Edgar Filing: Gafisa S.A.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

☐

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

☒

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

☐

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number: 001-33356

__________________________

GAFISA S.A.

(Exact name of Registrant as specified in its charter)

GAFISA S.A.

(Translation of Registrant’s name into English)

The Federative Republic of Brazil

(Jurisdiction of incorporation or organization)

Av. Nações Unidas No. 8,501, 19th Floor

05425-070 – São Paulo, SP – Brazil

phone: + 55 (11) 3025-9000

fax: + 55 (11) 3025-9348

e mail: ri@gafisa.com

Attn: Andre Bergstein – Chief Financial Officer and Investor Relations Officer

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Shares, without par value*		New York Stock Exchange

* Traded only in the form of American Depositary Shares (as evidenced by American Depositary Receipts), each representing two common shares which are registered under the Securities Act of 1933.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

The number of outstanding shares as of December 31, 2014 was:

Title of Class		Number of Shares Outstanding
Common Stock		408,066,162*

* Includes 29,881,286 common shares that are held in treasury.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☐ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

☐

U.S. GAAP

☐

International Financial Reporting Standards as issued by the International Accounting Standards Board

☒

Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

☐ Item 17 ☒ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Table of Contents

TABLE OF CONTENTS

Page

INTRODUCTION	1
PRESENTATION OF FINANCIAL AND OTHER INFORMATION	1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS	3
PART I	4
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	4
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE	4
ITEM 3. KEY INFORMATION	4
ITEM 4. INFORMATION ON THE COMPANY	22
ITEM 4A. UNRESOLVED STAFF COMMENTS	57
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS	57
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	93
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	108
ITEM 8. FINANCIAL INFORMATION	109
ITEM 9. THE OFFER AND LISTING	116
ITEM 10. ADDITIONAL INFORMATION	120
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	140
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	142
PART II	143
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	143
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	143
ITEM 15. CONTROLS AND PROCEDURES	143
ITEM 16. RESERVED	144
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT	144
ITEM 16B. CODE OF BUSINESS CONDUCT AND ETHICS	144
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES	145
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	145
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	145
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	145
ITEM 16G. CORPORATE GOVERNANCE	145
ITEM 16H. MINE SAFETY DISCLOSURE	145
PART III	146
ITEM 17. FINANCIAL STATEMENTS	146
ITEM 18. FINANCIAL STATEMENTS	146
ITEM 19. EXHIBITS	146

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INTRODUCTION

In this annual report, references to “Gafisa,” “we,” “our,” “us,” “our company” and “the Company” are to Gafisa S.A. and its consolidated subsidiaries (unless the context otherwise requires). In addition, the term “Brazil” refers to the Federative Republic of Brazil, and the phrase “Brazilian government” refers to the federal government of Brazil. All references to “real,” “reais” or “R$” are to the Brazilian real, the official currency of Brazil, and all references to “U.S. dollar,” “U.S. dollars” or “US$” are to U.S. dollars, the official currency of the United States. References to “Brazilian GAAP” or “BR GAAP” are to accounting practices adopted in Brazil and references to “U.S. GAAP” are to generally accepted accounting principles in the United States. Any reference to “financial statement” is related to our consolidated financial statements.

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Financial Information

We maintain our books and records in reais. Our financial statements were prepared in accordance with Brazilian GAAP, which are based on:

Brazilian Law No. 6,404/76, as amended by Brazilian Law No. 9,457/97, Brazilian Law No. 10,303/01, Brazilian Law No. 11,638/07, Brazilian Law No. 12,431/11 and Brazilian Law No. 12,973/14, which we refer to hereinafter as “Brazilian corporate law;”

the rules and regulations of the Brazilian Securities Commission (Comissão de Valores Mobiliários), or the “CVM;” and

the accounting standards issued by the Brazilian Federal Accounting Council (Conselho Federal de Contabilidade), or the “CFC” and the Accounting Standards Committee (Comitê de Pronunciamentos Contábeis), or the “CPC.”

Brazilian corporate law was amended by Law No. 11,638 dated December 28, 2007 in order to facilitate the convergence of Brazilian GAAP with International Financial Reporting Standards, or “IFRS,” and thereafter, the CPC issued new accounting standards that generally converged Brazilian GAAP with IFRS. Our Brazilian GAAP financial statements as of and for the year ended December 31, 2008 reflect changes introduced by Law 11,638/07 and the new accounting standards issued by the CPC in 2008, which we retroactively applied beginning on January 1, 2006.

Through December 31, 2009, our financial statements were prepared in accordance with Brazilian GAAP in effect at that time. We elected January 1, 2009 as a transition date to full adoption of the new accounting standards (“new CPCs”). Our financial statements as of and for the year ended December 31, 2009 and as of January 1, 2009 have been restated to reflect these adjustments. In preparing our financial statements, we have applied: (1) Guideline OCPC 04 – Application of the Technical Interpretation of ICPC 02 to the Brazilian Real Estate Development Entities – regarding revenue recognition, and the respective costs and expenses arising from real estate development operations over the course of the construction period (percentage of completion method), and (2) CPC 37 (R1), which requires that an entity develops accounting policies based on the standards and interpretations of the CPC. We have adopted all pronouncements, guidelines and interpretations of the CPC issued through December 31, 2014. As a result, our financial statements are prepared in accordance with Brazilian GAAP, which allows revenue recognition on a percentage of completion basis for construction companies (i.e., revenue is recorded in accordance with the percentage of financial evolution of the construction project), and are therefore not compliant with IFRS as issued by the International Accounting Standards Board (“IASB”), which require revenue recognition on a delivery basis (i.e., revenue is recorded upon transferring the ownership risks and benefits to the purchaser of real estate, usually after the construction is completed and the unit is delivered).

Brazilian GAAP differs in significant respects from U.S. GAAP and IFRS. The notes to our financial statements included elsewhere in this annual report contain a reconciliation of equity and net income (loss) from Brazilian GAAP to U.S. GAAP. Unless otherwise indicated, all financial information of our company included in this annual report is derived from our Brazilian GAAP financial statements.

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Our consolidated financial statements reflect statement of income (loss) and balance sheet information for all of our subsidiaries, and also separately disclose the interest of non-controlling shareholders. Since January 1, 2013 and applicable retrospectively to the comparative periods of 2012 and 2011, the proportional consolidation method for investments in jointly-controlled investees previously applied by the Company, is no longer allowed under Brazilian GAAP as a result these jointly controlled investments are now accounted for through the equity method. In accordance with the transition provisions provided by these new accounting standards, we were not required to retrospectively restate our 2010 and 2009 Brazilian GAAP consolidated financial statements. Accordingly, Brazilian GAAP selected financial data for 2010 and 2009 included herein, is not comparable to those for later periods.

As set forth in “Item 4. Information on the Company—A.History and Development of the Company”, we completed the sale of a controlling stake in Alphaville Urbanismo S.A., or “Alphaville”, the leading residential community development company in Brazil, on December 9, 2013. The transaction involved the sale of 50% interest by Gafisa and 20% interest by our subsidiary Construtora Tenda S.A., or “Tenda”, with Gafisa retaining the remaining 30% of Alphaville capital stock. As a result, Alphaville was no longer consolidated in the financial statements of the Company since November 30, 2013. In this annual report, while financial information related to Alphaville is treated as discontinued operations, all operating information related to our business includes full operating information for Alphaville through December 9, 2013.

As required by Rule 3-09 of Regulation S-X, we have attached the consolidated financial statements of Alphaville Urbanismo S.A. as of and for the year ended December 31, 2014 and as of and for the twenty-two-day period ended December 31, 2013 to this annual report, beginning on page F-119.

Effective January 1, 2013, with the adoption of CPCs 19 (R2) (or IFRS 11) and 36 (R3) (or IFRS 10), the proportional consolidation method for investments in jointly-controlled investees, which was previously applied by the Company, is no longer allowed under Brazilian GAAP. Consequently, our jointly controlled investments are now accounted for through the equity method. While our financial statements and the financial information presented in this annual report have been restated to apply this change retrospectively to the comparative periods of December 31, 2012 and 2011, the operating information presented in this annual report has not been restated and reflects our percentage interest in such jointly-controlled investees as management believes it provides a better view of our operating performance.

Market Information

Certain industry, demographic, market and competitive data, including market forecasts, used in this annual report were obtained from internal surveys, market research, publicly available information and industry publications. We have made these statements on the basis of information from third-party sources that we believe are reliable, such as the Brazilian Property Studies Company (Empresa Brasileira de Estudos de Patrimônio), or the “EMBRAESP,” the Association of Managers of Real Estate Companies (Associação de Dirigentes de Empresas do Mercado Imobiliário), or the “ADEMI,” the Getulio Vargas Foundation (Fundaçao Getulio Vargas), or the “FGV,” the National Bank of Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social), or “BNDES,” the Real Estate Companies’ Union (Sindicato das Empresas de Compra, Venda, Locação e Administração de Imóveis Residenciais e Comerciais), or the “SECOVI,” the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or the “IBGE” and the Brazilian Central Bank (Banco Central do Brasil), or the “Central Bank,” among others. Industry and government publications, including those referenced here, generally state that the information presented therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Although we have no reason to believe that any of this information or these reports are inaccurate in any material respect, such information has not been independently verified by us. Accordingly, we do not make any representation as to the accuracy of such information.

Rounding and Other Information

Some percentages and certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables in this annual report may not be an arithmetic aggregation of the figures that precede them.

In this annual report, all references to “contracted sales” are to the aggregate amount of sales resulting from all agreements for the sale of units (including residential communities and land subdivisions) entered into during a certain period, including new units and units in inventory. Further, in this annual report we use the term “value of launches” as a measure of our performance. Value of launches is not a GAAP measurement. Value of launches, as used in this annual report, is calculated by multiplying the total numbers of units in a real estate development by the average unit sales price.

All references to “potential sales value” are to our estimates of the total amount obtained or that can be obtained from the sale of all launched units of a certain real estate development, calculated by multiplying the number of units in a development by the sale price of the unit. Investors should be aware that our potential sales value may not be realized or may significantly differ from the amount of contracted sales, since the total number of units actually sold may be lower than the number of units launched and/or the contracted sales price of each unit may be lower than the launching price.

In addition, we present information in square meters in this annual report. One square meter is equal to approximately 10.76 square feet.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The statements contained in this annual report in relation to our plans, forecasts, expectations regarding future events, strategies, and projections, are forward-looking statements which involve risks and uncertainties and which are therefore not guarantees of future results. Our estimates and forward-looking statements are mainly based on our current expectations and estimates on projections of future events and trends, which affect or may affect our businesses and results of operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several uncertainties and are made in light of information currently available to us. Our estimates and forward-looking statements may be influenced by the following factors, among others:

changes in the overall economic conditions, including employment levels, population growth and consumer confidence;

changes in real estate market prices and demand, estimated budgeted costs and the preferences and financial condition of our customers;

demographic factors and available income;

our ability to repay our indebtedness and comply with our financial obligations;

our ability to arrange financing and implement our expansion plan;

our ability to compete and conduct our businesses in the future;

changes in our business;

inflation and interest rate fluctuations;

changes in the laws and regulations applicable to the real estate market;

government interventions, resulting in changes in the economy, taxes, rates or regulatory environment;

other factors that may affect our financial condition, liquidity and results of our operations; and

other risk factors discussed under “Item 3. Key Information—D. Risk Factors.”

The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only as of the date they were made, and we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. Our future results may differ materially from those expressed in these estimates and forward-looking statements. In light of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this annual report might not occur and our future results and our performance may differ materially from those expressed in these forward-looking statements due to, inclusive of, but not limited to, the factors mentioned above.

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected Financial Data

The following selected financial data for 2014, 2013, 2012 and 2011 has been derived from our audited consolidated financial statements presented herein. As explained in footnote 9 below, our selected Brazilian GAAP financial data for 2010 was derived from our previously issued consolidated financial statements for such year, not presented herein, after adjusting such previously reported amounts for certain recently issued Brazilian GAAP accounting standards.

Our financial statements are prepared in accordance with Brazilian GAAP, which differs in significant respects from U.S. GAAP. For a discussion of the significant differences relating to these consolidated financial statements and a reconciliation of net income (loss) and equity from Brazilian GAAP to U.S. GAAP, see notes to our consolidated financial statements included elsewhere in this annual report. See also “Presentation of Financial and Other Information.”

This financial information should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report.

The following table sets forth financial information (i) as of and for the years ended December 31, 2014, 2013, 2012 and 2011, which has been prepared in accordance with Brazilian GAAP in effect as of December 31, 2014 and (ii) as of and for the year ended December 31, 2010, which was derived from our previously issued consolidated financial statements for such year, not presented herein, after adjusting such previously reported amounts for certain recently issued Brazilian GAAP accounting standards. Certain information below is presented in accordance with U.S. GAAP.

	As of and for the year ended December 31,
	2014			2013			2012			2011			2010(8)(9)

	(in thousands, except per share, per ADS and operating data)
Consolidated Income Statement Data:
Brazilian GAAP:
Net operating revenue		2,150,998			2,481,211			2,805,086			1,846,902			2,956,087
Operating costs		(1,609,246	)		(1,863,766			(2,276,804	)		(1,927,874	)		(2,209,742	)
Gross profit (loss)		541,752			617,445			528,282			(80,972	)		746,345
Operating expenses, net		(561,284	)		(215,574	)		(609,604	)		(719,232	)		(469.448	)
Financial expenses, net		(8,918	)		(162,503	)		(180,263	)		(166,728	)		(68,038	)
Income (loss) before income and social contribution taxes		(28,450	)		239,368			(261,585	)		(966,932	)		208,859
Income and social contribution taxes		(15,275	)		(2,812	)		(20,222	)		(105,850	)		(7,102	)
Net income (loss) from continuing operations		(43,725	)		236,556			(281,807	)		(1,072,782	)		201,757
Net income from discontinued operations .		—			631,122			204,128			167,759			86,727
Net income for the year attributable to non-controlling interest		(1,176	)		235			49,364			39,845			23,919
Net income (loss) for the year attributable to owners of Gafisa	R$	(42,549	)	R$	867,443		R$	(127,043	)	R$	(944,868	)	R$	264,565
Share and ADS data(1):
Per common share data—R$ per share:
Earnings (loss) per share—Basic		(0.1059	)		2.0348			(0.2939	)		(2.1893	)		0.6415
From continuing operations		(0.1059	)		0.7358			(0.6717	)		(2.5003	)		0.4732
From discontinued operations .		—			1.2990			0.3778			0.3110			0.1682

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	As of and for the year ended December 31,
	2014			2013			2012			2011			2010(8)(9)

	(in thousands, except per share, per ADS and operating data)
Earnings (loss) per share—Diluted		(0.1059	)		2.0226			(0.2939	)		(2.1893	)		0.6109
From continuing operations		(0.1059	)		0.7315			(0.6717	)		(2.5003	)		0.4658
From discontinued operations		—			1.2911			0.3778			0.3110			0.1602
Weighted average number of shares outstanding—in thousands		401,905			426,300			432,246			431,586			412,434
Dividends and interest on shareholders’ equity declared— in thousands of reais		—			163,112			—			—			98,812
Earnings (loss) per share—R$ per share		(0.1125	)		2.0829			(0.2937	)		(2.1867	)		0.6140
Number of common shares outstanding as at end of period— in thousands*		378,185			416,460			432,630			432,099			430,915
Earnings (loss) per ADS—R$ per ADS(2)		(0.2250	)		4.1658			(0.5873	)		(4.3734	)		1.2279
U.S. GAAP:
Net operating revenue		2,446,548			2,565,988			3,930,729			3,250,227			1,929,130
Operating costs		(1,819,612	)		(1,955,158	)		(3,008,345	)		(2,743,144	)		(1,472,085	)
Gross profit		626,936			570,830			922,384			507,083			457,045
Operating expenses, net		(551,800	)		(202,025	)		(859,657	)		(862,975	)		(575,776	)
Financial expenses, net		(31,924	)		(187,298	)		(191,414	)		(97,370	)		(97,810	)
Income from disposal on controlling interests		—			1,228,429			—			—			—
Income (loss) before income and social contribution taxes and income from equity method investments		43,212			1,409,936			(128,687	)		(453,262	)		(216,541	)
Income and social contribution taxes		(20,339	)		(52,211	)		(68,733	)		(334,410	)		100,811
Equity pick-up		17,361			(21,795	)		108,265			59,687			42,161
Net income (loss) for the year		40,234			1,335,930			(89,155	)		(727,985	)		(73,569	)
Net income (loss) attributable to non-controlling interests		(2,071	)		13,462			32,048			27,784			21,214
Net income (loss) attributable to owners of Gafisa		42,305			1,322,468			(121,203	)		(755,769	)		(94,783	)
Per share and ADS data(1):
Per common share data—R$ per share:
Earnings (loss) per share—Basic		0.1053			3.1022			(0.2804	)		(1.7511	)		(0.2298	)
Earnings (loss) per share—Diluted		0.1053			3.0835			(0.2804	)		(1.7511	)		(0.2298	)
Weighted average number of shares outstanding — in thousands		401,905			426,300			432,246			431,586			412,434
Dividends declared and interest on equity		—			163,112			—			—			98,812
Per ADS data—R$ per ADS(2):
Profit (loss) per ADS —Basic(2)		0.2106			6.2044			(0.5608	)		(3.5023	)		(0.4596	)
Profit (loss) per ADS —Diluted(2)		0.2106			6.1670			(0.5608	)		(3.5023	)		(0.4596	)
Weighted average number of ADSs outstanding— in thousands		200,548			213,150			216,123			215,793			206,217
Dividends and interest on equity declared		—			163,112			—			—			98,812
Consolidated Balance Sheet Data:
Brazilian GAAP:
Cash, cash equivalents and short-term investments		1,157,254			2,024,163			1,567,755			858,351			1,201,148
Current and non-current properties for sale		2,512,342			2,094,414			2,166,424			2,463,374			2,206,072
Working capital(3)		2,420,342			2,996,884			3,764,756			1,848,311			4,808,337
Total assets		7,205,852			8,183,030			8,712,569			9,164,783			9,040,791
Total debt(4)		2,586,524			3,059,528			3,640,437			3,437,929			3,290,109
Total equity		3,058,403			3,214,483			2,685,829			2,743,576			3,632,172
U.S. GAAP:
Cash and cash equivalents, short-term investments and restricted short-term investments		1,157,254			2,024,163			1,566,042			858,351			1,127,382
Current and non-current properties for sale		3,023,765			2,816,204			3,260,711			3,847,858			3,690,328
Working capital(3)		2,295,951			2,755,836			3,419,171			3,353,108			3,940,576
Total assets		7,233,212			8,477,587			8,694,612			8,861,145			8,482,267
Total debt(4)		2,594,624			3,067,703			3,642,920			3,444,478			3,081,276
Total Gafisa equity		2,747,532			2,799,171			1,619,276			1,719,948			2,611,844
Equity of non-controlling interests		3,339			23,074			53,222			21,174			20,833
Total equity		2,750,871			2,822,245			1,672,498			1,741,122			2,632,677

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	As of and for the year ended December 31,
	2014			2013			2012			2011			2010(8)(9)

	(in thousands, except per share, per ADS and operating data)
Consolidated cash flow provided by (used in):
Brazilian GAAP
Operating activities		41,891			297,652			644,288			(790,145	)		(1,079,643	)
Investing activities		751,953			53,464			(287,960	)		(31,641	)		122,888
Financing activities		(899,143	)		(568,124	)		162,080			634,952			920,197
Operating data (10):
Number of new developments		23			37			35			49			127
Potential sales value(5)		1,636,311			2,886,204			2,951,961			3,526,298			4,491,835
Number of units launched(6)		6,104			11,072			8,947			12,224			22,233
Launched usable area (m2)(7)		326,421			2,893,541			3,153,251			2,250,725			3,008,648
Units sold		4,294			10,187			7,157			9,844			20,744

* Common shares held in Treasury are not included.

(1)

On February 22, 2010, a stock split of our common shares was approved, giving effect to the split of one existing share into two new issued shares, increasing the number of shares from 167,077,137 to 334,154,274. All Brazilian GAAP and U.S. GAAP information relating to the numbers of shares and ADSs have been adjusted retroactively to reflect the share split on February 22, 2010. All Brazilian GAAP and U.S. GAAP earnings per share and ADS amounts have been adjusted retroactively to reflect the share split on February 22, 2010.

(2)	Earnings (loss) per ADS is calculated based on each ADS representing two common shares.

(3)	Working capital equals current assets less current liabilities.

(4)	Total debt comprises short-term and long-term of loans, financings and debentures.

(5)	Potential sales value is calculated by multiplying the number of units in a development by the sales price of the unit.

(6)	The units delivered in exchange for land pursuant to swap agreements are not included.

(7)	One square meter is equal to approximately 10.76 square feet.

(8)

The financial information as of and for the year ended December 31, 2010 has been prepared in accordance with Brazilian GAAP in effect at such time. Since January 1, 2013 and applicable retrospectively to the comparative period of December 31, 2012 and 2011, the proportional consolidation method for investments in jointly-controlled investees, previously applied by the Company is no longer allowed under Brazilian GAAP. Considering the unreasonable timing and expense effort to restate 2010 Brazilian GAAP consolidated financial statements and consistent with the transition provisions provided by these new accounting standards we were not required to retrospectively restate our 2010 Brazilian GAAP consolidated financial statements for these new accounting standards. As a result, these jointly controlled investments are now accounted for through the equity method and, therefore, results for the year ended December 31, 2010 are not comparable to those for subsequent periods.

(9)

As explained in Note 8.2 to our consolidated financial statements for the year ended December 31, 2014, the results of operations of Alphaville have been presented as discontinued operations under Brazilian GAAP in the Company’s 2013 and 2012 consolidated statements of operations given its disposal during 2013. Under Brazilian GAAP, previous period balance sheet information is not retrospectively adjusted. Brazilian GAAP selected consolidated statement of operations financial data for the years ended December 31, 2011 and 2010 have also been retrospectively adjusted to also reflect discontinued operations for comparability purposes. Previously reported U.S. GAAP selected financial information is not impacted by this matter as Alphaville is reflected as a component of continuing operations for all periods presented, given the Company’s significant continuing involvement in those operations via its 30% retained ownership interest.

(10)

While our financial statements and the financial information presented in this annual report have been restated to apply this change retrospectively to the comparative periods of December 31, 2012 and 2011, the operating information presented in this annual report has not been restated and reflects our percentage interest in such jointly-controlled investees as management believes it provides a better view of our operating performance.

Exchange Rates

All transactions involving foreign currency in the Brazilian market, whether carried out by investors resident or domiciled in Brazil or investors resident or domiciled abroad, must now be conducted on the consolidated exchange market through institutions authorized by the Central Bank and subject to the rules of the Central Bank.

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The Central Bank has allowed the real to float freely against the U.S. dollar since January 15, 1999. Since the beginning of 2001, the Brazilian exchange market has been increasingly volatile, and, until early 2003, the value of the real declined relative to the U.S. dollar, primarily due to financial and political instability in Brazil and Argentina. According to the Central Bank, in 2005, 2006 and 2007, however, the period-end value of the real appreciated in relation to the U.S. dollar 13.4%, 9.5% and 20.7%, respectively. In 2008, the period-end value of the real depreciated in relation to the U.S. dollar by 24.2%. In 2009 and 2010, the period-end value of the real appreciated in relation to the U.S. dollar by 34.2% and 4.3%. In 2011, the real depreciated against the U.S. dollar by 11.2%. In 2013 and 2012, the real depreciated by 13.2% and 8.9% against the U.S. dollar, respectively. On December 31, 2012, the period-end real/U.S. dollar exchange rate was R$2.0435 per U.S. $1.00, and on December 31, 2013 it was R$2.3420 per U.S.$1.00. In 2014, the period-end value of the real depreciated in relation to the U.S. dollar by 13.4%. On December 31, 2014, the period-end real/U.S. dollar exchange rate was R$2.6562 per U.S. $1.00. Although the Central Bank has intervened occasionally to control unstable movements in the foreign exchange rates, the exchange market may continue to be volatile as a result of this instability or other factors, and, therefore, the real may substantially decline or appreciate in value in relation to the U.S. dollar in the future.

The following table shows the selling rate, expressed in reais per U.S. dollar (R$/US$), for the periods and dates indicated.

	Period-end		Average for period(1)		Low		High
	(per U.S. dollar)
Year Ended:
December 31, 2010		1.665		1.759		1.655		1.880
December 31, 2011		1.876		1.718		1.535		1.902
December 31, 2012		2.044		1.907		1.702		2.112
December 31, 2013		2.342		2.199		1.925		2.445
December 31, 2014		2.656		2.469		2.197		2.740
Month Ended:
October 2014		2.444		2.463		2.391		2.534
November 2014		2.560		2.549		2.484		2.614
December 2014		2.656		2.651		2.561		2.740
January 2015		2.662		2.643		2.575		2.711
February 2015		2.878		2.785		2.689		2.881
March 2015		3.208		3.067		2.866		3.268
April 2015 (through April 24, 2015)		2.975		3.065		2.975		3.156

(1)	Average of the lowest and highest rates in the periods presented.

Source: Central Bank.

On April 24, 2015, the selling rate was R$2.975 to US$1.00. The real/dollar exchange rate fluctuates and, therefore, the selling rate at April 24, 2015 may not be indicative of future exchange rates.

Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or serious reasons to foresee such imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. For approximately six months in 1989, and early 1990, for example, the Federal Government froze all dividend and capital repatriations that were owed to foreign equity investors. These amounts were subsequently released in accordance with Federal Government directives. There can be no assurance that similar measures will not be taken by the Federal Government in the future.

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

This section is intended to be a summary of the more detailed discussion included elsewhere in this annual report. Our business, results of operations, financial condition or prospects could be adversely affected if any of these risks occurs, and as a result, the trading price of our common shares and ADSs could decline. The risks described below are those known to us and those that we currently believe may materially affect us.

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Risks Relating to Our Business and to the Brazilian Real Estate Industry

Our business, results of operations, financial condition and the market price of our common shares or the ADSs may be adversely affected by weaknesses in general economic, real estate and other conditions.

The residential homebuilding and land development industry is cyclical and is significantly affected by changes in general and local economic conditions, such as:

employment levels;

population growth;

consumer demand, confidence, stability of income levels and interest rates;

availability of financing for land home site acquisitions and the availability of construction and permanent mortgages;

inventory levels of both new and existing homes;

supply of rental properties; and

conditions in the housing resale market.

Furthermore, the market value of undeveloped land, buildable lots and housing inventories held by us can fluctuate significantly as a result of changing economic and real estate market conditions. If there are significant adverse changes in economic or real estate market conditions, we will have to sell homes at a loss or hold land in inventory longer than planned.

For example, in 2008, the global financial crisis adversely impacted Brazil’s gross domestic product, or “GDP,” resulting in a decrease in both the number of developments launched and the rate of sales of our units. Worldwide financial market volatility may also adversely impact government plans for the Brazilian real estate industry, which may have a material adverse effect on our business, our financial condition and results of operations.

We operate in a highly competitive industry and our failure to compete effectively could adversely affect our business.

The Brazilian real estate industry is highly competitive and fragmented. We compete with several developers on the basis of land availability and location, price, funding, design, quality, and reputation as well as for partnerships with other developers. Because our industry does not have high barriers to entry, new competitors, including international companies working in partnership with Brazilian developers, may enter into the industry, further intensifying this competition. Some of our current potential competitors may have greater financial and other resources than we do. Furthermore, a significant portion of our real estate development and construction activity is conducted in the states of São Paulo, Rio de Janeiro, Minas Gerais and Bahia, areas where the real estate market is highly competitive due to a scarcity of properties in desirable locations and the relatively large number of local competitors. If we are not able to compete effectively, our business, our financial condition and the results of our operations could be adversely affected.

Problems with the construction and timely completion of our real estate projects, as well as third party projects for which we have been hired as a contractor, may damage our reputation, expose us to civil liability and decrease our profitability.

The quality of work in the construction of our real estate projects and the timely completion of these projects are major factors that affect our reputation, and therefore our sales and growth. We may experience delays in the construction of our projects or there may be defects in materials and/or workmanship. Any defects could delay the completion of our real estate projects, or, if such defects are discovered after completion, expose us to civil lawsuits by purchasers or tenants. These factors may also adversely affect our reputation as a contractor for third party projects, since we are responsible for our construction services and the building itself for five years. Construction projects often involve delays in obtaining, or the inability to obtain, permits or approvals from the relevant

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authorities. In addition, construction projects may also encounter delays due to adverse weather conditions, natural disasters, fires, delays in the provision of materials or labor, accidents, labor disputes, unforeseen engineering, environmental or geological problems, disputes with contractors and subcontractors, unforeseen conditions at construction sites, disputes with surrounding landowners, or other events. In addition, we may encounter previously unknown conditions at or near our construction sites that may delay or prevent construction of a particular project. If we encounter a previously unknown condition at or near a site, we may be required to correct the condition prior to continuing construction and there may be a delay in the construction of a particular project. The occurrence of any one or more of these problems in our real estate projects could adversely affect our reputation and our future sales.

We may incur construction and other development costs for a project that exceeds our original estimates due to increases over time in interest rates, real estate taxes or costs associated with materials and labor, among others. We may not be able to pass these increased costs on to purchasers. Construction delays, scarcity of skilled workers, default and or bankruptcy of third party contractors, cost overruns and adverse conditions may also increase project development costs. In addition, delays in the completion of a project may result in a delay in the commencement of cash flow, which would increase our capital needs.

Our inability to acquire adequate capital to finance our projects could delay the launch of new projects and adversely affect our business.

We expect that the continued expansion and development of our business will require significant capital, including working capital, which we may be unable to obtain on acceptable terms, or at all, to fund our capital expenditures and operating expenses, including working capital needs. We may fail to generate sufficient cash flow from our operations to meet our cash requirements. Furthermore, our capital requirements may vary materially from those currently planned if, for example, our revenues do not reach expected levels or we have to incur unforeseen capital expenditures and make investments to maintain our competitive position. If this is the case, we may require additional financing sooner than anticipated, or we may have to delay some of our new development and expansion plans or otherwise forgo market opportunities. Future borrowing instruments such as credit facilities are likely to contain restrictive covenants, particularly in light of the recent economic downturn and unavailability of credit, and/or may require us to pledge assets as security for borrowings under those facilities. Our inability to obtain additional capital on satisfactory terms may delay or prevent the expansion of our business, which would have an adverse effect on our business. As of December 31, 2014, our net debt plus payable to venture partners (indebtedness from debentures, loans and financing, project financing and payables to venture partners balance, net of our cash and short term investments position) was R$1,440 million: our cash and cash equivalents and short-term investments were R$1,157 million and our total debt was R$2,597 million including obligations to venture partners of R$11 million.

Changing market conditions may adversely affect our ability to sell our property inventories at expected prices, which could reduce our margins and adversely affect the market price of our common shares or the ADSs.

We must constantly locate and acquire new tracts of land for development and development home sites to support our homebuilding operations. There is a lag between the time we acquire land for development or development home sites and the time that we can bring the properties to market and sell homes. As a result, we face the risk that demand for housing may decline, costs of labor or materials may increase, interest rates may increase, currencies may fluctuate and political uncertainties may occur during this period and that we will not be able to dispose of developed properties at expected prices or profit margins or within anticipated time frames or at all. Significant expenditures associated with investments in real estate, such as maintenance costs, construction costs and debt payments, cannot generally be reduced if changes in the economy cause a decrease in revenues from our properties. The market value of property inventories, undeveloped tracts of land and desirable locations can fluctuate significantly because of changing market conditions. In addition, inventory carrying costs (including interest on funds unused to acquire land or build homes) can be significant and can adversely affect our performance. Because of these factors, we may be forced to sell homes and other real properties at a loss or for prices that generate lower profit margins than we anticipate. We may also be required to make material write-downs of the book value of our real estate assets in accordance with Brazilian and U.S. GAAP if values decline. The occurrence of any of these factors may adversely affect our business and results of operations.

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We are subject to risks normally associated with permitting our purchasers to make payments in installments; if there are higher than anticipated defaults or if our costs of providing such financing increase, then our profitability could be adversely affected.

As is common in our industry, we and the special purpose entities, or “SPEs,” in which we participate permit some purchasers of the units in our projects to make payments in installments. As a result, we are subject to the risks associated with this financing, including the risk of default in the payment of principal or interest on the loans we make as well as the risk of increased costs for the funds raised by us. In addition, our term sales agreements usually bear interest and provide for an inflation adjustment. If the rate of inflation increases, the loan payments under these term sales agreements may increase, which may lead to a higher rate of payment default. If the default rate among our purchasers increases, our cash generation and, therefore, our profitability could be adversely affected.

In the case of a payment default after the delivery of financed units, Brazilian law provides for the filing of a collection claim to recover the amount owed or to repossess the unit following specified procedures. The collection of overdue amounts or the repossession of the property is a lengthy process and involves additional costs. It is uncertain that we can recover the full amount owed to us or that if we repossess a unit, we can re-sell the unit at favorable terms or at all.

The affordable entry-level segment is strongly dependent on the availability of financing, including from the Minha Casa, Minha Vida program and from Caixa Econômica Federal, or the “CEF.” The scarcity of financing, the increase in interest rates, the reduction in financing terms, share of financing per unit and subsidies or any other modification in other financing terms and conditions may adversely affect the performance of the affordable entry-level segment.

If we or the SPEs in which we participate fail to comply with or become subject to more onerous government regulations, our business could be adversely affected.

We and the SPEs in which we participate are subject to various federal, state and municipal laws and regulations, including those relating to construction, zoning, soil use, urban regulations, environmental protection, historical sites, consumer protection and antitrust. We are required to obtain, maintain and renew on a regular basis permits, licenses and authorizations from various governmental authorities in order to carry out our projects. We strive to maintain compliance with these laws and regulations, as well as with conditions of permits, licenses and authorizations. If we are unable to achieve or maintain compliance with these laws, regulations and conditions, we could be subject to fines, project shutdowns, cancellation of licenses and revocation of authorizations or other restrictions on our ability to develop our projects, which could have an adverse impact on our business, financial condition and results of operations. In addition, our contractors and subcontractors are required to comply with various labor and environmental regulations and tax and other regulatory obligations. Because we are secondary obligors to these contractors and subcontractors, if they fail to comply with these regulations or obligations, we may be subject to penalties by the relevant regulatory bodies, and to indemnification claims from affected third parties.

Regulations governing the Brazilian real estate industry as well as environmental laws have tended to become more restrictive over time. We cannot assure that new and stricter standards will not be passed or become applicable to us, or that stricter interpretations of existing laws and regulations will not be adopted. Furthermore, we cannot assure that any such more onerous regulations would not cause delays in our projects or that we would be able to secure the relevant permits and licenses. Any such event may require us to spend additional funds to achieve compliance with such new rules and therefore make the development of our projects more costly, which can adversely affect our business and the market price of our common shares or the ADSs.

Scarcity of financing and/or increased interest rates could cause a decrease in the demand for real estate properties, which could negatively affect our results of operations, financial condition and the market price of our common shares or the ADSs.

The scarcity of financing and/or an increase in interest rates or in other indirect financing costs may adversely affect the ability or willingness of prospective buyers to purchase our products and services, especially prospective low income buyers. A majority of the bank financing obtained by prospective buyers comes from the Housing Financial System (Sistema Financeiro de Habitação), or the “SFH,” which is financed by funds raised from savings account deposits. The Brazilian Monetary Council (Conselho Monetário Nacional), or the “CMN,” often changes the amount of such funds that banks are required to make available for real estate financing. If the CMN restricts the amount of available funds that can be used to finance the purchase of real estate properties, or if there is an increase in interest rates, there may be a decrease in the demand for our residential and commercial properties and for the development of lots of land, which may adversely affect our business, financial condition and results of operations.

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We and other companies in the real estate industry frequently extend credit to our clients. As a result, we are subject to risks associated with providing financing, including the risk of default on amounts owed to us, as well as the risk of increased costs of funding our operations. An increase in inflation would raise the nominal amounts due from our clients, pursuant to their sales agreements, which may increase their rates of default. If this were to occur, our cash generation and, therefore, our operating results may be adversely affected. In addition, we obtain financings from financial institutions at different rates and subject to different indexes and may be unable to match our debt service requirements with the terms of the financings we grant to our clients. The mismatch of rates and terms between the funds we obtain and the financings we grant may adversely affect us.

Some of our subsidiaries use significant funding from the home financing programs of the CEF, including the Minha Casa, Minha Vida program, and, as a result, are subject to institutional and operating changes in the CEF and enhance customer risk profiles associated with clients eligible for these programs.

The CEF has several home financing programs for the low-income segment, which are used by Construtora Tenda S.A., or “Tenda,” to fund its activities. The CEF is a state-owned financial institution and is subject to political influence, which may change the availability or the terms of the home financing programs. The cancelation, suspension, interruption or a significant change in such programs may affect our growth estimates and our business. Furthermore, the suspension, interruption or slowdown in the CEF’s activities to approve projects, grant financing to our clients and evaluate construction process, among other activities, may adversely impact our business, financial position, results of operations and the market price of our common shares and ADSs.

Also, in March 2009, the Brazilian government announced the creation of a public housing program called “Minha Casa, Minha Vida,” with an announcement in 2010 of a second phase of the program from 2011 until 2014, that aims to finance two million houses, twice as much as was financed in the first phase of the program. The program aims to reduce the housing deficit in Brazil, which as of 2010 was estimated to be 5.5 million houses. The program calls for government investment of more than R$30 billion in the first phase and more than R$72 billion during the second phase, to be made available through financing from the “CEF,” and is focused on building one million houses for families with monthly incomes of up to ten times the minimum wage. During the second phase of this program, 800 thousand houses will be built for families with monthly incomes of three to ten times the minimum wage, which make up our target clients under our Tenda brand. This program offers, among other things, long-term financing, lower interest rates, greater share of the property financed to the client, subsidies based on income level, lower insurance costs and the creation of a guarantor fund to refinance debt in case of unemployment. Financing to the affordable entry-level segment is primarily made available through the CEF. Any changes in such financing would force us to seek new sources of financing and the availability of funds under similar conditions is limited, which would have an adverse effect on our results of operations. As of the date of this annual report, the potential implementation of a third phase of the program is under review by the Brazilian government.

We may sell portions of our landbank located in nonstrategic regions, which is in line with our future strategies. As a result, we will prepare an annual analysis for impairment of our landbank.

As part of our strategy to focus our future operations on regions where our developments have historically been successful, and where we believe there is homebuilding potential based on market opportunities, we may sell portions of our landbank located outside of these regions. As a result, we will prepare an annual impairment analysis of our landbank based on the acquisition cost of the land in our portfolio. Starting in 2011, we decided to sell a portion of our landbank and our evaluation of impairment on landbank and properties for sale resulted in provisions for impairment in the amount of R$63.5 million in 2014, R$68.5 million in 2013, R$53.8 million in 2012 and R$92.1 million in 2011.

The real estate industry is dependent on the availability of credit, especially in the affordable entry-level segment.

One of our main strategies is to expand our operations to the affordable entry-level segment in which clients are strongly dependent on bank financing to purchase homes. This financing may not be available on favorable terms to our clients, or at all. Changes in the Real Estate Financing System (Sistema de Financiamento Imobiliário), or the “SFI,” and in the SFH rules, the scarcity of available resources or an increase in interest rates may affect the ability or desire of such clients to purchase homes, consequently affecting the demand for homes. These factors would have a material adverse effect on our business, financial condition and results of operations.

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Because we recognize sales revenue from our real estate properties under the percentage of completion method of accounting under Brazilian GAAP as generally adopted by construction companies and under U.S. GAAP, when we meet the conditions specified by the respective accounting standards, an adjustment in the cost of a development project may reduce or eliminate previously reported revenue and income.

We recognize revenue from the sale of units in our properties based on the percentage of completion method of accounting, which requires us to recognize revenue as we incur the cost of construction. Total cost estimates are revised on a regular basis as the work progresses, and adjustments based upon such revisions are reflected in our results of operations in accordance with the method of accounting used. To the extent that these adjustments result in an increase, a reduction or an elimination of previously reported income, we will recognize a credit to or a charge against income, which could have an adverse effect on our previously reported revenue and income.

Our participation in SPEs creates additional risks, including potential problems in our financial and business relationships with our partners.

We invest in special purpose entities (Sociedade de Propósito Específico or “SPEs”) with other real estate developers and construction companies in Brazil. The risks involved with SPEs include the potential bankruptcy of our SPE partners and the possibility of diverging or inconsistent economic or business interests between us and our partners. If an SPE partner fails to perform or is financially unable to bear its portion of the required capital contributions, we could be required to make additional investments and provide additional services in order to make up for our partner’s shortfall. In addition, under Brazilian law, the partners of an SPE may be liable for certain obligations of an SPE, including with respect to tax, labor, environmental and consumer protection laws and regulations. These risks could have an adverse effect on us.

We may experience difficulties in finding desirable land tracts and increases in the price of land may increase our cost of sales and decrease our earnings.

Our continued growth depends in large part on our ability to continue to acquire land and to do so at a reasonable cost. As more developers enter or expand their operations in the Brazilian home building industry, land prices could rise significantly and suitable land could become scarce due to increased demand, decreased supply or both. A resulting rise in land prices may increase our cost of sales and decrease our earnings. We may not be able to continue to acquire suitable land at reasonable prices in the future, which could adversely affect our business.

The market value of our inventory of undeveloped land may decrease, thus adversely affecting our results of operations.

We own tracts of undeveloped land that are part of our inventory for future developments. We also intend to increase our inventory and acquire larger tracts of land. The market value of these properties may significantly decrease from the acquisition date to the development of the project as a result of economic downturns or market conditions, which would have an adverse effect on our results of operations.

Increases in the price of raw materials and fixtures may increase our cost of sales and reduce our earnings.

The basic raw materials and fixtures used in the construction of our homes include concrete, concrete block, steel, aluminum, bricks, windows, doors, roof tiles and plumbing fixtures. Increases in the price of these and other raw materials, including increases that may occur as a result of shortages, duties, restrictions, or fluctuations in exchange rates, could increase our cost of sales. Any such cost increases could reduce our earnings and adversely affect our business.

If we are not able to implement our growth strategy as planned, or at all, our business, financial condition and results of operations could be adversely affected.

We plan to grow our business by selectively expanding to meet the growth potential of the Brazilian residential market. We believe that there is increasing competition for suitable real estate development sites. We may not find suitable additional sites for development of new projects or other suitable expansion opportunities.

We anticipate that we will need additional financing to implement our expansion strategy and we may not have access to the funding required for the expansion of our business or such funding may not be available to us on acceptable terms. We may finance the expansion of our business with additional indebtedness or by issuing additional debt or equity securities. For example, in 2012, we issued R$360.0 million in subordinated indebtedness, including: (1) R$150 million in bank credit certificates, or CCBs, on September 5, 2012, (2) R$80 million in our third restricted public issuance of commercial paper in a single series in December 2012 and (3) R$130 million in CCBs issued by Alphaville secured by a pledge of sales receivables and certain ventures. In addition, on October 31, 2012, we amended the terms of certain CCBs in the amount of R$100 million to provide additional security, including a first-priority mortgage of certain real estate ventures, a pledge of sales receivables and to adjust the payment terms of the CCBs.

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On October 7, 2013, we entered into a Real Estate Finance System (SFI) loan in the amount of R$300 million. The loan is scheduled to mature in July 2017. The loan is secured by (i) first-priority mortgages over select real estate ventures of the Company and (ii) fiduciary assignments of real estate receivables generated by such select real estate ventures. The purpose of the loan is to provide funding for housing projects only. The loan agreement contains restrictive covenants which trigger early redemption upon the occurrence of certain events of default.

In July 2014, we issued R$130 million in non-convertible debentures on a private placement basis. The debentures are secured by (i) first-priority mortgages over select real estate ventures of the Company and (ii) fiduciary assignments of real estate receivables generated by such select real estate ventures. The proceeds of the debentures will be used to fund the development of such real estate ventures only. The debentures holders assigned their fiduciary rights in the real estate receivables in favor of a real estate securitization SPE, which issued Certificates of Real Estate Receivables (Certificados de Recebíveis Imobiliários) or “CRIs”, backed by such real estate receivables.

In September 2014, the Company entered into a Real Estate Finance System (SFI) loan in the amount of R$194 million. The loan is scheduled to mature in October 2018. The loan is secured by (i) first-priority mortgages over select real estate ventures of the Company and (ii) fiduciary assignments of real estate receivables generated by such select real estate ventures. The purpose of the loan is to provide funding for housing projects only.

We could face financial risks, covenant restrictions and restrictions on our ability to employ assets associated with incurring additional indebtedness, such as reducing our liquidity and access to financial markets and increasing the amount of cash flow required to service such indebtedness, or associated with issuing additional stock, such as dilution of ownership and earnings.

There are risks for which we do not have insurance coverage or the insurance coverage we have in place may not be sufficient to cover damages that we may suffer.

We maintain insurance policies with coverage for certain risks, including damages arising from engineering defects, fire, landslides, storms, gas explosions and civil liabilities stemming from construction errors. We believe that the level of insurance we have contracted for accidents is consistent with market practice. However, there can be no assurance that such policies will always be available or provide sufficient coverage for certain damages. In addition, there are certain risks that may not be covered by such policies, such as damages resulting from war, force majeure or the interruption of certain activities and, therefore any requirement to pay amounts not covered by our insurance may have a negative impact on our business and our results of operations. Furthermore, we are required to pay penalties and other fines whenever there is delay in the delivery of our units, and such penalties and fines are not covered by our insurance policies.

Moreover, we cannot guarantee that we will be able to renew our current insurance policies under favorable terms, or at all. As a result, insufficient insurance coverage or our inability to renew existing insurance policies could have an adverse effect on our financial condition and results of operations.

Our level of indebtedness could have an adverse effect on our financial health, diminish our ability to raise additional capital to fund our operations and limit our ability to react to changes in the economy or the real estate industry.

As of December 31, 2014, our total debt (loans, financing and debentures) and payables to venture partners was R$2,597 million and our short-term debt and payables to venture partners was R$1,061 million. In addition, as of December 31, 2014 our cash and cash equivalents and short-term investments available was R$1,157 million and our net debt represented 47.1% of our shareholders’ equity including the non-controlling interest. Our indebtedness has variable interest rates. Our level of indebtedness could have important negative consequences for us. For example, it could:

require us to dedicate a large portion of our cash flow from operations to fund payments on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;

increase our vulnerability to adverse general economic or industry conditions;

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limit our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate;

limit our ability to raise additional debt or equity capital in the future or increase the cost of such funding;

restrict us from making strategic acquisitions or exploring business opportunities; and

place us at a competitive disadvantage compared to our competitors that have less debt.

Certain of our debt agreements contain financial and other covenants and any default under such debt agreements may have a material adverse effect on our financial condition and cash flows.

Certain of our existing debt agreements contain restrictions and covenants and require the maintenance or satisfaction of specified financial ratios, ratings and tests. Our ability to meet these financial ratios, ratings and tests can be affected by events beyond our control and we cannot assure that we will meet those tests, especially given the lower yield environment in which the industry currently operates. Failure to meet or satisfy any of these covenants, financial ratios or financial tests could result in an event of default under these and other agreements, as a result of cross-default provisions. If we are unable to comply with our debt covenants, we could be forced to seek waivers.

If we are unable to obtain waivers, a large portion of our debt could be subject to acceleration. We do not believe such occurrence to be likely; however, if it were to happen, we could be required to renegotiate, restructure or refinance our indebtedness, seek additional equity capital or sell assets, which could materially and adversely affect us.

We cannot guarantee that we will be successful in obtaining any waivers. As of December 31, 2014, the Company and its subsidiaries were in compliance with the contractual covenants provided for in our debentures and other credit instruments.

We may not be successful in managing and integrating the businesses and activities Cipesa and Tenda.

We have acquired controlling stakes in two Brazilian real estate companies: (1) Cipesa Empreendimentos Imobiliários S.A., one of the leading homebuilders in the State of Alagoas; and (2) Construtora Tenda S.A., a residential homebuilder with a focus on the affordable entry-level segment. However, we may not be successful in managing and integrating these companies, which could adversely affect our business.

Failures or delays by our third party contractors may adversely affect our reputation and business and expose us to civil liability.

We engage third party contractors to provide services for our projects. Therefore, the quality of work in the construction of our real estate projects and the timely completion of these projects may depend on factors that are beyond our control, including the quality and timely delivery of building materials and the technical skills of the outsourced professionals. Such outsourcing may delay the identification of construction problems and, as a result, the correction of such problems. Any failures, delays or defects in the services provided by our third party contractors may adversely affect our reputation and relationship with our clients, which would adversely affect our business and results of operations.

We may be unable to successfully implement our strategy of reorganizing our operational organization and performance.

We intend to carry out a strategy seeking to reorganize our operational organization and promote performance. This strategy includes the implementation of a new management structure that, among other things, assigns each brand manager direct responsibility for the operating performance of each brand, and implementing a corporate culture shift within our Tenda brand focused on aligning incentives to improve project execution. As a result, we established a new operating structure organized by brand (Gafisa and Tenda) and appointed divisional executive officers responsible for the profit and loss of each business unit. This strategy is intended to pursue the goal of helping to produce more stable cash flow and contributing toward a return to sustainable growth. However, there can be no assurance that we will be able to successfully implement such strategy, and therefore we may also be unsuccessful in achieving such goals behind such strategy, which could result in a material adverse effect with respect to our business, financial condition or results of operations.

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Unfavorable judicial, administrative or arbitration decisions may adversely affect us.

We currently are, and may be in the future, defendants in several judicial, administrative proceedings related to civil, labor and tax matters. We cannot assure you that we will obtain favorable decisions in such proceedings, that such proceedings will be dismissed, or that our provisions for such proceedings are sufficient in the event of an unfavorable decision. Unfavorable decisions that impede our operations, as initially planned, or that result in a claim amount that is not adequately covered by provisions in our balance sheet, may adversely affect our business and financial condition.

We may be held responsible for labor liabilities of our third party contractors.

We may be held responsible for the labor liabilities of our third party contractors and obligated to pay for fines imposed by the relevant authorities in the event that our third party contractors do not comply with applicable legislation. As of December 31, 2014, R$36.1 million of our R$81.3 million of total labor liabilities and provisions were for such liabilities. Approximately 44% of the labor claims were commenced by employees of our third party contractors. An adverse result in such claims would cause an adverse effect on our business.

Failure to keep members of our senior management and/or our ability to recruit and retain qualified professionals may have a material adverse effect on our business, financial condition and results of operations.

Our future success depends on the continued service and performance of our senior management and our ability to recruit and retain qualified professionals. None of the members of our senior management are bound to long-term labor contracts or non-compete agreements and there can be no assurance that we will successfully recruit and retain qualified professionals to our management as our business grows. The loss of any key professionals or our inability to recruit or retain qualified professionals may have an adverse effect on our business, financial condition and results of operations.

Changes in Brazilian GAAP due to its migration towards IFRS may adversely affect our results.

Brazilian corporate law was amended by Law No. 11,638 dated December 28, 2007 in order to facilitate the convergence of Brazilian GAAP with IFRS, and thereafter, the CPC issued new accounting standards that generally converged Brazilian GAAP to IFRS.

Through December 31, 2009, our financial statements were prepared in accordance with Brazilian GAAP in effect at the time. We elected January 1, 2009 as a transition date for full adoption of the new Brazilian GAAP as generally adopted by construction companies in Brazil, and amended certain accounting practices in the Brazilian GAAP financial statements. Our financial statements as of and for the year ended December 31, 2009 have been restated to reflect these adjustments.

With the adoption of CPCs 19 (R2) (or IFRS 11) and 36 (R3) (or IFRS 10), since January 1, 2013 and applicable retrospectively to the comparative periods of December 31, 2012 and 2011, the proportional consolidation method for investments in jointly-controlled investees, which was previously applied by the Company, is no longer allowed under Brazilian GAAP. Consequently these jointly-controlled investments are now accounted for through the equity method.

Under U.S. GAAP, because such investments provide substantive voting rights granted to minority shareholders, they preclude the Company from consolidating these entities. Accordingly, for purposes of U.S. GAAP these investments are also accounted for based on the equity method of accounting.

On May 28, 2014, the IASB published IFRS 15 – Revenue from Contracts with Customers (“IFRS 15”), which establishes principles that will apply to the recognition of revenue under IFRS and U.S. GAAP. IFRS 15 will require entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. When adopted, IFRS 15 will supersede most of the detailed guidance on the recognition of revenue that currently applies under IFRS and U.S. GAAP. IFRS 15 will be effective for annual periods beginning on or after January 1, 2017, and earlier application of IFRS 15 will be permitted for IFRS purposes. In Brazil, earlier application of IFRS 15 will be subject to the implementation of IFRS 15 in Brazil and the prior approval of the CPC and the CVM.

In July 2014, the IASB published IFRS 9 – Financial Instruments (“IFRS 9”), which establishes, among other principles, principles that will apply to the classification, measurement and recognition of financial assets and liabilities. IFRS 9 will replace (i) earlier versions of IFRS 9 and (ii) IAS 39 – Financial Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 is comprised of three phases:

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Phase 1 - Classification and measurement of financial assets and liabilities: Phase 1 introduces an approach for the classification of financial assets driven by cash flow characteristics and the business model in which an asset is held. This single, principle-based approach will replace existing rule-based requirements. The new model will also result in a single impairment model being applied to all financial instruments.

Phase 2 - Impairment: Phase 2 introduces a new, expected loss impairment model that will require more timely recognition of expected credit losses. It will require entities to account for expected credit losses (as opposed to incurred credit losses) from when financial instruments are first recognized. It will also lower the threshold for recognition of full lifetime expected losses.

Phase 3 - Hedge Accounting: Phase 3 replaces the rule-based hedge accounting requirements in IAS 39. It will introduce a reformed model for hedge accounting with enhanced disclosures about risk management activity. The new model will align the accounting treatment with risk management activities, enabling entities to better reflect these activities in their financial statements. In addition, as a result of these changes, users of the financial statements will be provided with better information about risk management and the effect of hedge accounting on the financial statements.

IFRS 9 will be effective for annual periods beginning on or after January 1, 2018. Earlier application of IFRS 9 will be permitted for IFRS purposes. In Brazil, earlier application of IFRS 9 will be subject to the implementation of IFRS 9 in Brazil and the prior approval of the CPC and the CVM.

We are in the process of evaluating the impact of IFRS 15 and IFRS 9 on our financial statements. As of the date of this annual report, we have not completed our analysis of IFRS 15 and IFRS 9 and we have not determined the extent to which IFRS 15 and IFRS 9 will impact our financial statements once they are adopted.

Risks Relating to Brazil

Brazilian economic, political and other conditions, and Brazilian government policies or actions in response to these conditions, may negatively affect our business and results of operations and the market price of our common shares or the ADSs.

The Brazilian economy has been characterized by frequent and occasionally extensive intervention by the Brazilian government and unstable economic cycles. The Brazilian government has often changed monetary, taxation, credit, tariff and other policies to influence the course of the Brazilian economy. For example, the government’s actions to control inflation have at times involved setting wage and price controls, blocking access to bank accounts, imposing exchange controls and limiting imports into Brazil. We have no control over, and cannot predict, what policies or actions the Brazilian government may take in the future.

Our business, results of operations, financial condition and prospects, as well as the market prices of our common shares or the ADSs, may be adversely affected by, among others, the following factors:

exchange rate movements;

exchange control policies;

expansion or contraction of the Brazilian economy, as measured by rates of GDP;

inflation;

tax policies;

other economic, political, diplomatic and social developments in or affecting Brazil;

interest rates;

energy shortages;

liquidity of domestic capital and lending markets; and

social and political instability.

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Uncertainty over whether the Brazilian government may implement changes in policy or regulations may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets as well as securities issued abroad by Brazilian issuers. As a result, these uncertainties and other future developments in the Brazilian economy may adversely affect us and our business and results of operations and the market price of our common shares and the ADSs.

Inflation, and government measures to curb inflation, may adversely affect the Brazilian economy, the Brazilian securities market, our business and operations and the market prices of our common shares or the ADSs.

At times in the past, Brazil has experienced high rates of inflation. According to the General Market Price Index (Índice Geral de Preços—Mercado), or “IGP-M”, inflation rates in Brazil were 3.8% in 2006, 7.8% in 2007, 9.8% in 2008, (1.7)% in 2009, 11.3% in 2010, 5.1% in 2011, 7.8% in 2012, 5.5% in 2013, 3.7% in 2014 and 0.8% in the one month period ended January 31, 2015. In addition, according to the Expanded Consumer Price Index (Índice de Preços ao Consumidor Ampliado), or “IPCA,” Brazilian consumer price inflation rates were 3.1% in 2006, 4.5% in 2007, 5.9% in 2008, 4.3% in 2009, 5.9% in 2010, 6.5% in 2011, 5.8% in 2012, 5.9% in 2013, 6.4% in 2014 and 1.2% in the one month period ended January 31, 2015. Our term sales agreements usually provide for an inflation adjustment linked to the National Construction Cost Index (Índice Nacional de Custo de Construção), or “INCC”. The INCC increased by 6.2% in 2007, 11.9% in 2008, 3.14% in 2009, 7.77% in 2010, 7.49% in 2011, 7.12% in 2012, 8.1% in 2013 and 6.9% in 2014. The Brazilian government’s measures to control inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting availability of credit and reducing economic growth. Inflation, actions to combat inflation and public speculation about possible additional actions have also contributed materially to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets.

Brazil may experience high levels of inflation in future periods. Periods of higher inflation may slow the rate of growth of the Brazilian economy, which could lead to reduced demand for our products in Brazil and decreased net sales. Inflation is also likely to increase some of our costs and expenses, which we may not be able to pass on to our customers and, as a result, may reduce our profit margins and net income. In addition, high inflation generally leads to higher domestic interest rates, and, as a result, the costs of servicing our reais-denominated debt may increase, resulting in lower net income. Inflation and its effect on domestic interest rates can, in addition, lead to reduced liquidity in the domestic capital and lending markets, which could affect our ability to refinance our indebtedness in those markets. In addition, increases in inflation rates would increase the outstanding debt of our customers, which could increase default levels and affect our cash flows. Any decline in our net operating revenue or net income and any deterioration in our financial condition would also likely lead to a decline in the market price of our common shares and the ADSs.

Social, political and economic events and the perception of risks, especially in other emerging economies, may adversely affect the Brazilian economy, and consequently, our business, financial condition, results of operations and the market price of our securities.

The Brazilian capital markets are influenced by the Brazilian market and economic conditions and, to a certain extent, by the conditions in other Latin American countries and other emerging market countries. Investors’ reactions to developments in certain countries may have an adverse effect on the market value of the securities of Brazilian issuers. Crises in other Latin American and emerging market countries normally trigger a significant outflow of funds and the reduction of foreign investment in Brazil. For example, in 2001 Argentina announced a moratorium on its public debt after a recession and a period of political instability, which affected investor perceptions towards the Brazilian capital markets for many years. Crises in other Latin American and emerging market countries may diminish investor interest in the securities of Brazilian issuers, including ours, which could negatively affect the market price of our common shares.

The market for securities issued by Brazilian companies is influenced, to a varying degree, by international economic and market conditions generally, especially in the United States. The prices of shares traded on the São Paulo Stock Exchange (BM&F Bovespa S.A. — Bolsa de Valores Mercadorias e Futuros), or the “BM&FBOVESPA,” have been historically affected by the fluctuation of interest rates and stock exchange indexes in the United States. Events in other countries or capital markets could have an adverse effect on the price of our shares, which could make it more difficult for us to access the capital markets and obtain financing on acceptable terms in the future, or at all.

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Fluctuations in interest rates may have an adverse effect on our business and the market prices of our common shares and the ADSs.

The Central Bank, through the Monetary Policy Committee (Comitê de Política Monetária), or the “COPOM,” establishes the Special Clearance and Escrow System rate (Sistema Especial de Liquidação e Custodia), or the “SELIC rate,” which is the basic interest rate for the Brazilian financial system by reference to the level of economic growth of the Brazilian economy, the level of inflation and other economic indicators. The SELIC rate is also an important policy instrument used by the Brazilian government to achieve inflation targets it established on June 21, 1999 (Decree No. 3,088).

As of December 31, 2011, the SELIC rate was 11%. As of December 31, 2012, the Central Bank had significantly reduced the SELIC rate to 7.25%. As of December 31, 2013, the Central Bank had increased the SELIC rate to 10%. As of December 31, 2014, the Central Bank had further increased the SELIC rate to 11.75%. As of the date of this annual report, the SELIC rate is 12.75%, its highest level since July 2011. Debts of companies in the real estate industry, including ours, are subject to the fluctuation of the SELIC rate. Should the SELIC rate continue to increase, the costs relating to the service of our debt obligations may also increase.

As of December 31, 2014, our indebtedness was denominated in reais and subject to Brazilian floating interest rates, such as the Reference Interest Rate (Taxa Referencial), or “TR,” and the Interbank Deposit Certificate Rate (Certificado de Depósito Interbancário), or “CDI rate.” Any increase in the TR rate or the CDI rate may have an adverse impact on our financial expenses, our results of operations and on the market price of our common shares or the ADSs. We are not a party to any hedging instruments with respect to our indebtedness.

Restrictions on the movement of capital out of Brazil may adversely affect your ability to receive dividends and distributions on the ADSs and on our common shares, or the proceeds of any sale of our common shares.

Brazilian law permits the Brazilian government to impose temporary restrictions on conversions of Brazilian currency into foreign currencies and on remittances to foreign investors of proceeds from their investments in Brazil whenever there is a serious imbalance in Brazil’s balance of payments or there are reasons to expect a pending serious imbalance. The Brazilian government last imposed remittance restrictions for approximately six months in 1989 and early 1990. The Brazilian government may take similar measures in the future. Any imposition of restrictions on conversions and remittances could hinder or prevent holders of our common shares or the ADSs from converting into U.S. dollars or other foreign currencies and remitting abroad dividends, distributions or the proceeds from any sale in Brazil of our common shares. Exchange controls could also prevent us from making payments on our U.S. dollar-denominated debt obligations and hinder our ability to access the international capital markets. As a result, exchange controls restrictions could reduce the market prices of our common shares and the ADSs.

Changes in tax laws may increase our tax burden and, as a result, adversely affect our profitability.

The Brazilian government regularly implements changes to tax regimes that may increase our and our customers’ tax burdens. These changes include modifications in the rate of assessments and, on occasion, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. Since April 2003, the Brazilian government has presented several tax reform proposals, which were mainly designed to simplify tax assessments, to avoid internal disputes within and between the Brazilian states and municipalities, and to redistribute tax revenues. The tax reform proposals provided for changes in the rules governing the federal Social Integration Program (Programa de Integração Social), or “PIS,” the federal Contribution for Social Security Financing (Contribuição para Financiamento da Seguridade Social), or “COFINS,” the state Tax on the Circulation of Merchandise and Services (Imposto Sobre a Circulação de Mercadorias e Serviços), or “ICMS,” and other taxes. The effects of these proposed tax reform measures and any other changes that result from enactment of additional tax reforms have not been, and cannot be, quantified. However, some of these measures, if enacted, may result in increases in our overall tax burden, which could negatively affect our overall financial performance.

Risks Relating to Our Common Shares and the ADSs

International economic and market conditions, especially in the United States, may adversely affect the market price of the ADSs.

The market for securities issued by Brazilian companies is influenced, to a varying degree, by international economic and market conditions generally. Because our ADSs are listed on the New York Stock Exchange, or the “NYSE,” adverse market conditions and economic and/or political crises, especially in the United States, such as the subprime mortgage lending crisis in 2007 and 2008 and the financial and credit crises in 2008, have at times resulted in significant negative impacts on the market price of our ADSs. Despite the fact that our clients, whether financed by us or by Brazilian banks through resources obtained in the local market, are not directly exposed to the mortgage lending crisis in the United States, there are still uncertainties as to whether such crisis may indirectly affect homebuilders worldwide. The uncertainties generated by the subprime crisis may affect the market prices of our ADSs and could also make it more difficult for us to access the capital markets and finance our operations in the future on acceptable terms or at all.

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Developments and the perception of risks in other countries, especially emerging market countries, may adversely affect the market prices of our common shares and the ADSs.

The market for securities issued by Brazilian companies is influenced, to varying degrees, by economic and market conditions in other emerging market countries, especially other Latin American countries. Although economic conditions are different in each country, the reaction of investors to developments in one country may cause the capital markets in other countries to fluctuate. Developments or adverse economic conditions in other emerging market countries have at times resulted in significant outflows of funds from, and declines in the amount of foreign currency invested in, Brazil. For example, in 2001, after a prolonged recession, followed by political instability, Argentina announced that it would no longer continue to service its public debt. The economic crisis in Argentina negatively affected investors’ perceptions of Brazilian securities for several years. Economic or political crises in Latin America or other emerging markets may significantly affect perceptions of the risk inherent in investing in the region, including Brazil.

The Brazilian economy is also affected by international economic and general market conditions, especially economic and market conditions in the United States. Share prices on the BM&FBOVESPA, for example, have historically been sensitive to fluctuations in U.S. interest rates as well as movements of the major U.S. stock indexes, particularly in the current worldwide economic downturn. Developments in other countries and securities markets could adversely affect the market prices of our common shares and the ADSs and could also make it more difficult for us to access the capital markets and finance our operations in the future on acceptable terms or at all.

The relative volatility and the lack of liquidity of the Brazilian securities market may adversely affect you.

The Brazilian securities market is substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States. This may limit your ability to sell our common shares and the common shares underlying your ADSs at the price and time at which you wish to do so. The BM&FBOVESPA, the only Brazilian stock exchange, had a market capitalization of US$844.5 billion as of December 31, 2014 and an average daily trading volume of US$3.5 billion for 2014. In comparison, the NYSE had a domestic market capitalization of US$20.2 trillion (excluding funds and non-U.S. companies) as of December 31, 2014 and an average daily trading volume of approximately US$40.5 billion for 2014.

There is also a large concentration in the Brazilian securities market. The ten largest companies in terms of market capitalization represented 50.7% of the aggregate market capitalization of the BM&FBOVESPA as of December 31, 2014. The top ten stocks in terms of trading volume accounted for 45.7% of all shares traded on the BM&FBOVESPA in 2014. Gafisa’s average daily trading volume on the BM&FBOVESPA and in the NYSE in 2014 was US$8.1 million and US$3.2 million, respectively.

Shares eligible for future sale may adversely affect the market value of our common shares and the ADSs.

Certain of our shareholders have the ability, subject to applicable Brazilian laws and regulations and applicable securities laws in the relevant jurisdictions, to sell our shares and the ADSs. We cannot predict what effect future sales of our shares or ADSs may have on the market price of our shares or the ADSs. Future sales of substantial amounts of such shares or the ADSs, or the perception that such sales could occur, could adversely affect the market prices of our shares or the ADSs.

The economic value of your investment in our company may be diluted.

We may need additional funds in the future, in order to expand more rapidly, develop new markets, respond to competitive pressures or make acquisitions. Any necessary additional financing may not be available on terms favorable to us. If adequate funds are not available on acceptable terms, we may be unable to meet our business or strategic objectives or compete effectively. If additional funds are raised by our issuing new equity securities existing shareholders may be diluted. See “Item 4. Information on the Company—A. History and Development of the Company.”

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Holders of our common shares or the ADSs may not receive any dividends or interest on shareholders’ equity.

According to our bylaws, we must generally pay our shareholders at least 25% of our annual net profit as dividends or interest on shareholders’ equity, as calculated and adjusted under the Brazilian corporate law method. This adjusted net profit may be used to absorb losses or for the payment of statutory participation on profits to debenture holders, employees or members of our management, which would ultimately reduce the amount available to be paid as dividends or interest on shareholders’ equity. Additionally, the Brazilian corporate law allows a publicly traded company like us to suspend the mandatory distribution of dividends in any particular year if our board of directors informs our shareholders that such distributions would be inadvisable in view of our financial condition or cash availability. For 2003, 2004 and 2005, we did not distribute dividends. We distributed dividends in each of 2007, 2008, 2009 and 2010 with respect to the prior respective fiscal year. Based on the negative results of the fiscal year 2012, on April 19, 2013, our shareholders did not approve any distribution of dividends. On December 20, 2013, with the completion of the sale of the Alphaville interest, as fully detailed in item “4. Information on the Company—A. History and Development of the Company”, our board of directors approved the payment of interest on equity in the amount of R$130.2 million, representing R$0.31112217224 per share. Such payment was effective February 12, 2014. On April 25, 2014, our shareholders approved a distribution of dividends in the amount of R$32.9 million, representing R$0.082486835998 per share. Based on the negative results of the fiscal year 2014, our shareholders did not approve any distribution of dividends at the shareholders meeting held on April 16, 2015. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy.”

Holders of ADSs may find it difficult to exercise voting rights at our shareholders’ meetings.

Holders of ADSs may exercise voting rights with respect to our common shares represented by ADSs only in accordance with the terms of the deposit agreement governing the ADSs. Holders of ADSs will face practical limitations in exercising their voting rights because of the additional steps involved in our communications with ADS holders. For example, we are required to publish a notice of our shareholders’ meetings in specified newspapers in Brazil. Holders of our common shares will be able to exercise their voting rights by attending a shareholders’ meeting in person or voting by proxy. By contrast, holders of ADSs will receive notice of a shareholders’ meeting from the ADR depositary following our notice to the depositary requesting the depositary to do so. To exercise their voting rights, holders of ADSs must instruct the ADR depositary on a timely basis. This voting process necessarily will take longer for holders of ADSs than for holders of our common shares. Common shares represented by ADSs for which no timely voting instructions are received by the ADR depositary from the holders of ADSs shall not be voted.

Holders of ADSs also may not receive the voting materials in time to instruct the depositary to vote the common shares underlying their ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions of the holders of ADSs or for the manner of carrying out those voting instructions. Accordingly, holders of ADSs may not be able to exercise voting rights, and they will have little, if any, recourse if the common shares underlying their ADSs are not voted as requested.

No single shareholder or group of shareholders holds more than 50% of our capital stock, which may increase the opportunity for alliances between shareholders as well as conflicts between them.

No single shareholder or group of shareholders holds more than 50% of our capital stock. There is no guidance in Brazilian corporate law for publicly-held companies without an identified controlling shareholder. Due to the absence of a controlling shareholder, we may be subject to future alliances or agreements between our shareholders, which may result in the exercise of a controlling power over our company by them. In the event a controlling group is formed and decides to exercise its controlling power over our company, we may be subject to unexpected changes in our corporate governance and strategies, including the replacement of key executive officers. Additionally, we may be more vulnerable to a hostile takeover bid. The absence of a controlling group may also jeopardize our decision-making process as the minimum quorum required by law for certain decisions by shareholders may not be reached and, as a result, we cannot guarantee that our business plan will be affected. Any unexpected change in our management team, business policy or strategy, any dispute between our shareholders, or any attempt to acquire control of our company may have an adverse impact on our business and result of operations.

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Holders of ADSs will not be able to enforce the rights of shareholders under our bylaws and Brazilian corporate law and may face difficulties in protecting their interests because we are subject to different corporate rules and regulations as a Brazilian company.

Holders of ADSs are not direct shareholders of our company and are unable to enforce the rights of shareholders under our bylaws and Brazilian corporate law.

Our corporate affairs are governed by our bylaws and Brazilian corporate law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as the State of Delaware or New York, or elsewhere outside Brazil. Although insider trading and price manipulation are crimes under Brazilian law, the Brazilian securities markets are not as highly regulated and supervised as the U.S. securities markets or the markets in some other jurisdictions. In addition, rules and policies against self-dealing or for preserving shareholder interests may be less well-defined and enforced in Brazil than in the United States and certain other countries, which may put holders of the ADSs at a potential disadvantage. Corporate disclosures also may be less complete or informative than for a public company in the United States or in certain other countries.

Holders of ADSs may face difficulties in serving process on or enforcing judgments against us and other persons.

We are a corporation organized under the laws of Brazil, and all of our directors and executive officers and our independent public accountants reside or are based in Brazil. Most of the assets of our company and of these other persons are located in Brazil. As a result, it may not be possible for holders of ADSs to effect service of process upon us or these other persons within the United States or other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United States or other jurisdictions outside Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may be enforced in Brazil only if certain conditions are met, holders may face greater difficulties in protecting their interests in the case of actions by us or our directors or executive officers than would shareholders of a U.S. corporation.

Changes in Brazilian tax laws may have an adverse impact on the taxes applicable to a disposition of the ADSs.

According to Law No. 10,833 of December 29, 2003, the disposition of assets located in Brazil by a non-resident to either a Brazilian resident or a non-resident is subject to taxation in Brazil, regardless of whether the disposition occurs outside or within Brazil. Thus, gains arising from a disposition of our common shares by a non-resident of Brazil to another non-resident of Brazil are subject to income tax.

Our interpretation of Law No. 10,833 is that ADSs should not be regarded as assets located in Brazil. Accordingly, the disposition of our ADSs by a non-resident to either a Brazilian resident or a non-resident should not be subject to taxation in Brazil. However, in the event that a disposition of our ADSs is considered a disposition of assets located in Brazil, this tax law could result in the imposition of withholding taxes on the disposition of our ADSs by a non-resident of Brazil. We are not aware of precedents on the application of Law No. 10,833 to ADSs and, accordingly, we are unable to predict whether Brazilian courts would apply it to a disposition of our ADSs by a non-resident of Brazil. See “Item 10. Additional Information—E. Taxation—Brazilian Tax Considerations—Gains.”

Any gain or loss recognized by a U.S. Holder (as defined in “Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations”) would be treated as U.S. source gain or loss for all foreign tax credit purposes. U.S. Holders should consult their tax advisers as to whether the Brazilian tax on gain would be creditable against the holder’s U.S. federal income tax on foreign-source income from other sources.

Judgments of Brazilian courts with respect to our common shares will be payable only in reais.

If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of the common shares, we will not be required to discharge our obligations in a currency other than reais. Under Brazilian exchange control limitations, an obligation in Brazil to pay amounts denominated in a currency other than reais may be satisfied in Brazilian currency only at the exchange rate, as determined by the Central Bank, in effect on the date of payment. The exchange rate may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under our common shares or the ADSs.

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Holders of ADSs may be unable to exercise preemptive rights with respect to our common shares underlying the ADSs.

Holders of ADSs will be unable to exercise the preemptive rights relating to our common shares underlying ADSs unless a registration statement under the U.S. Securities Act of 1933, as amended, or the “Securities Act,” is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights or to take any other action to make preemptive rights available to holders of ADSs. We may decide, in our discretion, not to file any such registration statement. If we do not file a registration statement or if we, after consultation with the ADR depositary, decide not to make preemptive rights available to holders of ADSs, those holders may receive only the net proceeds from the sale of their preemptive rights by the depositary, or if they are not sold, their preemptive rights will be allowed to lapse.

An exchange of ADSs for common shares risks loss of certain foreign currency remittance and Brazilian tax advantages.

The ADSs benefit from the certificate of foreign capital registration, which permits Citibank N.A., as depositary, to convert dividends and other distributions with respect to our common shares into foreign currency, and to remit the proceeds abroad. Holders of ADSs who exchange their ADSs for common shares will then be entitled to rely on the depositary’s certificate of foreign capital registration for five business days from the date of exchange. Thereafter, they will not be able to remit the proceeds abroad unless they obtain their own certificate of foreign capital registration under the terms of Law No. 4,131/62, or unless they qualify under Resolution CMN 4,373, which superseded Resolution CMN No. 2,689, which entitles certain investors to buy and sell shares on Brazilian stock exchanges or organized over-the-counter market and benefit from the certificate of foreign capital registration managed by their authorized representatives in Brazil. See “Item 9. The Offering and Listing—C. Markets—Investment in Our Common Shares by Non-Residents of Brazil.”

If holders of ADSs do not qualify under Resolution CMN 4,373, they will generally be subject to less favorable tax treatment on distributions with respect to our common shares. There can be no assurance that the depositary’s certificate of registration or any certificate of foreign capital registration obtained by holders of ADSs will not be affected by future legislative or regulatory changes, or that additional Brazilian law restrictions applicable to their investment in the ADSs may not be imposed in the future.

A portion of the compensation of our officers and members of the senior management is paid in form of stock options, which could tie their interest to the market price of our shares and ADSs.

We have established stock option plans for our officers and members of our senior management. Potential benefits under the stock option plans are tied to the appreciation of the market price of our shares and ADSs.

As a result, our compensation policy may influence our officers and members of the senior management and their interest to the market price of our shares and ADSs, which may conflict with the interests of our shareholders. Our officers and members of the senior management may be influenced to focus on short-term rather than long-term results because a significant portion of their compensation is tied to our results and the market price of our shares and ADSs. See “Item 6. Directors, Senior Management and Employees—E. Share Ownership—Stock Option Plans” in this annual report.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

General

Gafisa S.A. is a corporation organized under the laws of Brazil. We were incorporated on November 12, 1996 for an indefinite term. Our registered and principal executive offices are located at Av. Nações Unidas No. 8.501, 19th floor, 05425-070, São Paulo, SP, Brazil, and our general telephone and fax numbers are + 55 (11) 3025-9000 and + 55 (11) 3025-9242, respectively.

We are a leading diversified national homebuilder serving all demographic segments of the Brazilian market. Established over 60 years ago, we have completed and sold more than 1,100 developments and constructed over 12 million square meters of housing under the Gafisa brand, which we believe is more than any other homebuilder in Brazil. Recognized as one of the foremost professionally-managed homebuilders, we are also one of the best-known brands in the real estate development market, enjoying a reputation among potential homebuyers, brokers, lenders, landowners, and competitors for quality, consistency and professionalism. Our brands include Tenda, which serves the affordable entry-level housing segments, Gafisa, which offers a variety of residential options to the mid to higher income segments and Alphaville (equity method investment), which focuses on the identification, development and sale of high quality residential communities. In addition, we provide construction services to third parties.

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In addition, we provide construction services to third parties. For the year ended December 31, 2014, approximately 37% of the value of our launches was derived from Tenda, our affordable entry-level housing brand.

We currently operate in several cities, including São Paulo, Rio de Janeiro, Salvador, Fortaleza, Natal, Curitiba, Belo Horizonte, Manaus, Porto Alegre and Belém. Many of these developments are located in markets where few large competitors currently operate. For the year ended December 31, 2014, approximately 20% of the value of our launches was derived from our operations outside the states of São Paulo and Rio de Janeiro and from developments related to the “Minha Casa Minha Vida” program under the Tenda brand.

In the fourth quarter of 2011, we conducted an extensive review of our operations and the operations of our subsidiaries, and our combined business strategy. As a result of this review, the following changes were made: temporary reductions of the activities of the Tenda segment, increase in investments in the Alphaville segment and focus the Gafisa segment on the markets of Sao Paulo and Rio de Janeiro.

The closing of 2013 marked the completion of Gafisa’s strategic repositioning, which commenced in early 2012. Our goal at the time was clear: we needed to reduce the level of debt and restrict the Company's exposure to unprofitable businesses and markets. This process evolved positively throughout the last two years in several fronts - including improvement in margins and cash generation, and culminated with the sale of a 70% interest in Alphaville, which unlocked significant value and contributed to a reduction in the Company's leverage, adjusting its capital structure. At the end of 2013 we finalized the development of our five-year business plan for the period from 2014 to 2018. During the planning process, we set guidelines for the development of our business for the upcoming years, including the expected size of Gafisa and Tenda operations, appropriate leverage, profitability guidelines, and more importantly, our commitment to capital discipline and shareholder value generation, which are reflected in the guidance released to the market at the end of 2013. Gafisa S.A. completed the sale of a majority interest in Alphaville Urbanismo S.A. (“Alphaville”), the leading residential community development company in Brazil, to Private Equity AE Investimentos e Participações (“Fundo AE”), which has as shareholders Pátria Investimentos and Blackstone Real Estate Advisor, which was announced on June 7, 2013. The transaction values Alphaville at an equity value of R$2.0 billion. The cash sale to Pátria and Blackstone resulted in Fundo AE owning 70% of Alphaville, with Gafisa retaining the remaining 30%. All precedent conditions were met including governmental approval, to the completion of the transaction. The transaction was concluded on December 9, 2013, with a sale of a 50% interest by Gafisa and a 20% interest by Construtora Tenda S.A. (“Tenda”), with Gafisa retaining the remaining 30% of Alphaville capital stock. Following this transaction and since December 2013, Alphaville is no longer consolidated in the financial statements of the Company.

The Company´s results of operations reflect the results of operations of Alphaville for the period January 1 to November, 30 2013 which are presented in the line item “Results from discontinued operations”.

For the year ended December 31, 2013, the Company held two business combination transactions, as follows:

On February 27, 2013, the Company implemented a business combination through an asset swap in which the Company swapped its 50% interest in the jointly-controlled entity SPE Reserva Ecoville in exchange for a 50% controlling interest in SPE Parque Ecoville at a R$59.9 million fair value. As a result, we recorded an adjustment to inventory of R$22.6 million.

On September 12, 2013, the company implemented a business combination through which it obtained control of Manhattan Square Empreendimentos Imobiliarios Comercial 02 (“MC 02”) and Manhattan Square Empreendimentos Imobiliarios Residencial 02 (“MR 02”). These two entities were previously jointly controlled and the Company held a 50% interest in both entities. As a result of this acquisition, the company now holds a 100% interest. The combined purchase price was R$64.7 million and was paid on September 12, 2013. As a result of this transaction, the Company allocated the amount of R$62.3 million recorded as fair value adjustment to inventory.

