September 13, 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 |
Dear Mr. Decker:
Set forth below is Gafisa’s response to your letter dated August 31, 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 2009 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
(a) Description of the GAAP differences, page F-67
1. | We reviewed Appendix A of your response letter dated August 24, 2011. Please tell us whether or not the revenue recognition and other errors impacted periods prior to January 1, 2007, including but not limited to 2006 and 2005. To the extent that you believe you had no errors in periods prior to January 1, 2007, please explain to us in detail how you reached this conclusion. Please also show us the disclosures you intend to provide in the financial statement footnotes to your 2009 Form 20-F/A reconciling the opening U.S. GAAP balances for each component of shareholders’ equity as of January 1, 2007 from the “as originally reported” amount to the “as restated” amount, in a manner similar to what you present as of December 31, 2007 on page A-19 of your August 24, 2011 response. As a related matter, to the extent you have determined that your financial statements for 2006 and/or 2005 should be restated, please show us how you will revise your selected financial data table on pages four |
and five to present the restated amounts for each period presented, including reconciliations of the data previously presented as compared to the data as restated. Your table should also include a footnote explaining, if true, that no audit has been performed of the restated U.S. GAAP financial information for 2006 and 2005.
The Company respectfully advises the Staff that it had performed a careful analysis of possible errors arising from revenue recognition with respect to the balance sheet at January 1, 2007 and for purposes of presentation of the unaudited summary and selected financial data for 2006 and 2005. The Company reprocessed data on a contract-by-contract basis and concluded that the effect as at January 1, 2007 and as at and for the years ended December 31, 2006 and 2005 was immaterial. The effects were material from January 1, 2007, due in part to Gafisa´s relatively low level of reported net income in 2007 in addition to our 40% acquisition of our investee Alphaville in January 2007 and the acquisition of Tenda in October 2008. The more significant revenue recognition effects arose when we reprocessed the Alphaville and Tenda transactions on a contract-by-contract basis. The effects from reprocessing the Gafisa data on a contract-by-contract basis were immaterial in 2006 and 2005. The quantification of this reprocessing is provided supplementally in the attached Annex A. These effects will be reflected in “Item 3. Key Information—A. Selected Financial Data” in our Form 20-F. In addition to the 2006 and 2005 data, Annex A also presents the restated financial information to be disclosed for subsequent periods.
As per your request we provide below the U.S. GAAP balances for each component of shareholders’ equity as of January 1, 2007, for purposes of disclosure:
Restated U.S. GAAP Condensed shareholders’ equity – January 1, 2007
c) | Restatement Adjustments – Condensed shareholders’ equity |
As originally reported | As restated | |||||||||||
Shareholders’ Equity | January 1, 2007 | Restatement Adjustments | January 1, 2007 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Shareholders’ equity | ||||||||||||
Common shares, comprising 206,739,900 shares outstanding | 583,305 | – | 583,305 | |||||||||
Treasury shares | (43,571 | ) | – | (43,571 | ) | |||||||
Appropriated retained earnings | 177,180 | (1,712 | ) | 175,468 | ||||||||
Unappropriated retained earnings | 78,337 | – | 78,337 | |||||||||
Total Gafisa shareholders’ equity | 795,251 | (1,712 | ) | 793,539 | ||||||||
Non-controlling interests | 1,050 | – | 1,050 | |||||||||
Total shareholders’ equity | 796,301 | (1,712 | ) | 794,589 |
* * *
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 +5511-4871-8401.
/s/ Alceu Duílio Calciolari |
Chief Executive Officer Gafisa S.A. |
Manuel Garciadiaz, Esq. (Davis Polk & Wardwell LLP) Ivan Clark (PricewaterhouseCoopers Auditores Independentes) |
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)
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 U.S. 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 U.S. GAAP consolidated financial information.
Cash And Cash Equivalents Marketable Securities | As Originally Reported | Restatement Adjustments (1) | As Restated | |||||||||
December 31, 2009 | (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 |
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 U.S. 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 is generally equivalent 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 U.S. GAAP ASC 360.20, adjustments to previously recorded U.S. GAAP revenue recognition are required for the Gafisa segment.
Historically, our U.S. GAAP accounting practices for the Gafisa segment had not contemplated, on a contract-by-contract basis, the implication of the initial investment test and continuing investment test under U.S. GAAP as we did not consider the defaulting party had a right to reimbursement that would otherwise affect the revenue we had recognized as only Gafisa has the right to terminate the contract. Despite the fact that the Gafisa segment contracts do not provide the defaulting party with a right to cancel, upon further examination and based on an analysis of recent legal precedent, we have concluded that the defaulting party does have certain rights in law that can be exercised in the event a judicial appeal is filed. Judicial rulings have required companies in Brazil to return to defaulting parties, part of the deposit payments for units under development when the contract is terminated. Such amounts have approximated the percentage set forth in the sales contracts which determine the possibility of the Company granting a reimbursement at the Company´s discretion if it agrees to terminate the contract. The reimbursements paid by the Company of approximately 35% are an average percentage of amounts historically paid, therefore, there may be contracts in which this amount is higher or lower than the average of 35%. Accordingly, for purposes of our current U.S. GAAP accounting practices for the Gafisa segment we have used the contractual reimbursement percentage (after applying penalties) for purposes of determining the initial investment test. Upon recomputing the initial investment test and continuing investment test parameters on a contract-by-contract basis, rather than by developments, certain units were found to have failed the tests which resulted in the deferral of revenue recognition under the percentage of completion model. We have restated our consolidated financial statements as at December 31, 2009 and for each of the three years in the period then ended to reflect the deferral of recognition of revenue for the Gafisa segment.
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.
A-4
Tenda’s historical application of percentage of completion for U.S. GAAP purposes did not contemplate the impact of the potential refund provisions of 80% under the percentage of completion method. Thus, the Company is restating the U.S. GAAP financial position and results of operations of its Tenda segment to properly account for the potential refund provisions of 80%.
The operations of the Tenda segment contracts are more fully described below including the contractual relationship among Tenda, the customer and a government bank (Federal Savings and Loans Bank (CEF – Caixa Economica Federal, or Bank of Brazil)):
Purchase and Sale Agreement –Property Developer x Customer (Promisor)
When the real estate venture is launched, the customer and property developer execute a purchase and sale agreement (“the Tenda Pilot program contract”), which defines the type of customer financing. This agreement is primarily aimed at providing a purchase and sale commitment between the parties during the period in which the contract’s enterprise is under analysis by a government bank.
Upon executing the Tenda Pilot program contract, the customer is required to provide a retainer of the real property value and pay the monthly installments to the real estate developer (the aggregate amount corresponds to approximately 5% - 15%) while its financing is pending approval by the bank. The bank customer financing varies from 85% to 95% of the real property value depending on the situation. Currently, to the extent that a customer is approved by a government bank, prior to the overall approval of specific project, the customer may be financed for 95% of the real property value.
Following the execution of the agreement with the customer, the government bank begins the financing approval process either when the real estate project is launched or during construction. Once approved, the agreement is transferred to the government bank.
After evaluating the Tenda Pilot program and its customer portfolio, we concluded that percentage of completion revenue recognition is not appropriate during the construction phase, given the potential refundability rights of the customer. As 80% of the down payment would need to be excluded from the initial investment test, the contract would fail the initial investment test under U.S. GAAP.
Taking out Residential Financing
During the government bank credit facility approval period, the monthly installments, the principal and indexation charges due after the purchase and sale agreement is executed are paid to Tenda.
Once the credit facility is approved by the government bank, Tenda, the customer and the bank enter into an agreement enforceable as a deed of promise to buy and sell, similar to a private credit facility agreement to develop a real estate venture, the final contract. Upon execution, the original Tenda Pilot program contract between Tenda and the customer is replaced, and the new agreement is transferred to the Bank of Brazil. From that time, the customer starts repaying the financing directly to the bank, which will pass the financing amounts on to Tenda over the construction period, as the construction work progresses.
All of Tenda’s revenue recognition is generated from Tenda Pilot program contracts.
