Income is appropriated at the time the sale is made effective, regardless of the maturity term for receiving the contractual value; Interest and inflation adjustments, levied on accounts receivable as from the delivery of the keys, are appropriated to the income in the development, real estate sale revenue and the financial revenue, when incurred, in compliance with the accrual basis of accounting. (ii) For sales of units not yet completed: The cost incurred (including the expenditures with land, development, construction, financial charges during the construction), corresponding to the units sold, is totally appropriated to income; The percentage of the cost incurred regarding units sold (including the cost of the land) is calculated in relation to its total budgeted cost. That percentage is applied on the revenue from units sold, adjusted according to the conditions in the sales contracts, and on selling expenses (commissions) so as to determine the amount of sales revenue and expenses to be recognized; 10/101

11 The amounts of the sales revenues recognized that are higher than the amounts actually received from clients, are recorded in current assets or long term assets. The amounts received regarding sales of units that are higher than the recognized amounts of revenues, are recorded in the Advances from clients account; The financial charges of real estate credit operations and of financing directly attributed to the real estate project, incurred during the construction period are appropriated to the cost of the units being appropriated to the result (cost) when the selling takes place. Other financial charges are appropriated to the financial result when incurred, as well as real estate credit operations incurred after the completion of the construction. (iii) Other practices related to the real estate activity: Swaps: for land swaps, with the delivery of apartments yet to be built; the value of the land acquired by the Company and by its subsidiaries is calculated based on the market value of real estate units to be delivered, and was recorded as land bank, as a balancing item to advances from clients in the liabilities, at the moment the risks were assumed, and whenever it is possible to measure the value of the venture. These transactions shall have the same appropriation criteria applied to the result of real estate development as a whole; Provision for collateral: created in order to cover expenses with repairs in ventures covered in the collateral period. The provision is created as a balancing item to the result (cost), as cost of units sold is incurred; any fortuitous remaining unused balance of the provision is reversed after the expiration of the collateral offered, which is usually after five years from the delivery of the venture. (d) Accounts receivable The accounts receivable of units not completed is calculated according to the criteria mentioned in the previous item. The preestablished interest of accounts receivable of units completed is appropriated to the result, observing the accrual basis (pro rata day), regardless of it being received, and it is recorded in the financial income account. The allowance for doubtful accounts is established when there is objective evidence that the Company will not be able to collect all of the amounts owed according to the original terms of the accounts receivable. The Company deems the credit risk low, since there is actual guarantee of recovery of the assets sold and thus it does not create an allowance for doubtful accounts. According to CPC-O-01 - Real estate development entities, when units not yet completed are sold on credit, inflation adjusted receivables, including the portion regarding the keys, without interest, must be discounted at present value, since contracted inflation adjustment indexes do not include interest. The adjustment and its reversion, when performed during the construction period, are recorded as a balancing item to real estate development revenue. 11/101

12 (e) Real estate for sale 1) Composition of cost The real estate ready to be sold are stated at formation costs, which do not exceed their net realizable value. In the event of real estate under construction, the portion in the inventory corresponds to the cost incurred of the units not yet sold. The net realizable value is the sales price estimated for the ordinary course of the businesses, less the execution costs and the selling expenses and taxes. The formation cost comprises cost of the land and expenditures necessary for its legalization, development expenditures, construction expenditures related to materials, labor (own or outsourced) and other construction-related costs, including the financial cost of the financing invested (incurred during the venture development period until the construction has been completed). 2) Swap The Company acquires part of its land through swap operations, in which in exchange for land, it commits to: (a) deliver real estate units of ventures under construction, or (b) percentage of the portion of accounts receivable from the sales of real estate units of the ventures. 3) Capitalization of financial charges Interest levied on loans, financing and debentures, identified directly to the real estate ventures are qualified to be capitalized as cost of properties to be sold if: a) land acquisition costs or real estate construction costs are being incurred; b) loans costs are being incurred; and c) the activities necessary to prepare the real estate for sale are in progress, and such activities will be appropriated to the income as part of the cost, observing the same criteria adopted to recognize revenues and cost of units sold. 4) Distinction between long and short term: Distinction between long and short term is performed by Management based on the time period expectation for launching the real estate ventures, which is periodically reviewed by means of launching estimates. 12/101