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On February 2, 2014, Gafisa’s board of directors authorized management to initiate studies for a potential spin-off of Gafisa and Tenda business units into two independent publicly traded companies. Our management initiated the studies in the first quarter of 2014. As part of the studies, we (i) separated several joint departments of Gafisa and Tenda, including, among others, the services, personnel and management department and the legal department, (ii) converted Tenda’s issuer registration with the CVM from category B to category A, (iii) entered into negotiations with several banks and insurance companies to open lines of credit for Tenda that are independent of Gafisa, and (iv) reviewed our contracts with our third party counterparties and evaluated the potential impact of a spin-off on those contracts. In parallel, we continue to assess separation alternatives for the Gafisa and Tenda business units.

During 2014, we revised our 2014 launch guidance for the Gafisa segment as a result of weakening economic conditions in Brazil. This revision in the projected volume of launches affected guidance for the Administrative Expenses to Launch Volumes ratio for the Gafisa segment, as well as projected consolidated launches.

Our common shares are listed on the BM&FBOVESPA under the symbol “GFSA3” and the ADSs are listed on the NYSE under the symbol “GFA.”

Our agent for service of process in the United States is National Corporate Research, Ltd. located at 10 East 40th Street, 10th floor, New York, NY 10016.

Historical Background and Recent Developments

Gomes de Almeida Fernandes Ltda., or “GAF,” was established in 1954 in the city of Rio de Janeiro with operations in the real estate markets in the cities of Rio de Janeiro and São Paulo. In December 1997, GP Investimentos S.A. and its affiliates, or “GP,” entered into a partnership with the shareholders of GAF to create Gafisa S.A. In 2004, as a result of a corporate restructuring, GP assumed a controlling position in our company. In 2005, an affiliate of Equity International Management, LLC, or “Equity International,” acquired approximately 32% of our company through a capital contribution. In February 2006, we concluded our initial public offering in Brazil, resulting in a public float of approximately 47% of our total share capital at the conclusion of the offering.

In September 2006, we created Gafisa Vendas Intermediação Imobiliária Ltda., or “Gafisa Vendas,” to function as our internal sales division in the state of São Paulo and in February 2007, we created a branch of Gafisa Vendas in Rio de Janeiro, or “Gafisa Vendas Rio,” to function as our internal sales division in the metropolitan region of Rio de Janeiro.

In October 2006, we entered into an agreement with Alphaville Participações S.A. to acquire 100% of Alphaville, one of the largest residential community development companies in Brazil in terms of units and square meters, focused on the identification, development and sale of high quality residential communities in the metropolitan regions throughout Brazil targeted at upper and upper-middle income families. On January 8, 2007, we successfully completed the acquisition of 60% of Alphaville’s shares for R$198.4 million, of which R$20 million was paid in cash and the remaining R$178.4 million was paid in exchange for R$6.4 million common shares of Gafisa. On May 27, 2010, the shareholders of Gafisa approved the acquisition of 20% of Alphaville’s shares for the total amount of R$126.5 million, through the merger of Shertis Empreendimentos e Participações S.A. or “Shertis”, which main asset were 20% of Alphaville’s shares. As a consequence of such merger, Gafisa issued 9,797,792 common shares, paid to the former shareholders of Shertis.

On March 17, 2007, we concluded our initial public offering of common shares in the United States, resulting in a public float of 78.6% of our total share capital at the conclusion of the offering. Upon completion of the offering, entities related to Equity International and GP controlled 14.2% and 7.3% of our total capital stock, respectively. In June 2007, Brazil Development Equity Investments, LLC, a company affiliated with GP, sold its remaining interest in our company (7.1% of our capital stock at the time).

On March 15, 2007, we created a new wholly-owned subsidiary, Fit Residencial Empreendimentos Imobiliários Ltda., or “FIT,” for the development, construction and management of lower and lower-middle income residential projects. On October 21, 2008, Gafisa and Tenda concluded a business combination in which FIT was merged into Tenda. The purpose of the merger was to consolidate the activities of FIT and Tenda in the lower-income segment in Brazil focused on developing real estate units with an average price of less than R$200.0 thousand. As a result of the business combination, Gafisa became the owner of 60.0% of the total and voting capital stock of Tenda. On December 30, 2009, the shareholders of Gafisa and Tenda approved a corporate restructuring to consolidate Gafisa’s non-controlling share ownership in Tenda. The restructuring was accomplished by exchanging all of the remaining Tenda shares not held by Gafisa into Gafisa shares. As a result of the restructuring, Tenda became a wholly-owned subsidiary of Gafisa. On October 26, 2007, Gafisa acquired 70% of Cipesa Empreendimentos Imobiliários S.A., a leading homebuilder in the State of Alagoas at the time.

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On October 1, 2010, Equity International sold its remaining interest in our company. As of December 31, 2013, Fundação dos Economiarios Federais (“FUNCEF”), Polo and Skagen, were the shareholders holding more than 5.0% of our shares.

On June 8, 2012, according to the material fact then disclosed, the third phase of the Investment Agreement and Other Covenants entered into on October 2, 2006 (“Investment Agreement”), established the rules and conditions for Gafisa related to the acquisition of the remaining 20% interest in the capital stock of Alphaville not held by the Company. While the valuation of the capital stock has been agreed by both parties, the number of shares that shall be issued by the Company to settle this transaction is being decided in arbitration proceedings initiated by the minority shareholders of Alphaville, according to the material fact we released on July 3, 2012. There is an embedded derivative component to the Investment Agreement, relating to the Company’s obligation to purchase the Alphaville shares held by the non-controlling interest. As the fair value of this embedded derivative for all reporting periods has no significant value, since the future settlement of the derivative will be based on the fair value of Alphaville’s capital stock, no derivative asset or liability has been recorded. The future settlement to be made in cash or shares represented an amount of R$359.0 million as at December 31, 2012 and 2011. If 70,251,551 common shares of Gafisa are issued to the other shareholders of Alphaville, these shareholders will receive 13.96% of Gafisa’s total capital stock. On June 7, 2013, according to the material fact then disclosed, Gafisa entered into an agreement to sell a 70% interest in Alphaville to Blackstone and Patria and also agreed to complete the purchase of the outstanding 20% interest in Alphaville, finalizing the arbitration process.

On July 3, 2013, Gafisa completed the purchase of the outstanding 20% interest in Alphaville, belonging to Alphapar, resulting in the Company holding 100% of Alphaville’s capital stock. This transaction resulted in a temporary increase in the Company’s leverage to 126% (Net Debt/Equity) and it was financed partially through Company’ cash in addition to funding of R$250 million in June. The total disbursement was made in July in the amount of R$366.6 million.

On December 9, 2013, Gafisa announced the completion of the agreement to sell a 70% interest in Alphaville to private equity firms Blackstone and Pátria. Gafisa retained a 30% interest. The sale valued Alphaville at R$2.0 billion. The proceeds from the transaction totaled R$1.54 billion, of which R$1.25 billion was received through the sale of shares, and R$290 million was received as a dividend distributed by Alphaville.

Capital Expenditures

In 2012, we invested R$97.0 million in machinery and equipment, information technology equipment, software, project planning and information technology projects. Our main investments during the period were related to software and hardware acquisitions, which amounted to R$30.7 million and R$2.6 million, respectively.

In 2013, we invested R$81.0 million in machinery and equipment, information technology equipment, software, project planning and information technology projects. Our main investments during the period were related to software and hardware acquisitions, which amounted to R$34.1 million and R$9.8 million, respectively.

In 2014, we invested R$88.5 million in machinery and equipment, information technology equipment, software, project planning and information technology projects. Our main investments during the period were related to sales stands and software acquisitions, which amounted to R$19.3 million and R$10.9 million, respectively.

Our capital expenditures are all made in Brazil and are usually funded by financings through local debt capital markets. We currently do not have any significant capital expenditures in progress.

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B. Business Overview

General Overview

We believe we are one of Brazil’s leading homebuilders. For over more than 50 years, Gafisa has been recognized as one of the foremost professionally-managed homebuilders, having completed and sold more than 1,100 developments and constructed over 12 million square meters of housing, which we believe is more than any other residential development company in Brazil. We believe our brands “Gafisa,” “and “Tenda” are well-known brands in the Brazilian real estate development market, enjoying a reputation among potential homebuyers, brokers, lenders, landowners and competitors for quality, consistency and professionalism.

Our core business is the development of high-quality residential units in attractive locations. For the year ended December 31, 2014, 100% of the value of our launches was derived from high and mid high-level residential developments under the Gafisa brand. In addition, we provide construction services to third parties. For the year ended December 31, 2014, approximately 37% of the value of our consolidated launches was derived from the Tenda brand, our affordable entry-level housing brand. We are currently operating in several cities, including São Paulo, Rio de Janeiro, Salvador, Fortaleza, Natal, Curitiba, Belo Horizonte, Manaus, Porto Alegre and Belém which represents approximately 16.8% of the national population and approximately 24.0% of the gross domestic product as of December 31, 2014. Many of these developments are located in markets where few large competitors currently operate. For the year ended December 31, 2014, approximately 20% of our launches were derived from our operations outside the states of São Paulo and Rio de Janeiro and from developments related to the “Minha Casa Minha Vida” program under the Tenda brand.

Our Markets

We are present in 113 municipalities throughout Brazil, including Abatia, Águas Lindas de Goias, Ananindeua, Anápolis, Aparecida de Goiânia, Aracajú, Barbacena, Barra dos Coqueiros, Barreiro, Barueri, Belém, Belford Roxo, Belo Horizonte, Betim, Brasília, Cabo Frio, Cachoeirinha, Cajamar, Camaçari, Campinas, Campo Grande, Campos dos Goytacazes, Canoas, Caruaru, Caxias, Contagem, Cotia, Cuiabá, Curitiba, Diadema, Duque de Caxias, Eusébio, Estrada do Coco, Feira de Santana, Ferraz de Vasconcelos, Fortaleza, Foz do Iguaçu, Goiânia, Governador Valadares, Gramado, Gravataí, Guarujá, Guarulhos, Iguaraçu, Itaboraí, Itanhaém, Itapevi, Itaquaquecetuba, Itu, Jaboatão dos Guararapes, Jandira, Jardim Primavera, João Pessoa, Juiz de Fora, Jundiaí, Lauro de Freitas, Londrina, Macaé, Maceió, Manaus, Maricá, Mauá, Mirante Campina Grande, Mogi das Cruzes, Montes Claros, Mossoró, Natal, Niterói, Nova Iguaçu, Nova Lima, Novo Gama, Novo Hamburgo, Osasco, Paço do Lumiar, Parnamirim, Petrolina, Pinhais, Piracicaba, Poá, Porto Alegre, Porto Velho, Recife, Resende, Ribeirão das Neves, Ribeirão Preto, Rio das Ostras, Rio de Janeiro, Salvador, Samambaia, Santa Luzia, Santana de Parnaiba, Santo André, Santos, São Bernardo do Campo, São Caetano do Sul, São Gonçalo, São José dos Campos, São Leopoldo, São Luis, São Paulo, São Vicente, Sapucaia do Sul, Serra, Sete Lagoas, Sorocaba, Suzano, Taboão da Serra, Teresina, Valência, Valparaíso, Vespasiano, Vitória da Conquista and Volta Redonda.

Our Real Estate Activities

Our real estate business includes the following activities:

developments for sale of;

residential units;

land subdivisions (also known as residential communities);

commercial buildings;

construction services to third parties; and

sale of units through our brokerage subsidiaries, Gafisa Vendas and Gafisa Vendas Rio, jointly referred to as “Gafisa Vendas.”

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The table below sets forth our potential sales value, generated from new developments for each of our real estate activities and as a percentage of total real estate amount generated during the periods presented:

	For year ended December 31,
	2014				2013				2012
	(in thousands of reais)		(% of total)		(in thousands of reais)		(% of total)		(in thousands of reais)		(% of total)

Residential buildings		1,636,311		100.0		1,292,271		44.8		1,314,041		44.5
Land subdivisions(1)		—		N/A		1,462,087		50.6		1,343,313		45.5
Commercial		—		N/A		131,846		4.6		294,607		10.0
Potential sales		1,636,311		100.0		2,886,204		100.0		2,951,961		100.0

(1)	This information is presented for comparison purposes and for the years ended December 31, 2013 and 2012 only, as we sold our controlling interest in Alphaville on December 9, 2013 and currently hold a 30% non-controlling interest in Alphaville.

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The table below sets forth our actual sales value from new developments generated for each of our real estate activities and as a percentage of total real estate amount generated during the periods presented:

	For year ended December 31,
	2014				2013				2012
	(in thousands of reais)		(% of total)		(in thousands of reais)		(% of total)		(in thousands of reais)		(% of total)

Residential buildings		519,210		100.0		603,809		40.2		753,733		43.7
Land subdivisions(1)		N/A		N/A		857,330		57.0		894,176		51.9
Commercial		N/A		N/A		41,728		2.8		75,976		4.4
Actual sales		519,210		100.0		1,502,867		100.0		1,723,885		100.0

(1)	This information is presented for comparison purposes and for the years ended December 31, 2013 and 2012 only, as we sold our controlling interest in Alphaville on December 9, 2013 and currently hold a 30% non-controlling interest in Alphaville.

Developments for Sale

The table below provides information on our developments for sale activities during the periods presented:

	As of and for the year ended December 31,
	2014		2013		2012 (8)
	(in thousands of reais, unless otherwise stated)
São Paulo
Potential sales value of units launched(1)		770,269		1,054,359		1,338,281
Developments launched(2)		7		10		13
Usable area (m2)(3)		107,156		154,959		203,636
Units launched(4)		1,474		1,935		2,361
Average sales price (R$/m2)(3) (5)		7,188		6,804		6,572
Rio de Janeiro
Potential sales value of units launched(1)		252,742		30,982		270,367
Developments launched(2)		2		1		2
Usable area (m2)(3)		27,827		4,101		33,987
Units launched(4)		315		63		260
Average sales price (R$/m2)(3)(5)		9,083		7,554		7,955
Other States(6)
Potential sales value of units launched(1)		—		—		—
Developments launched(2)		—		—		—
Usable area (m2)(3)		—		—		—
Units launched(4)		—		—		—
Average sales price (R$/m2)(3)(5)		—		—		—
Total Gafisa
Potential sales value of units launched(1)		1,023,012		1,085,341		1,608,648
Developments launched(2)		9		11		15
Usable area (m2)(3)		134,983		159,060		237,624
Units launched(4)		1,789		1,998		2,621
Average sales price (R$/m2)(3)(5)		7,579		6,820		6,770
Alphaville (7)
Potential sales value of units launched(1)		—		1,462,087		1,343,313
Developments launched(2)		—		18		20
Usable area (m2)(3)		—		2,620,224		2,915,627
Units launched(4)		—		6,414		6,326
Average sales price (R$/m2)(3)(5)		—		558		460
Tenda
Potential sales value of units launched(1)		613,299		338,776		—
Developments launched(2)		14		8		—
Usable area (m2)(3)		191,438		114,197		—
Units launched(4)		4,315		2,660		—
Average sales price (R$/m2)(3)(5)		3,203		2,996		—

(1)	Potential sales value is calculated by multiplying the number of units in a development by the expected sales price of the unit.

(2)	Does not consider acquisitions of additional ownership interests in projects or cancelled projects.

(3)	One square meter is equal to approximately 10.76 square feet. For Gafisa, it includes the usable area of the projects acquired in 2010, Anauá and Igloo Alphaville.

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(4)	The units delivered in exchange for land pursuant to barter transactions are not included.

(5)

Average sales price per square meter was R$7,579, R$6,820 and R$6,770 in 2014, 2013 and 2012, respectively, for Gafisa’s ventures only, and R$558 and R$460 in 2013 and 2012, respectively, for Alphaville ventures. Average sales price per square meter was R$916 and R$936 in 2013 and 2012, respectively, for the combined ventures of Gafisa and Alphaville.

(6)	In 2011, Gafisa launched one project outside São Paulo and Rio de Janeiro and cancelled another which had higher potential sales value, usable area and number of units than the new launch.

(7)	This information is presented for comparison purposes and for the years ended December 31, 2013 and 2012 only, as we sold our controlling interest in Alphaville on December 9, 2013 and currently hold a 30% non-controlling interest in Alphaville.

(8)	Operating information has not been restated to reflect the consolidation method in jointly-controlled investees pursuant to CPCs 19 (R2) (or IFRS 11) and 36 (R3).

Our developments for sale are divided into three broad categories: (1) residential buildings, (2) land subdivisions, and (3) commercial buildings.

Overview of Residential Buildings

In the residential buildings category, we develop three main types of products: (1) luxury buildings targeted at upper-income customers; (2) buildings targeted at middle-income customers; and (3) affordable entry-level housing targeted at lower-income customers. Quality residential buildings for middle- and upper-income customers are our core products and we have developed them since our inception. A significant portion of our residential developments is located in São Paulo and Rio de Janeiro where we have held a leading position over the past five years based upon area of total construction. In 2006, we began our national expansion to pursue opportunities in residential buildings outside these cities. However in 2012, as a result of the difficulties to manage these projects and to achieve reasonable profits, we focused our efforts back to São Paulo and Rio de Janeiro

Luxury Buildings

Luxury buildings are a high margin niche. Units usually have over 180 square meters of private area, at least four bedrooms and three parking spaces. Typically, this product is fitted with modern, top-quality materials designed by brand-name manufacturers. The development usually includes swimming pools, gyms, visitor parking, and other amenities. Average price per square meter generally is higher than approximately R$8,000. Luxury building developments are targeted to families with monthly household incomes in excess of approximately R$30,000.

The table below sets forth our luxury building developments launched between January 1, 2012 and December 31, 2014:

Project Description	Year Launched	Gafisa Participation (%)		Usable Area (m2) (1) (2)		Completion Year		Number of Units (2)		Units Sold (%) (As of December 31, 2014)
Delux	2013		100		9,751		2016		44		54	%
Follow	2013		100		15,800		2016		240		73	%
Duquesa-Lorian Qd2B	2012		100		34,429		2015		130		90	%
Like Brooklin	2012		100		13,298		2015		146		100	%
ECLAT (Ferreira de Araujo)	2012		100		13,017		2015		49		86	%
Energy	2012		100		9,666		2015		156		99	%
Scena Laguna	2012		80		13,728		2015		62.5		57	%
Like Saúde	2012		100		14,850		2015		144		70	%
Scena Santana	2012		100		17,548		2015		76		60	%
Alpha Land	2012		100		23,005		2015		210		63	%

(1)	One square meter is equal to approximately 10.76 square feet.

(2)	Values for 100% of the building development, except on projects with partial interest.

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Middle Income Buildings

Buildings targeted at middle-income customers have accounted for the majority of our sales since our inception. Units usually have between 90 and 180 square meters of private area, three or four bedrooms and two to three underground parking spaces. Buildings are usually developed in large tracts of land as part of multi-building developments and, to a lesser extent, in smaller lots in attractive neighborhoods. Average price per square meter ranges from approximately R$4,500 to R$8,000. Developments in Rio de Janeiro tend to be larger due to the large tracts of land available in Barra da Tijuca. Middle-income building developments are tailored to customers with monthly household incomes between approximately R$10,000 and R$30,000.

The table below sets forth our middle-income building developments launched between January 1, 2012 and December 31, 2014:

Project Description	Year Launched	Gafisa Participation (%)		Usable Area (m2) (1) (2)		Completion Year		Number of Units (2)		Units Sold (%) (As of December 31, 2014)
Hi Centro	2014		100		15,343		2016		271		27%
Alphagreen	2014		100		18,170		2016		207		29%
D.O.C. Quatá	2014		100		4,437		2016		78		26%
Lorian Qd3B	2014		100		27,276		2017		271		56%
Itaboraí	2014		100		7,725		2016		80		35%
Today Modern Residences	2014		100		9,657		2017		108		16%
Guacá	2014		100		9,702		2017		182		17%
SCS Cerâmica QI Fase 1 (Home)	2014		100		28,794		2017		256		37%
Eiras Garcia	2014		100		23,878		2017		336		39%
Today Santana	2013		100		11,290		2015		165		36%
Go Maracá	2013		100		11,274		2016		129		48%
Axis	2013		100		12,616		2016		215		30%
Easy Tatuapé	2013		100		9,142		2017		144		63%
Laguna Mall	2013		100		4,161		2015		63		76%
Square Santo Amaro	2013		100		27,330		2016		362		57%
Wide Cambuí	2013		100		19,833		2016		244		31%
EQ Jardim Prudência	2013		100		10,525		2016		97		35%
Square Osasco	2013		100		27,397		2017		295		87%
Maraville (Ana Maria Lote A)	2012		100		16,956		2015		280		100%
Colorato	2012		100		19,731		2015		192		100%
Mistral	2012		100		6,837		2014		112		87%
Smart Santana	2012		100		7,619		2015		84		87%
Easy Maracá	2012		100		17,113		2015		147		100%

(1)	One square meter is equal to approximately 10.76 square feet.

(2)	Values for 100% of the building development, except on projects with partial interest.

Affordable Entry-Level Developments

Affordable entry-level housing consists of building and house units. Units usually have between 42 to 60 square meters of indoor private area and two to three bedrooms. Average price per square meter ranges from approximately R$2,400 to R$4,500. Affordable entry-level housing developments are tailored to families with monthly household incomes between approximately R$1,600 and R$5,000.

As part of our strategy of expanding our foothold in the affordable entry-level residential market, on March 15, 2007 we incorporated a wholly-owned subsidiary, FIT, to focus exclusively on this market. The principal emphasis of FIT was on five standardized residential developments in the peripheries of large metropolitan regions. Financing for FIT’s developments primarily came from the CEF, and such financing was structured so that customers paid low monthly installments without increasing our credit risk.

On October 21, 2008, Gafisa and Tenda concluded a business combination in which Gafisa’s wholly-owned subsidiary FIT was merged into Tenda. The purpose of the merger was to consolidate the activities of FIT and Tenda in the lower-income sector in Brazil and to develop real estate units with an average value of less than R$200,000. As a result of the business combination, Gafisa received 60.0% of the total and voting capital stock of Tenda and FIT was merged into Tenda. Because Tenda launched very few units in 2008, we believe the full impact of the merger was not reflected in Gafisa’s results of operations until 2009.

On December 30, 2009, the shareholders of Gafisa and Tenda approved a corporate restructuring to consolidate Gafisa’s non-controlling share ownership in Tenda. The restructuring was accomplished by exchanging all of the remaining Tenda shares not held by Gafisa into Gafisa shares. As a result of the restructuring, Tenda became a wholly-owned subsidiary of Gafisa.

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As a result of Tenda’s and Gafisa’s underperformance in 2011 due to high cost overruns and customer dissolutions, our management and the board of directors have undertaken widespread structural and operational changes to avert future losses and strains on the business. Tenda is now operating under a new strategy whereby pre-sales recognition and the remuneration of the sales force is based on the ability to immediately pass mortgages on to financial institutions and the number of third party construction partners has been reduced to a group that has been thoroughly vetted for quality and sustainability. The strategy also consists of a reduction in the number of launches, and in 2012, we suspended the launch of additional Tenda units. Moreover, our management has decided to focus its low- to middle-income businesses in São Paulo, Rio de Janeiro, Minas Gerais and Bahia, where it has historically, had a better supply chain structure and stronger customer demand. As part of our new organizational strategy to manage further risks, our management has assigned a chief executive for each segment pursuant to which, our former CFO, Rodrigo Osmo assumed the position as Tenda CEO during the second half of 2011.

The table below sets forth our affordable entry-level housing developments launched by us between January 1, 2012 and December 31, 2014:

Project Description	Year Launched	Gafisa Participation (%)		Usable Area (m2) (1) (2)		Completion Year		Number of Units (2)		Units Sold (%) (As of December 31, 2014)
Parque Das Flores Guaianazes	2014		100		4,437		2015		100		92.0%
Parque Rio Maravilha	2014		100		19,521		2015		440		45.9%
Verde Vida - F2	2014		100		15,084		2015		340		63.2%
Renascença Candeias	2014		100		19,166		2015		432		47.7%
Vila Florida - F1	2014		100		19,166		2016		432		31.3%
Palácio Imperial - F1	2014		100		11,491		2016		259		12.4%
Rio Da Prata	2014		100		13,842		2015		312		32.4%
Recanto De Abrantes - F1	2014		100		15,084		2015		340		28.5%
Monte Alegre	2014		100		8,873		2015		200		23.0%
Parque Santo André	2014		100		7,098		2015		160		9.4%
Residencial Das Palmeiras	2014		100		11,535		2016		260		24.6%
Terra Brasilis - F1	2014		100		13,310		2016		300		13.7%
Vila Atlântica - F1	2014		100		10,648		2017		240		2.1%
Reserva Das Árvores - F1	2014		100		22,183		2015		500		3.2%
Novo Horizonte	2013		100		25,732		2014		580		99.7%
Vila Cantuária	2013		100		19,521		2014		440		99.3%
Itaim Paulista	2013		100		10,648		2014		240		98.8%
Verde Vida - F1	2013		100		15,084		2015		340		94.1%
Germania - F2	2013		100		8,873		2014		200		98.0%
Jaraguá	2013		100		11,535		2014		260		98.5%
Viva Mais Campo Grande	2013		100		13,310		2014		300		82.3%
Chacara Campo Limpo	2013		100		13,310		2015		300		99.3%

(1)	One square meter is equal to approximately 10.76 square feet.

(2)	Values for 100% of the building development, except on projects with partial interest acquisition.

Land Subdivisions under our Gafisa Brand

In 2001, we started developing residential land subdivisions for sale upon which residential buildings can be developed. Land subdivisions under our Gafisa brand are usually smaller than Alphaville residential communities and do not include some of the facilities available in Alphaville residential communities, such as various amenities, shopping centers and schools. We usually provide the infrastructure for a given land subdivision planning such as the electric, water and sewage systems, paved streets, and common recreational areas. Our land subdivisions are typically located in affluent suburban areas close to major highways leading to the states of São Paulo and Rio de Janeiro. A typical lot has between 250 and 1,500 square meters. Average price per square meter ranges from approximately R$150 to R$800. We target clients with monthly household incomes in excess of approximately R$5,000 for these land subdivisions. Since 2011, our only land subdivisions project was the development project of Barra da Tijuca, in partnership with Alphaville, for which our share is 65%.

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The table below sets forth our luxury and middle income housing developments under Gafisa’s Brand, launched between January 1, 2012 and December 31, 2014 with percentage of units sold less than 90%:

		As of December 31, 2014
Project Description		Units Sold (%)
Alta Vista (1)		89
Canto dos Passaros (2)		87
Gran Park Árvores F2 (3)		86
Gran Park Árvores F4 (4)		79
Gran Park Árvores F5 (5)		87
Gran Park Árvores F6 (6)		65
Gran Park Varandas F1 (7)		79
Gran Park Varandas F2 (8)		80
ICON (9)		78
Manhattan Square - Wall Street (10)		75
Mistral (11)		87
Mundi (12)		85
O Bosque (13)		55
Reserva do Bosque (14)		77
Scena Laguna (15)		57
Zenith (16)		84

(1)	Alta Vista. This development was 100% completed at December 31, 2014 at which time 89% of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(2)	Canto dos Passaros. This development was 100% completed at December 31, 2014 at which time 87% of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(3)	Gran Park Árvores F2. This development was 100% completed at December 31, 2014 at which time 86% of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(4)	Gran Park Árvores F4. This development was 100% completed at December 31, 2014 at which time only 79% of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(5)	Gran Park Árvores F5. This development was 100% completed at December 31, 2014 at which time 87% of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(6)	Gran Park Árvores F6. This development was 100% completed at December 31, 2014 at which time 65% of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(7)	Gran Park Varandas F1. This development was 100% completed at December 31, 2014 at which time 79% of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(8)	Gran Park Varandas F2. This development was 100% completed at December 31, 2014 at which time 80% of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(9)	ICON. This development was 100% completed at December 31, 2014 at which time 78% of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(10)	Manhattan Square - Wall Street. This development was 100% completed at December 31, 2014 at which time 75% of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

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(11)	Mistral. This development was 100% completed at December 31, 2014 at which time 87% of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(12)	Mundi. This development was 100% completed at December 31, 2014 at which time 85% of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(13)	O Bosque. This development was 100% completed at December 31, 2014 at which time 55% of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(14)	Reserva do Bosque. This development was 100% completed at December 31, 2014 at which time 77% of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period

(15)	Scena Laguna. This development was 100% completed at December 31, 2014 at which time 57% of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(16)	Zenith. This development was 100% completed at December 31, 2014 at which time 84% of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

We have evaluated all of our Gafisa brand developments for impairment and we identified cases of impairment, and impairment provisions have been recorded for the following projects: Alta Vista, Canto dos Passaros, Carpe Diem, Icaraí Corporate, Jatiuca Trade Residence, Mistral, Parque Barueri Condominio Clube, Quintas do Pontal and Reserva do Bosque.

The table below sets forth our finished affordable entry-level housing developments under Tenda’s Brand, launched between January 1, 2012 and December 31, 2014 with less than 90% of units sold:

Project Description	As of December 31, 2014 Units Sold (%)
Residencial Cordoba (1)	61
Res Figueiredo II (2)	87
Residencial Morada de Ferraz (3)	83
Fit 16 SPE Emp. Imob./Mirante do Lago F2 (4)	53
Res Napoli I (5)	80
Fit 31 SPE Emp. Imob./Fit Giardino (6)	54
Fit 32 SPE Emp. Imob./Vista Flamboyant (7)	74
Fit 32 SPE Emp. Imob./Vista Flamboyant F2 (8)	69
Res Brisa do Parque III (9)	85
Residencial Michelangelo (10)	88
Positano Garden II (11)	75
Positano Garden IV (12)	50
Boulevard Das Palmeiras (13)	84
Viva Mais Campo Grande (14)	82
Res Vila Coimbra (15)	75
Nova Marica Life (16)	74
Residencial Da Vinci – Allegro (17)	72
Duo Valverde (18)	71
Residencial Vitale Tower (19)	39
Residencial Da Vinci – Giardino (20)	1

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(1)	Residencial Cordoba. This development was previously completed and has 61% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold in 2015.

(2)	Residencial Figueiredo II. This development was previously completed and has 87% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(3)	Residencial Morada de Ferraz. This development was previously completed and has 83% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(4)

Fit 16 SPE Emp. Imob./Mirante do Lago F2. This development was previously completed and has 53% of its units sold. The sales speed for inventory outside of core markets remains lower than that of sales within core markets. The sale of this inventory and the run-off of legacy projects are on schedule and this development’s selling forecast indicates the remaining units will be sold within a short time of period.

(5)	Res Napoli I. This development was previously completed and has 80% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold in 2015.

(6)	Fit 31 SPE Emp. Imob./Fit Giardino. This development was previously completed and has 54% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold units in 2015.

(7)	Fit 32 SPE Emp. Imob./Vista Flamboyant. This development was previously completed and has 74% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(8)	Fit 32 SPE Emp. Imob./Vista Flamboyant F2. This development was previously completed and has 69% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(9)	Res Brisa do Parque III. This development was previously completed and has 85% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(10)	Residencial Michelangelo. This development was previously completed and has 88% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(11)	Positano Garden II. This development was previously completed and has 75% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(12)	Positano Garden IV. This development was previously completed and has 50% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(13)	Boulevard Das Palmeiras. This development was previously completed and has 84% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(14)	Viva Mais Campo Grande. This development was previously completed and has 82% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(15)	Res Vila Coimbra. This development was previously completed and has 75% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(16)	Nova Marica Life. This development was previously completed and has 74% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(17)	Residencial Da Vinci – Allegro. This development was previously completed and has 72% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

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(18)	Duo Valverde. This development was previously completed and has 71% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(19)	Residencial Vitale Tower. This development was previously completed and has 39% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

(20)	Residencial Da Vinci – Giardino. This development was previously completed and has 1% of its units sold. According to the Company’s existing business plan, this development’s selling forecast indicates the remaining units will be sold within a short time period.

We have evaluated all of our Tenda brand developments for impairment and we identified cases of impairment for these projects and impairment provisions have been recorded:

· Bairro Novo Cotia I and II

· Duo Valverde

· Fit Mirante do Parque

· Icoaraci

· Nova Marica Life

· Parque Arvoredo F2

· Pendotiba Life

· Piemonte

· Res Curuca F1

· Res. Green Park Life

· Res. Vila Coimbra

· Res. Villa Verde

· Res. Atenas

· Res. Da Vinci

· Res. Flor do Anani

· Res. Vitale Tower

· Res Betim Life

· Res. Reserva dos Pássaros F2

· Res. Pedra Bela

· Res. Jardim Girassol II F1

Land Subdivisions under Alphaville Brand

As set forth in item “4. Information on the Company—A History and Development of the Company”, we completed the sale of a controlling interest in Alphaville, on December 9, 2013. As a result, Alphaville was no longer consolidated in the financial statements of the Company since then. In this annual report, while financial information related to Alphaville is treated as discontinued operations, all operating information related to our business includes full operating information for Alphaville through December 9, 2013.

The Alphaville brand was created in the 1970s when the first Alphaville community was developed in the cities of Barueri and Santana do Paranaíba in the metropolitan region of São Paulo. Beginning in the 1990s, Alphaville developed residential communities in several other cities in Brazil, such as Campinas, Goiânia, Curitiba, Londrina, Maringá, Salvador, Fortaleza, Belo Horizonte, Natal, Gramado, Manaus, Cuiabá, Campo Grande, São Luis and Rio de Janeiro.

Whenever Alphaville develops a new community, it is provided all the basic civil works for supporting the construction on the lots, such as electrical, telephone and data communications cabling, hydraulic (water and sewer) mains and treatment facilities, landscaping and gardening, lighting and paving of the streets and driveways and security fencing. In most Alphaville communities, there is also the building of a social and sports club for the residents, with soccer, golf and tennis fields, jogging and bicycle tracks, saunas, swimming pools, ballrooms, restaurants and bars, and other facilities. In addition, most Alphaville projects have a shopping center where residents can shop for clothes and groceries. Additionally, whenever Alpaville develops a new community far from large urban centers, it seeks to assist in establishing schools near the community by forming partnerships with renowned educational institutions. Throughout Alphaville communities, it also seeks to stimulate the local economy by drawing new businesses to that area.

Alphaville believes that the maintenance of a development’s quality is essential. For this reason, it is imposed on every Alphaville community a series of building and occupancy standards that are more rigorous than those required by applicable local legislation. Every Alphaville community has an Alphaville association formed by us before delivery of the community starts, and is funded by maintenance fees paid by the residents. The purpose of the association is to allow community involvement in the management and maintenance of the premises and to ensure orderly and harmonious relationships among the residents.

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Upon completion of a sale, a purchaser of an Alphaville property will receive, along with the purchase and sale contract, documentation that sets out the regulations on land use and occupancy, and these will serve as private zoning regulations that are binding on the resident. These regulations set forth, among other things, the maximum number of floors allowed in an Alphaville building, the minimum number of meters between buildings and land coverage limits, thereby maintaining the uniformity and quality of the Alphaville properties.

The table below sets forth our residential communities launched by us under the Alphaville brand between January 1, 2012 and December 31, 2013. As a result of the sale of the 70% interest in Alphaville on December 9, 2013, we were not involved in the launch of any residential communities under the Alphaville brand in 2014:

	Year	Gafisa		Usable
Project Desciption	Launched	Participation		Area (m2)
		(%)		(1)(2)		Completion Year		Number of Units(2)
Alphaville Castello	2013		69		80,475		2015		222
Terras Alphaville Maricá 2	2013		47		107,594		2014		596
Terras Alphaville Ponta Grossa	2013		77		183,413		2014		742
Terras Alphaville Vitória da ConquistaF2	2013		75		158,001		2014		565
Terras Alphaville Sergipe F2	2013		88		168,129		2014		614
Alphaville Feira de Santana F2	2013		72		172,713		2015		545
Alphaville Ribeirão Preto F3	2013		60		193,058		2015		584
Terras Alphaville Camaçari F2	2013		74		141,955		2015		616
Alphaville Volta Redonda	2013		72		133,286		2015		427
Terras Alphaville Dourados	2013		74		152,007		2015		604
Alphaville Anápolis	2013		67		106,165		2015		336
Terras Alphaville Linhares	2013		46		111,547		2015		576
Terras Alphaville Belém 3	2013		71		251,819		2015		976
Alphaville Dias Branco	2013		59		293,897		2015		1,020
Alphaville Litoral Norte 3	2013		68		145,443		2015		434
Alphaville Nova Esplanada F4	2013		30		68,216		2015		473
Alphaville D. Pedro 2	2013		58		75,803		2015		265
Alphaville D. Pedro 3	2013		58		76,704		2015		233
Alphaville Juiz de Fora	2012		65		350,649		2014		564
Alphaville Sergipe	2012		74		257,565		2014		693
Alphaville Mossoró F2	2012		52		33,764		2013		170
Terras Alphaville Anápolis	2012		73		169,15		2013		601
Alphaville Minas Gerais	2012		61		186,336		2014		557
Alphaville Brasília Residencial 2	2012		47		95,044		2014		426
Brasília Alpha Mall	2012		50		5,740		2014		26
Terras Alphaville Sergipe	2012		88		151,033		2014		546
Nova Esplanada 3	2012		30		94,806		2014		660
Terras Alphaville Teresina	2012		79		296,627		2014		1,075
Alphaville Pelotas	2012		74		183,370		2014		577
Alphaville Porto Velho	2012		76		73,126		2013		215
Terras Alphaville Vitória da Conquista	2012		75		160,195		2014		547
Terras Alphaville Resende F2	2012		76		129,818		2014		414
Alphaville Juiz de Fora 2	2012		65		99,646		2014		305
Alphaville Campo Grande 3	2012		64		152,549		2014		608
Alphaville Araçatuba	2012		42		92,722		2014		427
Alphaville Bauru	2012		65		155,335		2014		467
Terras Alphaville Camaçari	2012		74		139,819		2014		634

(1)	One square meter is equal to approximately 10.76 square feet.

(2)	Values for 100% of the building development.

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Commercial Buildings

In 2012, we launched two commercial buildings: SAO Square - Way and SAO Square Gate – Gafisa.

In 2013, we launched two commercial buildings: Axis Business Tower and Laguna Mall.

In 2014, we did not launch any commercial buildings.

Construction Service

We provide construction services to third parties, building residential and commercial projects for some of the most well-known developers in Brazil. This practice allows us to benchmark our construction costs, facilitates our access to new constructions materials, techniques and service providers such as architects and sub-contractors, and provides larger economies of scale. Third-party construction services are a significant, less volatile source of revenues, which does not require us to allocate capital. Our main construction services clients are large companies, many of them developers that do not build their own projects. As of December 31, 2014, our main construction services clients were Villa Reggio Empreendimentos Imobiliários Ltda., Tanguá Patrimonial Ltda., Concivil Construtora e Incorporadora Ltda., STAN Portugal Empreendimento Imobiliário SPE Ltda., PP II SPE Empreendimentos Imobiliários Ltda., Reitzfeld Empreendimento Imobiliário Botânico SPE Ltda and KINO Empreendimento Imobiliário SPE S.A. We also provide construction services on certain developments where we retain an equity interest.

The table below sets forth the real estate building developments we have constructed exclusively for third parties between January 1, 2012 and December 31, 2014:

Project	First Year of Construction	Client	Type of Project
Viverde	2012	Reitzfeld Empreendimento Imobiliário Botânico SPE Ltda	Residential

The table below sets forth the real estate developments we have constructed for third parties, in which we also have an equity interest, between January 1, 2012 and December 31, 2014:

Project	First Year of Construction	Gafisa Participation (%)	Partner	Type of Project
Adamas	2013	50	GTIS Partners	Residential

Sale of Units Through Our Brokerage Subsidiaries

In September 2006, we created a new subsidiary, Gafisa Vendas, to function as our internal sales division in the state of São Paulo. In February 2007, we created another new subsidiary, Gafisa Vendas Rio, to function as our internal sales division in the metropolitan region of Rio de Janeiro. These wholly-owned subsidiaries promote sales of our projects in the states of São Paulo and Rio de Janeiro and focus their efforts on: (1) launches — our internal sales force focuses on promoting launches of our developments; however, we also use outside brokers, thus creating what we believe to be a healthy competition between our sales force and outside brokers; (2) inventory — Gafisa Vendas and Gafisa Vendas Rio each have a team focused on selling units launched in prior years; and (3) web sales — Gafisa Vendas and Gafisa Vendas Rio each have a sales team dedicated to internet sales as an alternative source of revenues with lower costs.

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Our Clients

Our clients consist of development and construction service clients. Development clients are those who purchase units in our developments. As of December 31, 2014, our development-client database was comprised of more than 125,500 individuals. We currently have approximately 75,000 active clients.

Our construction-services clients are large companies, many of them developers that do not build their own projects. As of December 31, 2014, our main construction services clients were Villa Reggio Empreendimentos Imobiliários Ltda., Tanguá Patrimonial Ltda., Concivil Construtora e Incorporadora Ltda., STAN Portugal Empreendimento Imobiliário SPE Ltda., PP II SPE Empreendimentos Imobiliários Ltda., Reitzfeld Empreendimento Imobiliário Botânico SPE Ltda and KINO Empreendimento Imobiliário SPE S.A. We also provide construction services to certain developments where we retain an equity interest. No individual client represents more than 5% of our revenues from residential developments or construction services.

Our Operations

The stages of our development process are summarized in the diagrams below:

Land Acquisition

We use results from our extensive market research to guide our land reserves strategy and process. Our marketing and development teams monitor market fundamentals and trends. We have developed a sophisticated database to support our search for and analysis of new investment opportunities. Key decision factors used by our management for land acquisition and new developments include location, type of product to be developed, expected demand for the new developments, current inventory of units in the region and acquisition cost of the land.

Whenever we identify an attractive tract of land, we first conduct a study of the project to define the most appropriate use of the space. Afterwards, the basic design of the project enters the economic feasibility study stage, where we consider preliminary revenues and expenses associated with the project. This study will determine project profitability. We collect and analyze information on demand, competition, construction budget, sales policy and funding structure to ensure economic viability of the new development. We then initiate a legal due diligence of the property to identify liens, encumbrances and restrictions, potential solutions to such issues and the relevant costs. Before acquiring the land, we conduct a thorough due diligence process including an environmental review. Each decision to acquire land is analyzed and approved by our investment committee. See “Item 6. Directors, Senior Management and Employees—C. Board Practices” elsewhere in this annual report for further information on the activities of our committees and boards.

We seek to finance land acquisition through barter transactions, in which we grant the seller a certain number of units to be built on the land or a percentage of the proceeds from the sale of units in such development. As a result, we reduce our cash requirements and increase our returns. In the event we cannot do so or in order to obtain better terms or prices, we acquire land for cash, alone or in partnership with other developers. We purchase land both for immediate development and for inventory.

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As a new strategy defined by the end of 2011, the Company is selling landbank located in cities and places where there is no intention to run operations with new developments.

As of December 31, 2014, we had a combined inventory of 163 land parcels under both Gafisa and Tenda, in which we estimate we could develop a combined total of 40,664 residential units with a combined sales value of R$10.1 billion, of which 70.9% represents land acquired through barter transactions. The table below sets forth the breakdown of our land reserves by location and by the type of development:

	Gafisa					Tenda
	Future Sales (% Gafisa) (1)		% Bartered			Future Sales (% Gafisa)		% Bartered
	(in millions of reais)					(in millions of reais)
São Paulo		4,876		42.9	%		665		3.1	%
Rio de Janeiro		1,301		89.0	%		1,091		7.5	%
Other states		—		—			2,199		78.0	%
Total		6,177		57.0	%		3,955		13.9	%

(1)

Information reflects our interest.

Project Design

In order to meet evolving preferences of our customers, we invest considerable resources in creating an appropriate design and marketing strategy for each new development, which includes determining the size, style and price range of units. Our staff, including engineers and marketing and sales professionals, works with recognized independent architects on the planning and design of our developments. Their activities include designing the interior and exterior, drafting plans for the execution of the project, and choosing the finishing construction materials. A team responsible for preparing the business plan and budget and assessing the financial viability for each of our projects is also involved. Simultaneously with the planning and design of our developments, we seek to obtain all the necessary licenses and regulatory approvals from local authorities, which usually take three to twelve months in the case of our residential buildings and three years in the case of our residential communities.

Marketing and Sales

Our marketing efforts are coordinated by our internal staff of approximately 16 professionals. Our specialized team generally coordinates with several outsourced brokerage companies with a combined sales force of more than 80 representatives, monitoring such sales representatives in order to promote loyalty and ensure performance. Our marketing intelligence team is also responsible for gathering information on the needs and preferences of potential customers to provide guidance on our land acquisition and project design activities. Gafisa Vendas was created as our internal sales division and it currently consists of 583 independent Gafisa Vendas brokers, 32 sales consultants and 7 sales managers.

The creation of Gafisa Vendas was intended to establish a strategic channel for us to access our clients and to reduce our dependence on outside brokers for marketing. Because the sales force at Gafisa Vendas is trained to sell our products exclusively, we believe that it is able to focus on the sale of our developments, articulate the unique features of our development, manage our current customers and capture new customers more effectively. Gafisa Vendas was initially established in São Paulo in 2006 and opened a branch in Rio de Janeiro in 2007. In 2008 and 2009, Gafisa Vendas was our most successful sales team, responsible for approximately 34% and 40% of our sales in the states of São Paulo and Rio de Janeiro, respectively. In 2010, Gafisa Vendas was responsible for approximately 37% and 53% of our sales in the states of São Paulo and Rio de Janeiro, respectively. In 2011, Gafisa Vendas was responsible for approximately 34% and 52% of our sales in the states of São Paulo and Rio de Janeiro, respectively. In 2012, Gafisa Vendas was responsible for approximately 47% and 52% of our sales in the states of São Paulo and Rio de Janeiro, respectively. In 2013, Gafisa Vendas was responsible for approximately 51% and 45% of our sales in the states of São Paulo and Rio de Janeiro, respectively. In 2014, Gafisa Vendas was responsible for approximately 61% and 23.4% of our sales in the states of São Paulo and Rio de Janeiro, respectively.

We will continue to utilize independent real estate brokerage firms as we believe this provides a healthy competition between our internal sales force and outside brokers. Independent brokers provide us with a broad reach, access to a specialized and rich database of prospective customers, and flexibility to accommodate the needs of our diverse offering and clientele. In line with our results-oriented culture, we compensate brokers based on their profit contribution rather than on sales. Brokers are required to attend periodic specialized training sessions where they are updated on customer service and marketing techniques, competing developments, construction schedules, and marketing and advertising plans. We emphasize a highly transparent sales approach, as opposed to the traditional high-pressure techniques, in order to build customer loyalty and to develop a sense of trust between customers and us. At our showrooms, brokers explain the project and financing plans, answer questions and encourage customers to purchase or sign on to receive a visit or additional information.

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Under our Gafisa brand, we typically initiate our marketing efforts 60 days before the launch of a development. We typically have a showroom on or near the construction site, which includes a model unit furnished with appliances and furniture. We leverage our reputation for quality, consistency, on-time delivery and professionalism to increase sales velocity. We have been successful with this strategy, usually selling approximately 30% of the units before construction starts.

Alphaville has also been successful in its sales and marketing efforts. For example, in Campinas, Alphaville D. Pedro II & III development sold all the 498 lots in just a few hours on the first day; in Volta Redonda, Rio de Janeiro, the sales team needed only three hours to sell all of its residential lots; in Fortaleza, Ceará, 90% of the Alphaville lots were sold during the first day of launch, and Alphaville Anápolis in Goiás, 100% were sold in just a few hours in the same day of their launch.

We market our developments through newspapers, direct mail advertising and by distributing leaflets in neighboring areas, as well as through telemarketing and websites. In addition, on a quarterly basis, we publish the magazine “Gafisa Way” which is distributed to our customers and offers news on our most recent developments and progress updates on buildings under construction. The Alphaville developments also publish special magazines geared to their specific communities.

Tenda’s sales and marketing efforts are coordinated through 15 store fronts located across the principal metropolitan areas of the country. A direct sales force is trained to offer advice to first-time home buyers and to assist these buyers in finding the best financing solution. In addition, this sales force provides information on the benefits under the public housing program “Minha Casa, Minha Vida”, including the process of obtaining a mortgage through the CEF and BB. Because the Tenda sales force is specially trained to provide information on the affordable entry-level segment, we believe that they are uniquely positioned to provide us with an advantage in this segment.

In addition to direct sales, Tenda markets its developments through telemarketing, which generates more than 16,000 calls and 11,700 chats per month and results in over 2,700 visits per month to its store fronts. Tenda also gathers information on its customers’ preferences to better tailor its marketing efforts and has implemented a customer relationship management department in order to improve its client satisfaction. Finally, Tenda focuses on improving its sales during the launch of a development using a specific strategy for each type of development. For example, with large developments, Tenda has successfully combined its direct sales force with independent real estate brokerage firms, and the increase in cost associated with such combined efforts was offset by the significant increase in sales during the initial months after launch.

Under Brazilian law, we may establish a term within and the conditions under which we are entitled to cancel the development. According to our regular purchase contracts, if we are not able to sell at least 60% of the units within 180 days of launching, we can cancel the development. In the low income segment we need to have the project with at least 60% of the units sold (sales includes customers who are eligible for mortgages and that can be immediately transferred to financial institutions) and the project needs to be contracted with financial institutions prior to the launching phase, or we can cancel the development. Under those circumstances, we usually consider changing the project or selling the land, but, in any of those cases, we have to return the cash payment made by our customers adjusted for inflation but with no interest. Customers, however, are not entitled to other remedies.

Construction

Gafisa has been engaged in the construction business for over 50 years. Our experience spans across the entire construction chain. Before engaging in each new project, we develop sketches and research and develop projects and plans to create the most appropriate product possible. Our standardized construction techniques and unique control system are designed to optimize productivity and minimize raw material losses. Our monitoring tools are available on our intranet where all employees regularly review costs and key performance indicators of each development such as actual versus budget comparisons, volume consumption for each raw material, and construction schedule.

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We use strict quality control methods. We have developed proprietary procedure manuals that describe in significant detail each task of each stage of the construction project. These manuals are also used for the training sessions that we require all of our workers to attend. In addition, we keep quarterly records of projects delivered.

The reviews focus on identifying problems in order to take corrective and preventive actions in projects underway and thus avoid costly repetition. We have adopted a quality management system that was certified for ISO 9002 by Fundação Bureau Veritas, from Universidade de São Paulo. In 2007, we received a certification from Programa Brasileiro de Qualidade e Produtividade do Habitat (PBQP-H), which is part of the Ministry of Cities. In addition, the Eldorado Business Tower building was certified as a Green Building, category Platinum, by the U.S. Green Building Council, which attests that it is environmentally sustainable, through the rational use of energy, natural lighting and pollution control and recycling. Eldorado Business Tower was the first building in Latin America to achieve this category.

We invest in technology. Our research and development costs amounted to R$1.2 million in 2014, R$1.0 million in each of 2013 and 2012 and R$2.9 million in 2011. We believe that we have pioneered the adoption of advanced construction techniques in Brazil such as dry wall and plane pre-stressed slabs, which present numerous advantages over traditional techniques. We also optimize costs by synchronizing our projects’ progress so as to coordinate the purchase of raw material and benefit from economies of scale. We have long-term arrangements with a number of suppliers which allow us to build our developments with quality, using brand name construction materials and equipment, and advanced technology. Moreover, our centralized procurement center enables us to achieve significant economies of scale in the purchase of materials and retention of services.

We do not own heavy construction equipment and we employ directly only a small fraction of the labor working on our sites. We generally act as a contractor, supervising construction while subcontracting more labor-intensive activities. Substantially all on-site construction is performed for a fixed price by independent subcontractors. We have policies in place in order to hire reputable, cost-oriented and reliable service providers that are in compliance with labor laws and have performed their work diligently and on time in the past. Hiring subcontractors instead of employing workers directly has some financial and logistical advantages. For instance, we do not need to incur fixed costs to maintain a specialized labor force even when they are not actively working at a construction site and we do not need to pay for frequent transfers of labor to different construction locations.

Our construction engineering group coordinates the activities of service providers and suppliers, monitors compliance with safety and zoning codes, and monitors completion of the project on a timely basis. We provide a five-year limited warranty covering structural defects in all our developments.

Risk Control

Our risk control procedures require that all of our projects be approved by our investment committee, which meets on a monthly basis, or more frequently on an as-needed basis, and consists of our chief executive officer and two members of our board of directors. Our investment committee carefully reviews the various studies conducted by us and described above. In addition, we have a board of officers, which meets monthly, and is in charge of overseeing and approving major decisions. See “Item 6. Directors, Senior Management and Employees—E. Share Ownership” in this annual report.

Customer Financing

The table below sets forth the percentage of each type of customer financing we provide for each type of development as of December 31, 2014:

Sales Term	Luxury			Middle Income			Affordable Entry—Level(1)
Mortgage lending (delivery)		77	%		88	%		—
Caixa Econômica Federal		—			—			100	%
Gafisa 36 months		22	%		12	%		—
Gafisa 60 months		—			—			—
Gafisa 120 months		1	%		—			—

(1)	Includes Tenda developments. We do not provide any customer financing for these developments.

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Mortgages. In 2014, 85% of our sales value was financed by bank mortgages, where the customer paid us approximately 25% to 60% of the sales price of the property during the period of construction, and upon delivery of the property paid the balance of the sales price through a bank mortgage. We analyze the credit history of each customer at the time of sale to see if the customer would qualify for a bank mortgage based on banks’ standard credit rating policies. Although there is no assurance that the customer will qualify for a mortgage at the time of delivery, our analyses have been fairly successful in predicting whether the customer would qualify for a mortgage. The following table sets forth the credit limits established by mortgage sources available in Brazil:

Credit Lines	Typical Interest rate	Maximum Home Value		Maximum Loan Value
Mortgage portfolio (Carteira Hipotecária) or CH	% annually + TR(1)	No limit		No limit
Housing Finance System (Sistema Financeiro da Habitação) or SFH	% annually + TR	R$	500,000	R$	450,000
Government Severance Indemnity Fund for Employees (Fundo de Garantia do Tempo de Serviços) or FGTS	16% annually + TR	R$	130,000	R$	130,000

(1)	TR refers to the daily reference rate.

Mortgage financing for Tenda’s developments primarily comes from CEF. The financing is structured so that customers with monthly income of up to ten times the Brazilian minimum wage pay low monthly installments without increasing our credit risk because CEF assumes the credit risk of each customer. Additionally, Tenda is currently working with certain private banks in addition to the CEF to provide financing for homebuyers with monthly income between three and seven times the Brazilian minimum wage which was approximately R$724 as of December 31, 2014 with similar terms as the financing provided by the CEF.

Financing by Gafisa during construction. We finance some of our own sales during the construction period, with a down payment of 20-30% and financing of the balance through monthly installments up to the delivery of the unit.

Financing by Gafisa after delivery. In addition, we offer financing plans to prospective customers using our own capital, where we finance purchases for up to 120 months after the completion of the construction. For completed units we require a down payment of 30% and financing of the remaining balance with up to 120 monthly installments. For units under construction we require a down payment of 10% and provide financing of 25-35% with up to 30 monthly installments until the delivery of the unit and financing of the remaining 75-65%, respectively, with up to 120 additional monthly installments. All of our financing plans are guaranteed by a conditional sale of the unit, with the transfer of the full property rights of the unit to the customer upon the full payment of the outstanding installments.

We have developed a strict credit policy in order to minimize risks. We take the following steps whenever we conduct a credit review process:

trained independent brokers interview each potential customer to collect personal and financial information and fill out a registration form;

registration forms are delivered, along with a copy of the property deed, to us and, if the bank providing the financing requests, to an independent company specialized in real estate credit scoring;

credit is automatically extended by us to the customer if his or her credit analysis is favorable. However, if the credit analysis report raises concerns, we will carefully review the issues and accept or reject the customer’s application depending on the degree of risk. To the extent financing is provided by a bank, such financial institution will follow their own credit review procedures; and

after approving the application, our staff accepts the down payment which is given as a deposit on the purchase of the unit.

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Sales contracts. Our sales contracts generally provide for adjustment of the sales price according to the INCC during construction and at an annual interest rate of 12% plus IGP-M over the receivables balance after a stated date in our sales contracts. We have historically experienced a low rate of customer default on our sales. On February 28, 2015, our clients’ default level was 6.19% of our accounts receivable for Gafisa and 7.43% for Tenda.

We attribute our low default rate to the fact that: (1) we conduct database research on the socio-economic background of our prospective customers; (2) our agreements discourage default and cancellation of the purchase by imposing immediate penalty fees, interest and liquidated damages which are adjusted for inflation, and we retain approximately 60-65% (Gafisa), 20% (Tenda) and 20% (Alphaville) of the total purchase price plus expenses incurred by us, which in general represents all or a substantial portion of the amount that the defaulted clients have already paid us; and (3) we offer several options to our customers if they experience financial difficulties, such as offering them a greater number of installment payments or exchanging the unit bought for a less expensive one. When a default occurs, we endeavor to renegotiate the outstanding loan with our customers before taking any legal action.

We will only transfer title of the unit to a buyer after the release of the certificate of acceptance of occupancy by local authority and the full payment of all outstanding installments. We have increased the percentage of mortgages that our customers obtain from commercial banks from approximately 33% in 2006 to 56% in February 2015. This increase reflects the growing interest of commercial banks in financing the Brazilian housing industry. See “Item 5”.

Operating and Financial Review and Prospects—A. “Operating Results—Launches and Contracted Sales—Contracted Sales” for a discussion of the sales value of contracts cancelled by our customers and penalties paid in connection with such cancellations.

The table below sets forth the client’s default level breakdown by segment, as of December 31, 2014:

		Gafisa				Tenda
Default level by segment			6.19	%			7.43	%

Cancelation of sales contracts. Gafisa and Tenda sales contracts are irrevocable under Brazilian law. That means that a customer does not have the unilateral ability to terminate a contract once it is executed, nor does the customer have an ability to require a refund of amounts previously paid unless we agree. To the extent that a customer is not in compliance with its obligations under a contract, we may at our option either force compliance through the Brazilian courts, or agree to a “default” by the customer. Should we agree at our sole discretion to refund part of the amounts paid to the defaulting party, we will normally apply the penalty set forth in the contract.

In the event either we or the customer do not agree to enter into a commercial negotiation following a customer default there are two courses of action available:

(1) the first option is that we may seek to enforce the agreement in Court to collect the amount outstanding and effectively transfer ownership of the unit to the buyer; or

(2) as provided in the contract and contemplated in Brazilian law we have the right to force the unit to be auctioned. When the unit is purchased in auction by a third party the proceeds from the auction are used in part to settle in full (including interest and penalties for late payments) the amount owed by the customer to Gafisa and the remaining balance is paid to the customer. When no third party is willing to acquire the unit in the auction, the title to the unit returns to Gafisa or Tenda without any disbursement, except for the auctioneers fees. Provisions in the Gafisa contract indicate that when such auction occurs it is without prejudice of the penalties set forth in this contract (meaning that the penalty provisions survive). Upon consultation, our legal counsel advised us that the customer has a right to request that amounts paid by him be returned after the contractual “penalty” has been deducted.

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The table below provides the number and sales value of contracts terminated by customers for the periods presented:

	As of December 31, 2014						As of December 31, 2013						As of December 31, 2012 (3)
Year Segment	Number of contracts			Sales value (in thousands of reais)			Number of contracts			Sales value (in thousands of reais)			Number of contracts			Sales value (in thousands of reais)
Gafisa
Contracted sales		2,836			1,246,996			3,671			1,416,939			4,031			2,040,575
Volume/Sales value of terminations		(1,014	)		(435,964	)		(1,292	)		(455,738	)		(1,074	)		(441,047	)
Percentage		35.8	%		35.0	%		35.2	%		32.1	%		26.6	%		21.6	%
Sales value, net of termination		1,822			811,032			2,379			961,201			2,957			1,599,528
Tenda
Contracted sales		6,248			919,381			8.292			1,089,301			9,990			1,175,733
Volume/Sales value of terminations(1)		(3,561	)		(523,400	)		(4,278	)		(598,897	)		(10,852	)		(1,250,051	)
Percentage(1)		57.0	%		56.9	%		51.6	%		55.0	%		108.6	%		106.3	%
Sales value net of terminations		2,687			395,981			4,014			490,403			(862	)		(74,318	)
Alphaville (2)
Contracted sales		—			—			7,955			1,295,260			5,654			1,293,526
Volume/Sales value of terminations		—			—			(1,307	)		(233,005	)		(591	)		(185,633	)
Percentage		—			—			16.4	%		18.0	%		10.5	%		14.4	%
Sales value net of termination		—			—			6,648			1,062,260			5,063			1,107,893
Total sales value net of termination		4,509			1,207,013			13,041			2,513,860			7,158			2,633,103

(1)

After a detailed analysis of Tenda receivables portfolio, we identified clients who no longer qualified for the mortgage because their contracts had terminated. In 2014, we had R$523.4 million in sales value of termination and R$419 milion in 2013. As of the fourth quarter of 2011, we adopted a new sales policy for Tenda units to avoid contract terminations. The new terms of the contracts increased security in the client’s transfer of their contracts to financial agents. This change led to a longer time period for new sales and for resale of units under contracts entered into during that period.

(2)	This information is presented for comparison purposes and for the years ended December 31, 2013 and 2012 only, as we sold our controlling interest in Alphaville on December 9, 2013 and currently hold a 30% non-controlling interest in Alphaville.

(3)	Operating information has not been restated to reflect the consolidation method in jointly-controlled investees pursuant to CPCs 19 (R2) (or IFRS 11) and 36 (R3).

Receivables securitization

We release capital for new projects by seeking not to maintain receivables after our projects are completed. The securitization (mortgage-backed securities) market in Brazil is expanding. This expansion is helped significantly by recent development in Brazilian foreclosure laws.

With the growing availability of mortgages from commercial banks and the increasing liquidity of CRIs, we expect to further reduce our role as a financing provider to our customers. Our goal is to optimize our working capital by transferring the financing activities to securitization companies and banks.

Main Raw Materials and Suppliers

We purchase a wide variety of raw materials for our operations. Even though these raw materials have represented on average, over the last three years, approximately 41% of our total costs of development, aside from land, the only raw materials that represent more than approximately 5.1% of our total costs are steel and concrete. Prices of some raw materials have significantly increased over the last three years at a rate higher than inflation. The index that measures the fluctuation of construction costs, the INCC, increased 23.8% during the three year period ended December 31, 2014, resulting in a 22.7% increase in the construction costs of Gafisa and a 23.8% increase in the construction costs of Tenda over that period. During the three year period ended December 31, 2014, the IGP-M increased 18.0%, resulting in an 18.4% increase in unit prices for Gafisa and a 17.1% increase in unit prices for Tenda over that period. We have been working on the development of new construction techniques and the utilization of alternative materials in order to reduce costs and improve our construction process with advanced technology.

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We contract with major suppliers for the materials used in the construction of the buildings. We receive general pricing proposals from various suppliers of raw materials and select the proposal with the best terms and conditions for each development. In addition to pricing, we select our suppliers by the quality of their materials. We set forth specific minimum quality requirements for each construction project, and the chosen supplier must meet this quality requirement. The materials for our developments are readily available from multiple sources and, accordingly, we do not rely on any one supplier for our raw materials.

Our nine largest suppliers in terms of volume are Gerdau Aços Longos S.A., Votorantim Cimentos Brasil Ltda., Thyssen Krupp Elevadores S.A., Alumni Esquadrias de Aluminio Ltda., RCI Esquadrias de Aluminio S/C Ltda., Supermix Concreto SA, InterCement Brasil SA, Ibrap Industria Brasileira de Alumínio and Cortesia Serviços de Concretagem Ltda. In general terms, we purchase products for our construction based on the scheduled requirements, and we are given approximately 28 days to pay. The products we purchase generally come with a five-year warranty. We do not have any exclusive arrangements with our suppliers. We work closely with suppliers, enabling them to schedule their production in order to meet our demand or notify us in advance in the event they anticipate delays. We have good relationships with our suppliers and have experienced no significant construction delays due to shortages of materials in recent years. We do not maintain inventories of construction materials.

We achieve significant economies of scale in our purchases because we:

use standard construction techniques,

engage in a large number of projects simultaneously, and

have long-term relationships with our suppliers. We periodically evaluate our suppliers. In the event of problems, we generally replace the supplier or work closely with them to solve the problems.

Customer Service

In our industry, customer satisfaction is based in large part on our ability to respond promptly and courteously to buyers before, during and after the sale of our properties, including providing an owner’s guide. We use innovative and personalized customer service techniques beginning with the initial encounter with a potential customer. We believe we were one of the first homebuilders in Brazil to introduce services such as breakfast for customers at construction sites and providing monthly photos to customers on the progress of the construction. These services are provided with the objective of educating customers on the progress of the construction and improving customers’ experience with the purchase of our units. Other customer service efforts include:

a dedicated outsourced call center with consultants and specialists trained to answer our customers’ inquiries;

the development of the “Gafisa Viver Bem” web portal, through which our customers can, for example, follow the project’s progress, alter their registration information, simulate unit designs and check their outstanding balances;

relationship events to engage the customer with the “Gafisa Viver Bem” program, like the “Open House” (inauguration party in the unit) and the “House UP” (refurbish one room of the unit);

the development of the “ Alphaville Viver a Vida” web portal, through which our customers have easy and fast and easy access to all financial services related to Alphaville; and

the development of the “Gafisa Personal Line,” through which buyers of certain units are able to customize their units in accordance with plans and finishing touches offered by Gafisa. Such options vary by development.

As part of our customer service program in our residential developments, we conduct pre-delivery inspections to promptly address any outstanding construction issues. Prior to the delivery of each unit, we maintain regular contact with the customer by sending the customer our magazine “Gafisa Way.” We also conduct monitored inspections of our developments to allow buyers to gather more information from our technical personnel. In addition, we send a monthly status report on the construction of the unit. We conduct another evaluation of the customer’s satisfaction with his or her unit, as well as the customer’s experience with our sales personnel and our various departments (customer services, construction and title services) 18 months after the release of the certificate of acceptance of occupancy by the relevant local authority. We also provide a five-year limited warranty covering structural defects, which is required by Brazilian law.

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Competition

The real estate market in Brazil is highly fragmented and competitive with low barriers to entry. The main competitive factors include price, financing, design, quality, reputation, reliability, meeting delivery expectations, partnerships with developers and the availability and location of land. Certain of our competitors have greater financial resources than we do, which could provide them an advantage over us in the acquisition of land using cash. In addition, some of our competitors have better brand recognition in certain regions, which could give them a competitive advantage in increasing the velocity of their sales. Because of our geographic diversification, we believe that we have access to different markets within Brazil that have different demand drivers.

Because of the high fragmentation of the markets in which we operate, no single developer or construction company is likely to obtain a significant market share. With the exception of São Paulo and Rio de Janeiro, where we face competition from major publicly-traded competitors, in other regions we generally face competition from small and medium-sized local competitors that are not as well-capitalized. We expect additional entrants, including foreign companies in partnership with Brazilian entities, into the real estate industry in Brazil, particularly the São Paulo and Rio de Janeiro markets.

The table below sets forth the most recent data available on our market share in the São Paulo and Rio de Janeiro markets:

São Paulo (1) — Gafisa’s Market Share
	Year ended December 31,
Year	2014			2013			2012
	(Launches in R$ million)
Local market		26,359			32,367			28,288
Gafisa(2)		770			1,125			1,306
Gafisa’s market share		2.9	%		3.5	%		4.6	%

Source: EMBRAESP and SECOVI.

Rio de Janeiro (1) — Gafisa’s Market Share
	Year ended December 31,
Year	2014			2013			2012
	(Launches in R$ million)
Local market		11,796			12,590			12,252
Gafisa(2)		253			51			347
Gafisa’s market share		2.1	%		0.4	%		2.8	%

Source: ADEMI.

(1)	Metropolitan region.

(2)	Gafisa interest.

Seasonality

Although the Brazilian real estate market is not generally seasonal, there are a few months of the year when the market slows down (January, February and July) each year. These months coincide with school vacations and result in the postponement of investment decisions. We are impacted similarly as the rest of the market during such periods.

Subsidiaries

We carry out our real estate developments directly or through our subsidiaries or our jointly-controlled entities in partnership with third parties. As of December 31, 2014, Gafisa had 105 subsidiaries, 22 jointly-controlled entities under operations and 4 entities in which it had minority stakes. The majority of such subsidiaries, jointly-controlled entities and entities in which Gafisa has a minority stake are incorporated as special purpose entities, are headquartered in Brazil and operate exclusively in the real estate sector. Gafisa also holds a 30% interest in the capital stock of Alphaville.

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Many of Gafisa’s subsidiaries and joint-ventures are SPEs, many of which have been incorporated by us as joint ventures together with other real estate and construction companies in Brazil. Of our 131 SPEs, 72.52% are wholly-owned by us and 7.63% are majority-owned by us, and we hold an interest of 50% or less in the remaining 19.85%.

Tenda is a wholly-owned subsidiary of Gafisa. As of December 31, 2014, Tenda had 80 subsidiaries, 9 jointly-controlled entities under operations and 5 entities in which it had minority stakes. The majority of such subsidiaries, jointly-controlled entities and entities in which Tenda has a minority stake are incorporated as special purpose entities, are headquartered in Brazil and operate exclusively in the real estate sector.

Many of Tenda’s subsidiaries and joint-ventures are SPEs, many of which have been incorporated by us as joint ventures together with other real estate and construction companies in Brazil. Of Tenda’s 80 SPEs, 84% are wholly-owned by us and 11% are majority-owned by us, and we hold an interest of 50% or less in the remaining 5%.

Intellectual Property

Trademarks

Our trademarks are filed or registered in Brazil with the Brazilian Institute of Industrial Property (Instituto Nacional de Propriedade Industrial), or the “INPI,” which is the competent body for, among others, trademarks’ and patents’ registries in Brazil. Besides, the trademark “Gafisa” is also registered before the competent agency for registering trademarks in the United States.

Currently, the registration process of a trademark takes approximately 30 to 36 months from the date of filing of the application until the definitive registration. From the date of filing of the application to the date of the definitive registration, the applicant has an expectation of right for the use of the trademark in connection with the products and services for which the trademark was applied for.

Each trademark registration is effective for a 10-year period and is renewable for equal and successive periods. The renewal of a trademark registration is granted upon request accompanied by payment of renewal fees during the final year of the trademark’s registration period or within the 6-month waiting period after its expiration. In case of non-payment, the registration is cancelled by INPI.

A trademark registration may be terminated in case (1) of expiration of its validity term; (2) the trademark owner or holder waives in whole or in part the rights granted by registration; (3) of forfeiture, or the applicant’s or the holder’s failure to use a registered trademark in connection with related goods or services for a period longer than five years; or (4) failure to appoint a Brazilian resident with powers to represent the applicant or holder in administrative or judicial proceedings, in cases where the applicant or the holder resides abroad.

As of the date of this annual report, we had approximately 119 pending trademark applications and 130 trademarks registered in Brazil with the INPI of which approximately (a) 97 pending applications and 117 registered trademarks refer to Gafisa, and (b) 22 pending applications and 13 registered trademarks refer to Tenda.

Our most significant trademark is “Gafisa,” which is duly registered with the INPI in the relevant market segment. Other relevant trademark we own, such as “Tenda,” are also registered with the INPI in several classes in connection with our daily activities.

Domain Name

As of the date of this annual report, we, together with our subsidiaries, were the owners of approximately 91 domain names including our and our subsidiaries’ principal websites. The term of each domain name registration is one year and is renewable for equal and successive periods. An annual fee payment is necessary for the maintenance of the domain name registrations. Other than non-payment of the annual fee, domain name registration may be cancelled by: (1) express waiver of the owner; (2) irregularities in the data form as requested by the respective agency; (3) non-compliance with applicable regulations; (4) judicial order; or (5) in the case of foreign companies, non-compliance with the obligation to initiate the company’s activities in Brazil. Our domain names will, unless renewed, expire between June 2015 and April 2023. We will seek to renew our domain names expiring in 2015, after evaluating their continuing applicability.

Patents

We have no patents registered in our name.

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Software Licenses

Most of the software we use in our daily business refers to common computer programs, such as Windows, SAP and AutoCAD. Additionally, we own all required licenses of use in connection with such software. The use of computer software without the acquisition of proper licenses is considered a felony subject to both criminal and civil liabilities, including the payment of fines and restrictions of future use of the applicable software.

Licenses

Under Brazilian laws, we are required to obtain a variety of licenses for each of our new developments. As of the date of this annual report, we have obtained all necessary licenses and permits to operate our business.

Insurance

We maintain insurance policies with leading Brazilian insurance companies, such as Allianz Seguros S.A., Itaú Unibanco Seguros, ACE Seguradora S.A., Zurich Brasil Seguros S.A., Chubb do Brasil Companhia de Seguros, Caixa Seguradora and J. Malluceli Seguros S.A., with coverage for, among others, (1) potential risks arising from the commencement of construction, including property damages, business interruption, engineering risks, fire, falls, collapse, lightning, and gas explosion; (2) construction errors; (3) performance bonds; and (4) losses arising from damages or defense costs associated with litigation resulting from misconduct of directors and officer. Such insurance policies contain customary specifications, limits and deductibles. Additionally, we do not maintain any insurance policy for our properties after construction is completed.

According to Brazilian Federal Law, it is mandatory that homebuilders have insurance policies in force with coverage for, among others, damages and losses related to civil liabilities and performance bonds. Failure or default in contracting any compulsory insurance required by applicable legislation is subject to a penalty amounting to the higher amount between (1) twice the premium price of the insurance that should have been contracted; and (2) ten percent of the insured property value. Additionally, no operating authorization or license (or the renewal of any existing license) shall be granted to companies subject to compulsory insurance in default of the aforementioned obligations.

Our management believes that the insurance coverage for our properties is adequate and that our insurance policies are customary for our industry in Brazil and adequate for applicable regulations.

Regulatory Framework

Brazilian Government and Real Estate Sector Regulations.

The real estate sector is directly regulated by the Brazilian government and is indirectly impacted by the government’s regulations on the availability of credit. Regulations include development policies, zoning restrictions and environmental laws which can determine the availability of different products offered in the market. For example, city master plans restrict the types of real estate developments that can be constructed in a given area.

As a general rule, the NBCC requires that the transfer of title of real estate properties, as well as the assignment, transfer, change or waiver of rights on real estate properties, be carried out by means of a public deed, except in certain cases, such as when the Real Estate Finance System (Sistema Financeiro Imobiliario), or SFI, or the SFH, are involved. The intent of this rule is to increase the security of property transfers.

According to applicable law, transfer of real estate title is only deemed effective upon the registration of the transfer with the relevant Real Estate Registry Office. The procedure for the execution of public deeds and also the respective registration with the Real Estate Registry Office (Registro Imobiliário) is regulated by the Brazilian Law of Public Registers (Lei de Registros Públicos), in particular Law No. 6,015 of December 13, 1973.

Real estate development

Real estate development activities are regulated by Law No. 4,591 of December 16, 1964, as amended, or Law No. 4,591. The main duties of a developer are to: (1) obtain all required construction approvals and authorizations from the proper authorities; (2) register the development with the Real Estate Registry Office (without registration, the developed units cannot be sold); (3) indicate in the preliminary documents the deadline for the developer to withdraw from the development; (4) indicate in all advertisements and sales contracts the registration number of the development with the Real Estate Registry Office; (5) oversee the construction of the project established by the

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contract which must be in accordance with the approval granted by the authorities; (6) deliver to the final owner the completed units, in accordance with the contractual specifications, and transfer to the final owner the title of the unit by signing the final sale deed; (7) assume sole responsibility for the delivery of the developed units to the respective purchasers; (8) assume sole responsibility in the event the construction of the unit is not in accordance with the advertisements and sale contracts; and (9) provide construction blueprints and specifications along with the joint ownership agreement to the proper Real Estate Registry Office. The final owner is obligated, in turn, to pay the price related to the cost of the land and the construction.

The construction of the real estate units may be contracted and paid for by the developer or by the final owners of the units. Brazilian law provides for two pricing methods in real estate development: (1) construction under contract and (2) construction under a system of management. In construction under contract, the contracting parties will either set a fixed price, stipulated before the construction begins, or agree on an adjustable price pegged to an index determined by the contracting parties. In construction under a system of management, an estimated price is agreed upon by the contracting parties, but no fixed final price is provided at the beginning of the construction process. The actual amount that purchasers of the units pay depends on the monthly costs of the developer or contractor.

Urban land subdivisions

Urban land subdivisions consist of subdivisions of urban land parcels into building lots and the construction of new roads and other infrastructure, and are regulated by Law No. 6,766 of December 19, 1979 - the Brazilian Law of Urban Land Subdivision (Lei de Parcelamento do Solo), as amended, or Law No. 6,766. Law No. 6,766 governs urban land subdivisions and establishes, among other things, the planning and technical requirements for this form of land parceling and the obligations of the developers, and also provides for fines and sanctions in the event of violation of its provisions.

Under Law No. 6,766, land subdivisions are intended for the creation of lots in urban areas or urban expansion zones, as defined by the planning director or approved by municipal law, and must comply with Law No. 6,766.

For the construction of land subdivisions, the developer must proceed through the following steps: (1) prior to developing the land subdivision plan, it must request the municipality in which the development will be located to issue directives on use policies specifically to the land, such as the delineation of lots, road and street systems and areas reserved for municipal or community properties; (2) pursuant to the directives issued by the municipality, it must develop a plan for the proposed land subdivision and present it to the municipality for approval, including the plans, designs, descriptions, and schedule for performance of the work, among other documents; and (3) after approval for the land subdivision project is obtained, it must be submitted for recording in the property registry of the appropriate Real Estate Registry Office within 180 days.

In addition to the approval of the project by the municipality in which the development will be located, the approval of other governmental bodies may be necessary in cases where the land subdivision: (1) is located in an area of special interest, such as a protected cultural, historical, landscape and archeological heritages site as defined by state or federal legislation; (2) is located in the boundary area of a city, belongs to more than one municipality, or is in a metropolitan region or urban agglomeration as defined in state or federal law; or (3) has an area greater than 1 million square meters. In the case of land subdivisions located in a municipality area that is within a metropolitan area, the examination and prior consent to the approval of such project will be subject to the metropolitan authority.

The legal requirements for the approval of the land subdivision by a municipality include: (1) the developer must preserve a percentage of the land used for residential communities as open spaces for public use and for municipal or community properties with the percentage determined by each municipal zoning code; (2) each lot must have a minimum area of 125 square meters and the distance between the building and the street must be at least five meters; (3) the developer must reserve 15 meters of land on either side of running or still water and of strips of public domain land for roads and highways; and (4) the allotment procedures must be coordinated with the official adjacent tracks, exisiting or projected, and harmonized with the local topography.

Law No. 6,766 also sets forth locations where subdivisions are not permitted, such as: (1) on wetlands and lands subject to flooding, until measures have been taken to assure water drainage; (2) on land that has been filled with material that is a public health hazard, unless previously cleaned up; (3) on land that has a slope equal to or greater than 30 degrees, unless the requirements of the appropriate authorities have been met; (4) on lands where geological conditions make buildings inadvisable; and (5) in ecological preserves or areas where pollution creates unacceptable sanitary conditions, until corrected.

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In order to offer greater security to the property market, Law No. 6,766 prohibits the sale or promise of sale of any lot that is the result of a subdivision where the developer has not previously obtained approval by the appropriate municipality and the development has not been recorded with the respective Real Estate Registry Office. If any such lot is sold or contracted to be sold, the developer and any person or legal entity benefiting from such sale or promise of sale shall be jointly liable for the resulting damages to the purchaser and the public authorities.

Assets for Appropriation

Law No. 10,931 of August 2, 2004, as amended, provides for certain protection of real estate assets. Accordingly, such protected assets are segregated from other properties, rights and obligations of the developer, including other assets previously appropriated, and such appropriated assets can only be used to guarantee debts and obligations related to the respective development. The appropriated assets are considered bankruptcy free and will not be affected in the event of bankruptcy or insolvency of the developer. In the event of a bankruptcy or insolvency of the developer, joint ownership of the construction may be instituted by a resolution of the purchasers of the units or by judicial decision. The joint owners of the construction will decide whether the project will proceed or the assets appropriated will be liquidated. Developers may also opt to submit a project to appropriation in order to benefit from a special tax system. Under this system, land and objects built on the land, financial investments in the land, and any other assets and rights with respect to the land are considered to be protected for the benefit of the construction of that development and the delivery of the units to the final owners, and are thus separate from the remaining assets of the developer.

In addition, in order to encourage the use of the appropriation system, Laws No. 11,977 of July 7, 2009 (amended by Law No. 12,249 enacted on June 11, 2010, Law No. 12,424 enacted on June 16, 2011, Law No. 12,693 enacted on July 24, 2012, Law No. 12,722 enacted on October 3, 2012, Law No. 13,043 enacted on November 13, 2014 and Law No. 13,097 enacted on January 19, 2015) and No. 12,844 of July 13, 2013, which granted tax benefits for the adoption of the system by reducing tax rates on appropriated assets from 7% to 4% and, in the case of the appropriated assets under the public housing program “Minha Casa, Minha Vida,” the rates were reduced from 7% to 1%, until December 31, 2018, by Law No. 13,097, enacted January 19, 2015.

