Camargo Corrêa Desenvolvimento Imobiliário S.A. and Subsidiaries

Transcription

1 (Convenience Translation into English from the Original Previously Issued in Portuguese) Camargo Corrêa Desenvolvimento Imobiliário S.A. and Subsidiaries Interim Financial Statements for the Quarter Ended September 30, 2009 and Independent Accountants Review Report Deloitte Touche Tohmatsu Auditores Independentes

2 Deloitte Touche Tohmatsu Rua José Guerra, São Paulo - SP Brasil Tel.: +55 (11) Fax: +55 (11) (Convenience Translation into English from the Original Previously Issued in Portuguese) INDEPENDENT ACCOUNTANTS REVIEW REPORT To the Shareholders and Management of Camargo Corrêa Desenvolvimento Imobiliário S.A. São Paulo - SP 1. We have reviewed the accounting information included in the accompanying interim financial statements of Camargo Corrêa Desenvolvimento Imobiliário S.A. and subsidiaries (the Companies ) for the quarter ended September 30, 2009, consisting of the individual (Company) and consolidated balance sheets, the related statements of income, changes in shareholders equity, cash flows and value added, the performance report and the related notes, prepared under the responsibility of the Company s Management. 2. Our review was conducted in accordance with specific standards established by the Brazilian Institute of Independent Auditors (IBRACON), together with the Federal Accounting Council (CFC), and consisted principally of: (a) inquiries of and discussions with certain officials of the Company and its subsidiaries who have responsibility for accounting, financial and operating matters about the criteria adopted in the preparation of the interim financial statements; and (b) review of the information and subsequent events that had or might have had material effects on the financial position and results of operations of the Company and its subsidiaries. 3. Based on our special review, we are not aware of any material modifications that should be made to the interim financial statements referred to in paragraph 1 for them to be in conformity with Brazilian accounting practices and standards established by the Brazilian Securities and Exchange Commission (CVM), applicable to the preparation of interim financial statements. 4. As mentioned in note 2, in view of the changes in Brazilian accounting practices in 2008, the statements of income, cash flows and value added and the related notes to the financial statements for the quarter ended September 30, 2008, presented for comparative purposes, have been adjusted and are being restated as set forth in NPC 12 - Accounting Policies, Changes in Accounting Estimates and Errors, approved by CVM Resolution 506/ The accompanying interim financial statements have been translated into English for the convenience of readers outside Brazil. São Paulo, November 10, 2009 DELOITTE TOUCHE TOHMATSU Auditores Independentes José Roberto P. Carneiro Engagement Partner Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms. Member of Deloitte Touche Tohmatsu

3 (Convenience Translation into English from the Original Previously Issued in Portuguese) CAMARGO CORRÊA DESENVOLVIMENTO IMOBILIÁRIO S.A. AND SUBSIDIARIES BALANCE SHEETS AS OF SEPTEMBER 30 AND JUNE 30, 2009 (In thousands of Brazilian reais - R$) Company Consolidated Company Consolidated ASSETS Note LIABILITIES AND SHAREHOLDERS' EQUITY Note CURRENT ASSETS CURRENT LIABILITIES Cash and cash equivalents 4 77,472 58, , ,415 Construction financing , , , ,956 Trade accounts receivable 5 141, , , ,763 Trade accounts payable 11 36,935 52,757 97, ,958 Advances to suppliers 1, ,842 1,630 Taxes payable ,247 3,937 Properties held for sale 6 109, , , ,972 Due to related parties 12 1,348 10,056 4,843 6,598 Prepaid expenses Accrued salaries and taxes 7,286 6,611 12,294 10,771 Deferred income tax and social contribution 4,899 5,375 10,174 10,064 Deferred income tax and social contribution Other receivables 2,769 1,352 11,742 11,463 Deferred taxes on revenue (PIS and COFINS) 4,636 3,016 4,845 3,228 Total current assets 338, , , ,278 Advances from customers Proposed dividends NONCURRENT ASSETS Other payables 6,691 3,819 19,285 6,151 Long-term assets: Total current liabilities 341, , , ,749 Trade accounts receivable 5 36,927 50, , ,650 Properties for sale 6 191, , , ,289 NONCURRENT LIABILITIES Due from related parties 12 75, , Construction financing 10 51,701 48, ,189 81,656 Deferred income tax and social contribution 15 7,560 8,414 7,769 8,623 Deferred income tax and social contribution 15 3,264 8,895 16,228 21,296 Prepaid expenses Deferred taxes on revenue (PIS and COFINS) 6,661 8,189 17,718 16,856 Other receivables , Advances for future capital increase Investments: Trade accounts payable , , , ,322 Investments in subsidiaries 7 535, , Other payables 11, ,441 Other Total noncurrent liabilities 272, , ,491 1,015,572 Property and equipment 8 2,875 3,144 90,333 89,994 Intangible assets 9 11,239 6,421 40,948 36,073 SHAREHOLDERS' EQUITY Total noncurrent assets 862, , ,263 1,238,502 Capital , , , ,189 Capital reserve 14 84,461 84,461 84,461 84,461 Earnings reserves 14 6,267 6,267 6,267 6,267 Retained earnings (44,220) 17,542 (44,220) 17,542 Total shareholders' equity 586, , , ,459 TOTAL ASSETS 1,200,563 1,292,060 1,831,503 2,023,780 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,200,563 1,292,060 1,831,503 2,023,780 The accompanying notes are an integral part of these financial statements. 2

