July 7, 2011
Mr. Rufus Decker
Accounting Branch Chief
Division of Corporate Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: | Gafisa S.A. (“Gafisa” or the “Company”) |
Form 20-F for the Fiscal Year Ended December 31, 2009 | |
Filed on March 10, 2010 | |
File No. 001-33356 |
Dear Mr. Decker:
Set forth below is Gafisa’s response to your letter dated April 4, 2011 relating to Gafisa’s Form 20-F for the year ended December 31, 2009 (the “2009 Form 20-F”). To assist in the Staff’s review of the responses, each response is preceded with the text (in bold type) of the comment as stated in your letter.
Capitalized terms used in the responses set forth below and not otherwise defined herein have the meanings set forth in the Form 20-F.
FORM 20-F FOR THE YEAR ENDED DECEMBER 31, 2009
Audited Consolidated Financial Statements
Note 25 -- Supplemental Information -- Summary of Principal Difference Between Brazilian GAAP and US GAAP
(d) US GAAP condensed consolidated financial information, page F-88
1. We note your response to comments three and six from our letter dated March 15, 2011. We await your qualification of the errors in your U.S. GAAP revenue recognition for the periods presented in your 2009 Form 20-F.
To assist the Staff’s review, the Company has repeated below (in bold type) comments three and six from the Staff’s letter dated March 15, 2011.
3. We note your response to comment seven and await your consideration of the default rates and termination practices and their impact on your accounting policies for U.S. GAAP revenue recognition for the periods presented in your 2009 Form 20-F.
The Company has assessed the quantification of effects related to EITF Issue 06-08 “Applicability of the Assessment of a Buyer’s Continuing Investment under FASB Statement No. 66 for Sale of Condominiums” requiring amounts potentially refundable to a customer to be excluded from the initial and continuing investments tests required by ASC 306.20.40. The Company has provided supplementally the quantification related to EITF Issue 06-08 under Item 2 in the attached Annex A.
In addition, as stated in its Current Report on Form 6-K furnished April 1, 2011, the Company identified a misclassification of certain amounts as cash equivalents in its US GAAP financial information included in Note 25 to the consolidated financial statements included in the 2009 Form 20-F which should have been classified as Marketable securities. These financial instruments were appropriately accounted for as cash equivalents under Brazilian GAAP in effect at that time, and their misclassification has no impact on the Company’s Brazilian GAAP or US GAAP working capital. However, the Company has concluded that these US GAAP misclassifications have a material effect on amounts disclosed in its US GAAP reconciliation footnote and financial statements contained in the 2009 Form 20-F, including but not limited to, the amount of Cash equivalent balances, the amount of Marketable securities balances, and the related requirement to present a US GAAP consolidated statement of cash flows in Note 25. The quantification for the correction of this error is provided supplementally under Item 1 in the attached Annex A.
6. We note your response to comment 12 from our letter dated February 18, 2011. We would like to understand how you determined that the exclusion of a cash flow statement in compliance with IAS 7 was not a material error that would require an amendment of your Form 20-F for the year ended December 31, 2009. Therefore, as previously requested, please supplementally provide us with statements of cash flow in compliance with IAS 7 for the periods presented in your 2009 Form 20-F so that we can understand how these cash flow statements would have differed from the Brazilian GAAP cash flow statements presented in your filing. Please also ensure your materiality analysis under SAB Topic 1:M addresses how the errors in the presentation of your cash and cash equivalents under U.S. GAAP were neither quantitatively nor qualitatively material.
As requested by the Staff, the Company previously provided its unaudited statements of cash flow in compliance with IAS 7 for the years presented in the 2009 Form 20-F to allow the Staff to better understand how these cash flow statements would have differed from the Brazilian GAAP cash flow statements presented in the Company’s 2009 Form 20-F. The balances are subject to change to the extent the underlying accounts are amended.
As stated in its Current Report on Form 6-K furnished June 27, 2011, Ernst & Young Terco Auditores Independentes S.S. resigned as the Company’s independent registered
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accounting firm with respect to 2009 for purposes of its filings with the Staff. The Company has recently engaged PricewaterhouseCoopers Auditores Independentes as the Company’s independent registered accounting firm with respect to 2009 for purposes of its filings with the Staff. The Company will provide a draft of the US GAAP consolidated statement of cash flows for the Staff’s review once the new auditor has been able to complete its audit.
If you have any questions or wish to discuss any matters relating the foregoing, please contact me at +5511-3025-9191 or Manuel Garciadiaz of Davis Polk & Wardwell LLP at 212-450-6095.