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 meet the initial investment test. Alphaville’s negotiated repayments have historically approximated 76% of amounts previously paid.
A-5
Alphaville’s historical application of percentage of completion for U.S. GAAP purposes did not contemplate the impact of the potential refund provisions of 80% under the percentage of completion method. Accordingly, the Company is restating the U.S. GAAP financial position and results of operations of its Alphaville segment to properly account for the potential contractual refund provision of 80%.
Reconciliation of Restated Net Income - 2009
a) | Net Income Reconciliation - BR and U.S. GAAP |
As originally reported | As restated | |||||||||||||||||||||||
Net Income Reconciliation – BR and U.S. GAAP | 2009 | Gafisa Restatement Adjustments | Tenda Restatement Adjustments | Alphaville Restatement Adjustments | Total Restatement Adjustments | 2009 | ||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||
Net income under Brazilian GAAP | 213,540 | – | – | – | – | 213,540 | ||||||||||||||||||
Revenue recognition – net operating revenue | (477,072 | ) | – | – | – | – | (477,072 | ) | ||||||||||||||||
Revenue recognition – net operating revenue – initial test(1) | – | (77,776 | ) | 60,627 | (142,447 | ) | (159,596 | ) | (159,596 | ) | ||||||||||||||
Revenue recognition – net operating revenue – continuing test(1) | – | (187,182 | ) | 2,184 | (36 | ) | (185,034 | ) | (185,034 | ) | ||||||||||||||
Revenue recognition – operating costs | 342,830 | – | – | – | – | 342,830 | ||||||||||||||||||
Revenue recognition – operating costs – initial test(1) | – | 48,854 | (61,863 | ) | 78,373 | 65,364 | 65,364 | |||||||||||||||||
Revenue recognition – operating costs – continuing test(1) | – | 157,065 | (2,228 | ) | 20 | 154,857 | 154,857 | |||||||||||||||||
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 (2) | (3,173 | ) | (15,194 | ) | – | – | (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 (3) | – | – | 13,826 | – | 13,826 | 13,826 | ||||||||||||||||||
Other | 49 | – | – | – | – | 49 | ||||||||||||||||||
Reversal and revision of non–controlling interest (4) | 36,188 | 30,178 | – | – | 30,178 | 66,366 | ||||||||||||||||||
Deferred income tax on adjustments above (5) | 23,140 | 18,016 | (475 | ) | 8,229 | 25,770 | 48,910 | |||||||||||||||||
Net income (loss) attributable to Gafisa, net of non–controlling interest | (36,678 | ) | (26,039 | ) | 12,071 | (55,861 | ) | (69,829 | ) | (106,507 | ) | |||||||||||||
Net income (loss) attributable to non-controlling interests under USGAAP (6) | 42,276 | (20,273 | ) | 8,365 | – | (11,908 | ) | 30,368 | ||||||||||||||||
Total net income (loss) under U.S. GAAP | 5,598 | (46,312 | ) | 20,436 | (55,861 | ) | (81,737 | ) | (76,139 | ) |
(1) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation. |
(2) | Retrospective adjustment to Tenda’s Purchase Price Allocation adjustment arising from the restatement of Tenda´s assets acquired and liabilities assumed following the correction of the error in (1) above. |
(3) | Reversal of Tenda’s contract termination provision which had historically been recorded as a means of deferring revenue and which was found to be insufficient and replaced by the current revenue recognition deferral adjustment in (1) above. |
(4) | Revision of non-controlling interest to financial expenses. The Company formed an unincorporated venture (SCP) in 2008 to hold interests in other real estate development companies. Upon further examination, this transaction was determined to be characteristic of a debt instrument rather than an equity investment. The results of the venture were originally presented as part of non-controlling interest amounts and were revised to financial expenses to reflect the Company´s current accounting practices. . |
(5) | Deferred income tax on above adjustments. |
(6) | Non-controlling interest on above adjustments. |
A-6
Reconciliation of Restated Shareholder’s Equity – 2009
b) Shareholders’ Equity Reconciliation BR and U.S. GAAP
As originally reported | As restated | |||||||||||||||||||||||
Shareholders’ Equity Reconciliation BR and U.S. GAAP | 2009 | Gafisa Restatement Adjustments | Tenda Restatement Adjustments | Alphaville Restatement Adjustments | Total Restatement Adjustments | 2009 | ||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||
Shareholders’ equity under Brazilian GAAP | 2,325,634 | – | – | – | – | 2,325,634 | ||||||||||||||||||
Revenue recognition – net operating revenue | (821,707 | ) | – | – | – | – | (821,707 | ) | ||||||||||||||||
Revenue recognition – net operating revenue – initial test(1) | – | (127,599 | ) | 66,534 | (249,437 | ) | (355,503 | ) | (355,503 | ) | ||||||||||||||
Revenue recognition – net operating revenue – continuing test(1) | – | (252,630 | ) | 2,346 | (2,235 | ) | (252,518 | ) | (252,518 | ) | ||||||||||||||
Revenue recognition – operating costs | 560,157 | – | – | – | – | 560,157 | ||||||||||||||||||
Revenue recognition – operating costs – initial test(1) | – | 116,841 | (59,761 | ) | 149,644 | 206,724 | 206,724 | |||||||||||||||||
Revenue recognition – operating costs – continuing test(1) | – | 194,432 | (2,170 | ) | 1,334 | 193,596 | 193,596 | |||||||||||||||||
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 | ||||||||||||||||||
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 (2) | 13,231 | (17,974 | ) | – | – | (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 (3) | – | 25,023 | – | 25,023 | 25,023 | |||||||||||||||||||
Other | (538 | ) | – | – | – | (538 | ) | |||||||||||||||||
Reversal and revision of non – controlling interest (4) | 56,425 | 64,209 | – | – | 64,209 | 120,634 | ||||||||||||||||||
Deferred income tax on adjustments above (5) | 72,827 | 34,557 | (9,291 | ) | 11,695 | 36,961 | 109,788 | |||||||||||||||||
Shareholders’ equity before non – controlling interest | 2,165,255 | (33,164 | ) | 22,681 | (88,999 | ) | (99,482 | ) | 2,065,773 | |||||||||||||||
Non-controlling interests under USGAAP (6) | 47,912 | (53,446 | ) | 8,365 | 13,256 | (31,825 | ) | 16,087 | ||||||||||||||||
Total Shareholders’ equity under USGAAP | 2,213,167 | (86,610 | ) | 31,046 | (75,743 | ) | (131,307 | ) | 2,081,860 |
(1) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation. |
(2) | Retrospective adjustment to Tenda’s Purchase Price Allocation adjustment arising from the restatement of Tenda´s assets acquired and liabilities assumed following the correction of the error in (1) above. |
(3) | Reversal of Tenda’s contract termination provision which had historically been recorded as a means of deferring revenue and which was found to be insufficient and replaced by the current revenue recognition deferral adjustment in (1) above. |
(4) | Revision of non-controlling interest to financial expenses. The Company formed an unincorporated venture (SCP) in 2008 to hold interests in other real estate development companies. Upon further examination, this transaction was determined to be characteristic of a debt instrument rather than an equity investment. The results of the venture were originally presented as part of non-controlling interest amounts and were revised to financial expenses to reflect the Company´s current accounting practices. |
(5) | Deferred income tax on above adjustments. |
(6) | Non-controlling interest on above adjustments. |
A-7
Restated U.S. GAAP Assets and Liabilities – 2009
(c) Restatement Adjustments – Assets and Liabilities
As originally reported | As restated | |||||||||||
Assets | 2009 | Restatement Adjustments | 2009 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents(1) | 1,348,403 | (1,055,463 | ) | 292,940 | ||||||||
Marketable securities(1) | – | 1,005,882 | 1,005,882 | |||||||||
Restricted cash(1) | 47,265 | 49,581 | 96,846 | |||||||||
Receivables from clients(2) | 1,188,662 | (2,366 | ) | 1,186,296 | ||||||||
Properties for sale (2) | 1,796,000 | 400,320 | 2,196,320 | |||||||||
Other accounts receivable | 87,502 | – | 87,502 | |||||||||
Prepaid expenses | 14,122 | – | 14,122 | |||||||||
Investments (3) | 185,364 | (31,825 | ) | 153,539 | ||||||||
Property and equipment, net | 58,969 | – | 58,969 | |||||||||
Intangibles, net (4) | 151,343 | (17,974 | ) | 133,369 | ||||||||
Goodwill | 31,416 | – | 31,416 | |||||||||