4 (Convenience Translation into English from the Original Previously Issued in Portuguese) CAMARGO CORRÊA DESENVOLVIMENTO IMOBILIÁRIO S.A. AND SUBSIDIARIES STATEMENTS OF INCOME FOR THE QUARTERS ENDED SEPTEMBER 30, 2009 AND 2008 (In thousands of Brazilian reais - R$) Company Consolidated (Adjusted) (Adjusted) GROSS REVENUE FROM SALES, RENTALS AND SERVICES Revenue from real estate sales 22,536 58, , ,154 Revenue from real estate rentals Revenue from services 2,549 1,229 3,517 1,677 Other revenues ,450 25,587 60, , ,465 DEDUCTIONS FROM GROSS REVENUE Taxes on sales (1,300) (2,301) (4,262) (5,068) NET REVENUE FROM SALES AND/OR SERVICES 24,287 57, , ,397 COST OF SALES, RENTALS AND SERVICES Sales (34,846) (41,833) (98,225) (89,913) Rentals (179) Services - (96) (140) (425) (34,846) (41,929) (98,365) (90,517) GROSS PROFIT (LOSS) (10,559) 15,894 5,547 40,880 OPERATING INCOME (EXPENSES) Selling expenses (3,776) (2,972) (9,599) (10,060) General and administrative expenses (11,030) (10,046) (21,272) (16,390) Equity in subsidiaries (32,309) 10, Other income (expenses), net (7,066) (3,399) (32,858) (3,783) INCOME (LOSS) FROM OPERATIONS BEFORE FINANCIAL INCOME (EXPENSES) (64,740) 9,592 (58,182) 10,647 FINANCIAL INCOME (EXPENSES) Financial income 7,280 5,421 4,946 8,562 Financial expenses (9,079) (6,102) (11,787) (7,217) (1,799) (681) (6,841) 1,345 PROFIT (LOSS) BEFORE INCOME TAX AND SOCIAL CONTRIBUTION (66,539) 8,911 (65,023) 11,992 INCOME TAX AND SOCIAL CONTRIBUTION Current - - (835) (1,949) Deferred 4,777 (116) 4,096 (1,276) 4,777 (116) 3,261 (3,225) INCOME (LOSS) BEFORE MINORITY INTEREST (61,762) 8,795 (61,762) 8,767 MINORITY INTEREST IN NET INCOME NET INCOME (LOSS) (61,762) 8,795 (61,762) 8,795 NUMBER OF SHARES, EX-TREASURY (THOUSANDS) 113, , , ,100 EARNINGS PER SHARE, EX-TREASURY ( ) ( ) The accompanying notes are an integral part of these financial statements. 3

5 (Convenience Translation into English from the Original Previously Issued in Portuguese) CAMARGO CORRÊA DESENVOLVIMENTO IMOBILIÁRIO S.A. AND SUBSIDIARIES STATEMENTS OF INCOME FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2009 AND 2008 (In thousands of Brazilian reais - R$) Company Consolidated (Adjusted) (Adjusted) GROSS REVENUE FROM SALES, RENTALS AND SERVICES Revenue from real estate sales 113, , , ,337 Revenue from real estate rentals Revenue from services 4,143 3,034 5,259 5,954 Other revenues 1, ,910 1, , , , ,826 DEDUCTIONS FROM GROSS REVENUE Taxes on sales (4,889) (5,370) (13,661) (18,262) NET REVENUE FROM SALES AND/OR SERVICES 114, , , ,564 COST OF SALES, RENTALS AND SERVICES Sales (99,434) (97,513) (275,755) (296,112) Rentals (538) Services - (283) (354) (3,769) (99,434) (97,796) (276,049) (300,419) GROSS PROFIT 15,273 35,053 70, ,145 OPERATING INCOME (EXPENSES) Selling expenses (7,687) (22,621) (20,508) (46,868) General and administrative expenses (30,604) (34,601) (48,823) (51,083) Equity in subsidiaries (11,226) 87, Other income (expenses), net (7,109) (11,538) (32,901) (11,620) INCOME (LOSS) FROM OPERATIONS BEFORE FINANCIAL INCOME (EXPENSES) (41,353) 53,585 (31,243) 59,574 FINANCIAL INCOME (EXPENSES) Financial income 13,324 17,497 18,426 26,917 Financial expenses (19,666) (13,847) (25,075) (17,026) (6,342) 3,650 (6,649) 9,891 PROFIT (LOSS) BEFORE INCOME TAX AND SOCIAL CONTRIBUTION (47,695) 57,235 (37,892) 69,465 INCOME TAX AND SOCIAL CONTRIBUTION Current - - (3,640) (10,151) Deferred 3,475 7,066 (2,688) 3,835 3,475 7,066 (6,328) (6,316) INCOME (LOSS) BEFORE MINORITY INTEREST (44,220) 64,301 (44,220) 63,149 MINORITY INTEREST IN NET INCOME ,152 NET INCOME (LOSS) (44,220) 64,301 (44,220) 64,301 NUMBER OF SHARES, EX-TREASURY (THOUSANDS) 113, , , ,100 EARNINGS (LOSS) PER SHARE, EX-TREASURY ( ) ( ) The accompanying notes are an integral part of these financial statements. 4