13 (f) Unearned selling expenses These refer to the brokerage expenses on real estate sales and are appropriated to income as part of the selling expenses by observing the same criterion adopted for the recognition of revenues and costs of the units sold (Note 2 (c)). The charge related to the sales commission belonging to the acquirer of the real estate does not constitute revenue or expense of the Company or of its subsidiaries. The other selling expenses, including advertising, are appropriated to the income when incurred, according to the accrual basis of accounting, having their broadcasting as a reference. (g) Income tax and social tax on income In the companies taxed by the taxable income, income tax and social tax are calculated at the regular rates of, 15%, increased of an additional rate of 10%, for income tax and 9% for social tax, on the accounting profit for the year, adjusted according to criteria established by the tax legislation in force. As allowed by the tax legislation, certain subsidiaries, the prior year s annual billing of which was lower than R$48,000, have opted for the presumed profit regime. For those companies, the income tax base is calculated at the rate of 8% and the social tax base is calculated at the rate of 12% over gross revenues (32% when the income stems from service rendering and 100% from financial revenues), over which the regular tax rates of the respective taxes are applied. Additionally, as allowed by Law n of August 27, 2009, which altered Law n /2004 that had introduced the special taxation regime (RET), certain subsidiaries decided to submit their ventures to the detached assets, which are made irrevocably and irreversibly upon their registration. For these ventures, the charges of the income tax and of the social tax are calculated at the rate of 3.34% on gross revenues (6% also considering the charge of the Tax for Social Security Financing - COFINS and the Tax for the Social Integration Program - PIS). Deferred tax assets are recognized to the extension in which it is probable that the future taxable income is available to be used in the compensation of temporary differences, based on projections of future results prepared and founded on internal assumptions and on future economic scenarios that may, therefore, undergo changes. The deferred income tax and the deferred social tax are presented in Note 2a (a). Tax effects arising from the first adoption of Law n /07 and Law n /09 were recorded as per the existing rules, particularly when record keeping the income tax and social tax on net income, when applicable. The Company and its subsidiaries chose to adopt the RTT, as per Provisional Presidential Decree n. 449/08 by means of the 2009 Corporate Income Tax Return (DIPJ). 13/101

14 (h) Investments (i) In wholly-owned subsidiary or company under shared control - equity value When the Company holds more than half of the voting capital stock of another company, it is considered a subsidiary. In the companies in which the Company holds less than 50% of the voting stock, agreements ensure the Company the right of veto in decisions that significantly affect the businesses of the subsidiary, ensuring it the shared control. The investments in subsidiaries are recorded by the equity method of accounting. According to this method, the participation of the Company in the increase or decrease of the shareholders equity of the subsidiaries, after the acquisition, due to the calculation of the net income or loss in the period or due to gains or losses in capital reserves or adjustments from prior years, except made for the changes introduced by Law n /07 and Law n /09, is recognized as operating revenue (or expense). The cumulative movements after the acquisitions are adjusted against the investment cost. The investments of the Company in the subsidiaries include goodwill (net of accumulated amortization) or negative goodwill in the acquisition. When the participation of the Company in the losses of the subsidiaries is equal to or surpasses the investment amount, the Company does not recognize additional losses, unless it has assumed obligations, made payments on behalf of these companies or made advances for future capital increase. The acquisition cost of a subsidiary is measured by the amount of assets granted or liabilities assumed on the date of the acquisition, plus costs directly attributable to the acquisition. The amount of the acquisition cost which exceeds the book value of the net assets of the subsidiary acquired is recorded as goodwill. When necessary, the accounting practices of the subsidiaries are changed to ensure consistence with the practices adopted by the Company. (ii) In associated companies that are not controlled Interest held in associated companies is recorded by the equity method of accounting, as described in the previous item (i): Agra Empreendimentos Imobiliários S.A. ( Agra ): the Company does not hold interest in Agra as of December 31, 2009, due to disposal of the totality of the interest of ( %) for R$305 million, according to relevant fact of September 25, The Company did not include Agra in its consolidated financial statements, since it was not the controlling Company of the latter; 14/101