/s/ Alceu Duílio Calciolari | |
Chief Executive Officer Gafisa S.A. |
Manuel Garciadiaz, Esq. (Davis Polk & Wardwell LLP) Ivan Clark (PricewaterhouseCoopers Auditores Independentes) |
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Annex A
GAFISA S.A.
PRELIMINARY MANAGEMENT DATA
Consolidated Financial Statements as of
December 31, 2007, 2008 and 2009
Restatement of Reconciliation Note (BRGAAP x USGAAP)
(UNAUDITED)
A-1
TABLE OF CONTENTS
Page | |
Restatement items | |
1 – Cash and Cash Equivalents / Marketable Securities | A-3 |
2 – Revenue Recognition | A-4 |
All amounts are expressed in thousands of Brazilian Reais
A-2
1 – CASH AND CASH EQUIVALENTS / MARKETABLE SECURITIES
Cash and Cash Equivalents / Marketable Securities
As per the definition of cash equivalents under FASB ASC 305-10-20, the Company has determined that the amounts below do not meet the cash equivalents definition under US GAAP because the original maturity at date of purchase was more than 90 days. These amounts have been classified as short-term available for sale marketable securities in the restated US GAAP consolidated financial information.
Cash And Cash Equivalents Marketable Securities | As Originally Reported | Reclassification (1) | As Restated | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Cash and cash equivalents | 1,348,403 | (1,055,463 | ) | 292,940 | ||||||||
Marketable securities trading | – | 1,005,882 | 1,005,882 | |||||||||
Restricted cash | 47,265 | 49,581 | 96,846 | |||||||||
Total | 1,395,668 | – | 1,395,668 | |||||||||
December 31, 2008 | ||||||||||||
Cash and cash equivalents | 510,504 | (326,980 | ) | 183,524 | ||||||||
Marketable securities trading | – | 326,980 | 326,980 | |||||||||
Restricted cash | 76,928 | – | 76,928 | |||||||||
Total | 587,432 | – | 587,432 | |||||||||
December 31, 2007 | ||||||||||||
Cash and cash equivalents | 512,185 | (299,116 | ) | 213,069 | ||||||||
Marketable securities trading | – | 299,116 | 299,116 | |||||||||
Restricted cash | 9,851 | – | 9,851 | |||||||||
Total | 522,036 | – | 522,036 |
(1) | As per the definition of cash equivalents under FASB ASC 305-10-20 |
A-3
2 – REVENUE RECOGNITION
Revenue Recognition – Application of ASC 350.20.40.10
ASC 350.20.40.10 (formerly EITF Issue 06-08 “Applicability of the Assessment of a Buyer’s Initial and Continuing Investment under FASB Statement No. 66 for Sales of Condominiums”) requires amounts potentially refundable to customers to be excluded from the initial and continuing investment test. The Company had previously not fully considered the contractual penalty/refund provisions on a unit by unit basis in applying US GAAP revenue recognition for purposes of ASC 350.20.40.10.
Gafisa Segment
Gafisa sales contracts provide for a penalty to be charged to the customer which generally equates to 18% of sales prices (adjusted for inflation) to the extent Gafisa agrees to terminate the contract following default by the customer. After charging such penalties, should amounts previously paid by customers under a Gafisa contract be in excess of the penalty computation, then a refund of 60% of such remaining balance is provided to the Gafisa customer based on the terms of the contract. Gafisa has historically entered into commercial negotiations with customers and has been willing to concede higher levels of refunds in an attempt to avoid protracted court proceedings and regain clear title to its units so they can be sold timely. Gafisa’s negotiated repayments have historically approximated 35% of amounts previously paid.
Upon consideration of the aforementioned contractual provisions in its continuing investment test, along with other aspects of US GAAP ASC 360.20, adjustments to previously recorded US GAAP revenue recognition are required for the Gafisa segment. While Gafisa considers contractual provisions in its initial and continuing investment tests, it does not consider any amounts commercially negotiated and repaid to the defaulting party in excess of contractual amounts (inclusive of penalty provisions) to be refunds for the purpose of its initial and continuing investment tests as the contract does not provide the defaulting party with a right to cancel.
Tenda Segment
Tenda’s pilot contracts provide for a refund to customers of 80% of the amounts previously paid during the construction period to the extent that default is agreed. Given that Tenda pilot contracts have potential refund provisions of 80% of amounts previously paid, those potentially refundable amounts are excluded from the initial investment test. When those amounts are excluded, a Tenda pilot customer would be required to make a substantial initial investment. Because low income home buyers do not make such large down payments, most Tenda pilot contracts will not meet the initial investment test and thus should be recognized using the deposit method of accounting.