6 (Convenience Translation into English from the Original Previously Issued in Portuguese) CAMARGO CORRÊA DESENVOLVIMENTO IMOBILIÁRIO S.A. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (INDIRECT METHOD) FOR THE QUARTERS ENDED SEPTEMBER 30, 2009 AND 2008 (In thousands of Brazilian reais - R$) Company Consolidated (Adjusted) (Adjusted) CASH FLOWS FROM OPERATING ACTIVITIES Income (loss) before income tax and social contribution (66,539) 8,911 (65,023) 11,992 Adjustments to reconcile income before income tax and social contribution to the cash provided by (used in) operating activities: Depreciation and amortization ,233 Equity in subsidiaries 32,309 (10,115) - - Deferred taxes on revenue (PIS and COFINS ), net ,902 1,316 Recognition of provision for losses, net (92) Financial charges 7,039 5,613 8,063 5,613 Write-off of permanent assets Loss of equity in subsidiaries (26,355) 5,275 (53,137) 21,154 Decrease (increase) in operating assets and liabilities: Trade accounts receivable 11,305 (17,615) (45,986) (63,226) Properties held for sale 13,731 (12,746) 25,505 (20) Advances to suppliers (1,082) 125 (1,212) (1,184) Prepaid expenses Recoverable taxes 476 (475) (111) (1,654) Other receivables (1,625) (71) (893) (596) Trade accounts payable (8,941) 12,049 (12,210) (23,402) Accrued salaries and vacations 675 1,944 1,523 2,503 Advances from customers (9,774) Taxes payable 32 (152) 391 4,355 Other payables 2,916 (552) 11,071 (274) Cash used in operations (8,868) (11,565) (74,982) (71,657) Income tax and social contribution paid - - (1,035) (7,532) Interest paid for construction (2,106) (2,480) (2,946) (2,480) Net cash used in operating activities (10,974) (14,045) (78,963) (81,669) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of investments (69,616) (33,275) - 4 Temporary cash investments Dividends received and capital reduction Related parties 30,033 (6,178) (1,750) 4,081 Payables for acquisition of subsidiary - (754) - (754) Goodwill on acquisition of subsidiary (4,885) - (4,885) (2) Purchase of property and equipment items (71) (1,507) (1,101) (6,285) Net cash used in investing activities (43,989) (41,714) (7,736) (2,334) CASH FLOWS FROM FINANCING ACTIVITIES Financing 93,455 24, ,602 24,676 Repayment of financing (19,404) (2,770) (21,438) (2,773) Share buyback - (972) - (972) Increase in minority interest ,124 Net cash provided by financing activities 74,051 20, ,164 22,055 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 19,088 (35,428) 27,465 (61,948) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 58, , , ,374 CASH AND CASH EQUIVALENTS AT END OF PERIOD 77,472 65, , ,426 The accompanying notes are an integral part of these financial statements. 5

7 (Convenience Translation into English from the Original Previously Issued in Portuguese) CAMARGO CORRÊA DESENVOLVIMENTO IMOBILIÁRIO S.A. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (INDIRECT METHOD) FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2009 AND 2008 (In thousands of Brazilian reais - R$) Company Consolidated (Adjusted) (Adjusted) CASH FLOWS FROM OPERATING ACTIVITIES Income (loss) before income tax and social contribution (47,695) 57,235 (37,892) 69,465 Adjustments to reconcile income before income tax and social contribution to the cash provided by (used in) operating activities: Depreciation and amortization 924 1,053 1,655 6,600 Equity in subsidiaries 11,226 (87,292) - - Deferred taxes on revenue (PIS and COFINS ), net 1,348 1,367 8,037 3,337 Recognition of provision for losses, net Financial charges 16,537 13,315 18,263 13,310 Write-off of permanent assets Loss of equity in subsidiaries (16,759) (13,964) (8,761) 92,788 Decrease (increase) in operating assets and liabilities: Trade accounts receivable (8,843) (33,794) (186,442) (124,511) Properties held for sale 27,511 (15,337) 32, ,300 Advances to suppliers 1, ,141 4,788 Prepaid expenses (1,392) Recoverable taxes 3,054 (1,717) 2,123 (4,883) Other receivables (950) 111 (3,140) (8,316) Trade accounts payable (17,235) 4,646 (44,097) (227,076) Accrued salaries and vacations (1,168) 2,707 1,251 4,328 Advances from customers - - (1,170) (1,163) Taxes payable (214) (164) (466) (907) Other payables 3,242 (642) 11, Cash used in operations (9,449) (57,205) (191,999) (49,808) Income tax and social contribution paid (159) - (3,928) (9,582) Interest paid for construction (7,956) (6,005) (9,370) (6,005) Net cash used in operating activities (17,564) (63,210) (205,297) (65,395) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of investments (99,433) (49,632) - - Dividends received and capital reduction 10, , Related parties (41,679) (159,420) (4,375) (6,107) Payables for acquisition of subsidiary - (1,071) - (1,071) Goodwill on acquisition of subsidiary (4,885) - (4,885) (13,153) Purchase of property and equipment items (372) (2,344) (5,591) (9,454) Net cash used in investing activities (135,609) (61,773) (14,851) (29,785) CASH FLOWS FROM FINANCING ACTIVITIES Payment of dividends (1,951) (1,451) (1,951) (1,451) Financing 346,245 62, ,867 62,963 Repayment of financing (124,932) (10,711) (127,243) (11,039) Share buyback - (30,891) - (30,891) Increase in minority interest ,908 Net cash provided by (used in) financing activities 219,362 18, ,673 26,490 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 66,189 (105,998) 73,525 (68,690) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11, ,271 66, ,116 CASH AND CASH EQUIVALENTS AT END OF PERIOD 77,472 65, , ,426 The accompanying notes are an integral part of these financial statements. 6