Receivables from clients(2) | 1,691,642 | (357,099 | ) | 1,334,543 | ||||||||
Properties for sale | 416,083 | – | 416,083 | |||||||||
Deferred income tax (5) | 15,912 | 36,961 | 52,873 | |||||||||
Other | 96,647 | – | 96,647 | |||||||||
Total assets | 7,129,330 | 28,017 | 7,157,347 |
A-8
As originally reported | As restated | |||||||||||
Liabilities And Shareholders’ Equity | 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 (2) | 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 | ||||||||
Non-controlling interests(6) | 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 |
(1) | As per the definition of cash equivalents under ASC 305-10-20, the Company has determined that the amounts originally presented did not meet the cash equivalents definition under U.S. GAAP because the original maturity at date of purchase was more than 90 days. These amounts have been classified under the Company´s current accounting policies as short-term available for sale marketable securities in the restated U.S. GAAP consolidated financial information |
(2) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation. |
(3) | Changes in equity due to correction of error in (2) above affecting equity method of accounting. |
(4) | Retrospective adjustment to the Tenda’s Purchase Price Allocation adjustment arising from the restatement of Tenda’s assets acquired and liabilities assumed following the correction of the error in (2) above. |
(5) | Deferred income tax on above adjustments. |
(6) | Non-controlling interest on above adjustments. |
A-9
Restated U.S. GAAP Condensed shareholders’ equity – 2009
c) | Restatement Adjustments – Condensed shareholders’ equity |
As originally reported | As restated | |||||||||||
Shareholders’ Equity | 2009 | Restatement Adjustments | 2009 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Shareholders’ equity | ||||||||||||
Common shares, comprising 333,554,788 shares outstanding | 1,586,184 | – | 1,586,184 | |||||||||
Treasury shares | (1,731 | ) | – | (1,731 | ) | |||||||
Appropriated retained earnings | 580,802 | (99,482 | ) | 481,320 | ||||||||
Unappropriated retained earnings | – | – | – | |||||||||
Total Gafisa shareholders’ equity | 2,165,255 | (99,482 | ) | 2,065,773 | ||||||||
Non-controlling interests | 47,912 | (31,825 | ) | 16,087 | ||||||||
Total shareholders’ equity | 2,213,167 | (131,307 | ) | 2,081,860 |
Restated U.S. GAAP Income Statement – 2009
c) Restatement Adjustments – Income Statement
As originally reported | As restated | |||||||||||
Net Income | 2009 | Restatement Adjustments | 2009 | |||||||||
Net operating revenue (1) | 2,338,311 | (339,960 | ) | 1,998,351 | ||||||||
Operating costs (sales and services) (1) | (1,652,850 | ) | 220,221 | (1,432,629 | ) | |||||||
Gross profit (1) | 685,461 | (119,739 | ) | 565,722 | ||||||||
Operating expenses | ||||||||||||
Selling, general and administrative | (439,459 | ) | – | (439,459 | ) | |||||||
Other (2) | (161,077 | ) | 14,984 | (146,093 | ) | |||||||
Operating income | 84,925 | (104,755 | ) | (19,830 | ) | |||||||
Financial income (expenses)(3) | (83,622 | ) | (21,022 | ) | (104,644 | ) | ||||||
Income (loss) before income tax, equity in results and non-controlling interest | 1,303 | (125,777 | ) | (124,474 | ) | |||||||
Income tax expense (4) | (59,567 | ) | 25,770 | (33,797 | ) | |||||||
Income (loss) before equity in results and non-controlling interests | (58,264 | ) | (100,007 | ) | (158,271 | ) | ||||||
Equity in results (5) | 63,862 | 18,270 | 82,132 | |||||||||
Net income (loss) | 5,598 | (81,737 | ) | (76,139 | ) | |||||||
Less: attributable to non-controlling interests (6) | (42,276 | ) | 11,908 | (30,368 | ) | |||||||
Net income (loss) attributable to Gafisa | (36,678 | ) | (69,829 | ) | (106,507 | ) |
(1) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation and Reversal of Tenda’s contract termination provision which had historically been recorded as a means of deferring revenue and which was found to be insufficient and replaced by the current revenue recognition deferral adjustment above. |
(2) | Retrospective adjustment to the Tenda’s Purchase Price Allocation adjustment arising from the restatement of Tenda´s assets acquired and liabilities assumed following the correction of the error in (1) above. |
(3) | Revision of non-controlling interest to financial expenses. The Company formed an unincorporated venture (SCP) in 2008 to hold interests in other real estate development companies. Upon further examination, this transaction was determined to be characteristic of a debt instrument rather than an equity investment. The results of the venture were originally presented as part of non-controlling interest amounts and were revised to financial expenses to reflect the Company´s current accounting practices. |
(4) | Deferred income tax on above adjustments. |
(5) | Changes in equity due to correction of error in (1) above affecting equity method of accounting. |
(6) | Non-controlling interest on above adjustments. |
A-10
Reconciliation of Restated Income – 2008
a) Net Income Reconciliation – BR and U.S. GAAP
As originally reported | As restated | |||||||||||||||||||||||
Net Income Reconciliation – BR and U.S. GAAP | 2008 | Gafisa Restatement Adjustments | Tenda Restatement Adjustments | Alphaville Restatement Adjustments | Total Restatement Adjustments | 2008 | ||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||
Net income under Brazilian GAAP | 109,921 | – | – | – | – | 109,921 | ||||||||||||||||||
Revenue recognition–net operating revenue | 85,337 | – | – | – | – | 85,337 | ||||||||||||||||||
Revenue recognition – net operating revenue – initial test(1) | – | (55,366 | ) | 5,906 | (42,025 | ) | (91,485 | ) | (91,485 | ) | ||||||||||||||
Revenue recognition – net operating revenue – continuing test(1) | – | (65,448 | ) | 163 | – | (65,285 | ) | (65,285 | ) | |||||||||||||||
Revenue recognition – operating costs | (47,672 | ) | – | – | – | – | (47,672 | ) | ||||||||||||||||
Revenue recognition – operating costs – initial test(1) | – | 43,531 | 2,102 | 32,440 | 78,073 | 78,073 | ||||||||||||||||||
Revenue recognition – operating costs – continuing test(1) | – | 37,367 | 58 | 37,425 | 37,425 | |||||||||||||||||||
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 (2) | (468 | ) | (2,780 | ) | – | – | (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 (3) | – | – | 11,197 | – | 11,197 | 11,197 | ||||||||||||||||||
Other | (356 | ) | – | – | – | – | (356 | ) | ||||||||||||||||
Reversal and revision of non-controlling interest (4) | 6,839 | 34,031 | – | – | 34,031 | 40,870 | ||||||||||||||||||
Deferred income tax on adjustments above (5) | (41,455 | ) | 12,045 | (8,816 | ) | 546 | 3,775 | (37,680 | ) | |||||||||||||||
Net income (loss) attributable to Gafisa, net of non-controlling interest | 299,658 | 3,380 | 10,610 | (9,039 | ) | 4,951 | 304,609 | |||||||||||||||||
Net income (loss) attributable to non-controlling interests under USGAAP (6) | 47,900 | (34,031 | ) | – | 3,616 | (30,415 | ) | 17,485 | ||||||||||||||||
Total net income (loss) under USGAAP | 347,558 | (30,651 | ) | 10,610 | (5,423 | ) | (25,464 | ) | 322,094 |
(1) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation. |
(2) | Retrospective adjustment to the Tenda’s Purchase Price Allocation adjustment arising from the restatement of Tenda´s assets acquired and liabilities assumed following the correction of the error in (1) above. |
(3) | Reversal of Tenda’s contract termination provision which had historically been recorded as a means of deferring revenue and which was found to be insufficient and replaced by the current revenue recognition deferral adjustment in (1) above. |
(4) | (a) Revision of non-controlling interest to financial expenses. The Company formed an unincorporated venture (SCP) in 2008 to hold interests in other real estate development companies. Upon further examination, this transaction was determined to be characteristic of a debt instrument rather than an equity investment. The results of the venture were originally presented as part of non-controlling interest amounts and were revised to financial expenses to reflect the Company´s current accounting practices; |
(b) Reclassification of present value adjustments on item 1 above.