We have not yet utilized the appropriation system for any of our real estate developments. We prefer to use our subsidiaries and our jointly-controlled entities for each specific real estate development. Our subsidiaries and jointly-controlled entities allow us to borrow funds by segregating the credit risk taken on by the financial institutions.

Credit Policy Regulations

The real estate sector is highly dependent on the availability of credit in the market, and the Brazilian government’s credit policy significantly affects the availability of funds for real estate financing, thus influencing the supply of and demand for properties.

Housing Finance System, or “SFH”

Law No. 4,380 of August 21, 1964, as amended, created the SFH to promote the construction and ownership of private homes, especially for low income earners. Financing resources under the SFH’s control are provided by the Government Severance Indemnity Fund for Employees (Fundo de Garantia do Tempo de Serviço), or “FGTS,” and from savings account deposits. The FGTS, created by Law No. 5,107 of September 13, 1966 and regulated by Law No. 8,036 of May 11, 1990, imposes a mandatory 8% employee payroll deduction on all employees in Brazil. Employees maintain FGTS accounts, which are similar to pension funds, and are allowed, among other things, to use the funds deposited in the accounts for the acquisition of real estate property under certain circumstances, as set forth by applicable law. The CEF is the agency responsible for managing the funds deposited in the FGTS. In order to be eligible for the financing, the beneficiary must purchase a completed unit or unit under construction priced at up to R$750,000 (price applicable to the States of Rio de Janeiro, São Paulo, Minas Gerais and Distrito Federal) or R$650,000 (price applicable to other Brazilian States). In addition, the beneficiary shall (1) not own or be the committed purchaser of any residential real estate financed by the SFH within Brazil; (2) not own or be the committed purchaser of, any real estate property built or under construction in both his or her current city of residence and the city where the beneficiary conducts his or her main activities; (3) reside for at least one year in the city where the property is located; (4) pay the FGTS; and (5) be registered for at least three years with the FGTS regime. The unemployed also have access to the FGTS to purchase real estate property provided that he still has funds on the FGTS account (where the 8% payroll deduction was deposited while employed).

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Financings that originate from savings account deposits in the entities comprising the Brazilian Saving and Loan System (Sistema Brasileiro de Poupança e Empréstimo), or “SBPE,” are regulated by the Central Bank. Such financings can be obtained through the SFH, which is strictly regulated by the Brazilian government, or through the mortgage portfolio system, where banks are free to set the financing conditions. SFH financing offers fixed interest rates lower than the market rates, capped at around 12% per year, and SFH financing contract terms vary, in general, between 15 and 30 years. The mortgage portfolio system financing offers market interest rates as determined by the financial institutions, generally varying between 18.5% and 12% per year.

CMN Resolution No. 3,932/2010 provides for the allocation of the funds deposited in savings accounts in the entities comprising SBPE and states that the following conditions must be met for SFH financing: (1) the maximum amount of the financing is 80% of the appraisal price of the property, as a general rule; (2) the maximum appraisal price for the financed unit is R$750,000 (applicable to the States of Rio de Janeiro, São Paulo, Minas Gerais and Distrito Federal) or R$650,000 (applicable to other Brazilian States); (3) the maximum actual cost to the borrower, which includes charges such as interest, fees and other financial costs, except insurance, may not exceed 12% per year; and (4) the borrower is responsible for the potential outstanding balance verified at the end of the financing term, (such term might be extended by half of the initial term).

SFH financings need to be secured by at least one of the following: (1) a first mortgage over the unit that is being financed; or (2) a conditional sale over the unit that is being financed, as prescribed by Law No. 9,514 of November 20, 1997, as amended by Law No. 10,931 of August 2, 2004, Law No. 11,076 of December 30, 2004, Law No. 11,481 of May 31, 2007, Law No. 12,703 of August 07, 2012, Law No. 12,810 of May 15, 2013, Law No. 13,043 enacted on November 13, 2014 and Law No. 13,097 enacted on January 19,2015 (“Law No. 9,514”); or (3) a first mortgage or conditional sale, as determined by Law No. 9,514, of other property owned by the borrower or by a third party; or (4) other guarantees, as established by the financing agent. SFH funds are only released upon the formalization of one of these methods of guaranteeing the loan.

The federal government has announced, in 2014, changes in the regulations on financing and construction in order to promote growth in the real estate market. Among the measures announced are: (1) all the acts involving immovable property will be entered on the property’s record in the land registry office, i.e., unregistered acts and actions enforceable against third parties in good faith, even if the unregistered act or action challenges ownership to the property; (2) the buyer of a real estate property will be able to give property as guarantee to finance another, or to purchase other assets with funds raised in savings accounts; (3) banks will be able to issue a new type of security, the Secured Real Estate Note (LIG – Letras Imobiliárias Garantidas), which is exempt from income tax to raise more funds and borrow to finance the purchase of real estate; (4) banks may grant payroll loans, in which the parcels will be charged to the worker's salary in the private sector with more facilities, resulting in lower interests; and (5) the Brazilian government will create a type of credit that will be easier for the bank to recapture the property in case of default.

Mortgage portfolio

While a large portion of the funds in the deposits in saving accounts are allocated to the SFH, some of the funds are allocated to loans granted at market rates. CMN Resolution No. 3,932/10 established that at least 65% of these deposits should be used for real estate financing, with a minimum of 80% of the financing going to housing loans under the SFH and the remaining balance for loans granted at market rates which are usually higher than in SFH loans, including mortgage portfolio used by banks for the concession of housing loans.

In early 2005 the Brazilian government took a number of measures to better regulate the use of the funds raised in savings account deposits in order to promote growth of the real estate sector, these measures included: (1) the cancellation of payments to the Central Bank of funds not invested in real estate financing in January, February and March; (2) the creation of a real estate interbank deposit market to allow financial institutions with excessive investments in real estate to trade with financial institutions that have capacity for more real estate credits; (3) a review of the factors used in the calculation guidelines of the SFH in order to stimulate financing for the acquisition of new real estate properties at a low cost, applicable as of January 1, 2005; (4) authorization for the SFH to provide financing to legal entities for the construction of development projects for their employees, provided that such entities follow all SFH guidelines; (5) in 2013, the increase in the operating limits of the SFH to units with a maximum sales price of R$750,000 and (6) in 2014, measures to facilitate the purchase of financed properties, as discussed in “Housing Finance System, or “SFH”” above. These changes have significantly increased the funds available for investments in the Brazilian real estate sector.

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Real Estate Finance System, or “SFI”

The SFI was created by Law No. 9,514 to establish assignment, acquisition and securitization criteria for real estate credits. The system seeks to develop primary (loans) and secondary (trading of securities backed by receivables) markets for the financing of real estate properties by creating advantageous payment conditions and special protection of creditors’ rights. The SFI supervises real estate financing transactions carried out by savings banks, commercial banks, investment banks, real estate credit portfolio banks, housing loan associations, savings and loan associations, mortgage companies and other entities authorized by the CMN to provide such financing. SFI real estate credits may be freely negotiated by the parties, under the following conditions: (1) the amount loaned and the related adjustments must be fully reimbursed; (2) interest must be paid at the rates established by the contract; (3) interest must be capitalized; and (4) borrowers must purchase life and permanent disability insurance.

Real estate sales, rental, or other real estate property financing in general, can be negotiated with non-financial institutions under the same conditions permitted by authorized entities under the SFI. In these cases, non-financial entities are authorized to charge capitalized interest rates greater than 12% per year.

The following types of guarantees are applicable to loans approved by the SFI: (1) mortgages; (2) fiduciary assignment of credit rights resulting from sales contracts; (3) guarantee of credit rights resulting from contracts of sale or promise of sale of property; and (4) conditional sale of real estate property.

Law No. 9,514 also reformed securitizations of real estate assets provisions, making them less expensive and more attractive. The securitization of credits in the context of the SFI is made through real estate securitization companies, non-financial institutions formed as joint stock companies whose objective is to acquire and securitize real estate credits. Funds raised by the securitizing companies can be made through the issuance of debentures or notes, or the creation of a new type of CRI. According to applicable law, CRIs are nominative credit securities issued exclusively by securitizing companies, backed by real estate credits, freely negotiated, and payable in cash. CRIs tend to have, among others, the following characteristics: they are issued in book-entry form, they may have fixed or floating interest rates and can be paid in installments, they may contain adjustment provisions, they are registered and traded through centralized systems of custody and financial settlement of private securities and they can be secured by the assets of the issuing company.

Minha Casa, Minha Vida program

Provisional Measure No. 459 enacted on March 25, 2009, converted into Law No. 11,977 enacted on July 7, 2009, amended by Law No. 12,249 enacted on June 11, 2010, Law No. 12,424 enacted on June 16, 2011, Law No. 12,693 enacted on July 24, 2012, Law No. 13,043 enacted on November 13, 2014 and Law No. 13,097 enacted on January 19, 2015, created a public housing program called “Minha Casa, Minha Vida.” Provisional Measure No. 514 enacted on December 1, 2010, converted into Law No. 12,424 enacted on June 16, 2011, modified the aforementioned legislation, which calls for government investment of more than R$30 billion and is focused on building one million houses for families with monthly incomes of up to ten times the minimum wage. Under this program, the government is authorized to finance families purchasing houses with assessed values between R$90,000 and R$190,000. Law No. 12,868 enacted on October 15, 2013, released resources for "Minha Casa Melhor", in which CEF provides to each beneficiary of the program "Minha Casa Minha Vida" subsidized credit up to R$5,000 for the purchase of furniture and appliances, with interest rate of 5% per year and repayable in 48 months.

Municipal Legislation

Municipal planning is regulated by articles 182 and 183 of the Federal Constitution and by Law No. 10,257 of July 10, 2001 (Estatuto da Cidade), as amended, or Law No. 10,257. Law No. 10,257 provides, among other things, for the establishment of (1) rules for the parceling, use and occupation of urban tracts of land in each municipality for the collective welfare and environmental balance of the community; and (2) a master plan, which shall be reviewed every 10 years. The master plan is the guiding tool used to plan developments in the urban areas of each municipality and is used as a reference by all public and private agents acting within the municipality. It establishes the strategic goals and general guidelines for urban construction, the objectives and guidelines for differentiated areas of planning and the instruments for their deployment.

We set out below certain details of the laws governing the municipal planning of the two major cities in which we operate, São Paulo and Rio de Janeiro:

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São Paulo municipality

City laws govern the zoning, construction, parceling, use and occupation of land in the municipality of São Paulo. They set forth technical and urban planning requirements for parceling, and provide that the division, subdivision or segregation of urban tracts of land are subject to the prior approval of the São Paulo municipal government. Moreover, the zoning laws describe the types of permissible uses for the land and their respective characteristics, by dividing São Paulo into areas of use with fixed locations, limits and boundaries. They also provide for fines and sanctions for noncompliance.

Municipal Law No. 11,228 of June 25, 1992, approved the Code of Works and Construction, regulated by Decree 32,329 of September 23, 1992, which governs administrative and executive procedures and sets forth the rules to be followed in the planning, licensing, execution, maintenance and use of public works and construction within properties in the municipality of São Paulo, and provides for sanctions and fines applicable in cases of non-compliance with these rules.

On July 31, 2014, Municipal Law No. 16,050 was published, replacing Municipal Law No. 13,430 of September 13, 2002, approving the master plan and creating the Planning System of the municipality of São Paulo and regulating the new master plan of the municipality. The new master plan provides a series of guidelines for the development and growth of the city of São Paulo for the next 16 years, in order to (i) incentivize the use of public and non-motorized forms of transport; (ii) reduce the housing deficit; (iii) improve the access of residential areas to commercial areas of the city; and (iv) incentivize the development of urban areas already equipped with with public transportation infrastructure, among other guidelines.

Rio de Janeiro municipality

Decree 322 of March 3, 1976, as amended, of the municipality of Rio de Janeiro, and Decree “E” 3,800 of April 20, 1970, as amended, of the then State of Guanabara, jointly created the municipality’s Zoning Regulation, Land Parceling Regulation and Construction Regulation. These regulations control the use of the municipality land, including urban zoning, use of properties, development of construction sites and conditions for the use of each zone in the municipality. The Ten-year master plan of the municipality, approved pursuant to Supplementary Law No. 111 of January 1, 2011, establishes rules and procedures related to urban policy of the municipality, determines guidelines, provides instruments for its execution and defines area policies and their related programs, aiming at meeting the social needs of the city.

Environmental Issues

We are subject to a variety of Brazilian federal, state and local laws and regulations concerning the protection of the environment, as well as urban regulations and zoning restrictions, as described below. Applicable environmental laws may vary according to the development’s location, the site’s environmental conditions and the present and former uses of the site. Compliance with these environmental laws may result in delays, cause us to incur in substantial costs, and prohibit or severely restrict project development. Before we purchase any real estate, we conduct investigations of all necessary and applicable environmental issues, including the possible existence of hazardous or toxic materials, as well as any inadequately disposed waste substances. During the investigations we also identify the existence of water wells and protected vegetation, observing the proximity of the real estate property to permanent preservation areas. We generally condition the real estate property acquisitions on obtaining the required regulatory approvals prior to closing.

We have adopted certain practices to further our commitment to environmental protection and landscape development. Through our Selective Collection Project, we have partnered in environmental education initiatives with private and governmental entities, including non-governmental organizations. We provide training to all of our outsourced workers (before we begin work on any particular project), that focuses on the importance of preserving the environment and how to effectively collect, store and control materials for recycling. Alphaville was given the “ECO Award” in 2006 and 2007 (by the American Chamber of Commerce), the “Top Ambiental Award” (Top Environmental Award) in 2007 and 2008 (by the Brazilian Association of Marketing and Sales Agents, in recognition for its environmentally responsible practices) and the “Top Social Award” in 2008 and 2009 (by the Brazilian Association of Marketing and Sales Agents, in recognition for its socially responsible practices). Our Eldorado Business Tower building is the first building in Latin American, to be pre-certified by the U.S. Green Building Council as a Leed CS 2.0 Platinum building for leadership in energy and environmental design.

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Environmental licenses and authorizations

Brazilian environmental policy requires environmental licenses and permits for the construction of real estate projects. Environmental licensing is required for both initial construction and alteration in existing developments, and the licenses must be periodically renewed. The Brazilian Institute of Environment and Renewable Natural Resources (Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis), or the IBAMA, is responsible for granting such licenses for projects with regional or national impact on the environment. In other cases, state or municipal environmental agencies are responsible for granting such environmental licenses, depending on the extent of environmental impacts caused by certain projects.

The environmental licensing process is comprised of three stages: preliminary license, installation license and operational license. The preliminary license, issued during the preliminary planning phase of the project, authorizes the location and basic development, and establishes the conditions and technical requirements to be observed in further stages of development. The installation license authorizes the facility’s construction. The operating license authorizes the commencement and continuation of operational activities. Operating licenses are subject to compulsory renewal depending on their validity. The licensing of activities that may impact the environment as determined by the competent environmental agency and according to the Environmental Impact Study and Environmental Impact Report (“EIA/RIMA”), requires environmental offset payments, to be invested in conservation units (e.g. national parks, biological reserves etc.), pursuant to Article 36 of Law No. 9,985/00. The value of the environmental offset is established by the environmental agency conducting the licensing proceeding, according to the “ecosystem impact level” of the proposed activity, pursuant to Article 31-A of Federal Decree No. 6,848/09.

The installation, operation or alteration of projects without proper and valid environmental licensing or the non-compliance with the conditions or technical requirements of the respective environmental licenses, may subject the violator to administrative sanctions that may range from fines (R$500 to R$10 million), as well as the suspension of activities and, depending on the specific circumstances, criminal liability (of individuals and companies), pursuant to Federal Law No. 9,605/98.

The construction, maintenance and sale of our projects may be hampered or halted by delays in the issuance of applicable licenses or even by failure to obtaining such licenses.

The construction of real estate developments often requires land moving activities, and in many cases, the cutting down of trees. In addition to environmental licenses and permits, Brazilian legislation requires specific environmental authorizations for the development of projects, based on the characteristics of the project, its location and the natural features inherent to the area. The development of projects that require the cutting trees or removing vegetation must receive specific authorizations from environmental agencies. Companies that apply for an authorization for vegetation removal are required to perform the reforestation of other areas as a compensatory measure, such as reforestation or to repair the affected areas, which may imply additional expenses. Brazilian legislation also requires special protections for certain specific types of flora and areas with special ecological purpose, imposing additional legal requirements to removal of such vegetation.

The removal of vegetation without proper and valid authorization, or non-compliance with the authorization requirements, may subject the transgressor to civil liability (in case environmental damage occurs), administrative sanctions (such as fines) and, according to specific circumstances, criminal liability (of individuals and/or companies), pursuant to Federal Law No. 9,605/98.

The licensing of projects with relevant environmental impacts located in a conservation unit or within its buffer zone will depend on prior authorization from the conservation unit’s managing office. In addition, the development of projects that require water abstraction from bodies of water or groundwater, as well as the discharge of effluents into water bodies, are subject to specific water use grants, to be issued by the relevant authorities. Water use grants are subject to certain conditions and technical requirements, including maximum capacity requirements and effluent treatment standards.

Waste disposal

Brazilian legislation relies on several standards and procedures for waste management. All waste must be properly stored, treated, transported and disposed of, in order to avoid the occurrence of environmental damages – and as a result, environmental liability.

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The Brazilian “National Waste Management Policy” and CONAMA Resolution 307/2002 specifically regulates the handling of solid waste generated by the construction sector. Companies are required to present and have a solid waste management plan approved by state environmental agency and must comply with the conditions and obligations set forth in such plan. Failure to comply with such obligations may lead to civil (obligation to repair/indemnify in case of pollution), administrative (e.g. fines, suspension of activities etc.) and, according to specific circumstances, criminal liability.

Regarding civil liability, because Brazilian legislation imposes strict, joint and several liability for environmental damages, companies may be held liable for any environmental damages that may arise as a result of its activities, including waste generated thereof, which must be properly stored, treated, transported and disposed of. Likewise, the hiring of third parties for management of waste generated from our activities does not exempt us from civil environmental liability.

Contaminated areas

We develop and construct projects in several states within Brazil. Each state has its Environmental Secretary and/or Environmental Agency. The São Paulo State Secretary of Environment (Secretaria de Estado do Meio Ambiente de São Paulo), or the “SMA,” and the State Environmental Agency of São Paulo (Companhia Ambiental do Estado de São Paulo), or “CETESB,” are the principal environmental regulatory entities of the State of São Paulo, and they have adopted procedures with regard to the management of contaminated areas, including the creation of environmental standards to preserve the quality of land and underground water, as well as procedures to be complied with if contamination is confirmed. The standards established by CETESB are used as reference by most Brazilian states that have no specific regulation on contaminated land management.

In addition, the Rio de Janeiro State Secretary of Environment (Secretaria de Estado do Meio Ambiente e Desenvolvimento Urbano do Rio de Janeiro) and the Rio de Janeiro State Environmental Agency, or “INEA,” also maintain their own quality standards, in combination with those established by the National Environmental Council (Conselho Nacional do Meio Ambiente), or “CONAMA”. Other states have similar requirements.

If contaminated areas are identified in the development of our projects, we must provide proper disclosure to environmental authorities and registration before real estate property records. Given the strict liability regime, we may be required to proceed with the remedial actions deemed necessary by environmental agencies in order to comply with technical standards set forth for each kind of project, even if we have not caused the contamination, and may result in delays for the project development’s completion. Prior approval from environmental agencies before engaging in remedial actions may be necessary. All emergency actions to prevent and mitigate risks to the environment and public health, if required, must be adopted promptly and at our expense.

Non-compliance with the guidelines established by the environmental and health entities may result in criminal, as well as administrative penalties. Moreover, the owners of properties may be required to pay for costs relating to the clean-up of any contaminated soil or groundwater located in their properties, even if they did not cause the contamination.

If there are contaminated areas in the properties where our projects will be developed, this must be disclosed to our clients.

Environmental liability

Article 225 of the Brazilian Federal Constitution, provides that “activities that are harmful to the environment shall subject violators, whether individuals or companies, to criminal and administrative sanctions, regardless of the obligation to repair the damage caused.” Therefore, the Brazilian Federal Constitution provided for environmental liability in three distinct fields: civil, administrative and criminal. As an example, payment of an administrative fine does not offer exemption from the duty to make reparations or indemnify for damages that might be caused by harmful conduct, nor does it offer exemption from possible criminal charges prompted by the event.

Civil environmental liability in Brazil is considered by case law as propter rem, that is, liability attaches to the real estate property. Therefore, whoever buys environmentally damaged land will succeed in the liability for the clean-up or recovery and for reparation of potential damage to third parties. Although this liability can be contractually allocated between the parties, it cannot be opposed either administratively or before third parties, meaning the concept of a bona fide prospective purchaser does not exist in civil environmental liability in Brazil.

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In addition, Federal Law No. 6,938/81 establishes strict liability for the recovery of environmental damages or, if not possible, compensation or indemnity for such damages, with joint and several liability established among all those directly or indirectly contributing to environmental degradation, regardless of the degree of participation in the damage. Each of those involved may be held liable for the full amount of the damages.

At the administrative level, environmental liability may be assigned through administrative sanctions imposed by the competent environmental entities, pursuant to Law No. 9,605/98 which “rules on the criminal and administrative sanctions deriving from conduct and activities that are harmful to the environment” and pursuant to Federal Decree No. 6,514/08. These sanctions may include, among others: (1) fines of up to R$50 million, tailored to the economic capacity and track record of the offender, in addition to the severity of the facts and past performance, with the possibility of these fines being imposed at double or triple rates for repeated offenses; (2) suspension or interdiction of the activities of the respective enterprise; and (3) withdrawal of tax incentives and benefits. Administrative liability falls on the person engaged in the conduct described as an administrative offense.

Criminal liability is personal, arising directly from the unlawful conduct of the agent, with the crimes necessarily being specifically addressed in the law. Brazilian law allows criminal liability to be assigned to individual persons as well as corporate entities. When liability is assigned to the latter, the individual persons taking the decision that resulted in the criminal conduct (such as directors, officers, administrators, board members, members of technical entities, auditors, managers, agents or representatives) may also be penalized to the extent of their culpability. Moreover, Brazilian environmental legislation determines that the corporate veil may be pierced whenever the veil is considered to be an obstacle to recovery for environmental damages. As a result the controlling legal entity can be found liable despite a limited liability legal status.

Although administrative and criminal liability require a direct connection with the action or omission that resulted in breach of environmental legislation or environmental damage, financial penalties may be imposed that may pierce the corporate veil and disregard the legal entity doctrine. Article 4 of Federal Law No. 9,605/1998 expressly provides for the possibility of piercing the corporate veil if necessary for the recovery or compensation of environmental damages.

C. Organizational Structure

The following chart shows our organizational structure for our principal subsidiaries, including our now affiliate Alphaville, all of them incorporated in Brazil, as of December 31, 2014:

(*) At December 31, 2012 we held 80% of this entity and 30% at December 31, 2013 and December 31, 2014.

(**) At December 31, 2013 we held 70% of this entity and acquired the 30% remaining in November 21, 2014.

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For more information on our remaining subsidiaries and jointly-controlled entities, see “Item 4. Information on the Company—B. Business Overview—Subsidiaries.” A list of our significant subsidiaries as determined in accordance with Rule 1-02(w) of Regulation S-X is being filed as Exhibit 8.1 to this annual report.

D. Property and Equipment

We lease our headquarters located at Av. Nações Unidas No. 8,501, 19th floor, São Paulo, SP — Brazil. We also lease our branch office located at Av. Dr. Marcos Penteado de Ulhôa Rodrigues, 939, 11th floor – Jatobá Tower, Barueri, SP — Brazil. Currently, we and our main subsidiaries leased approximately 16,094 square meters. We believe our current facilities are adequate for the full development of our operations.

As of December 31, 2014, our property and equipment recorded on our balance sheet mainly consisted of sales stands, facilities, model apartments, computer equipment, vehicles and leasehold improvements, among others, the balance of which was R$48.7 million.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A. Operating Results

In 2010, we retrospectively applied new Brazilian GAAP accounting pronouncements (new CPCs) as from January 1, 2009. All periods presented from January 1, 2009 reflect such new accounting practices. The financial statements for the years ended December 31, 2014, 2013, 2012, 2011 and 2010 were prepared in accordance with the accounting practices adopted in Brazil, which comprise the rules of the Brazilian Securities Commission (CVM), and the standards, interpretations and guidelines of the Accounting Standards Pronouncements Committee (CPC), and are in compliance with the International Financial Reporting Standards (IFRS) adopted in Brazil, including the Guideline OCPC 04—Application of the Technical Interpretation ICPC 02 to the Brazilian Real Estate Development Entities—regarding the revenue recognition, and the respective costs and expenses arising from real estate development operations over the construction progress (percentage of completion method). The new Brazilian GAAP applied by us is not in compliance with IFRS as issued by IASB.

Following the acquisition, formation and incorporation of the entities Alphaville, FIT and Bairro Novo in 2007 and following the merger of FIT into Tenda in 2008, our financial results for 2007 and 2008 included the results of the following segments: Gafisa S.A., Alphaville, Tenda, FIT (merged with Tenda in October 2008) and Bairro Novo. Further, following Gafisa’s withdrawal from Bairro Novo and the exchange of all the remaining Tenda shares not held by Gafisa into Gafisa shares, our financial results for 2013, 2012, 2011 and 2010 included the results of the following segments” Gafisa S.A., Alphaville and Tenda. On December 9, 2013, we completed the sale of a majority interest in Alphaville to Private Equity AE Investimentos e Participações (“Fundo AE”), a company controlled by Pátria Investimentos Ltda. and Blackstone Real Estate Advisor L.P., which was previously announced on June 7, 2013. All conditions precedent to the completion of the transaction were met, including governmental approval. The transaction was concluded with a sale of 50% interest by Gafisa and 20% interest by Tenda, with Gafisa retaining the remaining 30% of Alphaville capital stock. As a result, since November 30, 2013, Alphaville results are no longer consolidated in our financial statements.

In October 2014, Shertis Empreendimentos e Participações S.A. or “Shertis”, which held a 20% interest in the capital stock of Alphaville, was merged into Gafisa. As a result and as of the date of this annual report, we hold a 30% interest in the capital stock of Alphaville.

On November 21, 2014, we acquired the remaining shares of Cipesa Empreendimentos Imobiliários S.A. in the amount of R$6,354. As a result of this transaction, the Company recorded a net effect of the write-off of goodwill, in the amount of R$17,604.

See “Item 4. Information on the Company—A. History and Development of the Company—Historical Background and Recent Developments.” Our chief executive officer, who is responsible for allocating resources among these businesses and monitoring their progress, uses economic present value data, which is derived from a combination of historical operating results and forecasted operating results, to assess segment information primarily on the basis of different business segments.

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Overview

We generate our revenues mainly from the development and sale of real estate developments. We recognize revenues from the sale of real estate developments over the course of their construction periods, based on a financial measure of completion and not at the time that the sales agreements are executed. To a lesser extent, we also generate revenues from real estate services such as construction, technical and real estate management we render to third parties. We structure some of our projects through either our subsidiaries or jointly-controlled entities organized as special purpose vehicles.

Brazilian Economic Environment

Our business and results of operations are significantly affected by changes in the Brazilian economic environment, including changes in employment levels, population growth, consumer confidence, stability of income levels and availability of financing for land home site acquisitions.

At the end of 2010 and in the beginning of 2011, the Central Bank began implementing more restrictive monetary policies as a precaution against unsustainable economic growth. In the second half of 2011, with growing uncertainty in economic conditions, due in part to ongoing volatility in global financial markets, particularly in Europe, the Central Bank began to implement an easing process. As of December 31, 2011, the Central Bank had set the basic interest rate at 11% and the real depreciated by 12.6% relative to the U.S. dollar in 2011. As of December 31, 2011, the real/U.S. dollar exchange rate was R$1.87 per US$1.00. During this period, inflation according to the INPC was 6.50%.

By the second half of 2011, the Brazilian economy faced growing uncertainty and economic conditions began to deteriorate, due in part to ongoing volatility in global financial markets, particularly in Europe. In order to avoid a contraction in economic growth, the Central Bank began to implement easing measures combining macroeconomic policies and interest rate decreases in order to stimulate demand.

As of December 31, 2012, the Central Bank had set the SELIC rate at 7.25%. As a result, the real depreciated 8.8% relative to the U.S. dollar in 2012. As of December 31, 2012, the real/U.S. dollar exchange rate was R$2.048 per US$1.00. During this period, inflation according to the IPCA was 5.8%.

As of December 31, 2013, the Central Bank set the SELIC rate at 10%. As a result, the real depreciated 13.2% relative to the U.S. dollar in 2013. As of December 31, 2013, the real/U.S. dollar exchange rate was R$2.3575 per US$1.00. During this period, inflation according to the IPCA was 5.9%.

As of December 31, 2014, the Central Bank set the SELIC rate at 11.75%. As a result, the real depreciated 12.7% relative to the U.S. dollar in 2014. As of December 31, 2014, the real/U.S. dollar exchange rate was R$2.6550 per US$1.00. During this period, inflation according to the IPCA was 6.4%.

The table below shows the actual growth of the Brazilian GDP, inflation, interest rates and dollar exchange rates for the periods indicated:

	Year ended December 31,
	2014			2013			2012
	(%, unless otherwise stated)
Real growth in GDP		n/a			2.3			0.9
Inflation rate (INPC)(1)		6.2			5.5			5.1
Inflation rate (IGP—M)(2)		3.7			5.5			7.8
National Construction Cost Index (INCC)(3)		6.9			8.1			7.1
TJLP rate(4)		5.0			5.0			5.5
CDI rate(5)		10.8			8.1			8.4
Appreciation (devaluation) of the real vs. US$		(12.7	)		(13.2	)		9.9
Exchange rate (closing) — US$1.00	R$	2.65		R$	2.35		R$	2.05
Exchange rate (average)(6) — US$1.00	R$	2.35		R$	2.18		R$	1.96

(1)	INPC: consumer price index measured by the IBGE.

(2)	General Market Price Index (Índice Geral de Preços-Mercado) measured by the FGV.

(3)	National Index of Construction Cost (Índice Nacional de Custo da Construção) measured by the FGV.

(4)	Represents the interest rate used by BNDES for long-term financing (end of period).

(5)	Represents an average of interbank overnight rates in Brazil (accumulated for period-end month, annualized).

(6)	Average exchange rate for the last day of each month in the period indicated.

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Brazilian Real Estate Sector

The Brazilian real estate sector is characterized by cyclical performance influenced by various macroeconomic factors. Demand for housing, the availability of financing and growth in population and incomes are, among others, factors that influence the performance of the real estate market.

Since 1994, Brazil’s ability to control inflation has contributed to the country’s economic recovery (particularly at the lower income level) and allowed Brazil to assert itself more effectively into the global economic context. For example, during the second half of the 1990s, policies that promoted economic liberalization and privatization of public services facilitated a significant influx of foreign investment. This environment generated pressure among the Brazilian financial and business communities to encourage responsible and transparent public management, promoting economic stability. In general, the current and previous presidential administrations have adopted comparatively austere economic policies, characterized by increased independence of the Central Bank, transparency and control over public accounts. Another significant effect of Brazil’s heightened international profile and economic stability was an increase in the competitiveness of various economic sectors, with a notable improvement in standards of corporate administration and governance. This pattern, along with favorable conditions in the global economy, has contributed to improved economic indicators in Brazil.

In addition, since 2006, the Brazilian government has enacted incentives in the real estate sector, including the following:

Provisional Measure No. 321 enacted on September 12, 2006, later converted into Law No. 11,434 enacted on December 28, 2006 and amended by Law No. 12,599 enacted on March 23, 2012, gave banks the option to charge fixed interest rates on mortgages;

Law No. 10,820 enacted on December 17, 2003, amended by Law No. 10,953 enacted on September 27, 2004, regulated by Decree No. 5,892 enacted on September 12, 2006, as amended by Decree No. 4,840 enacted on September 17, 2003, as amended by Law No. 13,097 enacted on January 19, 2015, allowed payroll deductible mortgage loans to employees of both public and private entities;

Decree No. 6,006 enacted on December 28, 2006, replaced by Decree No. 7,660 enacted on December 23, 2011, implemented a 50% tax cut on Tax on Manufactured Products (Imposto sobre Produtos Industrializados), or IPI, levied on the acquisition of important construction products, including certain types of tubes, ceilings, walls, doors, toilets and other materials. In 2009, other decrees eliminated the IPI levied on the acquisition of similar products, but were implemented for a limited term only and were set to expire in March 2010, but were extended until December 31, 2012;

Provisional Measure No. 514 enacted on December 1, 2010, converted into Law No. 12,424 enacted on June 16, 2011 confirmed the extension of “Minha Casa, Minha Vida” through 2014, and a total investment of R$72 billion, more than doubled the R$34 billion allocated to the initial program. The goal of the second phase of the “Minha Casa, Minha Vida” program is to deliver two million homes in four years encompassing an even lower income segment than previously targeted, but also expanded the current resources available to 40% of the total new amount to be destined to the lower-income segments;

Provisional Measure No. 620 enacted on June 12, 2013, converted into Law No. 12,686 enacted on October 15, 2013, which released resources for "Minha Casa Melhor", in which CEF provides to each beneficiary of the program "Minha Casa Minha Vida" subsidized credit up to R$5,000 for the purchase of furniture and appliances, with interest rate of 5% per year and repayable in 48 months; and

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Provisional Measure No. 656 enacted on October 7, 2014, converted into Law No. 13,097 enacted on January 19, 2015, which establishes mechanisms for protecting purchasers and recipients of in rem rights which enter into legal transactions based on the information contained in the real estate records. In addition, deals with payroll loans, establishing the concentration of acts in the real estate property registration and creates the Real Estate Covered Bonds (LIG - Letras Imobiliárias Garantidas).

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with Brazilian GAAP requires management to make judgments, estimates and adopts assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, as well as the disclosure of contingent liabilities, at the balance sheet date. Assets and liabilities subject to estimates and assumptions include the useful life of property plant and equipment, impairment of assets, deferred tax assets, provision for uncertainty tax positions, labor and civil risks, and the measurement of the estimated cost of ventures and financial instruments. Estimates are used for, among other things, impairment of non-financial assets, transactions with share-based payment, provisions for tax, labor and civil risks, fair value of financial instruments, estimated costs of ventures and other similar charges. Although we believe that our judgments and estimates are based on reasonable assumptions that are subject to several risks and uncertainties and are made in light of information available to us, our actual results may differ from these judgments and estimates.

In this sense, we set forth below summarized information related to our critical accounting policies. See the note 2.2 to our consolidated financial statements, included elsewhere in this annual report for further information on these and other accounting policies we adopt.

Impairment of non-financial assets

We annually review the carrying amount of assets with the objective of evaluating events or changes in the economic, operational or technological circumstances that may indicate a decrease or loss of its recoverable amount. Should such evidences exist, and the carrying amount exceeds the recoverable amount, a provision for impairment loss is recognized in the income statement by adjusting the carrying amount to the recoverable amount. A test for impairment of intangible assets with indefinite useful lives and goodwill is performed at least annually or when circumstances indicate a decrease in the carrying amount. As of December 31, 2014, the Company has recorded a provision for impairment for land and goodwill related to the acquisition of Cipesa Empreendimentos Imobiliários S.A.

The recoverable amount of an asset or of a certain cash-generating unit is defined as the highest between its value in use and its fair value less costs to sell. When estimating the value in use of an asset, the estimated future cash flows are discounted to present value using a discount rate before taxes that reflects the weighted average cost of capital for the industry in which the cash-generating unit operates. Cash flows are derived from the budget for the following five years, and do not include restructuring activities for which the Company has not yet committed or future significant investments that will improve the asset basis of the cash-generating unit being tested. The recoverable amount is sensitive to the discount rate adopted under the discounted cash flow method, as well as the estimated future cash inflows and to the growth rate used. The fair value less costs to sell is determined, whenever possible, based on a binding sale agreement in an arm’s length transaction between the knowledgeable and willing parties, adjusted by expenses attributable to the sale of the asset, or, in the absence of a binding sale agreement, based on the market price in an active market, or on a recent transaction with similar assets.

The main assumptions used in the estimate of value in use are the following: Revenue – revenues were projected between 2015 and 2019 considering the growth in sales and client base of the different cash-generating units. Operating costs and expenses – costs and expenses were projected in line with the Company’s historical performance, as well as the historical growth of revenues. The key assumptions were based on the Company’s historical performance and on reasonable macroeconomic assumptions, and supported by the financial market projections, documented and approved by the Company’s management.

Properties for sale

Our properties for sale are stated at construction cost, which cannot exceed its net realizable value. In the case of real estate developments in progress, the portion in inventory corresponds to the cost incurred for units that have not yet been sold.

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The cost of properties for sale includes expenditures incurred in the acquisition of the land and in construction (including foundation, structure, finishing and the respective costs of construction materials), costs of own and outsourced labor, and financial costs directly related to the ventures.

Land is recorded at acquisition cost. See “Item 4. Information on the Company—B. Business Overview—Our Operations—Land Acquisition”. Land can be acquired in cash, in installments, bartered for units that are completed or in construction of other ventures, or bartered for receivables from future sales of ventures. The cost of land related to bartered units is formed by the estimated sale price in cash, this fair value being recorded as contra-entry to the advances from customers-barter.

The interests of loans and financing directly related to ventures financed by the National Housing System (SFH) and other credit facilities which funds are used to finance the construction and acquisition of land are capitalized over the development and construction stage, and appropriated to statement of operations in the proportion to the units sold.

We adopt the policy of annually conducting tests on the units in construction and completed units, comparing the unit construction cost with the sale value of units in inventory. The assumptions that usually underlie the calculation of the recoverable value of assets are based on expected cash flows, economic viability studies of real estate ventures that show the recoverability of assets or its market value, all discounted to present value.

The classification of land into current or non-current assets is carried out by the Management based on the schedule of the real estate venture launches. Management periodically reviews the estimates of real estate venture launches.

We have evaluated all of our developments for impairment and have not identified any cases of impairment for any of our properties for sale and no impairment provisions have been recorded for any of our developments for the year ended December 31, 2010. In accordance with our internal policy, each individual project launched has been internally evaluated taking into consideration the following: (1) assumptions for market, sales forecast, economics and operation conditions; (2) cash flow analysis using the discounted cash flow method; (3) approval by an investment committee; and (4) inclusion in the business plan regarding the timetable and backlog for development releases. This process is part of our corporate governance practices. We update the assumptions on an annual basis and consider the continuing viability for each project for impairment test purposes. In 2011, we made a decision to sell a portion of our landbank given our narrowed geographic focus and our evaluation of impairment resulted in recording a provision for impairment on landbank and properties for sale in the amount of R$92.1 million. In December 2012, we had R$53.8 million recorded as a provision for impairment on landbank and properties for sale. As of December 31, 2013, we had R$68.5 million recorded as a provision for impairment on landbank and properties for sale. As of December 31, 2014, we had R$63.5 million recorded as a provision for impairment on landbank and properties for sale.

Transactions with share-based payment

We measure the cost of transactions with employees to be settled with shares based on the fair value of equity instruments on the grant date. The estimate of the fair value of share-based payments requires the determination of the most adequate pricing model to grant equity instruments, which depends on the grant terms and conditions. It also requires the determination of the most adequate data for the pricing model, including the expected option life, volatility and dividend income, and the corresponding assumptions.

Provisions for legal claims

We recognize a provision for tax, labor and civil claims. The assessment of the probability of a loss includes the evaluation of the available evidences, the hierarchy of Laws, existing case laws, the latest court decisions and their significance in the judicial system, as well as the opinion of external legal counsel. The provisions are reviewed and adjusted to take into account the changes in circumstances, such as the applicable expiration term, findings of tax inspections, or additional exposures found based on new court issues or decisions. The settlement of transactions involving these estimates may result in amounts different from those estimated in view of the inaccuracies inherent in the process of estimating them. The Company reviews its estimates and assumptions at least annually.

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Taxes on income

Current income tax and social contribution

Current income tax is the expected tax payable or receivable to be offset in relation to taxable profit or loss for the year. To calculate the current income tax and social contribution on net profits, we adopt the regime set forth by Law No. 12,973 enacted on May 13, 2014 and in force as of January 1, 2015. The new regime is based on the Brazilian accounting standards introduced by Laws No. 16,638/2007 and No. 11,941/2009, from the tax basis of such taxes, thus revoking the RTT.

Taxes on income in Brazil comprise income tax (25%) and social contribution on net profits (9%), for entities on the standard profit regime, for which the composite statutory rate is 34%. Deferred taxes for these entities are provided on all temporary tax differences at the balance sheet date between the tax bases of assets and liabilities, and their carrying amounts.

As permitted by tax legislation, certain subsidiaries opted for the presumed profit regime, a method under which taxable profit is calculated as a percentage of gross sales. For these companies, income tax is calculated on presumed profits of 8% of gross revenues and social contribution on presumed profits of 12% on gross revenues, to which income tax and social contribution rates of 25% and 9%, respectively, are applied.

As permitted by tax legislation, the development of certain ventures are subject to the “afetação” regime, based on which the land and its features where a real estate will be developed, as well as other binding assets and rights, are separated from the assets of the developer and comprise the “patrimônio de afetação” (detached assets) of the corresponding development and which real estate units will be delivered to the buyers. In addition, certain subsidiaries made the irrevocable option for the Special Taxation Regime (RET), adopting the “patrimônio de afetação”, according to which the income tax and social contribution on net profits are calculated at 1.92% on monthly gross revenues (4%, also levying PIS and COFINS on revenues).

On May 13, 2014, Provisional Measure No. 627 was converted into Law No. 12,973/14, revoking the RTT and bringing significant changes to Brazilian tax legislation. The new rules came into effect on January 1, 2015, with an option to adhere to the new rules from January 1, 2014. During 2014, we analyzed the potential impact of the new rules on our consolidated financial statements and internal controls structure. Based on our analysis, we concluded that the new rules would not have a material impact on how we account for taxes in 2014 and we therefore opted not to adopt them from January 1, 2014.

Deferred income tax and social contribution

Deferred tax is recognized in relation to tax losses and temporary differences between the carrying amount of assets and liabilities for accounting purposes and the corresponding amounts used for tax purposes. It is recognized to the extent that it is probable that future taxable income will be available to be used to offset deferred tax assets, based on profit projections made using internal assumptions and considering future economic scenarios that estimate their full or partial use. The recognized amounts are periodically reviewed and the impacts of realization or settlement are reflected in compliance with tax legislation provisions. Tax credits on accumulated tax losses do not have an expiration date, however, they can only be offset against up to 30% of the taxable profit for each year. Companies that opt for the presumed profit tax regime do not record tax losses and do not have temporary differences, and for this reason, deferred taxes are not recognized.

To the extent that the realization of deferred tax assets is not considered to be probable, this amount is not recorded. We record deferred tax on a net basis, determined by a legal entity and same jurisdiction. For entities with cumulative tax losses for the last three years, the Company and its subsidiaries recognized deferred tax assets and liabilities based on the following assumptions:

100% of deferred tax liabilities on temporary differences;

Deferred tax assets on temporary differences that have realization terms similar to deferred tax liabilities, and relate to the same legal entity, are recorded up to the limit of the deferred tax liabilities; and

In situations where recent losses indicate that future taxable income is uncertain, deferred tax assets are not recognized on deductible temporary differences in excess of deferred tax liabilities recorded on taxable temporary difference liabilities nor is an asset recognized for the carry forward of unused tax losses.

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Provision for non-recognition of the deferred tax asset balance

Our projections assume that a significant portion of our business will be conducted in our principal holding companies, and this enables the recovery of a substantial portion of our accumulated tax losses.

However, several external factors, beyond our control, may affect such tax calculations, in addition to possible requirements to segregate ventures in their own development entities (SPEs, for example) to a greater extent than we intend. There is also the possibility that taxation rulings relating to new ventures or even ventures that have already been developed within the principal holding companies, may require the exclusion of such businesses and for such businesses to file their own tax returns separate from that of the Company.

A reduction in the concentration of projects in holding companies with tax losses carried forward may, therefore, compromise the expected recovery of losses carried forward, which is the reason we partially recognized a deferred income tax asset.

Fair value of financial instruments

When the fair value of the financial assets and liabilities presented in the balance sheet cannot be obtained in the active market, it is determined using valuation techniques, including the discounted cash flow method. The data for such methods is based on those practiced in the market, when possible; however, when it is not viable, a certain level of judgment is required to establish the fair value. The judgment includes considerations on the data used, such as liquidity risk, credit risk, and volatility. Changes in the assumptions about these factors may affect the presented fair value of financial instruments.

Estimated cost of construction

Total estimated costs, mainly comprising the incurred and future costs for completing the construction works, were reviewed in the preparation of these financial statements, and changes to estimates are possible.

Development and sale of real estate

Real estate development and sales

Revenues, as well as costs and expenses directly relating to real estate development units sold and not yet finished, are allocated to the income statement over the construction period and the following procedures are adopted:

(a) For the sales of completed units, revenues are recorded when the sale is completed and the transfer of significant risks and benefits has occurred, regardless of the receipt from the customer of the contracted amount;

(b) For the sales of units under construction, the following applies:

The incurred cost, including the cost of land, and other directly related expenditure, that correspond to the units sold is fully recorded into the consolidated statement of operations;

Sales revenues are appropriated to profit or loss, using the percentage-of-completion method for each venture, this percentage being measured in view of the incurred cost in relation to the total estimated cost of the respective ventures

Revenue recognized in excess of actual payments received from customers is recorded as either a current or non-current asset in “Trade accounts receivable”. Any payment received in connection with the sales of units that exceeds the amount of revenue recognized is recorded as “Payables for purchase of land and advances from customers";

Interest and inflation-indexation charges on accounts receivable as from the time the units are delivered, as well as the adjustment to present value of accounts receivable, are appropriated to the income statement on a pro rata basis using the accruals basis of accounting;

The financial charges on accounts payable for acquisition of land and those directly associated with the financing of construction are recorded in properties for sale and recorded in the incurred cost of finished units until their completion, and follow the same recognition criteria as for the recognition of the cost of real estate units sold while under construction;

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Taxes levied and deferred on the difference between real estate development revenues and the cumulative revenue subject to tax are calculated and recognized when this difference in revenue is recognized; and

Advertising and publicity expenses are recorded in the consolidated income statement as accrual basis.

Construction services

Revenues from real estate services are recognized as services are rendered and consist primarily of amounts received in connection with construction management activities for third parties, and technical advisory services.

Barter transactions

Barter transactions have the objective of receiving land from third parties and are settled with the delivery of real estate units or transfer of portions of the revenue from the sale of real estate units of ventures. The value of the land acquired is determined based on the fair value, as a component of inventory of properties for sale, with a corresponding entry to advances from customers’ liabilities. Revenues and costs incurred from barter transactions are included in profit or loss over the course of construction period of ventures, as described in item (b).

Allowance for doubtful accounts and cancelled contracts

We annually review its assumptions to set up an allowance for doubtful account and cancelled contracts, in view of the review of the histories of its current operations and improvement of estimates.

We record an allowance for doubtful accounts and cancelled contracts for customer whose installments are over 90 days past due, in several types of construction work: construction works on time, construction works delayed (within the grace period), works that are late (out of the grace period) and for delivered completed units. This allowance is calculated based on the percentage of the construction work completion, a methodology adopted for recognizing income for the year.

Launches and Contracted Sales

Launches

The table below presents detailed information on our launches for the periods presented, including developments launched by our jointly-controlled entities in partnership with third parties:

	As of and for the year ended December 31,
	2014		2013		2012
Launches (in millions of reais)		1,636		2,886		2,952
Number of projects launched		23		37		35
Number of units launched(1)		6,104		11,072		8,947
Launched usable area (m2)(2)(3)		326,421		2,893,541		3,153,251
Percentage of Gafisa investment		100%		76%		79%

(1)	The units delivered in exchange for land pursuant to barter arrangements are not included.

(2)	One square meter is equal to approximately 10.76 square feet.

(3)	Does not include Terreno Cajamar Alphaville (approximately 5,420,927m²).

In 2014, we launched 23 residential developments with a total potential sales value of R$1.6 billion, with Gafisa accounting for 62.5% of launches and Tenda for 37.5% in terms of potential sales value. 11 of the developments we launched were located in the state of São Paulo, 6 developments were located in the state of Rio de Janeiro and the remaining 6 developments were located in Camaçari, Salvador and Lauro de Freitas, in the state of Bahia, Vespasiano, in the state of Minas Gerais and Jaboatão dos Guararapes, in the state of Pernambuco.

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In 2013, we launched 37 residential developments with a total potential sales value of R$2.9 billion, with Gafisa accounting for 38% of launches, Tenda for 12% and Alphaville the remaining 51% in terms of potential sales value. The total sales value for 2013 was approximately 2% lower than the total sales value of R$3.0 billion for 35 residential developments launched in 2012. In 2013, 18 of the 37 developments we launched were located in the state of São Paulo, while another four developments were located in the state of Rio de Janeiro. The remaining 15 residential developments launched were located in cities of Camaçari, in the state of Bahia, Porto Alegre, in the state of Rio Grande do Sul, Salvador, in the state of Bahia, Ponta Grossa, in the state of Paraná, Vitória da Conquista, in the state of Bahia, Barra dos Coqueiros, in the state of Sergipe, Feira de Santana, in the state of Bahia, Dourados, in the state of Mato Grosso do Sul, Anápolis, in the state of Goiás, Linhares, in the state of Espírito Santo and Belém in state of Pará. In 2012, we launched 35 residential developments with a total potential sales value of R$3.0 billion, with Gafisa accounting for 54% of launches and Alphaville the remaining 46% in terms of potential sales values (compared to a 28% share in 2011). This sales value was approximately 21% lower than that achieved in 2011, during which we launched 49 residential developments totaling R$3.5 billion. We refocused our business operations in 2012 to prioritize cash flow and reduction of net debt reduction, restructuring the debt profile and reducing launches of new units, while still generating what we consider to be an appropriate volume of business of R$3.0 billion. In 2012, 17 of the 35 developments we launched were located in the state of São Paulo, while another three developments were located in the state of Rio de Janeiro. The remaining 15 residential developments launched were located in the cities of Juiz de Fora, in the state of Minas Gerais, Aracaju, in the state of Sergipe, Anapolis, in the state of Goiás, Mossoró, in the state of Rio Grande do Norte, Vespasiano, in the state of Minas Gerais, Brasília, in the state of Distrito Federal, Barra dos Coqueiros, in the state of Sergipe, Teresina, in the state of Piaui, Pelotas, in the state of Rio Grande do Sul, Porto Velho, in the state of Roraima, Vitória da Conquista, in the state of Bahia, Resende, Campo Grande, in the state of Mato Grosso do Sul and Camaçari, in the state of Bahia.

During 2014, approximately 16.6% of our launches in terms of potential sales value was generated from launches outside the states of São Paulo and Rio de Janeiro. The affordable entry-level business accounted for approximately 37.5% of our total sales value for the year ended December 31, 2014, of which 44.2% was generated from launches outside the states of São Paulo and Rio de Janeiro.

During 2013, approximately 37.4% of our launches in terms of potential sales value was generated from launches outside the states of São Paulo and Rio de Janeiro. The affordable entry-level business accounted for approximately 20% of our total sales value for the year ended December 31, 2013. During 2012, approximately 37.8% of our total sales value was generated from launches outside the states of São Paulo and Rio de Janeiro. The affordable entry-level business accounted for approximately 3% of our total sales value for the year ended December 31, 2012. For the year ended December 31, 2011, the affordable entry-level business represented approximately 10% of our total sales value.

In 2014, Gafisa launches totaled R$1.0 billion, a 6% decrease compared with 2013.

Contracted sales for the year totaled R$811 million, down 16% from 2013. Sales of units launched over the year accounted for 42.2%, while sales of inventories accounted for the remaining 57.8%.

In 2013, Gafisa launches totaled R$1.1 billion, a 32.5% decrease compared with 2012, with the Gafisa segment accounting for 38% of the consolidated launches for the period.

Contracted sales for the year totaled R$981 million, down 39.9% from 2012. Sales of units launched over the year accounted for 60%, while sales of inventories accounted for the remaining 40%.

In 2012, Gafisa delivered 22 ventures/stages and 4,315 units, reaching 102% of the average of the guidance (3,500 – 5,000) for the year.

The market value of Gafisa inventories reached R$3.2 billion at the end of 2014.

The market value of Gafisa inventories at the end of 2013, represented for 52% of total inventories, reaching R$2.1 billion and Gafisa segment reached R$1.6 billion in net sales.

Full-year Tenda launches in 2011 totaled R$398 million, a 75% reduction compared to 2010, and included 17 projects/phases across 8 states and the cancellation in the fourth quarter of 2011 of R$103 million of projects no longer feasible under the Company’s new criteria adopted in the third quarter of 2011. No more than 30% of these projects had been completed. This more conservative approach to Tenda’s operations led to full-year sales of R$330 million, a 77% reduction compared to 2010, in line with the reduced volume of launches. In 2012, Tenda worked to reduce the complexity of its operations and master the fundamentals of its new operating model suspending launches. Tenda resumed the launch of new ventures in 2013, reaching R$338.8 million in the launches of 8 new developments, totaling 12% of the consolidated launches for 2013.

In 2014, Tenda launches totaled R$ 613.3 million. Contracted sales for the year totaled R$396.0 million, a 19% decrease compared with 2013. Sales of units launched over the year accounted for 44.2%, while sales of inventories accounted for the remaining 55.8%.

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Cancellation levels decreased significantly in 2014 mainly due to Tenda’s increased efficiency and improved controls. The primary driver of the reduction in cancellations was the implementation of a sales process by which potential customers were required to obtain approved financing with CEF as part of the purchase process, which significantly decreases the probability of cancellation. Out of R$613.3 million in property launches during 2014, we recorded sales of R$176.8.4 million in which financing had already been obtained. In 2013, out of R$338.8 million in property launches, we recorded sales of R$217.4 million. Of the R$217.4 million, R$122.0 million is related to sales in which financing had already been obtained, with the remaining R$95.4 million relating to sales in which financing was being finalized at the end of 2013.

In 2014, The Tenda segment delivered 41 ventures/stages, and 7,027 units, reaching 101% of the average of the guidance (6,500 – 7,500) on deliveries for the year.

The market value of Tenda inventories was R$828.7 million at the end of 2014, compared to R$618.4 million at the end of 2013.

In 2014, Tenda reached R$396.0 million in net sales.

Contracted sales

The following table shows the development of our contracted sales by the type of development, according to units sold during the same year that they were launched and the units sold in the years after they were launched, as well as their respective percentages in relation to total sales for the periods presented:

	As of and for the year ended December 31,
	2014		2013		2012 (3)
Type of development	(in millions of reais, unless otherwise stated)
Luxury buildings		108.8		367.7		753.6
Middle-income buildings		650.0		431.9		633.3
Affordable entry-level housing (2)		396.0		490.4		(74.3	)
Commercial		52.2		161.5		173.7
Land(1)		N/A		1,062.2		1,146.8
Total contracted sales		1,207.0		2,513.8		2,633.1
Sale of units launched in the year		519.2		1,502.8		1,723.9
Percentage of total contracted sales		43%		60%		65%
Sale of units launched during prior years		687.8		1,010.9		909.2
Percentage of total contracted sales		57%		40%		35%

(1)	Includes Gafisa’s participation on the Alphaville Barra da Tijuca project.

(2)	Amount net of sales cancellation.

(3)	Operating information has not been restated to reflect the consolidation method in jointly-controlled investees pursuant to CPCs 19 (R2) (or IFRS 11) and 36 (R3).

The following table shows our and our main subsidiaries and our current affiliate Alphaville, contracted sales for the periods presented:

	As of and for the year ended December 31,
	2014		2013			2012 (3)
Contracted sales	(in millions of reais, unless otherwise stated)
Gafisa		811.0		961.2			1,599.5
Tenda (1)		396.0		490.4			(74.3	)
Alphaville (2)		—		1,062.2			1,107.9
Total contracted sales		1,207.0		2,513.8			2,633.1
(-) Discontinued operations		—		(1,062.2	)		(1,107.9	)
Total contracted sales		1,207.0		1,451.6			1,525.2

(1)	Amount net of sales cancellation.

(2)	This information is presented for comparison purposes and for the years ended December 31, 2013 and 2012 only, as we sold our controlling interest in Alphaville on December 9, 2013 and currently hold a 30% non-controlling interest in Alphaville.

(3)	Operating information has not been restated to reflect the consolidation method in jointly-controlled investees pursuant to CPCs 19 (R2) (or IFRS 11) and 36 (R3).

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In 2014 we sold 42.2% of the launched units, which combined with the sales of units launched during prior periods, resulted in total contracted sales of R$1,207.0 million, a decrease of approximately 16.9% compared to 2013, net of discontinued operations.

In 2013, we sold 60% of the launched units, which combined with the sales of units launched during prior periods, resulted in total contracted sales of R$2,513.8 million, a decrease of approximately 5% compared to 2012.

In 2012, we sold 59% of the units launched during that year, which together with the sales of units launched during prior periods, resulted in total contracted sales of R$2,633.1 million, a decrease of approximately 21% compared to 2011. As a result of our corrective measures taken with respect to Tenda and due to a focus on execution and delivery, no projects were launched during 2012. The Tenda brand resumed launches in 2013. In 2013, we sold 44% of units launched during that year, which together with the sales of units launched during prior periods, resulted in total contracted sales of R$490.4 million. In 2014, we sold 29.6% of units launched during that year, which together with the sales of units launched during prior periods, resulted in total contracted sales of R$396.0 million.

Our sales contracts are irrevocable under Brazilian law, which means a customer does not have a unilateral ability to terminate a contract once it is executed, or require a refund of amounts previously unpaid unless we agree. To the extent that a customer is not in compliance with its obligations under a contract, we have the option to either force compliance through the Brazilian courts, or agree to “default” by the customer. Should we agree to such default, the customer is then charged penalties as defined in the contracts with any remaining amounts remitted to the customer. Penalties charged by Tenda have historically been 20% of amounts paid, while penalties charged by Gafisa have historically been significantly higher (average about 60-65% of amounts paid).

We provide a limited amount of post-construction client financing, although this financing is not available to Tenda clients. Our default rate was 7.4%, 9.3% and 4.1% as of December 31, 2014, 2013 and 2012, respectively, which represents charge-offs for both these financings and also the remainder of our percentage of completion receivables.

The table below shows the penalties charged to customers that have defaulted and had their contracts cancelled for the periods presented:

	As of and for the year ended December 31,
	2014		2013		2012 (2)
	(in millions of reais)
Gafisa		16.4		13.3		9.3
Tenda		1.1		2.3		10.5
Alphaville (1)		—		5.9		5.3

(1)	This information is presented for comparison purposes only, as we sold our controlling interest on December 9, 2013 and currently hold a 30% non-controlling interest in Alphaville.

(2)	Operating information has not been restated to reflect the consolidation method in jointly-controlled investees pursuant to CPCs 19 (R2) (or IFRS 11) and 36 (R3).

The following table sets forth the growth of our contracted sales expected to be recognized, as well as the amount corresponding to the expected cost of units sold, and the expected margin, all of them to be recognized in future periods, for the periods presented:

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	As of and for the year ended December 31,
	2014		2013		2012
						(4)
	(in millions of reais, unless otherwise stated)
Sales to be recognized		1,064.0		1,863.4		3,815.5
Net sales(1)		1,025.2		1,795.4		3,676.3
Cost of units sold to be recognized(2)		(628.8)		(1,181.3)		(2,226.6)
Expected gross margin—yet to be recognized(3)		396.4		614.3		1,449.7
Expected margin percentage		38.7%		34.2%		39.4%

(1)	Excludes indirect PIS and COFINS taxes of 3.65%. This information includes ventures that are subject to restriction due to a contractual clause, which defines the legal period of 180 days in which the Company can cancel a development.

(2)	The estimated gross profit shown does not consider the tax effects or the present value adjustment, and the costs of lands, financial charges and guarantees, which will be carried out as at the extent they are realized.

(3)	Based on management’s estimates.

(4)

With the adoption of CPCs 19 (R2) (or IFRS 11) and 36 (R3) (or IFRS 10), starting from January 1, 2013 and applicable retrospectively to the comparative periods of December 31, 2012 and 2011, the proportional consolidation method for investments in jointly-controlled investees, which was previously applied by the Company, is no longer allowed under Brazilian GAAP.

Gross Operating Revenues

Our revenues are derived mainly from the development and sale of real estate and, to a lesser extent, the rendering of construction services to third parties.

Real estate development and sales

Real estate development revenues, including inflation adjustments and interest from credit sales, make up revenues from the sales of units in the residential buildings we develop, and to a lesser extent, the sales of lots and commercial buildings.

Construction services rendered

Our revenues generated by real estate services consist substantially of amounts received in connection with construction management activities for third parties, technical management and real estate management.

Operating Costs

Our operating costs consist of real estate development costs and, to a lesser extent, costs of services rendered.

Real estate development costs

Real estate development costs consist of costs of land, construction (which includes costs for a broad variety of raw materials and labor), capitalized interest (financial costs) from project specific financing, projects, foundations, structuring and furnishing, as well as costs for outsourced labor. The items making up our costs, as a percentage of our total cost, were as set forth for the periods presented:

	For the year ended December 31,
	2014			2013			2012
Land		15.1	%		14.2	%		17.4	%
Construction costs		68.6	%		70.6	%		70.5	%
Financial costs		10.0	%		8.2	%		6.6	%
Development costs		6.3	%		7.0	%		5.5	%
Total		100.0	%		100.0	%		100.0	%

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One of our principal real estate development costs is the cost of land. Over the last five years, land represented, on average, 13% of our total cost of development. However, this is an extremely volatile component, varying according to characteristics of the land, the region where the land is located, the type of development to be launched and market conditions. Land can be acquired for cash, through the exchange of units once the building is constructed, through a financial swaps (whereby a portion of sales is given to the owner of land as a form of financing for the land), or through a combination of the three options.

No single raw material alone represents a significant portion of our total costs of development, but over the last five fiscal years, raw materials represented, on average, 35% of our total cost of development. The index that measures construction cost variation, the INCC, increased by 7.0%, 8.1% and 7.1% in 2014, 2013 and 2012, respectively. Although some of the principal raw materials, such as steel, have experienced significant price increases well above the level of inflation over the last four years, we have reduced our raw materials costs by developing and using new construction techniques and materials.

Over the last five years, we have incurred most of our construction costs from the 1st to the 18th month of construction of a development, as shown in the table below:

Period of construction	Percentage of costs incurred(1)
1st to 6th month		16	%
7th to 12th month		25	%
13th to 18th month		31	%
19th to 24th month		20	%
25th to 30th month		8	%

(1)	Including cost of land.

Real estate services

Our costs of real estate services consist of direct and indirect labor fees and outsourced services.

Operating Expenses

Our operating expenses include selling, general and administrative expenses, depreciation and amortization expenses and revenues and revaluation of investment in affiliates.

Selling expenses

Selling expenses include advertising, promotion, brokerage fees and similar expenses.

General and administrative expenses

General and administrative expenses principally include the following:

employee compensation and related expenses;

fees for outsourced services, such as legal, auditing, consulting and others;

management fees and expenses;

stock option plan expenses;

overhead corporate expenses;

expenses related to legal claims and commitments; and

legal expenses related to public notaries and commercial registers, among others.

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Depreciation and amortization

Depreciation expenses consist of depreciation of our property and equipment. Since January 1, 2009, goodwill is no longer amortized under Brazilian GAAP.

Revaluation of investment in affiliates

Revaluation of investment, in line with the definition provided for in the paragraph 25 of CPC 36 (R3) – Consolidated Statements, consists in recognizing the addition related to the revaluation of the portion of the remaining investment of 30% with the sale of and cease of control over Alphaville.

Financial Income and Expenses

Financial income includes income from financial investments. Interest revenues are recognized at the time the effective profit accrues from the asset, based on the accrual method. Financial expenses generally consist of interest payable on loans, financings and debentures.

Taxes on Income

In general, taxes on income in Brazil consist of federal income tax (25%) and social contribution on net profits (9%); for a composite statutory tax rate of 34%. We calculate income and social contribution taxes according to the “taxable profit” regime. Our subsidiaries and jointly-controlled entities, however, with annual billings lower than a specified amount, may calculate their respective income and social contribution taxes through either this “taxable profit” regime or through the “presumed profit” regime, depending on our tax planning. For the companies that opt for the “presumed profit” regime, the income tax basis is calculated as 8% of gross revenues and the social contribution basis is calculated as 12% of gross revenues, to which income tax and social contribution rates of 25% and 9%, respectively, are applied.

As permitted by tax legislation, the development of certain ventures are subject to the “afetação” regime, based on which the land and its features where a real estate will be developed, as well as other binding assets and rights, are separated from the assets of the developer and comprise the “patrimônio de afetação” (detached assets) of the corresponding development and which real estate units will be delivered to the buyers. In addition, certain subsidiaries made the irrevocable option for the Special Taxation Regime (RET), adopting the “patrimônio de afetação”, according to which the income and social contribution taxes on net profits are calculated at 1.92% monthly on gross revenues (for a total of 4% considering PIS and COFINS taxes on revenues).

Net profit from discontinued operations

The profit from discontinued operations represents the results of operations of Alphaville over the period January 1, 2013 to November 30, 2013, as well as the results of operations for this entity for the comparative periods. This line item also contains the gain on disposal of our 70% controlling interest in this entity, which occurred in December 2013.

In accordance with CPC 31 – Non-current Asset Held for Sale and Discontinued Operations, the profit of discontinued operations is presented at a single amount in statement of operations, which includes the total after-tax-income of these operations, less any impairment-related loss.

Results of Operations

The following discussion of our results of operations is based on our consolidated financial statements prepared in accordance with Brazilian GAAP. References to increases or decreases in any given period relate to the corresponding preceding period, except unless otherwise indicated.

As explained in Note 8.2 to the Company’s 2013 consolidated financial statements, the results of operations of Alphaville have been retrospectively presented as discontinued operations under Brazilian GAAP in the Company’s 2013, 2012 and 2011 consolidated statements of operations given its disposal during 2013. In addition, with the adoption of CPCs 19 (R2) (or IFRS 11) and 36 (R3) (or IFRS 10), starting from January 1, 2013 and applicable retrospectively to the comparative periods of December 31, 2012 and 2011, the proportional consolidation method for investments in jointly-controlled investees, which was previously applied by the Company, is no longer allowed under Brazilian GAAP.

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Results of Operations for the Years Ended December 31, 2014 and 2013

Net operating revenue

On a consolidated basis, net operating revenue for the year ended December 31, 2014, recognized by the Percentage of Completion (“PoC”) method, was R$2.15 billion, a decrease of 13.3% from R$2.5 billion for the year ended December 31, 2013, as a result of a lower level of launches in Gafisa in the last 2 years. During 2014, the Gafisa and Tenda brands accounted for 73% and 27% of net operating revenue, respectively.

The gross revenue generated from the sale of property and barter transactions, net of the cancellation provision (reversal) totaled R$2.3 billion for the year ended December 31, 2014, a decrease of R$374.1 million or 13.8% compared with the same period in 2013 of R$2.7 billion. The tax deductions from gross revenue reached R$174.7 million in 2014 from R$218.6 million in 2013, representing a decrease of 20.1%, which was mainly impacted by the lower launch volumes in Gafisa and Tenda’s net revenue reduction from the delivery of Tenda legacy projects.

Operating costs

Operating costs in 2014 totaled R$1.6 billion, a decrease of 14% as compared to R$1.9 billion in 2013. Costs related to construction is the main component of operating cost, totaling R$1.2 billion, equivalent to 76.3% of the original total cost base of projects. Operating costs, as a percentage of net operating revenue, decreased from 75.1% in 2013 to 74.8% in 2014, mainly due to better performance on construction projects.

Gross profit

Gross profit in 2014 totaled R$541.7 million, representing a decrease of 12.3%, from R$617.4 million in 2013. The improvement of gross margin resulted from the replacement of Gafisa and Tenda segment legacy projects by projects launched in core markets and under the new Tenda business model, which contain higher margins.

In 2014, the gross margin generated from our activities increased to 25.2% as compared to 24.9% in 2013. This increase was due to the recognition of higher margins from recent projects, which offset the recognition of lower margins in connection with prior year projects.

Selling expenses

Selling expenses in 2014 totaled R$148.0 million, representing a decrease of 31.3% as compared to R$215.6 million in 2013, mainly due to the effectiveness of the sales process through its own Tenda stores, allowing greater control and efficiency in this line, and due to a decrease in marketing expenses and a decrease in sales commissions expenses resulting from the lower volume of sales in 2014 under both Gafisa and Tenda brands. Selling expenses in 2014 represented 6.9% of our net operating revenue compared to 8.7% in 2013.

General and administrative expenses

Administrative expenses were R$211.9 million in 2014, a 9.4% decrease over the R$234.0 million recorded in 2013, reflecting our strategy of realigning costs to our current size and the phase of our business cycle. General expenses decreased to R$13.1 million in 2014 from R$17.3 million in 2013. This decrease is mainly due to a decrease in our payroll liability as a result of the reduction in the total number of employees.

Depreciation and amortization

Depreciation and amortization in 2014 was R$79.3 million, an increase of R$16.3 million when compared to the R$63.0 million recorded in 2013, mainly due to the incorporation of a subsidiary, which generated a goodwill impairment of R$14.5 million.

Financial income and expenses, net

Net financial expenses totaled R$8.9 million in 2014, compared to net financial expenses of R$162.5million in 2013. The difference is mainly due to an increase in financial revenues of 93.4% and to the the reduction of total debt during the period.

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Taxes on income

Income, social contribution and deferred taxes for 2014 amounted to R$15.3 million, compared to R$2.8 million in 2013.

The provision for, or benefit from, income taxes is calculated using the asset and liability method, under which deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are evaluated on a quarterly basis to determine if adjustments to the valuation allowance are required. The Company assesses whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with respect to whether deferred tax assets will be realized. The ultimate realization of deferred tax assets depends primarily on the generation of future taxable income during the periods in which the differences become deductible. Judgment is required in determining the future tax consequences of events that have been recognized in the Company’s consolidated financial statements and/or tax returns.

Net income attributable to non-controlling interest

Net income attributable to non-controlling interests increased from a gain of R$235 thousand in 2013 to a loss of R$1.2 million in 2014, due to the overall negative financial results of our subsidiaries for the year ended December 31, 2014.

Net income attributable to owners of Gafisa

Net income attributable to owners of Gafisa decreased to a net loss of R$42.5 million in 2014, compared to a net income of R$867.4 million in 2013. This decrease is due to the decrease in income resulting from the discontinuation of our operations in Alphaville following the sale of our 70% interest in Alphaville in December 2013.

Results of Operations for the Years Ended December 31, 2013 and 2012

Net operating revenue

On a consolidated basis, net operating revenue for the full year 2013, recognized by the Percentage of Completion (“PoC”) method, was R$2.5 billion, a 11.5% decline from R$2.8 billion for the year ended December 31, 2012. During 2013, the Gafisa brand accounted for 67.1% of net operating revenue and Tenda the remaining 32.9%.

The gross revenue generated from the sale of property and barter transactions, net of the cancellation provision (reversal) totaled R$2.7 billion for the year ended December 31, 2013, a decrease of R$340 million or 11.2% compared with the same period in 2012 of R$3.0 billion. The tax deductions from gross revenue reached R$218.6 million in 2013, representing a decrease of 7.1% of R$235.4 million, for the year ended December 31, 2012.

Operating costs

Operating costs in 2013 totaled R$1.9 billion, a decrease of 18.1% as compared to R$2.3 billion in 2012. Cost related to construction is the main component of operating cost (R$1.4 billion, equivalent to 74.6% of the original total cost base of projects). Operating costs, as a percentage of net operating revenue, decreased from 81.2% in 2012 to 75.1% in 2013, mainly due to better performance on construction projects.

Gross profit

Gross profit in 2013 totaled R$617.4 million, representing an increase of 16.9% as compared to R$528.3 million in 2012, as a result from the replacement of Gafisa and Tenda segment legacy projects by projects launched in core markets and under the new Tenda business model, wich contain higher margins.

In 2013, the gross margin generated from our activities increased to 24.9% as compared to 18.8% in 2012. This increase was due to the recognition of higher margins from recent projects, wich offset the recognition of lower margins in connection with prior year projects.

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Selling expenses

Selling expenses in 2013 totaled R$215.6 million, representing a decrease of 6.9% as compared to R$231.7 million in 2012, mainly due to the effectiveness of the sales process through its own Tenda stores, allowing greater control and efficiency in this line. Selling expenses in 2013 represented 8.7% of our net operating revenue compared to 8.3% in 2012.

General and administrative expenses

Administrative expenses were R$234.0 million in 2013, a 7.2% decrease over the R$252.2 million recorded in 2012, reflecting our strategy of realigning costs to our current size and the phase of our business cycle. General expenses decreased to R$17.3 million in 2013 from R$29.1 million in 2012, related to services. This decrease is mainly related to nonrecurring fees mainly to auditing and consulting fees in 2012.

Depreciation and amortization

Depreciation and amortization in 2013 was R$63.0 million, a decrease of R$17.2 million when compared to the R$80.2 million recorded in 2012, mainly due to lower sales stands depreciation. Depreciation of sales stands accounted for 0.03% of the expenses during the period.

Financial income and expenses, net

Net financial expenses totaled R$162.5 million in 2013, compared to net financial expenses of R$180.3 million in 2012. The difference is mainly due to an increase in financial revenues of 45.3% and to better cash position during the period.

Taxes on income

Income, social contribution and deferred taxes for 2013 amounted to R$2.8 million, compared to R$20.2 million in 2012.

The revaluation at fair value of the remaining interest in Alphaville resulted in the recording of deferred income tax liability attributable to the income from the revaluation totaling R$127.8 million. Still, taking into consideration the result in 2013, the new future profitability and the Company’s taxable income for years to come, a deferred income tax asset in the amount of R$180.6 million was recorded in last quarter of 2013, which was offset by the deferred income tax liability, resulting in a net effect in the result of approximately R$20.9 million.

Net income for the year attributable to noncontrolling interest

Net income attributable to non-controlling interests decreased from R$49.4 million in 2012 to R$235 thousand in 2013, a decrease of 99.5% when compared to the previous year, as a result of the reclassification of Alphaville as asset held for sale during 2013.

Net loss for the year attributable to owners of Gafisa

Net income attributable to owners of Gafisa increased to a net income of R$867.4 million in 2013, compared to a net loss of R$127.0 million in 2012. This increase is due to the gain of R$631.1 million recorded from the sale of 70% of our controlling interest in Alphaville.

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Business Segments

See “Item 4. Information on the Company—A. History and Development of the Company—Historical Background and Recent Developments.” Our chief executive officer, who is responsible for allocating resources among these businesses and monitoring their progress, uses data derived from a combination of historical operating results and forecasted operating results, to assess segment information primarily on the basis of different business segments.

We provide below a measure of historical results, selected segment assets and other related information for each reporting segment. The information below is derived from our statutory accounting records which are maintained in accordance with Brazilian GAAP. No individual customer represented more than 10% of our net operating revenue.

	For Year Ended December 31, 2014
	Gafisa		Tenda		Total
	(millions of reais except for percentages)
Net operating revenue		1,580.9		570.1		2,150.8
Operating costs		(1,165.0)		(444.2)		(1,609.2)
Gross profit		415.9		125.9		541.6)
Gross margin		26.3%		22.1%		25.2%
Net income (loss) from continuing operations		66.9		(109.4)		(42.5)

	For Year Ended December 31, 2013
	Gafisa (1)		Tenda		Total
	(millions of reais except for percentages)
Net operating revenue		1,663.7		817.5		2,481.2
Operating costs		(1,111.6)		(752.2)		(1,863.8)
Gross profit		552.2		65.2		617.4
Gross margin		33.2%		8.0%		24.9%
Net income (loss) from continuing operations		363.7		(127.1)		236.6
Net income from discontinued operations		588.6		42.5		631.1

(1)	Includes all subsidiaries exceptTenda.

			For Year Ended December 31, 2012 (2)
	Gafisa (1)		Tenda		Alphaville (3)		(-) Discontinued operation (3)		Total
			(millions of reais except for percentages)
Net operating revenue		1,735.9		1,069.1		785.2		(785.2)		2,805.0
Operating costs		(1,338.1)		(938.7)		(377.1)		377.1		(2,276.8)
Gross profit (loss)		397.8		130.4		408.1		(408.1)		528.2
Gross margin		22.9%		12.2%		52.0%		—		18.8%
Net loss from continuing operations		(158.2)		(123.6)		—		—		(281.8)
Net income from discontinued operations		—		—		204.1		—		204.1

(1)	Includes all subsidiaries, except Alphaville and Tenda.

(2)

(3)

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Gafisa Segment

Years Ended December 31, 2014 and 2013

Net operating revenue

Net operating revenue for the Gafisa segment was R$1,580.9 million in 2014 compared to the net operating revenue of R$1,663.7 million in 2013, which represents a decrease of 5.0%. This decrease was primarily due to the lower volume of launches during 2014 (a decrease of 6% compared to 2013).

Operating costs

The costs of the sale and barter transactions in 2014 totaled R$1.2 billion, an increase of 4.8% compared with the R$1.1 billion reported in 2013. This increase was mainly due to the increase in construction costs in 2014.

Gross profit

The gross profit in 2014 was R$415.9 million, representing an decrease of 24.7% compared with the R$552.2 million reported in 2013. The gross margin in 2014 generated by our projects sales decreased to 26.3% compared to 33.2% in the same period of 2013. This decrease was primarily due to the lower volume of launches during 2014 and certain non-recurring events such as (i) the recording of a provision for impairment on landbank and properties for sale and (ii) adjustments in the five-year limited warranties we provide to cover structural defects.

Net income (loss) from continuing operations

Net income for the Gafisa segment was R$66.9 million in 2014, compared to a net income of R$369.8 million in 2013. The decrease in net income is primarily a result of the sale of the 70% interest in Alphaville in the amount of R$375.8 million in December 2013. Net income (loss) from continuing operations as a percentage of net operating revenues was positive 4.2% in 2014 as compared to positive 21.8% in 2013.

Tenda Segment

Years Ended December 31, 2014 and 2013

Net operating revenue

Net operating revenue of sales and/or services during 2014 totaled R$570.1 million, compared to R$817.5 million in 2013, a decrease of 30.3%, when compared to the previous year. In 2014, Construtora Tenda S.A accounted for 26.5% of the consolidated net operating revenue. This decrease was mainly due to the decrease in the delivery of legacy projects in 2014, which was higher in 2013.

Operating costs

The costs of development and sale of property and barter transactions in 2014 totaled R$444.2 million, compared to R$752.2 million in 2013. This decrease was mainly due to Tenda’s efficient control over the construction process and focus on the completion and the run-off of legacy projects. The final phase of Tenda legacy projects ended in 2014 with around 2,593 units to be delivered. In addition, Tenda recorded a reversal of the cancellation provision in the amount of R$68.0 million.

Gross profit

Gross profit in 2014 was R$125.9 million, compared to gross profit in 2013 of R$65.2 million. In 2014, gross margins increased from 8.0% in 2013 to 22.1% in 2014.

Net income (loss) from continuing operations

Net loss for Tenda segment was R$109.4 million in 2014, compared to a net loss of R$127.1 million in 2013. This decrease of net loss in 2014 when compared to 2013 is a result of Tenda’s better performance reflecting its new strategy of Tenda launches under a new business model, based on three basic pillars: operating efficiency, risk management and capital discipline. Currently, the Company operates in 5 macro regions: São Paulo, Rio de Janeiro, Minas Gerais, Northeast (Bahia and Pernambuco) and South (Rio Grande do Sul).

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Gafisa Segment

Years Ended December 31, 2013 and 2012

Net operating revenue

Net operating revenue for the Gafisa segment was R$1.6 billion in 2013 compared to the net operating revenue of R$1.7 billion in 2012, which represents a decrease of 4.2%. This decrease was primarily due to lower volume of launches during 2013 (a decrease of 32.5% compared to 2012).

Operating costs

The costs of the sale and barter transactions in 2013 totaled R$1.1 billion, a decrease of 16.9% compared with the R$1.3 billion reported in 2012. This decrease was mainly due to efficient control over the construction process.

Gross profit

The gross profit in 2013 was R$552.2 million, representing an increase of 38.8% compared with the R$397.8 million reported in 2012. The gross profit in 2013 generated by our projects sales increased to 33.2% compared to 22.9% in the same period of 2012. This increase was due to the focus and performance of the Company in strategic markets.

Net (loss) from continuing operations

Net income for the Gafisa segment was R$363.7 million in 2013, compared to a net loss of R$158.2 million in 2012. The increase in net income is a result of conclusion of legacy projects, concentration in São Paulo and Rio de Janeiro and the recognition of the addition related to the revaluation of the portion of the remaining investment of 30% with the sale of and cease of control over Alphaville in the amount of R$375.8 million. Net income (loss) from continuing operations as a percentage of net operating revenues was positive 21.8% in 2013 as compared to negative 9.1% in 2012.

Tenda Segment

Years Ended December 31, 2013 and 2012

Net operating revenue

Net operating revenue of sales/or services during 2013 totaled R$817.5 million, compared to R$1,069.1 million in 2012, a decrease of 23.5%, when compared to the previous year. In 2013, Construtora Tenda S.A accounted for 32.9% of the consolidated net operating revenue. The main reason for the decrease was the reduction of revenue recognition from sales contracted in prior years due to the delivery of projects and thus lower volume of construction developments in 2013.