8 (Convenience Translation into English from the Original Previously Issued in Portuguese) CAMARGO CORRÊA DESENVOLVIMENTO IMOBILIÁRIO S.A. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (COMPANY AND CONSOLIDATED) FOR THE QUARTER ENDED SEPTEMBER 30, 2009 (In thousands of Brazilian reais - R$) Retained Capital Earnings earnings Capital reserves reserves (losses) Total BALANCES AS OF JUNE 30, ,189 84,461 6,267 17, ,459 Net loss for the period (61,762) (61,762) BALANCES AS OF SEPTEMBER 30, ,189 84,461 6,267 (44,220) 586,697 The accompanying notes are an integral part of these financial statements. 7

9 (Convenience Translation into English from the Original Previously Issued in Portuguese) CAMARGO CORRÊA DESENVOLVIMENTO IMOBILIÁRIO S.A. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (COMPANY AND CONSOLIDATED) FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2009 (In thousands of Brazilian reais - R$) Retained Capital Earnings earnings Capital reserves reserves (losses) Total BALANCES AS OF DECEMBER 31, ,189 84,461 6, ,917 Net loss for the period (44,220) (44,220) BALANCES AS OF SEPTEMBER 30, ,189 84,461 6,267 (44,220) 586,697 The accompanying notes are an integral part of these financial statements. 8

10 (Convenience Translation into English from the Original Previously Issued in Portuguese) CAMARGO CORRÊA DESENVOLVIMENTO IMOBILIÁRIO S.A. AND SUBSIDIARIES STATEMENTS OF VALUE ADDED FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2009 AND 2008 (In thousands of Brazilian reais - R$) Company Consolidated REVENUES Sale of property and services 117, , , ,852 Other revenues 1, ,910 1,974 Recognition of allowance for doubtful accounts (610) - (610) - 118, , , ,826 INPUTS PURCHASED FROM THIRD PARTIES Cost of properties and services (99,434) (97,796) (276,049) (300,419) Materials, electric power, outside services and other (22,522) (35,970) (55,447) (66,473) (121,956) (133,766) (331,496) (366,892) GROSS VALUE ADDED (REDUCED) (2,970) 4,453 28, ,934 DEPRECIATION AND AMORTIZATION (924) (1,053) (1,655) (6,600) NET VALUE ADDED (REDUCED) CREATED BY THE COMPANY (3,894) 3,400 26, ,334 VALUE ADDED RECEIVED IN TRANSFER Equity in subsidiaries (11,226) 87, Financial income 13,324 17,497 18,426 26,917 2, ,789 18,426 26,917 TOTAL VALUE ADDED UNDISTRIBUTED (REDUCED) (1,796) 108,189 45, ,251 DISTRIBUTION OF VALUE ADDED (REDUCED) (1,796) 108,189 45, ,251 Employees: Salaries and wages 12,201 12,289 23,611 15,977 Benefits 1,866 6,831 7,116 6,980 Severance pay fund (FGTS) 1, , Taxes, fees and contributions: Federal 4,435 7,643 27,905 34,500 State Municipal Lenders and lessors: Interest 19,666 13,847 25,170 17,026 Rentals 2,550 2,007 2,795 1,185 Shareholders: DividenDs - 1,451-1,451 Retained earnings (accumulated losses) for the period (44,220) 62,850 (44,220) 61,698 Minority interest ,152 The accompanying notes are an integral part of these financial statements. 9

11 (Convenience Translation into English from the Original Previously Issued in Portuguese) CAMARGO CORRÊA DESENVOLVIMENTO IMOBILIÁRIO S.A. AND SUBSIDIARIES NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 2009 (In thousands of Brazilian Reais - R$) 1. OPERATIONS Camargo Corrêa Desenvolvimento Imobiliário S.A. (the Company ) is a publicly-held company headquartered in the city and state of São Paulo. The Company is engaged in developing, providing advisory services, developing business, leasing and building residential and commercial properties, directly or through investments in special purpose entities (SPEs), consortiums and other companies. The Company currently develops residential and commercial projects and runs businesses and investments in the São Paulo Metropolitan region, and in the São Paulo State coastline and some other cities, and also in the States of Rio de Janeiro, Minas Gerais, Espírito Santo and Paraná. Since October 2008, the Company is the sole parent of HM Engenharia e Construções S.A. ( HM ), a company specialized in the development and building of horizontal and vertical housing projects directed to the low-income segment. HM operates in some cities of the State of São Paulo. On January 31, 2007, the Company concluded its initial public offering (IPO) on the BOVESPA (São Paulo Stock Exchange) Novo Mercado (New Market), where its shares are traded under the ticker CCIM3. 2. FINANCIAL STATEMENT PRESENTATION The Company s and consolidated interim financial statements have been prepared in accordance with Brazilian accounting practices, which include Corporate Law, pronouncements, guidelines and interpretations issued by the Accounting Pronouncement Committee (CPC), and standards issued by the Brazilian Securities and Exchange Commission (CVM). The Company adopted for the first time the changes in corporate law introduced by Law 11638, of December 28, 2007, as amended by Provisional Act 449, of December 3, 2008, for the preparation and presentation of its individual and consolidated financial statements for the year ended December 31, The Company s Management opted to prepare its opening balance with the transition date of January 1, 2007 to reflect the adjustments retroactively, in conformity with the amended corporate legislation. The changes introduced by this legislation affect the accounting practices and, in accordance with Technical Pronouncement CPC 13 - First Time Adoption of Law 11638/07 and Provisional Act 449/08, all adjustments may be presented retrospectively. As a result, the financial statements for the quarters and nine-month periods ended September 30, 2008 originally presented have been changed, as follows: 10