Tenda’s sales contracts financed through Caixa Econômica Federal - CEF (a Brazilian Government agency) during the construction period, called Associative Credit, do not contain refund clauses. However, such contracts are typically financed primarily by CEF and the minimum initial customer investment is rarely achieved. Thus, those contracts should also be recognized using the deposit method of accounting.
Tenda has historically applied percentage of completion for its US GAAP revenue recognition. Accordingly, the Company is restating the US GAAP financial position and results of operations of its Tenda segment to properly account for the contractual provisions described above.
Alphaville - AUSA Segment
Alphaville’s sales contracts provide for a refund to customers of 80% of the amounts previously paid during the infrastructure period to the extent that default is agreed. Given that the contracts have potential refund provisions of 80% of amounts previously paid, those potentially refundable amounts are excluded from the initial investment test. When those amounts are excluded, the customer would be required to make a substantial initial investment. Because middle and high end income customers may make large down payments, a large part of these contracts may
A-4
meet the initial investment test. Alphaville’s negotiated repayments have historically approximated 76% of amounts previously paid.
Alphaville has historically applied percentage of completion for its US GAAP revenue recognition. Accordingly, the Company is restating the US GAAP financial position and results of operations of its Alphaville segment to properly account for the contractual provisions described above.
Reconciliation of Restated Net Income - 2009
a) Net Income Reconciliation - BR and US GAAP
As originally reported | As restated | |||||||||||
Net Income Reconciliation – BR and US GAAP | 2009 | Restatement Adjustments | 2009 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Net income under Brazilian GAAP | 213,540 | – | 213,540 | |||||||||
Revenue recognition – net operating revenue | (477,072 | ) | (344,630 | ) | (821,702 | ) | ||||||
Revenue recognition – operating costs | 342,830 | 220,221 | 563,051 | |||||||||
Stock compensation (expense) reversal | 7,194 | – | 7,194 | |||||||||
Reversal of negative goodwill amortization of Redevco and Tenda | (178,508 | ) | – | (178,508 | ) | |||||||
Business Combination of Tenda | (3,173 | ) | (15,194 | ) | (18,367 | ) | ||||||
Tenda’s share issuance costs | 11,072 | – | 11,072 | |||||||||
Business Combination of Alphaville | (16,786 | ) | – | (16,786 | ) | |||||||
Business Combination of Redevco | 4,848 | – | 4,848 | |||||||||
Reversal of contract termination provision | – | 13,826 | 13,826 | |||||||||
Other | 49 | – | 49 | |||||||||
Reversal and reclassification of non–controlling interest | 36,188 | 30,178 | 66,366 | |||||||||
Deferred income tax on adjustments above | 23,140 | 25,770 | 48,910 | |||||||||
Net income (loss) attributable to Gafisa, net of non–controlling interest | (36,678 | ) | (69,829 | ) | (106,507 | ) | ||||||
Net income (loss) attributable to noncontrolling interests under USGAAP | 42,276 | (11,908 | ) | 30,368 | ||||||||
Total net income (loss) under USGAAP | 5,598 | (81,737 | ) | (76,139 | ) |
Reconciliation of Restated Shareholder’s Equity – 2009
b) Shareholders’ Equity Reconciliation BR and US GAAP
As originally reported | As restated | |||||||||||
Shareholders’ Equity Reconciliation BR and US GAAP | 2009 | Restatement Adjustments | 2009 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Shareholders’ equity under Brazilian GAAP | 2,325,634 | – | 2,325,634 | |||||||||
Revenue recognition – net operating revenue | (821,707 | ) | (608,021 | ) | (1,429,728 | ) | ||||||
Revenue recognition – operating costs | 560,157 | 400,320 | 960,477 | |||||||||
Capitalized interest | 99,897 | – | 99,897 | |||||||||
Amortization of capitalized interest | (94,126 | ) | – | (94,126 | ) | |||||||
Liability – classified stock options | (3,939 | ) | – | (3,939 | ) | |||||||