Operating costs

The costs of development and sale of property and barter transactions in 2013 totaled R$752.2 million, compared to R$938.7 million in 2012. This decrease was mainly due to Tenda’s efficient control over the construction process and focus on the completion and delivery of its remaining projects. The run-off of legacy projects is on schedule and we expect it to be substantially concluded in 2014. The final phase of Tenda legacy projects ended 2013 with around 7,000 units to be delivered. In addition, Tenda recorded a reversal of the cancellation provision in the amount of R$73.2 million.

Gross profit (loss)

Gross profit in 2013 was R$65.2 million, compared to gross profit in 2012 of R$130.4 million. In 2013, gross margins fell from 12.2% in 2012 to 8.0% in 2013.

Net income (loss)

Net loss for Tenda segment was R$127.2 million or -53.7% of our total net income from continuing operations in 2013, compared to a net loss of R$123.6 million or 43.9% of total net loss from continuing operations for 2012. This decrease of net loss in 2013 when compared to 2012 is a result of Tenda’s better performance reflecting its new strategy of Tenda launches under a new business model, based on three basic pillars: operating efficiency, risk management and capital discipline. Currently, the Company continues to operate in 4 macro regions: São Paulo, Rio de Janeiro, Minas Gerais and Northeast (Bahia and Pernambuco).

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B. Liquidity and Capital Resources

Our transactions are financed mainly through the contracting of real estate financing and securitization of receivables. When necessary and in accordance with market demands, we carry out long-term financing for the sale of our developments. In order to turn over our capital and accelerate its return, we try to transfer to banks and sell to the market the receivables portfolio of our units.

In 2014, we carried out the following receivables sales:

On November 25, 2014, Gafisa and its subsidiaries entered into a CCI transaction relating to a portfolio comprising select residential real estate receivable from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$15.2 million in exchange for cash at the transfer date, discounted to present value, for R$12.4 million.

In 2013, we carried out the following receivables sales with recourse:

On May 28, 2013 after selling all the subordinated series of Gafisa FIDC, the remaining receivable portfolio of the initial sales, was transferred to investors and the Company was still required to grant the guarantee to its holders.

On November 29, 2013, a selected portfolio of sales receivables from us and our subsidiaries was transferred to investors. The assigned portfolio amounts to R$23.8 million in exchange of cash at the transfer data, discounted to present value, by R$18.9 million.

In 2012, we carried out the following receivables sales:

On May 9, 2012, Gafisa and its subsidiaries entered into a CCI transaction relating to a portfolio comprising select residential real estate receivable from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$64.9 million in exchange for cash at the transfer date, discounted to present value, by R$45.2 million.

On July 6, 2012, Gafisa and its subsidiaries enter into a CCI transaction relating to a portfolio comprising select residential real estate receivable from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$18.2 million in exchange for cash at the transfer date, discounted to present value, for R$11.5 million.

On November 24, 2012, Alphaville entered into a CCI transaction related to a portfolio comprising selected select residential real estate receivables from Alphaville and its subsidiaries. The assigned gross portfolio of receivables amounts to R$134.6 million in cash exchange as of the date of transfer, discounted to its present value for R$110.7 million.

On December 27, 2012, Gafisa and its subsidiaries enter into a CCI transaction relating to a portfolio comprising select residential real estate receivable from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$72.0 million in exchange for cash at the transfer date, discounted to present value, by R$61.6 million.

Construction financing lines of credit are available and we have fulfilled substantially all of our construction financing needs for 2014 and 2013 at consolidated rates similar to the CDI rate. In order to mitigate the effects of the 2008 global credit crisis, the Brazilian government has announced additional lines of credit to assist the construction industry and its customers, including R$6 billion from the FGTS (a Government Severance Indemnity Fund for Employees). In 2009 we approved the issue of two series of debentures for Gafisa and Tenda in the total amount of R$1.2 billion. In addition, local financial institutions are financing up to 80% of construction costs, through the Brazilian Saving and Loan System (Sistema Brasileiro de Poupança e Empréstimo — SBPE) indexed to TR (Taxa Referencial) and a fixed rate spread.

During 2014, our customers’ ability to obtain bank mortgage loans continued to improve, with interest rates in the range of 6%+TR (affordable entry level) to 10%+TR, depending on family income and credit score. Delinquency rates among our customers did not have significant changes from 2013 to 2014.

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The following table shows the balance of our receivables from clients for the development and sale of properties for the periods presented:

	As of December 31,
	2014		2013		2012 (1)
	(in millions of reais)
Real estate development receivables:
Current		1,440.5		1,909.9		2,493.2
Long-term		384.8		313.8		820.8
Total		1,825.3		2,223.7		3,314.0
Receivables to be recognized on our balance sheet according to percentage of completion method:
Current		—		—		—
Long-term		1,064.0		1,863.4		3,815.6
Total		1,064.0		1,863.4		3,815.6
Total receivables from clients		2,889.3		4,087.1		7,130.0

(1)

The total balance of receivables to be recognized on the balance sheet has the following maturity profile:

	As of December 31, 2014
Maturity	(in millions reais)
2015		1,440.5
2016		706.8
2017		422.4
2018		71.4
2019 onwards		248.2
Total		2,889.30

Loans made to our clients are generally adjusted on a monthly basis as follows: (1) during construction, by the INCC in São Paulo, Rio de Janeiro and other Brazilian cities; and (2) after delivery set forth in the contract, by the IGP-M plus 12% per annum in all markets.

We limit our exposure to credit risk by selling to a broad customer base and by continuously analyzing the credit of our clients. As of February 28, 2015, our clients’ default level was 6.19% of our accounts receivable for Gafisa and 7.43% for Tenda. We review annually our assumptions to set up an allowance for doubtful accounts and cancelled contracts, in view of the review of the histories of our current operations and improvement of estimates. The Company records an allowance for doubtful accounts and cancelled contracts for customer whose installments are over 90 past due. This allowance is calculated based on the percentage of the construction work completion, a methodology adopted for recognizing income for the year. The allowance for doubtful accounts and cancelled contracts totaled R$57.6 million as of December 31, 2014 and is considered sufficient by our management to cover expected future losses on the realization of accounts receivable.

Cash Flows

Operating activities

Net cash generated from operating activities totaled R$41.9 million in 2014 compared to R$297.6 million in 2013. The R$41.9 million was primarily composed of: (1) a decrease in expenses (income) not affecting working capital, totaling R$305.0 million in 2014; (2) an increase in properties for sale of R$462.4 million attributable to landbank and construction; (3) a decrease in trade accounts receivable of R$391.6 million; and (4) other less significant increases and decreases in other operating categories.

Net cash generated from operating activities totaled R$297.6 million in 2013 compared to R$644.3 million in 2012. The R$297.6 million was primarily composed of: (1) a decrease in expenses (income) not affecting working capital, totaling R$173.4 million in 2013; (2) a decrease in properties for sale of R$530.6 million attributable to landbank and construction; (3) an increase in other accounts payable of R$450.3 million; and (4) other less significant increases and decreases in other operating categories.

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Investing activities

Net cash generated in investing activities, including the acquisition of property, equipment and new investments, was R$752.0 million in 2014 compared to a net cash used in investing activities of R$53.5 million in 2013. Our cash used in 2014 was mainly related to investments in property and equipment in the amount of R$88.5 million, and investments in marketable securities, restricted securities and loans in the amount of R$761.6 million.

Net cash used in investing activities, including the acquisition of property, equipment and new investments, was R$53.5 million in 2013 compared to a net cash used in investing activities of R$288.0 million in 2012. Our cash used in 2013 was mainly related to investments in property and equipment in the amount of R$81.0 million, and investments in marketable securities, restricted securities and loans in the amount of R$993.0 million. In addition, we acquired a 20% interest in Alphaville in the amount of R$366.7 million and the R$1,254.5 million for the sale of 70% interest of Alphaville.

Financing activities

Net cash used from financing activities in 2014 totaled R$899.1 million, compared to the net cash generated from financing activities in 2013 of R$568.1 million. The cash used in 2014 was mainly attributable to: repayment of loans and financing, net of the increase of new contracts, totaling R$541.7 million, payment of dividends and interest on equity in the amount of R$150.0 million and the purchase of treasury shares totaling R$115.3 million.

Net cash used from financing activities in 2013 totaled R$568.1 million, an increase of 351%, compared to the net cash generated from financing activities in 2012 of R$162.0 million. The cash used in 2013 was mainly attributable to: repayment of loans and financing, net of the increase of new contracts, totaling R$351.4 million, and the purchase of treasury shares totaling R$71.3 million. The cash generated in 2012 was mainly attributable to: (1) increase of loans and financing other debt totaling R$ 1,110.8 million, which was partially offset by amortizations of loans and interests in the amount of R$1,016.8 million, (2) capital increase in the amount R$1.6 million, and (3) cash inflow due to the CCI transaction in the amount of R$229.1 million.

Pledged mortgage receivables and short-term investments

As of December 31, 2014, substantially all of our mortgage receivables totaling R$2,564.6 million are pledged. In addition, R$248.3 million of our short-term investments and collaterals are restricted as they have been pledged.

Capital Expenditures

In 2014, we invested R$88.5 million in property and equipment, primarily information technology equipment, software, the construction of sales stands, facilities, model apartments and related furnishings and office facilities in São Paulo. Our main investments during the period were the construction of sales stands, which totaled R$19.3 million, investments in information technology equipment and software, which totaled R$17.6 million, in third party leasehold improvements and facilities, which totaled R$6.7 million.

In 2013, we invested R$81.0 million in property and equipment, primarily information technology equipment, software, the construction of sales stands, facilities, model apartments and related furnishings and office facilities in São Paulo. Our main investments during the period were the construction of sales stands, which totaled R$9.9 million, investments in information technology equipment and software, which totaled R$43.9 million, and third party leasehold improvements and facilities, which totaled R$12.2 million.

Our capital expenditures are all made in Brazil and are usually funded by local debt capital markets. We currently do not have any significant capital expenditures in progress.

Indebtedness

When we consider appropriate, we have incurred indebtedness within SFH, which offers lower interest rates than the private market. When our customers obtain a mortgage, we use the proceeds to redeem our SFH indebtedness. We intend to continue our strategy of maintaining low levels of debt comprised mainly of transactions within SFH or long-term transactions.

As of December 31, 2014, we had outstanding debt in the total amount of R$2,598 million, a decrease of 15.5% as compared to December 31, 2013. Our indebtedness principally consists of: (1) debentures totaling R$1,189 million, (2) working capital loans in the total amount of R$269 million and (3) other loans (mainly SFH) in the total amount of R$1,129 million. In addition, we had outstanding payables to venture partners in the amount of R$11 million.

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As of December 31, 2013, we had outstanding debt in the total amount of R$3,060 million, a decrease of 15.9% as compared to December 31, 2012. Our indebtedness principally consists of: (1) debentures totaling R$1,421.2 million, (2) working capital loans in the total amount of R$550.1 million and (3) other loans (mainly SFH) in the total amount of R$1,088.3 million. In addition, we had outstanding payables to venture partners in the amount of R$124 million.

As of December 31, 2012, we had outstanding debt in the total amount of R$3,640.4 million, an increase of 5.9% as compared to December 31, 2011. Our indebtedness principally consists of: (1) debentures totaling R$1,735.9 million, (2) working capital loans in the total amount of R$1,199.7 million and (3) other loans (mainly SFH) in the total amount of R$704.8 million. In addition, we had outstanding payables to venture partners in the amount of R$323.7 million.

	Maturity
	Total		2015		2016		2017		2018 and thereafter
	(in millions of reais)
Debentures (Project Finance)		892		343		350		199		0
Debentures (Working Capital)		297		162		26		45		64
Other Working Capital		269		151		97		20		0
Housing Finance System (SFH)		1,129		399		409		232		88
Payables to venture partners		11		0.2		6		4		1
Total		2,598		1,055		887		501		154

Payables to venture partners refer to contributions received from venture partners of R$45.0 million in 2011, which will be fully redeemed by us until 2017.

On June 27, 2011, eight certificates of bank credit (CCBs) were issued in the Company, totaling R$65.0 million. CCBs are guaranteed by 30,485,608 shares issued by Gafisa SPE-89 Empreendimentos Imobiliários S.A. Funds from the aforementioned CCBs were allocated to develop residential projects.

As part of the funding through issuance of Certificates of Bank Credit– CCB, the Company entered into a paid usufruct agreement in connection with 100% of the preferred shares in SPE-89 Empreendimentos Imobiliários S.A for a period of six years, having raised R$45.0 million recorded based on the effective interest method of amortization in the consolidated income statement.

On May 9, 2013, we issued a Certificate of Bank Credit (CCB) in a total amount of R$217 million due in 2017. The CCB is guaranteed by pledge of to be performed units of selected ventures and real estate receivables. This issuance was fully redeemed by October 7, 2013.

On October 7, 2013, the Company entered into a loan agreement in a total amount of R$300 million due in July 2017. This agreement was guaranteed by a pledge of to be performed units of selected ventures and real estate receivables.

On September 29, 2014 the Company entered into a loan agreement of R$194 million due in October 2018. This agreement was guaranteed by a pledge of to be performed units of selected ventures and real estate receivables.

Debenture program

On May 16, 2008, the CVM approved our third debenture program under which we can issue up to R$1.0 billion in non-convertible debentures. The first issuance under the third debenture program consisted of 25,000 nominal, non-convertible debentures with a face value of R$10,000, which were issued in two series totaling R$250.0 million. The debentures provide for the payment of annual interest corresponding to 107.2% of the CDI rate, which, on March, was renegotiated to 120.0% of the CDI rate, calculated from the subscription date, with a maturity of 5 years. On December 31, 2013, the issuance was bought back in accordance with its instruments and canceled afterwards. The issuance had certain covenants which would restrict Company’s ability to take certain actions, including incurring additional debt, and may require us to repay or refinance our indebtedness if we are unable to meet certain ratios. The ratios, its parameters and our performance are no longer applicable for the Company.

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In April 2009, Tenda’s first debenture program was approved, under which we issued R$600.0 million in non-convertible debentures. The debentures provide for payment of annual interest at a rate of 8.0% + TR per annum, calculated from the subscription date, with a maturity of five years. Proceeds from the issuance of the debentures will be used solely to finance real estate ventures focused exclusively on the affordable entry-level segment that meet certain eligibility criteria. Guarantees are comprised of assignments of receivables and bank accounts.

Additionally, certain covenants contained in the agreement governing Tenda’s debenture program restrict its ability to take certain actions, including incurring additional debt, and may require Tenda to repay or refinance the debenture if it is unable to meet certain financial ratios. The ratios, its parameters and our performance against them are summarized below.

In August 2009, the CVM approved our sixth issuance, which consisted of non-convertible simple debentures in two series, secured by a general guarantee, maturing in four years and unit face value at the issuance date of R$10,000, totaling R$250 million. The debentures provide for the payment of annual interest corresponding to the CDI rate plus 2.00 to 3.25% per annum, calculated from the subscription date. Under the sixth issuance, we are obligated to acquire all outstanding debentures upon the request of debenture holders whenever we raise money through the issuance of non-debt securities in excess of R$500.0 million. We also have the right to repurchase the debentures in the occurrence of a liquidity event. In October 2010, the Company carried out the early redemption of the first series of this placement in the amount of R$150.0 million. On June 2, 2014, the Company redeemed all outstanding debentures under the sixth issuance in the amount of R$100.0 million.

In November 2009, the CVM approved our seventh issuance under which we received R$600 million in non-convertible debentures. The debentures provide for payment of annual interest at a rate of 8.25% to 10.25% plus TR per annum, calculated from the subscription date, with a maturity of five years. Proceeds from the issuance of the debentures will be used solely to finance real estate ventures.

In September 2010, the CVM approved our eighth issuance which consisted of non-convertible debentures in two series maturing in five and six years, respectively the first and the second series, with a unit face value at the issuance date of R$1,000, for an aggregate of R$300 million. The debentures provide for the payment of annual interest corresponding to the CDI rate plus 1.95% in the first series and IPCA plus 7.96% in the second series, calculated from the subscription date.

In July 2014, the CVM approved the private placement of our ninth issuance wich consisted of non-convertible debentures in a single series maturing in July 2018. The debentures provide for the payment of semi annual interest corresponding to the CDI rate plus 1.90%. The issuance is guaranteed by real estate receivables and a pledge of units of selected real estate ventures. Proceeds from the issuance will be used solely to finance such selected real estate ventures. The debentures holders assigned their fiduciary rights in the real estate receivables in favor of a real estate securitization SPE, which issued CRIs backed by such real estate receivables.

We have various covenants relating to our debentures issuances described above. These mainly consist of (i) cross default provisions, whereby outstanding indebtedness will become immediately due and payable in the event that the Company or its subsidiaries do not comply with their obligations under any other credit facility for a value in excess of the amounts set forth therein; (ii) restrictions on transfer of control and merger and acquisition transactions; (iii) limitations on our ability to incur debt; (iv) limitations or creating liens on assets; (v) limitations on the distribution of dividends if we are under default and (vi) the following ratios and limits to be calculated on a quarterly basis. The table below sets forth these ratios and limits as amended.

The actual ratios and minimum and maximum amounts stipulated by these restrictive covenants at December 31, 2014 are as follows:

		At December 31, 2014
Seventh placement
Total account receivable plus inventory required to be below zero or 2.0 times over net debt less venture debt (3)		9.33 times
Total debt less venture debt (3), less cash and cash equivalents and short-term investments (1), cannot exceed 75% of equity plus non-controlling interests		(19.3)%
Total account receivable plus unappropriated income plus total inventory of finished units required to be 1.5 time over the net debt plus payable for purchase of properties plus unappropriated cost		2.10 times

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Eighth placement — first and second series, second issuance of Promissory Notes, first and second series
Total accounts receivable plus inventory of finished units required to be below zero or 2.0 times over net debt less venture debt		(5.32 ) times
Total debt less venture debt, less cash and cash equivalents and short—term investments (1), cannot exceed 75% of equity plus non-controlling interests		(19.3)%
Ninth placement
Total accounts receivable plus total inventory required to be below zero or greater than 2.0 times over net debt		3.86 times
Net debt cannot exceed 100% of equity plus non-controlling interests		46.7%
First placement – Tenda
Total accounts receivable plus inventory required to be equal to or 2.0 times over net debt less debt with secured guarantee (3) or below zero, considering that TR(2) plus TE(4) is always above zero		(2.75) times
Net debt less debt with secured guarantee (3) shall not be in excess of 50% of equity		(46.7)%
Total account receivable plus unappropriated income plus total inventory of finished units required to be 1.5 times the net debt plus payable for purchase of properties plus unappropriated cost		2.89 times

(1)	Cash and cash equivalents and short-term investments refer to cash and cash equivalents and marketable securities.

(2)	Total receivables, whenever mentioned, refers to the amount reflected in the Balance Sheet plus the amount to be recognized according to the PoC and not yet shown in the Balance Sheet

(3)	Venture debt and general guarantee debt refer to SFH debts, defined as the sum of all disbursed borrowing contracts which funds were provided by SFH, as well as the debt related to the seventh placement.

(4)	Total inventory.

We expect to comply with the covenants in the agreements governing our outstanding indebtedness which may limit our long-term growth prospects by hindering our ability to incur future indebtedness or grow through acquisitions. See “Item 3. Key Information—D. Risk Factors—Our level of indebtedness could have an adverse effect on our financial health, diminish our ability to raise additional capital to fund our operations and limit our ability to react to changes in the economy or the real estate industry.”

On December 31, 2014, the Company was in compliance with all of its covenants.

Financing through the Housing Finance System (SFH)

Most of our financing is incurred directly or through our subsidiaries or jointly-controlled entities from the principal banks that operate within SFH. As of December 31, 2014, the interest rates on these loans generally varied between 8.3% and 11.0% per annum, plus TR, and the loans generally mature through January 2015 and December 2018. This financing is secured by mortgages on property and by security interests on the receivables from clients. As of December 31, 2014, we had 62 loan agreements in effect, with a balance of R$1,129 million. At the same date we also had R$665 million in aggregate principal amount of financing agreements with SFH, the funds of which will be released through the date of completion as construction of the corresponding development’s progress.

Securitization deals and Fund — FIDC

On March 31, 2009, we entered into a securitized receivables transaction, whereby we assigned a portfolio of select residential and commercial real estate receivables to “Gafisa FIDC” which issued senior and subordinated quotas. This first issuance of senior quotas was made through an offering restricted to qualified investors. Subordinated quotas were subscribed exclusively by Gafisa S.A. Gafisa FIDC acquired the present value of the portfolio based on an agreed discount rate. We provide Gafisa FIDC with administrative and accounting services including the reconciliation and analysis of receivables and collections and can be replaced by another collection agent in the event of non-fulfillment with contractual parameters. The senior and subordinated quotas are remunerated based on the IGP-M index plus interest of 12% per year. Because the subordinated quotas have a disproportional percentage of the expected losses, Gafisa FIDC was considered a variable interest entity and was fully consolidated in our financial statements as of December 31, 2012, 2011 and 2010. On May 28, 2013, the Company entered into an agreement to sell the subordinated quotas to seniors investors in exchange for R$5 million in cash and R$3 million of real estate receivables. The Company remained obligated to fully register the real estate pledge to investors.

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In June 2009, we issued debt securities backed by real estate sales receivables (Cédula de Crédito Imobiliário), or CCI. The transaction consists of an assignment of a portfolio comprised of select residential real estate receivables from Gafisa and its subsidiaries. We assigned a receivables portfolio in the amount of R$89.1 million in exchange for cash at the transfer date, discounted to present value, totaling R$69.3 million, recorded as “Other accounts payable—Credit Assignments”. Eight book CCIs were issued in this transaction, which are backed by receivables which installments fall due on and up to June 2014.

On June 27, 2011, the Company and its subsidiaries entered into a CCI transaction relating to a portfolio comprising select residential real estate receivables from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$203.9 million (R$185.2 million – Gafisa’s interest) in exchange for cash, at the transfer date, discounted to present value, for R$171.7 million (R$155.9 million – Gafisa’s interest), recorded under “Obligations assumed on assignment of receivables”.

On September 29, 2011, the Company and its subsidiaries entered into a Private Instrument for Assignment of Real Estate Receivables and Other Covenants which consist of an assignment of a portfolio comprising select residential real estate receivables from Gafisa and its subsidiaries. The amount of real estate receivables assignment paid by the Assignee amounts to R$238.4 million (R$221.4 million - Gafisa’s interest). The assignment amount will be settled by the Assignee by offsetting the Housing Financial System (SFH) debt balance of the own bank. On July 6, 2012, the remaining balance was settled by issuance of Bank Deposit Certificate (CDB) guaranteed in favor of the Company.

On December 22, 2011, Gafisa and its subsidiaries entered into a CCI transaction relating to a portfolio comprising select residential real estate receivables from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$72.4 million in exchange for cash at the transfer date, discounted to present value, by R$60.1 million, classified as “Obligations with assignment of receivables”.

On May 9, 2012, Gafisa and its subsidiaries entered into a CCI transaction relating to a portfolio comprising select residential real estate receivables from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$64.9 million in exchange for cash at the transfer date, discounted to present value, by R$45.2 million.

On July 6, 2012, Gafisa and its subsidiaries entered into a CCI transaction relating to a portfolio comprising select residential real estate receivables from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$18.2 million in exchange for cash at the transfer date, discounted to present value, for R$11.5 million.

On December 27, 2012, Gafisa and its subsidiaries enter into a CCI transaction relating to a portfolio comprising select residential real estate receivables from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$72.0 million in exchange for cash at the transfer date, discounted to present value, by R$61.6 million.

On November 29, 2013, a selected portfolio of sales receivables from Gafisa and its subsidiary was transferred to investors. The assigned portfolio amounts to R$23.8 million in exchange of cash at the transfer date, discounted to present value, by R$18.9 million.

On November 25, 2014, a selected portfolio of sales receivables from Gafisa and its subsidiary was transferred to investors. The assigned portfolio amounts to R$15.2 million in exchange of cash at the transfer date, discounted to present value, by R$12.4 million.

Pursuant to Article 125 of the Brazilian Civil Code, the CCI-Investor carries general guarantees represented by statutory liens on real estate units, effective as soon as the conditional restrictions included in the registration are lifted, as reflected in the real estate deed on (i) the assignment of receivables from the assignors to SPEs, as provided for in Article 167, item II, (21) of Law No. 6,015, of December 31, 1973; and (ii) the issue of CCI-Investor by SPEs, as provided for in Article 18, paragraph 5 of Law No. 10,931/04.

We will be compensated for, among other things, the reconciliation of the receipt of receivables, guarantee the CCIs, and the collection of past due receivables. The transaction structure provides for the substitution of us as collection agent in the event of non-fulfillment of the responsibilities described in the collection service contract.

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Working Capital

We believe that our current working capital is sufficient for our present requirements and that our sources of funds from financing activities are sufficient to meet the financing of our activities and cover our need for funds for at least the next twelve months.

U.S. GAAP Reconciliation

We prepare our consolidated financial statements in accordance with Brazilian GAAP, which differs in significant respects from U.S. GAAP. Our net income attributable to owners of Gafisa, in accordance with Brazilian GAAP, was a net loss of R$42.5 million, a net income of R$867.4 million and a net loss of R$127.0 million in 2014, 2013 and 2012, respectively. Under U.S. GAAP, our net income was R$42.3 million, our net income was R$1,322.5 million and our net loss was R$121.2 million in 2014, 2013 and 2012, respectively.

Our equity, in accordance with Brazilian GAAP, was R$3,058.4 million, R$3,214.5 million and R$2,685.2 million, as of December 31, 2014, 2013 and 2012, respectively. Under U.S. GAAP, we recorded total equity of R$2,750.9 million, R$2,822.2 million and R$1,672.5 million as of December 31, 2014, 2013 and 2012, respectively.

The following items generated the most significant differences between Brazilian GAAP and U.S. GAAP in determining net income and shareholders’ equity:

revenue recognition;

business combinations;

temporary equity;

effects of deferred taxes on the differences above; and

non-controlling interest.

For a discussion of the principal differences between Brazilian GAAP and U.S. GAAP as they relate to our financial statements and a reconciliation of net income and equity see Note 33 to our consolidated financial statements included elsewhere in this annual report and “Item 3.A. Key Information—Selected Financial Data.”

New Accounting Pronouncements, Interpretations and Guidance

Pronouncements (new or revised) and interpretation applicable to years beginning January 1, 2014

The pronouncements (new or revised) and the interpretation listed below, issued by CPC and approved by CVM, are mandatory for the years beginning January 1, 2014 or later. They are the following:

OCPC 07 – Providing Evidence in the Disclosure of General Purpose Financial and Accounting Reports – CVM Resolution 727 of November 11, 2014. This standard aims at addressing the basic requirements for preparing and providing evidence to be observed when disclosing general purpose financial and accounting reports. It specifically addresses the provision of evidence about information of annual and interim financial and accounting statements, particularly those contained in the accompanying notes. The standard establishes that the evidenced information shall be information relevant to external users and comprised of information that could influence investors’ and creditors’ decisionmaking process. Consequently, the non-relevant ones shall not be disclosed.

ICPC 09 (R2) – Individual, Separate and Consolidated Financial Statements and the Equity Method of Accounting – CVM Resolution 729 of November 27, 2014. The objective of the ICPC 09 revision is substantially derived from the issue of the technical pronouncements CPC 18 (R2), CPC 19 (R2) and CPC 36 (R3), in view of the changes made by the IASB in international accounting standards IAS 28, IFRS 10 and IFRS 11. Other items were also revised and aimed at adjusting the text to current needs and converging them to international standards.

ICPC 19 – Levies – CVM Resolution 730 of November 27, 2014. This interpretation is correlated with the IFRIC Interpretation 21 – Levies, issued by the IASB. The interpretation provides for the accounting for a liability for a levy, if the liability is in the scope of the Technical Pronouncement CPC 25, and also deals with the accounting for the liability for levy which timing and amount are not certain.

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The amendment to CPC 01/IAS 36 – Impairment of Assets addresses the disclosure of the recoverable amount of non-financial assets. This amendment eliminates certain disclosures of the recoverable amount of cash generating units that had been included in the IAS 36 with the issue of the IFRS 13.

The amendment to CPC 39/IAS 32 – Financial Instruments: Presentation, addresses the offsetting of financial assets and liabilities. This amendment clarifies that the right to offset shall not be contingent on a future event. It also shall be legally applicable to all counterparties in the normal course of business, as well as in the case of default, insolvency or bankruptcy. The amendment also considers liquidation mechanisms.

The revision of Technical Pronouncement 7 – Equity Method in Separate Financial Statements, amends the wording of the CPC 35 – Separate Financial Statements to incorporate the modifications made by the IASB to IAS 27 - Separate Financial Statements, which now permits the adoption of the equity method for subsidiaries in the separate financial statements, thus aligning the accounting practices adopted in Brazil with the international accounting standards. Especially for the IFRS purposes, the modifications to IAS 27 were early adopted.

The Company adopted all of the pronouncements (new or revised) and interpretations issued by the CPC applicable to its operations which were effective as of December 31, 2014.

There are no other standards or interpretations that were issued and not yet adopted that could, in the opinion of our management, have a significant impact on the profit, loss or equity disclosed by the Company.

In order to be comparable, the corresponding balances as of December 31, 2012, the opening balance as of January 1, 2012, the opening equity as of January 1, 2011 and statement of operations as of December 31, 2012 and 2011 were adjusted considering the changes introduced by CPC 23 – Accounting Practices, Changes in Accounting Estimates and Errors (“CPC 23”). As required by CPC 23, the retrospective effects of the adoption of CPCs 18(R2), 19 (R2) and 36 (R3) are as follows:

	Balances reported in year ended December 31, 2012		Impact of the adoption of CPC 19 (R2) and CPC 36 (R3)			2012 balances, after the adoption of CPC 19 (R2) and CPC 36 (R3)
	(in thousands of reais)
Balance sheet
Current assets		7,218,690		(812,650	)		6,406,040
Non-current assets		1,575,371		(191,886	)		1,383,485
Investments		-		646,812			646,812
Property and equipment and intangible assets		276,933		(701	)		276,232
Total assets		9,070,994		(358,425	)		8,712,569

Current liabilities		2,879,590		(238,306	)		2,641,284
Non-current liabilities		3,499,037		(113,581	)		3,385,456
Total liabilities		6,378,627		(351,887	)		6,026,740
Equity		2,692,367		(6,538	)		2,685,829
Total liabilities and equity		9,070,994		(358,425	)		8,712,569

	Balances reported in year ended December 31, 2012			Impact of the adoption of CPC 19 (R2) and CPC 36 (R3)			Impact of the adoption of CPC 31			2012 balances, after the adoption of CPC 19 (R2) and CPC 36 (R3)
	(in thousands of reais)
Statement of operations
Net operating revenue		3,953,282			(363,014	)		(785,182	)		2,805,086
Operating costs		(2,941,025	)		287,150			377,071			(2,276,804	)
Operating (expenses) / income		(840,452	)		13,535			161,710			(665,207	)
Equity pick-up		—			63,335			(7,732	)		55,603
Financial income		(206,940	)		(8,911	)		35,588			(180,263	)
Income and social contribution taxes		(41,228	)		6,589			14,417			(20,222	)
Non-controlling interests		(48,141	)		(1,223	)		—			(49,364	)
Income from discontinued operation.		—			—			204,128			204,128
Net loss for the year		(124,504	)		(2,539	)		—			(127,043	)

Cash flow
Operating activities		650,945			(6,627	)		—			644,288
Financing activities		161,488			592			—			162,080
Investing activities		(322,894	)		34,934			—			(287,960	)

Summary statement of value added information
Net value added produced by the Company		1,020,761			(227,655	)		—			793,106
Value added received on transfer		80,629			30,793			—			111,422
Value added to be distributed		1,101,390			(196,862	)		—			904,528

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	Balances originally reported in year ended December 31, 2011		Impact of the adoption of CPC 18(R2), 19(R2) and 36(R3)			Restated balances, after the adoption of CPC 18(R2), 19(R2) and 36(R3) as of 01/01/2012
Summary balance sheet information	(in thousands of reais)
Current assets		7,314,358		(790,798	)		6,523,560
Non-current assets		1,909,989		(177,932	)		1,732,057
Investments		—		629,323			629,323
Property and equipment and intangible assets		282,277		(2,434	)		279,843
Total assets		9,506,624		(341,841	)		9,164,783

Current liabilities		4,815,939		(140,690	)		4,675,249
Non-current liabilities		1,943,591		(197,633	)		1,745,958
Total liabilities		6,759,530		(338,323	)		6,421,207
Equity		2,747,094		(3,518	)		2,743,576
Total liabilities and equity		9,506,624		(341,841	)		9,164,783

	Balances originally reported in year ended December 31, 2011			Impact of the adoption of CPC 18(R2), 19(R2) and 36(R3)			Impact of the adoption of CPC 31			Restated balances, after the adoption of CPC 18(R2), 19(R2) and 36(R3)
Summary income statement information				(in thousands of reais)
Net operating revenue		2,940,506			(487,893	)		(605,711	)		1,846,902
Operating costs		(2,678,338	)		426,430			324,034			(1,927,874	)
Operating (expenses) / income		(865,092	)		16,438			110,289			(738,365	)
Income from equity method investments		—			53,102			(33,969	)		19,133
Financial income (expenses)		(159,903	)		(24,195	)		17,370			(166,728	)
Income tax and social contribution		(142,362	)		16,284			20,228			(105,850	)
Non-controlling interests		39,679			166			—			39,845
Net income from discontinued operation		—			—			167,759			167,759
Net loss for the year		(944,868	)		—			—			(944,868	)

Summary statement of cash flow information
Operating activities		(808,711	)		18,566			—			(790,145	)
Financing activities		696,848			(61,896	)		—			634,952
Investing activities		(6,921	)		(24,720	)		—			(31,641	)

Summary statement of value added information
Net value added produced by the Company		175,261			(215,469	)		—			(40,208	)
Value added received on transfer		92,973			(4,282	)		—			88,691
Value added to be distributed		268,234			(219,751	)		—			48,483

	Balances originally reported in year ended December 31, 2010		Impact of the adoption of CPC 18(R2), 19(R2) and 36(R3)			Restated balances, after the adoption of CPC 18(R2), 19(R2) and 36(R3) as of 01/01/2011
Summary equity information	(in thousands of reais)
Equity		3,570,750		(6,520	)		3,564,230
Non-controlling interests		61,422		7,574			68,996
Total equity		3,632,172		1,054			3,633,226

On May 28, 2014, the IASB published IFRS 15, which establishes principles that will apply to the recognition of revenue under IFRS and U.S. GAAP. IFRS 15 will require entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. When adopted, IFRS 15 will supersede most of the detailed guidance on the recognition of revenue that currently applies under IFRS and U.S. GAAP. IFRS 15 will be effective for annual periods beginning on or after January 1, 2017, and earlier application of IFRS 15 will be permitted for IFRS purposes. In Brazil, earlier application of IFRS 15 will be subject to the implementation of IFRS 15 in Brazil and the prior approval of the CPC and the CVM.

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In July 2014, the IASB published IFRS 9, which establishes, among other principles, principles that will apply to the classification, measurement and recognition of financial assets and liabilities. IFRS 9 will replace (i) earlier versions of IFRS 9 and (ii) IAS 39. IFRS 9 is comprised of three phases:

Recently Issued U.S. GAAP Accounting Standards

In July 2012, the FASB issued ASU 2012-02, “Intangible – Goodwill and Other” – Topic 350, which provides the option to perform a qualitative, rather than quantitative, assessment to determine whether it is more likely than not an indefinite-lived intangible asset is impaired. If the asset is considered impaired, an entity is required to perform the quantitative assessment under the existing guidance. The guidance is effective for our fiscal year beginning on January 1, 2013. The adoption of ASU 2012-02, which is intended to simplify the impairment testing, did not have a material impact on our consolidated financial statements.

In January 2013, the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The amendments in ASU 2013-01 to Topic 210, Balance Sheet, clarify that the scope of Update 2011-11, Disclosures about Offsetting Assets and Liabilities, applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. The amendments were effective for the Company on January 01, 2013 and the disclosures are required to be retrospectively applied for all comparative periods presented. The effective date is the same as the effective date of Update 2011-11. The adoption of ASU 2013-01, which is related to disclosure only, did not have a material impact on our consolidated financial statements.

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In February 2013, the FASB issued ASU 2013-04, Obligations Resulting From Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date. The amendments in ASU 2013-04 to Topic 405, Liabilities, provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the update is fixed at the reporting date, except for obligations addressed with existing U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on behalf of its co-obligors. The guidance also requires an entity to disclose the nature and amount of the obligation, as well as other information about those obligations. The amendment is effective retrospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted. The adoption of ASU 2013-04 did not have a material impact on our consolidated financial statements.

In April 2013, the FASB issued ASU 2013-07, Liquidation Basis of Accounting. The amendments in ASU 2013-07 to Topic 205, Presentation of Financial Statements, clarify when an entity should apply the liquidation basis of accounting and provide principles for the recognition and measurement of associated assets and liabilities. In accordance with the amendments, an entity is required to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is considered imminent when the likelihood is remote that the organization will return from liquidation and either: (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties; or (b) a plan for liquidation is being imposed by other forces. The amendments in ASU 2013-07 are effective prospectively for entities that determine liquidation is imminent for reporting periods beginning after December 15, 2013, with early adoption permitted. The adoption of ASU 2013-07 did not have a material impact on our consolidated financial statements.

In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in ASU 2013-11 to Topic 740, Income Taxes, clarify that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.

The amendments in ASU 2013-11 are effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Retrospective application is permitted. We are currently evaluating the impacts of the adoption of ASU 2013-11 on our consolidated financial statements.

In January 2014, the FASB issued ASU 2014-01 - Investments - Equity Method and Joint Ventures (Topic 323). The amendments in ASU 2014-01 provide guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit. The amendments permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. The amendments in ASU 2014-01 should be applied retrospectively to all periods presented and are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. The adoption of ASU 2014-01 is not expected to have a material impact on our consolidated financial statements.

In April 2014, the FASB issued ASU 2014-08 - Presentation of financial statements (topic 205) and property, plant, and equipment (Topic 360). The amendments in ASU 2014-08 change the requirements for reporting discontinued operations in Subtopic 205-20. A discontinued operation may include a component of an entity or a group of components of an entity, or a business or nonprofit activity. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when some criteria occurs. Examples of a strategic shift that has (or will have) a major effect on an entity’s operations and financial results could include a disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity. The amendments in ASU 2014-08 require an entity to present, for each comparative period, the assets and liabilities of a disposal group that includes a discontinued operation separately in the asset and liability sections, respectively, of the statement of financial position. The amendments in ASU 2014-08 require additional disclosures about discontinued operations. The amendments in ASU 2014-08 are effective to all disposals (or classifications as held for sale) of components of an entity and all businesses or nonprofit activities that, on acquisition, are classified as held for sale that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. The adoption of ASU 2014-08, which is related to disclosure only, is not expected to have a material impact on our consolidated financial statements.

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In May 2014, the FASB issued ASU 2014-09 - Revenue from contracts with customers (Topic 606). The amendments in ASU 2014-09 create revenue from contracts with customers (Topic 606), and supersede the revenue recognition requirements in revenue recognition (topic 605), including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, the amendments supersede the cost guidance in revenue recognition—construction-type and production-type contracts (subtopic 605-35), and create new subtopic 340-40, other assets and deferred costs—Contracts with Customers. In summary, the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. We are currently evaluating the impacts of the adoption of ASU 2014-09 on our consolidated financial statements.

In June 2014, the FASB issued ASU 2014-12 - Compensation—stock compensation (Topic 718). Some share-based payment awards that require a specific performance target to be achieved before the employee can benefit from the award, also require an employee to render service until the performance target is achieved. In some cases, the terms of an award may provide that the performance target could be achieved after an employee completes the requisite service period. That is, the employee would be entitled to benefit from the award regardless of whether the employee is rendering service on the date the performance target is achieved. Some entities account for those performance targets as performance conditions that affect the vesting of the award and, therefore, do not reflect the performance target in the estimate of the grant-date fair value. Others treat them as nonvesting conditions that affect the grant-date fair value of the award. The amendments apply to reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target can be achieved after the requisite service period. The amendments in ASU 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. We are currently evaluating the impacts of the adoption of ASU 2014-12 on our consolidated financial statements.

In November 2014, the FASB issued ASU 2014-16 - Derivatives and hedging (Topic 815) - Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. Certain classes of shares include features that entitle the holders to preferences and rights (such as conversion rights, redemption rights, voting powers, and liquidation and dividend payment preferences) over the other shareholders. Shares that include embedded derivative features are referred to as hybrid financial instruments, which must be separated from the host contract and accounted for as a derivative if certain criteria are met under Subtopic 815-10. One criterion requires evaluating whether the nature of the host contract is more akin to debt or to equity and whether the economic characteristics and risks of the embedded derivative feature are “clearly and closely related” to the host contract. In making that evaluation, an issuer or investor may consider all terms and features in a hybrid financial instrument including the embedded derivative feature that is being evaluated for separate accounting or may consider all terms and features in the hybrid financial instrument except for the embedded derivative feature that is being evaluated for separate accounting. The use of different methods can result in different accounting outcomes for economically similar hybrid financial instruments. Additionally, there is diversity in practice with respect to the consideration of redemption features in relation to other features when determining whether the nature of a host contract is more akin to debt or to equity. The amendments apply to all reporting entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share. The amendments in ASU 2014-16 are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption, including adoption in an interim period, is permitted. We are currently evaluating the impacts of the adoption of ASU 2014-16 on our consolidated financial statements.

In November 2014, the FASB issued ASU 2014-17 - Business combinations (Topic 805) - Pushdown Accounting. The objective of ASU 2014-17 is to provide guidance for determining whether and at what threshold an acquiree (acquired entity) that is a business or nonprofit activity can reflect the acquirer's accounting and reporting basis (pushdown accounting) in its separate financial statements. Paragraphs 805-50-S99-1 through S99-4 of the Codification provide limited guidance for SEC registrants for determining whether and when a new accounting and reporting basis should be established in an acquiree's separate financial statements. However, because diversity in practice exists with respect to the application of pushdown accounting among entities that are not SEC registrants, the amendments provide guidance for entities that are SEC registrants and for those that are not. The amendments in ASU 2014-17 are effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. The adoption of ASU 2014-17 is not expected to have a material impact on our consolidated financial statements.

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In December 2014, the FASB issued ASU 2014-18 Business combinations (Topic 805) - Accounting for Identifiable Intangible Assets in a Business Combination. The objective of ASU 2014-18 is to address the concerns of private company stakeholders that the benefits of the current accounting for identifiable intangible assets acquired in a business combination do not justify the related costs. The amendments provide guidance about an accounting alternative for recognizing or otherwise considering the fair value of identifiable intangible assets acquired as a result of certain specified transactions, including business combinations. The decision to adopt the accounting alternative in ASU 2014-18 must be made upon the occurrence of the first transaction within the scope of this accounting alternative in fiscal years beginning after December 15, 2015, and the effective date of adoption depends on the timing of that first in-scope transaction. Early application is permitted for any interim and annual financial statements that have not yet been made available for issuance. The adoption of ASU 2014-18 is not expected to have a material impact on our consolidated financial statements.

In January 2015, the FASB issued ASU 2015-01, Income statement - Extraordinary and unusual items (Subtopic 225-20). The objective of ASU 2015-01 is to simplify the income statement presentation requirements in Subtopic 225-20 by eliminating the concept of extraordinary items. Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. Eliminating the extraordinary classification simplifies income statement presentation by altogether removing the concept of extraordinary items from consideration. The amendments in ASU 2015-01 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively and also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The adoption of ASU 2015-01 is not expected to have a material impact on our consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis. ASU 2015-02 affects the following areas: (i) Limited partnerships and similar legal entities, (ii) Evaluating fees paid to a decision maker or a service provider as a variable interest, (iii) The effect of fee arrangements on the primary beneficiary determination, (iv) The effect of related parties on the primary beneficiary determination and (v) Certain investment funds. The amendments in ASU 2015-02 affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Overall, the amendments in ASU 2015-02 are an improvement to current GAAP because they simplify the Codification and reduce the number of consolidation models through the elimination of the indefinite deferral of Statement 167 and because they place more emphasis on risk of loss when determining a controlling financial interest. The amendments in ASU 2015-02 are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The adoption of ASU 2015-02 is not expected to have a material impact on our consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03 – Interest - Imputation of Interest (Subtopic 835-30). To simplify the presentation of debt issuance costs, ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs would not be affected by ASU 2015-03. For public business entities, ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of ASU 2015-03 is permitted for financial statements that have not been previously issued. The adoption of ASU 2015-03 is not expected to have a material impact on our consolidated financial statements.

C. Research and Development, Patents and Licenses, etc.

We have a research and development department for new products, processes and methodologies focused on reducing the construction cycle. As of December 31, 2014, 2013 and 2012, we had 10, 10 and 7 employees engaged in research and development activities, respectively. Our research and development expenditures in 2014, 2013 and 2012 were immaterial.

D. Trend Information

Elsewhere in this annual report, including under “Item 3. Key Information—D. Risk Factors” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Brazilian Real Estate Sector,” we discuss trends, uncertainties, demands, commitments or events which could have a material effect upon our net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that could cause reported financial information to not necessarily be indicative of future operating results or financial condition.

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In addition, while we believe the long term prospects for the Brazilian housing market have not changed, during 2012, 2013 and 2014, we recognized that we needed to adjust how we have approached the demand for high growth and diversification in the market in order to achieve sustainable, profitable growth. In the Brazilian housing market, demand has outstripped supply on all fronts, from units and availability of skilled labor, to reliable and experienced suppliers and building partners, to financing, and to the ability to rapidly issue permits and obtain the necessary approvals to deliver units under the Minha Casa Minha Vida program.

In the second half of 2011, our management team conducted a detailed analysis of our operations and profitability by project, region and brand and has developed certain strategies to address the market trends that we have identified. As part of our revised strategies, we plan to continue to simplify and streamline our organizational and operational structure to reinforce the fundamental strengths of each of our brands. In particular, we determined the specific geographic markets where each of our brands has the strongest prospects for performance and where we enjoy supply chain efficiencies, and will focus our efforts for each brand in its respective geographic markets. We also implemented a new management structure that, among other things, assigns each brand manager direct responsibility for the operating performance of each brand. In addition, we are implementing a corporate culture shift within our Tenda brand focused on the transfer of receivables and on aligning incentives across the organization (including from senior management to individual project engineers) to encourage project execution based on high-quality, on-time, under-budget performance.

In 2013 Gafisa completed its strategic repositioning, which commenced in early 2012. Our goal was to reduce the level of debt, restrict the Company's exposure to unprofitable businesses and markets and improve in margins and cash generation. One of the several initiatives we adopted to achieve this goal was the sale of a 70% interest in Alphaville, which contributed to a decrease in our leverage.

By the end of 2013 we finalized our five-year business plan for the period from 2014 to 2018. We set guidelines for our business including the expected size of Gafisa and Tenda operations, appropriate leverage, profitability guidelines, and our commitment to capital discipline and shareholder value generation, which are reflected in the guidance released to the market at the end of 2013.

We also expect to continue to build on the progress we have made in consolidating our back office and establishing shared operations among our three brands. With the implementation of the SAP enterprise application software platform across all of our divisions, we believe we will have the appropriate tools and data to make more effective management and supply decisions. We believe the successful implementation of these initiatives will help produce more stable cash flow and contribute toward a return to sustainable growth.

enable shareholders to allocate resources between Gafisa and Tenda in line with their interests and investment strategies;

enable Gafisa and Tenda to respond faster to the opportunities in their target markets;

establish sustainable capital structures for each of Gafisa and Tenda, based on each company’s risk profile and strategic priorities;

give greater visibility to the market on the individual performance of each of Gafisa and Tenda, enabling better assessment of intrinsic value; and

increase the ability of Gafisa and Tenda to attract and retain talent, through the development of appropriate cultures and compensation structures consistent with the specific results of each business.

As part of the studies, we (i) separated several joint departments of Gafisa and Tenda, including, among others, the services, personnel and management department and the legal department, (ii) converted Tenda’s issuer registration with the CVM from category B to category A, (iii) entered into negotiations with several banks and insurance companies to open lines of credit for Tenda that are independent of Gafisa, and (iv) reviewed our contracts with our third party counterparties and evaluated the potential impact of a spin-off on those contracts. In parallel, we continue to assess separation alternatives for the Gafisa and Tenda business units.

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The implementation of these strategic initiatives could have a material effect upon our net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or could cause reported financial information to not necessarily be indicative of future operating results or financial condition.

E. Off Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements or significant transactions with unconsolidated entities not reflected in our consolidated financial statements. All of our interests in and/or relationships with our subsidiaries or jointly-controlled entities are recorded in our consolidated financial statements.

F. Tabular Disclosure of Contractual Obligations

The table below presents the maturity of our significant contractual obligations as of December 31, 2014. The table does not include deferred income tax liability.

	Maturity Schedule
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in millions of reais)
Loans and financing		1,397.5		550.1		758.8		88.6		—
Debentures		1,189.1		504.4		620.5		64.2		—
Interest (1)		503.0		263.0		255.0		33.0		—
Real estate development obligations (2)		1,639.2		1,247.1		391.9		0.2		—
Obligations for land purchase		570.5		469.3		101.2		—		—
Payables to venture partners (3)		11.0		6.0		5.0		—		—
Credit assignments		56.1		24.1		23.8		8.2		—
Obligations from operating leases		80.6		13.6		29.5		37.5		—
Acquisition of investments		2.4		2.4		—		—		—
Other accounts payable		186.0		155.5		30.5		—		—
Total		5,635.4		3,235.5		2,216.2		231.7		—

(1)	Estimated interest payments are determined using the interest rate as of December 31, 2014. However, our long-term debt is subject to variable interest rates and inflation indices, and these estimated payments may differ significantly from payments actually made.

(2)

Including commitments not reflected in the balance—CFC Resolution No. 963. Pursuant to Brazilian GAAP, and since the adoption of CFC Resolution No. 963, the total costs to be incurred on the units launched but not sold are not recorded on our balance sheet. As of December 31, 2014, the amount of “real estate development obligations” related to units launched but not sold was R$880.0 million.

(3)	Payables to venture partners accrue a minimum annual dividend equivalent to the variation in CDI, which is not included in the table above.

On June 8, 2012, according to the material fact then disclosed, the third phase of the Investment Agreement and Other Covenants entered into on October 2, 2006 (“Investment Agreement”), established the rules and conditions for Gafisa related to the acquisition of the remaining 20% interest in the capital stock of Alphaville not held by the Company. While the valuation of the capital stock had been agreed by both parties, the number of shares that should be issued by the Company to settle this transaction was being decided in arbitration proceedings initiated by the noncontrolling holders of Alphaville, which was concluded in July 2013. Therefore, there was an embedded derivative component to the Investment Agreement, relating to the Company’s obligation to purchase the Alphaville shares held by the non-controlling interest. As the fair value of this embedded derivative for all reporting periods had no significant value, since the settlement of the derivative would be based on the fair value of Alphaville’s capital stock, no derivative asset or liability had been recorded. The settlement that was to be made in cash or shares represented an amount of R$359.0 million as of December 31, 2012. In case of issuance of 70,251,551 common shares of Gafisa to the other shareholders of Alphaville, these shareholders of Alphaville would receive 13.96% of Gafisa’s total capital stock and would become relevant shareholders of Gafisa.

We also recorded provisions for contingencies in relation to labor, tax and civil lawsuits in the amounts of R$103.0 million and R$66.8 million in current and non-current liabilities, respectively, as of December 31, 2014.

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management Board of Directors

The table below shows the names, positions, and terms of office of the members of our board of directors:

Name	Age	Position	Election Date	Term of Office(1)
Odair Garcia Senra	68	Chairman	April 25, 2014	Annual Shareholders’ General Meeting in 2016
Guilherme Affonso Ferreira(2)(3)	64	Director	April 25, 2014	Annual Shareholders’ General Meeting in 2016
Maurício Marcellini Pereira(2)(3)	41	Director	April 25, 2014	Annual Shareholders’ General Meeting in 2016
Cláudio José Carvalho de Andrade(2)(3)	43	Director	April 25, 2014	Annual Shareholders’ General Meeting in 2016
José Écio Pereira da Costa Junior(2)(3)	63	Director	April 25, 2014	Annual Shareholders’ General Meeting in 2016
Rodolpho Amboss(2)(3)	51	Director	April 25, 2014	Annual Shareholders’ General Meeting in 2016
Francisco Vidal Luna (2)(3)	68	Director	April 25, 2014	Annual Shareholders’ General Meeting in 2016

(1)	Under Brazilian corporate law, an annual general shareholders’ meeting must take place within the first four months of the calendar year.

(2)	Independent member pursuant to NYSE rules.

(3)

Independent member pursuant to Brazilian Law. According to Brazilian Law, a director is considered independent when: (1) he/she has no relationship with the company, except for holding shares; (2) he/she is not a controlling shareholder, spouse or relative of the controlling shareholder, has not been in the past three years linked to any company or entity related to the controlling shareholder; (3) he/she has not been in the past three years an employee nor an executive of the company, of the controlling shareholder or of any subsidiary of the company; (4) he/she is not a supplier or buyer, direct or indirect, of the company where the arrangement exceeds a certain amount; (5) he/she is not an employee or manager of any company which renders services to the company or which uses services or products from the company; (6) he/she is not a spouse or relative of any member of the company’s management; and (7) he/she does not receive any compensation from the company, except for the compensation related to its position as a board member.

Our directors are not subject to mandatory retirement due to age.

The following is a summary of the business experience and principal outside business interests of the current members of our board of directors.

Odair Garcia Senra. Mr. Garcia Senra is currently the chairman of our board of directors. He started as an intern at former Gomes de Almeida Fernandes and occupied positions in the Company as construction engineer, general manager of construction, construction officer, and institutional relations officer. In the past, he has held, among others, the following positions: Operational Officer of Construtora Tenda S.A.; member of the Board of Directors of Alphaville Urbanismo S.A.; Officer of SECOVI SP – Sindicato das Empresas de Compra, Venda, Locação e Administração de Imóveis Residenciais e Comerciais de São Paulo, union for the companies involved in buying, selling and administrating Real Estate in São Paulo; Vice President of SINDUSCON SP – Sindicato da Indústria da Construção Civil do Estado de São Paulo, union for the construction companies in São Paulo; and member of the Board of Directors of São Carlos Empreendimentos e Participações S.A., a company specialized in asset management of commercial Real Estate. He holds a bachelor’s degree in civil engineering from the Civil Engineering School of Mauá and was also a professor at the Civil Engineering School of Mauá in 1972.

Guilherme Affonso Ferreira. Mr. Ferreira is currently a member of our board of directors and the CEO of Bahema Participações S.A., a financial investment company. He is also a member of the board of directors of: Companhia Brasileira de Distribuição (Pão de Açucar), a retail company; SulAmérica S.A., an insurance company Valid Soluções e Serviços de Segurança em Meios de Pagamento e Identificação S.A.; a company that specializes in payment facilitation program, system identification and telecommunication; Tavex Algodonera S.A., a textile company; Arezzo Indústria e Comércio S.A., a shoes retailer; Ideiasnet S.A., a technology, media and telecommunications company and Banco Indusval, a financial institution. He holds a production engineering degree from the University of São Paulo and a master’s degree in economics and political science from Macalester College.

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Maurício Marcellini Pereira. Mr. Pereira is currently a member of our board of directors and has also been a member of the board of directors of Elo Serviços S.A., a debit and credit card administrator and Telemar Participações S.A., a telecommunication company. He has also been Investment Officer of Fundação dos Economiários Federais – FUNCEF, a pension fund for the employees of Caixa Econômica Federal; Executive Officer of New Business of Caixa Participações S.A. – CAIXAPAR, a company specialized in strategic corporate stakes; member of the Investment Committee of Fundo de Investimentos em Participações Infra Brasil, an investment fund created by the IDB, which offers credit to private companies to invest in infra-structure; and Finance and Administrative Officer of Grupo Posadas Caesar Park and Executive Partner of Ria Hotelaria Sustentável, both tourism companies. He holds a degree in business administration from Minas Gerais Federal University, an MBA in Finance from Ibmec Business School and is getting his master’s degree in pension economics from Brasília University (UnB).

Cláudio José Carvalho de Andrade. Mr. Andrade is currently a member of our board of directors, has been a member of the board of directors of Telefônica Data Holding, a telecommunication company and is currently an alternate member of the fiscal councils of Banco Panamericano S.A., a financial institution, Banco Sofisa S.A., a financial institution, and Copel – Companhia Paranaense de Energia, an energy development company. He is also a partner in various real estate management companies. He holds a degree in Business Administration from EAESP Getulio Vargas Foundation University.

José Écio Pereira da Costa Júnior. Mr. Pereira da Costa is a member of our board of directors. He has also been a member of the board of directors of BRMALLS S.A., a shopping mall management company, Princecampos Participações S.A., a public transportation company and also a member of the audit committees of Votorantim Cimentos S.A., Votorantim Metais S.A and Fibria S.A. He has also been an auditing partner of Deloitte Touche Tohmatsu Auditores Independentes S/C Ltda. and a partner at JEPereira Consultoria em Gestão de Negócios S/S Ltda., a consulting company. He holds a bachelor’s degree in business administration from Fundação Getúlio Vargas and a bachelor’s degree in accounting from Faculdade São Judas Tadeu.

Rodolpho Amboss. Mr. Amboss is a member of our board of directors. He is also on the board of directors of BR Properties, a construction company specializing in industrial sheds and large commercial buildings and has been an officer in various companies in the real estate sector, such as the Real Estate Private Equity Group of Lehman Brothers and Silverpeak Real Estate Partners LP. He holds a degree in civil engineering from Rio de Janeiro Federal University and an MBA from the Booth School of Business of the University of Chicago.

Francisco Vidal Luna. Mr. Luna is a member of our board of directors. He currently is on the board of directors of several Municipal owned or related companies and foundations, such as Sabesp, Desenvolve São Paulo, Museu da Língua Portuguesa, Museu do Futebol, Museu Afro Brasil, Fundação Faculdade de Medicina – FFM and he has been member of Board of Directors of several others such as SP Urbanismo, SP Obras, SP Tur, SP Trans, CET and Prodam. He is also currently member of board of officers of Banco Tokyo-Mitsubishi UFJ do Brasil and he has been a member of management of other banks, such as Banco InterAmerican Express (former Banco SRL), Banco Nossa Caixa Desenvolvimento and Banco Nacional de Desenvolvimento Econômico – BNDES. Mr. Luna has an economics degree and post-graduate degree from the University of São Paulo.

The table below shows the names, positions, and terms of office of our executive officers:

Name	Age	Position	Election Date	Term of Office
Sandro Rogério da Silva Gamba	39	Chief Executive Officer	May 05, 2014	May 04, 2017
Andre Bergstein	44	Chief Financial Officer and Investor Relations Officer	May 05, 2014	May 04, 2017
Luiz Carlos Siciliano	50	Operational Executive Officer	May 05, 2014	May 04, 2017
Octavio Marques Flores	40	Operational Executive Officer	May 05, 2014	May 04, 2017
Katia Varalla Levy	41	Operational Executive Officer	May 05, 2014	May 04, 2017

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The business address of each of our executive officers is Av. Nações Unidas No. 8,501, 19th floor , 05425-070 – São Paulo, SP – Brazil.

The following is a summary of the business experience and principal outside business interests of the current members of our board of executive officers.

Sandro Rogério da Silva Gamba. Mr. Gamba is currently our chief executive officer and his current term commenced in May 2014, with a term of office through May 4, 2017. With over 15 years at Gafisa, having worked as head of business development for Gafisa and Tenda in the São Paulo region, he has significant institutional knowledge and oversaw the growth of our business in São Paulo, our largest region. Previously, he served us in a number of senior roles in the São Paulo region, including head of business development for Gafisa and director and manager of land prospecting. Mr. Gamba holds a degree in civil engineering from Mackenzie University, advanced degrees in engineering and real estate management from the University of São Paulo and Fundação Armando Alvares Penteado, and an executive master’s in business administration from IBMEC.

Andre Bergstein. Mr. Bergstein is currently our chief financial officer and investor relations officer, and his current term commenced in May 2014, with a term of office through May 4, 2017. He is also a member of the board of directors of Alphaville Urbanismo S.A. In the past five years he has also occupied the following positions: (i) Real Estate Executive of Plural Capital Gestora de Recursos Ltda., an asset management company; (ii) CFO of Brazilian Securities Cia de Securitização S.A., a securitization of financial credits company; (iii) CFO and Investor Relations Officer of Brazilian Finance & Real Estate S.A., holding company of Brazilian Securities Cia de Securitização S.A.

Luiz Carlos Siciliano. Mr. Siciliano is currently one of our operational executive officers, responsible internally for business development in the state of Rio de Janeiro, and his current term commenced in May 2014, with a term of office through May 04, 2017. Mr. Siciliano brings considerable sales and marketing managerial expertise to his newly expanded role from both his tenure at Gafisa as well as from his prior professional experience. He has worked for us since 2005 and, previously, he was director of sales and marketing and head of the supply chain, IT, legal department and shared services center. Prior to joining us, Mr. Siciliano worked at AmBev from 1992 to 2004 in positions of increasing responsibility, and he holds a master’s degree in business administration degrees from IBMEC and Pontifícia Universidade Católica (PUC) in Rio de Janeiro.

Octavio Marques Flores. Mr. Flores is currently one of our operational executive officers, responsible internally for several development and construction departments. Mr. Flores joined us in 2007 and in the last five years he served as prospection manager, business owner and business officer.

Katia Varalla Levy. Mrs. Levy is currently one of our operational executive officers, responsible internally for responsible internally for several development and construction departments. Mrs. Levy joined us in 1992 as intern, and in the last five years she served as product developtment manager and product development officer.

Our Relationship with our Executive Officers and Directors

As of December 31, 2014, our board of officers in the aggregate held 0.2% of our share capital and our board of directors in the aggregate held a 0.4% direct or indirect interest in our share capital. As of December 31, 2014, there were no contracts of any type or any other material agreements entered into by us with the members of our board of directors and our board of officers. As of December 31, 2014, some of our executive officers held interests in our subsidiaries as directors and/or executive officers. In none of these cases, as of the referenced date, were the interests held material.

As of December 31, 2013, our board of officers in the aggregate held 0.3% of our share capital and our board of directors in the aggregate held less than a 0.1% direct or indirect interest in our share capital.

As of December 31, 2012, our board of officers in the aggregate held 0.3% of our share capital and our board of directors in the aggregate held less than a 0.1% direct or indirect interest in our share capital.

B. Compensation

For each of 2014, 2013 and 2012

Under Brazilian corporate law, the company’s shareholders are responsible for establishing the aggregate amount paid to members of the board of directors, the executive officers and the members of the fiscal council. Once the shareholders establish an aggregate amount of compensation, the members of the board of directors are then responsible for setting individual compensation levels.

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For each of 2014, 2013 and 2012, the aggregate compensation we paid to the members of the board of directors was R$1.7 million, R$1.9 million and R$2.2 million, respectively, considering Gafisa and Tenda for the year ended December 31, 2014 and Gafisa, Tenda and Alphaville for the years ended December 31, 2013 and 2012.

For each of 2014, 2013 and 2012, the aggregate compensation we paid to the members of the fiscal council was R$189 thousand, R$55.3 thousand and R$249.9 thousand, respectively, considering Gafisa and Tenda for the year ended December 31, 2014 and Gafisa, Tenda and Alphaville for the years ended December 31, 2013 and 2012.

For each of 2014, 2013 and 2012, the aggregate compensation we paid to the executive officers was R$16.8 million (net of bonuses for Gafisa executive officers), R$49.6 million and R$37.5 million, respectively, which includes, unless otherwise indicated, fixed compensation, annual bonus amounts and the costs related to Stock Options Programs, considering Gafisa and Tenda for the year ended December 31, 2014 and Gafisa, Tenda and Alphaville for the years ended December 31, 2013 and 2012.

Approximately 70% of the total compensation paid to Gafisa officers and 42% of the total compensation paid to Tenda officers is variable. The amounts related to short-term bonuses paid for our officers were, for each of 2014, 2013 and 2012, R$3.4 million, R$4.7 million and R$18.9 million, respectively.

For each of 2014, 2013 and 2012, the individual compensation we paid to members of our board of directors (fixed compensation and costs related to Stock Options Programs in 2012, fixed compensation in 2013 and fixed compensation in 2014), fiscal council (fixed compensation) and officers (fixed compensation, short-term bonus and costs related to Stock Options Programs) is set forth in the tables below.

Gafisa

2014	Board of Directors		Fiscal Council		Executive Officers
Number of members (1)		7.67		3.00		5.17
Annual highest individual compensation (in R$)		308,868		63,500		3,732,593
Annual lowest individual compensation (in R$)(2)		185,778		63,500		2,691,098
Annual average individual compensation (in R$)		226,852		63,007		3,321,336

(1)	Based on the average number of members during the period.

(2)	Annual lowest individual compensation includes only the members of board of directors, fiscal council and executive officers who served an entire year and does not include members who are also executive officers (if a member is an executive officer, he or she is paid as an executive officer).

2013	Board of Directors		Fiscal Council		Executive Officers
Number of members (1)		9.00		3.00		6.00
Annual highest individual compensation (in R$)		316,079		55,200		5,957,562
Annual lowest individual compensation (in R$)(2)		172,800		55,200		2,681,366
Annual average individual compensation (in R$)		210,992		55,200		3,632,792

(1)	Based on the average number of members during the period.

(2)	Annual lowest individual compensation includes only the members of board of directors, fiscal council and executive officers who served an entire year and does not include members who are also executive officers (if a member is an executive officer, he or she is paid as an executive officer).

2012	Board of Directors		Fiscal Council		Executive Officers
Number of members (1)		9.00		3.00		5.83
Annual highest individual compensation (in R$)		320,824		45,600		6,123,879
Annual lowest individual compensation (in R$)(2)		224,056		45,600		3,165,013
Annual average individual compensation (in R$)		244,561		45,980		3,575,601

(1)	Based on the average number of members during the period.

(2)	Annual lowest individual compensation includes only the members of board of directors, fiscal council and executive officers who served an entire year and does not include members who are also executive officers (if a member is an executive officer, he or she is paid as an executive officer).

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Tenda

2014	Board of Directors		Fiscal Council		Executive Officers
Number of members (1)		5.75		3.00		8.83
Annual highest individual compensation (in R$)		126,324		38,400		2,821,951
Annual lowest individual compensation (in R$)(2)		—		8,688		886,515
Annual average individual compensation (in R$)		126,324		13,829		924,046

(1)	Based on the average number of members during the period.

(2)	Annual lowest individual compensation includes only the members of board of directors, fiscal council and executive officers who served an entire year and does not include members who are also executive officers (if a member is an executive officer, he or she is paid as an executive officer).

(3)	Members of the Board of Directors at Tenda were also Executive Officers at Gafisa and therefore received compensation for this position.

2013	Board of Directors (3)		Fiscal Council		Executive Officers
Number of members(1)		4.00		3.00		8.58
Annual highest individual compensation (in R$)		—		38,400		3,763,649
Annual lowest individual compensation (in R$)(2)		—		8,136		524,867
Annual average individual compensation (in R$)		—		18,224		1,299,961

(1)	Based on the average number of members during the period.

(2)	Annual lowest individual compensation includes only the members of board of directors, fiscal council and executive officers who served an entire year and does not include members who are also executive officers (if a member is an executive officer, he or she is paid as an executive officer).

(3)	Members of the Board of Directors at Tenda were also Executive Officers at Gafisa and therefore received compensation for this position.

2012	Board of Directors (3)		Fiscal Council		Executive Officers (3)
Number of members (1)		3.67		3.00		7.67
Annual highest individual compensation (in R$)		—		38,400		3,918,356
Annual lowest individual compensation (in R$)(2)		—		7,464		3,918,356
Annual average individual compensation (in R$)		—		17,776		1,460,677

(1)	Based on the average number of members during the period.

(2)	Annual lowest individual compensation includes only the members of board of directors, fiscal council and executive officers who served an entire year and does not include members who are also executive officers (if a member is an executive officer, he or she is paid as an executive officer).

(3)	Members of the Board of Directors and Executive Officers at Tenda were Executive Officers at Gafisa and therefore received compensation for this position.

Alphaville

As set forth in item “4. Information on the Company—A.History and Development of the Company”, we completed the sale of a controlling interest in Alphaville, on December 9, 2013. As a result, Alphaville was no longer consolidated in the financial statements of the Company as of that date. In this annual report, while financial information related to Alphaville is treated as discontinued operations, all operating information related to our business includes full operating information for Alphaville through December 9, 2013.

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2013	Board of Directors (3)		Fiscal Council(4)		Executive Officers
Number of members (1)		5.00		1.25		6.00
Annual highest individual compensation (in R$) (5)		—		16,300		9,741,730
Annual lowest individual compensation (in R$)(2)		—		16,300		540,229
Annual average individual compensation (in R$)(5)		—		16,300		3,232,127

(1)	Based on the average number of members during the period.

(2)	Annual lowest individual compensation includes only the members of board of directors, fiscal council and executive officers who served an entire year and does not include members who are also executive officers (if a member is an executive officer, he or she is paid as an executive officer).

(3)	Members of the Board of Directors at Alphaville were also Executive Officers at Gafisa and do not received compensation for this position.

(4)	The Fiscal Council was dissolved in June 2013.

(5)	This amount includes the stock options consideration related to the sale of 70% of Alphaville.

2012	Board of Directors (3)		Fiscal Council (4)		Executive Officers
Number of members (1)		5.00		3.00		4.17
Annual highest individual compensation (in R$)		—		19,560		2,506,438
Annual lowest individual compensation (in R$)(2)		—		19,560		1,326,440
Annual average individual compensation (in R$)		—		19,560		1,354,882

(1)	Based on the average number of members during the period.

(2)	Annual lowest individual compensation includes only the members of board of directors, fiscal council and executive officers who served an entire year and does not include members who are also executive officers (if a member is an executive officer, he or she is paid as an executive officer).

(3)	Members of the Board of Directors at Alphaville were also Executive Officers at Gafisa and therefore received compensation for this position.

(4)	The Fiscal Council was installed in 2012.

C. Board Practices

General Information

We are managed by a board of directors consisting of at least five and up to nine directors and at least two and up to eight executive officers. Our directors are elected for a two-year term and our executive officers are elected for a three-year term. Reelection of officers and directors is permitted. We also have (1) a fiscal council, which under Brazilian Law is not a permanent body, although currently installed; (2) permanent advisory committees created in accordance with our bylaws, namely: an audit committee, a compensation committee and a nominating and corporate governance committee; and (iii) executive committees established by the Board of Directors, namely: an investment executive committee, a finance executive committee, and an ethics executive committee. See “—A. Directors and Senior Management.”

Board of Directors

Our board of directors is our decision-making body responsible for formulating general guidelines and policies for our business, including our long term strategies. Among other things, our board of directors is responsible for appointing and supervising our executive officers.

Our board of directors meets at least once every two months and at any other time when a meeting is called by its chairman or by at least two other effective members. The decisions of our board of directors are taken by the majority vote of those members present at the respective meeting and constituting a quorum of at least four members. In the event of a tie vote, the chairman of our board of directors has, in addition to his personal vote, the right to cast a tie-breaking vote. In addition, pursuant to Brazilian corporate law, a member of our board of directors is prevented from voting in any shareholders’ or board of directors’ meeting, or from acting in any business or transaction, in which he may have a conflict of interest with our company.

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Under Brazilian corporate law, a company’s board of directors must have at least three members. Our bylaws provide for a board of directors of up to nine members, from which at least 20% shall be independent members, as determined by the Listing Rules of the Novo Mercado. Our directors are elected at our annual general shareholders’ meeting for a two-year term of office, with reelection permitted, and are subject to removal at any time by our shareholders at a shareholders’ general meeting. Although the Listing Rules of the Novo Mercado require at least 20% independent members, our board of directors currently has six independent members, out of a total of seven members.

Article 141 of Brazilian corporate law provides that shareholders with at least 10% of a company’s total capital stock may request the adoption of the multiple voting procedure for the election of the board of directors, even where there is no provision for this in the company’s bylaws. The multiple voting procedure grants each share as many votes as the number of board members, and allows shareholders to allocate either all of their votes to a single candidate or to distribute their votes among several candidates.

All the voting proceedings discussed in the previous paragraphs currently apply to our company.

As prescribed by CVM Instruction No. 282, of June 26, 1998, the minimum voting capital percentage required for the adoption of the multiple voting procedure in publicly-held companies may be reduced as a result of the amount of its capital stock. Based on the current amount of our capital stock, shareholders representing 5% of our total capital stock may request the adoption of the multiple voting procedure in order to elect the members to our board of directors. The referred minimum percentage may vary from 5% to 10% depending on the amount of our capital stock, as prescribed in the aforementioned CVM Instruction No. 282, of June 26, 1998. If the adoption of the multiple voting procedure is not requested, directors are elected by a majority vote of our shareholders, and such shareholders who, individually or collectively, represent at least 10% of our shares, are entitled to appoint, in a separate vote, a director and its alternate.

The Listing Rules of the Novo Mercado also provide that all members of our board of directors and our board of officers must comply, by means of the execution of a management compliance statement, with obligations set forth under the Novo Mercado Listing Agreement, the Market Arbitration Chamber Rules and the Listing Rules of the Novo Mercado, including, but not limited, to: (1) any shareholder that becomes our controlling shareholder, or becomes part of our controlling group, must comply, by means of executing of the controlling shareholder compliance statement, with the obligations set forth under the Novo Mercado Listing Agreement, the Market Arbitration Chamber Rules and the Listing Rules of the Novo Mercado; (2) any indirect controlling shareholder of our company must fully comply with the obligations established in the Novo Mercado Listing Agreement, the Market Arbitration Chamber Rules, the Listing Rules of the Novo Mercado, Brazilian corporate law, Brazilian Securities Regulations and our bylaws; (3) use best efforts to ensure that our shares are widely held through public share offerings; (4) re-establish the minimum percentage of outstanding floating stock, in case additional shares are issued or the controlling power over our company is transferred; (5) inform BM&FBOVESPA with respect to the trading of the securities held by our controlling shareholders; (4) comply with the rules imposed on our directors in the event our public company registration with the CVM is cancelled; and (7) comply with rules and regulations applicable in the event of the delisting of our company from the Novo Mercado.

Executive Officers

Under Brazilian corporate law, a company’s board of executive officers must have at least two members, and each of such members must be a resident in Brazil. Furthermore, no more than one-third of our directors may serve as members of our board of officers at any given time. In addition, under the Listing Rules of the Novo Mercado, the chief executive officer of our company shall not serve as the chairman of the board of directors.

Our executive officers are our legal representatives and are primarily responsible for managing our day-to-day operations and implementing the general policies and guidelines set forth in our shareholders’ general meetings and by our board of directors. Our bylaws require that our board of officers be composed of at least two members and a maximum of eight members. The members of our board of officers are appointed by our board of directors for a term of three-years, and may be reelected or removed by our board of directors at any time. Our bylaws and our board of directors determine the role of our executive officers. Currently, we have a board of officers comprised of four members: (1) Mr. Sandro Rogerio da Silva Gamba, who is the chief executive officer, (2) Mr. Andre Bergstein, who is the chief financial officer and investor relations officer, (3) Mr.Luiz Carlos Siciliano, who is an operational executive officer, (4) Mr. Octavio Marques Flores, who is an operational executive officer, and (4) Mrs. Katia Varalla Levy, who is an operational executive officer.

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The chief executive officer submits the business plan, annual budget, investment plans and new expansion plans for Gafisa and our subsidiaries to the approval of the board of directors. The chief executive officer enacts these plans and develops our strategy and operational plan, including the manner in which we will execute the resolutions approved at the shareholders’ meeting and by the board of directors. Together with the other officers, he also supervises and coordinates our activities. The officer in charge of investor relations supplies our financial information to investors, the CVM and the BM&FBOVESPA, and is also responsible for keeping an updated register based on the applicable regulations.

Fiscal Council

Under Brazilian corporate law, the fiscal council is a corporate body independent from the management of the company and its external auditors. The fiscal council is not a permanent body, and whenever installed, must consist of no less than three and no more than five members. The primary responsibility of the fiscal council is to review management’s activities and the company’s financial statements and to report its findings to the shareholders of the company. The fiscal council is not equivalent to an audit committee as contemplated by the Securities Exchange Act, as amended. Under Brazilian corporate law, a fiscal council must be established at a shareholders’ general meeting upon request of shareholders representing at least 10% of the shares with voting rights, or 5% of the shares with no voting rights, and its members shall remain in office until the annual general shareholders’ meeting of the year following their election. Each member of the fiscal council is entitled to receive compensation in an amount equal to at least 10% of the average amount paid to each executive officer (excluding benefits and profit sharing).

As prescribed by CVM Instruction No. 324, of January 19, 2000, the minimum voting capital percentage required to request the fiscal council to be installed may be reduced as a result of the amount of the company’s capital stock. Based on the current amount of our capital stock, shareholders representing 2% of our voting capital stock may request the fiscal council to be installed. The referred minimum percentage may vary from 2% to 8% depending on the amount of our capital stock, as prescribed in the aforementioned CVM instruction.

Individuals who are also employees or members of the administrative bodies of our company, of companies controlled by us, or of companies forming a group of companies with us (pursuant to Chapter XXI of Law No. 6,404/76), as well as spouses or parents of our management, cannot serve on the fiscal council.

Our by-laws provide for a non-permanent fiscal council composed of at least three and up to five members, which can be formed and have its members elected at the shareholders’ general meeting, as requested by the shareholders, in the events set forth by Brazilian corporate law. When in operation, the compensation of our fiscal council is set at the shareholders’ general meeting that elects it.

Our fiscal council has three members (Olavo Fortes Campos Rodrigues Junior, Peter Edward Cortes Marsden Wilson and Luis Fernando Brum de Melo) and three alternates (Marcello Mascotto Iannalfo, Marcelo Martins Louro and Laiza Fabiola Martins de Santa Rosa).

We also have established a permanent audit committee. See “Item 6.C. Directors, Senior Management and Employees—Board Practices—Audit Committee.”

Audit Committee

Our bylaws provide for an Audit Committee that convenes regularly, as often as it determines is appropriate to carry out its responsibilities. The Audit Committee must be comprised of at least three members, all of which must be independent members of our Board of Directors. The Audit Committee is currently comprised by Jose Ecio Pereira da Costa Junior, who is also the chairman, Maurício Marcellini Pereira and Francisco Vidal Luna, each of whom is a director of our company. Our board of directors has determined that Jose Ecio Pereira da Costa Junior, Maurício Marcellini Pereira and Francisco Vidal Luna are each independent as set forth in the NYSE Listed Companies Manual as well as being independent for the purpose of Rule 10A-3 of the Exchange Act. Our board of directors has determined that Jose Ecio Pereira da Costa Junior is an audit committee financial expert within the meaning of the regulations promulgated by the United States Securities and Exchange Commission.

This committee has responsibility for, among others, planning and reviewing our annual and quarterly reports and accounts with the involvement of our auditors, focusing particularly on compliance with legal requirements and accounting standards, and ensuring that an effective system of internal financial controls is maintained, as set forth in the Company’s by-laws. The ultimate responsibility for reviewing and approving our annual and quarterly reports and accounts remains with our directors.

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Compensation Committee

Our bylaws provide for a Compensation Committee that convenes regularly, as often as it determines is appropriate to carry out its responsibilities. The Compensation Committee must be comprised of at least three members, all of which must be independent members of our Board of Directors. The Compensation Committee is currently comprised by Cláudio José Carvalho de Andrade, who is also the chairman, Guilherme Affonso Ferreira and Rodolpho Amboss. This committee, among other things, reviews and makes recommendations to our directors regarding its compensation policies and all forms of compensation to be provided to our executive officers and other employees.

Nominating and Corporate Governance Committee

Our bylaws provide for a Nominating and Corporate Governance Committee that convenes regularly, as often as it determines is appropriate to carry out its responsibilities. The Nominating and Corporate Governance Committee must be comprised of at least three members, all of which must be independent members of our Board of Directors. The Nominating and Corporate Governance Committee is currently comprised by Cláudio José Carvalho de Andrade, who is also the chairman, Guilherme Affonso Ferreira and Rodolpho Amboss. This committee, among other things, considers and periodically reports on matters relating to the size, identification, selection and qualification of the board of directors, executive officers and candidates nominated for the board of directors and its committees and is responsible for overseeing compliance with the corporate governance principles applicable to us under our bylaws and other policies, as well as for proposing improvements and changes to such applicable principles.

Investment Executive Committee

On January 13, 2006, our board of directors modified the structure of our incorporation and new businesses committee, renaming it the Investment Committee and on September 9, 2010 it was renamed to Investment Executive Committee, in order to clarify that this is a collegiate body to provide advice and guidance to the Board of Directors, composed solely by members of the Board of Officers (statutory or otherwise). Our Investment Executive Committee is a non-permanent body and its duties are, among others, to: (1) analyze, discuss and recommend land acquisitions and new real estate developments; (2) advise our executive officers during the negotiation of new deals and the structuring of new developments; (3) supervise the beginning of new projects and their related cash flows; and (4) in special cases, assist in the negotiation and structuring of new types of business. Each decision by our investment committee to acquire land is made by ensuring that the investment meets the minimum return threshold set by us and comparing it with other potential investments. Such decision is made independent of the geographical location of the investment in order to maximize return on our capital allocation as a whole.