12 Shareholders equity as of September 30, 2008 Company Consolidated Shareholders equity originally reported 712, ,826 Expenses on advertising, marketing, promotions and other related activities (a) (29,989) (58,126) Adjustment to present value: Accounts receivable (b) (4,467) (14,429) Trade accounts payable (b) Deferred taxes (b) Interest and financial charges on purchase of land (c) (6,712) (7,879) Effect of equity in subsidiaries adjustments similar to (a), (b), and (c) (37,827) - Effect of minority interest Other noncapitalizable expenses (2,775) (2,775) Total 631, ,950 Statements of operations for the quarter ended September 30, 2008 Company Consolidated Shareholders equity originally reported 95,025 95,025 Expenses on advertising, marketing promotion and other related activities (a) (5,978) (22,702) Adjustment to present value: Operating revenue (b) (805) (7,632) Cost (b) 340 1,160 Financial income (b) Financial expenses (b) (138) (660) PIS and COFINS (b) 94 (148) Interest and financial charges on purchase of land (c) (1,582) (2,318) Effect of equity in subsidiaries - adjustments similar to (a), (b), and (c) (23,361) - Effect of minority interest Total 64,301 64,301 (a) Recognition in the statement of income, when actually incurred, of selling expenses represented by expenditures incurred for construction of sales booths and related expenses, in accordance with the adoption of OCPC-01, issued by the Accounting Pronouncements Committee. (b) Introduction of the adjustment to present value concept for long-term and relevant short-term asset and liability transactions, pursuant to OCPC 01 (c) Reversal of interest and financial charges recognition for long-term land, pursuant to OCPC 01 Guideline issued by the CPC. CPC 14 does not change the accounting practices previously applied to the financial statements since the financial instruments held by the Company, as described in notes 4 and 10, are included under loans and receivables and measured using the amortized cost method, under which an asset or a liability is recognized using the effective interest rate method less principal repayments. 11

13 Law 11638/07 and Provisional Act 449/08 changed the concept of associate and the scope of the application of the equity method to investments in associates, classified in permanent assets. The Company did not record any impacts on its financial statements arising from this change in accounting practice. 3. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES a) Cash and cash equivalents Represented by imprest cash fund, highly liquid cash investments and investment funds, valued at the price of shares, whose balances do not significantly differ from market prices through the balance sheet dates. Transactions recorded as cash and cash equivalents are highly liquid. b) Properties held for sale Include costs accumulated with the construction and/or acquisition of land and unsold properties, incurred during the project construction stage, completed units and plots of land. The outstanding balances at the end of each year do not exceed the related net realizable values. The Company acquires part of the land through barter transactions in which, in exchange for the land acquired, the Company makes the commitment to: (i) deliver real estate units of the projects under construction; or (ii) deliver a portion of accounts receivable from sales of development units. Land and construction costs of bartered units are diluted among the unsold units. The interest on loans directly linked to property development projects is capitalized as cost of the properties for sale when: (1) costs with the purchase of land or the construction of properties are being incurred; (2) costs with loans are being incurred; and (3) activities required to prepare the property for sale are in progress, and the same criterion is adopted for recognition of revenues from and costs of units sold. Management s classification into current and long term is based on the expected launch date of real estate projects. Management periodically reviews estimates of launches. c) Trade accounts receivable and allowance for doubtful accounts Stated at cost at their original amounts plus monetary adjustment and discounted to present value according to item q. The allowance for doubtful accounts is recognized when applicable based on Management s evaluation as to possible losses on realization of accounts receivable, considering the expected recovery of the financed properties and loss history. d) Assets and liabilities subject to indexation Assets and liabilities in Brazilian reais and contractually subject to indexation are monetarily adjusted based on the respective indices at the balance sheet dates. Exchange gains and losses and monetary variations are recorded in income for the quarters. e) Investments Investments in subsidiaries and jointly-owned subsidiaries are valued under the equity method in the Company s financial statements. 12

14 Other investments are stated at cost, less a provision for write-down to realizable value, when applicable. f) Intangible assets Represented by software licenses and goodwill related to the acquisition of interest in the subsidiaries capital. Software licenses are amortized under the straight-line method over five years, from the time benefits begin to be generated. Goodwill related to the acquisition of ownership interest in a subsidiary based on expected future earnings. Pursuant to OCPC 02, goodwill amortization was fully discontinued since January 1, Management tests goodwill annually for impairment, in accordance with CPC 01 and, when applicable, writes down its recoverable value when there is no prospect that future economic benefits will exceed the carrying amount of goodwill. Tests will be performed by the Management on a annual basis. g) Property Stated at acquisition or construction cost, less depreciation calculated under the straight- -line method at the following annual rates: buildings - 4%; furniture and fixtures, installations and machinery - 10%; and IT equipment and vehicles - 20%. The Company analyzes whether there are evidences that the carrying amount of an asset will not be recovered for impairment assessment purposes. In case these evidences are identified, the Company estimates the asset recoverable value. Recoverable value of an asset is the greater of: (a) its fair value less costs which would be incurred to sell it; and (b) its value-in-use. The value-in-use is equivalent to discounted cash flows (before taxes) arising from the continuous use of the asset up to the end of its useful life. When the net book value of the asset exceeds its recoverable value, the Company recognizes a reduction in the carrying amount of this asset (impairment). Analyses performed by the Management indicate the carrying amount of property and equipment is not lower than their recoverable amount. h) Revenues and expenses from real estate development and sale Revenues and expenses from financed sales of completed units are recognized when the sale is consummated, regardless of the period of payment of the contract price. Fixed interest is credited or charged to operations on the accrual basis, regardless of whether it is actually paid. Revenues and expenses from sales of uncompleted units are recognized in accordance with CFC Resolution 963/03, as detailed below: (i) Sales revenues, land and construction costs and sales commission are credited or charged to operations under the percentage-of-completion method, which measures incurred costs to the total budgeted cost of respective projects. 13