Receivables from clients – SFAS 140 | 11,410 | – | 11,410 | |||||||||
Liability assumed – SFAS 140 | (11,410 | ) | – | (11,410 | ) | |||||||
Reversal of goodwill amortization of Alphaville | 18,234 | – | 18,234 |
A-5
As originally reported | As restated | |||||||||||
Shareholders’ Equity Reconciliation BR and US GAAP | 2009 | Restatement Adjustments | 2009 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Reversal of negative goodwill amortization of Redevco and Tenda | (232,327 | ) | – | (232,327 | ) | |||||||
Gain on the transfer of FIT Residencial | 205,527 | – | 205,527 | |||||||||
Business Combination of Tenda | 13,231 | (17,974 | ) | (4,743 | ) | |||||||
Business Combination of Alphaville | (38,888 | ) | – | (38,888 | ) | |||||||
Business Combination of Redevco | 4,848 | – | 4,848 | |||||||||
Reversal of contract termination provision | – | 25,023 | 25,023 | |||||||||
Other | (538 | ) | – | (538 | ) | |||||||
Reversal and reclassification of non – controlling interest | 56,425 | 64,209 | 120,634 | |||||||||
Deferred income tax on adjustments above | 72,827 | 36,961 | 109,788 | |||||||||
Shareholders’ equity before non – controlling interest | 2,165,255 | (99,482 | ) | 2,065,773 | ||||||||
Noncontrolling interests under USGAAP | 47,912 | (31,825 | ) | 16,087 | ||||||||
Total Shareholders’ equity under USGAAP | 2,213,167 | (131,307 | ) | 2,081,860 |
Restated US GAAP Assets and Liabilities – 2009
(c) Restatement Adjustments – Assets and Liabilities
Assets | As originally reported | As restated | ||||||||||
2009 | Restatement Adjustments | 2009 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 1,348,403 | (1,055,463 | ) | 292,940 | ||||||||
Marketable securities | – | 1,005,882 | 1,005,882 | |||||||||
Restricted cash | 47,265 | 49,581 | 96,846 | |||||||||
Receivables from clients | 1,188,662 | (2,366 | ) | 1,186,296 | ||||||||
Properties for sale | 1,796,000 | 400,320 | 2,196,320 | |||||||||
Other accounts receivable | 87,502 | – | 87,502 | |||||||||
Prepaid expenses | 14,122 | – | 14,122 | |||||||||
Investments | 185,364 | (31,825 | ) | 153,539 | ||||||||
Property and equipment, net | 58,969 | – | 58,969 | |||||||||
Intangibles, net | 151,343 | (17,974 | ) | 133,369 | ||||||||
Goodwill | 31,416 | – | 31,416 | |||||||||
Receivables from clients | 1,691,642 | (357,099 | ) | 1,334,543 | ||||||||
Properties for sale | 416,083 | – | 416,083 | |||||||||
Deferred income tax | 15,912 | 36,961 | 52,873 | |||||||||
Other | 96,647 | – | 96,647 | |||||||||
Total assets | 7,129,330 | 28,017 | 7,157,347 |
A-6
Liabilities And Shareholders’ Equity | As originally reported | As restated | ||||||||||
2009 | Restatement Adjustments | 2009 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Liabilities and shareholders’ equity | ||||||||||||
Current liabilities | ||||||||||||
Short-term debt, including current portion of long-term debt | 653,070 | – | 653,070 |
Debentures | 132,077 | – | 132,077 | |||||||||
Obligations for purchase of land | 241,396 | – | 241,396 | |||||||||
Materials and services suppliers | 169,085 | – | 169,085 | |||||||||
Taxes and labor contributions | 199,472 | – | 199,472 | |||||||||
Advances from clients–real estate and services | 349,483 | 159,324 | 508,807 | |||||||||
Credit assignments | 118,846 | – | 118,846 | |||||||||
Acquisition of investments | 21,090 | – | 21,090 | |||||||||
Dividends payable | 50,716 | – | 50,716 | |||||||||
Others | 81,863 | – | 81,863 | |||||||||
Long-term liabilities | ||||||||||||
Loans, net of current portion | 476,645 | – | 476,645 | |||||||||
Debentures, net of current portion | 1,796,000 | – | 1,796,000 | |||||||||
Deferred income tax | – | – | – | |||||||||
Obligations for purchase of land | 141,563 | – | 141,563 | |||||||||
Others | 484,857 | – | 484,857 | |||||||||
Shareholders’ equity | ||||||||||||
Total Gafisa shareholders’ equity | 2,165,255 | (99,482 | ) | 2,065,773 | ||||||||
Noncontrolling interests | 47,912 | (31,825 | ) | 16,087 | ||||||||
Total shareholders’ equity | 2,213,167 | (131,307 | ) | 2,081,860 | ||||||||