15 Cyrela Commercial Properties S.A. Empreendimentos e Participações ( CCP ): the Company holds an interest smaller than 5% in this company; however, it has significant influence in its political, financial and operating decisions, therefore it assesses the investment by the equity method of accounting. (iii) Investments assessed at cost Investments assessed at acquisition cost are deducted of provision to adjust them to the realization value, when applicable. (iv) Investments in companies located abroad Functional currency and presentation of accounting statements The Company s functional currency is the Real, the same currency used in preparing and for presenting these financial statements: Brazil Realty Serviços e Investimentos Ltda.: this subsidiary is located in the Bahamas and it is, in essence, an extension of our financial activities in Brazil. Therefore, assets, liabilities and results are adapted to the accounting practices in force in Brazil and translated into Reais using the following method: (i) monetary assets and liabilities by the closing rate; (ii) nonmonetary assets and liabilities, and shareholders equity are translated by the effective rate on the transaction dates; (iii) revenues and expenses are translated at the average rate, as long as no significant fluctuations occurred in the exchange rate. Gains and losses from the translation are recorded in the income for the period; Rummaala S.A. and Cyrsa S.A.: these subsidiaries under common control are located in Argentina and have their own management personnel, as well as administrative, financial and operational independence. Therefore, their assets and liabilities, as well as results, are translated by the following method: (i) assets and liabilities by the closing rate; (ii) shareholders equity is translated by the effective rate on the transaction dates; (iii) revenues and expenses are translated at the average rate, as long as no significant fluctuations occurred in the exchange rate. The effects of the exchange rate changes are recorded in the accumulated translation adjustments account, in shareholders equity; Liveck S.A., Zetol S.A. and Vista Al Muelle S.A.: these subsidiaries under common control are located in Uruguay and have their own management personnel, like Cyrsa S.A., as well as administrative, financial and operational independence. Therefore, their assets, liabilities, and results, are translated by the following method: (i) assets and liabilities by the closing rate; (ii) shareholders equity is translated by the effective rate on the transaction dates; (iii) revenues and expenses are translated at the average rate, as long as no significant fluctuations occurred in the exchange rate. The effects of the exchange rate changes are recorded in the accumulated translation adjustments account, in shareholders equity. 15/101

16 (i) Tangible assets Stated at the acquisition cost, combined with the depreciation calculated by the straight-line method, based on the estimated useful life of the assets (Note 9). As per guidance of CPC-O-01 - Real estate development entities - expenses incurred with the construction of sales stands, model apartments and respective furniture are now part of the Company s and its subsidiaries fixed assets. These assets are depreciated after the launching and effectuation of the venture during their useful life span, which, on average, represents 24 (twenty-four) months, besides being subject to periodic impairment analysis. (j) Intangible assets The separately acquired intangible assets are measured at initial recognition at the acquisition cost and later deducted from the accumulated amortization and losses of the recoverable amount, when applicable. Thus they are stated at the acquisition cost, combined with annual amortization rates, calculated by the straight-line method, mentioned in Note 10, taking into consideration the useful life defined for the asset. (k) Goodwill and negative goodwill The goodwill is calculated in the acquisition or subscription of capital in another company, represented by the value of the acquisition cost of the investment that exceeds the equity accounting value, calculated from the percentage of acquisition or subscription on the value of the shareholders equity of the other company. The recording of the goodwill in shareholder s equity account, presented in the account heading intangible, is made considering the economic basis of expectation of future profitability of the venture, which takes place during the period of its expected useful life. The estimated useful life of the investment is based on the capacity to generate results from the ventures launched and/or to be launched in the future and other inherent factors. The goodwill is recognized as loss in the income of the year as the future profitability is realized, the analyses of which are made each time the financial statements are prepared ( Impairment Test ). When the future profitability has been fully realized, the balance of the goodwill still recorded in the shareholder s equity account will be fully recorded in the income of the year complying with what has been provided for in CPC-01 - Reduction to the recoverable amount of assets. When negative goodwill occurs, the negative goodwill is realized in connection with the investment that originated it and, in the consolidated, it is presented in the noncurrent liabilities, in the account heading Negative goodwill in investments. 16/101

17 (l) Profit sharing and dividend distribution - PLR The Company and the other companies of the group have a profit sharing and dividend distribution program for employees and managers ( bonus ). The bonus system operates with performance indicators, structured in the efficiency of the corporate objectives, then by business objectives and finally by individual objectives. The calculation of the bonus is estimated at the end of each period of disclosure of financial statements and recorded to the result in the account heading profit sharing and dividend distribution for employees and managers. (m) Accounts payable in the acquisition of real estate and advances from clients by swap The obligations in the acquisition of real estate are recognized by the amounts that correspond to the contractual obligations assumed. Subsequently, they are presented by the amortized cost, i.e., plus, when applicable, charges and interest proportional to the period incurred until the balance sheet date. Swap operations between land and real estate units are stated at their market value, as advances from clients, and recognized in the income in the account heading Revenue from the sales of real estate units by the same criteria of item 3(c). (n) Loans, financing and debentures The financial funds borrowed, whether they are loans, financing or debentures are recognized initially upon receiving the funds, net of transaction costs and are presented by the amortized cost, i.e., plus charges and interest proportional to the period incurred until the balance sheet date. (o) Contingent liabilities and legal liabilities Contingent liabilities are provisioned when losses are evaluated as probable and the amounts involved are measurable with sufficient reliability. When the losses are considered as probable, but the amounts involved are not measurable with sufficient reliability or when losses are considered possible, they are disclosed in explanatory notes. The other contingent liabilities, the losses of which are considered remote, are not provisioned or disclosed. The legal liabilities are recorded when incurred. (p) Other assets and liabilities Other assets and liabilities are presented at the cost or realization value (assets), or for known or calculable values (liabilities), plus, when applicable, proceeds and financial charges incurred. 17/101