15 (ii) Advances related to the sale of units are recorded in current or noncurrent liabilities, as Advances from customers. Should the sales revenue to be recognized for the period (i), be higher than the amount actually received for the sale of units, the remaining balance is recorded in Receivables for real estate development, in current or long-term assets. i) Construction services Consist basically of amounts billed in connection with the provision of construction services, recognized according to the percentage of completion of each work for third parties, and technical and real estate management services. Revenue is recognized as services are provided. j) Warranty expenses The Company and its subsidiaries offer limited warranties for a five-year period, covering structural defects on projects sold. The company subcontracted by the Company has usually the primary responsibility for the guarantees for the work execution (responsibilities and costs). k) Income tax and social contribution Income tax (25%) and social contribution (9%) are calculated according at their statutory rates, according to the criteria established by prevailing tax legislation. As allowed by tax legislation, certain subsidiaries and jointly-owned subsidiaries opted for the deemed income regime. For these companies, income tax and social contribution are calculated at 8 and 12 percent, respectively, of gross revenue and total financial income, at the regular tax rates. Deferred income tax and social contribution comply with the criteria mentioned in note 15, considering that the Company measures and reduces deferred tax assets when it identifies it is not probable that future taxable income is sufficient for the full or partial utilization of these credits. Deferred taxes related to tax loss carryforwards were not recorded considering the Company has no taxable income history. l) Use of estimates Accounting estimates are based on objective and subjective factors and Management judgment for preparing the financial statements. Estimates and assumptions were adopted for the useful lives of property and equipment, budgeted cost of work, allowance for doubtful accounts, reserve for contingencies, expected launches of real estate developments, etc. Actual results could differ from those estimates. The Company s Management reviews estimates and assumptions at least on a quarterly basis. m) Earnings or loss per share Calculated based on the number of shares outstanding at the balance sheet dates. 14

16 n) Consolidation The consolidated financial statements have been prepared and are presented in conformity with Brazilian accounting practices, the main practices of which are described above. For jointly-owned subsidiaries, by means of Shareholders Agreement, the consolidated financial statements include the asset, liability and statement of operations accounts, proportionally to the total interest held in the capital of the respective jointly-owned subsidiary. The subsidiaries were fully consolidated, with the recording of minority interest in a separate caption. Intercompany balances and transactions and unrealized profits have been eliminated in consolidation, including investments, bank accounts, dividends receivable, intercompany revenues and expenses and unrealized results. Balances and transactions with related parties, shareholders and investees are described in the respective notes. o) Stock option plan Effects from stock option plans are estimated on a quarterly basis and recognized in the statement of operations. p) Lease transactions Recorded under the caption Property and equipment those rights in tangible assets that are maintained or used in the operations of the Company s or subsidiaries business, including those rights received as a result of transactions that transfer the benefits, risks and control of such assets to the Company. Finance leases are recorded as financed purchases, by recognizing at the time of the purchase a fixed asset and a financing liability (leasing). q) Adjustment to present value of trade accounts receivable and payable The balances of credit sales receivables of uncompleted units and trade accounts payable (land from financial barter payable) have been calculated considering the period until the delivery of the units sold using a discount rate of 6.27% in 2009 and 6.8% in 2008, which represent the risk free rate. Adjustments to present value of trade accounts receivable and trade accounts payable are recorded in the statement of income under revenue from sales and cost of sales, respectively. Reversals of adjustments to present value of trade accounts receivable have been recorded as revenue from sale of properties, and those of trade accounts payable as financial expenses. r) Reclassifications Goodwill related to the acquisition of interest in subsidiary as of March 31, 2009 was reclassified from investments to intangible assets for comparative purposes. The land purchase amounts through financial barters were previously included in the statements of cash flows. However, as these transactions do not involve cash, the land purchase amounts in the amount of R$182,799, in consolidated, through financial barters were excluded from the captions Properties held for sale and Trade accounts payable and payables in the statements of cash flows for the quarter ended September 30, 2008 for comparative purposes. 15

17 In addition, the financial statements for the quarter and the nine-month periods ended September 30, 2008 have been reclassified. The reversal of the adjustment to present value on accounts receivable, previously classified in financial income, was reclassified to Gross sales revenue, in the amounts of R$3,756 and R$796 - Company, and R$6,680 and R$2,991 - consolidated, respectively, for comparative purposes. 4. CASH AND CASH EQUIVALENTS The Company maintains amounts invested in a highly liquid exclusive financial fund managed by a private institution, whose balances approximate their fair value at the balance sheet dates. The portfolio is diversified, with investments in investment fund shares available in the market, federal securities, fixed-income securities issued by a financial institution (bank certificates of deposit) with average yield from 100.0% to 102.5% of the interbank deposit rate (DI CETIP CDI), and repurchase commitments, as follows: Company Consolidated Cash and banks 61,811 2,392 68,730 8,803 Bank certificates of deposit 100.0% to 102.5% of CDI (*) ,942 30,910 Investment funds 15,661 55,992 44,208 72,702 Total 77,472 58, , ,415 (*) Fund established as an open-end mutual fund, classified as a fixed-income fund, intended for the appreciation of the fund s units through the investment of funds in a diversified portfolio of financial assets and other investments available in the financial market. It is substantially comprised of federal government securities issued by the National Treasury and/or the Central Bank of Brazil, and highly liquid fixed-income funds issued by a financial institution, managed by a private institution. 5. TRADE ACCOUNTS RECEIVABLE Company Consolidated Receivables for property development (*) 179, , , ,302 Provision for construction services - - 3,171 3,193 Allowance for doubtful accounts (774) (794) (2.062) (2.082) Total 178, , , ,413 (-) Current 141, , , ,763 Noncurrent 36,927 50, , ,650 16