Currently, our Investment Executive Committee is in operation and is comprised by Sandro Rogério da Silva Gamba (also the Coordinator of the Committee), Andre Bergstein, Luiz Carlos Siciliano, Octavio Marques Flores and Katia Varalla Levy.

Finance Executive Committee

Our directors have established a Finance Executive Committee composed by André Bergstein (also the Coordinator of the Committee), Sandro Rogério da Silva Gamba, Rodrigo Osmo and Gustavo Moscatelli. This committee, among others, evaluates and makes periodic recommendations to our board of directors regarding risk and financial investments policies.

Ethics Executive Committee

On September 9, 2010, our board of directors renamed the Ethics Committee, created on February 17, 2006, the Ethics Executive Committee. The Ethics Executive Committee is a collegiate body tasked with providing advice and guidance to the board of directors, elected by the board of directors, and is composed primarily of members of the board of officers (statutory or otherwise). Currently, it is composed of the following members: Sandro Rogério da Silva Gamba (Coordinator of the Committee), André Bergstein, Luiz Carlos Siciliano, Norival Zanata Junior and Adriana Farhat. This committee is responsible, among others, for the actions related to violation of our Code of Business Conduct and Ethics, solving ethics conflicts and evaluating the adequacy of amendments to the Code of Business Conduct and Ethics and proposing them to the board of directors.

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Summary of Significant Differences of Corporate Governance Practices

NYSE Corporate Governance Rules provide that we are required to disclose any significant differences on our corporate governance practices from those required to be followed by U.S. companies under NYSE listing standard. We have summarized these significant differences below.

We are permitted to follow practice in Brazil in lieu of the provisions of the NYSE Corporate Governance Rules, except that we will be required to have a qualifying audit committee under Section 303A.06 of the Rules, or avail ourselves of an appropriate exemption. In addition, Section 303A.12(b) provides that our chief executive officer is obligated to promptly notify the NYSE in writing after any of our executive officers becomes aware of any material non-compliance with any applicable provisions of the NYSE Corporate Governance Rules.

Majority of Independent Directors

NYSE Rule 303A.01 provides that each NYSE-listed company must have a majority of independent directors. Neither Brazilian corporate law nor our by-laws require that we have a majority of independent members. Notwithstanding this, the majority of our board members qualify as independent directors under NYSE rules.

Separate Meetings of Non-Management Directors

NYSE Rule 303A.03 provides that the non-management directors of each NYSE-listed company must meet at regularly scheduled executive sessions without management. According to the Listing Rules of the Novo Mercado, the chief executive officer may not serve as the chairman of the Board of Directors. In addition, under Brazilian corporate law, up to one-third of the members of the board of directors can also hold management positions. Under Brazilian corporate law, there is no specific requirement that non-management directors meet regularly without management. Notwithstanding the foregoing, our board of directors consists entirely of non-management directors and holds regular meetings without the management and as such we believe we are in compliance with the NYSE Rule 303A.03.

Nominating and Corporate Governance Committee

NYSE Rule 303A.04 provides that each U.S. listed company must have a nominating and corporate governance committee composed entirely of independent directors. We are required to have such a committee under our bylaws, which is nevertheless not required under Brazilian law. Therefore, we have a Nominating and Corporate Governance Committee responsible for considering and periodically reporting on matters relating to the size, identification, selection and qualification of the board of directors and candidates nominated for the board of directors and its committees; and for overseeing compliance with the corporate governance principles applicable to us under our bylaws and other policies, as well as for proposing improvements and changes to such applicable principles.

Compensation Committee

NYSE Rule 303A.05 provides that each U.S. listed company must have a compensation committee composed entirely of independent directors. We are required to have such a committee under our bylaws, which is nevertheless not required under Brazilian law. Therefore, we have a Compensation Committee responsible for reviewing and making recommendations to our directors regarding our compensation policies and all forms of compensation to be provided to our executive officers and other employees. With respect to compensation, under Brazilian corporate law, the shareholders determine the total or individual compensation of our board members and executive officers, including benefits and allowances, at a general shareholders’ meeting. If the shareholders only determine the total compensation, it is incumbent upon the board of directors to establish the individual amounts. The Compensation Committee, is responsible for advising the board of directors in such task. See “Item 6.B. Directors, Senior Management and Employees—Compensation.”

Audit Committee

NYSE Rule 303A.06 and the requirements of Rule 10A-3 of the SEC provide that each U.S. listed company is required to have an audit committee consisting entirely of independent members that comply with the requirements of Rule 10A-3. In addition, the audit committee must have a written charter compliant with the requirements of NYSE Rule 303.A.07(c), have an internal audit position and otherwise fulfill all other requirements of the NYSE and Rule 10A-3. The SEC recognized that due to the local legislation for foreign private issuers, some of the responsibilities of the audit committee could be subordinated by local laws to our other bodies.

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We are required to have such a committee under our bylaws, which is nevertheless not required under Brazilian law. Therefore, we have an Audit Committee with the following responsibilities:

Pre-approving services to be provided by our independent auditor;

Choosing and overseeing the work of any accounting firm engaged for the purpose of preparing or issuing an audit report or performing any other service;

Reviewing auditor independence issues and rotation policy;

Supervising the appointment of our independent auditors;

Discussing with management and auditors major audit issues;

Reviewing financial statements prior to their publication, including the related notes, management’s report and auditor’s opinion;

Reviewing our annual report and financial statements;

Providing recommendations to the board of directors on the audit committee’s policies and practices;

Reviewing recommendations given by our independent auditor and internal audits and management’s responses;

Evaluating the performance, responsibilities, budget and staffing of our internal audit function and review the internal audit plan;

Providing recommendations on the audit committee’s bylaws; and

Reviewing our Code of Business Conduct and Ethics and the procedures for monitoring compliance with it.

Equity Compensation Plans

NYSE Rule 303A.08 provides that shareholders must be given the opportunity to vote on all equity compensation plans and material revisions thereto, with certain limited exemptions as described in the rule. Under Brazilian corporate law, shareholder pre-approval is required for the adoption of equity compensation plans and any material revision thereto.

Corporate Governance Guidelines

NYSE Rule 303A.09 provides that each U.S. listed company must adopt and disclose their corporate governance guidelines. Although we do not have a similar requirement under Brazilian law, our bylaws contain a comprehensive list of principles that must be complied with at all times by all of our directors and officers. Our Nominating and Corporate Governance Committee may also propose new principles and amendments to existing principles. In addition, we have listed our common shares in the Novo Mercado (New Market) of the São Paulo Stock Exchange (BM&FBOVESPA), which requires adherence to the corporate governance standards established under the Listing Rules of the Novo Mercado, as described under “Item 10. Additional Information—B. Memorandum and Bylaws.” Finally, we have adopted a written policy of trading of securities and disclosure matters.

Code of Business Conduct and Ethics

NYSE Rule 303A.10 provides that each U.S. listed company must adopt and disclose a code of business conduct and ethics for directors, officers and employees and promptly disclose any waivers of the code for directors or executive officers. We are required to have a Code of Business Conduct and Ethics under our bylaws and under the Listing Rules of the Novo Mercado. We have adopted such a Code on July 10, 2007 See “Item 16B. Code of Business Conduct and Ethics.”

D. Employees

As of December 31, 2014, we had 2,162 employees at Gafisa Group across the following states:

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States	Number of Employees
Bahia		163
Distrito Federal		19
Goiás		10
Maranhão		12
Minas Gerais		102
Pará		33
Paraná		15
Pernambuco		72
Rio de Janeiro		336
Rio Grande do Sul		36
São Paulo		1,364
Total		2,162

The table below shows the number of employees for the period presented, within the macro areas of the company:

Period	Operations		Administration & Finance		Business Development		Sales		Total
2014		1,134		527		191		310		2,162
2013(1)		2,008		722		404		212		3,346
2012		2,551		811		395		267		4,024
2011		3,459		695		301		332		4,787
2010		3,202		699		331		394		4,626
2009		4,721		734		234		464		6,153

Note:

The numbers presented in the tables above for the year of 2013 refer to the employees of Gafisa Group (Gafisa’s Business Unit, Tenda’s Business Unit, Alphaville’s Business Unit as well as the corporate areas, including the shared services center).

(1)

Total number includes 529 Alphaville’s employees, of which 290 are allocated in Operations, 95 in Administration and Finance, 135 in Business Development and 9 in Sales.

Our administrative employees carry out management, finance, information technology, legal and human resources activities among others. Our construction site employees focus on management and oversight of our construction workers, the majority being outsourced. The outsourced professionals are hired by the contractors to carry out various tasks on the construction sites. As of the date of this annual report, we estimate that around 9,000 outsourced professionals are providing services to Gafisa, Tenda and Alphaville across the following regions:

Region	Outsourced Professionals
North/Central West		—
Northeast		642
South		—
Southeast		8,791
Total		9,433

We offer training programs to our employees, subcontractors and outsourced employees. All of our professionals involved in the construction of our developments are trained prior to the beginning of their work and are supervised directly by our engineers.

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The majority of our employees and outsourced professionals of the State of São Paulo are enrolled with the Civil Construction Industries Workers’ Union (SINTRACON). As a rule, the Civil Construction of Large Building Industry in the State of São Paulo (SINDUSCON-SP) annually negotiates with SINTRACON collective bargaining agreements applicable to our employees. The most recent collective bargaining agreement for our employees and outsourced professionals in the State of São Paulo was executed in May 2014, establishing a salary adjustment of 7.32% as of May 2014. This collective bargaining agreement became effective in May 2014 and will expire in April 2015.

The majority of our employees and outsourced professionals of the State of Rio de Janeiro are members of the Civil Construction, Tiles, Cement, Marble and Granite Products, Road Construction, Paving, and Land Moving and Industrial Maintenance and Assembly Industries’ Workers Union of the Rio de Janeiro Municipality (SINTRACONST-RIO). As a rule, the Civil Construction of Large Building Industry in the State of Rio de Janeiro (SINDUSCON-RIO) annually negotiates with SINTRACONST-RIO the collective bargaining agreements applicable to our employees. The most recent collective bargaining agreement for our employees and outsourced professionals in the State of Rio de Janeiro was executed in March 2014, establishing a salary adjustment of 9% as of March 2014. This collective bargaining agreement became effective in March 2014 and will expire in February 2015.

We believe that our relationship with our employees and workers’ unions is good. In all the regions where we operate, we maintain a stable relationship with the workers unions, which generally decreases the risk of strikes.

The benefits we offer to our permanent employees include life insurance, dental plan, health insurance, meal tickets and profit sharing.

Health and Safety

We are committed to preventing work-related accidents and diseases. Accordingly, we maintain a risk prevention program which seeks to maintain and enhance the health and physical conditions of our employees, by anticipating, recognizing, evaluating and controlling any existing or potential environmental risks in the workplace.

In addition, we have an internal committee for the avoidance of accidents, which seeks to prevent diseases and accidents from occurring in the workplace. We make significant investments in this area, providing frequent training programs for our construction employees as well as for our subcontractors’ employees, and we require our subcontractors to follow strict guidelines.

E. Share Ownership

As of the date of this annual report, our directors and executive officers do not hold, on an aggregate basis, any direct or indirect interest of greater than 0.842% of our total share capital or of the share capital of any of our subsidiaries or jointly-controlled entities. As of December 31, 2013, some of our executive officers held interests in our subsidiaries and jointly-controlled entities as directors and executive officers. In none of these cases, as of the date of this annual report, were the interests held material.

The table below sets forth the number of our total shares beneficially owned by each of our directors and executive officers as of the date of this annual report:

Name	Position	Number of Shares Owned
Sandro Rogério da Silva Gamba	Chief Executive Officer		539,326
Andre Bergstein	Chief Financial Officer and Investor Relations Officer		456,331
Luiz Carlos Siciliano	Officer		396,708
Cláudio José Carvalho de Andrade	Director		349,000
Odair Garcia Senra	Director		243,505
Katia Varalla Ley	Officer		121,028
Octavio Marques Flores	Officer		59,752
Guilherme Affonso Ferreira	Director		102
José Écio Pereira da Costa Junior	Director		2
Francisco Vidal Lunda	Director		—
Maurício Marcellini Pereira	Director		—
Rodolpho Amboss	Director		—
Total			2,165,754

As previously mentioned, in line with the announced strategy to separate the administrative structures of Gafisa and Tenda, executive officers Fernando Calamita and Rodrigo Pádua stepped down from the Company on April 4, 2014. In addition, Alceu Duilio Calciolari, who is leading the initial phase of this transition process, left his position as chief executive officer after this period and was replaced by Sandro Rogério da Silva Gamba.

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Stock Option Plans

The Gafisa stock option plans seek to: (1) encourage our expansion and success by allowing our executives and key employees to acquire shares of our capital stock in order to encourage their integration with the company; (2) allow us to obtain and retain the services of executives and key employees by offering them the benefit of becoming one of our shareholders; and (3) align the interests of our executives and key employees with the interests of our shareholders.

The Tenda stock option plans seek to: (1) allow Tenda to hire and retain the services of executives and key employees by offering them the benefit of becoming one of our shareholders; and (2) align the interests of Tenda executives and key employees with the interests of our shareholders.

We have individual agreements with our key employees and executives for both Gafisa and Tenda, under which they are entitled to purchase shares of our capital stock pursuant to the terms and conditions of the stock option plans and the specific conditions set forth in their agreements.

In 2002, our shareholders ratified the terms and conditions of our stock option plan. A standard stock option program to grant subscription rights related to our preferred shares was approved by our board of directors at a meeting held on April 3, 2000. As a result of our entry in the Novo Mercado segment of BM&FBOVESPA, our preferred shares were converted into common shares, and therefore all options relating to this plan grant subscription rights related to our common shares. Currently, we do not have any stock option grants related to this plan.

On February 3, 2006, our shareholders approved a new stock option plan. Under the 2006 stock option plan, our board of directors may release further programs on a regular basis of options to purchase up to 5% of the total outstanding shares of our company, as set forth in the 2006 stock option plan. Such new programs would grant our executives and key employees the right to subscribe and/or acquire our shares for a set price, under terms and conditions according to the agreements set for each participant. Currently, we do not have any stock option grants related to this plan.

Our most recent stock option plan was approved on May 18, 2008 during a special shareholders’ general meeting. Under this new stock option plan, our board of directors may create additional programs on a regular basis for options to purchase up to 5% of the total outstanding shares of our company, as set forth in the 2008 stock option plan.

Under this stock option plan, the board of directors may also grant different types of options to certain beneficiaries, namely “A options”, which are regular options, and “B options,” for the exercise price of R$0.01. The exercise of B options, if granted, is subject to the proportional purchase of common shares or exercise of a regular option under this 2008 plan, according to the terms and conditions set forth in each program, and to lapse two years from the common share purchase date.

On August 11, 2014, our shareholders approved Tenda’s first stock option plan. Under this stock option plan, our board of directors may release further programs on a regular basis of options to purchase up to 10% of the total outstanding shares of our company. Such new programs would grant our executives and key employees the right to subscribe and/or acquire our shares for a set price, under terms and conditions according to the agreements set for each participant.

As of December 31, 2014, all active stock option Programs follow the Plan approved in 2008.

2011 Programs

Two stock option programs were approved in 2011 for the board of directors, executives and key employees. As of the date of this annual report, only the second program is active.

Under the second program, the board of directors may grant different types of B options for the exercise price of R$0.01 per share. The exercise of B options, if granted, is subject to the proportional exercise of regular options at market price, granted under this second program, according to the terms and conditions set forth in the second program, and to lapse one year from the grant date.

As of December 31, 2014, options to purchase 2,940,000 shares of our common shares have been granted to employees and executives pursuant to this second program. The options granted included 2,166,250 “B” options. Out of the total options granted, 2,602,170 have been acquired or expired pursuant to such second program.

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2012 Programs

Two stock option programs were approved in 2012 for executives and key employees.

The first is a standard stock option program granting subscription rights related to our common shares. Under this program, the board of directors may grant to certain beneficiaries the right to subscribe and/or acquire our shares for a set price, under the terms and conditions set forth in the stock option plan agreement entered into with each participant.

As of December 31, 2014, 3,560,000 options to purchase shares of our common shares have been granted to executive officers pursuant to this program. Out of the amount granted, 2,141,372 have been acquired pursuant to such program.

Under the second program, the board of directors may grant different types of B options for the exercise price of R$0.01 per share. The exercise of B options, if granted, is subject to the proportional exercise of regular options at market price, granted under this second program, according to the terms and conditions set forth in such second program, and to lapse one year from the grant date.

As of December 31, 2014, options to purchase 4,079,048 shares of our common shares have been granted to employees and executives pursuant to this second program. The options granted included 3,005,532 “B” options. Out of the total options granted, 3,278,948 have been acquired or expired pursuant to such second program.

2013 Programs

Two stock option programs were approved in 2013 for executives and key employees.

As of December 31, 2014, 1,370,037 options to purchase shares of our common shares have been granted to executive officers pursuant to this agreement and none has been acquired. Out of the amount granted, 692,099 have been acquired or expired pursuant to such agreements.

Under the second program, the board of directors may grant different types of B options for the exercise price of R$0.01 per share. The exercise of B options, if granted, is subject to the proportional exercise of regular options at market price, granted under this program, according to the terms and conditions set forth in this second program, and to lapse one year from the grant date.

As of December 31, 2014, options to purchase 4,013,590 shares of our common shares have been granted to employees and executives pursuant to this second program. The options granted included 2,928,810 “B” options. Out of the total options granted, 2,067,206 have been acquired or expired pursuant to such second program.

2014 Programs

One stock option program was approved in 2014 for executives and key employees.

Under this program, the board of directors may grant different types of B options for the exercise price of R$0.01 per share. The exercise of B options, if granted, is subject to the proportional exercise of regular options at market price, granted under this program, according to the terms and conditions set forth in each program, and to lapse one year from the grant date.

As of the date of this annual report, options to purchase 4,361,763 shares of our common shares have been granted to employees and executives pursuant to this agreement. The options granted included 1,680,670 “B” options. Out of the total options granted, none have been acquired or expired pursuant to such agreement.

Tenda program

One stock option program was approved in 2014 by the board of directors of Tenda for executives and key employees of Tenda.

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The program is a standard stock option program granting subscription rights related to Tenda’s common shares. Under this program, the board of directors may grant to certain beneficiaries the right to subscribe and/or acquire Tenda’s shares for a set price, under the terms and conditions set forth in the stock option plan agreement entered into with each participant.

As of December 31, 2014, options to purchase 42,259,687 shares of Tenda’s common shares have been granted to employees and executives pursuant to this agreement. Out of the total options granted, none have been acquired or expired pursuant to such agreement.

Active Programs	Number of Stock Options granted		Number of Stock Options Outstanding (Not Expired or exercised) as of the date of this annual report		Exercise Price per Stock Option		Expiration

March 2011 (Restricted Type B) (1)		906,250		97,830	R$	0.01	March 2015
July 2011 (Restricted Type B) (1)		1,260,000		240,000	R$	0.01	July 2015
August 2012 (Standard SOP) (1)		3,560,000		1,418,628	R$	2.73	August 2025
August 2012 (Restricted Type B) (1)		3,005,532		800,100	R$	0.01	August 2016
May 2013 (Standard SOP) (1)		1,370,037		677,938	R$	3.66	May 2017
May 2013 (Restricted Type B) (1)		2,928,810		1,946,38	R$	0.01	May 2017
March 2014 (Restricted Type A) (1)		2,681,093		2,681,093	R$	3.13	March 2020
March 2014 (Restricted Type B) (1)		1,680,670		1,680,670	R$	0.01	March 2020
August 2014 (Standard SOP) (Tenda)		42,259,687		42,259,687	R$	0.77	March 2024
Total				51,802,328

(1)	Options unvested or vested and not yet exercised.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

As of the date of this annual report, the following shareholder held more than 5.0% of our common shares. The following table sets forth information of our directors and officers as a group, as well as common shares held in treasury and other shares in the public float. Each holder of common shares has the same rights.

Shareholders	Shares		(%)
Fundação dos Economiarios Federais (“FUNCEF”)		23,835,800		5.84
Polo Capital Gestão de Recursos Ltda. and Polo Capital Internacional Gestão de Recursos Ltda.		52,547,486		12.88
Public Float		301,851,590		73.96
Treasury shares		29,881,286		7.32
Total		408,066,162		100.0

We had a total of 97 record shareholders located in the United States, 73% of which hold shares traded at BM&FBOVESPA and 27% of which hold ADSs traded on the NYSE. We are not aware of any shareholders’ agreement currently in force with our main shareholder.

On December 9, 2013, we completed the sale of a majority interest in Alphaville to Private Equity AE Investimentos e Participações (“Fundo AE”), a company controlled by Pátria Investimentos Ltda. and Blackstone Real Estate Advisor L.P., which was previously announced on June 7, 2013. All conditions precedent to the completion of the transaction were met, including governmental approval. The transaction was concluded with a sale of 50% interest by Gafisa and 20% interest by Tenda, with Gafisa retaining the remaining 30% of Alphaville capital stock. The proceeds from the transaction, post adjustments agreed to in the Share and Purchase Agreement, were R$1.54 billion, consisting of R$1.25 billion from Fundo AE for the acquisition of Alphaville shares, and an R$290 million dividend distribution by Alphaville.

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B. Related Party Transactions

Other than arrangements which are described in “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management— Our Relationship with our Executive Officers and Directors” and the transaction described below, since January 1, 2007, there has not been, and there is not currently proposed, any material transaction or series of similar transactions to which we were or will be a party in which any director, executive officer, holder of 5% of our capital stock or any member of their immediate family had or will have a direct or indirect interest.

Under Brazilian corporate law, our directors and executive officers cannot vote on any matter in which they have a conflict of interest and such transactions can only be approved on reasonable and fair terms and under conditions that are no more favorable than the terms and conditions prevailing in the market or offered by third parties.

We participate in the development of real estate ventures with other partners, directly or through related parties, based on the constitutive documents of condominiums and/or consortia. The management structure of these enterprises and the cash management are centralized in the lead partner of the enterprise, which manages the construction schedule and budgets. Thus, the lead partner ensures that the investments of the necessary funds are made and allocated as planned. The sources and uses of resources of the venture are reflected in the balance sheet of the ventures, reflecting the respective participation percentages of the partners, which are not subject to inflation adjustments or financial charges and do not have a predetermined maturity date. The average term for the development and completion of the projects in which the resources are invested is between 24 and 30 months. As of December 31, 2014, 2013 and 2012, we had current accounts receivable from related parties related to real estate ventures of R$142.7 million, R$82.5 million and R$164.9 million, respectively. And we had current accounts payable from related parties related to real estate ventures of R$156.5 million, R$133.7 million and R$138.2 million, respectively.

As of and for the years ended December 31, 2014, 2013 and 2012, we have not entered into any loan or other type of financing agreement with our directors or executive officers.

C. Interests of Experts and Counsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

For our consolidated financial statements and notes thereto see “Item 18. Financial Statements.”

Legal Proceedings

We are currently party to several legal and administrative proceedings arising from the normal course of our business, principally relating to civil, environmental, tax and labor claims. We establish provisions in our balance sheets relating to potential losses from litigation based on estimates of probable losses. Brazilian GAAP requires us to establish provisions in connection with probable losses and we record a provision when, in the opinion of our management, we feel that an adverse outcome in a litigation is probable and a loss can be estimated. The determination of the amounts provisioned is based on the amounts involved in the claims and the opinion of our management.

Civil Claims

As of December 31, 2014, we were a party to 11,495 civil actions, totaling R$970 million. Of these actions, we were the plaintiff in 345 actions and the defendant in 11,150 actions, with aggregate amounts of R$158 million and R$812 million, respectively.

Most of these civil claims involve ordinary course matters relating to the development of our properties, including annulment of contractual clauses and termination of agreements with the reimbursement of the amounts paid. We also have a few civil claims where we discuss the resolution of the construction partnership.

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As of December 31, 2014, the provisions related to civil claims include R$65.0 million related to lawsuits in which the Company is included as successor in enforcement actions for judicial and extrajudicial debts, in which the original debtor is a former shareholder of Gafisa, Cimob Companhia Imobiliária (“Cimob”) or companies that are part of the economic group of Cimob. The plaintiff alleges that the Company should be liable for the debts of Cimob. We have made judicial deposits amounting to R$62 million in connection with these claims. The Company is filing appeals against all decisions, as it considers that the inclusion of Gafisa in the claims to be legally unreasonable; these appeals aim at releasing amounts and obtaining the recognition that it cannot be held liable for the debt of a company that does not have any relationship with Gafisa. The Company has obtained both favourable and unfavourable decisions on appeal, and the final decision of each pending appeal cannot be predicted at present.

The Company is a plaintiff in proceedings against Cimob and its former and current controlling shareholders. The Company is seeking (i) restitution of amounts already paid by the Company in connection with the lawsuits in which the Company is included as successor in enforcement actions for judicial and extrajudicial debts proceedings in which the original debtor is Cimob and (ii) the recognition of the court that it does not have any relationship with Cimob and cannot therefore be held liable for the debt of Cimob. The final decision is on appeal, and cannot be predicted at present.

As of December 31, 2014, the provision for our civil claims amounted to R$157.8 million.

Environmental Claims

As of December 31, 2014, we were the defendants in certain environmental claims alleging damage to a permanent conservation area and we are currently not able to estimate the aggregate amount of such claims.

In addition, we are occasionally party to other administrative environmental inquiries or claims by the Public Prosecution Offices or by other governmental agencies or third parties. These inquiries may result in public environmental claims against us and the findings in these inquires may give rise to other administrative and criminal claims. However, based on currently available information, we do not believe these matters are, or are likely to be in the future, material to our business or financial condition.

In Case No. 0022897-84.2010.4.03.6100, federal prosecutors (Ministério Público Federal) argue that due to restrictions on urban and landscape rights it would have been unduly issued by the authorities the approval of project Paulista Corporate Building. This process was intended to prevent the conclusion of construction, but the judiciary, according to our defense, denied the request and the building has already been finalized. There is still an appeal filed by the federal prosecutors awaiting judgment but, we believe, it is unlikely to overturn that judgment. The value attributed to the case by federal prosecutors is R$320.0 million. Based on currently available information, we believe chances of loss for this claim are remote.

In Case No. 20654-60.2011.4.01.3200, federal prosecutors (Ministério Público Federal) argue that the company has built one of the towers of “Riviera da Ponta Building” on Federal Government property, next to a riverbank. The federal prosecutors claimed R$88.3 million in damages, comprising both environmental liability for construction in an allegedly “protected area” and payoff for the property. We estimate the probability of the company to be sentenced to pay R$88.3 million as remote because we believe that the federal prosecutors’ computations to get this number are unreasonable, since they neither the value nor the extension of the area supposedly invaded are accurate. Nevertheless, at this point we cannot estimate what the correct amount would be if we lose this case, as there has been no expert appraisal yet.

As of December 31, 2014, we have made no provisions for environmental claims.

Tax Claims

As of December 31, 2014, we were party to several tax proceedings involving tax liabilities in the aggregate amount of R$105.0 million. As of December 31, 2014, the provision for tax liabilities amounted to R$0.4 million. In addition, we have deposited R$12.3 million with the court in connection with some of these proceedings. These amounts take into consideration the tax liabilities of our subsidiaries, in proportion to our interest in their share capital. The main tax proceedings to which we are a party are described below.

On November 30, 2009, we and our subsidiaries Tenda, Alphaville and Gafisa Vendas joined the program for cash and installment payment of debits with the Federal Revenue Service and the Attorney-General Office of the National Treasury. The Company joined the tax amnesty and refinancing program and opted for the cash payment of tax debits amounting to R$17.3 million, of which R$10.4 million was in cash and R$6.9 million offset tax losses. Tenda, Alphaville and Gafisa Vendas opted for the installment payment of tax debits amounting to R$6.6 million, R$980 thousand and R$192 thousand, respectively, recognizing gains of R$568 thousand, R$360 thousand and R$70 thousand, respectively, relating to the offset of tax losses.

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Alphaville is a party to legal and administrative claims related to Federal VAT (IPI) and State VAT (ICMS) on two imports of aircraft in 2001 and 2005, respectively, under leasing agreements without purchase options. The likelihood of loss in the ICMS case is rated by legal counsel as (1) possible in regard to the principal and interest, and (2) remote in regard to the fine for noncompliance with accessory liabilities. The amount of the contingency considered by our legal counsel as a possible loss totaled R$16.3 million. According to the negotiation of the sale of controlling interest of 70% in Alphaville, it was agreed in the purchase and sale contract that Gafisa is responsible in the event of unfavorable decision.

Several municipalities charge a municipal tax on construction services on an arbitrated basis, which varies depending on the characteristic of the construction. We have filed lawsuits against the municipalities of São Paulo and São Caetano do Sul to challenge the calculation of the arbitrated basis on several of our developments under construction. In these proceedings, we deposited R$11.3 million with the courts and we are awaiting the final decision. In addition, the municipalities of Rio de Janeiro, Niterói, São Paulo and Santo Andre have issued tax assessments against us. We have filed administrative defenses and are awaiting the final administrative decisions. The total amount involved in these proceedings is R$11.3 million.

Labor Claims

As of December 31, 2014, we were a defendant in 4,867 labor claims resulting from our ordinary course of business, of which approximately 44% were filed by outsourced workers and approximately 24.1% were filed by our former employees. The alleged legal bases for these claims mainly relate to termination benefits, overtime hours, employee relationship and dismissal rights. As of December 31, 2014, the total value involved in the labor claims filed against us was approximately R$181.0 million. As of December 31, 2014, the provision for labor claims amounted to R$81.3 million.

In addition, we are periodically party to other administrative labor inquiries or claims by the Public Prosecution Offices or by other governmental agencies or third parties. These inquiries may result in public labor claims against us and the findings in these inquires may give rise to other claims. However, based on currently available information, we do not believe these matters are, or are likely to be in the future, material to our business or financial condition.

Arbitration

We are also involved in 6 arbitrations proceedings: three of them by partners seeking to discuss and terminate the partnership to develop a few real estate projects. The remaining three cases are pending final decisions as of year-end.

As of December 31, 2014, we have made no provisions for arbitration claims.

Other Developments

On June 14, 2012, we received a subpoena from the SEC Division of Enforcement related to the Matter of Certain 20-F Filer Home Builders (HO-11760). The subpoena requests that we produce all documents from January 1, 2010 to the present related to the preparation of our financial statements, including, among other things, copies of our financial policies and procedures, board and audit committee and operations committee minutes, monthly closing reports and financial packages, any documents relating to possible financial or accounting irregularities or improprieties and internal audit reports. The SEC’s investigation is a non-public, fact-finding inquiry and it is not clear what action, if any, the SEC intends to take with respect to the information it gathers. The SEC subpoena does not specify any charges. The Company has already submitted all the information requested by SEC, which as of the publication of these financial statements has not issued any opinion. We have not received any further notice from the SEC after delivering the requested information in the first half of 2012.

On July 31, 2012, we received a letter from the CVM: CVM/SEP/GEA-5/ Letter No. 208/2012, requesting information related to criteria for measurement and recognition of revenue and enhancement in the disclosure of some notes to our financial information. We have already provided all the information requested by the CVM. In addition, on February 19, 2013, we received a letter from the CVM: CVM/SEP/GEA-5/ Letter No. 040/2013 recommending enhancements to the notes to our financial statements regarding the percentage of assets by venture that is included in the structures of equity segregation of the purchase.

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On July 11, 2013, the Company received CVM/SEP/GEA-5 Letter No. 240/2013, which requested information on the criteria for measuring and recognizing revenues. The Company has already provided all the information requested by CVM . On November 2013, we received a letter from the CVM: SEP/GEA-5/no 362/2013, requesting information related to some control deficiencies. We have already provided all the information requested by the CVM.

Dividend Policy

The amount of any of our distributions of dividends and/or interest on shareholders’ equity will depend on a series of factors, such as our financial conditions, prospects, macroeconomic conditions, tariff adjustments, regulatory changes, growth strategies and other issues our board of directors and our shareholders may consider relevant, as discussed below.

Amounts Available for Distribution

At each annual general shareholders’ meeting, our board of directors is required to propose to our shareholders how our earnings of the preceding fiscal year are to be allocated. For purposes of Brazilian corporate law, a company’s income after federal income tax for such fiscal year, net of any accumulated losses from prior fiscal years and amounts allocated to debentures, employees’ and management’s participation in earnings and founders’ shares, represents its “net income” for such fiscal year. In accordance with Brazilian corporate law, an amount equal to the company’s “net income” may be affected by the following:

reduced by amounts allocated to the legal reserve;

reduced by amounts allocated to any statutory reserve;

reduced by amounts allocated to the contingency reserve, if any;

reduced by amounts allocated to the tax incentives reserve;

reduced by amounts allocated to the investment reserve;

increased by reversals of contingency reserves recorded in prior years; and

increased by amounts allocated to the investment reserve, when realized and if not absorbed by losses.

Our calculation of net income and allocation of funds to our reserves for any fiscal year are determined on the basis of our audited unconsolidated financial statements for the immediately preceding fiscal year.

Allocation of Net Income

According to Brazilian corporate law, we have two types of reserve accounts: (1) profit reserves and (2) capital reserve.

Profit Reserves

Our profit reserves consist of the following:

Legal Reserve. Under Brazilian corporate law and our by-laws, we are required to maintain a legal reserve to which we must allocate 5% of our net income for each fiscal year until the aggregate amount of such reserve equals 20% of our share capital. However, we are not required to make any allocations to our legal reserve in a fiscal year in which the legal reserve, when added to our other established capital reserves, exceeds 30% of our total share capital. The portion of our net income allocated to our legal reserve must be approved by our annual general shareholders’ meeting and the balance of such reserve may only be used to increase our share capital or to absorb losses, but is unavailable for the payment of dividends. As of December 31, 2014, our legal reserve amounted to R$31.6 million.

Statutory Reserve. Under Brazilian corporate law, we are permitted to provide for the allocation of part of our net income to discretionary reserve accounts that may be established in accordance with our bylaws. The allocation of our net income to discretionary reserve accounts may not be made if it serves to prevent distribution of the mandatory distributable amount. According to our bylaws, up to 71.25% of our net income may be allocated to an investment reserve to finance the expansion of our activities and the activities of our controlled companies by subscribing for capital increases, creating new projects or participating in consortia or any other type of association to achieve our corporate purpose. This investment reserve may not exceed 80% of our share capital. As of December 31, 2014, there was no amount allocated to a statutory reserve.

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Contingency Reserve. Under Brazilian corporate law, a percentage of our net income may be allocated to a contingency reserve for anticipated losses that are deemed probable in future years. Management must indicate the cause of the anticipated loss and justify the establishment of the reserve for allocation of a percentage of our net income. Any amount so allocated in a prior year either must be reversed in the year in which the justification for the loss ceases to exist or charged off in the event that the anticipated loss occurs. The allocations to the contingency reserve are subject to the approval of our shareholders in a general shareholders’ meeting. As of December 31, 2014, there was no amount allocated to a contingency reserve.

Investment Reserve. Under Brazilian corporate law, the amount by which the mandatory distributable amount exceeds the “realized” net income in a given fiscal year, as proposed by the board of directors, may be allocated to the investment reserve. Brazilian corporate law defines “realized” net profits as the amount by which net profits exceed the sum of (1) the net positive results, if any, from the equity method of accounting and (2) the net profits, net gains or net returns resulting from transactions or the accounting of assets and liabilities based on their market value, to be received after the end of the following fiscal year. All amounts allocated to the investment reserve must be paid as mandatory dividends when those “unrealized” profits are realized if they have not been designated to absorb losses in subsequent periods. As of December 31, 2014, our investment reserve amounted to R$292.3 million.

Retained Earnings Reserve. Under Brazilian corporate law, a portion of our net income may be reserved for investment projects in an amount based on a capital expenditure budget approved by our shareholders. If such budget covers more than one fiscal year, it might be reviewed annually at the general shareholders’ meeting. The allocation of this reserve cannot jeopardize the payment of the mandatory dividends. As of December 31, 2013, there was no amount allocated to our retained earnings reserve.

Capital Reserves

The capital reserve is formed by (a) amounts received by shareholders in excess of the par value of shares issued (premium on capital stock), as well as the part of the issue price of the shares with no par value that exceeds the amount intended to form the capital stock; and (b) proceeds from the sale of founders’ shares and warrants. Under Brazilian corporate law, capital reserve may only be applied to: (1) absorb losses that exceed accumulated earnings and revenue reserves; (2) redeem, reimburse or buy our own shares; and (3) increase our share capital.

Mandatory Distribution of Dividends

Brazilian corporate law generally requires that the bylaws of each Brazilian company specify a minimum percentage of the amounts available for distribution by such company for each fiscal year that must be distributed to shareholders as dividends or as interest on shareholders’ equity, also known as the mandatory dividend.

The mandatory dividend is based on a percentage of adjusted net income, rather than a fixed monetary amount per share. Under our bylaws, at least 25% of our net income, as calculated under Brazilian GAAP and adjusted under Brazilian corporate law (which differs significantly from net income as calculated under U.S. GAAP), for the preceding fiscal year must be distributed as a mandatory dividend. Adjusted net income means the distributable amount before any deductions for profit retention and statutory reserves.

Under Brazilian corporate law, however, we are allowed to suspend the distribution of the mandatory dividends in any year in which our board of directors report to our general shareholders’ meeting that the distribution would be inadvisable in view of our financial condition. Such suspension is subject to the approval at the shareholders’ meeting and review by members of the fiscal council. In the case of publicly held companies, the board of directors must file a justification for such suspension with the CVM within five days of the relevant general shareholders’ meeting. If the mandatory dividend is not paid, the unpaid amount shall be attributed to a special reserve account. If not absorbed by subsequent losses, those funds shall be paid out as dividends as soon as the financial condition of the company permits.

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The mandatory dividend may also be paid in the form of interest attributable to shareholders’ equity, being considered as a deductible financial expense for purpose of calculating our income and social contribution tax obligations, provided that certain requirements are met. See “ Item 10. Additional Information – E. Taxation” for further information.

Payment of Dividends

We are required by Brazilian corporate law and our bylaws to hold an annual general shareholders’ meeting within the first four months following the end of each fiscal year, at which time, among other things, the shareholders have to decide on the allocation of the results from the preceding year and on the payment of dividends based on our financial results from the previous fiscal year.

Under Brazilian corporate law, dividends are generally required to be paid to the holder of record on the date of the dividend declaration date within 60 days following the date the dividend was declared, unless a shareholders’ resolution sets forth another date of payment, which, in either case, must occur within the fiscal year in which such dividend was declared. A shareholder has a three-year period from the date of the dividend payment to claim dividends, which do not bear interest and are not monetarily restated, after which the aggregate amount of any unclaimed dividends shall legally revert to us.

Our board of directors may declare interim dividends to be deducted from the retained earnings or profit reserves in our semi-annual or annual financial statements. In addition, our board of directors may pay dividends from our net income based on our net income registered on semi-annual or quarterly balance sheet. The dividends paid in each semester may not exceed the amounts accounted for in our capital reserve accounts. Any payment of interim dividends may be set off against the amount of mandatory dividend relating to the net profit earned in the year in which the interim dividends were paid.

In general, shareholders who are not residents of Brazil must register their equity investment with the Central Bank to have dividends, sales proceeds or other amounts with respect to their shares eligible to be remitted outside of Brazil. The common shares underlying the ADSs are held in Brazil by Banco Itaú S.A., also known as the custodian, as agent for the depositary, who is the registered owner on the records of the registrar for our shares. The depositary registers the common shares underlying the ADSs with the Central Bank and, therefore, it is possible to have dividends, sales proceeds or other amounts with respect to the common shares remitted outside Brazil.

Payments of cash dividends and distributions, if any, are made in reais to the custodian on behalf of the depositary, which then converts such proceeds into U.S. dollars and causes such U.S. dollars to be delivered to the depositary for distribution to holders of ADSs. In the event that the custodian is unable to convert immediately the reais received as dividends into U.S. dollars, the amount of U.S. dollars payable to holders of ADSs may be adversely affected by any depreciation of the real that occurs before the dividends are converted. Under the current Brazilian tax law, dividends paid to persons who are not Brazilian residents, including holders of ADSs, will not be subject to Brazilian withholding tax, except for dividends declared based on profits generated prior to December 31, 1995, which will be subject to Brazilian withholding income tax at varying tax rates. See “Item 10. Additional Information—E. Taxation.”

Holders of ADSs have the benefit of the electronic registration obtained from the Central Bank, which permits the depositary and the custodian to convert dividends and other distributions or sales proceeds with respect to the common shares represented by ADSs into foreign currency and remit the proceeds outside of Brazil. In the event the holder exchanges the ADSs for common shares, the holder will be entitled to continue to rely on the depositary’s certificate of registration for five business days after the exchange. Thereafter, in order to convert foreign currency and remit outside of Brazil the sales proceeds or distributions with respect to the common shares, the holder must obtain a new certificate of registration in its own name that will permit the conversion and remittance of such payments through the commercial exchange rate market.

Under current Brazilian legislation, the Brazilian government may impose temporary restrictions of foreign capital abroad in the event of a serious imbalance or an anticipated serious imbalance of Brazil’s balance of payments. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Common Shares and the ADSs.”

Interest on Equity

Under the Brazilian tax legislation effective January 1, 1996, Brazilian companies are permitted to pay “interest” to holders of equity securities and treat such payments as a deductible financial expense for Brazilian income tax purposes and, from 1997, for social contribution on net profit purposes. The purpose of the tax law change is to encourage the use of equity investment, as opposed to debt, to finance corporate activities. Payment of such interest may be made at the discretion of our board of directors. The amount of any such notional “interest” payment to holders of equity securities is generally limited in respect of any particular year to the greater of:

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50% of net income (after the deduction of the provisions for social contribution on net profits but before taking into account the provision for corporate income tax and the interest attributable to shareholders’ equity) for the period in respect of which the payment is made; or

50% of the sum of retained earnings and profit reserves as of the beginning of the year in respect to which such payment is made.

For tax deduction purposes, the rate applied in calculating interest attributable to shareholders’ equity cannot exceed the pro rata die variation of the Long Term Interest Rate (Taxa de Juros de Longo Prazo), or TJLP, as determined by the Central Bank from time to time.

For accounting purposes, although the interest should be reflected in the income statement for tax deduction, the charge is reversed before the calculation of the net income in the statutory financial statements and deducted from the shareholders’ equity in the same way as the dividend. Any payment of interest with respect to the common shares is subject to withholding income tax at the rate of 15% or 25% if a holder that is not domiciled in Brazil for purposes of Brazilian taxation is domiciled in a country or location defined as a “tax favorable jurisdiction.” The definition of “tax favorable jurisdiction” includes countries and locations (a) that do not impose income tax, (b) that impose income tax at a rate of 20% or less, or (c) where local laws do not allow access to information related to shareholding composition, ownership of investments, or the identity of the ultimate beneficiary of earnings that are attributed to non-residents. On November 28, 2014, the Brazilian Revenue Service issued Rule No. 488, which reduces the threshold income tax rate for determining a “tax favorable jurisdiction” from 20% to 17%. Please refer to “Item 10. Additional Information—E. Taxation—Brazilian Tax Considerations—Gains” below for a discussion that the definition of “tax favorable jurisdiction” may be broadened by an interpretation of Law No. 11,727.

The amount distributed to shareholders as interest attributable to equity, net of any withholding tax, may be included as part of the minimum mandatory dividend. In accordance with applicable law, we are required to pay to shareholders an amount sufficient to ensure that the net amount they receive in respect of interest attributable to shareholders’ equity, after payment of the applicable withholding tax, plus the amount of declared dividends, is at least equivalent to the amount of the minimum mandatory dividend. A shareholder has a three-year period from the date of the interest payment to claim interest attributable to equity, after which the aggregate amount of any unclaimed interest shall legally revert to us.

If a payment of interest on equity is recorded at net value as part of a mandatory dividend, we will pay the income tax on behalf of our shareholders at the time the payment is distributed. Otherwise, the income tax will be paid by the shareholders, subject to our obligation to retain and collect taxes on the payment.

History of Payment of Dividends and Interest on Equity

In 2010, we distributed dividends in the total amount of R$50.7 million, or R$0.12 per share (after giving effect to the stock split of one existing share into two newly issued shares approved at our shareholders’ meeting on February 22, 2010), for fiscal year 2009. In 2011, we distributed dividends in the total amount of R$98.8 million, or R$0.2991 per share, for fiscal year 2010.

In 2012, we did not distribute any dividends, related to fiscal year 2011. In 2013, we did not distribute any dividends, related to fiscal year 2012.

On December 20, 2013, we approved the distribution of interest on equity, charging the account of net income for the current fiscal year, according to the extraordinary balance sheet of December 3, 2013 and deducted from the mandatory minimum dividends of 2013 fiscal year, as set forth on §7, Article 9, Law 9,249/95 and CVM Deliberation No. 207/96, in the gross amount of R$130.2 million, corresponding to R$0.31112217224 per outstanding share.

On April 25, 2014, we approved the payment of dividends in the total amount of R$32.9 million, or R$0.082 per share (excluding treasury shares) for fiscal year 2013. The dividends were distributed on on December 11, 2014, as approved by a meeting of the board of directors held on December 1, 2014.

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On April 25, 2014, we approved the distribution of interest on equity, charging the account of net income for the current fiscal year, according to the extraordinary balance sheet of December 3, 2013 and deducted from the mandatory minimum dividends of 2013 fiscal year, as set forth on §7, Article 9, Law 9,249/95 and CVM Deliberation No. 207/96, in the gross amount of R$130.2 million, corresponding to R$0.31112217224 per outstanding share. The interest on equity was distributed on December 11, 2014, as approved by a meeting of the board of directors held on December 1, 2014.

B. Significant Changes

None.

ITEM 9. THE OFFER AND LISTING

A. Offer and Listing Details

Our common shares started trading on the BM&FBOVESPA on February 17, 2006 and the ADSs started trading on the NYSE on March 16, 2007. The table below sets forth, for the indicated periods, the high and low closing prices of the ADSs on the NYSE, in U.S. dollars, and the common shares on the BM&FBOVESPA, in reais:

	New York Stock Exchange						São Paulo Stock Exchange
	High		Low		Volume(1)		High		Low		Volume(1)
	(in US$ per ADS)						(in reais per common shares)
Year Ended
December 31, 2010(2)		14.83		9.31		2,210,016		18.24		10.04		4,339,823
December 31, 2011		12.25		4.10		3,548,148		15.17		4.30		8,082,453
December 31, 2012		5.47		2.09		2,911,582		6.78		2.05		14,660,144
December 31, 2013		5.13		2.22		1,853,011		5.23		2.62		10,648,389
December 31, 2014		3.58		1.33		1,184,125		3.90		1.86		5,990,816
Quarter
First quarter 2013		5.13		3.72		2,169,463		5.23		3.71		10,942,132
Second quarter 2013		4.57		2.38		1,957,523		4.57		2.70		12,196,700
Third quarter 2013		3.40		2.22		1,717,811		3.80		2.62		10,591,395
Fourth quarter 2013		3.40		2.50		1,587,024		3.88		2.80		8,825,931
First quarter 2014		3.20		2.38		1,419,632		3.72		2.81		8,831,330
Second quarter 2014		3.58		2.82		1,047,098		3.90		3.12		5,831,732
Third quarter 2014		3.30		2.20		1,269,670		3.70		2.72		3,895,209
Fourth quarter 2014		2.57		1.33		1,008,996		3.14		1.86		5,547,077
Month
October 2014		2.57		1.87		1,099,844		3.14		2.38		5,462,622
November 2014		2.24		1.63		1,008,303		2.85		2.12		4,861,321
December 2014		2.09		1.33		914,618		2.75		1.86		6,295,670
January 2015		1.70		1.37		774,122		2.29		1.87		5,004,981
February 2015		1.53		1.26		739,831		2.35		1.82		3,633,594
March 2015		1.47		1.07		747,176		2.20		1.78		4,859,572
April 2015 (through April 24)		1.87		1.07		688,281		2.82		1.78		4,803,187

(1)	Average number of shares traded per day.

(2)	On February 22, 2010, our shareholders approved a stock split of our common shares giving effect to the split of one existing share into new issued shares, increasing the number of shares from 167,077,137 to 334,154,274.

In September 2007, we joined the BM&FBOVESPA Index, or “IBM&FBOVESPA,” the main indicator of the Brazilian stock market’s average performance and the IBrX-50, an index measuring the total return on a theoretical portfolio composed of 50 stocks selected among BM&FBOVESPA’s most actively traded securities. Additionally, we are part of the MSCI Emerging Markets Index, which is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. Through the inclusion on these indices, our stock has expanded opportunity for increased liquidity. Prior to joining the indices, we traded at a daily average of R$38.1 million (or 1.3 million shares), and after joining the indices, trading in our shares increased to a daily average of R$57.1 million (or 11.3 million shares).

B. Plan of Distribution

Not applicable.

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C. Markets

Our common shares are listed on the BM&FBOVESPA under the symbol “GFSA3” and the ADSs are listed on the NYSE under the symbol “GFA.”

Trading on the BM&FBOVESPA

Trading on the São Paulo Stock Exchange is conducted every business day, from 10:00 a.m. to 5:00 p.m., on an electronic trading system called the PUMA Trading System (“PUMA”). Trading is also conducted between 5:30 p.m. and 6:00 p.m., on an online system connected to PUMA and Internet brokers called the “after market” The “after-market” trading is scheduled after the close of principal trading sessions, when investors may send purchase and sell orders and trade through the home broker system. This after-market trading is subject to regulatory limits on price volatility of securities traded by investors operating on the Internet.

The CVM and the BM&FBOVESPA have discretionary authority to suspend trading in shares of a particular issuer under certain circumstances. Trading in securities listed on the BM&FBOVESPA, including the Novo Mercado and Levels 1 and 2 segments, may be effected off the exchanges in the unorganized over-the-counter market in certain circumstances.

The shares of all companies listed on the BM&FBOVESPA, including the Novo Mercado and Level 1 and Level 2 companies, are traded together.

Settlement of transactions occurs three business days after the trade date, without adjustments to the purchase price. Delivery of and payment for shares are made through the facilities of separate clearing houses for each exchange, which maintain accounts for brokerage firms, the BM&FBOVESPA Brazilian Securities Depositary (Central Depositária da BM&FBOVESPA), formerly the BM&FBOVESPA Securities Clearinghouse (Companhia Brasileira de Liquidação e Custódia). The seller is ordinarily required to deliver the shares to the BM&FBOVESPA clearing house on the second business day following the trade date.

In order to maintain control over the fluctuation of the BM&FBOVESPA index, the BM&FBOVESPA has adopted a “circuit breaker” system pursuant to which trading sessions may be suspended for a period of 30 minutes or one hour whenever specified indices of the BM&FBOVESPA fall below the limits of approximately 10% and 15%, respectively, in relation to the closing index levels for the previous trading session.

Although the Brazilian equity market is the largest in Latin America in terms of capitalization, it is smaller and less liquid than the major U.S. and European securities markets. The BM&FBOVESPA is significantly less liquid than the NYSE, or other major exchanges in the world. The BM&FBOVESPA, had a market capitalization of US$844.5 billion as of December 31, 2014 and an average daily trading volume of US$3.5 billion for 2014. In comparison, the NYSE had a market capitalization of US$20.2 trillion as of December 31, 2014 and an average daily trading volume of approximately US$40.5 billion for 2012. Although any of the outstanding shares of a listed company may trade on the BM&FBOVESPA, in most cases fewer than half of the listed shares are actually available for trading by the public, the remainder being held by small groups of controlling persons, by government entities or by one main shareholder. The relative volatility and illiquidity of the Brazilian securities markets may substantially limit your ability to sell the common shares at the time and price you desire and, as a result, could negatively impact the market price of these securities.

Trading on Brazilian stock exchanges by non-residents of Brazil is subject to registration procedures. See “—Investment in Our Common Shares by Non-Residents of Brazil.”

Regulation of Brazilian Securities Markets

The Brazilian securities markets are mainly governed by Law No. 6,385, of December 7, 1976, Law No. 4,728, of July 14, 1965 and Brazilian corporate law, each as amended and supplemented, and by regulations issued by the CVM, which has authority over stock exchanges and the securities markets generally; the CMN; and the Central Bank, which has, among other powers, licensing authority over brokerage firms and regulates foreign investment and foreign exchange transactions.

These laws and regulations, among others, provide for licensing and oversight of brokerage firms, governance of the Brazilian stock exchanges, disclosure requirements applicable to issuers of traded securities, restrictions on price manipulation and protection of minority shareholders. They also provide for restrictions on insider trading. However, the Brazilian securities markets may not be considered to be as highly regulated and supervised as the U.S. securities markets or securities markets in some other jurisdictions. Accordingly, any trades or transfers of our equity securities by our officers and directors, our controlling shareholders or any of the officers and directors of our controlling shareholders must comply with the regulations issued by the CVM. See “Item 10. Additional Information—B. Memorandum and Bylaws—Disclosure Requirements.”

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We have the option to ask that trading in our securities on the BM&FBOVESPA be suspended in anticipation of a material announcement. Trading may also be suspended on the initiative of the BM&FBOVESPA or the CVM, based on or due to, among other reasons, a belief that a company has provided inadequate information regarding a material event or has provided inadequate responses to inquiries by the CVM or the BM&FBOVESPA.

Under Brazilian corporate law, a corporation is either public, as we are, or closely held. All public companies are registered with the CVM and are subject to reporting requirements. A company registered with the CVM may trade its securities either on the BM&FBOVESPA, if it has registered to have its securities traded at the BM&FBOVESPA, or on the Brazilian over-the-counter market. The shares of a listed company may also be traded privately, subject to several limitations. Our common shares are listed on Novo Mercado segment of the BM&FBOVESPA.

The Brazilian over-the-counter market consists of direct trades between individuals in which a financial institution registered with the CVM (and in the relevant over the counter market) serves as intermediary. The Brazilian over-the-counter market is divided into two categories: (i) an organized over the counter market, in which the transactions are supervised by self-regulating entities authorized by the CVM; and (ii) a non-organized over the counter market, in which the transactions are not supervised by self-regulating entities authorized by the CVM. In either case, transactions are directly traded outside of the stock exchange market, through a financial institution authorized by the CVM. No special application, other than registration with the CVM, is necessary for securities of a public company to be traded in this market. The CVM requires that it be given notice of all trades carried out in the Brazilian over-the-counter market by the respective intermediaries.

Investment in Our Common Shares by Non-Residents of Brazil

Portfolio Investment

Investors residing outside Brazil are authorized to purchase equity instruments, including our common shares, in the form of foreign portfolio investments on the BM&FBOVESPA, provided that they comply with the registration requirements set forth in (i) CVM Instruction No. 325 and (ii) Resolution No. 4,373 of September 29, 2014 (“Resolution No. 4,373”), which came into force on March 30, 2015 and which replaced Resolution No. 2,689.

With certain exceptions, Resolution No. 4,373 investors are permitted to carry out any type of transaction in the Brazilian financial capital market involving a security traded on a stock, futures or organized over-the-counter market authorized by the CVM. Investments and remittances outside Brazil of gains, dividends, profits or other payments under our common shares are made through the foreign exchange market. See “Item 10. Additional Information—D. Exchange Controls.”

In order to become a Resolution No. 4,373 investor, an investor residing outside Brazil must:

appoint a representative in Brazil with powers to take actions relating to the investment;

appoint an authorized custodian in Brazil for the investments, which must be a financial institution duly authorized by the Central Bank and CVM;

appoint a tax representative in Brazil;

through its representative in Brazil, register itself as a foreign investor with the CVM and the Central Bank; and

through its representative in Brazil, register itself with the Brazilian Internal Revenue (Receita Federal) pursuant to Regulatory Instruction No. 1,470 of May 30, 2014, and Regulatory Instruction No. 1,548 of February 13, 2015, as the case may be.

Securities and other financial assets held by foreign investors pursuant to Resolution No. 4,373 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or the CVM. In addition, securities trading by foreign investors is generally restricted to transactions carried out in the Brazilian stock exchanges or in organized over-the-counter markets licensed by the CVM. Therefore, as a general rule, no private sale of securities and other financial assets held by foreign investors pursuant to Resolution No. 4,373 are permitted.

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Foreign Direct Investment

Foreign direct investors under Law No. 4,131/62 may sell their shares in both private or open market transactions, but these investors will generally be subject to less favorable tax treatment on gains as compared to foreign portfolio investors.

A foreign direct investor under Law No. 4,131/62 must:

obtain a taxpayer identification number from the Brazilian tax authorities;

appoint a tax representative in Brazil; and

appoint a representative in Brazil for service of process in respect of suits based on Brazilian corporate law.

Depositary Receipts

Resolutions No. 1,927/92 and 3,845/10 of the CMN, which restated and amended Annex V to Resolution No. 1,289/87 of the CMN, regulate the issuance of depositary receipts in foreign markets in connection with shares of Brazilian issuers. Our ADSs program was approved by the CVM on March 8, 2007.

If a holder of ADSs decides to exchange ADSs for the underlying common shares, the holder may (1) sell the common shares on the BM&FBOVESPA and rely on the depositary’s electronic registration for five business days from the date of the exchange to obtain and remit U.S. dollars abroad upon the holder’s sale of our common shares; (2) convert its investment into a foreign portfolio investment under Resolution No.4,373, subject to simultaneous foreign exchange transactions (without actual inflow or outflow of funds); or (3) convert its investment into a foreign direct investment under Law No. 4,131/62, subject to simultaneous foreign exchange transactions.

If a holder of ADSs wishes to convert its investment into either a foreign portfolio investment under Resolution No. 4,373 or a foreign direct investment under Law No. 4,131/62, it should first comply with such regulations, obtaining his own foreign investor registration with the Central Bank or with the CVM as the case may be, in advance of exchanging the ADSs for common shares and of executing the simultaneous foreign exchange agreements.

The custodian is permitted to update the depositary’s electronic registration to reflect conversions of foreign portfolio investments under Resolution No. 4,373 into ADSs. If a foreign direct investor under Law No. 4,131/62 wishes to deposit its shares into the ADR program in exchange for ADSs, such holder will be required to execute simultaneous foreign exchange transactions and to present to the custodian evidence of payment of the applicable taxes. Please refer to “Item 10. Additional Information—E. Taxation—Brazilian Tax Considerations” for a description of the tax consequences to an investor residing outside Brazil of investing in our common shares in Brazil.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

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ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Bylaws

Registration

We are currently a publicly-held company incorporated under the laws of Brazil, registered with the Board of Trade of the State of São Paulo (JUCESP) under NIRE 35300147952 and with the CVM under No. 01610-1, and enrolled with the Brazilian Taxpayer’s Authorities under CNPJ/MF No. 01,545,826/0001-07.

Corporate Purposes

Article 3 of our bylaws provides that our corporate purpose is to: (1) promote and develop any type of real estate project, whether our own or that of a third party, in the latter case as a contractor and agent; (2) purchase and sell any type of real estate; (3) perform civil construction and provide civil engineering services; and (4) develop and implement marketing strategies for any type of real estate project, whether our own or that of a third party.

Issued Share Capital

As of December 31, 2014, our share capital was R$2,740,661,187.74, all of which was fully subscribed and paid-in. Our share capital is comprised of 408,066,162 registered, book-entry common shares, without par value. Under our bylaws, our board of directors may increase our share capital to the limit of our authorized capital by issuing up to 600,000,000 common shares without the need of specific shareholder approval. Our shareholders must approve any capital increase above that amount at a shareholders’ general meeting. Pursuant to the agreement entered into with the BM&FBOVESPA for the listing of our shares on the Novo Mercado, we are not permitted to issue preferred shares.

Novo Mercado

Our shares were accepted for trading on the Novo Mercado on February 17, 2006. In order to delist our shares from the Novo Mercado and since we currently do not have a controlling shareholder, the general shareholders’ meeting that decides upon the delisting shall appoint among those presents the person that, upon its express acceptance, must conduct a tender offer for the purchase of the shares of our capital stock outstanding in the market. See “—Delisting from the Novo Mercado.” In the Novo Mercado, listed companies are required to, among others, (1) only issue common shares, (2) maintain a minimum free float equal to at least 25% of the company’s capital, (3) detail and include additional information in the quarterly information and (4) make available the annual financial statements in English and based on international accounting standards.

The rules imposed by the Novo Mercado aim at providing transparency in relation to the activities and economic situation of the companies to the market, as well as more power to the minority shareholders in the management of the companies, among other rights. The main rules relating to the Novo Mercado, to which the company is subject, are summarized below.

According to CMN Resolution No. 3,792 of September 24, 2009, which governs the closed complementary social security entities’ investment policy (Entidades Fechadas de Previdência Complementar — EFPC), such pension funds may invest up to 70% of its variable income investment portfolio (in which are included corporate stakes) in publicly held companies listed in the Novo Mercado, which may, therefore, improve the development of this corporate governance segment, benefiting the companies listed therein, taking into account the immense financial equity held by such pension funds in Brazil.

Authorization for Trading in the Novo Mercado

Firstly, the company that is authorized to list its securities on the Novo Mercado of BM&FBOVESPA shall keep its listed company register with the CVM updated, which allows the trading of the company’s common shares at the stock market. The Listing Rules of the Novo Mercado were revised in 2011 and the new rules are in full force and effect since May 10, 2011. On June 9, 2011, we have already adapted our bylaws to the new rules of the Novo Mercado.

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According to the Listing Rules of the Novo Mercado, the company willing to negotiate its securities on the Novo Mercado shall, among other conditions: (1) along with its controlling shareholder (if any), execute a Listing Agreement in the Novo Mercado, (2) adapt its bylaws to comply with the minimum requirements determined in the Listing Rules of the Novo Mercado and (3) file the Management Compliance Statements and the Fiscal Council Compliance Statements (if applicable) with BM&FBOVESPA, duly executed by all managers and members of the fiscal council, respectively. The capital of the company shall be exclusively divided into common shares and a minimum free float equal to 25% of the capital stock shall be maintained by the company. The existence of founders’ shares by the companies listed on the Novo Mercado is prohibited.

In addition to the previous requirements, the company’s bylaws may not (1) establish any provision which restricts the number of votes of any shareholder or group of shareholders (as defined in the Listing Rules of the Novo Mercado) to a percentage inferior to 5% of the company’s corporate capital, (2) determine qualified quorums for matters submitted for the approval of the shareholders’ general meetings, except as provided by law, nor (3) restrict or establish any encumbrance to shareholders who vote favorably to the suppression or amendment of any provision of the company’s bylaws.

Board of Directors

The board of directors of companies authorized to have their shares traded on the Novo Mercado shall be comprised of at least five members, of which at least 20% shall be independent, as defined in the Listing Rules of the Novo Mercado. The members of the board of directors shall be elected by a shareholders’ general meeting for a maximum two-year term of office, and are eligible for reelection. All new members of the board of directors and of the board of officers shall sign a Management Compliance Statement which shall be filed with BM&FBOVESPA within 15 days of the date such members take office. Through such Compliance Statement, the company’s directors and officers are personally responsible for complying with the Listing Agreement in the Novo Mercado, the Rules of the Market Arbitration Chamber, the Listing Rules of the Novo Mercado and any other rule issued by BM&FBOVESPA regarding the Novo Mercado.

The positions of chairman of the board of directors and of chief executive officer may not be cumulated by the same person, except in the event of (1) a transition period (limited to 3 years as of the date the company was authorized to negotiate on the Novo Mercado, except if BM&FBOVESPA authorizes otherwise); or (2) vacancy, for a maximum period of 180 days.

Directors shall inform the company of any other board of directors, executive committee, fiscal council or any other office occupied by them in other companies or entities, which information will be sent by the company to BM&FBOVESPA pursuant to the terms established in the Listing Rules of the Novo Mercado.

The board of directors shall always disclose to the market an opinion regarding any tender offer of the company’s shares, informing, among others, their position on the convenience and consequences of such offer in respect to the interests (a) of the shareholders and regarding the liquidity of such securities held by the shareholders and (b) of the company, stating their reasons for being favorable or against the offer. Additionally, the board of directors shall always emphasize that each shareholder is responsible for the final decision regarding the acceptance or not of such tender offer.

Other Novo Mercado Characteristics

Novo Mercado rules cover other areas designed to foster high levels of corporate governance and market transparency. Companies are required to keep the minimum stock percentage floating in the market in order to foster dispersion of share ownership. In addition, companies are obliged to assign tag-along rights to their shareholders in order to ensure equal treatment if a controlling shareholder sells its controlling stake.

The Novo Mercado rules require companies to provide quarterly information on the number of shares held by the controlling shareholder, if any, in addition to other information required by the Listing Rules of the Novo Mercado. We provide such required information on a quarterly basis and voluntarily on a monthly basis. Companies are also required to give more disclosure regarding related party transactions in which a company may be involved. The Listing Rules of the Novo Mercado also require companies to prepare and disclose to BM&FBOVESPA and to the market a Securities Negotiation Policy applicable at least to the company, its controlling shareholders, directors, officers, members of the fiscal council and members of other committees, as well as a Code of Conduct establishing the company’s principles and values regarding its relationship with its management, employees, service providers and any person or entity with which the company maintains any relation.

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Finally, controlling shareholders, other shareholders, directors, officers and members of a company’s fiscal council are required to submit to arbitration any disputes or conflicts related to or arising from the Listing Rules of the Novo Mercado, the Listing Agreement in the Novo Mercado, the Penalties Regulation and the Arbitration Clause, specifically with regard to their application, validity, effectiveness and interpretation. The arbitrations shall take place before the Market Arbitration Chamber established by the BM&FBOVESPA and shall be conducted in accordance with the Rules of the Market Arbitration Chamber.

Company Management

We are managed by a board of directors (Conselho de Administração) and a board of officers (Diretoria). See “Item 6. Directors, Senior Management and Employees—C. Board Practices.”

The members of the board of directors and of the board of officers must be individuals, provided that the latter must also be Brazilian residents.

Conflict of Interests

According to the Brazilian corporate law a director or an officer shall not take part in any corporate transaction in which he/she has an interest which conflicts with the interest of the company. In this case, he/she shall disclose his/her disqualification to the other directors or officers and shall cause the nature and extent of his/her interest to be recorded in the minutes of the board of directors or board of officers’ meeting, as the case may be.

With due compliance with the rules above relating to conflict of interests, a director or an officer may only contract with the company under reasonable and fair conditions, identical to those which prevail in the market or under which the corporation would contract with third parties. Any business contracted otherwise is voidable and the director or the officer concerned shall be obliged to transfer to the corporation all benefits which he/she may have obtained in such business.

According to Brazilian corporate law, a director or officer may not:

perform any act of generosity to the detriment of the company;

without prior approval of the shareholders’ general meeting or the board of directors, borrow money or property from the company or use its property, services or take advantage of its standing for his/her own benefit, for the benefit of a company in which he/she has an interest or for the benefit of a third party; and

by virtue of his or her position, receive any type of direct or indirect personal advantage from third parties, without authorization in the bylaws or from a shareholders’ general meeting.

According to our bylaws, any business or agreement between the company and any director or officer must be previously approved by the board of directors, except if specified in our annual budget or business plan.

Rules for Retirement

There is no retirement age relating to directors or officers pursuant to the Brazilian law and our bylaws.

Policy for the Trading of Our Securities

On July 11, 2011, our board of directors approved the amendment of our Conduct Manual on Information Disclosure and Use and Securities Trading Policy passed on July 15, 2009, which establishes the following procedures regarding the policy for the trading of our securities:

the company and all of our directors, executive officers, employees, members of the other bodies with technical or consultant duties, our possible controlling shareholders, and whoever by virtue of his/her position, job, or post at our company or our subsidiaries and affiliates, and who have signed the compliance statement and became aware of information of a material transaction or event involving our company, are restricted from trading in our securities until such material transaction or event is disclosed to the market as a material fact, except as regards treasury stock transactions, through private trading, the exercise of options to purchase shares of our capital stock, with stock option plan approved by the shareholders, or a possible buyback, also through private trading, carried out by us, provided that such buyback program is carried due to the exercise of stock options in connection with the plan or program. This restriction is extended to periods prior to the announcement of such information or annual or interim financial statements or prior to disclosure of a material fact in accordance with applicable law;

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trading of our securities or transactions related to our securities carried out by the aforementioned persons pursuant to an Individual Investment Program, consisting of long-term investments, as defined in the Trading Policy, is not subject to the aforementioned restrictions; provided that the Individual Investment Program is filed with the investors relations officer at least 30 days in advance;

the restrictions of the Trading Policy also apply to our former directors and executive officers who resigned prior to the public disclosure of a transaction or fact that began during their administration (a) for the six month period following the end of their duties with the company, or (b) until the disclosure of the material event or the related financial statements, whichever occurs first; and

the abovementioned restrictions also apply to indirect trading carried out by such persons, except those conducted by investment funds, provided that the investment funds are not exclusive and the transaction decisions taken by the investment fund officers cannot be influenced by its unit holders.

Rights of Common Shares

Each of our common shares entitles its holder to one vote at an annual or special shareholders’ general meeting. A holder of ADSs has the right under the deposit agreement to instruct the depositary to exercise the voting rights for the common shares represented by his/hers ADSs. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Common Shares and the ADSs.” Pursuant to our bylaws, Brazilian corporate law and the Novo Mercado rules, owners of common shares are entitled to dividends, or other distributions made in respect of common shares, in proportion to their ownership of outstanding shares. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy” and “Item 9. The Offer and Listing—C. Markets— Investment in Our Common Shares by Non-Residents of Brazil” for a more complete description of payment of dividends and other distributions on our common shares. In addition, upon our liquidation, holders of our shares are entitled to share all our remaining assets, after payment of all our liabilities, ratably in accordance with their respective participation in the total amount of our issued and outstanding shares. Holders of our common shares are entitled to participate on a pro rata basis in future capital calls by our company except in some specific circumstances under Brazilian law, as described in “—Preemptive Rights.” Our common shares have tag along rights, which enable their holders to, upon the sale of a controlling interest in us, receive 100% of the price paid per common share of the controlling block by a single or series of transaction.

Options

According to our bylaws, we may, within our authorized share capital and upon resolution of the shareholders’ general meeting, grant stock options to (1) our directors, executive officers and employees, or (2) individuals who provide services to us or to companies we control.

Appraisal Rights

Shareholders who are absent, dissent or abstain from voting on certain actions taken during a shareholders’ general meeting have the right under Brazilian corporate law to withdraw from our company and to receive the value of their shares.

According to Brazilian corporate law, shareholder appraisal rights may be exercised in the following circumstances, among others:

a reduction in the percentage of our mandatory dividends;

a change in our corporate purpose;

an acquisition, by our company, of a controlling stake in another company if the acquisition price is outside of the limits established by Brazilian corporate law;

a merger of shares involving our company, a merger of our company into another company, if we are not the surviving entity, or our consolidation with another company; or

an approval of our participation in a group of companies (as defined in Brazilian corporate law).

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Brazilian corporate law further provides that any resolution regarding a spin-off will also entitle shareholders to withdraw if the spin-off:

causes a change in our corporate purpose, except if the equity is spun-off to a company whose primary activities are consistent with our corporate purposes;

reduces our mandatory dividends; or

causes us to join a group of companies (as defined in Brazilian corporate law).

In cases where (1) our company merges with another company where we are not the surviving company, or (2) we are consolidated with another company, or (3) we participate in a group of companies (as defined in Brazilian corporate law), our shareholders will not be entitled to withdraw from our company if their respective shares are (a) liquid, i.e. part of the BM&FBOVESPA index or other stock exchange index in Brazil or abroad, (as defined by the CVM), and (b) widely held, such that less than 50% of our shares are held by a controlling shareholder or by companies a controlling shareholder controls. We are currently part of the IBOVESPA (the BM&FBOVESPA index) and have no controlling shareholder. Therefore, our shares are, at present, considered liquid and widely held for the purposes of this paragraph.

The right to withdraw expires 30 days after publication of the minutes of the relevant shareholders’ general meeting. We are entitled to reconsider any action giving rise to withdrawal rights for within 10 days after the expiration of the 30-day period if the redemption of shares of absent, dissenting or non-voting shareholders would jeopardize our financial stability. If shareholders exercise withdrawal rights, they are entitled to receive the economic value of the company’s shares, as determined by a valuation report issued by a specialized firm. If the resolution giving rise to the appraisal rights is made later than 60 days after the date of the last approved balance sheet, the shareholder may demand that his or her shares be valued according to a new balance sheet dated no less than 60 days before the resolution date. In this case, we must immediately pay 80% of the equity value of the shares according to the most recent balance sheet approved by our shareholders, and the remaining balance must be paid within 120 days after the date of the resolution of the shareholders’ general meeting.

Redemption of Shares

According to Brazilian corporate law, we may redeem our shares by a decision taken in a special shareholders’ general meeting by shareholders representing at least 50% of our share capital. The share redemption may be paid with our profit, profit reserves or capital reserves. If the share redemption is not applicable to all shares, the redemption will be made by lottery. If custody shares are picked in the lottery and there are no rules established in the custody agreement, the financial institution will specify on a pro rata basis, the shares to be redeemed.

Registration of Shares

Our shares are held in book-entry form with Itaú Unibanco Corretora S.A., which will act as the custodian agent for our shares. Transfer of our shares will be carried out by means of book entry by Itaú Unibanco S.A., debiting the share account of the seller and crediting the share account of the buyer, with the presentation of a written order of the transferor or a judicial authorization or order to effect such transfers.

Preemptive Rights

Except as provided below, our shareholders have a general preemptive right to participate in any issuance of new shares, convertible debentures and warrants, in proportion to their respective shareholding at such time, but the conversion of debentures and subscription warrants into shares, the granting of options to purchase shares and the issuance of shares as a result of its exercise, are not subject to preemptive rights. In addition, Brazilian corporate law allows for companies’ bylaws to give the board of directors the power to exclude preemptive rights or reduce the exercise period of such rights with respect to the issuance of new shares, debentures convertible into shares and subscription warrants up to the limit of the authorized share capital if the distribution of those shares, debentures or subscription warrants is effected through a sale on a stock exchange, through a public offering or through an exchange of shares in a tender offer the purpose of which is to acquire control of another company. Shareholders are allowed to exercise the preemptive rights for a period of at least 30 days following the publication of notice of the issuance of shares, convertible debentures and warrants, and the right may be transferred or disposed of for consideration.

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Holders of ADSs may be unable to exercise preemptive rights with respect to our common shares underlying the ADSs. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Common Shares and the ADSs—Holders of ADSs may be unable to exercise preemptive rights with respect to our common shares underlying the ADSs.”

Shareholders’ General Meetings

Under Brazilian corporate law, at our shareholders’ meetings, shareholders are empowered to take any action relating to our corporate purpose and to pass any such resolutions as they deem necessary. The approval of our financial statements and the determination of the allocation of our net profits with respect to each fiscal year take place at our annual general shareholders’ meeting immediately following such fiscal year. The election of our directors and, if requested by shareholders, of members of our fiscal council typically takes place at the annual general shareholders’ meeting, although under Brazilian law it may also occur at a special shareholders’ general meeting.

A special shareholders’ general meeting may be held concurrently with the annual general shareholders’ meeting. Pursuant to our bylaws and Brazilian corporate law, the following actions, among others, may only be taken at a general shareholders’ meeting:

amendment of our bylaws, including amendment of our corporate purpose;

election and dismissal, at any time, of our directors and members of our fiscal council;

determination of the aggregate compensation of our board of directors and board of officers, as well as the fiscal council’s compensation;

approval of stock splits and reverse stock splits;

approval of a stock option plan;

approval of the company’s financial statements;

resolution upon the destination of our net profits and distribution of dividends;

election of the fiscal council to function in the event of our dissolution;

cancellation of our registration with the CVM as a publicly-held company;

suspension of the rights of a shareholder who has violated Brazilian corporate law or our bylaws;

acceptance or rejection of the valuation of in-kind contributions offered by a shareholder in consideration for shares of our capital stock;

approval of our transformation into a limited liability company or any other corporate form;

delisting of our common shares from the Novo Mercado;

appointment of a financial institution responsible for our valuation, in the event of a mandatory tender offer, specifically in the event that a tender offer for our common shares is carried out in connection with the delisting of our common shares from the Novo Mercado or cancellation of our registration as a publicly-held company;

reduction in the percentage of mandatory dividends;

participation in a group of companies (as defined in Brazilian corporate law);

approval of any merger, consolidation with another company or spin-off;

approval of our dissolution or liquidation, the appointment and dismissal of the respective liquidator and the official review of the reports prepared by him or her; and

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authorization to petition for bankruptcy or request for judicial or extrajudicial restructuring.

According to Brazilian corporate law, neither a company’s bylaws nor actions taken at a shareholders’ meeting may deprive a shareholder of specific rights, such as:

the right to participate in the distribution of profits;

the right to participate equally and ratably in any remaining residual assets in the event of liquidation of the company;

preemptive rights in the event of subscription of shares, convertible debentures or subscription warrants, except in some specific circumstances under Brazilian law described in “—Preemptive Rights;”

the right to inspect and monitor the management of the company’s business in accordance with Brazilian corporate law; and

the right to withdraw from the company in the cases specified in Brazilian corporate law, described in “—Appraisal Rights.”

Quorum for our Shareholders’ General Meetings

As a general rule, Brazilian corporate law provides that a quorum at a shareholders’ general meeting consists of shareholders representing at least 25% of a company’s voting capital on the first call and, if that quorum is not reached, any percentage on the second call. A quorum for the purposes of amending our bylaws consists of shareholders representing at least two-thirds of voting capital on the first call and any percentage on the second call.

As a general rule, the affirmative vote of shareholders representing at least the majority of our issued and outstanding common shares present in person or represented by proxy at a shareholders’ general meeting is required to ratify any proposed action, with abstentions not taken into account. However, the affirmative vote of shareholders representing one-half of our issued and outstanding voting capital is required to:

reduce the percentage of mandatory dividends;

change our corporate purpose;

merge or consolidate our company with another company;

spin-off a portion of our assets or liabilities;

approve our participation in a group of companies (as defined in Brazilian corporate law);

apply for cancellation of any voluntary liquidation;

approve our dissolution; and

approve the merger of all our shares into another company.

A quorum smaller than one-half of our issued and outstanding voting capital may be authorized by the CVM for a publicly-held company with widely-traded and widespread shares that has had less than half of the holders of its voting shares in attendance at its last three shareholders’ meetings. In such case, resolutions may only be taken on a third call.

According to our bylaws and for so long as we are listed on the Novo Mercado, we may not issue preferred shares or founders’ shares and we will have to conduct a tender offer in order to delist ourselves from the Novo Mercado.

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Notice of our Shareholders’ General Meetings

According to Brazilian corporate law, notice of our shareholders’ general meetings must be published at least three times in the Diário Oficial do Estado de São Paulo, the official newspaper of the State of São Paulo, and in another widely circulated newspaper in the same State, previously chosen at an annual shareholders meeting, which, in our case is O Estado de São Paulo. The first notice must be published no later than 15 days before the date of the meeting on the first call, and no later than eight days before the date of the meeting on the second call. However, in certain circumstances, upon the request of any shareholder, the CVM may require that the first notice be published 30 days in advance of the meeting if the meeting relates to complex transactions and, accordingly, shareholders need more time to be familiarized with and analyze such transactions. In addition, the CVM may suspend for up to 15 days the required prior notice of the special shareholders’ general meeting so that it may further analyze the proposal to be voted upon at such meeting. Such call notice in all circumstances shall contain the date, time, place and agenda for the meeting and a list of the documents that will be required from our shareholders to be admitted at the meetings, and in case of amendments to the bylaws, the indication of the relevant matters. CVM Instruction No. 481 of December 17, 2009 also requires that additional information be disclosed in the call notice for certain matters. For example, in the event of an election of directors, the call notice shall also disclose the minimum percentage of equity participation required from a shareholder to request the adoption of cumulative voting procedures. All documents pertaining to the matters to be discussed at the shareholders’ general meeting shall be made available to the shareholders upon publication of the first call notice, except if the law or CVM regulations provide otherwise.

Location of our Shareholders’ General Meetings

Our shareholders’ meetings shall take place at our head offices at Av. Nações Unidas No. 8,501, 19th floor, 05425-070 – São Paulo, SP – Brazil. Brazilian corporate law allows our shareholders to hold meetings outside our head offices in the event of force majeure, provided that the relevant notice contains a clear indication of the place where the meeting will occur, which, in any case, shall never be held outside the city where the company’s headquarters are located.

Who May Call our Shareholders’ General Meetings

According to Brazilian corporate law, our board of directors may call a shareholders’ general meeting. Shareholders’ general meetings may also be called by:

any shareholder, if our directors fail to call a shareholders’ general meeting within 60 days after the date they were required to do so under applicable laws and our bylaws;

shareholders holding at least 5% of our share capital if our directors fail to call a meeting within eight days after receipt of a request to call the meeting by those shareholders, and such request must indicate the proposed agenda;

shareholders holding at least 5% of voting share capital or 5% of non-voting share capital if our directors fail to call a meeting within eight days after receipt of a request to call the meeting to convene a fiscal council; and

our fiscal council (if installed), in the event our board of directors delays calling an annual shareholders’ meeting for more than one month. The fiscal council may also call a special general shareholders’ meeting at any time if it believes that there are significant or urgent matters to be addressed.