(5) | Deferred income tax on above adjustments. |
(6) | Non-controlling interest on above adjustments. |
A-11
Reconciliation of Restated Shareholder’s Equity – 2008
b) Shareholders’ Equity Reconciliation BR and U.S. GAAP
As originally reported | As restated | |||||||||||||||||||||||
Shareholders’ Equity Reconciliation BR and U.S. GAAP | 2008 | Gafisa Restatement Adjustments | Tenda Restatement Adjustments | Alphaville Restatement Adjustments | Total Restatement Adjustments | 2008 | ||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||
Shareholders’ equity under Brazilian GAAP | 1,612,419 | – | – | – | – | 1,612,419 | ||||||||||||||||||
Revenue recognition–net operating revenue | (344,635 | ) | – | – | – | – | (344,635 | ) | ||||||||||||||||
Revenue recognition – net operating revenue – initial test(1) | – | (94,823 | ) | 5,906 | (106,990 | ) | (195,907 | ) | (195,907 | ) | ||||||||||||||
Revenue recognition – net operating revenue – continuing test(1) | – | (65,448 | ) | 163 | (2,199 | ) | (67,484 | ) | (67,484 | ) | ||||||||||||||
Revenue recognition – operating costs | 217,327 | – | – | – | – | 217,327 | ||||||||||||||||||
Revenue recognition – operating costs – initial test(1) | – | 67,987 | 2,102 | 71,271 | 141,360 | 141,360 | ||||||||||||||||||
Revenue recognition – operating costs – continuing test(1) | – | 37,367 | 58 | 1,314 | 38,739 | 38,739 | ||||||||||||||||||
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 (2) | 16,404 | (2,780 | ) | – | – | (2,780 | ) | 13,624 | ||||||||||||||||
Business Combination of Alphaville | (22,102 | ) | – | – | – | – | (22,102 | ) | ||||||||||||||||
Reversal of contract termination provision (3) | – | – | 11,197 | – | 11,197 | 11,197 | ||||||||||||||||||
Other | 266 | – | – | – | – | 266 | ||||||||||||||||||
Reversal and revision of non-controlling interest (4) | 20,237 | 34,031 | – | – | 34,031 | 54,268 | ||||||||||||||||||
Deferred income tax on adjustments above (5) | 49,687 | 16,541 | (8,816 | ) | 3,466 | 11,191 | 60,878 | |||||||||||||||||
Shareholders’ equity before non—controlling interest | 1,723,095 | (7,125 | ) | 10,610 | (33,138 | ) | (29,653 | ) | 1,693,442 | |||||||||||||||
Non-controlling interests under USGAAP (6) | 451,342 | (33,173 | ) | - | 13,256 | (19,917 | ) | 431,425 | ||||||||||||||||
Total Shareholders’ equity under USGAAP | 2,174,437 | (40,298 | ) | 10,610 | (19,882 | ) | (49,570 | ) | 2,124,867 |
(1) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation. |
(2) | Retrospective adjustment to the Tenda’s Purchase Price Allocation adjustment arising from the restatement of Tenda´s assets acquired and liabilities assumed following the correction of the error in (1) above. |
(3) | Reversal of Tenda’s contract termination provision which had historically been recorded as a means of deferring revenue and which was found to be insufficient and replaced by the current revenue recognition deferral adjustment in (1) above. |
(4) | Revision of non-controlling interest to financial expenses. The Company formed an unincorporated venture (SCP) in 2008 to hold interests in other real estate development companies. Upon further examination, this transaction was determined to be characteristic of a debt instrument rather than an equity investment. The results of the venture were originally presented as part of non-controlling interest amounts and were revised to financial expenses to reflect the Company´s current accounting practices. |
(5) | Deferred income tax on above adjustments. |
(6) | Non-controlling interest on above adjustments. |
A-12
Restated U.S. GAAP Assets and Liabilities – 2008
c) Restatement Adjustments – Assets and Liabilities
As originally reported | As restated | |||||||||||
Assets | 2008 | Restatement Adjustments | 2008 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents (1) | 510,504 | (326,980 | ) | 183,524 | ||||||||
Marketable securities (1) | – | 326,980 | 326,980 | |||||||||
Restricted cash (1) | 76,928 | – | 76,928 | |||||||||
Receivables from clients (2) | 1,060,845 | (77,512 | ) | 983,333 | ||||||||
Properties for sale (2) | 2,058,721 | 180,099 | 2,238,820 | |||||||||
Other accounts receivable | 127,150 | – | 127,150 | |||||||||
Prepaid expenses | 27,732 | – | 27,732 | |||||||||
Investments (3) | 49,135 | (19,917 | ) | 29,218 | ||||||||
Property and equipment, net | 50,852 | – | 50,852 | |||||||||
Intangibles, net (4) | 188,199 | (2,780 | ) | 185,419 | ||||||||
Goodwill | 31,416 | – | 31,416 | |||||||||
Receivables from clients (2) | 720,298 | (52,629 | ) | 667,669 | ||||||||
Properties for sale | 149,403 | – | 149,403 | |||||||||
Deferred income tax (5) | 35,067 | 11,191 | 46,258 | |||||||||
Other | 93,153 | – | 93,153 | |||||||||
Total assets | 5,179,403 | 38,452 | 5,217,855 |
A-13
As originally reported | As restated | |||||||||||
Liabilities And Shareholders’ Equity | 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 (2) | 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 | ||||||||
Non-controlling interests(6) | 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 |
(1) | As per the definition of cash equivalents under ASC 305-10-20, the Company has determined that the amounts originally presented did not meet the cash equivalents definition under U.S. GAAP because the original maturity at date of purchase was more than 90 days. These amounts have been classified under the Company´s current accounting policies as short-term available for sale marketable securities in the restated U.S. GAAP consolidated financial information. |
(2) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation. |
(3) | Changes in equity due to correction of error in (2) above affecting equity method of accounting. |
(4) | Retrospective adjustment to the Tenda’s Purchase Price Allocation adjustment arising from the restatement of Tenda´s assets acquired and liabilities assumed following the correction of the error in (2) above. |
(5) | Deferred income tax on above adjustments. |
(6) | Non-controlling interest on above adjustments. |
A-14
Restated U.S. GAAP Condensed shareholders’ equity – 2008
c) | Restatement Adjustments – Condensed shareholders’ equity |
As originally reported | As restated | |||||||||||
Shareholders’ Equity | 2008 | Restatement Adjustments | 2008 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Shareholders’ equity | ||||||||||||
Common shares, comprising 259,925,092 shares outstanding | 1,199,498 | – | 1,199,498 | |||||||||
Treasury shares | (14,595 | ) | – | (14,595 | ) | |||||||
Appropriated retained earnings | 538,192 | (29,653 | ) | 508,539 | ||||||||
Unappropriated retained earnings | – | – | – | |||||||||
Total Gafisa shareholders’ equity | 1,723,095 | (29,653 | ) | 1,693,442 | ||||||||
Non-controlling interests(6) | 451,342 | (19,917 | ) | 431,425 | ||||||||
Total shareholders’ equity | 2,174,437 | (49,570 | ) | 2,124,867 |
Restated U.S. GAAP Income Statements – 2008
c) Restatement Adjustments – Income Statement
As originally reported | As restated | |||||||||||
Net Income | 2008 | Restatement Adjustments | 2008 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Net operating revenue (1) | 1,692,706 | (215,402 | ) | 1,477,304 | ||||||||
Operating costs (sales and services) (1) | (1,198,256 | ) | 115,498 | (1,082,758 | ) | |||||||
Gross profit (1) | 494,450 | (99,904 | ) | 394,546 | ||||||||
Operating expenses | ||||||||||||
Selling, general and administrative | (306,134 | ) | – | (306,134 | ) | |||||||
Other(2) | 163,363 | 31,251 | 194,614 | |||||||||
Operating income | 351,679 | (68,653 | ) | 283,026 | ||||||||
Financial income (expenses)(3) | 40,198 | 35,798 | 75,996 | |||||||||
Income (loss) before income tax, equity in results and non-controlling interest | 391,877 | (32,855 | ) | 359,022 | ||||||||
Income tax expense (4) | (70,576 | ) | 3,775 | (66,801 | ) | |||||||
Income (loss) before equity in results and non-controlling interests | 321,301 | (29,080 | ) | 292,221 | ||||||||
Equity in results (5) | 26,257 | 3,616 | 29,873 | |||||||||
Net income (loss) | 347,558 | (25,464 | ) | 322,099 | ||||||||
Less: attributable to non-controlling interests (6) | (47,900 | ) | 30,415 | (17,485 | ) | |||||||
Net income (loss) attributable to Gafisa | 299,658 | 4,951 | 304,609 |
(1) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation. |
(2) | Retrospective adjustment to the Tenda’s Purchase Price Allocation adjustment arising from the restatement of Tenda´s assets acquired and liabilities assumed following the correction of the error in (1) above. |
(3) | (a) Revision of non-controlling interest to financial expenses. The Company formed an unincorporated venture (SCP) in 2008to hold interests in other real estate development companies. Upon further examination, this transaction was determined to be characteristic of a debt instrument rather than an equity investment. The results of the venture were originally presented as part of non-controlling interest amounts and were revised to financial expenses to reflect the Company´s current accounting practices; |
(b) Reclassification of present value adjustments on item (1) above.