18 (q) Adjustment to present value Certain assets and liabilities, referring to monetary and long-term items, or relevant short-term items, are adjusted to present value based on discount rates that aim at expressing the best current market evaluations regarding the time value of money and specific assets and liabilities risk. Due to the analyses, adjustments were made to present value in the accounts receivable (item 2(d)) and accounts payable due to acquisition of properties (item 2(l)). The average rate used in 2009 was of 6.82% (2008: 7.47%). Assets and liabilities are adjusted in the initial recording of the transaction, taking into account the contractual cash flows, the explicit interest rate, and in certain events the implicit interest rate, of the respective assets and liabilities and the rates used on the market in similar transactions. Such interest is subsequently reallocated in financial expense and revenue lines, in the income, except for the real estate activity revenues the treatment of which is mentioned in Note 3 (d), using the effective interest rate method for contractual cash flows. (r) Interest rate swap derivatives recorded at market value through profit or loss One of the Company s subsidiaries maintains a derivative instrument in order to mitigate the risk of its exposure to currency, indexes and rates volatility resulting from financing indexed to foreign currency, which are recognized in the income of the year by their market value. (s) Use of estimates When preparing the financial statements, it is necessary to use estimates that affect the stated amounts of assets, liabilities and other transactions during the reported periods and which require the disclosure of contingent assets and liabilities on the date of the financial statements. Financial statements include estimates used to determine items including, among other aspects, the costs budgeted for the ventures, the allowances for doubtful accounts, guarantees - necessary for the economic non-recovery of assets, the allowance for nonrecognized credits referring to the deferred income tax and the recognition of liability contingencies, the actual results of which might vary from the estimates. (t) Impairment test Management reviews, as presented in the quarterly and annual financial statements, the net book value of the assets in order to evaluate events or changes in economic, operating or technological circumstances that might show impairment. When such pieces of evidence are identified and the net book value exceeds the recoverable amount, a provision for impairment is created, adjusting the net book value to the recoverable amount. The main accounts liable to impairment assessments are: securities, real estate to be sold, investments, fixed assets, intangible assets and investments quoted in a stock exchange. 18/101

19 (u) Expenses with transaction in the issuance of securities The expenses with registration of public distribution of securities are recorded by the net amount received. Thus, the expenses referring to the issuance of debentures are classified in the account heading Debentures as disclosed in explanatory Note 12, and the expenses with public distribution are classified in the account heading Capital stock as disclosed in explanatory Note 21. (v) Net earnings per share The net earnings per share are calculated based on the number of outstanding shares on the balance sheet date. (w) Consolidated financial statements The consolidated financial statements comprise the Company s financial statements and those of its subsidiaries (individually and under common control or created for specific purposes regarding the management of real estate ventures). The current accounts, the revenues and expenses among the consolidated companies, as well as the investments are eliminated from the consolidated financial statements; and the minority interest is stated in such consolidated financial statements. The associated companies that are not controlled are not consolidated New pronouncements and accounting interpretations approved in 2009 During 2009 the Brazilian Accounting Standards Board (CPC) issued several pronouncements with compulsory implementation for 2010 and facultative for The Company did not make early adoption of any of the accounting pronouncements, compulsory for 2010, issued by the CPC and ratified by the regulatory bodies. When preparing the financial statements for the year ending December 31, 2010, the financial statements 2009 presently presented will be presented again with a view to the comparability between the years, as required by the accounting practices adopted in Brazil. We present, below, the key pronouncements that may influence when preparing the financial statements 2010: a) CPC 15 - Business Combinations (IFRS 3): on July 31, 2009, CVM issued Resolution n Its objective is to increase the relevance, the reliability and the comparability of the information that the company provides in its financial statements concerning business combinations and their effects; b) CPC 18 - Investments in associated and subsidiaries (IAS 28): on November 26, 2009 CVM issued Resolution n Its objective is to determine how the investments in associated companies should be recorded in the investor's individual and consolidated financial statements and, how the investments in subsidiaries should be recorded in the financial statements of the parent company; 19/101