Total liabilities and shareholders’ equity | 7,129,330 | 28,017 | 7,157,347 |
Restated US GAAP Income Statement – 2009
c) Restatement Adjustments – Income Statement
Net Income | As originally reported | As restated | ||||||||||
2009 | Restatement Adjustments | 2009 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Net operating revenue | 2,338,311 | (339,960 | ) | 1,998,351 | ||||||||
Operating costs (sales and services) | (1,652,850 | ) | 220,221 | (1,432,629 | ) | |||||||
Gross profit | 685,461 | (119,739 | ) | 565,722 | ||||||||
Operating expenses | ||||||||||||
Selling, general and administrative | (439,459 | ) | – | (439,459 | ) | |||||||
Other | (161,077 | ) | 14,984 | (146,093 | ) | |||||||
Operating income | 84,925 | (104,755 | ) | (19,830 | ) | |||||||
Financial income (expenses) | (83,622 | ) | (21,022 | ) | (104,644 | ) | ||||||
Income (loss) before income tax, equity in results and noncontrolling interest | 1,303 | (125,777 | ) | (124,474 | ) | |||||||
Income tax expense | (59,567 | ) | 25,770 | (33,797 | ) | |||||||
Income (loss) before equity in results and noncontrolling interests | (58,264 | ) | (100,007 | ) | (158,271 | ) | ||||||
Equity in results | 63,862 | 18,270 | 82,132 | |||||||||
Net income (loss) | 5,598 | (81,737 | ) | (76,139 | ) | |||||||
Less: attributable to noncontrolling interests | (42,276 | ) | 11,908 | (30,368 | ) | |||||||
Net income (loss) attributable to Gafisa | (36,678 | ) | (69,829 | ) | (106,507 | ) |
A-7
Reconciliation of Restated Income – 2008
a) Net Income Reconciliation – BR and US GAAP
Net Income Reconciliation – BR and US GAAP | As originally reported | As restated | ||||||||||
2008 | Restatement Adjustments | 2008 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Net income under Brazilian GAAP | 109,921 | – | 109,921 | |||||||||
Revenue recognition–net operating revenue | 85,337 | (156,770 | ) | (71,433 | ) | |||||||
Revenue recognition–operating costs | (47,672 | ) | 115,498 | 67,826 | ||||||||
Amortization of capitalized interest | (9,357 | ) | – | (9,357 | ) | |||||||
Stock compensation (expense) reversal | 53,819 | – | 53,819 | |||||||||
Reversal of goodwill amortization of Alphaville | 10,734 | – | 10,734 | |||||||||
Reversal of negative goodwill amortization of Redevco and Tenda | (53,819 | ) | – | (53,819 | ) | |||||||
Gain on the transfer of FIT Residencial | 205,527 | – | 205,527 | |||||||||
Business Combination of Tenda | (468 | ) | (2,780 | ) | (3,248 | ) | ||||||
Business Combination of Alphaville | (19,185 | ) | – | (19,185 | ) | |||||||
Fair value option of financial liabilities | (207 | ) | – | (207 | ) | |||||||
Reversal of contract termination provision | – | 11,197 | 11,197 | |||||||||
Other | (356 | ) | – | (356 | ) | |||||||
Reversal and reclassification of non-controlling interest | 6,839 | 34,031 | 40,870 | |||||||||
Deferred income tax on adjustments above | (41,455 | ) | 3,775 | (37,680 | ) | |||||||
Net income (loss) attributable to Gafisa, net of non-controlling interest | 299,658 | 4,951 | 304,609 | |||||||||
Net income (loss) attributable to noncontrolling interests under USGAAP | 47,900 | (30,415 | ) | 17,485 | ||||||||
Total net income (loss) under USGAAP | 347,558 | (25,464 | ) | 322,094 |
A-8
Reconciliation of Restated Shareholder’s Equity – 2008
b) Shareholders’ Equity Reconciliation BR and US GAAP
Shareholders’ Equity Reconciliation BR and US GAAP | As originally reported | As restated | ||||||||||
2008 | Restatement Adjustments | 2008 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Shareholders’ equity under Brazilian GAAP | 1,612,419 | – | 1,612,419 | |||||||||
Revenue recognition–net operating revenue | (344,635 | ) | (263,391 | ) | (608,026 | ) | ||||||
Revenue recognition–operating costs | 217,327 | 180,099 | 397,426 | |||||||||
Capitalized interest | 99,897 | – | 99,897 | |||||||||
Amortization of capitalized interest | (94,126 | ) | – | (94,126 | ) | |||||||
Liability–classified stock options | (2,221 | ) | – | (2,221 | ) | |||||||
Receivables from clients–SFAS 140 | 12,843 | – | 12,843 | |||||||||