(4) | Deferred income tax on above adjustments. |
(5) | Changes in equity due to correction of error in (1) above affecting equity method of accounting. |
(6) | Non-controlling interest on above adjustments. |
A-15
Reconciliation of Restated Net Income–2007
a) Net Income Reconciliation - BR and U.S. GAAP
As originally reported | As restated | |||||||||||||||||||
Net Income Reconciliation – BR and U.S. GAAP | 2007 | Gafisa Restatement Adjustments | Alphaville Restatement Adjustments | Total Restatement Adjustments | 2007 | |||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||
Net income under Brazilian GAAP | 91,640 | – | – | – | 91,640 | |||||||||||||||
Revenue recognition–net operating revenue | (152,064 | ) | – | – | – | (152,064 | ) | |||||||||||||
Revenue recognition – net operating revenue – initial test(1) | – | (21,107 | ) | (64,965 | ) | (86,072 | ) | (86,072 | ) | |||||||||||
Revenue recognition – net operating revenue – continuing test(1) | – | – | (2,199 | ) | (2,199 | ) | (2,199 | ) | ||||||||||||
Revenue recognition – operating costs | 96,215 | – | – | – | 96,215 | |||||||||||||||
Revenue recognition – operating costs – initial test(1) | – | 7,841 | 38,831 | 46,672 | 46,672 | |||||||||||||||
Revenue recognition – operating costs – continuing test(1) | – | – | 1,314 | 1,314 | 1,314 | |||||||||||||||
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 revision of non-controlling interest | 1,994 | – | – | – | 1,994 | |||||||||||||||
Deferred income tax on adjustments above (2) | 30,377 | 4,473 | 2,920 | 7,393 | 37,770 | |||||||||||||||
Net income (loss) attributable to Gafisa, net of non-controlling interest | 63,462 | (8,793 | ) | (24,099 | ) | (32,892 | ) | 30,570 | ||||||||||||
Net income (loss) attributable to non-controlling interests under USGAAP(3) | 4,738 | 858 | 9,640 | 10,498 | 15,236 | |||||||||||||||
Total net income (loss) under USGAAP | 68,200 | (7,935 | ) | (14,459 | ) | (22,394 | ) | 45,806 |
(1) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation |
(2) | Deferred income tax on above adjustments. |
(3) | Non-controlling interest on above adjustments. |
Reconciliation of Restated Shareholder’s Equity – 2007
b) Shareholders’ Equity Reconciliation BR and U.S. GAAP
As originally reported | As restated | |||||||||||||||||||
Shareholders’ Equity Reconciliation BR and U.S. GAAP | 2007 | Gafisa Restatement Adjustments | Alphaville Restatement Adjustments | Restatement Adjustments Total | 2007 | |||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||
Shareholders’ equity under Brazilian GAAP | 1,498,728 | – | – | – | 1,498,728 | |||||||||||||||
Revenue recognition – net operating revenue | (185,034 | ) | – | – | – | (185,034 | ) | |||||||||||||
Revenue recognition – net operating revenue – initial test(1) | – | (39,457 | ) | (64,965 | ) | (104,422 | ) | (104,422 | ) | |||||||||||
Revenue recognition – net operating revenue – continuing test(1) | – | – | (2,199 | ) | (2,199 | ) | (2,199 | ) |
Revenue recognition – operating costs | 121,212 | – | – | – | 121,212 | |||||||||||||||
Revenue recognition – operating costs – initial test(1) | – | 24,456 | 38,831 | 63,287 | 63,287 |
A-16
As originally reported | As restated | |||||||||||||||||||
Shareholders’ Equity Reconciliation BR and U.S. GAAP | 2007 | Gafisa Restatement Adjustments | Alphaville Restatement Adjustments | Restatement Adjustments Total | 2007 | |||||||||||||||
Revenue recognition – operating costs – continuing test(1) | – | – | 1,314 | 1,314 | 1,314 | |||||||||||||||
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 revision of non-controlling interest | 185 | – | – | – | 185 | |||||||||||||||
Deferred income tax on adjustments above (2) | 16,556 | 4,496 | 2,920 | 7,416 | 23,972 | |||||||||||||||
Shareholders’ equity before non-controlling interest | 1,441,870 | (10,505 | ) | (24,099 | ) | (34,604 | ) | 1,407,266 | ||||||||||||
Non-controlling interests under USGAAP(3) | 39,576 | 858 | 9,640 | 10,498 | 50,074 | |||||||||||||||
Total Shareholders’ equity under U.S.GAAP | 1,481,446 | (9,647 | ) | (14,459 | ) | (24,106 | ) | 1,457,340 |
(1) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation. |
(2) | Deferred income tax on above adjustments. |
(3) | Non-controlling interest on above adjustments. |
Restated U.S. GAAP Assets and Liabilities–2007
c) Restatement Adjustments – Assets and Liabilities
As originally reported | As restated | |||||||||||
Assets | 2007 | Restatement Adjustments | 2007 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents (1) | 512,185 | (299,116 | ) | 213,069 | ||||||||
Marketable securities (1) | – | 299,116 | 299,116 | |||||||||
Restricted cash (1) | 9,851 | – | 9,851 | |||||||||
Receivables from clients (2) | 269,363 | (37,085 | ) | 232,278 | ||||||||
Properties for sale (2) | 990,877 | 64,601 | 1,055,478 | |||||||||
Other accounts receivable | 101,279 | – | 101,279 | |||||||||
Prepaid expenses | 45,003 | – | 45,003 | |||||||||
Investments (3) | 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 (2) | 505,073 | (69,536 | ) | 435,537 | ||||||||
Properties for sale | 149,403 | – | 149,403 | |||||||||
Deferred income tax (4) | – | 7,416 | 7,416 | |||||||||
Other | 47,765 | – | 47,765 | |||||||||
Total assets | 2,889,040 | (24,106 | ) | 2,864,934 |
A-17
As originally reported | As restated | |||||||||||
Liabilities and Shareholders’ Equity | 2007 | Restatement Adjustments | 2007 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Liabilities and shareholders’ equity Current liabilities | ||||||||||||
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 | ||||||||
Non-controlling interests(5) | 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 |
(1) | As per the definition of cash equivalents under ASC 305-10-20, the Company has determined that the amounts originally presented did not meet the cash equivalents definition under U.S. GAAP because the original maturity at date of purchase was more than 90 days. These amounts have been classified under the Company´s current accounting policies as short-term available for sale marketable securities in the restated U.S. GAAP consolidated financial information. |
(2) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation. |
(3) | Changes in equity due to correction of error in (2) above affecting equity method of accounting |
(4) | Deferred income tax on above adjustments. |
(5) | Non-controlling interest on above adjustments. |
Restated U.S. GAAP Condensed shareholders’ equity – 2007
d) | Restatement Adjustments – Condensed shareholders’ equity |
As originally reported | As restated | |||||||||||
Shareholders’ Equity | 2007 | Restatement Adjustments | 2007 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Shareholders’ equity | ||||||||||||
Common shares, comprising 258,904,242 shares outstanding | 1,191,827 | – | 1,191,827 | |||||||||