18 (*) Amounts related to accounts receivable from properties which have been completed are collateralized by the traded properties themselves and are updated in accordance with contract clauses, as follows: Until the delivery of the keys for property units sold, based on the National Civil Construction Index (INCC). After the delivery of the keys for property units sold under the option of direct financing from the Company, amortization is made over 72 months, monetarily adjusted by the general market price index (IGP-M) more annual interest of 12%. As of September 30, 2009, the balances of receivables from real estate development are net of discount to present value and amount to R$4,961 (R$4,345 as of June 30, 2009), Company, and R$26,045 (R$21,102 as of June 30, 2009) consolidated. The discount to present value was calculated on the uncompleted units and carried at the proportional recognized amount, pursuant to CPC12 and OCPC 01, using a discount rate of 6.27% in 2009 and 6.8% in 2008, equivalent to the risk-free rate. The balance of noncurrent receivables by maturity is as follows: Company Consolidated (three months) 10,707 44, , , ,330 10, , and thereafter Total 36, , PROPERTIES HELD FOR SALE Refer to costs of land acquisition, completed units and building construction of the project to be sold, incurred through the balance sheet dates. Company Consolidated Completed properties 14,302 15,031 17,110 17,884 Properties under construction 64,995 71, , ,482 Land for development 217, , ,919 1,038,145 Land for sale 4,000-40,138 - Other 687 1, ,750 (-)Allowance for impairment - - (6,560) - Total 301, ,646 1,011,442 1,283,261 (-) Current 109, , , ,972 Noncurrent 191, , , ,289 17

19 The noncurrent portion of Properties held for sale account is substantially represented by land for real estate project launches with the following annual schedule: Company Consolidated (three months) 4,000 44, , , , , ,747 49, and thereafter 38,156 38,156 Total 191, ,061 Aspects related to properties held for sale are as follows: a) As of September 30 and June 30, 2009, the Company, through its subsidiary Camargo Corrêa - Cyrela Empreendimento Imobiliário Ltda., has a plot of land that was acquired through a definitive purchase and sale agreement in the amount of R$4,950 and equivalent to the percentage of its interest in the subsidiary. The agreement is being challenged in court by the selling party. The purchase and sale agreement between the parties is irreversible; therefore, the Company s Management, together with its external legal counsel, considers this challenging as inadequate; therefore, it does not represent a risk of additional costs to the Company. b) In February 2007, the Company launched the Cassis development in Península de São Lourenço, Bertioga, State of São Paulo. All permits, approvals, and registrations for the launching were regularly granted by the competent authorities. In January 2008, the Company was notified by the Brazilian Environmental and Natural Resources Agency (IBAMA) that it was not allowed to start construction, which was scheduled for April The Company tried to overturn the situation in courts and off-courts to safeguard its right and the rights of buyers of the development s units. Subsequently, buyers were formally notified, on a timely basis, of the situation and the Company s actions to overturn the Government Agency s decision, to maintain the delivery dates of the development, set out in agreements. Afterward, the Company filed a demand (Annulment Action) with request for a temporary relief on February 2, 2009, for the purpose of staying the Suspension of Construction. On March 25, 2009, a court decision notified IBAMA to file defense against the request for temporary relief. Based on the information provided by IBAMA, the court rejected granting temporary relief. On August 24, 2009, we filed for a bill of review appeal against said decision. We await a decision on the appeal. Since then, some buyer decided to terminate the unit purchase agreements, with guaranteed reimbursement of the amounts paid to the Company, adjusted for inflation as prescribed by Law. The effect of these terminations is being accounted for since. In the quarter ended September 30, 2009, in order to safeguard the interests of our shareholders, the Company s management decided to derecognize from income the amounts of the units sold whose agreements had not yet been terminated, due to uncertainties as to the continuity of the development. Accordingly, the Company derecognized prior years revenue totaling R$7,415 and, as a result, the costs already 18

20 incurred, totaling R$5,112, related to the land purchased through a financial barter, were reclassified to properties held for sale, in current assets. Additionally, we derecognized project and development costs from properties held for sale, totaling R$2,807. We also emphasize that the Company is still trying in courts the regain its right to develop the project, ensured by the permits and authorizations granted when the project was launched. c) On November 10, 2009, the Company s Board of Directors ratified the Company s management recommendation to discontinue the development of the following projects: Anglo - Aclimação; Aldeia Xavier; Alphasítio; Apipucos; Camping (Bertioga); Itaguaré (Bertioga); Villa São Paulo; and Lote 27 No launching of the projects highlighted above was made. However, the decision to discontinue these projects had the following impacts on the financial statements for the quarter and the nine-month period ended September 30, 2009: I. Expenses totaling R$32,751, initially classified under properties held for sale, were derecognized and classified under other operating expenses, referring mainly to projects, development processes, and amounts paid to landowners, whose recovery is considered less than probable. II. The discontinued projects, which had been purchased through financial barters, were accounted for as properties held for sale, in current assets, and as trade accounts payable and other payables, in current liabilities. As a result, as of September 30, 2009 the amount of R$246,315 was derecognized from the balances sheet. The main discontinued projects are detailed below: a) Anglo - Aclimação The decision to discontinue this project is mainly due to the following factors: a) By determination of CONPRESP (São Paulo Municipal Historic, Cultural and Environmental Heritage Preservation Council), the maximum height of buildings located in around the Aclimação Park was reduced to 10 meters. This decision of this Municipal agency interfered in our ability to develop the project originally proposed and approved for the areas owned by the Company around this park. 19