20 c) CPC 19 - Investments in jointly controlled ventures (joint venture) (IAS 31): on November 26, 2009 CVM issued Resolution n Its objective is to determine how to record the interest held in jointly controlled ventures (joint ventures) and the disclosure of assets, liabilities, revenues and expenses of such ventures in the investors' financial statements; d) CPC 22 - Information per segment (IFRS 8): on July 31, 2009, CVM issued Resolution n Such Resolution specifies ways of disclosing the information regarding its operating segments in the annual financial information that enable the users of the financial statements to assess the nature and the financial effects of the business activities in which it is involved and the economic environments in which it operates; e) CPC 28 - Investment Property (IAS 40): on July 31, 2009, CVM issued Resolution n Such Resolution establishes the accounting treatment for investment properties and the respective disclosure requirements; f) CPC 31 - Noncurrent assets held for sale and discontinued operations (IFRIC 5): on September 15, 2009, CVM issued Resolution n Such Resolution establishes the recording of noncurrent assets held for sale (put on sale) and the presentation and the disclosure of discontinued operations; g) ICPC 08 - Accounting for proposed dividend payments: on October 7, 2009, CVM issued Resolution n Such Resolution addresses the accounting for of the dividend payment proposal; h) ICPC 02 - Construction contract for the real estate industry: on December 22, 2009, the Brazilian Exchange and Securities Commission (CVM) issued CVM Resolution n. 612, which approved the Technical Interpretation ICPC-02 of the Brazilian Accounting Standards Board (CPC) that addresses the construction contracts for the real estate industry. Said Interpretation establishes the recording criteria for the revenues and the corresponding costs of companies that carry out the development and/or construction of real estate either directly or by means of subcontractor companies. The aforementioned pronouncement will bring an important impact onto the companies that have the development of residential and commercial real estate as an activity, because as from the calendar year ending December 31, 2010 companies will have to adopt the new recognition system for real estate result (revenues and costs). 20/101

21 The main conceptual impacts of the change to the accounting practice may be summarized as follows: Description Revenue from real estate sold Cost with real estate sold CFC Resolution n. 963/03 (applicable until the year ended December 31, 2009) Recorded at the result in accordance with the percentage of financial evolution of the construction. Recorded at the result, when incurred, in proportion to the units sold. ICPC-02 (applicable as from the the year ending December 31, 2010) Recorded at the result when transferring the ownership, the risks and the benefits to the purchaser of the real estate (usually after the construction has been completed and by delivering the keys of the real estate). Recorded at the result in proportion to the units sold taking into account the same recognition criterion of the revenue from real estate sold. The account headings that will suffer the impacts will be: accounts receivable and revenues from real estate sold, commercial expenses (commissions), deferred and current taxes levied on the revenues and on the income, inventory and cost of the real estate sold and provision for collateral. Considering the extent of the complexity of the changes required by said technical interpretation, the Company and its subsidiaries are assessing its reflexes in their financial statements, while it follows up the discussions and debates within the market, especially in the bodies and associations of the accounting class and at the regulators, that will possibly manifest themselves regarding aspects related to applying said technical instruction. With the advent of CVM Resolution n. 603, the Company and its subsidiaries are studying the best opportunity to apply this technical interpretation during 2010, and at the present moment, until there is a greater elucidation concerning the practical application of said technical instruction, the Company understands that it is not possible to assess and quantify with reasonable reliability the fortuitous effects in the financial statements. 21/101

22 3. Cash and cash equivalents Equivalent in Thosuands of US Dollars Parent company Consolidated Consolidated Cash and cash equivalents Cash and banks National currency 9,724 3, ,532 84,622 Foreign currency - - 1,654 2, Investment funds - variable income Foreign currency ,694-6,115 Public debit securities (ii) Foreign currency (cost) ,858-7,727 9,724 3, ,186 91, ,221 Financial investments Investment funds - multimarket National currency (i) 303,608 44, ,612 65,606 Bank deposit certificates National currency (ii) 773, ,642 1,111, ,422 1,077, ,392 1,452, ,028 (-) Long term assets 82, ,791 39,631 Short term assets 994, ,392 1,348, ,397 (i) Average monthly rates equivalent to 101% of the Interbank Deposit Certificate (CDI); (ii) Average monthly rates equivalent to 100.5% of the Interbank Deposit Certificate (CDI). 4. Securities They correspond to 0.10% interest held by the Company Portobello S.A. and, in the consolidated, the interest of 0.26% in Fundo Financial Center de Investimento Imobiliário is added; the amounts are presented at the acquisition cost adjusted by provision for adjustment to its net realizable value, when applicable. 22/101