Treasury shares | (14,595 | ) | – | (14,595 | ) | |||||||
Appropriated retained earnings | 182,861 | (34,604 | ) | 148,257 | ||||||||
Unappropriated retained earnings | 81,777 | – | 81,777 | |||||||||
Total Gafisa shareholders’ equity | 1,441,870 | (34,604 | ) | 1,407,266 | ||||||||
Non-controlling interests(5) | 39,576 | 10,498 | 50,074 | |||||||||
Total shareholders’ equity | 1,481,446 | (24,106 | ) | 1,457,340 |
A-18
Restated U.S. GAAP Income Statement – 2007
c) Restatement Adjustments – Income Statement
As originally reported | As restated | |||||||||||
Net Income | 2007 | Restatement Adjustments | 2007 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Net operating revenue(1) | 1,090,632 | (92,657 | ) | 997,975 | ||||||||
Operating costs (sales and services)(1) | (865,756 | ) | 47,986 | (817,770 | ) | |||||||
Gross profit(1) | 224,876 | (44,671 | ) | 180,205 | ||||||||
Operating expenses | ||||||||||||
Selling, general and administrative | (192,025 | ) | – | (192,025 | ) | |||||||
Other | 1,595 | – | 1,595 | |||||||||
Operating income | 34,446 | (44,671 | ) | (10,225 | ) | |||||||
Financial income (expenses)(2) | 27,243 | 4,386 | 31,629 | |||||||||
Income (loss) before income tax, equity in results and non-controlling interest | 61,689 | (40,285 | ) | 21,404 | ||||||||
Income tax expense (3) | (1,988 | ) | 7,393 | 5,405 | ||||||||
Income (loss) before equity in results and non-controlling interests | 59,701 | (32,892 | ) | 26,809 | ||||||||
Equity in results (4) | 8,499 | 10,498 | 18,997 | |||||||||
Net income (loss) | 68,200 | (22,394 | ) | 45,806 | ||||||||
Less: attributable to non-controlling interests (5) | (4,738 | ) | (10,498 | ) | (15,236 | ) | ||||||
Net income (loss) attributable to Gafisa | 63,462 | (32,892 | ) | 30,570 |
(1) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation |
(2) | Reclassification of present value adjustments on item (1) above. |
(3) | Deferred income tax on above adjustments. |
(4) | Changes in equity due to correction of error in (1) above affecting equity method of accounting. |
(5) | Non-controlling interest on above adjustments. |
Reconciliation of Restated Net Income–2006
a) Net Income Reconciliation - BR and U.S. GAAP
As originally reported | As restated | |||||||||||||||
Net Income Reconciliation – BR and U.S. GAAP | 2006 | Gafisa Restatement Adjustments | Total Restatement Adjustments | 2006 | ||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Net income under Brazilian GAAP | 44,010 | – | – | 44,010 | ||||||||||||
Revenue recognition–net operating revenue | (32,970 | ) | – | – | (32,970 | ) | ||||||||||
Revenue recognition – net operating revenue – initial test(1) | – | (15,226 | ) | (15,226 | ) | (15,226 | ) | |||||||||
Revenue recognition – operating costs | 24,997 | – | – | 24,997 | ||||||||||||
Revenue recognition – operating costs – initial test(1) | – | 15,291 | 15,291 | 15,291 | ||||||||||||
Capitalized interest and amortization of capitalized interest | 13,457 | – | – | 13,457 | ||||||||||||
Stock compensation (expense) reversal | (25,248 | ) | – | – | (25,248 | ) | ||||||||||
Other | 573 | – | – | 573 | ||||||||||||
Reversal and revision of non-controlling interest | 1,873 | – | – | 1,873 | ||||||||||||
Deferred income tax on adjustments above (2) | (1,865 | ) | (589 | ) | (589 | ) | (2,454 | ) | ||||||||
Net income (loss) attributable to Gafisa, net of non-controlling interest | 24,827 | (524 | ) | (524 | ) | 24,303 | ||||||||||
Net income (loss) attributable to non-controlling interests under USGAAP(3) | 1,125 | – | – | 1,125 |
Total net income (loss) under USGAAP | 25,952 | (524 | ) | (524 | ) | 25,428 |
(1) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation |
(2) | Deferred income tax on above adjustments. |
(3) | Non-controlling interest on above adjustments. |
A-19
Reconciliation of Restated Shareholder’s Equity – 2006
b) Shareholders’ Equity Reconciliation BR and U.S. GAAP
As originally reported | As restated | |||||||||||||||
Shareholders’ Equity Reconciliation BR and U.S. GAAP | 2006 | Gafisa Restatement Adjustments | Restatement Adjustments Total | 2006 | ||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Shareholders’ equity under Brazilian GAAP | 807,433 | – | – | 807,433 | ||||||||||||
Revenue recognition – net operating revenue ) | (32,970 | ) | – | – | (32,970 | ) | ||||||||||
Revenue recognition – net operating revenue – initial test(1) | – | (18,350 | ) | (18,350 | ) | (18,350 | ) | |||||||||
Revenue recognition – operating costs | 24,997 | – | – | 24,997 | ||||||||||||
Revenue recognition – operating costs – initial test(1) | – | 16,615 | 16,615 | 16,615 | ||||||||||||
Capitalized interest | 99,897 | – | – | 99,897 | ||||||||||||
Amortization of capitalized interest | (52,225 | ) | – | – | (52,225 | ) | ||||||||||
Liability – classified stock options | (34,220 | ) | – | – | (34,220 | ) | ||||||||||
Receivables from clients – SFAS 140 | 19,402 | – | – | 19,402 | ||||||||||||
Liability assumed – SFAS 140 | (19,402 | ) | – | – | (19,402 | ) | ||||||||||
Other | (31 | ) | – | – | (31 | ) | ||||||||||
Reversal and revision of non-controlling interest | (3,809 | ) | – | – | (3,809 | ) | ||||||||||
Deferred income tax on adjustments above (2) | (13,821 | ) | 23 | 23 | (13,798 | ) | ||||||||||
Shareholders’ equity before non-controlling interest | 795,251 | (1,712 | ) | (1,712 | ) | 795,539 | ||||||||||
Non-controlling interests under USGAAP(3) | 1,050 | - | - | 1,050 | ||||||||||||
Total Shareholders’ equity under U.S.GAAP | 796,301 | (1,712 | ) | (1,712 | ) | 794,589 |
(1) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation. |
(2) | Deferred income tax on above adjustments. |
(3) | Non-controlling interest on above adjustments. |
A-20
Restated U.S. GAAP Assets and Liabilities–2006
c) Restatement Adjustments – Assets and Liabilities
As originally reported | As restated | |||||||||||
Assets | 2006 | Restatement Adjustments | 2006 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 260,919 | – | 260,919 | |||||||||
Receivables from clients (1) | 184,595 | (18,350 | ) | 166,245 | ||||||||
Properties for sale (1) | 419,998 | 16,615 | 436,613 | |||||||||
Other accounts receivable | 303,258 | – | 303,258 | |||||||||
Prepaid expenses | 33,750 | – | 33,750 | |||||||||
Investments | 53,804 | – | 53,804 | |||||||||
Property and equipment, net | 8,146 | – | 8,146 | |||||||||
Intangibles, net | – | – | – | |||||||||
Goodwill | – | – | – | |||||||||
Other assets | – | – | – | |||||||||
Receivables from clients (1) | 259,174 | – | 259,174 | |||||||||
Properties for sale | 63,413 | – | 63,413 | |||||||||
Deferred income tax (2) | – | – | – | |||||||||
Other | 46,829 | – | 46,829 | |||||||||
Total assets | 1,633,886 | (1,735 | ) | 1,632,151 |
As originally reported | As restated | |||||||||||