Liability assumed–SFAS 140 | (12,843 | ) | – | (12,843 | ) | |||||||
Reversal of goodwill amortization of Alphaville | 18,234 | – | 18,234 | |||||||||
Reversal of negative goodwill amortization of Redevco and Tenda | (53,819 | ) | – | (53,819 | ) | |||||||
Gain on the transfer of FIT Residencial | 205,527 | – | 205,527 | |||||||||
Business Combination of Tenda | 16,404 | (2,780 | ) | 13,624 | ||||||||
Business Combination of Alphaville | (22,102 | ) | – | (22,102 | ) | |||||||
Reversal of contract termination provision | – | 11,197 | 11,197 | |||||||||
Other | 266 | – | 266 | |||||||||
Reversal and reclassification of non-controlling interest | 20,237 | 34,031 | 54,268 | |||||||||
Deferred income tax on adjustments above | 49,687 | 11,191 | 60,878 | |||||||||
Shareholders’ equity before non—controlling interest | 1,723,095 | (29,653 | ) | 1,693,442 | ||||||||
Noncontrolling interests under USGAAP | 451,342 | (19,917 | ) | 431,425 | ||||||||
Total Shareholders’ equity under USGAAP | 2,174,437 | (49,570 | ) | 2,124,867 |
A-9
Restated US GAAP Assets and Liabilities – 2008
c) Restatement Adjustments – Assets and Liabilities
Shareholders’ Equity Reconciliation BR and US GAAP | As originally reported | As restated | ||||||||||
2008 | Restatement Adjustments | 2008 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 510,504 | (326,980 | ) | 183,524 | ||||||||
Marketable securities | – | 326,980 | 326,980 | |||||||||
Restricted cash | 76,928 | – | 76,928 | |||||||||
Receivables from clients | 1,060,845 | (77,512 | ) | 983,333 | ||||||||
Properties for sale | 2,058,721 | 180,099 | 2,238,820 | |||||||||
Other accounts receivable | 127,150 | – | 127,150 | |||||||||
Prepaid expenses | 27,732 | – | 27,732 | |||||||||
Investments | 49,135 | (19,917 | ) | 29,218 | ||||||||
Property and equipment, net | 50,852 | – | 50,852 | |||||||||
Intangibles, net | 188,199 | (2,780 | ) | 185,419 | ||||||||
Goodwill | 31,416 | – | 31,416 | |||||||||
Receivables from clients | 720,298 | (52,629 | ) | 667,669 | ||||||||
Properties for sale | 149,403 | – | 149,403 | |||||||||
Deferred income tax | 35,067 | 11,191 | 46,258 | |||||||||
Other | 93,153 | – | 93,153 | |||||||||
Total assets | 5,179,403 | 38,452 | 5,217,855 |
Liabilities And Shareholders’ Equity | As originally reported | As restated | ||||||||||
2008 | Restatement Adjustments | 2008 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Liabilities and shareholders’ equity Current liabilities | ||||||||||||
Short-term debt, including current portion of long-term debt | 430,853 | – | 430,853 | |||||||||
Debentures | 64,930 | – | 64,930 | |||||||||
Obligations for purchase of land | 278,745 | – | 278,745 | |||||||||
Materials and services suppliers | 103,592 | – | 103,592 | |||||||||
Taxes and labor contributions | 112,729 | – | 112,729 | |||||||||
Advances from clients–real estate and services | 176,958 | 88,022 | 264,980 | |||||||||
Credit assignments | 46,844 | – | 46,844 | |||||||||
Acquisition of investments | 25,296 | – | 25,296 | |||||||||
Dividends payable | 26,106 | – | 26,106 | |||||||||
Others | 85,445 | – | 85,445 | |||||||||
Long-term liabilities | ||||||||||||
Loans, net of current portion | 587,355 | – | 587,355 | |||||||||
Debentures, net of current portion | 442,000 | – | 442,000 | |||||||||
Deferred income tax | – | – | – | |||||||||
Obligations for purchase of land | 225,639 | – | 225,639 | |||||||||
Others | 398,474 | – | 398,474 | |||||||||
Shareholders’ equity | ||||||||||||
Total Gafisa shareholders’ equity | 1,723,095 | (29,653 | ) | 1,693,442 | ||||||||
Noncontrolling interests | 451,342 | (19,917 | ) | 431,425 | ||||||||
Total shareholders’ equity | 2,174,437 | (49,570 | ) | 2,124,867 | ||||||||
Total liabilities and shareholders’ equity | 5,179,403 | 38,452 | 5,217,855 |
A-10
Restated US GAAP Income Statements – 2008
c) Restatement Adjustments – Income Statement
Net Income | As originally reported | As restated | ||||||||||
2008 | Restatement Adjustments | 2008 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Net operating revenue | 1,692,706 | (215,402 | ) | 1,477,304 | ||||||||