There is an obligation of the chairman of our board of directors to call a shareholders’ general meeting if: (1) we are not under control of a shareholder holding more than 50% of our voting capital, and (2) BM&FBOVESPA determines that the price of our shares shall be quoted separately or that the trading of our shares on the Novo Mercado shall be suspended by reason of non-compliance with the listing rules of Novo Mercado. At such a meeting all members of our board of directors must be replaced. In the event the shareholders’ general meeting is not called by the chairman of the board of directors within the time period established in our bylaws, the meeting may be called by any shareholder of the company.

Conditions for Admission at our Shareholders’ General Meetings

A shareholder may be represented at a shareholders’ general meeting by a proxy, as long as the proxy is appointed less than a year before such shareholders’ general meeting. The proxy must be either a shareholder, an executive officer or a director of our company, a lawyer or a financial institution. An investment fund must be represented by its investment fund officer.

Shareholders attending a shareholders’ general meeting must deliver proof of their status as shareholders and proof that they hold the shares they intend to vote by delivery of proper identification and a receipt issued by the custodian agent of our shares.

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Arbitration

Any disputes or controversies involving our company, our shareholders, members of our management or our fiscal council relating to or arising from the Listing Agreement on the Novo Mercado, Listing Rules, our bylaws, Brazilian corporate law, the rules published by the CMN, the Central Bank, the CVM, any shareholders’ agreement filed at our headquarters, and other rules applicable to the Brazilian capital markets in general, must be submitted to arbitration conducted in accordance with the Rules of the Market Arbitration Chamber established by the BM&FBOVESPA.

Going Private Process

We may become a private company by the decision of our shareholders only if we conduct a public tender offer to acquire all of our outstanding shares in accordance with the rules and regulations of Brazilian corporate law, the CVM and the Novo Mercado regulations which requires:

a fair bid price at least equal to the value estimated of the company; and

shareholders holding more than two thirds of the outstanding shares have specifically approved the process or accepted the offer.

The minimum price offered for the shares in the public tender offer will correspond to the economic value of such shares, as determined by a valuation report issued by a specialized firm, and we may only purchase shares from shareholders that have voted in favor of us becoming a private company after purchasing all shares from the other shareholders that did not vote in favor of such deliberation and that have accepted the public tender offer.

The valuation report must be prepared by a specialized and independent firm of recognized experience chosen by the shareholders representing the majority of the outstanding shares present at the relevant shareholders’ meeting (excluding, for such purposes, treasury shares, shares held by our affiliates and by other companies that are a part of our economic group, as well as blank votes) from a list of three institutions presented by our board of directors. All the expenses and costs incurred in connection with the preparation of the valuation report must be paid for by the person making the tender offer.

Shareholders holding at least 10% of our outstanding shares may require our management to call a special shareholders’ general meeting to determine whether to perform another valuation using the same or a different valuation method. This request must be made within 15 days following the disclosure of the price to be paid for the shares in the public offering. The shareholders who make such request as well as those who vote in its favor must reimburse us for any costs involved in preparing the new valuation, if the new valuation price is not higher than the original valuation price. If the new valuation price is higher than the original valuation price, the public offering must be made at the higher price.

Delisting from the Novo Mercado

We may, at any time, delist our common shares from the Novo Mercado, provided that shareholders approve the decision and that the BM&FBOVESPA is notified in writing at least 30 days in advance. Delisting of shares from the Novo Mercado does not require delisting from the BM&FBOVESPA.

If our common shares are delisted from the Novo Mercado, our controlling shareholders, if any, will be required to conduct a tender offer for the acquisition of our outstanding common shares. In case there are no controlling shareholders, the shareholders’ general meeting deciding on the delisting must also appoint who will be responsible for the mandatory tender offer. The minimum price offered for the shares in the public tender offer will correspond to the economic value of the shares, as determined by a valuation report issued by a specialized firm chosen by the shareholders representing a majority of the outstanding shares (excluding, for such purposes, shares held by the controlling shareholders, if any, and their affiliates, treasury shares, shares held by our affiliates, and blank votes) from a list of three institutions presented by our board of directors. All the expenses and costs incurred in connection with the preparation of the valuation report must be paid for by the controlling shareholder, if any, or by us.

If our delisting from the Novo Mercado occurs due to the cancellation of our registration as a publicly held company, all the other requirements established by such delisting shall be followed. See “—Going Private Process.”

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In the event that we delist due to a corporate reorganization where the surviving company is not admitted for listing on the Novo Mercado within one hundred and twenty days as of the date of the shareholders’ general meeting that resolved on the corporate reorganization, the then-controlling shareholders will need to carry out a public tender offer for the acquisition of the shares held by the other shareholders, and the minimum price offered per share shall be the economic value of the shares. In case the company does not have controlling shareholders, the shareholders’ general meeting that decided on the delisting must also determine who will be responsible for the mandatory tender offer, and in case the shareholders’ general meeting fails to do so, the shareholders who approved the corporate reorganization will be responsible for the tender offer. The notice of public tender offer shall be given to the BM&FBOVESPA and released to the market immediately after the shareholders’ general meeting that has approved the corporate reorganization.

If our share control is sold within twelve months of our delisting from the Novo Mercado, the selling controlling shareholder and the acquirer shall offer to acquire the shares of all other shareholders under the same conditions offered to the selling controlling shareholder.

Sale of a Controlling Stake in our Company

Under the Listing Rules of the Novo Mercado, the sale of a controlling interest in our company, either through a single transaction or through successive transactions, takes place under a suspension or resolution condition, where the acquirer agrees to, within the time and pursuant to the conditions specified under Brazilian corporate law and the Listing Rules of the Novo Mercado, make a tender offer of the remaining shares of the other shareholders under the same terms and conditions granted to the selling controlling shareholder.

A tender offer is also required under the following conditions:

when rights are assigned for a subscription of shares and other securities or rights related to securities convertible into shares that results in the sale of the company’s controlling stake;

when, if the controlling shareholder is an entity, the control of such controlling entity is transferred; and

when a controlling stake is acquired through an agreement for the purchase of shares. In this case, the acquirer is obligated to make a tender offer under the same terms and conditions granted to the selling shareholders and reimburse the shareholders from whom he/she had purchased the shares traded on stock exchanges within the six months before the sale date of the company’s share control. The reimbursement value is the difference between the price paid to the selling controlling shareholder and the amount traded on stock exchanges per share, during this period, adjusted by the inflation in the period. Such amount shall be distributed among all persons who sold shares issued by the company in the stock market trading session in which the acquirer made its acquisitions, proportionally to the daily net selling balance of each acquisition, being BM&FBOVESPA responsible for processing such distribution according to its regulations.

The buyer, when necessary, must take the necessary measures to recompose the minimum 25% of outstanding shares in the market within the subsequent six months.

Mandatory Tender Offer in Case of Acquisition of a 30% Stake

Under the rules of our bylaws, if any person acquires our shares, or any securities or rights related to such shares, in an amount representing 30% or more of our corporate capital, such acquirer has to carry out a mandatory tender offer for the acquisition of all shares issued by the Company. The minimum price offered for the shares in the public tender offer will correspond to the economic value of such shares, as determined by a valuation report issued by a specialized firm.

The valuation report must be prepared by a specialized and independent firm of recognized experience chosen by the shareholders representing the majority of the outstanding shares present at the relevant shareholders’ meeting (excluding, for such purposes, shares held by the controlling shareholder, if any, by the members of the board of directors and officers appointed, directly or indirectly, by the controlling shareholder, if any, treasury shares, as well as abstentions) from a list of three institutions presented by our board of directors. All the expenses and costs incurred in connection with the preparation of the valuation report must be paid for by the person making the tender offer.

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A tender offer as a result of an acquisition of a 30% equity stake is not mandatory in any of the following cases: (1) if after the acquisition of such 30% equity stake, the same shareholder who held more than 50% of our shares remains as controlling shareholder; (2) if a 30% equity stake is obtained as a result of purchases made under another public tender offer for the acquisition of our shares by their economic value, made in accordance with the Novo Mercado Listing Rules or with the applicable law; provided that the offer was made for all shares of the company and at least the minimum price has been paid; (3) if a 30% equity stake is obtained involuntarily as a result of a corporate reorganizations, cancellation of shares in treasury, share redemption, capital reduction, or of a subscription of shares made under a primary public offer for distribution of our shares where the preemptive rights were not exercised by all shareholders who had it or which did not have as subscribers as expected; or (4) in the case of a sale of a controlling stake, which is subject to the rules described above for such case.

Purchases by us of our own Shares

Our bylaws entitle our board of directors to approve the acquisition of our own shares. The decision to acquire our shares for purposes of maintaining the acquired shares in treasury or of cancelling them may not, among other things:

result in the reduction of our share capital;

require the use of resources greater than our profit reserves and other available reserves, as provided in our financial statements;

create, as a result of any action or inaction, directly or indirectly, any artificial demand, supply or condition relating to share price;

involve any unfair practice;

be used for the acquisition of unpaid shares or shares held by our controlling shareholders; or

when a public offer for acquisition of the shares of the company is being made.

We may not keep in treasury more than 10% of our outstanding common shares, including the shares held by our subsidiaries and affiliates.

On February 26, 2014, the Board of Directors of Tenda approved the closing of Tenda’s repurchase of shares program as approved on December 9, 2013. During the course of this program, Tenda purchased 15,500,000 common shares issued by Gafisa to be kept in treasury and future disposal.

On the same date, the Board of Directors of Gafisa approved the repurchase of its common shares to be kept in treasury and future cancellation or disposal up to 17,456,434, which corresponded to 10% of the then outstanding common shares. The purchase of shares by Gafisa under this program was conditioned on the maintenance of Gafisa’s consolidated net debt to equity ratio at or below 60%. This program ended on February 25, 2015.

On February 2, 2015, our Board of Directors approved the closing of a repurchase of shares program as approved on December 3, 2014. During the course of this program, we purchased 30,207,130 of Gafisa’s common shares to be kept in treasury and future disposal.

On the same date, the Board of Directors of Gafisa approved the creation of a repurchase program of its common shares to be kept in treasury and future cancellation or disposal up to 27,000,000 common shares, which corresponded to 10% of the then outstanding common shares. The purchase of shares by Gafisa under this program was conditioned on the maintenance of Gafisa’s consolidated net debt to equity ratio at or below 60%. This program ends on February 1, 2016.

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Any acquisition by us of our own shares must be made on a stock exchange and cannot be made in a private transaction, except if previously approved by the CVM. Moreover, we may acquire or issue put or call options related to our shares upon prior approval of the shareholders.

Disclosure Requirements

We are subject to the reporting requirements established by Brazilian corporate law and the CVM. Furthermore, because we are listed with the Novo Mercado, we must also follow the disclosure requirements provided for in the Listing Rules of the Novo Mercado.

Disclosure of Information

The Brazilian securities regulations require that a publicly-held corporation provide the CVM and the relevant stock exchanges with periodic information that includes annual information statements, quarterly financial statements, quarterly management reports, independent auditor reports, notices and minutes of shareholders’ meetings, among others. In addition, we also must disclose any material development related to our business to the CVM and the BM&FBOVESPA.

We observe the Novo Mercado disclosure standards and are required to, among other things:

present the company’s financial statements, standard financial statements form (DFP), quarterly information form (ITR) and Reference Form (Formulário de Referência);

include a note in the quarterly information form (ITR) regarding all operations with related parties;

disclose and maintain updated the information presented in the Reference Form regarding any shareholder holding, directly or indirectly, at least 5% of the company’s capital stock, considering the information received by company from the relevant shareholders;

disclose, monthly, the individual and consolidated amount and characteristics of our securities held directly or indirectly by controlling shareholders (if this is the case); and

disclose, monthly, the individual and consolidated changes in the amount of securities held by controlling shareholders (if this is the case), as well as their respective spouses or dependents, as per their income tax statements, as the case may be.

Disclosure of Trading by Insiders

Pursuant to the rules of the Novo Mercado, each of our possible controlling shareholders must disclose to the BM&FBOVESPA information in connection with the total amount and characteristics of securities owned, directly or indirectly, by them and issued by us, or any derivatives referenced in such securities, as well as any subsequent trading of such securities and derivatives. In the case of individuals, such information shall also include securities held by the spouse, companion or dependents of such persons, included in the annual income tax statement of such controlling shareholder. This information must be communicated to the BM&FBOVESPA within 10 days following the end of each month.

CVM regulations require our directors, executive officers, members of the fiscal council, and members of any other technical or advisory body to disclose to us, to the CVM and to the BM&FBOVESPA, the total amount, the characteristics and form of acquisition of securities issued by us, listed companies under our control or the control of our listed controlling shareholders, including derivatives referenced in such securities that are held by each of them, as well as any change in such investments within 10 days after the end of the month when the securities were traded. In the case of individuals, such information shall also include securities held by the spouse, companion or dependents of such persons, included in the annual income tax statement and companies controlled directly or indirectly by such person.

In addition, our controlling shareholders, our shareholders who have caused the election of members of our board of directors or fiscal council, as well as any individual, legal entity or group of persons acting jointly whose direct or indirect participation reaches 5% or more of our shares, must provide to us, and we shall transmit to the CVM and the BM&FBOVESPA, the following information:

the name and qualification of the person providing the information;

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reason and purpose for the acquisition and amount of securities to be acquired, including, as the case may be, a representation of the acquirer stating that the acquisition does not aim at modifying the management or the controlling structure of the company;

amount of shares, subscription bonuses, as well as other share subscription rights and call options, by type and/or class, already owned, directly or indirectly, by the acquirer or any person related with the acquirer;

amount of debentures convertible in shares, already owned, directly or indirectly, by the acquirer or person related to the acquirer, displaying the amount of shares object of the possible conversion by type and class; and

information on any agreement regarding the exercise of voting rights or the purchase and sale of our securities.

The disclosure requirement referred to above will also apply to any person or group acting jointly, holding participation equal to or in excess of 5%, each time such person increases or decreases its participation in our shares by an amount equal to 5% of our shares.

Disclosure of Material Developments

According to Law No. 6,385 of December 7, 1976, and subsequent amendments, and CVM Instruction No. 358 of January 3, 2002, and subsequent amendments, we must disclose any material development related to our business to the CVM and to the BM&FBOVESPA and must publish a notice of the material development. A development is deemed to be material if it has a material impact on the price of our securities, on the decision of investors to trade in our securities or on the decision of investors to exercise any rights as holders of any of our securities.

Under special circumstances, we may request confidential treatment of certain material developments from the CVM, when our management believes that public disclosure could result in adverse consequences to us.

C. Material Contracts

On May 27, 2010, the shareholders of Gafisa approved the acquisition of 20% of Alphaville’s shares, by means of a merger of the totality of shares issued by Shertis Empreendimentos e Participações S.A. or “Shertis”, which main asset are shares representing 20% of Alphaville’s shares, in the total amount of R$126.5 million. As a consequence of such merger, Gafisa issued 9,797,792 common shares, paid to the former shareholders of Shertis. On July 3, 2013, we acquired the remaining shares of Alphaville, corresponding to 20% of its capital stock, by means of the acquisition by Tenda of all the shares of EVP Participações SA, a holding company that had Renato de Albuquerque and Nuno Luís de Carvalho Lopes Alves as shareholders and the holder of the remaining shares of Alphaville. Gafisa paid R$366,661,985.11 in Brazilian national currency to the former owners of the shares.

On December 9, 2013, we completed the sale of a majority stake in Alphaville to Private Equity AE Investimentos e Participações (“Fundo AE”), a company controlled by Pátria Investimentos Ltda. and Blackstone Real Estate Advisor L.P., which was previously announced on June 7, 2013. All precedent conditions were met including governmental approval, to the completion of the transaction. The transaction was concluded with a sale of 50% stake by Gafisa and 20% stake by Tenda, with Gafisa retaining the remaining 30% of Alphaville capital stock. The proceeds from the transaction, post adjustments agreed to in the Share and Purchase Agreement, were R$1.54 billion, consisting of R$1.25 billion from Fundo AE for the acquisition of Alphaville shares, and an R$290 million dividend distribution by Alphaville.

D. Exchange Controls

There are no restrictions on ownership of our common shares by individual or legal entities domiciled outside Brazil. However, the right to convert dividend payments and proceeds from the sale of our shares into foreign currency and to remit such amounts abroad is subject to requirements under foreign investment legislation which generally establish that the relevant investment be registered with the Central Bank and/or the CVM. Subject to certain procedures and specific regulatory provisions, the purchase and sale of foreign currency and the international transfer of reais by a person or legal entity resident, domiciled or headquartered in Brazil, as the case may be, is allowed, without limitation as to amount, provided that the underlying transaction is legal, legitimate and has economic substance, as evidenced by the applicable supporting documentation submitted to the financial institution in charge of the foreign exchange transaction. In addition, foreign currencies may only be purchased through duly authorized financial institutions headquartered in Brazil. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Brazil—Restrictions on the movement of capital out of Brazil may adversely affect your ability to receive dividends and distributions on the ADSs and on our common shares, or the proceeds of any sale of our common shares” and “Item 9. The Offer and Listing—C. Markets—Investment in Our Common Shares by Non-Residents of Brazil.”

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In the past, the Brazilian Central Bank has intervened occasionally to control unstable movements in foreign exchange rates. We cannot predict whether the Brazilian Central Bank or the Brazilian government will continue to let the real float freely or will intervene in the exchange rate market through the return of a currency band system or otherwise. The real may depreciate or appreciate against the U.S. dollar substantially.

Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or there are serious reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of funds abroad. We cannot assure you that such measures will not be taken by the Brazilian government in the future. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Brazil—Restrictions on the movement of capital out of Brazil may adversely affect your ability to receive dividends and distributions on the ADSs and on our common shares, or the proceeds of any sale of our common shares” and “Item 9. The Offer and Listing—C. Markets—Investment in Our Common Shares by Non-Residents of Brazil.”

E. Taxation

The following discussion contains a description of material Brazilian and U.S. federal income tax consequences of the acquisition, ownership and disposition of common shares or ADSs. The discussion is based upon the tax laws of Brazil and regulations thereunder and on the tax laws of the United States and regulations thereunder as of the date hereof, which are subject to change.

Although there is at present no income tax treaty between Brazil and the United States, the tax authorities of the two countries have entered into a Tax Information Exchange Agreement and have had discussions that may culminate in an income tax treaty. No assurance can be given, however, as to whether or when an income tax treaty will enter into force or how it will affect the U.S. Holders (as defined below) of common shares or ADSs. Prospective holders of common shares or ADSs should consult their own tax advisers as to the tax consequences of the acquisition, ownership and disposition of common shares or ADSs in their particular circumstances.

Brazilian Tax Considerations

The following discussion summarizes the principal Brazilian tax consequences of the acquisition, ownership and disposition of our common shares or ADSs by a holder that is not domiciled in Brazil for purposes of Brazilian taxation (a “Non-Resident Holder”). This discussion is based on Brazilian law as currently in effect, which is subject to change, possibly with retroactive effect, and subject to different interpretations. Any change in that law may change the consequences described below.

The tax consequences described below do not take into account the effects of any tax treaties or reciprocity agreements for tax treatment entered into by Brazil and other countries. The discussion also does not address any tax consequences under the tax laws of any state or municipality of Brazil. The description below is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, exchange, ownership and disposition of our common shares or ADSs. Each Non-Resident Holder should consult his or her own tax adviser concerning the Brazilian tax consequences of an investment in our common shares or ADSs.

Income tax

Dividends. Dividends paid by a Brazilian corporation, such as our company, including stock dividends and other dividends paid to a Non-Resident Holder of common shares or ADSs, are currently not subject to income withholding tax in Brazil to the extent that such amounts are related to profits generated after January 1, 1996. Dividends paid from profits generated before January 1, 1996 may be subject to Brazilian income withholding tax at varying rates, according to the tax legislation applicable to each corresponding year. We generally expect to pay dividends from profits generated after January 1, 1996.

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Interest on Shareholders’ Equity. Law No. 9,249, dated December 26, 1995, as amended, permits a Brazilian corporation, such as our company, to make distributions to shareholders of interest on shareholders’ equity as an alternative to making dividend distributions and treat such payments as a deductible expense for purposes of calculating Brazilian corporate income tax and social contribution on net profits, to the extent the limits described below are observed. These distributions may be paid in cash. For tax purposes, this interest is limited to the daily pro rata variation of the Brazilian long-term interest rate (“TJLP”), as determined by the Central Bank from time to time, and the amount of the deduction may not exceed the greater of:

50% of net income (after the deduction of social contribution on net profits but before taking into account the provision for corporate income tax and the interest on shareholders’ equity) for the period in respect of which the payment is made; and

50% of the sum of retained profits and profit reserves as of the date of the beginning of the period in respect of which the payment is made.

Payment of interest to a Non-Resident Holder is subject to income withholding tax at the rate of 15%, or 25% if the Non-Resident Holder is domiciled in a “tax favorable jurisdiction.” The definition of a “tax favorable jurisdiction” includes countries and locations (1) that do not impose income tax, (2) that impose income tax at a rate of 20% or less, or (3) where local laws do not allow access to information related to shareholder composition, ownership of investments or the identity of the ultimate beneficiary of earnings that are attributed to non-residents.

On November 28, 2014, the Brazilian Revenue Service issued Rule No. 488, which reduces the threshold income tax rate for determining a “tax favorable jurisdiction” from 20% to 17%. Please refer to “—Discussion on Privileged Tax Regimes—Tax Favorable Jurisdictions and Low or Nil Tax Jurisdictions” below for a discussion that such concept may be broadened by an interpretation of Law No. 11,727/08. These payments of interest on shareholders’ equity may be included, at their net value, as part of any mandatory dividend. To the extent payment of interest on shareholders’ equity is so included, the corporation is required to distribute to shareholders an additional amount to ensure that the net amount received by them, after payment of the applicable withholding income tax, plus the amount of declared dividends is at least equal to the mandatory dividend.

Gains

According to Law No. 10,833/03, enacted on December 29, 2003, the disposition or sale of assets located in Brazil by a Non-Resident Holder, whether to another non-Brazilian resident or to a Brazilian resident, may be subject to capital gain taxes in Brazil.

With respect to the disposition of common shares, which are treated as assets located in Brazil, the Non-Resident Holder will be subject to income tax on the gains assessed, following the rules described below, regardless of whether the transactions are conducted in Brazil or with a Brazilian resident.

With respect to the ADSs, although the matter is not entirely clear, it is reasonable to argue that ADSs do not constitute assets located in Brazil for the purposes of Article 26 of Law No. 10,833 and, therefore, that the gains realized by a Non-Resident Holder on the disposition of ADSs to another Non-Resident Holder should not be taxed in Brazil. We cannot assure you, however, that the Brazilian tax authorities or the Brazilian courts will agree with this interpretation. Accordingly, gains on a disposition of ADSs by a Non-Resident Holder may be subject to income tax in Brazil in the event that courts determine that ADSs constitute assets located in Brazil. For more information, please refer to “Item 3. Key Information—D. Risks Factors—Risks Relating to Our Common Shares and the ADSs—Changes in Brazilian tax laws may have an adverse impact on the taxes applicable to a disposition of the ADSs.”

As a general rule, gains realized as a result of a disposition or sale transaction of common shares (or ADSs should they be deemed to be “assets located in Brazil”) are the positive difference between the amount realized on the sale or exchange of the securities and their acquisition cost.

Under Brazilian law, however, income tax rules on such gains can vary, depending on the domicile of the Non-Resident Holder, the type of registration of the investment by the Non-Resident Holder with the Central Bank and how the disposition is carried out, as described below.

Gains assessed on a disposition of common shares carried out on a Brazilian stock exchange (which includes the transactions carried out on the organized over-the-counter market) are:

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exempt from income tax when the gain is earned by a Non-Resident Holder that (1) has registered its investment in Brazil with the Central Bank under the rules of Resolution No. 4,373, dated September 14, 2014, which replaced Resolution 2,689, dated January 26, 2000 (“4,373 Holder”) and (2) is not a resident in a country that does not tax income or that taxes it at a maximum rate of 20% (“Low or Nil Tax Jurisdiction”). Please refer to “—Discussion on Tax Favorable Jurisdictions and Low or Nil Tax Jurisdictions” below for more information on this maximum rate of 20% and its reduction to 17% for purposes unrelated to the definition of Low or Nil Tax Jurisdictions; or

subject to income tax at a rate of up to 25% in any other case, including a case of gains recognized by a Non-Resident Holder that is not a 4,373 Holder, or is a resident in a Low or Nil Tax Jurisdiction. In these cases, a withholding income tax of 0.005% of the sale value will be applicable and can be later offset against any income tax due on the capital gain.

Any other gains recognized on a disposition of the common shares that is not carried out on a Brazilian stock exchange are subject to income tax at the rate of 15%, or 25% in the case of a Non-Resident Holder residing in a Low or Nil Tax Jurisdiction or where the local legislation does not allow access to information related to the shareholders composition of legal entities, to their ownership or to the identity of the ultimate beneficiary of the income attributed to non-residents. In the event that these gains are related to transactions conducted on the Brazilian non-organized over-the-counter market with intermediation, the withholding income tax of 0.005% shall also be applicable and can be offset against the eventual income tax due on the capital gain.

In the case of a redemption of common shares (or ADSs, should they be deemed as “assets located in Brazil”) or a capital reduction by a Brazilian corporation, such as our company, the positive difference between the amount received by the Non-Resident Holder and the acquisition cost of the common shares or ADSs redeemed is treated as capital gain derived from the sale or exchange of shares not carried out on a Brazilian stock exchange and is therefore subject to income tax at the rate of 15%, or 25%, as the case may be.

Any exercise of preemptive rights relating to the common shares or ADSs will not be subject to Brazilian income tax. Gains realized by a Non-Resident Holder on the disposition of preemptive rights relating to the common shares (or ADSs, should they be deemed as “assets located in Brazil”) will be subject to Brazilian income tax according to the same rules applicable to the sale or disposition of common shares.

As a Non-Resident Holder of ADSs, you may cancel your ADSs and exchange them for the underlying common shares and no income tax may be levied on such exchange, as long as the appropriate rules are complied with in connection with the registration of the investment with the Central Bank and as long as ADSs are not deemed to be “assets located in Brazil.”

The deposit of common shares by Non-Resident Holders in exchange for ADSs may be subject to Brazilian income tax if the acquisition cost of the common shares is lower than (a) the average price per common share on a Brazilian stock exchange on which the greatest number of such common shares were sold on the day of deposit; or (b) if no common shares were sold on that day, the average price on a Brazilian stock exchange on which the greatest number of common shares were sold in the 15 trading sessions immediately preceding such deposit. The difference between the acquisition cost and the average price of the common shares will be considered to be a capital gain subject to income tax at a rate of 15% or 25%, as the case may be. In some circumstances, there may be arguments to claim that this taxation is not applicable in the case of a Non-Resident Holder that is a 4,373 Holder and is not a resident in a tax favorable jurisdiction.

There can be no assurance that the current favorable treatment of 4,373 Holders will continue in the future.

Discussion on Tax Favorable Jurisdictions and Low or Nil Tax Jurisdictions

On June 24, 2008, Law No. 11,727 introduced the concept of “privileged tax regimes,” which went into effect on January 1, 2009. In principle, the best interpretation of Law No. 11,727/08 leads us to conclude that the concept of privileged tax regimes should be applied solely for purposes of transfer pricing rules in export and import transactions, for the definition of the applicable rate of withholding income tax on the remittance of specific items of income and for certain other Brazilian tax purposes that are not relevant to an investment by a Non-Resident Holder in our common shares or ADSs. Although we are of the opinion that the concept of privileged tax regimes should not affect the tax treatment of a Non-Resident Holder described above, we cannot assure you whether subsequent legislation or interpretations by the Brazilian tax authorities regarding the definition of “privileged tax regimes” will extend such concept to the tax treatment of a Non-Resident Holder described above.

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On November 28, 2014, the Brazilian Revenue Service issued Rule No. 488, which reduces the threshold income tax rate for determining a “tax favorable jurisdiction” from 20% to 17%. This rule also applies for purposes of the definition of “privileged tax regimes”. However, this rule is not relevant for the definition of Low or Nil Tax Jurisdictions. In any event, differing interpretations by the tax authorities in the application of this rule to the definition of Low or Nil Tax Jurisdictions may result in a lower number of jurisdictions being characterized as Low or Nil Tax Jurisdictions.

Tax on Foreign Exchange and Financial Transactions

Foreign Exchange Transactions. Brazilian law imposes a Tax on Foreign Exchange Transactions (“IOF/Exchange Tax”) on the conversion of reais into foreign currency and on the conversion of foreign currency into reais. As of October 7, 2014, any inflow of funds related to investments carried out on the Brazilian financial and capital markets by 4,373 Holders is subject to the IOF/Exchange Tax at a rate of zero percent. Foreign exchange transactions related to outflows of funds in connection with investments carried out on the Brazilian financial and capital markets are subject to the IOF/Exchange Tax at a rate of zero percent, which also applies to payments of dividends and interest on shareholders’ equity to 4,373 Holders with respect to investments on the Brazilian financial and capital markets.

Nevertheless, the rate applicable to most foreign exchange transactions is 0.38%. In any case, the Brazilian government may increase the rate at any time by up to 25% on the foreign exchange transaction amount. However, any increase in rates will only apply to future transactions.

The purchase of ADSs by a Non-Resident Holder outside Brazil generally does not require the execution of a foreign exchange agreement with the Brazilian Central Bank. If this is the case, the IOF/Exchange Tax is not due. The IOF/Exchange Tax is levied at a zero percent rate in connection with foreign exchange agreements, without any actual flows of funds, that are required for a cancellation of ADSs and exchange for shares traded on a Brazilian stock exchange.

Tax on Transactions Involving Bonds and Securities. Brazilian law imposes a Tax on Transactions Involving Bonds and Securities (“IOF/Bonds Tax”) due on transactions involving bonds and securities, including those carried out on a Brazilian stock exchange. The rate of IOF/Bonds Tax applicable to transactions involving common shares is currently zero.

As from December 24, 2013, the rate of the IOF/Bonds Tax applicable to the transfer of shares with the sole purpose of enabling the issuance of ADSs is zero percent. In case of transfer of shares with such characteristics carried out before December 24, 2013, a rate of 1.5% was applied on the product of (a) the number of shares which were transferred, multiplied by (b) the closing price for those shares on the date prior to the transfer or, if such closing price was not available on that date, the last available closing price for those shares, or, in case of a public offer, the price defined in the bookbuilding process. The person responsible for paying the IOF/Bonds Tax was (a) the financial institution that acts as custodian of the shares in Brazil, or (b) in case of public offers, the leading bookrunner.

The Brazilian government may increase the rate of the IOF/Bonds Tax at any time by up to 1.5% per day of the transaction amount, but only in respect of future transactions.

New Tax Regime Created by Law No. 12,973

Normative Instruction 1,397/2013 (“NI 1,397/2013”), published in the Official Gazette on September 17, 2013, as amended by Normative Instruction 1,492/2014, regulates the RTT, in force between January 1, 2008 and December 31, 2014, to adjust, for tax purposes, the net profits calculated under the IFRS rules in accordance with Law 11,638/2007. According to NI 1,397/2013, for purposes of calculating dividends based on the profits only of calendar-year 2014, taxpayers must use the accounting books prepared according to the criteria in place on December 31, 2007, and not according to IFRS. According to such provisions, depending on the tax basis used by the taxpayer, the dividends that are distributed based on 2014 profits might be considered taxable, subject to 15% withholding tax or 25% if the Non-Resident Holder is domiciled in a country or location that is defined as a “tax favorable jurisdiction.”

Provisional Measure 627/2013 was converted into Law No. 12,973, enacted on May 13, 2014 (“Law 12,973/14”), which revoked the RTT and introduced a new tax regime, in line with the current Brazilian accounting standards (IFRS). According to Law 12,973/14, companies electing to be taxed under the new regime on January 1, 2014 as opposed to January 1, 2015 will not be subject to taxation under NI 1,397/2013 on their dividend distributions based on 2014 profits. During 2014, we analyzed the potential impact of the new rules on our consolidated financial statements and internal controls structure. Based on our analysis, we concluded that the new rules would not have a material impact on how we account for taxes and we did not elect to adopt the tax regime set forth by Law 12,973/14 for the 2014 calendar year.

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Other Brazilian Taxes

There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of common shares or ADSs, except for gift and inheritance taxes that may be imposed by some Brazilian states. There are no Brazilian stamp, issue, registration, or similar taxes or duties payable by holders of common shares or ADSs.

U.S. Federal Income Tax Considerations

The following discussion is a summary of the material U.S. federal income tax consequences to U.S. Holders described herein of owning and disposing of common shares or ADSs, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to hold such securities. The discussion applies only to U.S. Holders (as defined below) that hold common shares or ADSs as capital assets for U.S. federal tax purposes and does not address all of the tax consequences applicable to all categories of investors, some of which may be subject to special rules, such as:

certain financial institutions;

dealers or traders in securities who use a mark-to-market method of tax accounting;

persons holding common shares or ADSs as part of a hedging transaction, straddle, wash sale, conversion transaction or integrated transaction or persons entering into a constructive sale with respect to the common shares or ADSs;

persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;

entities classified as partnerships for U.S. federal income tax purposes;

persons liable for the alternative minimum tax;

tax-exempt entities, including “individual retirement accounts” or “Roth IRAs;”

persons that own or are deemed to own ten percent or more of our voting stock;

persons who acquired our ADSs or common shares pursuant to the exercise of any employee stock option or otherwise as compensation; or

persons holding shares in connection with a trade or business conducted outside of the United States.

If an entity that is classified as a partnership for U.S. federal income tax purposes holds common shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and upon the activities of the partnership. Partnerships holding common shares or ADSs and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of holding and disposing of common shares or ADSs.

This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, any of which is subject to change, possibly with retroactive effect. It is also based in part on representations by the depositary and assumes that each obligation under the deposit agreement and any related agreement will be performed in accordance with its terms.

You are a “U.S. Holder” if you are a beneficial owner of our common shares or ADSs and if you are, for U.S. federal income tax purposes:

a citizen or individual resident of the United States;

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a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state thereof or the District of Columbia; or

an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

The summary of U.S. federal income tax consequences set out below is intended for general informational purposes only. You should consult your advisers with respect to the particular tax consequences to you of owning or disposing of common shares or ADSs, including the applicability and effect of state, local, non-U.S. and other tax laws and the possibility of changes in tax laws.

In general, if you own ADSs, you will be treated as the owner of the underlying shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, no gain or loss will be recognized if you exchange ADSs for the underlying shares represented by those ADSs.

The U.S. Treasury has expressed concerns that parties to whom American depositary shares are released before shares are delivered to the depositary (“pre-release”) or intermediaries in the chain of ownership between U.S. Holders and the issuer of the security underlying the American depositary shares may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. Holders of American depositary shares. Such actions would also be inconsistent with the claiming of the reduced rate of tax, described below, applicable to dividends received by certain non-corporate holders. Accordingly, the creditability of Brazilian taxes, and the availability of the reduced tax rate for dividends received by certain non-corporate holders, each described below, could be affected by actions taken by such parties or intermediaries.

Please consult your tax adviser concerning the U.S. federal, state, local and foreign tax consequences of purchasing, owning and disposing of common shares or ADSs in your particular circumstances.

This discussion assumes that the Company is not, and will not become, a passive foreign investment company, as described below.

Taxation of Distributions

Distributions paid on ADSs or common shares, other than certain pro rata distributions of ordinary shares, will generally be treated as dividends to the extent paid out of the Company’s current or accumulated earnings and profits as determined under U.S. federal income tax principles. Because the Company does not maintain calculations of its earnings and profits under U.S. federal income tax principles, it is expected that distributions will generally be reported to you as dividends.

Subject to applicable limitations, dividends paid by qualified foreign corporations to certain non-corporate U.S. Holders may be taxable at rates applicable to long-term capital gains. A foreign corporation is treated as a qualified foreign corporation with respect to dividends paid on stock that is readily tradable on a securities market in the United States, such as the NYSE where the ADSs are traded. You should consult your tax adviser to determine whether the favorable rate will apply to dividends you receive and whether you are subject to any special rules that limit your ability to be taxed at this favorable rate.

The amount of a dividend will include any amounts withheld by the Company in respect of Brazilian taxes on the distribution. The amount of the dividend will be treated as foreign-source dividend income to you and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Dividends will be included in your income on the date of your, or in the case of ADSs, the Depositary’s, receipt of the dividend. The amount of any dividend income paid in reais will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of such receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, you should not be required to recognize foreign currency gain or loss in respect of the dividend income. You may have foreign currency gain or loss if the amount of such dividend is converted into U.S. dollars after the date of such receipt. See also “—Brazilian Tax Considerations—Tax on Foreign Exchange and Financial Transactions.”

Subject to applicable limitations that may vary depending upon your circumstances, Brazilian income taxes withheld from dividends on common shares or ADSs will be creditable against your U.S. federal income tax liability. The rules governing foreign tax credits are complex, and you should consult your tax adviser regarding the availability of foreign tax credits in your particular circumstances. Instead of claiming a credit, you may, at your election, deduct such Brazilian taxes in computing your taxable income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits must apply to all taxes paid or accrued in the taxable year to foreign countries and possessions of the United States.

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Sale or Other Disposition of Common Shares or ADSs

For U.S. federal income tax purposes, gain or loss you realize on the sale or other disposition of common shares or ADSs will be capital gain or loss, and will be long-term capital gain or loss if you have held the common shares or ADSs for more than one year. The amount of your gain or loss will equal the difference between the amount realized on the disposition and your tax basis in the common shares or ADSs disposed of, in each case as determined in U.S. dollars. If a Brazilian tax is withheld on the sale or disposition of common shares or ADSs, your amount realized will include the gross amount of the proceeds of such sale or disposition before deduction of the Brazilian tax. See “—Brazilian Tax Considerations—Gains” for a description of when a disposition may be subject to taxation by Brazil. Such gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes. You should consult your tax adviser as to whether the Brazilian tax on gains would be creditable against your U.S. federal income tax on foreign-source income from other sources.

Other Brazilian Taxes

The Brazilian IOF/Bond Tax and the IOF/Exchange Tax imposed on the deposit of common shares in exchange for ADSs and the cancellation of ADSs in exchange for common shares (as discussed above under “—Brazilian Tax Considerations—Tax on Foreign Exchange and Financial Transactions”) will not be treated as creditable foreign taxes for U.S. federal income tax purposes. U.S. Holders should consult their tax advisers regarding the tax treatment of these taxes for U.S. federal income tax purposes.

Passive Foreign Investment Company Rules

The Company believes that it was not a “passive foreign investment company” (a “PFIC”) for U.S. federal income tax purposes for its 2014 taxable year. However, because PFIC status depends on the composition of a company’s income and assets and the market value of its assets from time to time, which may be determined in part by reference to the market value of the Company’s stock, there can be no assurance that the Company will not be a PFIC for any taxable year. If the Company were a PFIC for any taxable year during which a U.S. Holder held common shares or ADSs, gain recognized by a U.S. Holder on a sale or other disposition (including certain pledges) of the common shares or ADSs would be allocated ratably over the U.S. Holder’s holding period for the common shares or ADSs. The amounts allocated to the taxable year of the sale or other disposition and to any year before the Company became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the tax on the amount allocated to that taxable year. Further, to the extent that any distribution received by a U.S. Holder on its common shares or ADSs exceeds 125% of the average of the annual distributions on common shares or ADSs received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, that distribution would be subject to taxation in the same manner as gain, described immediately above. Certain elections may be available that would result in alternative treatments (such as a mark-to-market treatment) of the common shares or ADSs. If we are a PFIC for any taxable year during which a U.S. Holder owned our shares, the U.S. Holder will generally be required to file IRS Form 8621 with their annual U.S. federal income tax returns, subject to certain exceptions. You should consult your tax adviser to determine whether any of these elections would be available and, if so, what the consequences of the alternative treatments would be in your particular circumstances.

Information Reporting and Backup Withholding

Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting and may be subject to backup withholding unless (1) you are an exempt recipient or (2) in the case of backup withholding, you provide a correct taxpayer identification number and certify that you are not subject to backup withholding.

The amount of any backup withholding from a payment to you will be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund, provided that the required information is timely furnished to the Internal Revenue Service.

Certain U.S. Holders who are individuals may be required to report information relating to their ownership of securities of a non-U.S. person, subject to certain exceptions including an exception for securities held in certain accounts maintained by U.S. financial institutions, such as our ADSs. You should consult your tax adviser regarding the effect, if any, of these rules on your ownership and disposition of common shares or ADSs.

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U.S. HOLDERS OF OUR COMMON SHARES OR ADSs SHOULD CONSULT THEIR OWN TAX ADVISERS AS TO THE BRAZILIAN, U.S. FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF OUR COMMON SHARES OR ADSs BASED UPON THEIR PARTICULAR CIRCUMSTANCES.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

Statements contained in this annual report as to the contents of any contract or other document referred to are not necessarily complete, and each of these statements is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit hereto. A copy of the complete annual report including the exhibits and schedules filed herewith may be inspected without charge at the public reference facilities maintained by the SEC at Room 1024, 100 F Street, N.E., Washington, D.C. 20549. Copies of such materials may be obtained by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. Such reports and other information may also be inspected at the offices of the NYSE, 11 Wall Street, New York, New York 10005, on which our ADSs are listed. In addition the SEC maintains a website that contains information filed electronically with the SEC, which can be accessed over the Internet at http://www.sec.gov.

We are subject to the information and periodic reporting requirements of the Securities Exchange Act and, in accordance therewith, file periodic reports and other information with the SEC. However, as a foreign private issuer, we are exempt from the rules under the Securities Exchange Act relating to the furnishing and content of proxy statements and relating to short-swing profits reporting and liability.

We furnish to Citibank, N.A., as depositary, copies of all reports we are required to file with the SEC under the Securities Exchange Act, including our annual reports in English, containing a brief description of our operations and our audited annual consolidated financial statements which are prepared in accordance with Brazilian GAAP and include a reconciliation to U.S. GAAP. In addition, we are required under the deposit agreement to furnish the depositary with copies of English translations to the extent required under the rules of the SEC of all notices of meetings of shareholders and other reports and communications that are generally made available to shareholders. Under certain circumstances, the depositary will arrange for the mailing, at our expense, of these notices, other reports and communications to all ADS holders.

We also file financial statements and other periodic reports with the CVM, which are available to the public from CVM’s website at http://www.cvm.gov.br.

I. Subsidiary Information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks arising from the normal course of our business. These market risks mainly involve the possibility that changes in interest rates may impact the value of our financial liabilities. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Brazil.”

Interest rates

Our results of operations and profitability are affected by changes in interest rates due to the impact that these changes have on our interest expenses relating to our variable interest rate debt instruments and on our purchase and sale contracts and on our interest income generated from our financial investments.

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The table below provides information about our significant interest rate-sensitive instruments (fixed and variable) as of December 31, 2014:

	As of December 31, 2014
	Expected Maturity Date
	Total		2015		2016		2017		2018 and later		Principal Index(1)		Fair Value
	(in millions of reais)
Liabilities:
Loans, financing and debentures:
Debentures		1,189.1		504.4		375.8		244.7		64.2	CDI/TR			1,193
Average interest rate		248.0		131.0		75.0		33.0		9.0		—		—
Loans and financing (working capital)		268.9		151.4		97.3		20.2		—	CDI			273
Average interest rate		72.0		29.0		18.0		15.0		10.0		—		—
Loans and financing — SFH		1,128.6		398.7		408.9		232.4		88.6	TR			1,124
Average interest rate		193.0		108.0		58.0		22.0		5.0		—		—
Total loans, financing and debentures		2,586.6		1,054.5		882.0		497.3		152.8	TR/CDI			2,590
Obligation to venture partner		11.0		6		5		—		1	CDI			12
Real estate development obligations(2)		1,639.2		1,247.1		391.9		0.2		—		—		1,865.8
Obligations for purchase of land		570.5		469.3		81.3		19.9		—		—		570.5
Total		4,808.3		2,776.9		1,360.2		517.4		153.8		—		4,811.7
Assets:
Cash and cash equivalent		109.9		109.9		—		—		—		—		—
Marketable securities (current and non-current)		1,047.3		1,047.3		—		—		—		—		—
Receivables from clients		1,825.3		1,440.5		187.7		112.2		84.9		—		—
Receivables from clients (2)		1,064.0		—		519.1		310.2		234.7		—		—
Total client receivables		2,889.3		1,440.5		706.8		422.4		319.6		—		—
Total		4,046.5		2,597.7		706.8		422.2		319.6		—		—

(1)	See notes 12 and 13 to our consolidated financial statements for information about the interest rates on our loans, financing and debentures. As of December 31, 2014, the annualized index was 11.51% for CDI, 0.52% for TR, 6.95% for INCC and 5.5% for IGPM.

(2)	Includes commitments and receivables arising from units sold after January 1, 2004 for which balances have not been recorded in our balance sheet—CFC Resolution No. 963.

We borrow funds at different rates and linked to different indices in order to try to match the financing that we provide to some of our clients. The mismatch between rates and terms on our funds borrowed and the financing we provide may adversely affect our cash flow. We constantly monitor and evaluate the impact of indexation on our assets and liabilities. If we anticipate the possibility of an interest rate mismatch between our assets and obligations, we may use derivative financial instruments in order to hedge against the risk that arises from interest rate variations.

Foreign Exchange Rate

During 2014, we had no derivative financial instruments with the objective of hedging against fluctuations in foreign exchange rates. As of December 31, 2014, we had no debt in foreign currency.

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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

D. American Depositary Shares

Depositary Fees

We and the holders and beneficial owners of our ADSs and the person depositing our common shares or surrendering ADSs for cancellation are responsible for the following fees of the depositary:

Service	Rate	Paid By
Issuance of ADSs upon deposit of Shares (excluding issuances as a result of distributions described in paragraph (4) below).	Up to US$5.00 per 100 ADSs (or fraction thereof) issued.	Person depositing our common shares or person receiving ADSs.
Delivery of common shares deposited under our deposit agreement against surrender of ADSs.	Up to US$5.00 per 100 ADSs (or fraction thereof) issued.	Person surrendering ADSs for purpose of withdrawal of common shares deposited under our deposit agreement or person to whom common shares deposited under our deposit agreement are delivered.
Distribution of cash dividends or other cash distributions (i.e., sale of rights and other entitlements).	Up to US$2.00 per 100 ADSs (or fraction thereof) held.	Person to whom distribution is made.
Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, or (ii) exercise of rights to purchase additional ADSs.	Up to US$2.00 per 100 ADSs (or fraction thereof) held.	Person to whom distribution is made.
Distribution of securities other than ADSs or rights to purchase additional ADSs (i.e., spin-off shares).	Up to US$2.00 per 100 ADSs (or fraction thereof) held.	Person to whom distribution is made.
Depositary services	Up to US$4.00 per 100 ADSs (or fraction thereof) held.	Person holding ADSs on applicable record date(s) established by the depositary.
Transfer of ADRs	US$1.50 per certificate presented for transfer.	Person presenting certificate for transfer.

The depositary may deduct applicable depositary fees from the funds being distributed in the case of cash distributions. For distributions other than cash, the depositary will invoice the amount of the applicable depositary fees to the applicable holders.

Additional Charges

Holders and beneficial owners of our ADSs and person depositing our common shares for deposit and person surrendering ADSs for cancellation and withdrawal of our common shares will be required to pay the following charges:

taxes (including applicable interest and penalties) and other governmental charges;

such registration fees as may from time to time be in effect for the registration of our common shares or other common shares deposited under our deposit agreement on the share register and applicable to transfers of our common shares or other common shares deposited under our deposit agreement to or from the name of the custodian, the depositary or any nominees upon the making of deposits and withdrawals, respectively;

such cable, telex and facsimile transmission and delivery expenses as are expressly provided in the deposit agreement to be at the expense of the person depositing or withdrawing our common shares or holders and beneficial owners of ADSs;

the expenses and charges incurred by the depositary in the conversion of foreign currency;

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such fees and expenses as are incurred by the depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to our common shares, common shares deposited under our deposit agreement, ADSs and ADRs; and

the fees and expenses incurred by the depositary, the custodian or any nominee in connection with the servicing or delivery of common shares deposited under our deposit agreement.

Direct and Indirect Payments

Citibank N.A., located at 388 Greenwich Ave.- New York - NY 10013, as depositary, has agreed to reimburse certain of our reasonable expenses related to our ADR program and incurred by us in connection with the program. As of December 31, 2014, we received from the depositary of our ADSs US$2.0 million, which was used for general corporate purposes such as the payment of costs and expenses associated with (1) the preparation and distribution of proxy materials, (2) the preparation and distribution of marketing materials and (3) consulting and other services related to investor relations.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

The Registrant maintains controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Based on an evaluation of the Registrant’s disclosure controls and procedures as of the end of the period covered by this report conducted by the Registrant’s management, with the participation of the Chief Executive and Chief Financial Officers, after evaluating together with other members of management the effectiveness of our disclosure controls and procedures (as defined in the U.S. Securities Exchange Act of 1934 under Rule 13a-15(e)) have concluded that our disclosure controls and procedures are effective, to ensure that the Registrant is able to collect, process and disclose the information it is required to disclose in the reports it files with the SEC within the required time periods.

(b) Management’s Annual Report on Internal Control over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934, as a process designed by, or under the supervision of, the Company’s Chief Executive Officer and Chief Financial Officer and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting, and the preparation of financial statements for external purposes in conformity with Brazilian GAAP, including the reconciliation to U.S. GAAP in accordance with Item 18 of Form 20-F .

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Registrant‘s internal control over financial reporting as of December 31, 2014. In making this assessment, the Company’s management used the criteria set forth by the Internal Control-Integrated Framework 1992 issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management believes that, as of December 31, 2014, the Company’s internal control over financial reporting is effective based on those criteria.

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In 2013, the COSO issued an updated version of the Internal Control – Integrated Framework (the “2013 Framework”). We are currently assessing our transition into the 2013 Framework. We expect to complete our transition into the 2013 Framework in 2015.

The effectiveness of internal control over financial reporting as of December 31, 2014 has been audited by KPMG Auditores Independentes an independent registered public accounting firm, as stated in its report which is included under Item 18 in this annual report on Form 20-F on pages F-2 and F-3.

(d) Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16. RESERVED

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

For the purposes of the Sarbanes-Oxley Act of 2002, our directors established an Audit Committee that convenes as often as it determines is appropriate to carry out its responsibilities, but at least quarterly. This committee has responsibility for planning and reviewing our annual and quarterly reports and accounts with the involvement of our auditors in that process, focusing particularly on compliance with legal requirements and accounting standards, and ensuring that an effective system of internal financial controls is maintained. The ultimate responsibility for reviewing and approving our annual and quarterly reports and accounts remains with our directors.

The Audit Committee convened nine times in 2014. The Audit Committee currently comprises Jose Ecio Pereira da Costa Junior, Maurício Marcellini Pereira and Francisco Vidal Luna, each of whom is a director of our company. Our board of directors has determined that Jose Ecio Pereira da Costa Junior, Maurício Marcellini Pereira and Francisco Vidal Luna, are each independent as set forth in the NYSE Listed Companies Manual as well as being independent for the purpose of Rule 10A-3 of the Securities Exchange Act. Our board of directors has determined that Jose Ecio Pereira da Costa Junior is an audit committee financial expert within the meaning of the regulations promulgated by the Securities and Exchange Commission.

ITEM 16B. CODE OF BUSINESS CONDUCT AND ETHICS

On July 10, 2007, we adopted a Code of Business Conduct and Ethics (The Code) that applies to our chief executive officer, chief financial officer, principal accounting officer and persons performing similar functions, as well as to our directors, other officers and employees. The objective of this code is (1) to reduce the subjectivity of personal interpretations of ethical principles; (2) to be a formal and institutional benchmark for the professional conduct of the employees, including the ethical handling of actual or apparent conflicts of interests, becoming a standard for the internal and external relationship of the Company with its shareholders, clients, employees, partners, suppliers, service providers, labor unions, competitors, society, government and the communities in which we operate; and (3) to ensure that the daily concerns with efficiency, competitiveness and profitability do not override ethical behavior.

The Code is regularly reviewed and updated, in order to address international and local requirements regarding ethics on business, conflict of interests, disclosure of information and anti-corruption procedures.

The Code was reviewed in June 2014. The objective of the review was to (1) update the message of our CEO to our employees regarding our vision, mission and organizational culture, encouraging ethical conduct and a commitment to compliance with the law, (2) reinforce the Company’s message of ethical principles and practices to our employees and to those conducting business on our behalf in order to protect our integrity.

The Code can be obtained from our website (www.gafisa.com.br) or free of charge by requesting a copy from our Investor Relations Department at the following address: Av. Nações Unidas No. 8,501, 19th floor, 05425-070 – São Paulo, SP – Brazil, telephone 55-11-3025-9242, fax 55-11-3025-9348 and e-mail ri@gafisa.com.br.

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In July 2007, we established a “whistleblower channel” in order to receive “complaints,” by any person (provided such complaint is first reported to the Ethics Committee or Audit Committee), regarding any “unethical conduct” and “accounting, internal accounting controls, or auditing matters” and equally confidential and anonymous submissions of “concerns” of the same type by our employees and affiliates. The “whistleblower channel” can be accessed through our intranet or website or a letter may be forwarded to our headquarters under the attention of our Ethics Committee and/or Audit Committee. Since its establishment, 583 issues were reported to our “whistleblower channel,” all of them related to personal conduct and, therefore, without any financial impact on our results of operations.

In January 2014, we established a compliance and ethics program in order to help prevent, detect, rectify and report potential misconduct, including violations of the Foreign Corrupt Practices Act and Brazilian anti-corruption legislation (pursuant to Brazilian Law No. 12,846). This program comprises extensive risk assessment of our operations, ongoing training and advice to employees, incentives and disciplinary measures, and third party due dilligence.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The relationship with our independent auditors in respect to the contracting of services unrelated to the external audit is based on principles that preserve the independence of the auditor. Our board of directors approves our financial statements, the performance by our auditors of audit and permissible non-audit services, and associated fees, supported by our Audit Committee.

The following table describes the total amount billed to us by KPMG Auditores Independentes (“KPMG”) for services performed in 2014 and 2013, respectively, and the remuneration for these services in each year.

	2014		2013
	(in thousands of reais)
Audit fees (1)		3,914		2,157
Audit related fees (2)		—		—
Tax fees (3)		—		—
Total		3,914		2,157

(1)

“Audit fees” are the aggregate fees billed by KPMG for the audit of our consolidated and annual financial statements including the audit of internal control over financial reporting, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements.

(2)	There were no “audit related fees” billed by KPMG during 2014 or 2013.

(3)	There were no “Tax fees” billed by KPMG during 2014 or 2013.

Audit Committee Pre-Approval Policies and Procedures

Our board of directors has established pre-approval policies and procedures for the engagement of registered public accounting firm for audit and non-audit services. Under such pre-approval policies and procedures, our board of directors reviews the scope of the services to be provided by each registered public accounting firm to be engaged in order to ensure that there are no independence issues and the services are not prohibited services as defined by Sarbanes-Oxley Act of 2002.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

None.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

None.

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G. CORPORATE GOVERNANCE

See “Item 6. Directors, Senior Management and Employees—C. Board Practices.”

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

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PART III

ITEM 17. FINANCIAL STATEMENTS

We have responded to Item 18, in lieu of reporting to this Item.

ITEM 18. FINANCIAL STATEMENTS

See our audited consolidated financial statements beginning on page F-1. See also the consolidated financial statements of Alphaville Urbanismo S.A. as of and for the year ended December 31, 2014 and as of and for the twenty-two-day period ended December 31, 2013 beginning on page F-119.

ITEM 19. EXHIBITS

We are filing the following documents as part of this Annual Report Form 20-F:

1.1. Bylaws of Gafisa S.A., as amended (English), which is incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2010, filed with the Securities and Exchange Commission on July 5, 2012.

2.1. Deposit Agreement dated March 21, 2007, among Gafisa S.A., Citibank, N.A., as depositary, and the Holders and Beneficial Owners from time to time of American Depositary Shares issued thereunder, which is incorporated by reference to our registration statement on Form F-6 filed with the Securities and Exchange Commission on February 22, 2007.

4.1. Merger of shares agreement dated November 6, 2009 between Gafisa S.A. and Construtora Tenda S.A., which is incorporated by reference to our registration statement on Form F-4 filed with the Securities and Exchange Commission on November 13, 2009.

8.1. List of Subsidiaries*

11.1. Code of Business Conduct and Ethics (English), which is incorporated by reference to our annual report on Form 20-F filed with the Securities and Exchange Commission on June 18, 2008.

12.1. Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer*

12.2. Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Financial Officer*

13.1. Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer*

13.2. Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer*

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.

GAFISA S.A.
By:	/s/ Sandro Rogério da Silva Gamba
	Name:	Sandro Rogério da Silva Gamba
	Title:	Chief Executive Officer

By:	/s/ Andre Bergstein
	Name:	Andre Bergstein
	Title:	Chief Financial Officer

Date: April 27, 2015

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Consolidated Financial Statements

Gafisa S.A.

December 31, 2014

and Reports of Independent Registered Public Accounting Firm

Table of Contents

Gafisa S.A.

Consolidated Financial Statements

December 31, 2014

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Management’s Annual Report on Internal Controls over Financial Reporting	F-1
Report of Independent Registered Public Accounting Firm	F-2
Report of Independent Registered Public Accounting Firm	F-4
Consolidated balance sheet	F-5
Consolidated statement of operations	F-7
Consolidated statement of comprehensive income (loss)	F-8
Consolidated statement of changes in equity	F-9
Consolidated statement of cash flows	F-10
Consolidated statement of value added	F-11
Notes to the consolidated financial statements	F-12

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Management’s Annual Report on Internal Controls over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal controls over financial reporting as defined in Rules 13a – 15(f) and 15d – 15(f) under the Securities and Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in Brazil (“Brazilian GAAP”), along with a reconciliation of net income and equity from Brazilian GAAP to accounting principles generally accepted in the United States of America (“US GAAP”). Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with Brazilian GAAP, along with a reconciliation of net income and equity from Brazilian GAAP to US GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the our assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of internal control to future periods are subject to the risk that controls may become inadequate because of changes in conditions, and that the degree of compliance with the policies or procedures may deteriorate.

Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control – Integrated Framework (1992 Framework) (1)”.

Based on this evaluation, management has concluded that the Company's internal control over financial reporting was effective as of December 31, 2014.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2014, has been audited by KPMG Auditores Independentes, an independent registered public accounting firm, as stated in their report which appears herein.

(1)

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) recently released its updated Internal Control – Integrated Framework (2013 Framework). The transition to the 2013 Framework have been mapped by Company, matching its internal control over financial reporting as documented under the 1992 Framework to the 17 codified principles. However, the transition to the 2013 Framework will require more extensive effort, analysis, and documentation. The Company used the criteria set forth by the Framework 1992 in 2014. Transition plan is expected to be completed in 2015.

São Paulo, Brazil

April 27, 2015

By:	/s/ Sandro Rogério da Silva Gamba
	Name:	Sandro Rogério da Silva Gamba
	Title:	Chief Executive Officer

By:	/s/ Andre Bergstein
	Name:	Andre Bergstein
	Title:	Chief Financial Officer

F-1

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Gafisa S.A.

We have audited the accompanying consolidated balance sheets of Gafisa S.A. and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, changes in equity, cash flows and value added for the years then ended. We also have audited Gafisa S.A.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting under item 15 of the Company’s Form 20-F. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Gafisa S.A. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the years then ended, in conformity with accounting practices adopted in Brazil applicable to real estate development entities. Also in our opinion, the Company

F-2

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maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Accounting practices adopted in Brazil applicable to real estate development entities vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 34 to the consolidated financial statements.

São Paulo - Brazil

April 27, 2015

/s/ KPMG Auditores Independentes

F-3

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Gafisa S.A.

We have audited the accompanying consolidated statements of operations, comprehensive income (loss), changes in equity, cash flows and value added of Gafisa S.A. for the year ended December 31, 2012. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, Gafisa S.A.’s consolidated results of operations, cash flows and value added for the year ended December 31, 2012, in conformity with accounting practices adopted in Brazil, which differ in certain respects from accounting principles generally accepted in the United States of America (see Note 33 to the consolidated financial statements).

São Paulo, Brazil

April 28, 2014

ERNST & YOUNG

Auditores Independentes S.S.

CRC- 2SP015199/O-6

/s/ Marcos Alexandre S. Pupo

Accountant CRC1SP221749/O-0

F-4

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Gafisa S.A.

Consolidated balance sheets

December 31, 2014 and 2013

(In thousands of Brazilian Reais)


	Notes		2014		2013
Assets
Current assets
Cash and cash equivalents		4.1		109,895		215,194
Short-term investments		4.2		1,047,359		1,808,969
Trade accounts receivable, net		5		1,440,498		1,909,877
Properties for sale		6		1,695,817		1,442,019
Receivables from related parties		22.1		142,732		82,547
Assets held for sale		8		110,563		114,847
Financial instruments		21.i.b		-		183
Prepaid expenses		-		15,442		35,188
Other accounts receivable		7		128,905		71,083
Total current assets				4,691,211		5,679,907

Non-current assets
Trade accounts receivable, net		5		384,821		313,791
Properties for sale		6		816,525		652,395
Receivables from related parties		22.1		107,067		136,508
Other accounts receivable		7		112,241		137,628
				1,420,654		1,240,322

Investments in associates		9		968,393		1,120,076
Property and equipment, net		10		48,691		36,385
Intangible assets, net		11		76,903		106,340
				1,093,987		1,262,801

Total non-current assets				2,514,641		2,503,123




Total assets				7,205,852		8,183,030

See accompanying notes to consolidated financial statements.

F-5

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Gafisa S.A.

Consolidated balance sheets

December 31, 2014 and 2013

(In thousands of Brazilian Reais)


	Notes		2014			2013
Liabilities
Current liabilities
Loans and financing		12		550,058			590,386
Debentures		13		504,387			563,832
Payable for purchase of properties and advances from customers		18		490,605			408,374
Payables for goods and service suppliers		-		95,131			79,342
Income tax and social contribution		-		-			90,309
Other taxes payable		-		114,424			126,316
Salaries, payroll charges and profit sharing		-		65,039			96,187
Dividends declared		-		-			150,067
Provision for legal claims		17		103,034			72,119
Obligations assumed on assignment of receivables		14		24,135			82,787
Payables to venture partners		15		6,317			112,886
Payables to related parties		22.1		156,503			133,678
Financial instruments		21.i.b		3,340			-
Other payables		16		157,896			176,740
Total current liabilities				2,270,869			2,683,023

Non-current
Loans and financing		12		847,367			1,047,924
Debentures		13		684,712			857,386
Payables for purchase of properties and advances from customers		18		101,137			79,975
Deferred income tax and social contribution		20		34,740			56,652
Provision for legal claims		17		136,540			125,809
Obligations assumed on assignment of receivables		14		31,994			37,110
Payables to venture partners		15		4,713			10,794
Financial instruments		21.i.b		4,833			-
Other payables		16		30,544			69,874
Total non-current liabilities				1,876,580			2,285,524

Equity
Capital		19.1		2,740,662			2,740,662
Treasury shares		19.1		(79,059	)		(73,070	)
Capital reserves and options granted				69,897			54,383
Income reserve		19.2		323,845			468,749
				3,055,345			3,190,724
Non-controlling interest				3,058			23,759
Total equity				3,058,403			3,214,483
Total liabilities and equity				7,205,852			8,183,030

See accompanying notes to consolidated financial statements.

F-6

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Gafisa S.A.

Consolidated statements of operations

Years ended December 31, 2014, 2013 and 2012

(In thousands of Brazilian Reais, except as otherwise stated)


	Notes		2014			2013			2012
Continuing operations
Net operating revenue		23		2,150,998			2,481,211			2,805,086

Operating costs
Real estate development and sales of properties		24		(1,609,246	)		(1,863,766	)		(2,276,804	)

Gross profit				541,752			617,445			528,282

Operating (expenses) income
Selling expenses		24		(148,041	)		(215,649	)		(231,746	)
General and administrative expenses		24		(211,906	)		(234,023	)		(252,208	)
Income from equity method investments		9		19,263			7,370			55,603
Remeasurement of investment in associate		9		-			375,853			-
Depreciation and amortization		10 and 11		(79,251	)		(63,014	)		(80,238	)
Provision for legal claims		24		(113,064	)		(78,402	)		(94,932	)
Other income (expenses), net		24		(28,285	)		(7,709	)		(6,083	)

Income (loss) before financial income and expenses and income tax and social contribution				(19,532	)		401,871			(81,322	)

Financial expenses		25		(165,712	)		(243,586	)		(236,082	)
Financial income		25		156,794			81,083			55,819

Income (loss) before income tax and social contribution				(28,450	)		239,368			(261,585	)

Current income tax and social contribution				(33,330	)		(23,690	)		(17,403	)
Deferred income tax and social contribution				18,055			20,878			(2,819	)

Total Income tax and social contribution		20.i		(15,275	)		(2,812	)		(20,222	)

Net income (loss) from continuing operations				(43,725	)		236,556			(281,807	)

Net income from discontinued operations				-			631,122			204,128

Net income (loss) for the year				(43,725	)		867,678			(77,679	)

(-) Attributable to:
Non-controlling interests				(1,176	)		235			49,364
Owners of Gafisa				(42,549	)		867,443			(127,043	)

Weighted average number of shares (in thousands)		28		401,905			426,300			432,246

Basic earnings (loss) per thousand weighted average number of shares - In Reais		28		(0.1059	)		2.0348			(0.2939	)
From continuing operations				(0.1059	)		0.7358			(0.6717	)
From discontinued operations				-			1.2990			0.3778

Diluted earnings (loss) per thousand weighted average number of shares - In Reais		28		(0.1059	)		2.0226			(0.2939	)
From continuing operations				(0.1059	)		0.7315			(0.6717	)
From discontinued operations							1.2911			0.3778

See accompanying notes to consolidated financial statements.

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Table of Contents

Gafisa S.A.

Consolidated statements of comprehensive income (loss)

Years ended December 31, 2014, 2013 and 2012

(In thousands of Brazilian Reais)


	2014			2013		2012

Net income (loss) for the year		(43,725	)		867,678		(77,679	)

Total comprehensive income (loss), net of taxes		(43,725	)		867,678		(77,679	)

Attributable to:
Owners of Gafisa		(42,549	)		867,443		(127,043	)
Non-controlling interests		(1,176	)		235		49,364

See accompanying notes to consolidated financial statements.

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Table of Contents

Gafisa S.A.

Consolidated statements of changes in equity

Years ended December 31, 2014, 2013 and 2012

(In thousands of Brazilian Reais)

			Attributable to owners
										Income reserves
	Notes		Capital		Treasury shares			Capital reserves and options granted		Legal reserve		Reserve for future investments			Accumulated losses			Total Company			Non-controlling interests			Total Consolidated

Balances at January 1, 2012				2,734,157		(1,731	)		18,066		-		-			(108,539	)		2,641,953			101,623			2,743,576

Exercised stock options		19.1		1,637		-			-		-		-			-			1,637			12,436			14,073
Stock option compensation		19.3		-		-			18,898		-		-			-			18,898			(1,521	)		17,377
Declared dividends		-		-		-			-		-		-			-			-			(11,518	)		(11,518	)
Net income (loss) for the year		-		-		-			-		-		-			(127,043	)		(127,043	)		49,364			(77,679	)

Balances at December 31, 2012				2,735,794		(1,731	)		36,964		-		-			(235,582	)		2,535,445			150,384			2,685,829

Exercised stock options		19.1		4,868		-			-		-		-			-			4,868			3,065			7,933
Stock option compensation		19.3		-		-			17,419		-		-			-			17,419			2,687			20,106
Repurchase of treasury shares		19.1				(71,339	)		-		-		-			-			(71,339	)		(3,556	)		(74,895	)
Acquisition of non-controlling interests																						(120,051	)		(120,051	)
Net income for the year		-		-		-			-		-		-			867,443			867,443			235			867,678
Allocation:		19.2
Legal reserve				-		-			-		31,593		-			(31,593	)		-			-			-
Interest on equity				-		-			-		-		-			(130,192	)		(130,192	)		-			(130,192	)
Declared dividends				-		-			-		-		-			(32,920	)		(32,920	)		(9,005	)		(41,925	)
Reserve for future investments				-		-			-		-		437,156			(437,156	)		-			-			-

Balances at December 31, 2013				2,740,662		(73,070	)		54,383		31,593		437,156			-			3,190,724			23,759			3,214,483

Stock option compensation		19.3		-		-			15,514		-		-			-			15,514			-			15,514
Repurchase of treasury shares		19.1		-		(115,265	)		-		-		-			-			(115,265	)		-			(115,265	)
Selling of treasury shares		19.1		-		17,583			-		-		(10,662	)		-			6,921			-			6,921
Cancellation of treasury shares				-		91,693			-		-		(91,693	)		-			-			-			-
Acquisition of non-controlling interests				-		-			-		-		-			-			-			(19,525	)		(19,525	)
Net income for the year		-		-		-			-		-		-			(42,549	)		(42,549	)		(1,176	)		(43,725	)
Absorption of current year loss by income reserves		19.2		-		-			-		-		(42,549	)		42,549			-			-			-

Balances at December 31, 2014				2,740,662		(79,059	)		69,897		31,593		292,252			-			3,055,345			3,058			3,058,403

See accompanying notes to consolidated financial statements.

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Table of Contents

Gafisa S.A.

Consolidated statements of cash flows

Years ended December 31, 2014, 2013 and 2012

(In thousands of Brazilian Reais)


	2014			2013			2012
Operating activities
Income (loss) before income tax and social contribution from continuing and discontinued operations		(28,450	)		239,368			(57,457	)
Expenses/(income) not affecting cash and cash equivalents:
Depreciation and amortization		61,647			63,014			80,238
Stock options expense		34,006			17,419			18,899
Unrealized interest and charges, net		69,355			28,476			112,071
Warranty provision		(839	)		(20,928	)		20,633
Provision for legal claims and commitments		113,064			78,402			94,279
Provision for profit sharing		35,006			59,651			47,709
Allowance for doubtful accounts and cancelled contracts		(14,616	)		(27,102	)		(39,755	)
Provision for realization of non-financial assets:
Properties for sale		(6,089	)		2,829			(37,620	)
Intangible assets		17,604			962			11,690
Income from equity method investments		(19,263	)		(7,370	)		(55,603	)
Remeasurement of investment in associate		-			(375,853	)		-
Financial instruments		7,492			5,103			(6,150	)
Provision for penalties due to delay in construction works		(6,867	)		(21,719	)		(13,946	)
Write-off of property and equipment, net		8,808			23,708			8,716
Write-off of investments		5,748			-			-

Decrease/(increase) in operating assets
Trade accounts receivable		391,625			260,557			444,797
Properties for sale and land available for sale		(462,417	)		(189,968	)		340,638
Other accounts receivable		(11,574	)		24,659			205,416
Prepaid expenses		19,743			26,497			5,940

Increase/(decrease) in operating liabilities
Payables for purchase of properties and advances from customers		103,392			(19,812	)		(134,150	)
Taxes and contributions		(26,088	)		(31,158	)		(29,039	)
Payables for goods and service suppliers		15,789			(8,314	)		38,568
Salaries, payroll charges and profit sharing		(66,158	)		(47,517	)		(16,627	)
Other payables		(51,853	)		198,585			(196,505	)
Transactions with related parties		(37,732	)		37,772			(162,341	)
Income tax and social contribution paid		(109,442	)		(19,609	)		(36,113	)

Net cash generated by operating activities		41,891			297,652			644,288

Investing activities
Acquisition of 20% in AUSA		-			(366,662	)		-
Sale of controlling interests in AUSA		-			1,254,521			-
Cash from discontinued operation		-			(155,755	)		-
Purchase of property and equipment and intangible assets		(88,532	)		(80,993	)		(97,033	)
Purchase of short-term investments		(4,855,621	)		(4,674,281	)		(4,141,512	)
Redemption of short-term investments		5,617,231			3,681,342			3,950,516
Investments		29,026			(102,639	)		(33,883	)
Dividends received		49,849			342,176			33,952

Net cash generated by (used in) investing activities		751,953			(102,291	)		(287,960	)

Financing activities
Proceeds from stock options exercised		-			4,868			1,637
Redeemable shares of Credit Rights Investment Fund (FIDC)		-			(5,089	)		6,642
Increase in loans, financing and debentures		822,123			1,783,183			1,110,844
Payment of loans, financing and debentures – principal		(1,048,057	)		(1,875,270	)		(772,991	)
Payment of loans, financing and debentures – interest		(315,798	)		(259,285	)		(243,805	)
Assignment of receivables		12,434			-			229,051
Payables to venture partners		(112,650	)		(112,743	)		(149,480	)
Dividends and interest on equity paid		(150,042	)		-			-
Loan transactions with related parties		1,193			(32,449	)		(19,818	)
Amount received in selling of treasury shares		6,919			-			-
Repurchase of treasury shares		(115,265	)		(71,339	)		-

Net cash generated by (used in) financing activities		(899,143	)		(568,124	)		162,080

Net increase/(decrease) in cash and cash equivalents		(105,299	)		(372,763	)		518,408

Cash and cash equivalents
At the beginning of the year		215,194			587,956			69,548
At the end of the year		109,895			215,193			587,956

Net increase (decrease) in cash and cash equivalents		(105,299	)		(372,763	)		518,408

See accompanying notes to consolidated financial statements.

F-10

Table of Contents

Gafisa S.A.

Consolidated statements of value added

Years ended December 31, 2014, 2013 and 2012

(In thousands of Brazilian Reais)



	2014			2013			2012


Revenues		2,325,677			3,330,981			3,244,606
Real estate development and sales		2,256,198			2,618,737			2,784,983
Reversal (recognition) of allowance for doubtful accounts and cancelled contracts		69,479			81,122			255,495
Profit from discontinued operations		-			631,122			204,128
Inputs acquired from third parties (including taxes on purchases)		(1,667,210	)		(1,904,141	)		(2,371,262	)
Operating costs - Real estate development and sales		(1,437,656	)		(1,706,554	)		(2,119,709	)
Materials, energy, outsourced labor and other		(229,554	)		(197,587	)		(251,553	)



Gross value added		658,467			1,426,840			873,344

Depreciation and amortization		(79,251	)		(63,014	)		(80,238	)

Net value added produced (distributed) by the Company		579,216			1,363,826			793,106

Value added received on transfer		176,057			464,306			111,422
Profit of investment stated at fair value		-			375,873			-
Income from equity method investments		19,263			7,350			55,603
Financial income		156,794			81,083			55,819

Total value added to be distributed		755,273			1,828,132			904,528

Value added distribution		755,273			1,828,132			904,528
Personnel and payroll charges		216,410			285,276			306,244
Taxes and contributions		229,919			264,795			321,309
Interest and rents		351,493			410,618			404,018
Interest on equity		-			130,192			-
Dividends		-			32,920			-
Retained earnings (absorbed losses) attributable to non-controlling interests		1,176			(235	)		(49,364	)
Retained earnings (absorbed losses)		(43,725	)		704,566			(77,679	)

See accompanying notes to consolidated financial statements.

F-11

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

1.	Operations

Gafisa S.A. ("Gafisa" or "Company") is a publicly traded company with headquarters in Brazil. The Company’s registered office is at Avenida das Nações Unidas, 8.501, 19th floor, São Paulo, São Paulo. The Company commenced operations in 1997 with the objectives of: (i) promoting and managing all forms of real estate ventures on its own behalf and on behalf of third parties, (in the latter case, as construction company and proxy); (ii) selling and purchasing real estate properties; (iii) providing civil construction and civil engineering services; (iv) developing and implementing marketing strategies related to its own and third party real estate ventures; and (v) investing in other companies who share similar objectives.

The Company enters real estate development projects with third parties through specific purpose partnerships (“Sociedades de Propósito Específico” or– “SPEs”) or through the formation of consortia and condominiums. SPEs, condominiums and consortia operate solely in the real estate industry and are linked to specific ventures. Controlled entities substantially share the managerial and operating structures and the corporate, managerial and operating costs with the Company.

On February 7, 2014, the Company disclosed a material fact informing its shareholders and the public that its Board of Directors authorized the Company’s management to begin studies aimed at a potential spin off of the Tenda business units into two publicly-held and independent companies in order to reinforce the creation of value to the Company and its shareholders. Should the plan be approved by the Board of Directors and shareholders, this transaction could be completed throughout 2015.

On July 28, 2014, giving continuity to the process of the spin-off of business units, the Brazilian Securities and Exchange Commission (CVM) granted the request from the subsidiary Tenda for conversion of the registry of the securities issuer into the A category, as a publicly-held company authorized to trade its shares in stock exchanges.

F-12

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies

2.1.

Basis of presentation and preparation of consolidated financial statements

The consolidated financial statements were authorized for issue by the Company’s Board of Directors on April 27, 2015.

The consolidated financial statements of the Company have been prepared and are being presented according to the accounting practices adopted in Brazil, including the pronouncements issued by the CPC, approved by the Brazilian Securities and Exchange Commission (CVM).

Brazilian GAAP, or BR GAAP, differs from International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) in certain respects, including the fact that Brazilian GAAP permits the application of percentage of completion accounting by real estate companies in more circumstances than are permitted by IFRS. This application of Brazilian GAAP is commonly referred to in Brazil as “IFRS applicable to real estate development entities in Brazil, as approved by the Accounting Pronouncements Committee, or CPC, the CVM and the Federal Accounting Council, or CFC, including CPC Guideline 04 – Application of the Technical Interpretation ICPC 02 to the Brazilian Real Estate Development Entities – regarding revenue recognition, and the respective costs and expenses arising from real estate development operations by reference to the stage of completion (percentage of completion method)”. Accordingly, for the purpose of its annual filing with the United States Securities and Exchange Commission, the accompanying consolidated financial statements prepared in accordance with BR GAAP have been reconciled to US GAAP as presented in Note 33. US GAAP condensed consolidated balance sheets have been included in Note 33 (d)(i) for 2014 and 2013 and US GAAP consolidated statement of operations and comprehensive income (loss) for the years ended December 31, 2014, 2013 and 2012 have been included in Note 33 (d)(ii) and Note 33 (d)(iii), respectively.

F-13

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.1.

Basis of presentation and preparation of consolidated financial statements --Continued

The consolidated financial statements have been prepared as a going concern. Management makes an assessment of the Company’s ability to continue as going concern when preparing the consolidated financial statements. The Company is in compliance with all of its debt covenants at the date of issue of these consolidated financial statements.

All amounts reported in the accompanying financial statements are in thousands of Reais, except as otherwise stated.

2.1.1.

Consolidated financial statements

The consolidated financial statements of the Company include the financial statements of Gafisa and its direct and indirect subsidiaries. The Company controls an entity when it is exposed to, or has right to variable returns arising from its involvement with the entity and has the ability to affect those returns through the power that it exerts over the entity. The existence and the potential effects of voting rights, which are currently exercisable or convertible, are taken into account when evaluating whether the Company controls another entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which the control commences until the date on which control ceases.

The accounting practices have been applied consistently by all subsidiaries included in the consolidated financial statements. The subsidiaries have the same fiscal year as the Company. See further details on these subsidiaries and jointly-controlled investees in Note 9.

2.1.2.

Functional and presentation currency

These consolidated financial statements are presented in Reais, which is the Company’s functional currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated.

2.1.3.

Operating segments

The presentation of operating segment information is consistent with the internal reports provided to the main decision makers of operational matters, the Statutory Board, who are responsible for allocating resources, assessing the performance of operating segments and making strategic decisions.

F-14

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies

2.2.1.

Accounting judgments, estimates and assumptions

Accounting estimates and judgments are evaluated on an ongoing basis based on historical experience and other factors, including expectations on future events, considered reasonable under the circumstances.

(i)

Judgments

The preparation of the consolidated financial statements of the Company requires management to make judgments, estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, as well as the disclosure of contingent liabilities, at the reporting date.

(ii)

Estimates and assumptions

Assets and liabilities subject to estimates and assumptions include the provision for impairment of assets, transactions with share-based payment, provision for tax, labor and civil claims, fair value of financial instruments, measurement of the estimated cost of ventures, deferred tax assets, among others.

The main assumptions related to sources of uncertainty over future estimates and other important sources of uncertainty over estimates at the reporting date, which may result in different amounts upon settlement are discussed below:

Impairment of assets

Management reviews annually and/or when a specific event occurs the carrying amount of assets with the objective of evaluating events or changes in the economic, operational or technological circumstances that may indicate an impairment. Should such evidence exist, and the carrying amount exceeds the recoverable amount, a provision is recognized by adjusting the carrying amount to the recoverable amount. These impairment losses are recognized in profit or loss when incurred. Indefinite lived intangible assets and goodwill attributable to future economic benefit are tested at least annually or when circumstances indicate a decrease in the carrying amount.

F-15

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies --Continued

2.2.1.

Accounting judgments, estimates and assumptions --Continued

(ii)

Estimates and assumptions --Continued

Impairment of assets--Continued

Cash flows are derived based on the budget for the following five years, and do not include uncommitted restructuring activities or future significant investments that will improve the asset basis of the cash-generating unit being tested. The recoverable amount is sensitive to the discount rate used under the discounted cash flow method, the estimated future cash inflows and the growth rate used for purposes of extrapolation.