Liabilities and Shareholders’ Equity | 2006 | Restatement Adjustments | 2006 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Liabilities and shareholders’ equity Current liabilities | ||||||||||||
Current Liabilities | ||||||||||||
Short–term debt, including current portion of long–term debt | 17,202 | – | 17,202 | |||||||||
Debentures | 11,038 | – | 11,038 | |||||||||
Obligations for purchase of land | 106,213 | – | 106,213 | |||||||||
Materials and services suppliers | 24,680 | – | 24,680 | |||||||||
Taxes and labor contributions | 36,434 | – | 36,434 | |||||||||
Advances from clients – real estate and services | 3,938 | – | 3,938 | |||||||||
Credit assignments | 1,358 | – | 1,358 | |||||||||
Acquisition of investments | – | – | – | |||||||||
Dividends payable | 10,938 | – | 10,938 | |||||||||
Others | 202,368 | – | 202,368 | |||||||||
Long-term liabilities | ||||||||||||
Loans, net of current portion | 21,176 | – | 21,176 | |||||||||
Debentures, net of current portion | 240,000 | – | 240,000 | |||||||||
Deferred income tax | 828 | (23 | ) | 805 | ||||||||
Obligations for purchase of land | 98,398 | – | 98,398 | |||||||||
Others | 63,014 | – | 63,014 | |||||||||
Shareholders’ equity | ||||||||||||
Total Gafisa shareholders’ equity | 795,251 | (1,712 | ) | 793,539 | ||||||||
Non-controlling interests(3) | 1,050 | – | 1,050 | |||||||||
Total shareholders’ equity | 796,301 | (1,712 | ) | 794,589 | ||||||||
Total liabilities and shareholders’ equity | 1,633,886 | (1,735 | ) | 1,632,151 |
(1) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation. |
(2) | Deferred income tax on above adjustments. |
(3) | Non-controlling interest on above adjustments. |
A-21
Restated U.S. GAAP Condensed shareholders’ equity – 2006
e) | Restatement Adjustments – Condensed shareholders’ equity |
As originally reported | As restated | |||||||||||
Shareholders’ Equity | 2006 | Restatement Adjustments | 2006 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Shareholders’ equity | ||||||||||||
Common shares, comprising 206,739,900 shares outstanding | 583,305 | – | 583,305 | |||||||||
Treasury shares | (43,571 | ) | – | (43,571 | ) | |||||||
Appropriated retained earnings | 177,180 | (1,712 | ) | 175,468 | ||||||||
Unappropriated retained earnings | 78,337 | – | 78,337 | |||||||||
Total Gafisa shareholders’ equity | 795,251 | (1,712 | ) | 793,539 | ||||||||
Non-controlling interests | 1,050 | – | 1,050 | |||||||||
Total shareholders’ equity | 796,301 | (1,712 | ) | 794,589 |
A-22
Restated U.S. GAAP Income Statement – 2006
c) Restatement Adjustments – Income Statement
As originally reported | As restated | |||||||||||
Net Income | 2006 | Restatement Adjustments | 2006 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Net operating revenue(1) | 674,740 | (15,226 | ) | 659,514 | ||||||||
Operating costs (sales and services)(1) | (503,172 | ) | 15,291 | (487,881 | ) | |||||||
Gross profit(1) | 171,568 | 65 | 171,633 | |||||||||
Operating expenses | ||||||||||||
Selling, general and administrative | (139,053 | ) | – | (139,053 | ) | |||||||
Other | (135 | ) | – | 135 | ||||||||
Operating income | 32,3280 | 65 | 32,445 | |||||||||
Financial income (expenses | 4,022 | - | 4,022 | |||||||||
Income (loss) before income tax, equity in results and non-controlling interest | 36,402 | 65 | 36,467 | |||||||||
Income tax expense (2) | (11,187 | ) | (589 | ) | (11,776 | ) | ||||||
Income (loss) before equity in results and non-controlling interests | 25,215 | (524 | ) | 24,691 | ||||||||
Equity in results | 894 | - | 894 | |||||||||
Stock compensation expense related to cumulative effect of a change in accounting principles | (157 | ) | ||||||||||
Net income (loss) | 25,952 | (524 | ) | 25,428 | ||||||||
Less: attributable to non-controlling interests (3) | (1,125 | ) | - | (1,125 | ) | |||||||
Net income (loss) attributable to Gafisa | 24,827 | (524 | ) | 24,303 |
(1) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation |
(2) | Deferred income tax on above adjustments. |
(3) | Non-controlling interest on above adjustments. |
Reconciliation of Restated Net Income–2005
a) Net Income Reconciliation - BR and U.S. GAAP
As originally reported | As restated | |||||||||||||||
Net Income Reconciliation – BR and U.S. GAAP | 2005 | Gafisa Restatement Adjustments | Total Restatement Adjustments | 2005 | ||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Net income under Brazilian GAAP | 30,677 | – | – | 30,677 | ||||||||||||
Revenue recognition – net operating revenue – initial test(1) | – | (3,125 | ) | (3,125 | ) | (3,125 | ) | |||||||||
Revenue recognition – operating costs – initial test(1) | – | 1,324 | 1,324 | 1,324 | ||||||||||||
Land barter transactions net operating revenue | 31,624 | – | – | 31,624 | ||||||||||||
Land barter transactions net operating costs | (31,624 | ) | – | – | (31,624 | ) | ||||||||||
Discouting of receivables | (1,666 | ) | – | – | (1,666 | ) | ||||||||||
Capitalized interest and amortization of capitalized interest | 11,234 | – | – | 11,234 | ||||||||||||
Stock issuance expenses | 410 | – | – | 410 | ||||||||||||
Stock compensation (expense) reversal | (3,455 | ) | – | – | (3,455 | ) | ||||||||||
Other | 354 | – | – | 354 | ||||||||||||
Reversal and revision of non-controlling interest | 113 | – | – | 113 | ||||||||||||
Deferred income tax on adjustments above (2) | (3,284 | ) | 612 | 612 | (2,672 | ) |
A-23
As originally reported | As restated | |||||||||||||||
Net Income Reconciliation – BR and U.S. GAAP | 2005 | Gafisa Restatement Adjustments | Total Restatement Adjustments | 2005 | ||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Net income (loss) attributable to Gafisa, net of non-controlling interest | 34,383 | (1,189 | ) | (1,189 | ) | 33,194 | ||||||||||
Net income (loss) attributable to non-controlling interests under USGAAP(3) | 571 | – | – | 571 | ||||||||||||
Total net income (loss) under USGAAP | 34,954 | (1,189 | ) | (1,189 | ) | 33,765 |
(1) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation |
(2) | Deferred income tax on above adjustments. |
(3) | Non-controlling interest on above adjustments. |
Reconciliation of Restated Shareholder’s Equity – 2005
b) Shareholders’ Equity Reconciliation BR and U.S. GAAP
As originally reported | As restated | |||||||||||||||
Shareholders’ Equity Reconciliation BR and U.S. GAAP | 2005 | Gafisa Restatement Adjustments | Restatement Adjustments Total | 2005 | ||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Shareholders’ equity under Brazilian GAAP | 270,188 | – | – | 270,188 | ||||||||||||
Revenue recognition – net operating revenue – initial test(1) ) | – | (3,125 | ) | (3,125 | ) | (3,125 | ) | |||||||||
Revenue recognition – operating costs – initial test(1) | – | 1,324 | 1,324 | 1,324 | ||||||||||||