Operating costs (sales and services) | (1,198,256 | ) | 115,498 | (1,082,758 | ) | |||||||
Gross profit | 494,450 | (99,904 | ) | 394,546 | ||||||||
Operating expenses | ||||||||||||
Selling, general and administrative | (306,134 | ) | – | (306,134 | ) | |||||||
Other | 163,363 | 31,251 | 194,614 | |||||||||
Operating income | 351,679 | (68,653 | ) | 283,026 | ||||||||
Financial income (expenses) | 40,198 | 35,798 | 75,996 | |||||||||
Income (loss) before income tax, equity in results and noncontrolling interest | 391,877 | (32,855 | ) | 359,022 | ||||||||
Income tax expense | (70,576 | ) | 3,775 | (66,801 | ) | |||||||
Income (loss) before equity in results and noncontrolling interests | 321,301 | (29,080 | ) | 292,221 | ||||||||
Equity in results | 26,257 | 3,616 | 29,873 | |||||||||
Net income (loss) | 347,558 | (25,464 | ) | 322,094 | ||||||||
Less: attributable to noncontrolling interests | (47,900 | ) | 30,415 | (17,485 | ) | |||||||
Net income (loss) attributable to Gafisa | 299,658 | 4,951 | 304,609 |
Reconciliation of Restated Net Income–2007
a) Net Income Reconciliation - BR and US GAAP
As originally reported | As restated | |||||||||||
Net Income Reconciliation - Brand US GAAP | 2007 | Restatement Adjustments | 2007 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Net income under Brazilian GAAP | 91,640 | – | 91,640 | |||||||||
Revenue recognition–net operating revenue | (152,064 | ) | (106,621 | ) | (258,685 | ) | ||||||
Revenue recognition–operating costs | 96,215 | 64,601 | 160,816 | |||||||||
Amortization of capitalized interest | (32,544 | ) | – | (32,544 | ) | |||||||
Stock compensation (expense) reversal | 22,684 | – | 22,684 | |||||||||
Reversal of goodwill amortization of Alphaville | 7,500 | – | 7,500 | |||||||||
Business Combination of Alphaville | (2,917 | ) | – | (2,917 | ) | |||||||
Fair value option of financial liabilities | 207 | – | 207 | |||||||||
Other | 370 | – | 370 | |||||||||
Reversal and reclassification of non-controlling interest | 1,994 | – | 1,994 | |||||||||
Deferred income tax on adjustments above | 30,377 | 7,416 | 37,793 | |||||||||
Net income (loss) attributable to Gafisa, net of non-controlling interest | 63,462 | (34,604 | ) | 28,858 | ||||||||
Net income (loss) attributable to noncontrolling interests under USGAAP | 4,738 | 10,498 | 15,236 | |||||||||
Total net income (loss) under USGAAP | 68,200 | (24,106 | ) | 44,094 |
A-11
Reconciliation of Restated Shareholder’s Equity – 2007
b) Shareholders’ Equity Reconciliation BR and US GAAP
As originally reported | As restated | |||||||||||
Shareholders’ Equity Reconciliation Brand US GAAP | 2007 | Restatement Adjustments | 2007 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Shareholders’ equity under Brazilian GAAP | 1,498,728 | – | 1,498,728 | |||||||||
Revenue recognition – net operating revenue | (185,034 | ) | (106,621 | ) | (291,655 | ) | ||||||
Revenue recognition – operating costs | 121,212 | 64,601 | 185,813 | |||||||||
Capitalized interest | 99,897 | – | 99,897 | |||||||||
Amortization of capitalized interest | (84,769 | ) | – | (84,769 | ) | |||||||
Liability – classified stock options | (29,356 | ) | – | (29,356 | ) | |||||||
Receivables from clients – SFAS 140 | 22,390 | – | 22,390 | |||||||||
Liability assumed – SFAS 140 | (22,390 | ) | – | (22,390 | ) | |||||||
Reversal of goodwill amortization of Alphaville | 7,500 | – | 7,500 | |||||||||
Business Combination of Alphaville | (2,917 | ) | – | (2,917 | ) | |||||||
Reversal of contract termination provision | 207 | – | 207 | |||||||||
Other | (339 | ) | – | (339 | ) | |||||||
Reversal and reclassification of non-controlling interest | 185 | – | 185 | |||||||||
Deferred income tax on adjustments above | 16,556 | 7,416 | 23,972 | |||||||||
Shareholders’ equity before non-controlling interest | 1,441,870 | (34,604 | ) | 1,407,266 | ||||||||
Noncontrolling interests under USGAAP | 39,576 | 10,498 | 50,074 | |||||||||
Total Shareholders’ equity under USGAAP | 1,481,446 | (24,106 | ) | 1,457,340 |