21 b) Subsequently, the São Paulo Local Council approved and passed Bill 561/07. As a result, on May 24, 2008, Law 14719/08 was enacted declaring the property located at 1051, Muniz de Souza Street and that includes part of the land where the project would be developed, as a public interest property (DUP), which entails its potential expropriation and subsequent integration in the Aclimação Municipal Park. In 2008 and 2009, the Company s management tried several development alternatives to make the project feasible, including, but not limited to, negotiations with São Paulo Municipal Government officers and members. Firstly, we tried to overturn the DUP and CONPRESP s decision. However, the Company s management was unsuccessful in its negotiations with these government agencies. Concurrently, the Company s management studies selling alternatives, such renewal and sale or demolition and development of new real estate units, separating the property that is not affected by any of the government decisions above. However, no alternative present proved to feasible or cost effective, which resulted in a recommendation to discontinue this project. In the quarter and the nine-month period ended September 30, 2009, the discontinuation of this project had an impact of R$10,177. This amount consists of: I. Considering that the land had already been purchased by the Company, the estimated recoverable amount, totaling R$6,000, consist of the amount to be received from the City of São Paulo for the expropriation, and the amount to be received for the sale of properties that were not included in the DUP. The original amount paid by the Company for the property is R$12,560 and, therefore, R$6,560 previously classified under properties held for sale, in current assets, were charged to income for the quarter and the nine-month period ended September 30, II. Expenses on project and development, totaling R$3,617, were also charged to income for the quarter and the nine-month period ended September 30, b) Alphasítio The Company s management decision to discontinue this development is based on various factors, including: I. Court challenge of: a) The legal validity of the change in the housing development, an essential condition for project viability. This change had been previously approved by the Municipal Government of Barueri and registered in the real estate registry office; b) The legitimacy of the exercise of the right to build buildings (vertical housing units) in part of the land plots. 20

22 II. Significant changes in the region s market conditions, which significantly changed the assumptions used for the approval of the project. No payment was made to the landowners, since the purchase was to be settled through a financial barter. As a result, in the third quarter of 2009 management initiated negotiations with the landowners to regularize the termination of the contracts. These negotiations are still in progress. With the decision to discontinue the project, we derecognized the amounts previously classified under properties held for sale in current assets and trade accounts payable and other payables, in current liabilities, totaling R$79,044. Expenses on project and development, totaling R$4,330, were charged to income for the quarter and the nine-month period ended September 30, c) Camping (Bertioga) The discontinuation of the development planned for this area is due to the significant increase in the number and complexity of the environmental restrictions imposed by environmental agencies and the Public Prosecution Office after the purchase of the land. The terms and conditions for the approval and legal licensing of projects in coastal areas of the State of São Paulo have been significantly changed since the start of this project, impairing the economic viability of projects developed in this area. The main objection of government agencies refers to whether or not the area qualifies under the concept of Permanente Preservation Area (APP), which would prevent the approval of any real estate or urban development in the area. Another factor that triggered this decision was the suspension of another Company project by IBAMA, located close to this one (Project Cassis - refer to item 6 (b) above). As a result, management understood that the risks of developing the project, primarily due to the uncertainties regarding the environmental regulations in effect, render the project economically unviable, and management recommended its discontinuation. Expenses on project and development, totaling R$7,841, were charged to income for the quarter and the nine-month period ended September 30, No payment was made to the landowners, since the purchase was to be settled through a financial barter. As a result, we derecognized the amounts previously classified under properties held for sale in current assets and trade accounts payable and other payables, in current liabilities, totaling R$72,

23 d) Itaguaré (Bertioga) The decision of the Company s management to discontinue the project was based on Ministry of Environment studies intended to: (i) transform the area where the Itaguaré beach is located and, as a result the Property, into a Wildlife Park; and (ii) legislate on the coastal zoning of the São Paulo State shoreline, significantly changing the area use rations for real estate development. Another factor that triggered this decision was the suspension of another Company project by IBAMA, located close to this one (Project Cassis - refer to item 6 (b) above). As a result, management understood that the risks of developing the project, primarily due to the uncertainties regarding the environmental regulations in effect, render the project economically unviable, and management recommended its discontinuation. The impact on income for the quarter ended September 30, 2009 was R$6,986, broken down as follows: I. Expenses on project and development: R$1,786. II. Nonrefundable expenses in purchase of land: R$5,200. Additionally, we derecognized the amounts related to the financial barter, previously classified under properties held for sale in current assets and trade accounts payable and other payables, in current liabilities, totaling R$31,800. e) Lote 27 The discontinuation of the development process of the original project is due to the failure to meet all the conditions listed in the Purchase and Sale Deed and Other Covenants, Clause 4, 4.1, and Clause 6. Notably: I. The project was not approved by the competent bodies; II. Injunction 1671/05, granted to the seller of the land, who objected to the change in the area purpose in the region; and III. Municipal property tax (IPTU) debts prior to 2006, not settled by the seller. The Company disbursed R$14,380 for the land purchase, from a estimated total of R$56,972. Additionally, expenses of development and designs totaled R$4,071. As a result, the total amount recognized under properties held for sale totals R$18,451. Based on the agreement entered into by the parties, due to the discontinuity of this project for the reasons above, this amount should be reimbursed by the seller to the Company. Additionally, the amounts already paid by the Company are guaranteed by the land mortgage. Management understands that the net sale revenue of the land is potentially higher than the amount recognized in the financial statements. 22