Land barter transactions net operating revenue | 31,264 | – | – | 31,264 | ||||||||||||
Land barter transactions net operating costs | (31,264 | ) | – | – | (31,264 | ) | ||||||||||
Discounting of receivables | (3,080 | ) | – | – | (3,080 | ) | ||||||||||
Stock issuance expenses | 410 | – | – | 410 | ||||||||||||
Capitalized interests | 69,616 | – | – | 69,616 | ||||||||||||
Amortization of capitalized interest | (35,391 | ) | – | – | (35,391 | ) | ||||||||||
Receivables from clients – SFAS 140 | 8,757 | 8,757 | ||||||||||||||
Liability assumed – SFAS 140 | (8,757 | ) | – | – | (8,757 | ) | ||||||||||
Inventories – land barter transactions | 93,678 | – | – | 93,678 | ||||||||||||
Liability assumed – land barter transactions | (93,678 | ) | – | – | (93,678 | ) | ||||||||||
Other | (695 | ) | – | – | (695 | ) | ||||||||||
Reversal and revision of non-controlling interest | 176 | – | – | 176 | ||||||||||||
Deferred income tax on adjustments above (2) | (10,620 | ) | 612 | 612 | (10,008 | ) | ||||||||||
Shareholders’ equity before non-controlling interest | 290,604 | (1,189 | ) | (1,189 | ) | 289,415 | ||||||||||
Non-controlling interests under USGAAP(3) | 197 | - | - | 197 | ||||||||||||
Total Shareholders’ equity under U.S.GAAP | 290,801 | (1,189 | ) | (1,189 | ) | 289,612 |
(1) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation. |
(2) | Deferred income tax on above adjustments. |
(3) | Non-controlling interest on above adjustments. |
A-24
Restated U.S. GAAP Assets and Liabilities–2005
c) Restatement Adjustments – Assets and Liabilities
As originally reported | As restated | |||||||||||
Assets | 2005 | Restatement Adjustments | 2005 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 136,153 | – | 136,153 | |||||||||
Receivables from clients (1) | 127,641 | (3,125 | ) | 124,516 | ||||||||
Properties for sale (1) | 343,252 | 1,324 | 344,576 | |||||||||
Other accounts receivable | 96,062 | – | 96,062 | |||||||||
Prepaid expenses | 9,401 | – | 9,401 | |||||||||
Investments | 30,118 | – | 30,118 | |||||||||
Property and equipment, net | 10,256 | – | 10,256 | |||||||||
Receivables from clients (1) | 109,437 | – | 109,437 | |||||||||
Properties for sale | 33,361 | – | 33,361 | |||||||||
Deferred income tax (2) | 5,104 | 612 | 5,716 | |||||||||
Other | 602 | – | 602 | |||||||||
Total assets | 901,387 | (1,189 | ) | 900,198 |
As originally reported | As restated | |||||||||||
Liabilities and Shareholders’ Equity | 2005 | Restatement Adjustments | 2005 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Liabilities and shareholders’ equity Current liabilities | ||||||||||||
Current Liabilities | ||||||||||||
Short–term debt, including current portion of long–term debt | 25,728 | – | 25,728 | |||||||||
Debentures | 6,118 | – | 6,118 | |||||||||
Obligations for purchase of land | 25,439 | – | 25,439 | |||||||||
Materials and services suppliers | 22,823 | – | 22,823 | |||||||||
Taxes and labor contributions | 40,051 | – | 40,051 | |||||||||
Advances from clients – real estate and services | 19,985 | – | 19,985 | |||||||||
Credit assignments | 1,363 | – | 1,363 | |||||||||
Others | 97,208 | – | 97,208 | |||||||||
Long-term liabilities | ||||||||||||
Loans, net of current portion | 85,993 | – | 85,993 | |||||||||
Debentures, net of current portion | 176,310 | – | 176,310 | |||||||||
Deferred income tax | – | – | – | |||||||||
Obligations for purchase of land | 98,729 | – | 98,729 | |||||||||
Others | 10,839 | – | 10,839 | |||||||||
Shareholders’ equity | ||||||||||||
Total Gafisa shareholders’ equity | 290,604 | (1,189 | ) | 289,415 | ||||||||
Non-controlling interests(3) | 197 | – | 197 | |||||||||
Total shareholders’ equity | 290,801 | (1,189 | ) | 289,612 | ||||||||
Total liabilities and shareholders’ equity | 901,387 | (1,189 | ) | 900,198 |
(1) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation. |
(2) | Deferred income tax on above adjustments. |
(3) | Non-controlling interest on above adjustments. |
A-25
Restated U.S. GAAP Condensed shareholders’ equity – 2005
f) | Restatement Adjustments – Condensed shareholders’ equity |
As originally reported | As restated | |||||||||||
Shareholders’ Equity | 2005 | Restatement Adjustments | 2005 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Shareholders’ equity | ||||||||||||
Preferred shares, comprising 48,666,627 shares outstanding | 157,082 | 157,082 | ||||||||||
Common shares, comprising 25,212,555 shares outstanding | 79,867 | – | 79,867 | |||||||||
Treasury shares | (43,571 | ) | – | (43,571 | ) | |||||||
Appropriated retained earnings | 30,476 | (1,189 | ) | 29,287 | ||||||||
Unappropriated retained earnings | 66,750 | – | 66,750 | |||||||||
Total Gafisa shareholders’ equity | 290,604 | (1,189 | ) | 289,415 | ||||||||
Non-controlling interests | 197 | – | 197 | |||||||||
Total shareholders’ equity | 290,801 | (1,189 | ) | 289,612 |
A-26
Restated U.S. GAAP Income Statement – 2005
c) Restatement Adjustments – Income Statement
As originally reported | As restated | |||||||||||
Net Income | 2005 | Restatement Adjustments | 2005 | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Net operating revenue(1) | 439,011 | (3,125 | ) | 435,886 | ||||||||
Operating costs (sales and services)(1) | (329,775 | ) | 1,324 | (328,451 | ) | |||||||
Gross profit(1) | 109,236 | (1,801 | ) | 107,435 | ||||||||
Operating expenses | ||||||||||||
Selling, general and administrative | (70,914 | ) | – | (70,914 | ) | |||||||
Other | (6,391 | ) | – | (6,314 | ) | |||||||
Operating income | 31,931 | (1,801 | ) | 30,130 | ||||||||
Financial income (expenses | (17,684 | ) | – | (17,684 | ) | |||||||
Income (loss) before income tax, equity in results and non-controlling interest | 14,247 | (1,801 | ) | 12,446 | ||||||||
Income tax expense (2) | (1,886 | ) | 612 | (1,274 | ) | |||||||
Income (loss) before equity in results and non-controlling interests | 12,361 | (1,189 | ) | 11,172 | ||||||||
Equity in results | 22,593 | – | 22,593 | |||||||||
Net income (loss) | 34,954 | (1,189 | ) | 33,765 | ||||||||
Less: attributable to non-controlling interests (4) | (571 | ) | – | (571 | ) | |||||||
Net income (loss) attributable to Gafisa | 34,383 | (1,189 | ) | 33,194 |
(1) | Revenue recognition – correction of error to fully take account of the revenue recognition provisions established by ASC 350.20.40.10. Amounts as originally reported had not taken full account of the rights of reimbursement of customers (which had the effect of deferring revenue recognition under the percentage-of-completion method until such time as the initial and continuing investments thresholds were met) and the reprocessing of the agreements on a unit-by-unit basis using the current interpretation |
(2) | Deferred income tax on above adjustments. |
(3) | Non-controlling interest on above adjustments. |
A-27