The value less costs to sell is determined, whenever possible, based on a binding sale agreement in an arm’s length transaction between knowledgeable and willing parties, reduced by expenses attributable to the sale of the asset, or, in the absence of a binding sale agreement, based on the market price in an active market, or on a recent transaction with similar assets.

The main assumptions used for determining the recoverable amount of cash-generating unit are detailed in Note 11.

F-16

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies --Continued

2.2.1.

Accounting judgments, estimates and assumptions --Continued

(ii)

Estimates and assumptions --Continued

Share-based payment transactions

The Company measures the cost of transactions with employees to be settled with shares based on the fair value of equity instruments on the grant date. The estimate of the fair value of share-based payments requires the determination of the most adequate pricing model to grant equity instruments, which depends on the grant terms and conditions. It also requires the determination of the most adequate data for the pricing model, including the expected option life, volatility and dividend income, and the corresponding assumptions. The assumptions and models used to estimate the fair value of share-based payments are disclosed in Note 19.3.

Provision for tax, labor and civil claims

The Company recognizes a provision for tax, labor and civil claims (Note 17). The assessment of the probability of a loss is based on the evaluation of the available evidence, the hierarchy of Laws, existing case law, the latest court decisions and their significance in the judicial system, and the opinion of external legal counsel. Provisions are reviewed and adjusted to take into account any changes in circumstances, such as applicable statutes of limitations, findings of tax inspections, or additional exposures found based on new court issues or decisions. Claims may be settled in amounts different from those estimated in view of the inaccuracies inherent in estimation process. The Company reviews its estimates and assumptions at least annually.

F-17

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies --Continued

2.2.1.

Accounting judgments, estimates and assumptions --Continued

(ii)

Estimates and assumptions --Continued

Fair value of financial instruments

When the fair values of financial assets and liabilities presented in the balance sheet cannot be obtained in an active market, they are determined using valuation techniques, including the discounted cash flow method.

The data for such methods is based on available market information; however, when it is not viable, a certain level of judgment is required to establish the fair value. The judgment includes considerations regarding the data used, such as interest rates, liquidity risk, credit risk, and volatility. Changes in the assumptions about these factors may affect the stated fair value of financial instruments.

Estimated cost of construction

Estimated costs, mainly comprising incurred and future costs for completing construction projects, are regularly reviewed, based on the progress of construction, and any resulting adjustments are recognized in profit or loss.

Realization of deferred income tax

A deferred tax asset is recognized when it is probable that a taxable profit will be available in subsequent years to offset the deferred tax asset, based on projections of results and based on internal assumptions and future economic scenarios.

F-18

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies --Continued

2.2.2.

Recognition of revenue and expenses

(i)

Real estate development and sales

(a)

For the sales of completed units, revenues are recognized upon completion of the sale and the transfer of significant risks and benefits, regardless of the timing of receipt from the customer.

(b)

For the construction phase of units sold, but not yet completed:

The incurred cost (including cost of land, and other directly related expenditures) that corresponds to the units sold is included in profit or loss. For the units not yet sold, the incurred cost is included in inventory (Note 2.2.7);

Interest and inflation-adjustment charges on accounts receivable from the time the units are sold and delivered, as well as the adjustment to present value of accounts receivable, are included in real estate development and sales when incurred, on a pro rata basis using the accruals basis of accounting;

F-19

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies --Continued

2.2.2.

Recognition of revenue and expenses

(i)

Real estate development and sales --Continued

Financial charges on accounts payable for acquisition of land and those directly associated with the financing of construction are capitalized and recorded in properties for sale and included in the incurred cost of units under construction until their completion, and follow the same recognition criteria as the cost of real estate development for units sold while under construction;

Other expenses, including advertising and publicity, are recognized in profit or loss when incurred.

(ii)

Construction services

Revenues from real estate services are recognized as services are rendered and tied to the construction management activities for third parties and technical advisory services.

(iii)

Barter transactions

Barter transactions have the objective of receiving land from third parties and are settled with the delivery of real estate units or transfer of portions of the revenue from the sale of real estate units of ventures. The value of the land acquired is determined based on the fair value of the units to be delivered, as a component of inventory of properties for sale, with a corresponding entry to advances from customers’ liabilities. Revenues and costs incurred from barter transactions are included in profit or loss over the course of construction period of ventures, as previously described in item (b).

F-20

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies --Continued

2.2.3.

Financial instruments

After initial recognition, financial instruments are measured as described below:

(i)

Financial instruments through profit or loss

A financial instrument is classified at fair value through profit or loss when it is designated as such upon initial recogintion.

For the year ended December 31, 2014, the Company held derivative financial instruments with the objective of mitigating the risk of its exposure to the volatility of indices and interest rates, recognized at the fair value directly in profit or loss. In accordance with its treasury policies, the Company does not have or issue derivative financial instruments for purposes other than for mitigate risk.

The Company does not adopt the hedge accounting practice.

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Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies --Continued

2.2.3.

Financial instruments --Continued

(ii)

Financial assets

Financial assets are classified into financial assets at fair value through profit or loss and loans and receivables. The Company determines the classification of its financial assets upon initial recognition, when the Company becomes a party to the contractual provisions of the instrument.

Financial assets are initially recognized at fair value, plus, in the case of investments not designated at fair value through profit or loss, directly attributable transaction costs.

The financial assets of the Company include cash and cash equivalents, short-term investments, trade accounts receivable and other accounts receivable, other receivables and derivative financial instruments.

Derecognition (write-off)

A financial asset (or, as the case may be, a portion of a financial asset or portion of a group of similar financial assets) is derecognized when:

The contractual rights to the cash flows from the asset expire; or

The Company transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognized financial assets that is created or retained by the Company is recognized as a separate asset or liability.

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Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies --Continued

2.2.3.

Financial instruments --Continued

(ii)

Financial assets --Continued

The continuous involvement by means of a guarantee on the transferred asset is measured at the lower of the original carrying value of the asset, or the highest consideration that may be required from the Company.

(iii)

Financial liabilities at fair value through profit or loss

Financial liabilities through profit or loss include trading financial liabilities and financial liabilities designated as such upon initial recognition.

Loans and financing

Non-derivative financial liabilities are initially recognized at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest method. Gains and losses are recognized in the statement of profit or loss, at the time liabilities are written-off, as well as during the amortization process using the effective interest rate method.

Derecognition (write-off)

The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired.

When an existing financial liability is substituted by another from the same creditor, under substantially different terms, or when the terms of an existing liability are significantly modified, this substitution or change is treated as a derecognition of the original liability and recognition of a new liability. The difference in the corresponding carrying values is recognized in profit or loss.

Financial instrument – net presentation

Financial assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, the Company has a legal right to offset the amounts and intends either to settle them on a net basis or realize the asset and settle the liability simultaneously.

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Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies --Continued

2.2.4.

Cash and cash equivalents and short-term investments

Cash and cash equivalents comprise demand deposits and bank certificates of deposit held under resale agreements, denominated in Reais, with high market liquidity and original contractual maturities of 90 days or less, and for which there are no penalties or other restrictions for the immediate redemption thereof.

Cash equivalents are classified as financial assets at fair value through profit or loss and are recorded at the original amounts plus income earned, calculated on a “pro rata basis", which are equivalent to their market values, not having any impact to be accounted for in the Company’s equity.

Short-term investments include bank deposit certificates, federal government bonds, exclusive investment funds that are fully consolidated and collateralized, which are classified at fair value through profit or loss (Note 4.2).

2.2.5.

Trade account receivable

These are presented at present and realizable values. The classification between current and noncurrent is made based on the expected maturity of contract installments.

The installments due are indexed based on the National Civil Construction Index (INCC) during the period of construction, and based on the General Market Prices Index (IGP-M) and interest at 12% per year, after the delivery of the units.

The adjustment to present value is calculated between the contract signature date and the estimated date to transfer the completed property’ keys to the buyer, using a discount rate represented by the average rate of the financing obtained by the Company, net of inflation, as mentioned in Note 2.2.19.

The amortization of the present value adjustment, considering that an important part of the Company operations consists of financing its clients until key delivery, was carried out as contra-entry to the group of real estate development revenue, consistently with interest incurred on the portion of receivables balance related to period subsequent to the handover of keys.

F-24

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies --Continued

2.2.6.

Mortgage-backed Securities (CRIs) and Housing Loan Certificate (CCI)

The Company and its subsidiaries carry out the assignment and/or securitization of receivables related to completed projects and those still under construction. This securitization is carried out through the issuance of the “Housing Loan Certificate (“Cédula de Crédito Imobiliário” or “CCI”), which is assigned to financial institutions that grant loans. When there is no right of recourse, this assignment is recorded as reduction of accounts receivable. When there is right of recourse against the Company, the assigned receivable is maintained in the balance sheet and the funds from assignment are classified into the account “Obligations assumed on assignment of receivable”, until certificates are settled by customers.

In this situation, the transaction cost is recorded in “financial expenses” in the statement of operations for the year in which the transfer is made.

The financial guarantees, when a participation is acquired (subordinated CRI) and maintained to secure disposed receivables, are recorded on the balance sheet as “short-term investments” at the realizable value, which is equivalent to fair value.

2.2.7.

Properties for sale

The Company and its subsidiaries acquire land for future real estate developments, on payment conditions in cash or through barter transactions, which, in exchange for the land acquired, they undertake to deliver: (a) a portion of the revenues originating from the sale of the real estate units of ventures; or (b) real estate of ventures under construction. Land acquired through barter transaction is stated at fair value of the units to be delivered, and the revenue and cost are recognized according to the criteria described in Note 2.2.2 (b)(iii).

Properties are measured at the lesser of cost of construction, and net realizable value. In the case of real estate under construction, the portion in inventories corresponds to the cost incurred for units that have not yet been sold. The incurred cost comprises construction costs (materials, own or outsourced labor, and other related items), and legal expenses relating to the acquisition of land and projects, land costs and financial charges which relate to a project over the construction period.

The classification of land between current and noncurrent assets is made by Management based on the expected period for launching real estate ventures. Management periodically revises the estimates of real estate ventures launches.

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Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies --Continued

2.2.8.

Selling expenses - commissions

Brokerage expenditures are recorded in profit or loss under the account “Selling expenses” employing the same percentage-of-completion criteria used for revenue recognition. The charges related to sales commissions paid by the buyer to their broker are not recognized as revenue or an expense of the Company.

2.2.9.

Prepaid expenses

These are recognized in profit or loss as incurred using the accruals basis of accounting.

2.2.10.

Land available for sale

Land available for sale is measured at the lesser of the carrying value and the fair value less the costs to sell and is classified as held for sale if its carrying value is to be recovered through a sale transaction of the land, rather than future development. This condition is considered fulfilled only when the sale is highly probable and the group of assets or of disposal is available for immediate sale in its current condition. Management shall undertake to sell it in a year after the classification date.

2.2.11.

Investments in associates

Investments in associates are recorded in the Company using the equity method.

When the Company's equity in the losses of associates is equal to or higher than the amount invested, the Company recognizes the residual portion in net capital deficiency since it assumes obligations, and makes payments on behalf of these companies. For this purpose, the Company recognizes a provision at an amount considered appropriate to meet the obligations of the associates (Note 9).

F-26

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies --Continued

2.2.12.

Property and equipment

Items of property and equipment are measured at cost, less accumulated depreciation and/or any accumulated impairment losses, if applicable.

An item of property and equipment is derecognized when no future economic benefits are expected from its use or disposal. The gain or loss arising from derecognition of an asset (calculated as the difference between the net disposal proceeds and the carrying value of the asset) is recognized in profit or loss upon derecognition.

Depreciation is calculated based on the straight-line method considering the estimated useful lives of the assets (Note 10).

The residual value, useful life, and depreciation methods are reviewed at the end of each year; no change was made in relation to the information for the prior year.

Expenditures incurred in the construction of sales stands, facilities, display apartments and related furnishings are capitalized as property and equipment of the Company and its subsidiaries. Depreciation of these assets commences upon launch of the development and is recorded over the average term of one year.

Property and equipment are subject to periodic assessments of impairment. As of December 31, 2014 and 2013 there were no impairment indicators regarding property and equipment.

2.2.13.

Intangible assets

(i)

Expenditures related to the acquisition and development of computer systems and software licenses are recorded at acquisition cost and amortized on straight-line basis over a period of up to five years, and are subject to periodic impairment testing.

(ii)

The Company’s investments in subsidiaries include goodwill when the acquisition cost exceeds their value of identifiable net assets acquired.

The goodwill recorded as of December 31, 2014 and 2013 refers to acquisitions before the date of transition to CPC/IFRS (January 1, 2009), and the Company opted to not retrospectively recognize the acquisitions before the transition date, to adjust any of the respective goodwill.

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Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies --Continued

2.2.13.

Intangible assets --Continued

Impairment testing of goodwill is performed at least annually or whenever circumstances indicate an impairment loss.

2.2.14.

Payables for purchase of properties and advances from customer due to barter

Payables for purchase of land are recognized at the amounts corresponding to the contractual obligations assumed. Subsequently they are measured at amortized cost, plus interest and charges proportional to the incurred period (“pro rata” basis), net of present value adjustments.

The obligations related to barter transactions of land in exchange for real estate units are stated at fair value of the units to be delivered.

2.2.15.

Income tax and social contribution

(i)

Current income tax and social contribution

Current income tax is the expected tax payable or receivable/to be offset in relation to taxable profit for the year. To calculate the current Income tax and social contribution, the Company uses the Brazilian Transitory Tax Regime (RTT), which permits the exclusion of the effect from the changes, introduced by Laws No. 11,638/2007 and No. 11,941/2009, from the tax basis of such taxes.

Income taxes in Brazil comprise income tax (25%) and social contribution (9%), for entities on the standard profit regime, for which the composite statutory rate is 34%. Deferred taxes for these entities are recognized on all temporary tax differences at the reporting date between the tax bases of assets and liabilities, and their carrying values.

As permitted by tax legislation, certain subsidiaries opted for the presumed profit regime, a method under which the taxable profit is calculated as a percentage of gross sales. For these companies, the income tax is calculated on estimated profits at rate of 8% and 12% of gross revenues, respectively, on which the rates of the respective tax and contribution are levied.

F-28

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies –Continued

2.2.15.

Income tax and social contribution

(i)

Current income tax and social contribution --Continued

As permitted by tax legislation, the development of certain ventures are subject to the “afetação” regime, based on which the land and its features where a real estate will be developed, as well as other binding assets and rights, are separated from the assets of the developer and comprise the “patrimônio de afetação” (detached assets) of the corresponding development and which real estate units will be delivered to the buyers. In addition, certain subsidiaries made the irrevocable option for the Special Taxation Regime (RET), adopting the "patrimônio de afetação", according to which the income tax and social contribution are calculated at 1.92% on gross revenues (4% also levying PIS and COFINS on revenues).

On May 13, 2014, the Provisional Measure No. 627 was converted into Law No. 12,973/14, confirming the revocation of the Transitory Tax Regime (RTT) beginning in 2015, with the option of early adoption in 2014. The Company completed the analysis of the impacts arising from the provisions contained in such law, both in its consolidated financial statements and its internal controls structure. Considering that the result of this analysis did not show material tax effects, the Company decided not to early adopt the rules and provisions prescribed in the new legislation in the year 2014.

(ii)

Deferred income tax and social contribution

Deferred taxes are recognized in relation to tax losses and temporary differences between the carrying amount of assets and liabilities for accounting purposes and the corresponding amounts used for tax purposes.

Deferred tax assets are recognized to the extent that it is probable that future taxable income will be available to be used to offset deferred tax assets, based on profit projections made using internal assumptions and considering future economic scenarios that make it possible their full or partial use, upon the recognition of a provision for the non-realization of the balance. The recognized amounts are periodically reviewed and the impacts of realization or settlement are reflected in compliance with tax legislation provisions.

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Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies –Continued

2.2.15.

Income tax and social contribution--Continued

(ii)

Deferred income tax and social contribution --Continued

Deferred tax on accumulated tax losses does not have an expiration date, however, they can only be offset against up to 30% of the taxable profit for each year. Companies that opt for the presumed profit tax regime cannot offset tax losses for a period in subsequent years, and for this reason, deferred taxes are not recognized.

2.2.16.

Other current and non-current liabilities

These liabilities are measured at their known or estimated amounts, plus, when applicable, adjustment for charges and inflation-indexed variations with changes therein recognized in profit or loss. When applicable, current and non-current liabilities are recorded at present value based on interest rates that reflect the term, currency and risk of each transaction.

2.2.17.

Stock option plans

As approved by its Board of Directors, the Company offers to executives and employee’s share-based compensation plans (“Stock Options”), as payments for services received.

The fair value of options is determined on the grant date, which is recognized as expense in profit or loss (as contra-entry to equity), as the requisite services are provided by employees and executives.

In an equity-settled transaction, in which the plan is modified, a minimum expense is recognized corresponding to the expense that would have been recorded if the terms have not been changed. An additional expense is recognized for any modification that increases the total fair value of granted options, or that otherwise benefits the employee, measured on the modification date. In case of cancellation of a stock option plan, this is treated as if it had been granted on the cancellation date, and any unrecognized plan expense is immediately recognized. However, if a new plan replaces the cancelled plan, and a substitute plan is designated on the grant date, the cancelled plan and the new plan are treated as if they were a modification of the original plan, as previously mentioned.

F-30

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies –Continued

2.2.17.

Stock option plans --Continued

The Company annually revises its estimates of the amount of options that shall be vested, considering the vesting conditions not related to the market and the conditions based on length of service. The Company recognizes the impact of the revision of the initial estimates, if any, in the statement of profit or loss, as contra-entry to equity.

2.2.18.

Other employee benefits

The salaries and benefits granted to the Company’s employees and executives include fixed compensation (salaries, social security contributions (INSS), Government Severance Indemnity Fund for Employees (FGTS), vacation and 13th monthly salary, among other) and variable compensation such as profit sharing, bonus, and share-based payments. These benefits are recorded in profit or loss for the year, under the account “General and administrative expenses”, as they are incurred.

The bonus system operates with individual corporate targets, structured based on the efficiency of corporate goals, followed by the business goals and, finally, individual goals.

The Company and its subsidiaries do not offer private pension or retirement plans.

2.2.19.

Present value adjustment – assets and liabilities

Assets and liabilities arising from long or short-term transactions are adjusted to present value if significant.

In installment sales of not completed units, real estate development entities adjust receivables by an inflation index, including the installment related to the delivery of units, without accrual of interest, and shall be discounted to present value, as the agreed inflation indexes do not include interest.

Borrowing costs related to loans used to finance the construction of real estate ventures are capitalized. Therefore, the reversal of the present value adjustment of an obligation related to these items is included in the cost of real estate unit sold or in the inventories of properties for sale, as the case may be, until the period of construction of the project is completed.

F-31

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies –Continued

2.2.19.

Present value adjustment – assets and liabilities --Continued

Accordingly, certain assets and liabilities are adjusted to present value based on discount rates that reflect the best estimate of the value of the money over time.

The applied discount rate’s underlying economic basis and assumption is the average rate of the financing and loans obtained by the Company, net of the inflation-index effect (Notes 5 and 12).

2.2.20.

Debenture and public offering costs

Transaction costs and premiums on issuance of securities are accounted for as a direct reduction of amount raised by the Company. In addition, transaction costs and premiums on issuance of debt securities are amortized over the terms of the instrument and the net balance is classified as reduction of the respective transaction (Note 13).

2.2.21.

Borrowing costs

Borrowing costs which are directly attributable to the development of assets for sale and land, are capitalized as part of the cost of that asset during the construction period, since there are borrowings outstanding, which are recognized in profit or loss to the extent units are sold. All other borrowing costs are expensed as incurred. Borrowing costs comprise interest and other related costs incurred, including those for raising finances.

Charges that are not recognized in profit or loss of subsidiaries are recorded in the consolidated financial statements of the Company, in the account investments in non-current assets (Note 9).

2.2.22.

Provisions

Provisions are recognized when the Company has a present obligation as a result of a past event that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

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Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies –Continued

2.2.22.

Provisions --Continued

(i)

Provision for legal claims

The Company is party to various lawsuits and administrative proceedings. Provisions are recognized for all contingencies related to lawsuits, in which it is probable that an outflow of resources will be made to settle the contingency, and a reliable estimate can be made (Note 2.2.1 (ii)(d)).

Contingent liabilities for which losses are considered possible are only disclosed in a note to the consolidated financial statements, and those for which losses are considered remote are neither accrued nor disclosed.

Contingent assets are recognized only when there are real guarantees or favorable final and unappealable court decisions. Contingent assets with probable favorable decisions are only disclosed in the notes. As of December 31, 2014 and 2013 there are no claims involving contingent assets recorded in the consolidated balance sheet of the Company.

(ii)

Allowance for doubtful account and cancelled contracts

The Company reviews annually its assumptions related to the establishment of its allowance for doubtful account and cancelled contracts, taking into account the history of its current operations and improvement of estimates.

The Company records an allowance for doubtful accounts and cancelled contracts for customers whose installments are over 90 past due, in several types of construction work: construction works on time, delayed construction works (within the grace period), works that are late (out of the grace period) and delivered completed units. This allowance is calculated based on the percentage of completion of the construction work, a methodology adopted for recognizing profit or loss for the year (Note 2.2.2).

(iii)

Provision for penalties due to delay in construction work

As contractually provided, the Company has the practice of provisioning the charges payable to eligible customers for projects whose delivery is delayed over 180 days, pursuant to the respective contractual clause and history of payments.

F-33

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies –Continued

2.2.22.

Provisions --Continued

(iv)

Warranty provision

The Company and its subsidiaries recognize a provision to cover expenditures for repairing construction defects covered during the warranty period, based on the estimate that considers the history of incurred expenditures adjusted by the future expectation, except for the subsidiaries that operate with outsourced companies, which are the direct guarantors of the constructions services provided. The warranty period is five years from the delivery of the venture.

(v)

Provision for impairment of non-financial assets

When there is evidence of impairment, and the net carrying amount exceeds the recoverable amount, a provision for impairment is recorded, adjusting the net carrying to the recoverable amount. Goodwill and intangible assets with indefinite useful lives are tested annually for impairment, regardless whether there is any indication of impairment, by comparing the carrying amount to the net realizable amount measured by cash flows discounted to present value, using a discount rate before taxes, which reflects the weighted average cost of capital of the Company.

2.2.23.

Sales taxes

Expenses and assets are recognized net of sales taxes, except:

When the sales taxes incurred in the purchase of goods or services are not recoverable from tax authorities, in which case sales taxes are recognized as a portion of the acquisition cost of the asset or expense item, as the case may be; and

When the amounts receivable and payable are shown together with the sales taxes.

The net amount of sales taxes, recoverable or payable, is included as a receivables or payable item in the consolidated balance sheet.

Under the non-cumulative taxation regime, the PIS and COFINS taxes contribution rates are 1.65% and 7.6%, respectively, for companies under the taxable profit taxation regime, levied on gross revenue and discounting certain credits determined based on incurred costs and expenses. For companies that opt for the presumed profit taxation regime, under the non-cumulative taxation regime, the PIS and COFINS contribution rates are 0.65% and 3%, respectively, on gross revenue, without discounts of credits in relation to incurred costs and expenses.

F-34

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies –Continued

2.2.24.

Treasury shares

Own equity instruments that are repurchased (treasury shares) are recognized at cost and charged to equity. No gain or loss is recognized in the statement of operations upon purchase, sale, issue or cancellation of the Company’s own equity instruments.

2.2.25.

Interest on equity and dividends

The portion of declared dividends and interest on equity equivalent to the minimum mandatory dividend is recorded as current liabilities in the heading “Dividends payable”, as it is a legal obligation provided for in the By-laws of the Company.

For corporate and accounting purposes, the interest on equity is reported as allocation of profit directly to equity at its gross amount.

2.2.26.

Earnings (loss) per share – basic and diluted

Earnings (loss) per share are calculated by dividing the net income (loss) attributable (allocated) to ordinary shareholders by the weighted average number of shares outstanding over the period.

Diluted earnings per share are calculated in a similar manner, except that the weighted average number of shares outstanding is increased, to include the additional shares that would be outstanding, in case the shares with dilutive potential attributable to stock option had been issued over the respective periods, using the weighted average price of shares.

2.2.27.

Statement of comprehensive income (loss)

In order to meet the statutory provisions (CPC 26 (R1)), the Company prepared the statement of comprehensive income (loss) in its consolidated financial statements. The Company does not have other comprehensive income (loss) other than the profit or loss for the year.

F-35

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies –Continued

2.2.28.

Non-current assets held for sale and profit of discontinued operations

The Company classifies a non-current asset as held for sale if its carrying amount is recovered by means of a sale transaction. In such case, the asset or the group of assets held for sale must be available for immediate sale on current conditions, subject to the usual and customary terms for selling such assets held for sale. Therefore its sale is highly probable.

For a sale to be considered highly probable, Management must be committed to a plan to sell the asset, and have initiated a solid program for finding a buyer and complete the plan. In addition, the asset held for sale must be effectively held for sale at a price that is reasonable in relation to its current fair value. In addition, the sale must be expected to be completed in up to one year after the classification date, unless events that are beyond the control of the Company change this period.

The asset held for sale is measured at the lower of its carrying amount and fair value, less cost to sell. In case the carrying value exceeds its fair value, an impairment loss is recognized in profit or loss for the year. Any reversal or gain shall only be recognized to the extent of such recognized loss.

The profit of discontinued operations is presented at a single amount in statement of operations, which includes the total after-tax income of these operations, less any impairment-related loss. The net cash flow amounts attributable to operating, investing and financing activities of discontinued operations are presented in Note 8.2.

On December 9, 2013, the Company disclosed a material fact informing about the completion of transaction for selling the majority interest it held in 70% of Alphaville Urbanismo S.A. (AUSA), as detailed in Note 8.2.

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Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.

Summary of significant accounting policies –Continued

2.2.29.

Business combination

Business combination transactions are accounted for by the acquisition method. The cost of an acquisition is measured by the sum of the transferred consideration, measured at fair value at the acquisition date, and the amount of any noncontrolling interest in the acquiree. The costs directly attributable to the acquisition are recognized as expense as incurred.

In the acquisition of a business, Management measures the financial assets and liabilities assumed with the objective of classifying and designating them according to the contractual terms, economic conditions, and the pertinent conditions at the acquisition date.

Goodwill is initially measured as the excess of transferred consideration in relation to the fair value of net assets acquired (identifiable assets and liabilities assumed, net). If the consideration is lower than the fair value of the net assets acquired, the difference is recognized as a gain in statement of operations.

Subsequent to initial recognition, goodwill is measured at cost, less any accumulated impairment. For purposes of the impairment test, the goodwill acquired in a business combination, as of the acquisition date, shall be designated to each cash-generating unit of the Company that is expected to benefit from the synergies of the combination, whether or not other assets or liabilities of the acquiree are designated to these units.

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Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

3.	Pronouncements (new or revised) and interpretation adopted from January 1, 2014 and new and revised standards and interpretation already issued and not yet adopted

3.1

Pronouncements (new or revised) and interpretation adopted from January 1, 2014

The Company adopted all of the pronouncements (new or revised) and interpretations issued by the CPC applicable to its operations which were effective as of December 31, 2014.

The pronouncements (new or revised) and the interpretation listed below, issued by CPC and approved by CVM, are mandatory for the years beginning January 1, 2014 or later. They are the following:

OCPC 07 – Providing Evidence in the Disclosure of General Purpose Financial and Accounting Reports – CVM Resolution 727 of November 11, 2014;

This standard aims at addressing the basic requirements for preparing and providing evidence to be observed when disclosing general purpose financial and accounting reports. It specifically addresses the provision of evidence about information of annual and interim financial and accounting statements, particularly those contained in the accompanying notes.

The standard establishes that the information presented shall be relevant to external users. And relevant are only those that influence the investors’ and creditors’ decision-making process. Consequently, the non-relevant ones shall not be disclosed.

ICPC 09 (R2) – Individual, Separate and Consolidated Financial Statements and the Equity Method of Accounting – CVM Resolution 729 of November 27, 2014;

The objective of the ICPC 09 revision is substantially derived from the issue of the technical pronouncements CPC 18 (R2), CPC 19 (R2) and CPC 36 (R3), in view of the changes made by the International Accounting Standards Board (IASB) in the international accounting standards IAS 28, IFRS 10 and IFRS 11. Other items were also revised aimed at adjusting the text to the current needs and keeping them convergent with the international standards.

ICPC 19 – Levies – CVM Resolution 730 of November 27, 2014;

The Interpretation is correlated with the IFRIC Interpretation 21 – Levies, issued by the International Accounting Standards Board (IASB). The document provides for the accounting for a levy liability, if the liability is in the scope of the Technical Pronouncement CPC 25, and also deals with the accounting for the liability for levy which timing and amount are not certain.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

3.	Pronouncements (new or revised) and interpretation adopted from January 1, 2014 and new and revised standards and interpretation already issued and not yet adopted --Continued

3.1

Pronouncements (new or revised) and interpretation adopted from January 1, 2014 --Continued

There are no other standards or interpretations that were issued and not yet adopted that could, in the Management’s opinion, have a significant impact on the profit, loss or equity disclosed by the Company.

3.2.

New and revised interpretations already issued and not yet adopted

IFRS 9 - "Financial Instruments", addresses the classification, measurement and recognition of financial assets and liabilities.

The project to revise the standards applicable to financial instruments is composed of three phases:

Phase 1: Classification and measurement of financial assets and liabilities

In relation to the classification and measurement under the terms of the IFRS 9, all recognized financial assets, which are currently included in the scope of the IAS 39, shall be later measured at amortized cost or fair value.

Phase 2: Methodology of impairment

The impairment model of the IFRS 9 reflects the expected credit losses, instead of the incurred credit losses, under the terms of the IAS 39. According to the impairment approach of the IFRS 9, it is no longer necessary that a credit event occurs before the recognition of credit losses. Rather than this, an entity always accounts for expected credit losses and the changes in such expected credit losses. The amount of expected credit losses shall be updated every reporting date of the financial statements to reflect the changes in credit risk since it was first recognized.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

3.	Pronouncements (new or revised) and interpretation adopted from January 1, 2014 and new and revised standards and interpretation already issued and not yet adopted --Continued

3.2.

New and revised standards and interpretation already issued and not yet adopted--Continued

Phase 3: Hedge Accounting

The requirements for accounting for hedge introduced by the IFRS 9 maintain the three types of hedge accounting mechanisms of IAS 39. On the other hand, the new standard provided more flexibility regarding the transaction types eligible to hedge accounting, more specifically the increase in the instrument types that qualify as hedge instruments and the types of risk components of non-financial items eligible to hedge accounting. Additionally, the effectiveness test was renewed and replaced by the economic relationship principle. The retroactive evaluation of the hedge effectiveness is no longer necessary. Additional disclosure requirements were introduced related to the risk management operations of an entity.

As applicable to annual period beginning on or after January 1, 2018: the early adoption of standards, although encouraged by the IASB, is not permitted in Brazil the Accounting Pronouncements Committee (CPC)

IFRS 15 – Revenue from contracts with customers

On May 28, 2014, the International Accounting Standards Board (IASB) and the Accounting Pronouncements Committee (CPC) issued new requirements for recognition of revenue under both IFRS and U.S. GAAP, respectively. IFRS 15 – Revenue from Contracts with Customers requires an entity to recognize the amount of revenue reflecting the consideration it expects to receive in exchange for the control over such goods or services. The new standard is going to replace most of the detailed guidance on the recognition of revenue that currently exists under IFRS and U.S. GAAP when it is adopted. Its application is required for annual years beginning on or after January 1, 2017, with early adoption permitted for IFRS purposes, and not permitted locally before the harmonization and approval from the CPC and CVM.

The Company is evaluating the effects of IFRS 15 and IFRS 9 on its financial statements and has not yet completed its analysis thus far, since the company has not been able to estimate the impact of the adoption of this standard.

There is no other issued but not yet effective IFRS standards or IFRIC interpretations that could have a significant impact on the Company.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

4.	Cash and cash equivalents and short-term investments

4.1.

Cash and cash equivalents


	2014		2013

Cash and bank note		85,059		121,222
Securities purchased under resale agreements (a)		24,836		93,972
Total cash and cash equivalents (Note 21.i.d and 21.ii.a)		109,895		215,194

(a)

Securities purchased under resale agreement comprise securities issued by Banks with a repurchase commitment by the bank, and resale commitment by the customer, at rates and terms agreed upon, backed by private or government securities, depending on the bank. The securities are registered with Central de Custódia e de Liquidação Financeira de Títulos (“CETIP”).

As of December 31, 2014, the securities purchased under resale agreement include interest earned from 70% to 101% of Interbank Deposit Certificates (“CDI”) (from 75% to 101.8% of CDI in 2013). All transactions are with what management considers to be top tier financial institutions.

4.2.

Short-term investments


	2014		2013

Fixed-income funds (a)		326,977		706,481
Government bonds (LFT) (a)		77,911		140,210
Securities purchased under resale agreements (a)		361,226		393,648
Bank certificates of deposit (b)		103,219		291,871
Restricted cash in guarantees to loans (c)		104,039		105,380
Restricted credits (d)		73,987		171,367
Other		-		12
Total short-term investments (Note 21.i.d and 21.ii.a)		1,047,359		1,808,969

(a)

Exclusive Investment Funds aimed at earning interest on funds in excess of the variation in the Interbank Deposit Certificate (CDI). These funds have mandates of risks that are periodically monitored and observe the internal investment policies in effect.

(b)

As of December 31, 2014, Bank Certificates of Deposit (CDBs) include interest earned varying from 70% to 108% (from 70% to 109% in 2013) of Interbank Deposit Certificates (CDI) rate. The CDBs earn an average income in excess of those from securities purchased under the resale agreements; however, the Company invests in short term (up to 20 working days) through securities purchased under resale agreements taking into account the exemption of IOF tax, which is not granted in the case of CDBs.

(c)

Restricted cash in guarantees to loans are investments in fixed-income funds, with appreciation of shares through investments only in federal government bonds, indexed to fixed rates or to price indexes, and pledged to guarantee a portion of the Company’s issuances. These amounts are periodically released, when there is a surplus of guarantee in the issuance and/or as provided for in the indenture. See further information in Notes 13 e 17(b).

(d)

Restricted credits are represented by onlending of the funds from associate credit (“crédito associativo”), a type of government real estate financing, which are in the process of approval at the Caixa Econômica Federal (a Federally owned Brazilian bank used for real estate financing purpose). These approvals are made to the extent the contracts signed with customers at the financial institutions are finalized, which the Company expects to be in up to 90 days.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

5.	Trade accounts receivable of development and services


	2014			2013

Real estate development and sales		1,919,846			2,356,976
( - ) Allowance for doubtful accounts and cancelled contracts		(109,893	)		(179,372	)
( - ) Present value adjustments		(24,642	)		(14,484	)
Services and construction and other receivables		40,008			60,548
		1,825,319			2,223,668

Current		1,440,498			1,909,877
Non-current		384,821			313,791

The current and non-current portions have the following maturities:


Maturity	2014			2013

2014		-			2,103,733
2015		1,575,033			183,140
2016		187,719			61,963
2017		112,191			31,677
2018		18,969			8,275
2019 onwards		65,942			28,736
		1,959,854			2,417,524
( - ) Adjustment to present value		(24,642	)		(14,484	)
( - ) Allowance for doubtful account and cancelled contracts		(109,893	)		(179,372	)
		1,825,319			2,223,668

The balance of accounts receivable from units sold and not yet delivered is not fully reflected in the consolidated financial statements. The balance is limited to the portion of the recorded revenues net of the amounts already received, according to the accounting practice mentioned in Note 2.2.2(i)(b).

As of December 31, 2014, the amount received from customers in excess of the revenues recognized totaled R$21,236 (R$48,220 in 2013) in the consolidated financial statements, and are classified in “Payables for purchase of properties and advances from customers" (Note 18).

Accounts receivable from completed real estate units financed by the Company are in general subject to annual interest of 12% plus IGP-M variation, with revenue being recorded in profit or loss in the account “Revenue from real estate development and sale, barter transactions and construction services". The interest amounts recognized, in the consolidated financial statements for the year ended December 31, 2014 totaled R$36,216 (R$31,419 in 2013 and R$52,184 in 2012).

The balances of allowance for doubtful accounts and cancelled contracts, are considered sufficient by the Company’s management to cover estimated future losses on realization of the accounts receivable.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

5.	Trade accounts receivable of development and services --Continued

The change in the allowance for doubtful accounts and cancelled contracts for the years ended December 31, 2014 and 2013, is as follows:


	Receivables			Properties for sale (Note 6 and 24)			Net

Balance at December 31, 2012		(260,494	)		180,399			(80,095	)
Additions (Note 23)		(24,113	)		14,895			(9,218	)
Write-offs (Note 23)		105,235			(88,122	)		17,113
Balance at December 31, 2013		(179,372	)		107,172			(72,200	)
Write-offs / (recoveries) (Note 23)		69,479			(54,863	)		14,616
Balance at December 31, 2014		(109,893	)		52,309			(57,584	)

The reversal of the present value adjustment recognized in revenue from real estate development for the year ended December 31, 2014 totaled R$1,660 (R$1,214 in 2013) in the consolidated financial statements.

Receivables from units not yet completed were measured at present value using a discount rate determined according to the criteria described in Note 2.2.2. The discount rate applied by the Company and its subsidiaries ranged from 3.27 to 4.64% in 2014 (1.98 to 3.10% in 2013), net of Civil Construction National Index (INCC).

The Company entered into the following Real Estate Receivables Agreement (CCI) transactions, which are aimed at the assignment by the assignor to the assignee of a portfolio comprising select residential and business real estate receivables of concluded and in construction units arising out of Gafisa and its subsidiaries. The assigned portfolios, discounted to present value, are recorded as a liability under the heading “obligations assumed on the assignment of receivables”.

						(Note 14)
	Transaction date	Assigned portfolio		Portfolio discounted to present value		2014		2013

(i)	Jun 26, 2009		89,102		69,315		-		12,295
(ii)	Jun 27, 2011		203,915		171,694		8,851		17,146
(iii)	Dec 22, 2011		72,384		60,097		3,985		13,686
(iv)	Jul 06, 2012		18,207		13,917		1,483		2,578
(v)	Nov 14, 2012 (a)		181,981		149,025		6,151		10,639
(vi)	Dec 27, 2012		72,021		61,647		8,604		35,831
(vii)	Nov 29, 2013		24,149		19,564		9,459		17,154
(viii)	Nov 25, 2014		15,200		12,434		11,513		-

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

5.	Trade accounts receivable of development and services --Continued

(a)

Transaction made by the associate Alphaville and its subsidiaries, at the time it was a subsidiary of the Company. The balance recorded refers to the remaining balance of the subsidiaries consolidated by the Company.

In the transactions above, the Company and its subsidiaries are jointly responsible until the time of the transfer of the collateral to the securitization company.

For the items (i) to (vi) above, the Company was engaged to perform, among other duties, the management of the receipt of receivables, the assignment’s underlying assets, and collection from defaulting customers according to the criteria of each investor, being paid for these services.

When applicable, the difference between the face value an the present value of the portfolio of receivables was recorded in profit or loss in the account “Discount related to Securitization Transaction” under financial expenses.

6.	Properties for sale


	2014			2013

Land		1,311,847			1,077,762
( - ) Adjustment to present value		(5,503	)		(883	)
Property under construction		905,190			630,407
Real estate cost in the recognition of the provision for cancelled contracts - Note 5		52,309			107,172
Completed units		260,808			291,232
( - ) Provision for impairment of properties for sale		(12,309	)		(11,276	)
		2,512,342			2,094,414

Current portion		1,695,817			1,442,019
Non-current portion		816,525			652,395

For the years ended December 31, 2014 and 2013, the change in the provision for impairment of properties for sale is summarized as follows:


Balance at December 31, 2012	(7,663	)
Additions	(23,758	)
Write-offs	11,009
Transfer among land available for sale (Note 8.1)	9,136
Balance at December 31, 2013	(11,276	)
Additions	(4,462	)
Write-offs	3,429
Balance at December 31, 2014	(12,309	)

The Company has undertaken commitments to build units in exchange for land, accounted for based on the fair value of the bartered units to be delivered.

As disclosed in Note 12, the balance of capitalized financial charges as of December 31, 2014 is R$276,613 (R$214,298 in 2013 and R$239,327 in 2012) in the consolidated financial statements.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

7.	Other accounts receivable


	2014		2013

Advances to suppliers		5,082		5,266
Recoverable taxes		76,000		70,054
Judicial deposit (Note 17)		154,939		127,405
Other		5,125		5,986

		241,146		208,711

Current portion		128,905		71,083
Non-current portion		112,241		137,628

8.	Non-current assets held for sale

8.1

Land available for sale

The Company, in line with its strategic direction, opted to sell land not included in the Business Plan approved for 2015. Therefore, it devised a specific plan for the sale of such land. The carrying amount of such land, adjusted to fair value less cost to sell when applicable, after the test for impairment, is as follows:


	Cost			Provision for impairment			Net balance

Balance at December 31, 2012		185,463			(46,104	)		139,359
Transfer of properties for sale (Note 6)		14,715			(9,136	)		5,579
Reversal/Write-offs		(28,068	)		(2,023	)		(30,091	)
Balance at December 31, 2013		172,110			(57,263	)		114,847
Additions		23,313			(24,990	)		(1,677	)
Reversal/Write-offs		(33,686	)		31,079			(2,607	)
Balance at December 31, 2014		161,737			(51,174	)		110,563

Gafisa and SPEs		32,928			(26,854	)		6,074
Tenda and SPEs		128,809			(24,320	)		104,489

On December 9, 2013, the Company disclosed the completion of the sale transaction of its 70% interest in AUSA. As a result of this transaction, a gain of R$631,122 was recorded in the Company’s results under the heading “Net income from discontinued operations”, as shown below:


	2013
Amount received		1,254,521
(-) Write-off of investments		(318,086	)
(-) Write-off of goodwill		(379,829	)
(-) Transaction cost		(16,336	)
		540,270
Income from equity method investments		166,964
Tax expenses		(76,112	)
		631,122

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

8.	Non-current assets held for sale --Continued

8.2

Non-current assets held for sale and profit from discontinued operations

In accordance with the provisions of paragraph 38 of CPC 31 – Non-current Asset Held for Sale and Discontinued Operations, the Company presents below the main lines in the statement of operations and cash flows of AUSA:

Statement of profit or loss	2013(a)			2012

Net operating revenue		810,397			785,182
Operating costs		(429,066	)		(377,071	)
Operating expenses, net		(140,838	)		(161,710	)
Income from equity method investments		3,445			7,732
Financial expenses		(27,258	)		(35,588	)
Income tax and social contribution		(21,783	)		(14,417	)
		194,897			204,128
Noncontrolling interests		(18,459	)		(7,543	)
Net income for the year		176,438			196,585

Cash flows	2013(a)			2012


Operating activities		(197,093	)		63,010
Investing activities		66,664			(52,455	)
Financing activities		(1,350	)		119,359

(a) Balance referred to the period ended December 9, 2013, date of completion of the sale of controlling interests in AUSA.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

9.	Investments in associates

(i)

Ownership interest

(a)

Associates and jointly-controlled investees

		Ownership interest - %				Total assets	Total liabilities	Equity and advance for future capital increase			Profit (loss) for the year				Investments			Income from equity method investments
Direct investees		2014		2013		2014	2014	2014	2013		2014		2013		2014	2013		2014		2013		2012

Construtora Tenda S/A	-	100	%	100	%	2,125,190	1,066,713	1,058,477	1,127,969		(109,437	)	(90,926	)	-	-		-		(3,911	)	-
Alphaville Urbanismo S.A	(a)	30	%	10	%	2,036,491	1,474,827	561,664	454,054		107,662		176,021		168,499	136,216		32,283		-		-
Shertis Emp. e Part. S.A.	(a)	0	%	100	%	-	-	-	267,415		-		211,489		-	(75	)	-		(75	)	-
Gafisa SPE-116 Emp. Imob. Ltda.	(b)	50	%	50	%	80,153	1,533	78,620	82,075		(5,380	)	8,939		39,310	41,038		(2,690	)	4,470		3
SPE Parque Ecoville Emp. Imob. Ltda	-	100	%	100	%	84,962	48,289	36,673	40,008		(3,335	)	8,101		-	-		-		-		5,231
Manhattan Square Em. Im. Res. 02 Ltda	-	100	%	50	%	35,449	51	35,398	2,829		8		(46	)	-	382		-		-		(30	)
Varandas Grand Park Em. Im. Ltda	(b)(d)	50	%	50	%	127,320	70,559	56,761	25,982		5,924		2,341		28,380	12,991		4,642		1,430		1,332
Sitio Jatiuca Emp. Imob. SPE Ltda	(b)	50	%	50	%	60,005	4,351	55,654	64,035		2,591		(5,951	)	27,827	32,018		1,295		(2,975	)	5,041
Gafisa e Ivo Rizzo SPE-47 Ltda	(b)	80	%	80	%	31,485	43	31,442	31,275		1		(1	)	25,153	25,020		1		(1	)	(310	)
Parque Arvores Empr. Imob. Ltda.	(b)(d)	50	%	50	%	39,599	-	39,599	37,990		4,072		9,749		24,502	24,550		5,519		6,371		(7,161	)
Manhattan Square Em. Im. Com. 02 Ltda	-	100	%	50	%	18,020	64	17,956	1,797		49		(157	)	-	(93	)	-		-		(93	)
Gafisa SPE 46 Emp. Imob. Ltda.	-	100	%	60	%	5,505	-	5,505	16,391		175		(194	)	-	9,835		90		(116	)	176
Gafisa SPE 71 Emp. Imob. Ltda.	(b)	100	%	80	%	15,861	1,619	14,242	19,617		(79	)	709		-	15,694		610		567		40
Parque Aguas Empr. Imob. Ltda.	(b)(d)	50	%	50	%	17,046	-	17,046	17,188		2,255		3,671		11,589	11,640		2,925		2,529		(568	)
Gafisa SPE 65 Emp. Imob. Ltda.	-	100	%	80	%	19,669	8,179	11,490	13,831		1,009		(383	)	-	11,065		597		(306	)	1,660
Alto Da Barra De Sao Miguel Em. Im. SPE Ltda	(b)	50	%	50	%	23,487	983	22,504	22,943		(439	)	819		11,252	11,472		(315	)	410		663
Città Ville SPE Emp. Imob. Ltda.	(b)	50	%	50	%	63,578	42,452	21,126	55,886		(1,367	)	2,365		-	-		-		-		(292	)
Gafisa SPE-113 Emp. Imob. Ltda.	(b)	60	%	60	%	72,017	54,896	17,122	15,648		3,061		(3,559	)	10,273	9,389		1,837		(2,136	)	6,130
Gafisa SPE - 122 Emp. Imob. Ltda.	-	100	%	100	%	39,295	29,170	10,125	(230	)	10,355		-		-	-		-		-		-

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

9.	Investments in associates --Continued

(i)

Ownership interest --Continued

(a)

Associates and jointly-controlled investees --Continued

		Ownership interest - %				Total assets	Total liabilities		Equity and advance for future capital increase		Profit (loss) for the year				Investments			Income from equity method investments
Direct investees		2014		2013		2014	2014		2014	2013	2014		2013		2014	2013		2014		2013		2012

Gafisa SPE 55 Emp. Imob. Ltda.	(b)(c)	80	%	0	%	15,543	3,084		12,459	-	3,743		-		9,967	-		566		-		(1,344	)
Atins Emp. Imob.s Ltda.	(b)	50	%	0	%	26,221	10,819		15,402	-	72		-		7,701	-		37		-		-
Aram Spe Empr. Imob. Ltda.	-	100	%	100	%	7,923	946		6,977	5,981	4,326		1,328		-	306		-		(6,649	)	(2,852	)
Gafisa SPE-85 Emp. Imob. Ltda.	(b)	80	%	80	%	43,021	35,282		7,739	7,064	815		(15,952	)	6,191	5,651		652		(12,761	)	118
Costa Maggiore Empr. Imob. Ltda.	(b)	50	%	50	%	13,552	1,563		11,989	15,463	1,626		3,789		5,994	10,307		936		1,977		1,030
Dubai Residencial Empr. Imob. Ltda.	(b)(d)	50	%	50	%	6,523	-		6,523	19,400	227		10,985		5,531	12,895		(4,303	)	5,581		(674	)
Prime Empr. Imob. Ltda.	(b)(d)	50	%	50	%	16,974	6,100		10,874	6,322	(5,064	)	563		5,437	3,161		1,010		393		(475	)
O Bosque Empr. Imob. Ltda.	(b)	60	%	60	%	8,735	283		8,453	9,123	(410	)	(701	)	5,072	5,460		(245	)	(163	)	(125	)
Gafisa Spe 48 S/A	-	80	%	80	%	8,574	4,026		4,547	68,652	1,714		(35	)	3,638	54,922		1,371		(28	)	11,174
Patamares	-	0	%	0	%	-	-		-	-	-		-		-	-		-		-		4,584
Reserva Ecoville Spe 28	-	0	%	0	%	-	-		-	-	-		-		-	-		-		-		7,266
OCPC01 adjustment - capitalized interests	(e)					-	-		-	-	-		-		-	-		-		3,527		(2,366	)
Other (*)	-					89,690	(25,392	)	115,082	737,783	(10,828	)	(14,051	)	13,065	38,094		(1,654	)	(11,914	)	2,680

Gafisa SPE 55 Emp. Imob. Ltda.	(c)	0	%	80	%	-	-		-	47,591	-		-		-	41,278		-		(537	)	(1,344	)
Saí Amarela S.A.	(b)	50	%	50	%	2,384	30		2,354	1,935	(99	)	(153	)	918	968		(50	)	(1,920	)	1,840
Gafisa SPE-51 Emp. Imob. Ltda.	(b)	60	%	60	%	5,463	1,509		3,954	4,414	(458	)	(1,208	)	2,372	2,647		(275	)	(725	)	-
Other	-					1,019	84		934	13,752	57		(17,202	)	417	1,690		(5	)	(160	)	31
Indirect jointly-controlled investees of Gafisa	-					8,866	1,623		7,242	67,692	(500	)	(18,563	)	3,707	46,583		(330	)	(3,342	)	527

Acedio SPE Emp. Imob. Ltda.	-	55	%	55	%	4,886	3		4,883	4,696	6		(1	)	2,685	2,583		3		(1	)	2
Maria Inês SPE Emp. Imob. Ltda.	-	60	%	60	%	21,351	437		20,914	20,836	55		305		12,548	12,502		33		183		139
Fit 02 SPE Emp. Imob. Ltda.	-	60	%	60	%	12,549	607		11,942	11,758	184		2		7,165	7,055		110		1		140
Fit Jardim Botânico SPE Emp. Imob. Ltda.	-	55	%	55	%	39,897	1,338		38,559	39,404	(822	)	1,303		21,207	21,672		(451	)	716		1,174
Fit 11 SPE Emp. Imob. Ltda.	-	70	%	70	%	53,542	23,938		29,604	27,452	(2,643	)	6,180		20,723	19,217		(1,851	)	4,326		2,684
Fit 31 SPE Emp. Imob. Ltda.	-	70	%	70	%	22,966	11,207		11,759	15,155	(3,047	)	(5,303	)	8,231	10,608		(2,133	)	(3,712	)	2,110
Fit 34 SPE Emp. Imob. Ltda.	-	70	%	70	%	32,709	963		31,746	29,964	1,597		4,286		22,221	20,975		1,117		3,000		725
Fit 13 SPE Emp. Imob. Ltda.	-	50	%	50	%	38,077	6,601		31,476	31,207	99		15,386		18,399	31,222		49		16,314		33,001
Ac Participações Ltda	-	100	%	80	%	25,752	5,333		20,419	23,755	(3,906	)	1,929		-	19,004		(3,906	)	1,543		(847	)
Fit 03 SPE Emp. Imob. Ltda.	-	80	%	80	%	11,351	544		10,807	10,044	764		(2,041	)	8,646	8,035		611		(1,633	)	(2,087	)
Fit Campolim SPE Emp. Imob. Ltda.	-	55	%	55	%	6,726	-		6,726	6,623	(1	)	(8	)	3,699	3,643		(1	)	(4	)	23
Imbuí I SPE Emp. Imob. Ltda.	-	50	%	50	%	9,401	588		8,813	8,899	(68	)	(203	)	4,406	4,450		(41	)	(100	)	37
Jardim São Luiz SPE Incorp. Ltda.	-	100	%	50	%	8,131	666		7,465	7,130	-		(90	)	-	3,565		-		(45	)	(1	)
Grand Park - Pq. dos Pássaros SPE Emp. Imob. Ltda.	-	50	%	50	%	26,453	-		26,453	35,230	2,595		9,538		18,646	17,615		1,304		6,260		(4,226	)
Citta Itapua Emp. Imob. SPE Ltda.	-	50	%	50	%	14,423	1,992		12,431	15,354	(1,311	)	(597	)	6,215	7,379		(670	)	(298	)	217
SPE Franere Gafisa 08 Emp. Imob. Ltda.	-	50	%	50	%	90,554	52,936		37,618	59,996	(25,394	)	11,987		18,809	29,998		(12,697	)	5,993		449
Città Ipitanga SPE Emp. Imob. Ltda.	-	50	%	50	%	12,812	1,109		11,703	16,957	(810	)	(378	)	5,852	8,289		(403	)	(189	)	389
Other	-					-	-		-	5,236	-		(8	)	-	(2,110	)	(256	)	(1,100	)	(1,810	)
Indirect jointly-controlled investees of Tenda	-					431,580	108,262		323,318	369,696	(32,702	)	42,287		179,452	225,702		(19,182	)	31,254		32,119

Subtotal						5,572,334	2,950,325		2,622,009	3,546,489	(14,476	)	360,739		592,540	744,223		25,652		14,132		63,484

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

9.	Investments in associates --Continued

(i)

Ownership interest --Continued

(a)

Associates and jointly-controlled investees —Continued

		Ownership interest - %		Total assets	Total liabilities	Equity and advance for future capital increase		Profit (loss) for the year		Investments				Income from equity method investments
Direct investees		2014	2013	2014	2014	2014	2013	2014	2013	2014		2013		2014		2013		2012

Addition to remeasurement of investment in associate	(f)										375,853		375,853		-		-		-
Total investments											968,393		1,120,076		25,652		14,132		63,484

(*)Includes companies with investment balances below R$5,000.

	Interest - %						Total assets		Total liabilities		Equity and advance for future capital increase						Profit (loss) for the period						Provision for capital deficiency						Income from equity method investments
Direct investees	2014			2013			2014		2014		2014			2013			2014			2013			2014			2013			2014			2013			2012
Provision for net capital deficiency (g):
Manhattan Residencial 01 Spe Ltda		50	%		50	%		82,135		147,813		(65,678	)		(43,283	)		(21,017	)		(1,401	)		(32,839	)		(21,642	)		(10,509	)		(6,762	)		(3,694	)
Other (*)								23		120		(97	)		355			(74	)		(129	)		(42	)		501			4,120			-			(4,187	)
Total provision for capital deficiency								82,158		147,933		(65,775	)		(42,928	)		(21,091	)		(1,530	)		(32,881	)		(21,141	)		(6,389	)		(6,762	)		(7,881	)

Total Income from equity method investments																														19,263			7,370			55,603

(a)

In October 2014, the subsidiary Shertis, whose only asset was the ownership interest of 20% in the subsidiary AUSA, was merged into the Company. Accordingly, the parent company started to hold 30% of interest in AUSA.

(b)

Joint venture.

(c)

Entities reclassified from unincorporated venture (SCP) to the parent company (see item (e), in view of the settlement of the obligations provided for in the contract, and its subsequent dissolution (Note 15).

(d)

The Company recorded the amount of R$6,053 in Income from equity method investments for 2014 related to the recognition, by joint ventures, of adjustments in prior years, in accordance with the ICPC09 (R2) – Individual, Separate and Consolidated Financial Statements and the Equity Method of Accounting.

(e)

Charges of the parent company not appropriated to the profit or loss of subsidiaries, as required by paragraph 6 of OCPC01.

(f)

Amount related to the addition of the remeasurement of the portion of the remaining investment of 30% in the associate AUSA, in the amount of R$375,853. The increase presented in the parent company in the year 2014 refers to the merger of the subsidiary Shertis, according to item (a).

(g)

Provision for capital deficiency is recorded in account “Other payables” (Note 16).

(b)

Change in investments


Balance at December 31, 2013	1,120,076
Income from equity method investments	25,652
Capital contribution (decrease)	5,466
Dividends received	(49,849	)
Acquisition/sale of interests	(5,748	)
Effect on the change in the consolidation criteria due to acquisition or sale of interest	(104,008	)
Other investments	(23,196	)
Balance at December 31, 2014	968,393

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

10.	Property and equipment


Type	2013			Addition			Write-off			100% depreciated items			2014
Cost
Hardware		32,722			4,177			-			(14,566	)		22,333
Vehicles		979			-			-			(979	)		-
Leasehold improvements and installations		34,256			6,697			(3,187	)		(13,250	)		24,516
Furniture and fixtures		5,764			1,268			(468	)		(1,111	)		5,453
Machinery and equipment		3,836			804			(616	)		(4	)		4,020
Molds		8,130			10,035			-			(8,130	)		10,035
Sales stands		203,236			19,327			(3,379	)		(204,101	)		15,083
		288,923			42,308			(7,650	)		(242,141	)		81,440

Accumulated depreciation
Hardware		(21,820	)		(4,203	)		-			14,566			(11,457	)
Vehicles		(979	)		-			-			979			-
Leasehold improvements and installations		(21,499	)		(5,721	)		1,745			13,250			(12,225	)
Furniture and fixtures		(3,662	)		(565	)		1			1,111			(3,115	)
Machinery and equipment		(1,104	)		(398	)		-			4			(1,498	)
Molds		(6,945	)		(2,605	)		505			8,130			(915	)
Sales stands		(196,529	)		(14,481	)		3,370			204,101			(3,539	)
		(252,538	)		(27,973	)		5,621			242,141			(32,749	)

		36,385			14,335			(2,029	)		-			48,691

The following useful lives and rates are used to calculate depreciation:

	Useful life	Annual depreciation rate - %
Leasehold improvements and installations	4 years		25
Furniture and fixture	10 years		10
Hardware	5 years		20
Machinery and equipment	10 years		10
Vehicles	5 years		20
Molds	5 years		20
Sales stands	1 year		100

11.	Intangible assets


	2013											2014
	Balance			Addition		Write-down / amortization			100% amortized items			Balance
Goodwill
AUSA		25,476			-		-			-			25,476
Cipesa (Note 9)		40,687			-		-			-			40,687
Provision for impairment of goodwill (Note 9)		(23,083	)		-		(17,604	)		-			(40,687	)
		43,080			-		(17,604	)		-			25,476
Other intangible assets
Software – Cost		104,625			13,389		(1,158	)		(15,275	)		101,581
Software – Accumulated depreciation		(54,708	)		-		(19,122	)		15,275			(58,555	)
Other		13,343			2,695		(7,637	)		-			8,401
		63,260			16,084		(27,917	)		-			51,427

		106,340			16,084		(45,521	)		-			76,903

Other intangible assets comprise expenditures on the acquisition and implementation of information systems and software licenses, amortized over five years (20% per year).

Goodwill arises from the difference between the consideration transferred and the equity of acquirees, calculated on acquisition date, and is based on the expectation of future economic benefits.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

11.	Intangible assets --Continued

The Company evaluated the recovery of the carrying amount of goodwill based on the “value in use”, applying discounted cash flow models of the cash-generating units. The process for determining the value in use involves the use of assumptions, judgments and estimates relating to cash flows, such as growth rate of revenues, costs and expenses, estimates of investment and future working capital, and discount rates. The assumptions relating to growth, cash flow and future cash flows are based on the Company’s business plan, approved by management, as well as on comparable market data, and represent the Management’s best estimate of the economic conditions that will prevail during the economic life of the different cash-generating units or group of assets that provides the generation of cash flows. The discount rate used to determine the present value of future cash flows was the Company’s cost of capital. Consistent with the economic valuation techniques, the evaluation of the value in use is made for a five-year period, and after such period, considering the perpetuity of assumptions in view of the capacity for indefinite business continuity. The main assumptions used in the estimate of value in use are the following: a) revenue – revenues were projected between 2015 and 2019 considering the growth in sales and client base of the different cash-generating units; b) Operating costs and expenses – costs and expenses were projected in line with the Company’s historical performance, as well as the historical growth of revenues. The key assumptions were based on the Company’s historical performance over the past five years and on reasonable macroeconomic assumptions, and supported by the financial market projections. The impairment test of the Company’s intangible assets resulted in the need for recognizing a provision for impairment in the year ended December 31, 2014 in the amount of R$17,604 (R$963 in 2013) related to the goodwill on acquisition of CIPESA.

12.	Loans and financing


Type	Maturity	Annual interest rate	2014	2013

National Housing System - SFH /SFI (i)	January 2015 to December 2018	8.30% to 11.00% + TR 117% of CDI 12.87% Fixed	1,128,514	1,088,258
Certificate of Bank Credit - CCB (ii)	June 2015 to July 2017	117.9% of CDI 2.20% + CDI 13.20% Fixed	268,911	550,052
			1,397,425	1,638,310

Current portion			550,058	590,386
Non-current portion			847,367	1,047,924

(i)

The SFH financing is used for covering costs related to the development of real estate ventures of the Company and its subsidiaries, and count on secured guarantee by the first-grade mortgage of real estate ventures and the fiduciary assignment of receivables.

On September 29, 2014, the Company took out a loan for building a Real Estate Venture in the amount of R$194,000, and the final maturity is dated for October 8, 2018. The loans is backed by secured guarantee represented by a first-grade mortgage of select real estate ventures of the Company and fiduciary assignment of real estate receivables of these selected ventures. This contract has clauses that restrict the ability of taking some actions, and may require the early maturity in case these clauses are not fulfilled. As of December 31, 2014, the Company is compliant with all of its contractual obligations.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

12.	Loans and financing —Continued

(ii)

On September 29, 2014, the Company settled R$66,000 in advance related to the debt balance of Certificates of Bank Credit (CCB) with secured guarantee and final maturity on May 2, 2016, discharging the Company from all commitments taken on this contract as of such date.

Rates

CDI - Interbank Deposit Certificate;

TR - Referential Rate.

The maturities of the current and non-current installments are as follows:


Maturity	2014		2013

2014		-		590,386
2015		550,058		642,328
2016		506,207		296,464
2017		252,605		107,901
2018		88,555		1,231
		1,397,425		1,638,310

The Company and its subsidiaries have restrictive covenants under certain loans and financing that limit their ability to perform certain actions, such as the issuance of debt, and that could require the early redemption or refinancing of loans if the Company does not fulfill such covenants. The ratio and minimum and maximum amounts required under such restrictive covenants as of December 31, 2014 and 2013 are disclosed in Note 13.

Financial expenses of loans, financing and debentures (Note 13) are capitalized at the cost of construction of each venture and land, according to the use of funds, and recognized in profit or loss for the year in proportion to the units sold, as shown below. The capitalization rate used in the determination of costs of loans eligible for capitalization ranges from 10.95% to 12.24% as of December 31, 2014 (9.14 to 10.14% in 2013).

The following table shows the summary of financial expenses and charges and the capitalized rate in the accounts “properties for sale”.


	2014			2013			2012

Total financial charges for the year		354,968			309,006			285,964
Capitalized financial charges		(233,905	)		(132,183	)		(121,944	)

Financial expenses (Note 25)		121,063			176,823			164,020

Financial charges included in “Properties for sale”:

Opening balance		214,298			239,327			274,478
Capitalized financial charges		233,905			132,183			121,944
Charges recognized in profit or loss (Note 24)		(171,590	)		(157,212	)		(157,095	)

Closing balance (Note 6)		276,613			214,298			239,327

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

13.	Debentures

Program/placement	Principal - R$	Annual interest	Final maturity	2014	2013

Sixth placement (i)	100,000	CDI + 1.30%	June 2014	-	151,513
Seventh placement (ii)	525,000	TR + 9.8205%	December 2017	502,033	551,855
Eighth placement / first series (iii)	144,214	CDI + 1.95%	October 2015	147,640	294,073
Eighth placement / second series (iv)	11,573	IPCA + 7.96%	October 2016	15,185	14,216
Ninth placement (v)	130,000	CDI + 1.90%	July 2018	134,624	-
First placement (Tenda) (vi)	380,000	TR + 9.25%	October 2016	389,617	409,561
				1,189,099	1,421,218

Current portion				504,387	563,832
Non-Current portion				684,712	857,386

(i)

On June 2, 2014, the Company made the payment in the amount of R$158,969, of which R$100,000 related to the Face Value of the Placement and R$58,969 related to the interest payable, thus settling all obligations of its 6th Debenture Placement.

(ii)

In the year ended December 31, 2014, the Company made the payment in the amount of R$107,075, of which R$50,000 related to the Face Value of the Placement and R$57,075 related to the interest payable.

(iii)

In the year ended December 31, 2014, the Company made the payment in the amount of R$179,356, of which R$144,214 related to the Face Value of the Placement and R$35,142 related to the interest payable.

(iv)

On October 15, 2014, the Company made the payment in the amount of R$1,176 related to the interest payable of this placement.

(v)

On July 22, 2014, the Company approved the ninth private placement of non-convertible debentures, with general guarantee, in only one series in the amount of R$130,000, fully paid-in on July 28, 2014 with final maturity on July 27, 2018. The proceeds from the placement will be used in the development of select real estate ventures and their general guarantees are represented by the fiduciary assignment of real estate receivables and the real estate mortgage of such ventures. The face value of the Placement will accrue interest corresponding to the cumulative variation of the DI (Interbank Deposit tax) plus a spread equivalent to 1.90% p.a.. This placement was subject to an assignment to the securitization company by its debenture holders, which later issued mortgage-backed securities (CRI). On this same date, the Company entered into an interest rate swap transaction to mitigate its exposure to the index in question, as detailed in Note 21.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

13.	Debentures--Continued

(vi)

On March 28, 2014, the partial deferment of the payment for the fourth installment of the face value of this placement was approved in the amount of R$90,000 until May 1, 2014, while R$10,000 should be paid on the original due date on April 1, 2014. On April 17, 2014, all of the debenture holders of the first placement of subsidiary Tenda unanimously approved without any exception: (a) the change in the maturity schedule of this placement to the following amounts and due dates: (i) R$10,000 on April 1, 2014, (ii) R$10,000 on October 1, 2014, (iii) R$80,000 on April 1, 2015, (iv) R$100,000 on October 1, 2015, (v) R$100,000 on April 1, 2016, (vi) R$100,000 on October 1, 2016; (b) reduction in the Guaranteed Percentage to 130% of Eligible Receivables; (c) reduction to three (3) months the period for retaining the amounts in the Centralized Account previous to the maturity of each amortization and/or interest installment; (d) change in the definition of associate credit (“crédito associativo”), a government real estate finance aid, of the Indenture; (e) permission for cancelling the restriction of Receivables in case of guarantee surplus; (f) exclusion of the possibility of early redemption and/or early amortization of Debentures. In the year ended December 31, 2014, the Company made the payment in the amount of R$58,849, of which R$20,000 related to the Face Value of the Placement, and R$38,948 related to the interest payable.

Maturities of current and non-current installments are as follows.


Maturity	2014		2013

2014		-		563,832
2015		504,387		499,093
2016		375,778		158,292
2017		244,690		200,001
2018		64,244		-
		1,189,099		1,421,218

As mentioned in Note 4.2, as of December 31, 2014, the balance of cash in guarantee to loans in investment funds in the amount R$104,039 (R$105,380 in 2013) in the consolidated financial statements, is pledged as part of the calculation of the guarantee of the 1st debenture placement of the subsidiary Tenda and the 7th placement of the Company.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

13.	Debentures--Continued

	2014	2013
Seventh placement
Total account receivable plus inventory required to be below zero or 2.0 times over net debt less venture debt (3)	-9.33 times	-6.21 times
Total debt less venture debt (3), less cash and cash equivalents and short-term investments (1), cannot exceed 75% of equity plus noncontrolling interests	-19.32%	-31.6%
Total account receivable plus unearned revenue plus total inventory of finished units required to be at least 1.5 times over net debt plus payable for purchase of properties plus unappropriated cost	2.10 times	2.79 times

Eighth placement - first and second series and Loans and Financing
Total account receivable plus inventory of finished units required to be below zero or 2.0 times over net debt less venture debt	-5.32 times	-4.31 times
Total debt less venture debt, less cash and cash equivalents and short-term investments (1), cannot exceed 75% of equity plus noncontrolling interests	-19.32%	-31.6%

Ninth placement
Total account receivable plus inventory required to be below zero or greater than 2.0 times over net debt	3.86 times	n/a
Net debt cannot exceed 100% of equity plus noncontrolling interests	46.73%	n/a

	2014	2013
First placement – Tenda
Total accounts receivable plus inventory required to be either greater than or equal to 2.0 times net debt less debt with secured guarantee (3) or below zero, considering that TR(4) plus TE(5) is always above zero.	-2.75 times	-2.49 times
Net debt less debt with secured guarantee (3) shall not be in excess of 50% of equity.	-46.72%	-56.97%
Total account receivable plus unearned revenue plus total inventory of finished units required to be greater than 1.5 times the net debt plus payable for purchase of properties plus unappropriated cost or below zero	2.89 times	56.85 times

(1)

Cash and cash equivalents and short-term investments refer to cash and cash equivalents and marketable securities.

(2)

Total receivables, whenever mentioned, refers to the amount reflected in the Balance Sheet plus the amount not shown in the Balance Sheet

(3)

Venture debt and secured guarantee debt refer to SFH debts, defined as the sum of all disbursed borrowing contracts which funds were provided by SFH, as well as the debt related to the seventh placement.

(4)

Total receivables.

(5)

Total inventory.

14.	Obligations assumed on assignment of receivables

The Company’s transactions of assignment of receivables portfolio, described in Notes 5(i) to 5(viii) are as follows:


	2014		2013

Assignment of receivables:
CCI obligation Jun/09 - Note 5(i)		-		12,295
CCI obligation Jun/11 - Note 5(ii)		8,851		17,146
CCI obligation Dec/11 - Note 5(iii)		3,985		13,686
CCI obligation Jul/12 - Note 5(iv)		1,483		2,578
CCI obligation Nov/12 - Note 5(v) (a)		6,151		10,639
CCI obligation Dec/12 - Note 5(vi)		8,604		35,831
CCI obligation Nov/13 - Note 5(vii)		9,459		17,154
CCI obligation Nov/14 - Note 5(viii)		11,513		-
FIDC obligation – (b)		6,083		6,381
Other		-		4,187
		56,129		119,897

Current portion		24,135		82,787
Non-current potion		31,994		37,110

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

14.	Obligations assumed on assignment of receivables --Continued

Regarding the above transactions, except for item (a), the assignor is required to fully formalize the guarantee instruments of receivables in favor of the assignee. Until it is fully fulfilled, these amounts will be classified into a separate account in current and non-current liabilities.

The obligation of item (a), is guaranteed by the issuance of Subordinated Mortgage-backed Securities (CRI) limited to 4% of the issuance amount, not having right of recourse above this limit.

(b)

On May 28, 2013, the Company settled its obligations of the Gafisa Credit Rights Investment Fund (FIDC). The Company had obligations arising from the pledge of guarantees in favor of the assignee, which were maintained by the successor of Gafisa FIDC. Until the total fulfillment of the latter, these amounts are classified in a specific account in current and non-current liabilities.

15.	Payables to venture partners


	2014		2013

Payable to venture partners (a)		-		103,814
Usufruct of shares (b)		11,030		19,866

		11,030		123,680

Current portion		6,317		112,886
Non-current portion		4,713		10,794

Maturities of current and non-current portions are as follows:



	2014		2013

2014		-		112,886
2015		6,317		6,080
2016		3,573		3,574
2017		1,140		1,140
Total		11,030		123,680

(a)

In January 2008, the Company formed an unincorporated venture (“SCP”), the main objective of which was to hold interest in other real estate development companies. At a meeting of the venture partners held on February 3, 2014, they decided to reduce the SCP capital by R$100,000 Class B shares and, as consequence of this resolution, the SCP paid the amount of R$100,000 to the partners that held such shares and R$4,742 related to the mandatory minimum dividend, thus fulfilling all obligations arising from this contract, with subsequent dissolution of the SCP created for this purpose.

(b)

The Company entered in June 2011 into a private instrument for establishing the usufruct of 100% preferred shares of SPE-89 Empreendimentos Imobiliários S.A., over a period of six years, raising funds amounting to R$45,000. In the year ended December 31, 2014, the total amount of dividends paid to the holders of preferred shares by SPE-89 Empreendimentos Imobiliários S.A. amounted to R$11,500 (Note 9).

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

16.	Other payables


	2014		2013

Acquisition of interests		2,395		5,102
Provision for penalties for delay in construction works		7,663		14,530
Cancelled contract payable		27,607		38,901
Warranty provision		52,167		53,006
Deferred sales taxes (PIS and COFINS)		14,163		40,461
Provision for net capital deficiency (Note 9)		32,882		25,448
Long-term suppliers		12,117		29,780
Other liabilities		39,446		39,386

		188,440		246,614

Current portion		157,896		176,740
Non-current portion		30,544		69,874

17.	Provisions for legal claims and commitments

The Company and its subsidiaries are parties to lawsuits and administrative claims at various courts and government agencies that arise from the ordinary course of business, involving tax, labor, civil and other matters. Management, based on information provided by its legal counsel and analysis of the pending claims and, with respect to the labor claims, based on past experience regarding the amounts claimed, recognized a provision in an amount considered sufficient to cover the losses on pending decisions. The Company does not expect any reimbursement in connection with these claims.

In the year ended December 31, 2014, the changes in the provision are summarized as follows:

	Civil lawsuits(i)			Tax proceedings (ii)			Labor claims			Total
Balance at December 31, 2012		138,615			14,670			55,075			208,360
Additional provision (Note 24)		48,692			-			29,710			78,402
Payment and reversal of provision not used		(52,824	)		(14,497	)		(21,513	)		(88,834	)
Balance at December 31, 2013		134,483			173			63,272			197,928
Additional provision (Note 24)		65,699			600			46,765			113,064
Payment and reversal of provision not used		(42,340	)		(359	)		(28,719	)		(71,418	)
Balance at December 31, 2014		157,842			414			81,318			239,574

Current portion		91,665			218			11,151			103,034
Non-current portion		66,177			196			70,167			136,540

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

17.	Provisions for legal claims and commitments --Continued

(a)

Civil lawsuits, tax proceedings and labor claims

As of December 31, 2014, the Company and its subsidiaries have deposited in court the amount of R$154,939 (R$127,405 in 2013) in the consolidated financial statements (Note 7) to cover civil claims (R$106,731); labor claims (R$35,858) and tax claims (R$12,350) in connection with legal claims.

(i)

As of December 31, 2014, the provisions related to civil claims include R$65,016 (R$67,480 in 2013) related to lawsuits in which the Company is included as successor in enforcement actions and in which the original debtor is a former shareholder of Gafisa, Cimob Companhia Imobiliária (“Cimob”), or involve other companies of the same economic group of Cimob. In these lawsuits, the plaintiff believes that the Company should be liable for the debts of Cimob, as the Company would have taken on the obligations of Cimob after acquisition (business succession, merger of assets and/or formation of a same economic group involving the Company and the Cimob Group). In addition, there are judicial deposits amounting to R$62,381 (R$48,823 in 2013) related to these lawsuits.

The Company does not agree with the statement of facts based on which it has been included in these lawsuits and continues to dispute in court its liability for the debts of a third company, as well as the amount charged by the plaintiffs. The Company has already obtained favorable and unfavorable decisions in relation to this matter, which is the reason why it is not possible to estimate a uniform outcome in all lawsuits. The Company also aims to file a lawsuit against Cimob and its former and current parent companies to argue that it should not be liable for the debts of that company, as well as indemnity of the amounts already paid by the Company in lawsuits relating to the charge of debts owed only by Cimob.

(ii)

The former subsidiary AUSA, current associate, is a party to legal and administrative claims related to Excise Tax (IPI) and State VAT (ICMS) on two imports of aircrafts in 2001 and 2005, respectively, under leasing agreements without purchase option. The likelihood of loss in the ICMS, after review by the legal advisor was reclassified as possible.

According to the negotiation of the sale of controlling interest of 70% in AUSA to Private Equity AE Investimentos e Participações S.A., it was agreed in the purchase and sale contract that the Company would cover the court costs in the event of unfavorable decision. The contingency amount considered by the legal advisor as possible, is R$16,638 as of December 31, 2014 (R$15,925 in 2013).

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

17.	Provisions for legal claims and commitments --Continued

(iii)

Environmental risk

There are various environmental laws at the federal, state and municipal levels. These environmental laws may result in delays for the Company in connection with adjustments for compliance and other costs, and impede or restrict ventures. Before acquiring a land, the Company assesses all necessary and applicable environmental issues, including the possible existence of hazardous or toxic materials, residual substance, trees, vegetation and the proximity of the land to permanent preservation areas. Therefore, before acquiring land, the Company obtains all governmental approvals, including environmental licenses and construction permits.

In addition, environmental legislation establishes criminal, civil and administrative sanctions to individuals and legal entities for activities considered as environmental infringements or offense. The penalties include the stop of development activities, loss of tax benefits, confinement and fines. The lawsuits in dispute by the Company in civil court are considered by the legal advisor to have possible losses in the amount of R$13,734 for the Company.

(iv)

Lawsuits in which likelihood of loss is rated as possible

As of December 31, 2014, the Company and its subsidiaries are aware of other claims and civil, labor and tax risks. Based on the history of probable processes and the specific analysis of main claims, the measurement of claims with likelihood of loss considered possible amounted to R$561,056 (R$435,046 in 2013), based on average past outcomes adjusted to current estimates, for which the Company’s Management believes it is not necessary to recognize a provision for possible losses. The change in the period was caused by the higher volume of lawsuits with smaller amounts and review of the involved amounts.


	2014		2013

Civil lawsuits		441,083		331,976
Tax proceedings		53,586		45,413
Labor claims		66,387		57,657
		561,056		435,046

(b)

Payables related to the completion of real estate ventures

The Company and its subsidiaries are committed to completing units sold and to comply with the Laws regulating the civil construction sector, including the obtainment of licenses from the proper authorities, and compliance with the terms for starting and delivering the ventures, being subject to legal and contractual penalties.

As of December 31, 2014, the Company and its subsidiaries have restricted cash which will be released at the extent the guarantee indexes described in Note 4.2 are met, which include land and receivables pledged in guarantee of 120% of the debt outstanding.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

17.	Provisions for legal claims and commitments --Continued

(c)

Other commitments

In addition to the commitments mentioned in Notes 6, 12 and 13, the Company has commitments related to the rental of 28 properties where its facilities are located, at a monthly cost of R$1,078 adjusted by the IGP-M/FGV variation. The rental term is from 1 to 10 years and there is a fine in case of cancelled contracts corresponding to three months’ rent or in proportion to the contract expiration time.

18.	Payables for purchase of properties and advances from customers


	2014			2013

Payables for purchase of properties		331,436			262,902
Adjustment to present value		(5,619	)		(873	)
Advances from customers
Development and sales (Note 5)		21,236			48,220
Barter transaction - Land		244,689			178,100

		591,742			488,349

Current portion		490,605			408,374
Non-current portion		101,137			79,975

19.

Equity

19.1.

Capital

As of December 31, 2014 and 2013, the Company's authorized and paid-in capital amounts to R$2,740,662, represented by 408,066,162 (435,559,201 in 2013) registered common shares, without par value, of which 29,881,286 (19,099,486 in 2013) were held in treasury.

According to the Company’s articles of incorporation, capital may be increased without the need of making amendment to it, upon resolution of the Board of Directors, which may set the conditions for issuance up to the limit of 600,000,000 (six hundred million) common shares.

On February 26, 2014, the Board of Directors of Tenda approved the termination of the repurchase program of common shares issued by Gafisa, approved on December 9, 2013, for holding them in treasury and later selling them. In the period of the program, 7,000,000 shares were acquired in the market, in the total amount of R$22,728.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

19.	Equity --Continued

19.1.

Capital --Continued

On the same date, the Board of Directors of the Company created a repurchase program of its common shares aimed at holding them in treasury and later selling or cancelling them, limiting the acquisition to 17,456,434 shares to be carried out within 365 days. In the year ended December 31, 2014, there was the acquisition of the totality of shares of the program in the amount of R$52,097. Additionally, the Company transferred 5,463,395 shares in the total amount of R$17,583 related to the exercise of options under the stock option plan of common shares by the beneficiaries, for which it received the total amount of R$6,921.

On November 18, 2014, the Company approved the cancellation of 11,993,039 common shares issued by the Company and held in treasury, without a capital decrease, and ended the repurchase program initiated on February 26, 2014 since all approved shares had been acquired. On the same date, having observed the approval granted by the CVM, it authorized the private acquisition for holding in treasury of 25,500,000 shares issued by the Company originally acquired by Tenda, which was settled on November 28, 2014, for the amount of R$61,860.