Restated US GAAP Assets and Liabilities–2007
c) Restatement Adjustments – Assets and Liabilities
Assets | As originally reported | As restated | ||||||||||
2007 | Restatement Adjustments | 2007 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 512,185 | (299,116 | ) | 213,069 | ||||||||
Marketable securities | – | 299,116 | 299,116 | |||||||||
Restricted cash | 9,851 | – | 9,851 | |||||||||
Receivables from clients | 269,363 | (37,085 | ) | 232,278 | ||||||||
Properties for sale | 990,877 | 64,601 | 1,055,478 | |||||||||
Other accounts receivable | 101,279 | – | 101,279 | |||||||||
Prepaid expenses | 45,003 | – | 45,003 | |||||||||
Investments | 46,249 | 10,498 | 56,747 | |||||||||
Property and equipment, net | 27,336 | – | 27,336 | |||||||||
Intangibles, net | 153,240 | – | 153,240 | |||||||||
Goodwill | 31,416 | – | 31,416 | |||||||||
Other assets | – | – | – | |||||||||
Receivables from clients | 505,073 | (69,536 | ) | 435,537 | ||||||||
Properties for sale | 149,403 | – | 149,403 |
Deferred income tax | – | 7,416 | 7,416 | |||||||||
Other | 47,765 | – | 47,765 | |||||||||
Total assets | 2,889,040 | (24,106 | ) | 2,864,934 |
A-12
Liabilities and Shareholders’ Equity | As originally reported | As restated | ||||||||||
2007 | Restatement Adjustments | 2007 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Liabilities and shareholders’ equity Current liabilities | ||||||||||||
Short–term debt, including current portion of long–term debt | 59,196 | – | 59,196 | |||||||||
Debentures | 9,190 | – | 9,190 | |||||||||
Obligations for purchase of land | 244,696 | – | 244,696 | |||||||||
Materials and services suppliers | 82,334 | – | 82,334 | |||||||||
Taxes and labor contributions | 60,996 | – | 60,996 | |||||||||
Advances from clients – real estate and services | 26,485 | – | 26,485 | |||||||||
Credit assignments | 1,442 | – | 1,442 | |||||||||
Acquisition of investments | 48,521 | – | 48,521 | |||||||||
Dividends payable | 26,981 | – | 26,981 | |||||||||
Others | 73,541 | – | 73,541 | |||||||||
Long-term liabilities | ||||||||||||
Loans, net of current portion | 378,138 | – | 378,138 | |||||||||
Debentures, net of current portion | 240,000 | – | 240,000 | |||||||||
Deferred income tax | 3,728 | – | 3,728 | |||||||||
Obligations for purchase of land | 73,056 | – | 73,056 | |||||||||
Others | 79,290 | – | 79,290 | |||||||||
Shareholders’ equity | ||||||||||||
Total Gafisa shareholders’ equity | 1,441,870 | (34,604 | ) | 1,407,266 | ||||||||
Noncontrolling interests | 39,576 | 10,498 | 50,074 | |||||||||
Total shareholders’ equity | 1,481,446 | (24,106 | ) | 1,457,340 | ||||||||
Total liabilities and shareholders’ equity | 2,889,040 | (24,106 | ) | 2,864,934 |
A-13
Restated US GAAP Income Statement – 2007
c) Restatement Adjustments – Income Statement
Net Income | As originally reported | As restated | ||||||||||
2007 | Restatement Adjustments | 2007 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Net operating revenue | 1,090,632 | (111,007 | ) | 979,625 | ||||||||
Operating costs (sales and services) | (865,756 | ) | 64,601 | (801,155 | ) | |||||||
Gross profit | 224,876 | (46,406 | ) | 178,470 | ||||||||
Operating expenses | ||||||||||||
Selling, general and administrative | (192,025 | ) | – | (192,025 | ) | |||||||
Other | 1,595 | – | 1,595 | |||||||||
Operating income | 34,446 | (46,406 | ) | (11,960 | ) | |||||||
Financial income (expenses) | 27,243 | 4,386 | 31,629 |
Income (loss) before income tax, equity in results and noncontrolling interest | 61,689 | (42,020 | ) | 19,669 | ||||||||
Income tax expense | (1,988 | ) | 7,416 | 5,428 | ||||||||
Income (loss) before equity in results and noncontrolling interests | 59,701 | (34,604 | ) | 25,097 | ||||||||
Equity in results | 8,499 | 10,498 | 18,997 | |||||||||
Net income (loss) | 68,200 | (24,106 | ) | 44,094 | ||||||||
Less: attributable to noncontrolling interests | (4,738 | ) | (10,498 | ) | (15,236 | ) | ||||||
Net income (loss) attributable to Gafisa | 63,462 | (34,604 | ) | 28,858 |
A-14