Additionally, on this same date, a new program was approved to repurchase the common shares issued by the Company to hold them in treasury and later sell or cancel them, over a period of 365 days, up to the limit of 16,257,130 shares, which was amended on December 3 to permit the additional acquisition of 13,950,000 shares, with a limit totaling 30,207,130 shares. On December 3, 2014, a resolution was taken on the cancellation of 15,500,000 common shares issued by the Company held in treasury, without a capital decrease.

In the year ended December 31, 2014, the Company acquired 19,281,800 shares in the scope of the repurchase program approved on November 18, 2014, for the amount of R$40,440.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

19.	Equity --Continued

19.1.

Capital --Continued

Treasury shares - 12/31/2014
Type	GFSA3				R$	%			R$ thousand			R$ thousand
Acquisition date	Number			Weighted average price		% - on shares outstanding			Market value (*)			Carrying value
11/20//2001		599,486			2.8880		0.14	%		1,319			1,731
1st quarter 2013		1,000,000			4.3316		0.23	%		2,200			4,336
2nd quarter 2013		9,000,000			3.9551		2.07	%		19,800			35,634
4th quarter 2013		8,500,000			3.6865		1.95	%		18,700			31,369
1 st quarter 2014		14,900,000			3.2297		3.42	%		32,780			48,168
2 nd quarter 2014 (transfer)		(4,169,157	)		3.2168		-1.03	%		(9,172	)		(13,424	)
2 nd quarter 2014		1,000,000			3.1843		0.25	%		2,200			3,187
3rd quarter 2014 (transfer)		(1,294,238	)		3.2135		-0.30	%		(2,847	)		(4,159	)
3rd quarter 2014		752,900			2.9283		0.17	%		1,656			2,206
4th quarter 2014		27,085,334			2.0956		6.64	%		59,588			61,704
4th quarter 2014 (cancellations)		(27,493,039	)		3.3351		-6.74	%		(60,485	)		(91,693	)
		29,881,286			2.6458		6.80	%		65,739			79,059

(*)

Market value calculated based on the closing share price at December 31, 2014 (R$2.20), not considering the effect of occasional volatilities.

Treasury shares - 12/31/2013
Type	GFSA3 common			R$	%			R$ thousand		R$ thousand
Acquisition date	Number		Weighted average price		% - on shares outstanding			Market value (*)		Carrying value
11/20/2001		599,486		2.8880		0.14	%		2,116		1,731
1st quarter 2013		1,000,000		4.3316		0.23	%		3,530		4,336
2nd quarter 2013		9,000,000		3.9551		2.07	%		31,770		35,634
4th quarter 2013		8,500,000		3.6865		1.95	%		30,005		31,369
		19,099,486		3.8258		4.39	%		67,421		73,070

(*)

Market value calculated based on the closing share price at December 31, 2013 (R$3.53), not considering the effect of occasional volatilities.

The Company holds shares in treasury acquired in 2001 in order to guarantee the performance of legal claims (Note 17(a)(i)).

In the year of 2013, issuances of shares due to the exercise of stock options were approved in the amount of R$4,868, with the issuance of 2,329,422 new common shares.

The change in the number of outstanding shares is as follows:

	Common shares - In thousands
Outstanding shares as of December 31, 2012		432,630
Exercise of stock options		2,330
Repurchase of treasury shares		(18,500	)
Outstanding shares as of December 31, 2013		416,460
Repurchase of treasury shares		(43,739	)
Transfer related to the stock option program		5,463
Outstanding shares as of December 31, 2014		378,184

Weighted average shares outstanding		401,905

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

19.	Equity --Continued

19.2.

Allocation of profit (loss) for the year

According to the Company’s by-laws, profit for the year is allocated as follows, after deduction of occasional accumulated losses and provision for taxes and social contribution: (i) 5% to legal reserve, reaching up to 20% of capital stock or when the legal reserve balance plus that of capital reserves is in excess of 30% of capital stock; (ii) 25% of the remaining balance to pay mandatory dividends; and (iii) amount not in excess of 71.25% to set up the Reserve for Investments, with the purpose of financing the expansion of the operations of the Company and its subsidiaries.

The Board of Directors, by referendum of the Annual Shareholders’ Meeting, shall examine the accounts and consolidated financial statements related to the year 2014.

The allocation of net income for 2013 and the absorption of losses for 2014 by the income reserve are as follow:

Net income for 2013	867,443
(-) Absorption of accumulated losses balance	(235,582	)
(-)Legal reserve (5%)	(31,593	)
(=) Calculation basis	600,268
Minimum mandatory dividend (25%)	150,067
Interest on equity declared for the year (i)	130,192
(-) Withholding income tax (IRRF) on interest on equity	(13,045	)
Dividend to be declared	32,920
Reserve for investments as of December 31, 2013	437,156
(-) Treasury shares sold and cancelled (Note 19.1)	(102,355	)
Net loss for 2014	(42,549	)
Reserve for investments as of December 31, 2014	292,252

On February 12, 2014, the Company made the settlement of interest on equity in the net amount of R$117,122.

On December 11, 2014, the Company carried out the settlement of mandatory dividends declared at the Annual Shareholders’ Meeting related to the year ended December 31, 2013 in the amount of R$32,920.

19.3.

Stock option plan

Expenses for granting stocks recorded under the account “General and administrative expenses” (Note 24) in the years ended December 31, 2014, 2013 and 2012 are as follows:

	2014		2013		2012

Gafisa		15,489		17,263		18,318
Tenda		838		156		580
		16,327		17,419		18.898
Alphaville (Note 8.2)						8,741
						27,639

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

19.	Equity --Continued

19.3.

Stock option plan --Continued

(i)

Gafisa

The Company has a total of five stock option plans comprising common shares, launched in 2010, 2011, 2012, 2013 and 2014 which follows the rules established in the Stock Option Plan of the Company.

The granted options entitle their holders (employees) to purchase common shares of the Company’s capital, after periods that vary from one to five years of employment in the Company (essential condition to exercise the option), and expire ten years after the grant date.

Changes in the stock options outstanding in the years ended December 31, 2014 and 2013, including the respective weighted average exercise prices are as follows:

	2014					2013
	Number of options			Weighted average exercise price (Reais)		Number of options			Weighted average exercise price (Reais)
Options outstanding at the beginning of the year		11,908,128			1.47		9,742,400			1.32
Options granted		4,361,763			1.93		5,383,627			1.86
Options exercised (i)		(5,463,395	)		1.26		(2,329,422	)		2.09
Options expired		(748,518	)		3.66		-			-
Options forfeited		(515,335	)		0.04		(888,477	)		0.39

Options outstanding at the end of the year		9,542,643			1.49		11,908,128			1.47

(i)

In the year ended December 31, 2014, the amount received through exercised options was R$6,921 (R$4,867 in 2013).

As of December 31, 2014, the stock options outstanding and exercisable are as follows:

Outstanding options						Exercisable options
Number of options		Weighted average remaining contractual life (years)		Weighted average exercise price (R$)		Number of options		Weighted average exercise price (R$)

	9,542,643		4.09		1.49		1,178,113		2.53

During the year ended December 31, 2014, the Company granted 4,361,763 options in connection with its stock option plan comprising common shares (5,383,627 options granted in 2013).

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

19.	Equity --Continued

19.3.

Stock option plan --Continued

The fair value of the new options granted was R$7,464 (R$11,048 in 2013), which was determined based on the following assumptions:

	2014	2013
Pricing model	MonteCarlo	Binomial	MonteCarlo

Exercise price of options (R$)	R$3.13 type A and R$0.01 type B	R$4.05	R$4.08 e R$0.01
Weighted average price of options ( (R$)	R$ 1.93	R$4.05	R$1.11
Expected volatility (%) – (*)	55%	40%	40%
Expected option life (years)	4.66 years	12.43 years	2.45 years
Dividend income (%)	1.90%	1.90%	1.90%
Risk-free interest rate (%)	10.55%	7.23%	7.23%

(*)The volatility was determined based on regression analysis of the ratio of the share volatility of the parent company, Gafisa S.A., to the Ibovespa index.

For the year ended December 31, 2014, the Company recognized in the account "Other income (expenses), net", the expenses with the stock option plan of the former subsidiary Alphaville Urbanismo S.A., in the amount of R$17,679 related to the balance payable of exercised options, according to the contract between the parties (Note 24).

(ii)

Tenda

Due to the acquisition by Gafisa of the total shares outstanding issued by Tenda, the stock option plans related to Tenda shares were transferred to Gafisa, responsible for share issuance. As of December 31, 2014, the amount of R$14,965 (R$14,939 as of December 31, 2013), related to the reserve for granting options of Tenda is recognized under the account “Related Parties” of the parent company Gafisa.

On August 11, 2014, the Board of Directors of the subsidiary Tenda granted a total of 41,090,354 stock options to employees and management of the Tenda (beneficiaries).The following list show the shares and their applicable exercise dates: 640,806 on March 31, 2017; 8,218,067 on March 31, 2018; 31,270,289 on March 31, 2019; and 961,192 on March 31, 2020.

On November 12, 2014, the Board of Directors of Tenda approved a complementary grant of 1,169,333 stock options at the exercise price of R$0.77, of which 233,867 have an exercise date on March 31, 2018 and 935,466 on March 31, 2019.

The granted options entitle their holders (beneficiaries) to purchase common shares of the Company’s capital, after periods that vary from five to ten years of employment in the Company (essential condition to exercise the option), and expire ten years after the grant date.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

19.	Equity --Continued

19.3.

Stock option plan --Continued

The fair value of the new options granted was R$9,346, which was determined based on the following assumptions:

	2014
Pricing model	Black-Scholes
Exercise price of options (R$)	R$0.77
Weighted average price of options (R$)	R$0.76
Expected volatility (%) – (*)	31.02%
Expected option life (years)	4.05
Risk-free interest rate (%) (**)	11.81%

(*) The volatility was determined based on the history of the BM&FBOVESPA Real Estate Index (IMOBX).

(**)The risk-free interest rate of the market for the option term on the grant date varied between 11.66% and 11.81%.

20.	Income tax and social contribution

(i)

Current income tax and social contribution

The reconciliation of the effective tax rate for the years ended December 31, 2014, 2013 and 2012 is as follows:


	2014			2013			2012

Income (loss) before income tax and social contribution, and statutory interest		(28,450	)		239,368			(261,585	)
Income tax benefit (expense) calculated at the applicable rate - 34 %		9,673			(81,385	)		88,939
Net effect of subsidiaries taxed by presumed profit		(2,085	)		(2,316	)		20,346
Tax losses (tax loss carryforwards used)		(9,555	)		4,694			(630	)
Income from equity method investments		5,249			2,507			18,905
Effect of the income from discontinued operations		-			(89,398	)		-
Stock option plan		(11,562	)		(5,923	)		(6,426	)
Other permanent differences		(7,280	)		(18,443	)		(623	)
Charges on payables to venture partners		2,509			6,847			(1,825	)
Tax benefits recognized (not recognized)		(2,224	)		180,605			(138,908	)
		(15,275	)		(2,812	)		(20,222	)



Tax expenses - current		(33,330	)		(23,690	)		(17,403	)
Tax income (expenses) - deferred		18,055			20,878			(2,819	)

(ii)

Deferred income tax and social contribution

The Company recognized deferred tax assets on tax losses and income tax and social contribution carryforwards for prior years, which have no expiration, and for which offset is limited to 30% of annual taxable profit, to the extent the taxable profit is likely to be available for offsetting temporary differences, based on the assumptions and conditions established in the business model of the Company.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

20.	Income tax and social contribution --Continued

(ii)

Deferred income tax and social contribution --Continued

The initial recognition and subsequent estimates of deferred income tax are carried out when it is probable that a taxable profit for the following years will be available to offset the deferred tax asset, based on projections of results prepared and underlain by internal assumptions and future economic scenarios that enable its total or partial use. As of December 31, 2014 and 2013, the Company has not recognized any deferred tax assets calculated on the tax loss and temporary differences of the subsidiary Tenda.

As of December 31, 2014 and 2013, deferred income tax and social contribution are from the following sources:


	2014			2013
Assets
Provisions for legal claims		81,455			67,296
Temporary differences – PIS and COFINS deferred		14,960			15,566
Provisions for realization of non-financial assets		12,793			22,852
Temporary differences – CPC adjustment		18,656			31,819
Other provisions		92,384			76,736
Income tax and social contribution loss carryforwards		301,598			288,712
Tax credits from downstream merger		28,165			9,226
Tax benefits not recognized		(276,758	)		(274,534	)
		273,253			237,672

Liabilities
Negative goodwill		(92,385	)		(91,323	)
Temporary differences –CPC adjustment		(111,294	)		(127,790	)
Differences between income taxed on cash basis and recorded on an accrual basis		(104,314	)		(75,211	)
		(307,993	)		(294,324	)

Total net		(34,740	)		(56,652	)

The Company has income tax and social contribution loss carryforwards for offset in the following amounts:


	2014						2013
	Income tax		Social contribution		Total		Income tax		Social contribution		Total
Balance of income tax and social contribution loss carryforwards		887,052		887,052				849,150		849,150		-
Deferred tax asset (25%/9%)		221,763		79,835		301,598		212,288		76,424		288,712
Recognized deferred tax asset		58,455		21,044		79,499		54,795		19,726		74,521
Unrecognized deferred tax asset		163,308		58,791		222,099		157,493		56,698		214,191

Based on the estimate of projections for generation of future taxable profit of Gafisa, the estimated recovery of the Company’s balance of deferred income tax and social contribution assets is as follows:

2015			9,106
2016			2,589
2017			25,455
2018			18,425
2019 onwards			178,246
			233,820

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

21.	Financial instruments

The Company and its subsidiaries engage in operations involving financial instruments. These instruments are managed through operational strategies and internal controls aimed at providing liquidity, return and safety. The use of financial instruments with the objective of hedging is achieved through a periodical analysis of exposure to the risk that the management intends to cover (exchange, interest rate, etc.) which is submitted to the corresponding Management bodies for approval and performance of the proposed strategy. The control policy consists of continuously monitoring the contracted conditions in relation to the prevailing market conditions. The Company and its subsidiaries do not use derivatives or any other risky assets for speculative purposes. The result from these operations is consistent with the policies and strategies devised by Company management. However, the Company does not adopt the hedge accounting practice. The Company and its subsidiaries operations are subject to the following risk factors:

(i)

Risk considerations

Credit risk

The Company and its subsidiaries restrict their exposure to credit risks associated with cash and cash equivalents, investing only short-term securities of top tier financial institutions.

With regards to account receivable, the Company restricts its exposure to credit risks through sales to a broad base of customers and ongoing credit analysis. Additionally, there is no history of losses due to the existence of secured guarantee, represented by real estate unit, for the recovery of its products in the cases of default during the construction period. As of December 31, 2014 and 2013, there was no significant credit risk concentration associated with clients.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

21.	Financial instruments -- Continued

(i)

Risk considerations --Continued

Derivative financial instruments

The Company holds derivative instruments to mitigate the risk arising from its exposure to index and interest volatility recognized at their fair value in profit or loss for the year. Pursuant to its treasury policies, the Company does not own or issue derivative financial instruments other than for hedging purposes.

As of December 31, 2014, the Company had derivative contracts for hedging purposes in relation to interest fluctuations, with final maturity between June 2015 and October 2018. The derivative contracts are as follows:

Reais

Percentage

Validity

Fair value of derivative instruments

Companies

Swap agreements (Fixed for CDI)

Face value

Original Index

Swap

Beginning

End

2014

2013

Gafisa S/A

Banco Votorantim S.A.

110,000

Fixed 14.0993%

CDI + 1.6344%

12/20/2013

06/20/2014

978

Gafisa S/A

Banco Votorantim S.A.

82,500

Fixed 11.4925%

CDI + 0.2801%

06/20/2014

12/22/2014

128

Gafisa S/A

Banco Votorantim S.A.

82,500

Fixed 13.7946%

CDI + 1.6344%

12/22/2014

06/22/2015

(208)

(91)

Gafisa S/A

Banco Votorantim S.A.

55,000

Fixed 11.8752%

CDI + 0.2801%

06/22/2015

12/21/2015

(401)

(306)

Gafisa S/A

Banco Votorantim S.A.

55,000

Fixed 14.2672%

CDI + 1.6344%

12/21/2015

06/20/2016

(160)

(236)

Gafisa S/A

Banco Votorantim S.A.

27,500

Fixed 11.1136%

CDI + 0.2801%

06/20/2016

12/20/2016

(185)

(255)

Gafisa S/A

Banco Votorantim S.A.

27,500

Fixed 15.1177%

CDI + 1.6344%

12/20/2016

06/20/2017

(35)

Gafisa S/A

Banco Votorantim S.A. (a)

130,000

CDI + 1.90%

118% CDI

07/22/2014

07/26/2018

(941)

Gafisa S/A

Banco HSBC (b)

194,000

Fixed 12.8727%

120% CDI

09/29/2014

10/08/2018

(6,336)

(8,173)

183

Current

(3,340)

183

Non-current

(4,833)

(a)	On July 22, 2014, the Company bought derivative swap transaction to mitigate the exposure to the fixed index of the debenture placed on such date (Note 13), changing the position from CDI + 1.90% p.a. to 118% of CDI.

(b)	On September 29, 2014, the Company bought a derivative swap transaction to mitigate the exposure to the fixed index of the financing taken out on such date (Note 12), changing the fixed position from 12.8727% to 120% of CDI.

During the year ended December 31, 2014, the net expense of R$7,492 (R$5,103 in 2013 and R$6,151 of net gain in 2012), which refers to net result of the interest swap transaction, was recognized in the “financial income (expenses)” line in the statement of operations for the year, allowing correlation between the impact of such transactions and interest rate fluctuation in the Company’s consolidated financial statements (Note 25).

The estimated fair value of derivative financial instruments contracted by the Company was determined based on information available in the market and specific valuation methodologies. However, considerable judgment was necessary for interpreting market data to produce the estimated fair value of each transaction, which may vary upon the financial settlement of transactions.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

21.	Financial instruments -- Continued

(i)

Risk considerations --Continued

Interest rate risk

Interest rate risk arises from the possibility that the Company and its subsidiaries may experience gains or losses because of fluctuations in the interest rates of its financial assets and liabilities. Aiming to mitigating this risk, the Company and its subsidiaries seek to diversify funding in terms of fixed and floating rates. The interest rates on loans, financing and debentures are disclosed in Notes 12 and 13. The interest rates contracted on financial investments are disclosed in Note 4. Accounts receivable from real estate units completed (Note 5), are subject to annual interest rate of 12%, appropriated on a pro rata basis.

Liquidity risk

Liquidity risk refers to the possibility that the Company and its subsidiaries will not have sufficient funds to meet their commitments as they become due.

To mitigate liquidity risks, and to optimize the weighted average cost of capital, the Company and its subsidiaries monitor on an on-going basis the indebtedness levels according to the market standards and the fulfillment of covenants provided for in loan, financing and debenture agreements, in order to guarantee that the operating cash generation and the advance funding, when necessary, are sufficient to meet the schedule of commitments (Notes 12 and 13).

The maturities of financial instruments, loans, financing, suppliers, payables to venture partners and debentures are as follows:

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

21.	Financial instruments -- Continued

(i)

Risk considerations --Continued

Liquidity risk --Continued


Year ended December 31, 2014	Less than 1 year		1 to 3 years		4 to 5 years		More than 5 years		Total
Loans and financing (Note 12)		550,058		758,812		88,555		-		1,397,425
Debentures (Note 13)		504,387		620,468		64,244		-		1,189,099
Payables to venture partners (Note 15)		6,317		4,713		-		-		11,030
Suppliers		95,131		-		-		-		95,131
		1,155,893		1,383,993		152,799		-		2,692,685


Year ended December 31, 2013	Less than 1 year		1 to 3 years		4 to 5 years		More than 5 years		Total
Loans and financing (Note 12)		590,386		938,792		109,132		-		1,638,310
Debentures (Note 13)		563,832		657,385		200,001		-		1,421,218
Payables to venture partners (Note 15)		112,886		9,654		1,140		-		123,680
Suppliers		79,342		-		-		-		79,342
		1,346,446		1,605,831		310,273		-		3,262,550

Fair value classification

The Company uses the following classification to determine and disclose the fair value of financial instruments:

Level 1: quoted prices (without adjustments) in active markets for identical assets or liabilities;

Level 2: input different from the quoted prices in active markets included in Level 1, which are observable, directly (as prices) or indirectly (derived prices); and

Level 3: inputs to asset or liability not based on observable market data (non observable inputs).

The fair value for financial assets and derivative instruments of the Company as of December 31, 2014 and 2013 is as follows:


	Fair value classification
As of December 31, 2014	Level 1		Level 2		Level 3

Financial assets
Cash equivalents (Note 4.1)		-		109,895		-
Short-term investments (Note 4.2)		-		1,047,359		-

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

21.	Financial instruments -- Continued

(i)

Risk considerations --Continued

Liquidity risk --Continued

Fair value classification --Continued


	Fair value classification
As of December 31, 2013	Level 1		Level 2		Level 3

Financial assets
Cash equivalents (Note 4.1)		-		215,194		-
Short-term investments (Note 4.2)		-		1,808,969		-
Derivative financial instruments (Note 21.i.b)		-		183		-

In addition, the fair value of financial instruments liabilities is as follows:


	Fair value classification
As of December 31, 2014	Level 1		Level 2		Level 3

Financial liabilities
Loans and financing (Note 21.ii.a)		-		1,333,399		-
Debentures (Note 21.ii.a)		-		802,948		-
Payables to venture partners (Note 21.ii.a)		-		12,304		-
Derivative financial instruments (Note 21.i.b)		-		8,173		-


	Fair value classification
As of December 31, 2013	Level 1		Level 2		Level 3

Financial liabilities
Loans and financing (Note 21.ii.a)		-		1,641,503		-
Debentures (Note 21.ii.a)		-		1,428,859		-
Payables to venture partners (Note 21.ii.a)		-		125,719		-
Suppliers (Note 21.i.b)		-		79,342		-

In the years ended December 31, 2014 and 2013, there were no transfers between the Levels 1 and 2 fair value valuation, nor were there transfers between Levels 3 and 2.

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Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

21.	Financial instruments -- Continued

(ii)

Fair value of financial instruments

Fair value measurement

The following estimated fair values were determined using available market information and proper measurement methodologies. However, a considerable amount of judgment is necessary to interpret market information and estimate fair value. Accordingly, the estimates presented in this document are not necessarily indicative of amounts that the Company could realize in the current market. The use of different market assumptions and/or estimation methodology may have a significant effect on estimated fair values.

The following methods and assumptions were used in order to estimate the fair value for each financial instrument type for which the estimate of values is practicable.

(i)

The amounts of cash and cash equivalents, short-term investments, accounts receivable and other receivables, suppliers, and other current liabilities approximate their fair values, recorded in the consolidated financial statements.

(ii)

The fair value of bank loans and other financial debts is estimated through future cash flows discounted using rates that are annually available for similar and outstanding debts or terms.

The most significant consolidated carrying amounts and fair values of financial assets and liabilities at December 31, 2014 and 2013 are as follows:


	2014				2013
	Carrying amount		Fair value		Carrying amount		Fair value

Financial assets
Cash and cash equivalents (Note 4.1)		109,895		109,895		215,194		215,194
Short-term investments (Note 4.2)		1,047,359		1,047,359		1,808,969		1,808,969
Derivative financial instruments (Note 21 (i)(b))		-		-		183		183
Trade accounts receivable (Note 5)		1,825,319		1,825,319		2,223,668		2,223,668

Financial liabilities
Loans and financing (Note 12)		1,397,425		1,333,399		1,638,310		1,641,503
Debentures (Note 13)		1,189,099		802,948		1,421,218		1,428,859
Payables to venture partners (Note 15)		11,030		12,304		123,680		125,719
Derivative financial instruments (Note 21(i)(b))		8,173		8,173		-		-
Suppliers		95,131		95,131		79,342		79,342

F-73

Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

21.	Financial instruments -- Continued

(ii)

Fair value of financial instruments -- Continued

Fair value measurement --Continued

Risk of debt acceleration

As of December 31, 2014, the Company has loans and financing, with restrictive covenants related to cash generation, indebtedness ratios and other. The Company is in compliance with these covenants as of December 31, 2014.

Market risk

The Company carries out the development, construction and sales of real estate ventures. In addition to the risks that affect the real estate market as a whole, such as supply disruptions and volatility in the prices of construction materials and equipment, changes in the supply and demand for ventures in certain regions, strikes and environmental rules and zoning, the Company’s operations are particularly affected by the following risks:

The state of the economy of Brazil, which may inhibit the development of the real estate industry as a whole, through the slowdown in economy, increase in interest rates, fluctuation of currency and political instability, among other factors.

Future impediments, as a result of a new regulation or market conditions, to adjust for inflation receivables using certain inflation indexes, as currently permitted, which could make a venture financially or economically unviable.

The level of interest of buyers in a new venture launched or the sale price per unit necessary to sell all units may be below expectations, making the venture less profitable than expected.

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Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

21.	Financial instruments -- Continued

(ii)

Fair value of financial instruments -- Continued

Market risk -- Continued

In the event of bankruptcy or significant financial difficulties of a large company of the real estate industry, the industry as a whole may be adversely affected, which could decrease the customer confidence in other companies operating in the industry.

Local and regional real estate market conditions, such as oversupply, land shortage or significant increase in land acquisition cost.

Risk of buyers having a negative perception of the security, convenience and appeal of the Company’s properties, as well as about their location.

The Company’s profit margins may be affected by the increase in operating costs, including investments, insurance premium, taxes in general and government rates.

The opportunities for development may decrease.

The building and sale of real estate units may not be completed as scheduled, thus increasing the construction costs or cancelled contracts of sale contracts and fines for delay in construction work.

Delinquency after the delivery of units acquired on credit. The Company has the right to file a collection action to receive the amounts due and/or repossess the real estate unit from the delinquent buyer, not being possible to guarantee that it will be able to recover the total amount of the debt balance or, once the real estate unit is repossessed, its sale in satisfactory conditions.

Occasional change in the policies of the National Monetary Council (CMN) on the investment of funds in the National Housing System (SFH) may reduce the supply of financing to customers.

Drop in the market value of land held in inventory, before the development of a real estate venture to which it was intended, and the incapacity to maintain the margins that were previously projected for such developments.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

21.	Financial instruments — Continued

(iii)

Capital stock management

The objective of the Company’s capital stock management is to guarantee that a strong credit rating is maintained in institutions and an optimum capital ratio, in order to support the Company’s business and maximize value to shareholders.

The Company controls its capital structure by making adjustments and adapting to current economic conditions. In order to maintain its structure adjusted, the Company may pay dividends, return on capital to shareholders, obtain new loans and issue debentures, among other options.

There were no changes in objectives, policies or procedures during the years ended December 31, 2014 and 2013.

The Company included in its net debt structure: loans and financing, debentures, obligations assumed on assignment of receivables and payables to venture partners less cash and cash equivalents and short-term investments:


	2014			2013

Loans and financing (Note 12)		1,397,425			1,638,310
Debentures (Note 13)		1,189,099			1,421,218
Obligations assumed on assignment of receivables (Note 14)		56,129			119,897
Payables to venture partners (Note 15)		11,030			123,680
( - ) Cash and cash equivalents and short-term investments (Note 4.1 e 4.2)		(1,157,254	)		(2,024,163	)
Net debt		1,496,429			1,278,942
Equity		3,058,403			3,214,483
Equity and net debt		4,554,832			4,493,425

(iv)

Sensitivity analysis

The sensitivity analysis of financial instruments for the years ended December 31, 2014 and 2013, except swap contracts, which are analyzed through their due dates, aims to present the scenarios that may incur material losses on the Company’s profit or loss, as provided for by CVM, through Rule No. 475/08, in order to show a 25% and 50% increase/decrease in the risk variable considered.

As of December 31, 2014 and 2013, the Company has the following financial instruments:

Short-term investments, loans and financing, and debentures linked to Interbank Deposit Certificates (CDI);

Loans and financing and debentures linked to the Referential Rate (TR) and CDI, and debentures indexed to the CDI, IPCA and TR;

Trade accounts receivable, linked to the National Civil Construction Index (INCC).

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Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

21.	Financial instruments -- Continued

(iv)

Sensitivity analysis --Continued

For the sensitivity analysis for the years ended December 31, 2014 and 2013, the Company considered the interest rates of investments, loans and accounts receivables, the CDI rate at 11.51%, (9.78% in 2013), the TR at 0.52% (0.31% in 2013), the INCC rate at 6.95% (8.09% in 2013), the General Market Prices Index (IGP-M) at 3.67% (5.46% in 2013) and the National Consumer Price Index – Extended (IPCA) at 6.41% (5.73% in 2013). The scenarios considered were as follows:

Scenario I: 50% increase in the risk variables used for pricing

Scenario II: 25% increase in the risk variables used for pricing

Scenario III: 25% decrease in the risk variables used for pricing

Scenario IV: 50% decrease in the risk variables used for pricing

As of December 31, 2014:

		Scenario
		I			II			III			IV
Instrument	Risk	Increase 50%			Increase 25%			Decrease 25%			Decrease 50%

Short-term investments	Increase/decrease of CDI		51,528			25,764			(25,764	)		(51,528	)
Loans and financing	Increase/decrease of CDI		(31,786	)		(15,893	)		15,893			31,786
Debentures	Increase/decrease of CDI		(14,571	)		(7,285	)		7,285			14,571
Derivative financial instruments	Increase/decrease of CDI		(36,708	)		(19,243	)		21,282			44,892

Net effect of CDI variation			(31,537	)		(16,657	)		18,696			39,721

Loans and financing	Increase/decrease of TR		(1,851	)		(925	)		925			1,851
Debentures	Increase/decrease of TR		(2,321	)		(1,160	)		1,160			2,321

Net effect of TR variation			(4,172	)		(2,085	)		2,085			4,172

Debentures	Increase/decrease of IPCA		(457	)		(229	)		229			457

Net effect of IPCA variation			(457	)		(229	)		229			457

Accounts receivable	Increase/decrease of INCC		59,351			29,675			(29,675	)		(59,351	)
Properties for sale	Increase/decrease of INCC		58,774			29,387			(29,387	)		(58,774	)

Net effect of INCC variation			118,125			59,062			(59,062	)		(118,125	)

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Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

21.	Financial instruments--Continued

(iv)

Sensitivity analysis --Continued

As of December 31, 2013:

		Scenario
		I			II			III			IV
Instrument	Risk	Increase 50%			Increase 25%			Decrease 25%			Decrease 50%

Short-term investments	Increase/decrease of CDI		77,110			38,555			(38,555	)		(77,110	)
Loans and financing	Increase/decrease of CDI		(33,920	)		(16,960	)		16,960			33,920
Debentures	Increase/decrease of CDI		(19,843	)		(9,921	)		9,921			19,843
Payables to venture partners	Increase/decrease of CDI		(4,623	)		(2,312	)		2,312			4,623
Derivative financial instruments	Increase/decrease of CDI		(9,303	)		(4,856	)		5,344			11,219

Net effect of CDI variation			9,421			4,506			(4,018	)		(7,505	)

Loans and financing	Increase/decrease of TR		(1,208	)		(604	)		604			1,208
Debentures	Increase/decrease of TR		(1,474	)		(737	)		737			1,474

Net effect of TR variation			(2,682	)		(1,341	)		1,341			2,682

Debentures	Increase/decrease of IPCA		(385	)		(193	)		193			385

Net effect of IPCA variation			(385	)		(193	)		193			385

Accounts receivable	Increase/decrease of INCC		83,051			41,525			(41,525	)		(83,051	)
Properties for sale	Increase/decrease of INCC		58,235			29,117			(29,117	)		(58,235	)

Net effect of INCC variation			141,286			70,642			(70,642	)		(141,286	)

(v)

Embedded derivative

The purchase agreement included an obligation for the Company to purchase in 2012 the remaining 20% of AUSA’s ordinary shares which were held by non-controlling interest shareholders. The purchase price was based on the fair value of shares and should be settled in cash or shares, at the Company’s sole discretion. There was an embedded derivative component to the shareholder’s agreement, relating to the obligation to purchase additional AUSA shares. The future settlement in cash, or shares represented and estimated amount of R$358,985 as at December 31, 2012.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

22.	Related parties

22.1.

Balances with related parties

The balances between the Company and related companies are realized under conditions and prices established between the parties.


Current accounts	2014			2013

Assets
Current account (a):
Total SPEs		139,947			80,804
Condominium and consortia (b) and third party’s works (c)		2,785			1,743
Loan receivable (d)		107,067			136,508
Dividends receivable		-			-
		249,799			219,055

Current portion		142,732			82,547
Non-current		107,067			136,508

Liabilities
Current account (a):
Purchase/sale of interests (e)		-			(39,100	)
Total SPEs and Tenda		(156,503	)		(94,578	)
		(156,503	)		(133,678	)

Current portion		(156,503	)		(133,678	)

(a)

The Company participates in the development of real estate ventures with other partners, directly or through related parties, based on the formation of consortia. The management structure of these ventures and the cash management are centralized in the lead partner of the venture, which manages the construction schedule and budgets. Thus, the lead partner ensures that the investments of the necessary funds are made and allocated as planned. The sources and use of resources of the venture are reflected in these balances, observing the respective interest of each investor, which are not subject to indexation or financial charges and do not have a fixed maturity date. Such transactions aim at simplifying business relations that demand the joint management of amounts reciprocally owed by the involved parties and, consequently, the control over the change of amounts reciprocally granted which offset against each other at the time the current account is closed. The average term for the development and completion of the ventures in which the resources are invested is between 24 and 30 months. The Company receives a compensation for the management of these ventures.

(b)

Refers to transactions between the consortia leader and partners .

(c)

Refers to operations in third-party’s works.

(d)

The loans between the Company and its associates, shown below, are made to provide subsidiaries with cash to carry out their respective activities, subject to the respective agreed-upon financial charges. The businesses and operations with related parties are carried out in strictly commutative conditions, in order to protect the interests of the both parties involved in the business. The composition, nature and condition of loans receivable by the Company are shown below.

(e)

On November 21, 2014, the Company acquired the remaining portion of Cipesa Empreendimentos Imobiliários in the amount of R$6,354. As a result of this transaction, the Company recorded a net effect of the write-off of goodwill, in the amount of R$17,604 (Note 11). As a consequence of the acquisition of the remaining portion of Cipesa Empreendimentos Imobiliários and the consequent grant between the parties of irrevocable and irreversible settlement in relation to all rights, duties and obligations, the Company made the reversal of this obligation in its totality.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

22.	Related parties --Continued

22.1.

Balances with related parties --Continued


	2014		2013		Nature	Interest rate

Engenho		17		15	Construction	12% p.a. + IGPM
Tembok Planej. E Desenv. Imob. Ltda. (Laguna Di Mare)		-		2,279	Construction	12% p.a. + IGPM
Tembok Planej. E Desenv. Imob. Ltda. (Vistta Laguna)		9,891		15,201	Construction	12% p.a. + IGPM
Gafisa SPE 65 Emp. Imobiliários Ltda.		-		2,929	Construction	3% p.a. + CDI
Gafisa SPE-46 Emp. Imobiliários Ltda.		-		1,056	Construction	12% p.a. + IGPM
Gafisa SPE-71 Emp. Imobiliários Ltda.		-		6,066	Construction	3% p.a. + CDI
Gafisa SPE- 76 Emp. Imobiliários Ltda.		-		3,863	Construction	4% p.a. + CDI
Acquarelle - Civilcorp Incorporações Ltda.		493		411	Construction	12% p.a. + IGPM
Manhattan Residencial I		49,358		62,441	Construction	10% p.a. + TR
Manhattan Comercial I		-		15	Construction	10% p.a. + TR
Manhattan Residencial II		-		137	Construction	10% p.a. + TR
Manhattan Comercial II		-		65	Construction	10% p.a. + TR
Scena Laguna - Tembok Planej. E Desenv. Imob. Ltda.		8,361		3,794	Construction	12% p.a. + IGPM
Fit Jardim Botanico SPE Emp. Imob. Ltda.		10,164		17,998	Construction	113.5% of 126.5% of CDI
Fit 09 SPE Emp. Imob. Ltda.		8,422		7,183	Construction	120% of 126.5% of CDI
Fit 19 SPE Emp. Imob. Ltda.		4,037		4,003	Construction	113.5% of 126.5% of CDI
Acedio SPE Emp. Imob. Ltda.		936		3,589	Construction	113.5% of 126.5% of CDI
Ac Participações Ltda.		-		4,710	Construction	12% p.a. + IGPM
Atua Construtora e Incorporadora S.A.		12,168		-	Construction	113.50% to 112% of CDI
Bild Desenvolvimento Imobiliário Ltda		2,471		-	Construction	IGPM + interest at 12% p.a.
Other		749		753	Construction	Several
Total consolidated		107,067		136,508

In the year ended December 31, 2014 the recognized financial income from interest on loans amounted to and R$11,120 (R$12,182 in 2013 and R$3,034 in 2012) in the consolidated financial statements (Note 25).

Information regarding management transactions and compensation is described in Note 26.

22.2.

Endorsements, guarantees and sureties

The financial transactions of the special purpose entities of the Company are guaranteed by the endorsement or surety in proportion to the interest of the Company in the capital stock of such companies, in the amount of R$973,808 as of December 31, 2014 (R$1,428,286 in 2013).

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

23.	Net operating revenue


	2014			2013			2012
Gross operating revenue
Real estate development, sale, barter transactions and construction services		2,256,189			2,618,737			2,784,983
(Recognition) Reversal of allowance for doubtful accounts and provision for cancelled contracts (Note 5)		69,479			81,122			255,495
Taxes on sale of real estate and services		(174,670	)		(218,648	)		(235,392	)
Net operating revenue		2,150,998			2,481,211			2,805,086

24.	Costs and expenses by nature

These are represented by the following:


	2014			2013			2012
Cost of real estate development and sale:
Construction cost		(949,960	)		(1,137,678	)		(1,272,282	)
Land cost		(278,682	)		(327,721	)		(446,428	)
Development cost		(105,594	)		(133,350	)		(131,449	)
Capitalized financial charges (Note 12)		(171,590	)		(157,212	)		(157,095	)
Maintenance / warranty		(48,557	)		(34,578	)		(55,119	)
Provision for cancelled contracts (Note 5)		(54,863	)		(73,227	)		(214,431	)
		(1,609,246	)		(1,863,766	)		(2,276,804	)

Commercial expenses:
Marketing expenses		(60,433	)		(54,128	)		(100,725	)
Brokerage and sale commission		(30,656	)		(125,076	)		(96,594	)
Customer Relationship Management expenses		(45,622	)		(25,878	)		(12,751	)
Other		(11,330	)		(10,567	)		(21,676	)
		(148,041	)		(215,649	)		(231,746	)

General and administrative expenses:
Salaries and payroll charges		(79,515	)		(92,574	)		(103,843	)
Employee benefits		(7,575	)		(8,398	)		(9,432	)
Travel and utilities		(2,761	)		(4,865	)		(5,489	)
Services		(30,485	)		(17,306	)		(29,114	)
Rents and condominium fees		(14,189	)		(9,820	)		(10,840	)
IT		(24,409	)		(17,519	)		(19,970	)
Stock option plan (Note 19.3)		(16,327	)		(17,419	)		(18,899	)
Reserve for profit sharing (Note 26.iii)		(35,006	)		(59,651	)		(47,709	)
Other		(1,639	)		(6,471	)		(6,912	)
		(211,906	)		(234,023	)		(252,208	)

Other income (expenses), net:
Expenses with lawsuits (Note 17)		(113,064	)		(78,402	)		(94,932	)
Expenses with the adjustment to the stock option plan balance of AUSA (Note 19.2)		(17,679	)		-			-
Other		(10,606	)		(7,709	)		(6,083	)
		(141,349	)		(86,111	)		(101,015	)

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

25.	Financial income (expenses)


	2014			2013			2012
Financial income
Income from financial investments		132,980			56,095			40,046
Financial income on loans (Note 22)		11,120			12,182			3,034
Interest income		2,445			1,405			2,268
Other financial income		10,249			11,401			10,471
		156,794			81,083			55,819
Financial expenses
Interest on funding, net of capitalization (Note 12)		(121,063	)		(176,823	)		(164,020	)
Amortization of debenture cost		(4,144	)		(8,020	)		(3,964	)
Payables to venture partners		(2,830	)		(14,805	)		(11,545	)
Banking expenses		(3,818	)		(12,312	)		(7,658	)
Derivative transactions (Note 21 (i) (b))		(7,492	)		(5,103	)		6,151
Discount in securitization transaction		(240	)		(8,820	)		(30,167	)
Offered discount and other financial expenses		(26,125	)		(17,703	)		(24,879	)
		(165,712	)		(243,586	)		(236,082	)

26.	Transactions with management and employees

(i)

Management compensation

The amounts recorded in the account “general and administrative expenses” for the years ended December 31, 2014, 2013 and 2012, related to the compensation of the Company’s key management personnel are as follows:

	Management compensation
Year ended December 31, 2014	Board of Directors		Statutory Board		Fiscal Council

Number of members		8		5		3
Annual fixed compensation (in R$)		1,739		4,004		189
Salary / Fees		1,720		3,630		189
Direct and indirect benefits		19		374		-
Monthly compensation (in R$)		145		334		16
Total compensation		1,739		4,004		189
Gafisa management profit sharing		-		3,412		-
Tenda management profit sharing		-		4,704		-
Consolidated management profit sharing		-		8,116		-

	Management compensation
Year ended December 31, 2013	Board of Directors		Statutory Board		Fiscal Council

Number of members		9		7		3
Annual fixed compensation (in R$)		1,899		4,872		166
Salary / Fees		1,852		4,485		166
Direct and indirect benefits		47		387		-
Monthly compensation (in R$)		158		406		14
Total compensation		1,899		4,872		166
Gafisa management profit sharing		-		6,543		-
Tenda management profit sharing		-		5,072		-
Consolidated management profit sharing		-		11,615		-

	Management compensation
Year ended December 31, 2012	Board of Directors		Statutory Board		Fiscal Council

Number of members		9		8		3
Annual fixed compensation (in R$)		1,791		5,113		138
Salary / Fees		1,772		4,834		138
Direct and indirect benefits		19		279		-
Monthly compensation (in R$)		149		426		11
Total compensation		1,791		5,113		138
Gafisa management profit sharing		-		4,399		-
Tenda management profit sharing		-		5,525		-
AUSA management profit sharing(discontinued operation)		-		3,700		-
Consolidated management profit sharing		-		13,624		-

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

26.	Transactions with management and employees --Continued

(i)

Management compensation --Continued

The maximum aggregate compensation of the Company’s management members for the year 2014 was established at R$13,425, as approved at the Annual Shareholders’ Meeting held on April 25, 2014.

On the same occasion the compensation limit of the Fiscal Council members for their next term of office that ends in the Annual Shareholders’ Meeting to be held in 2015 was approved at R$192.

(ii)

Sales

For the year ended December 31, 2014, the total sales of units sold to the Management is R$1,513 (R$3,915 in 2013) and the total receivables is R$4,686 (R$5,845 in 2013).

(iii)

Profit sharing

The Company has a profit sharing plan that entitles its employees and management members, and those of its subsidiaries to participate in the distribution of profits of the Company.

This plan is tied to the achievement of specific targets, established, agreed-upon and approved by the Board of Directors at the beginning of each year.

In the year ended December 31, 2014, the Company recorded a provision for profit sharing amounting to R$35,006 in the consolidated financial statements (R$59,651 in 2013) in the account “General and Administrative Expenses" (Note 24).


	2014		2013		2012

Executive officers		8,116		11,615		13,624
Other employees		26,890		48,036		50,387
		35,006		59,651		64,011
(-) Discontinued operations (AUSA)		-		-		(16,302	)
		-		-		47,709

Profit sharing is calculated and reserved based on the achievement of the Company’s targets for the period. An assessment is performed subsequent to year-end of the achievement of the Company’s and its collaborators’ targets. The payment shall be made in April 2015.

As shown in the previous tables and paragraphs, the aggregate compensation of Management and Fiscal Council members of the Company is in accordance with the limit approved at the Annual Shareholders’ Meeting held on April 25, 2014.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

27.

Insurance

Gafisa S.A. and its subsidiaries maintain insurance policies against engineering risk, barter guarantee, guarantee for the completion of the work and civil liability related to unintentional personal damages caused to third parties and material damages to tangible assets, as well as against fire hazards, lightning strikes, electrical damages, natural disasters and gas explosion. The contracted coverage is considered sufficient by management to cover possible risks involving its assets and/or responsibilities.

The liabilities covered by insurance and the respective amounts as of December 31, 2014 are as follows:

Insurance type	Coverage – R$
Engineering risks and guarantee for completion of work		2,397,954
Civil liability (Directors and Officers – D&O)		132,935
		2,530,889

28.	Earning (loss) per share

In accordance with CPC 41, the Company presents basic and diluted earnings (loss) per share. The comparison data of basic and diluted earnings/loss per share is based on the weighted average number of shares outstanding for the year, and all dilutive potential shares outstanding for each year presented, respectively.

Diluted earnings per share is computed similarly to basic earnings per share except that the outstanding shares are increased to include the number of additional shares that would have been outstanding if the potential dilutive shares attributable to stock options and redeemable shares of noncontrolling interest had been issued during the respective periods, utilizing the weighted average stock price.

The following table shows the calculation of basic and diluted income and loss per share. In view of the losses for three years ended December 31, 2014, shares with dilutive potential are not considered, because the impact would be antidilutive.


	2014			2013		2012
Basic numerator
Proposed dividends and interest on capital		-			150,067		-
Undistributed earnings (loss)		(42,549	)		717,376		(127,043	)
Undistributed earnings (loss), available for the holders of common shares		(42,549	)		867,443		(127,043	)
Income (loss) from continuing operations attributable to holders of common shares		(42,459	)		236,321		(290,345	)
Income (loss) from discontinuing operations attributable to holders of common shares		-			631,122		163,302

Basic denominator (in thousands of shares)
Weighted average number of shares		401,905			426,300		432,246

Basic earning (loss) per share in Reais		(0.1059	)		2.0348		(0.2939	)
From continuing operations		(0.1059	)		0.7315		(0.6717	)
From discontinuing operations		-			1.2911		0.3778

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

28.	Earning (loss) per share --Continued

	2014			2013		2012
Diluted numerator
Proposed dividends and interest on capital		-			150,067		-
Undistributed earning (loss)		(42,549	)		717,376		(127,043	)
Undistributed earning (loss), available for the holders of common shares		(42,549	)		867,443		(127,043	)
Income (loss) from continuing operations attributable to holders of common shares		(42,459	)		236,321		(290,345	)
Income (loss) from discontinuing operations attributable to holders of common shares		-			631,122		163,302
Diluted denominator (in thousands of shares)
Weighted average number of shares		401,905			426,300		432,246
Stock options		-			2,584		-
Diluted weighted average number of shares		401,905			428,884		432,246

Diluted earnings (loss) per share in Reais		(0.1059	)		2.0226		(0.2939	)
From continuing operations		(0.1059	)		0.7315		(0.6717	)
From discontinuing operations		-			1.2911		0.3778

29.	Segment information

The Company's management assesses segment information on the basis of different business segments rather than based on the geographical regions of operations.

The Company operates in the following segments: Gafisa (for ventures targeted at high and medium income) and Tenda (for ventures targeted at low income). With the sale of the controlling interest in AUSA (Note 8.2), the segment of land subdivisions is no longer assessed by the Company’s management.

The Company's chief executive officer, who is responsible for allocating resources to businesses and monitoring their progress, uses economic present value data, which is derived from a combination of historical and forecasted operating results. The Company provides below the main headings in the consolidated statement of operations and balance sheet related to each reporting segment.

Segment information does not segregate operating expenses. No revenues from an individual client represented more than 10% of net sales and/or services.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

29.	Segment information --Continued

							Consolidated
	Gafisa S.A.			Tenda			2014
Net operating revenue		1,580,860			570,138			2,150,998
Operating costs		(1,164,998	)		(444,248	)		(1,609,246	)

Gross profit		415,862			125,890			541,752

Selling expenses		(95,063	)		(52,978	)		(148,041	)
General and administrative expenses		(124,833	)		(87,073	)		(211,906	)
Depreciation and amortization		(63,607	)		(15,644	)		(79,251	)
Financial expenses		(114,371	)		(51,341	)		(165,712	)
Financial income		98,121			58,673			156,794
Tax expenses		(8,947	)		(6,328	)		(15,275	)

Net profit (loss) for the year from continuing operations		66,888			(109,437	)		(42,549	)

Customers (short and long term)		1,484,766			340,553			1,825,319
Inventories (short and long term)		1,734,634			777,708			2,512,342
Other assets		1,861,263			1,006,928			2,868,191

Total assets		5,080,663			2,125,189			7,205,852

Total liabilities		3,104,606			1,042,843			4,147,449

							Consolidated
	Gafisa S.A.			Tenda			2013
Net operating revenue		1,663,750			817,460			2,481,210
Operating costs		(1,111,550	)		(752,216	)		(1,863,766	)

Gross profit		552,200			65,244			617,444

Selling expenses		(138,093	)		(77,556	)		(215,649	)
General and administrative expenses		(136,720	)		(97,303	)		(234,023	)
Depreciation and amortization		(51,488	)		(11,526	)		(63,014	)
Financial expenses		(202,239	)		(41,347	)		(243,586	)
Financial income		43,548			37,535			81,083
Tax expenses		5,839			(8,651	)		(2,812	)

Net profit (loss) for the year from continuing operations		363,725			(127,169	)		236,556

Net profit (loss) for the year from discontinued operations		588,574			42,548			631,122

Customers (short and long term)		1,662,572			561,096			2,223,668
Inventories (short and long term)		1,420,359			674,055			2,094,414
Other assets		2,658,263			1,206,685			3,864,948

Total assets		5,741,194			2,441,836			8,183,030

Total liabilities		3,679,292			1,289,255			4,968,547

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

29.	Segment information --Continued

										(-) Discontinued			Consolidated
	Gafisa S.A.			Tenda			AUSA			operations			2012

Net operating revenue		1,735,976			1,069,110			785,182			(785,182	)		2,805,086
Operating cost		(1,338,138	)		(938,666	)		(377,071	)		377,071			(2,276,804	)

Gross profit (loss)		397,838			130,444			408,111			(408,111	)		528,282

Selling expenses		(140,322	)		(91,424	)		(65,381	)		65,381			(231,746	)
General and administrative expenses		(138,872	)		(113,336	)		(94,025	)		94,025			(252,208	)
Depreciation and amortization		(64,670	)		(15,568	)		(2,262	)		2,262			(80,238	)
Financial expenses		(204,173	)		(31,909	)		(47,034	)		47,034			(236,082	)
Financial income		23,181			32,638			11,446			(11,446	)		55,819
Tax expenses		(16,089	)		(4,133	)		(14,417	)		14,417			(20,222	)

Loss for the year from continuing operations		(158,205	)		(123,602	)		-			-			(281,807	)

Profit for the year from discontinued operations		-			-			204,128			-			204,128

Customers (short and long term)		1,626,926			1,005,261			681,757			-			3,313,944
Inventories (short and long term)		1,056,622			837,105			272,697			-			2,166,424
Other assets		1,447,453			1,357,140			427,608			-			3,232,201

Total assets		4,131,001			3,199,506			1,382,062			-			8,712,569

Total liabilities		3,772,297			1,424,362			830,079			-			6,026,738

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

30.	Real estate units under construction – information and commitments

The recognized revenue amounts and incurred costs are presented in the consolidated statement of operations, and the advances received in the heading “Payables for purchase of property and advances from customer”. The Company shows below information on the units under construction as of December 31, 2014:


	2014

Unappropriated sales revenue of units sold		1,040,489
Unappropriated estimated cost of units sold		(611,616	)

(i) unappropriated sales revenue of units sold
Ventures under construction:
Contracted sales revenue		4,007,128
Appropriated sales revenue		(2,966,639	)
Unappropriated sales revenue (a)		1,040,489

(ii) Unappropriated estimated cost of units sold
Ventures under construction:
Estimated cost of units	2,426,926
Incurred cost of units	(1,815,310	)
Unappropriated estimated cost (b)	611,616

(a)

The unapropriated sales revenue of units sold are measured by the face value of contracts, plus the contract adjustments and deducted from cancellations, net of the levied taxes and adjustment to present value, and do not include ventures that are subject to restriction due to a suspensive clause (legal period of 180 days in which the Company can cancel a development) and therefore is not appropriated to profit or loss.

(b)

The unappropriated estimated cost of units sold do not include financial charges, which are appropriated to properties for sale and profit or loss (cost of real estate sold) in proportion to the real estate units sold at the extent they are incurred, and also the warranty provision, which is appropriated to real estate units as the construction work progresses.

Presented below is a table of the percentage of asset related to the Company’s ventures that are included in the structures of equity segregation of the purchase as of December 31, 2014.

	2014

Total assets included in the structures of equity segregation of the purchase (*)		7,199,762
Total consolidated assets		7,205,852
Percentage		99.92	%

(*)Total assets of the Company, except for the Gafisa Vendas subsidiary, a company that sells the ventures of Gafisa. Regarding the ventures of subsidiaries, the administration of the cash and cash equivalents and corporate debts are carried out through the National Corporate Taxpayers’ Registry (CNPJ) of the company and not separately by venture.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

31.	Communication with regulatory bodies

On June 14, 2012, the Company received a subpoena from the Securities Exchange Commission’s Division of Enforcement related to the matter of a certain 20-F Filer Home Builders listed at SEC, Foreign Private Issuers (FPI). The subpoena requests that the Company produces all documents from January 1, 2010 to July 10, 2012, the Company’s reply date related to the preparation of our financial statements, including, among other things, copies of our financial policies and procedures, board and audit committee and operations committee minutes, monthly closing reports and financial packages, any documents relating to possible financial or accounting irregularities or improprieties and internal audit reports. The SEC’s investigation is a non-public, fact-finding inquiry and is not clear what action, if any, the SEC intends to take with respect to the information it gathers. The SEC subpoena does not specify any charges. As of the publication of these consolidated financial statements, the SEC has not issued any opinion or charges.

32.	Subsequent events

(i)

10th private debenture placement

On December 10, 2014, the Board of Directors of the Company approved the placement for private distribution of the 10th placement, being the 2nd private placement of unconvertible debentures, with floating and secured guarantee, in sole series in the amount of R$55,000, fully paid on January 30, 2015 and with final maturity on January 20, 2020. The funds raised in the placement shall be used for developing select real estate ventures and its secured guarantee is represented by the collateral of the lands owned by the Company to be developed in future periods. The Face Value of the Placement shall be adjusted by the cumulative variation of the IPCA and on it interest of 8.22% p.a. shall be accrued.

(ii)

Cancellation of treasury shares

On February 2, 2015, the Board of Directors of the Company approved the cancellation of 30,000,000 common shares issued by the Company currently held in treasury, without a capital reduction, besides terminating the repurchase program of shares approved on November 18, 2014, as amended on December 3, 2014, through which all 30,207,130 common shares issued by the Company were acquired.

(iii)

Share Repurchase Program

On February 2, 2015, the Board of Directors of the Company approved the creation of a repurchase program of its common shares (“Repurchase Program”), to hold them in treasury and further cancellation or disposal, during the next 365 days, i.e., until February 1, 2016, until the limit of 27,000,000 common shares, which correspond to 10% of the 378,066,162 common shares issued by the Company currently in free float. Such approval was made in accordance with Article 30, paragraph 1, “b”, of Law No. 6,404/76, CVM No. Instruction 10/80 (“ICVM 10”), and Article 22 (s) of Bylaws.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012

(a)

Description of the GAAP differences

The Company’s accounting policies and its consolidated financial statements comply with and are prepared in accordance with Brazilian GAAP.

A summary of the Company’s principal accounting policies under Brazilian GAAP that differ significantly from US GAAP is set forth below.

Principles of consolidation

Under Brazilian GAAP, the consolidated financial statements include the accounts of Gafisa S.A. and those of all its subsidiaries as mentioned in Note 2. Starting from January 1, 2013 and applicable retrospectively to the comparative periods the proportional consolidation method for investments in jointly-controlled investees, previously applied by the Company, is no longer allowed under Brazilian GAAP. Consequently these jointly controlled investments are now accounted under the equity method.

Under US GAAP, because such investments provide substantive participating rights granted to the non-controlling shareholder, they preclude the Company from consolidating these entities. Accordingly, for purposes of US GAAP these investments are also accounted for based on the equity method of accounting.

In addition, under Brazilian GAAP, for the year ended in December 31, 2013, the disposal of the Company´s 70% controlling interest in Alphaville is classified as a “discontinued operation”, given the fact that it’s a major line of business that was disposed of during that year. For US GAAP purposes however, this disposal does not meet the definition of a “discontinued operation” given the fact that the Company continues to have significant influence over this entity through its 30% non-controlling interest. When a significant continuing involvement like this exists the operation cannot be seen as discontinued under US GAAP, consequently the results from operations of Alphaville in the period from January 1 to November 30, 2013 are presented in their separate respective line items instead of being grouped together under the header “Net income from discontinued operations”, as under Brazilian GAAP (Note 8.2). In addition the gain on disposal which for Brazilian GAAP purposes is part of the discontinued operations line item is part of results from continuing operations for US GAAP purposes.

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

(i)

Revenue recognition

Under Brazilian GAAP, real estate development and retail land sales revenues, costs and related expenses are recognized using the percentage-of-completion method of accounting, by project, measuring progress towards completion in terms of actual costs incurred versus total budgeted expenditures for each stage of a development. Land is treated as a portion of budgeted construction costs and is appropriated proportionally to each real estate development. Under the percentage-of-completion method of accounting, revenues for work completed are recognized prior to receipt of actual cash proceeds or vice-versa. Revenues start to be recognized under the percentage-of-completion when the Company is no longer able to cancel the launched project, after the sales period established by law.

Under US GAAP for sale of individual units in a building the Company follows the guidance of ASC 360-20-40-50 to recognize the sale by the percentage-of-completion method, only when the individual units in condominium projects are sold separately and all the following criteria are met:

a. Construction is beyond a preliminary stage: Construction is not beyond a preliminary stage if engineering and design work, execution of construction contracts, site clearance and preparation, excavation, and completion of the building foundation are incomplete.

b. The buyer is committed to the extent of being unable to require a refund except for non-delivery of the unit.

c. Sufficient units have already been sold to assure that the entire property will not revert to rental property.

d. Sales prices are collectible.

e. Aggregate sales proceeds and costs can be reasonably estimated.

Collectability of the sales price is demonstrated by the buyer’s commitment to pay for the property, and there is a reasonable likelihood that the Company will collect the receivable which in turn is supported by substantial initial and continuing investments. When determining if the buyer’s initial and continuing investments are adequate, the potentially refundable amount, through judicial or other means, determined based on contractual termination clauses is excluded, pursuant to U.S. GAAP ASC 360.20.40. This standard requires amounts potentially refundable to a customer to be excluded from the initial and continuing investment test required by ASC 306.20.20, applicable prospectively as from January 1, 2008.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

(a)

AUSA Revenue Recognition

Under US GAAP, retail land sales of lots that are subdivisions of large tracts of land the Company recognizes the sale by the percentage-of-completion method following ASC 976 605-25-4 and 25-6 – Retail Land, which criteria are as follows:

a. The period of cancellation with refund has expired;

b. Cumulative payments equal or exceed 10 percent;

c. Receivables are collectible;

d. Receivables are not subject to subordination;

e. There has been progress on improvements. The project’s improvements have progressed beyond preliminary stages, and there are indications that the work will be completed according to plan;

f. Development is practical. There is a reasonable expectation that the land can be developed for the purposes represented and the properties will be useful for those purposes at the end of the normal payment period.

Additionally, as part of the analysis of this adjustment, the Company also determined the effect over the minority interest from their consolidated subsidiaries. The reclassification of income to the minority interest for this adjustment was R$895, R$5,232 and R$16,545 for the years ended December 31, 2014, 2013 and 2012, respectively (Note 33(b)(i)).

The Company also determined the effect for their investments in affiliates that are recognized through the equity method under US GAAP. This reclassification resulted in an equity pick-up of (R$1,902) in December 31, 2014, (R$(23,137) in 2013, and R$48,198 in 2012, as a consequence of the increased affiliated entities in 2013 and 2012 that are recognized under the equity method (Note 33(b)(i))).

(ii)

Stock option plan

Under Brazilian GAAP, the rights to acquire shares granted to employees and executive officers under the stock options programs were recorded as an expense as from January 1, 2006, the transition date for the adoption of Law 11638/2007. Previously, under Brazilian GAAP, stock option programs did not result in any expense being recorded. The purchase of the stock by the employees is recorded as an increase in capital stock for the amount of the purchase price. Under Law 11,638/2007 and the accounting guidance provided by CPC No. 10, the stock option programs are treated as equity awards and measured at fair value at the grant date, no further adjustments are made at the balance sheet dates to reflect changes in fair values.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

Under US GAAP, beginning in 2006, the Company adopted the new US GAAP standard for Share-based Payment. Until December 31, 2011, as the awards were indexed to the IGP-M plus annual interest of 3%, the employee share options have been accounted for as liability awards under the terms of US GAAP. The liability-classified awards were remeasured at fair value through the statement of operations at each reporting period until settlement. Remeasurement of liability awards could either result in the recognition of additional, or the reversal of compensation expense. The fair value of employee share options and similar instruments is estimated using the Black-Scholes option-pricing model for the years ended December 31, 2008 and 2007, and thereafter using the Binomial and Monte Carlo models. As of December 31, 2014, 2013 and 2012, there are no differences between Brazilian GAAP and US GAAP, as the awards are no longer indexed to the IGP-M and annual interest.

For purposes of the US GAAP net income (loss) and equity reconciliations, stock option compensation expenses of R$7,804 were reversed for the period ended December 31, 2012.

(iii)

Earnings (loss) per share

Under US GAAP, the presentation of earnings (loss) per share is required for public companies, including earnings (loss) per share from continuing operations and net income (loss) per share on the face of the statement of income (loss), and the per share effect of changes in accounting principles, discontinued operations and extraordinary items either on the face of the income statement or in a note. A dual presentation is required: basic and diluted. Computations of basic and diluted earnings per share data should be based on the weighted average number of shares outstanding during the period and all dilutive potential shares outstanding during each period presented, respectively. There is no difference between Brazilian GAAP and US GAAP.

For the period ended in December 31, 2012, the Company had the option to settle the purchase of the AUSA non-controlling interest in shares there is a potential dilutive effect on earnings per shares. For the earnings per share calculation the company includes 100% of its share in the income or loss of AUSA, which affects the numerator. Also the denominator was affected by the increase in weighted numbers per share, incorporating the number of shares necessary to purchase the AUSA non-controlling interest dilutive.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

The Company has issued employee stock options (Note 19.3), the dilutive effects of which are reflected in diluted earnings per share by application of the “treasury stock method”. Under the treasury stock method, earnings per share are calculated as if options were exercised at the beginning of the period, or at time of issuance, if later, and as if the funds received were used to purchase the Company’s own stock. When the stock options’ exercise price is greater than the average market price of shares, diluted earnings per share are not affected by the stock options. Under US GAAP and Brazilian GAAP, potentially dilutive securities are not considered in periods where there is a loss as the impact would be anti-dilutive. For three years ended December 31, 2014 potentially dilutive stock options were not considered.

The table below presents the determination of net income available (loss) allocated to common shareholders and weighted average common shares outstanding used to calculate basic and diluted earnings (loss) per share.

	2014		2013		2012

Basic numerator
Declared dividends		-		150,067		-
U.S. GAAP undistributed profit (loss)		42,305		1,172,401		(121,203	)
Allocated U.S. GAAP undistributed profit (loss) available for Common shareholders		42,305		1,172,401		(121,203	)


Basic denominator (in thousands of shares)
Weighted-average number of shares		401,905		426,300		432,246
Basic earnings (loss) per share – U.S. GAAP - R$		0.1053		3.1022		(0.2804	)

	2014			2013		2012

Diluted numerator
Dividends proposed		-			150,067		-
U.S. GAAP undistributed loss		42,305			1,172,401		(121,203	)

Allocated U.S. GAAP undistributed profit (loss) available for Common shareholders		42,305			1,322,468		(121,203	)

Diluted denominator (in thousands of shares)
Weighted-average number of shares		401,905			426,300		432,246
Stock options		1,681			2,584		3,868
Non-controlling interest shares		-			-		70,252
Antidilutive effect		(1,681	)		-		(74,120	)

Diluted weighted-average number of shares		401,905			428,884		432,246

Diluted earnings (loss) per share – U.S. GAAP - R$		0.1053			3.0835		(0.2804	)

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

(iv)

Business combinations

Up until December 31, 2008, under Brazilian GAAP, goodwill arose from the difference between the amount paid and the Brazilian GAAP book value (normally also the tax basis) of the net assets acquired. This goodwill was normally attributed to the difference between the book value and the market value of assets acquired or justified based on expectation of future profitability and is amortized over the remaining useful lives of the assets or up to ten years. Effective January 1, 2009, goodwill is no longer amortized under Brazilian GAAP as is the case in US GAAP. Negative goodwill arises under Brazilian GAAP when the book value of assets acquired exceeds the purchase consideration; negative goodwill is not generally amortized but is realized upon disposal of the investment. For US GAAP purpose, when a business combination process generates negative goodwill, this amount is allocated first to non-current assets acquired and any remaining amount is recognized as an extraordinary gain. Additionally, investments in affiliates, including the corresponding goodwill on the acquisition of such affiliates are tested, at least, annually for impairment.

Under US GAAP, fair values are assigned to acquired assets and liabilities in business combinations, including identifiable assets. Any residual amount is allocated to goodwill. Goodwill is not amortized but, instead, is assigned to an entity’s reporting unit and tested for impairment at least annually. The differences in relation to Brazilian GAAP arise principally from the measurement of the consideration paid under US GAAP using the fair value of shares and put options issued, and the effects of amortization which are not recorded for US GAAP purposes (goodwill amortization is also no longer recorded for Brazilian GAAP purposes effective January 1, 2009).

For Brazilian GAAP purposes, the net balance of goodwill at December 31, 2014 was R$25,476 (2013 was R$43,080 and 2012 was R$171,423), which had been amortized to income over a period of up to 10 years until December 31, 2008.

For US GAAP purposes, the total net balance of goodwill at December 31, 2014 was R$675 (R$18,279 in December 31, 2013 and R$39,469 in December 31, 2012).

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

(a)

Tenda transaction

Under Brazilian GAAP, the acquisition was consummated on October 21, 2008. As part of the acquisition of a controlling interest in Tenda, the Company contributed the net assets of FIT Residencial amounting to R$411,241, acquiring 60% of the shareholders’ equity of Tenda (book value of the 60% interest representing an investment in net assets of R$621,643), which had a total shareholders’ equity book value of R$1,036,072.

Under Brazilian GAAP, the sale of the 40% ownership interest in FIT Residencial to Tenda shareholders in exchange for the Tenda shares generated negative goodwill of R$210,402, reflecting the gain on the sale of the interest in FIT Residencial. From October 22 to December 31, 2008 under Brazilian GAAP, the Company amortized the total amount of R$210,402 of the negative goodwill, represented by the gain on the partial sale of Fit Residencial, as required by the adoption of the new CPC’s.

Under US GAAP, the Company recorded the transfer of Fit Residencial as a partial sale to the noncontrolling shareholders of Tenda and a gain of R$205,527 was recorded in the net income for the year ended December 31, 2008. The recognition of gain upon exchange of 40% ownership interest in FIT Residencial for 60% ownership interest in Tenda is presented as follows:

Tenda purchase consideration	367,703
FIT Residencial US GAAP book value (40%)	(162,176	)
	205,527

Under US GAAP, the total cost of the acquisition has been allocated to the assets acquired and the liabilities assumed based on their respective fair values. Acquired intangible assets include, R$73,038 assigned to existing development contracts, which were amortized in straight-line over the estimated useful lives up to 6 years. For the year ended December 31, 2014, the amount of R$11,447 was amortized and for the years ended December 31, 2013 and 2012, the amounts of R$11,851 were amortized per year. At December 31, 2014, the total accumulated amount R$73,038 was amortized. Also, R$54,741 was assigned to registered trademarks, which were determined to have indefinite useful lives, and are not amortized, but are tested for impairment at least annually.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

The fair value allocation on the assets acquired and liabilities assumed at the acquisition date are as follows:

	Fair value
	At 100%			At 60%
Current assets		539,741			323,845
Long-term receivables		252,453			151,472
Properties for sale - non current		174,168			104,501
Intangible assets		42,449			25,469
Other assets		101,191			60,714

Total assets acquired		1,110,002			666,001

Total liabilities assumed		(497,164	)		(298,298	)

Net assets acquired		612,838			367,703

On December 31, 2009, the shareholders of Gafisa and Tenda approved the merger by Gafisa of total outstanding shares issued by Tenda. Because of the merger, Tenda became a wholly-owned subsidiary of Gafisa on this date.

(b)

AUSA transaction

On October 2, 2006, the Company signed an agreement to acquire 100% of the capital of AUSA, a company which develops and sells residential lots throughout Brazil. This transaction was consummated on January 8, 2007 and it was approved by the Brazilian anti-trust authority (CADE) on June 18, 2007, without any restrictions. The Company initially acquired 60% of AUSA’s shares for R$198,400, of which R$20,000 was paid in cash and the remaining R$178,400 in the Company’s own shares. In connection with the acquisition, the Company issued 6,358,616 new Common shares with a book value of R$134,029, which were contributed in full settlement of the amount due in shares as part of the purchase consideration. For the purpose of determining the purchase consideration, the fair value of these shares was based on the average BM&FBOVESPA quoted stock price over a thirty day period prior to the date the agreement was signed.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

The Company reevaluated the AUSA purchase contract and determined that the non-controlling interest was redeemable. The non-controlling interest is redeemable in two blocks of 20% of the shares in 2010 and 2012. The company has the option to redeem the non-controlling interest either in shares or in cash. This redeemable non-controlling interest falls within the scope of ASC 480-10-S99-3A and was recorded as mezzanine equity for the years ended December 31, 2012. The initial recognition should be its issuance date for fair value, with a corresponding entry in retained earnings. Subsequent re-measurements to fair value of the redemption amount following the allocation of NCI profit or loss for the period are adjusted against retained earnings of the Company in accordance with ASC 480-10-S99-3A-15 and 3A-16C. On June 8, 2012, according to the material fact then disclosed, the third phase of the Investment Agreement and Other Covenants entered into on October 2, 2006 (“Investment Agreement”), established the rules and conditions for Gafisa related to the acquisition of the remaining 20% interest in the capital stock of AUSA not held by the Company. While the valuation of the capital stock was agreed by both parties, the number of shares that should be issued by the Company to settle this transaction was being discussed on an arbitration process initiated by the noncontrolling interests of AUSA, according to the material fact released on July 3, 2012. On June 6, 2013, the parties settled the arbitration process and the Company proceeded with the disposal of controlling interest in AUSA as explained in Note 1. There was an embedded derivative component to the Investment Agreement, relating to the Company's obligation to purchase the AUSA shares held by the non-controlling interest. The future settlement to be made in cash or shares represented an amount of R$358,985 as at December 31, 2012.

On March 8, 2010, the Company announced the increase of its participation in AUSA’s capital in 20%, as per the purchase agreement. The acquisition of 20% of Alphaville’s capital corresponds to an amount of R$126,490 which was paid based on issuance of 9,797,792 common shares (after the effect of the February 22, 2010 stock split) of Gafisa’s capital.

Under US GAAP, the total cost of the acquisition has been allocated to the assets acquired and the liabilities assumed based on their respective fair values. Goodwill, none of which is deductible for tax purposes, and other intangibles recorded in connection with the acquisition at the time totaled R$20,902 and R$184,656, respectively.

Under US GAAP, acquired intangible assets include, R$168,072 assigned to existing development contracts, which is being amortized as developments are sold and R$16,853 assigned to registered trademarks, which were determined to have indefinite useful lives, and are not amortized, but are tested for impairment at least annually.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

The fair values of assets acquired and liabilities assumed at the acquisition date under US GAAP are as follows:

	Fair value
	At 100 %			At 60 %

Current assets		69,371			41,623
Long-term receivables		73,478			44,087
Other assets		17,379			10,427
Intangible assets		307,760			184,656

Total assets acquired		467,988			280,793

Total liabilities assumed		(144,064	)		(86,438	)

Income taxes		(28,095	)		(16,857	)

Total liabilities assumed		(172,159	)		(103,295	)

Net assets acquired		295,829			177,498

For the period ended December 09, 2013, the Company amortized R$10,874 (December 31, 2012 - R$24,490) of the fair value assigned in the purchase price allocation.

Acquisition of non-controlling interest in AUSA

As described above, we had an agreement to purchase the 20% non-controlling interest relating to AUSA in 2013. On July 3, 2013 we purchased such non-controlling interest for a purchase price of R$366,662. As we already had control of AUSA we recorded the difference between the recognized mezzanine equity line item of R$358,985 and the consideration paid of R$366,662, resulting in R$7,677 being accounted for directly in stockholders’ equity.

Disposal of controlling interest in AUSA

As described in note 8.1, on December 9, 2013 the Company disclosed a material fact informing the finalization of the disposal of 70% interest in AUSA. As a result of this disposal we recorded a gain of R$ 1,228,429. This gain is included in our income statement in the line item “Gain on disposal of controlling interest”. In addition to the gain on the disposal we also presented the profit for the year relating to AUSA up to the disposal date of December 9, 2013 in the line item.

As previously described we maintained a 30% equity interest in AUSA after disposal, which is classified as an associate (refer to Note 9). As a result we re-measured this investment to its fair value. This resulted in a gain of R$ 559,558, which was recorded in our income statement in the line item “remeasurement of investment in associate”.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

The result of investments revalued to fair value is different for US GAAP purposes given the fact that the carrying amount of the net assets relating to Alphaville are different than the carrying amount under Brazilian GAAP, principally due to the cumulative revenue recognition adjustments. Consequently the gain recognized on re-measurement of the remaining investment in Alphaville (being the difference between carrying amount of the net assets and their fair value) is different as well in the amount of R$184,005.

(c)

Cipesa transaction

On October 26, 2007, the Company acquired 70% of Cipesa. The Company and Cipesa formed a new company, Cipesa Empreendimentos Imobiliários Ltda. (“Nova Cipesa”), in which Gafisa has 70% of the capital and Cipesa has 30%. Gafisa contributed to Nova Cipesa R$50,000 in cash and acquired shares of Cipesa in Nova Cipesa in the amount of R$15,000 payable over one year. Additionally, Cipesa is entitled to receive from the Company a variable portion of 2% of the Total Sales Value (“VGV”) of the projects launched by Nova Cipesa through 2014, not to exceed R$25,000 plus monetary correction (R$39,100 with accrued interest as of December 31, 2013), totaling the acquisition amount of R$90,000 and goodwill amounting to R$40,687 was recorded, based on expected future profitability under BR GAAP.

On November 21, 2014, the Company acquired the remaining portion of Cipesa Empreendimentos Imobiliários in the amount of R$6,354. As a result of this transaction, the Company recorded a net effect of the write-off of goodwill, in the amount of R$17,604. As a consequence of the acquisition of the remaining portion of Cipesa Empreendimentos Imobiliários and the consequent grant between the parties of irrevocable and irreversible settlement in relation to all rights, duties and obligations, the Company made the reversal of the above mentioned obligation in its totality.

Under US GAAP, the total cost of the acquisition has been allocated to the assets acquired and the liabilities assumed based on their respective fair values. Goodwill, none of which is deductible for tax purposes had a total amount of R$41,634. As of December 31, 2014, goodwill recorded in connection with the acquisition was totally written-off (R$17,604 as of December 31, 2013), and R$39,577 of obligation canceled due to the acquisition of the remaining portion of Cipesa Empreendimentos Imobiliários the Company, therefore there are no longer differences between Brazilian GAAP and US GAAP.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

The fair values of assets acquired and liabilities assumed at the acquisition date under US GAAP are as follows:

	Fair value
	At 100%			At 70%

Current assets		96,675			67,673
Other assets		8			5

Total assets acquired		96,683			67,678

Total liabilities assumed		(2,527	)		(1,769	)

Income taxes		(25,061	)		(17,543	)

Total liabilities assumed		(27,588	)		(19,312	)

Net assets acquired		69,095			48,366

For the year ended December 31, 2014, the Company recognized in the statement of operations the amount of R$17,604, including impairment of goodwill, (R$963 in 2013 and R$30,458 in 2012) of the fair value assigned in the purchase price allocation.

(d)

Redevco transaction

Through November 2007, the Company held interests in investees together with Redevco through special purpose entities, as follows: Blue I (66.67%), Blue II (50%), Jardim Lorena (50%) and Sunplace (50%). In November 2007, the Company acquired the remaining interests in each entity for R$40,000. Under Brazilian GAAP, the Company amortized the total amount of R$21,925 of the negative goodwill, as required by the adoption of the new CPCs.

Under US GAAP, the total cost of the acquisition has been allocated to the assets acquired and the liabilities assumed based on their respective fair values. Negative goodwill for those entities totaled R$11,434, which was allocated as a pro rata reduction to the acquired assets. This negative goodwill results primarily from market and business conditions, in which the fair value assigned mainly to inventories and receivables exceeded the respective acquisition cost.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

The combined fair values of assets acquired and liabilities assumed at the acquisition date under US GAAP are as follows:

	Combined fair value at 100%
Current assets		139,983
Long-term receivables		16,813
Other assets		170

Total assets acquired		156,966

Total liabilities assumed		(76,745	)

Net assets acquired		80,221

(v)

Classification of balance sheet line items

Under Brazilian GAAP, the classification of certain balance sheet items is presented differently from US GAAP. The Company has recast its consolidated balance sheet under Brazilian GAAP to present a condensed consolidated balance sheet in accordance with US GAAP (Note 33(d)(i)). The reclassifications are summarized as follows:

· Under Brazilian GAAP, restricted cash is presented as short-term investment in the balance sheet. For US GAAP purposes, restricted cash is presented separately outside of short-term investment.

· Under BR GAAP accounts receivable present value adjustment and monetary variation are recorded in the operating revenue. For US GAAP purpose the realization of accounts receivable present value adjustment and monetary variation are classified in the financial income/expense.

· Under Brazilian GAAP, debt issuance costs are netted against the loan balance, whereas under US GAAP such costs are presented net of accumulated amortization, as deferred expenses in current and non-current assets.

· Under Brazilian GAAP, deferred income taxes are netted and classified as non-current liabilities. For US GAAP purposes, deferred tax assets and liabilities are netted and classified as current or non-current based on the classification of the underlying temporary difference.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

Temporary equity

Under BR GAAP, the Company has recorded the portion of AUSA’s capital stock for which it does not have legal ownership at December 31, 2010 as non-controlling interest. Although it has a forward contract to acquire these equity interests at set dates in the future at fair value, no liability has been recorded for the redemption value as there is no liability to transfer cash or financial assets as the Company can use its own equity instruments as consideration. The Company has therefore accounted for this transaction based on embedded derivative component. As the fair value of this embedded derivative has no significant value, no derivative asset or liability is recorded.

Under US GAAP, as described in Note 33 a) b), the redeemable noncontrolling interest falls within the scope of ASC 480-10-S99-3A and is recorded as temporary equity. At issuance the initial recognition based on fair value was recorded as temporary equity with a corresponding entry in retained earnings; subsequent re-measurements to fair value of the redemption amount are adjusted against retained earnings.

(vi)

Classification of statement of income (operations) line items

Under Brazilian GAAP, in addition to the issues noted above, the classification of certain income and expense items is presented differently from US GAAP. The Company has recast its statement of income (loss) prepared under the Brazilian GAAP to present a condensed consolidated statement of income (loss) in accordance with US GAAP (Note 33(d)(ii)). The reclassifications are summarized as follows:

· Under Brazilian GAAP, the disposal of the Company´s 70% controlling interest in Alphaville is classified as a “discontinued operation”, given the fact this it’s a major line of business that was disposed of during the year ended December 31, 2013. For US GAAP purposes however, this disposal does not meet the definition of a “discontinued operation” given the fact that the Company continues to have significant influence over this entity through its 30% non-controlling interest. When a significant continuing involvement like this exists the operation cannot be seen as discontinued under US GAAP, consequently the results from operations of Alphaville in the period January 1 to November 30, 2013, are presented in their separate respective line items instead of being grouped together under the header “Net income from discontinued operations”, as under Brazilian GAAP (Note 8.2). In addition the gain on disposal which for Brazilian GAAP purposes is part of the discontinued operations line item is part of results from continuing operations for US GAAP purposes.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

· The net income differences between Brazilian GAAP and US GAAP (Note 33(b)(i)) were incorporated in the consolidated statement of operations in accordance with US GAAP.

(vii)

Deferred income tax

Deferred income tax differences between Brazilian GAAP and US GAAP are related to the recognition of deferred income tax on the adjustments mentioned above.

Under BR GAAP deferred tax assets are recognized for the estimated future tax effects of temporary differences and unused tax losses carried forward based on tax profitability history and estimated future taxable income, which takes into account all factors concerning entity´s expected future profitability. The deferred tax asset is derecognized to the extent that it is no longer probable that taxable profit will be available to compensate deferred tax assets.

Under US GAAP deferred tax assets are recognized for the estimated future tax effects attributable to temporary differences and carryforwards. A valuation allowance to reduce the deferred tax asset is recognized if upon available evidences, both positive and negative, and the weight of those evidences, the deferred tax asset is the more-likely-than-not that will not be recoverable (the amounts recognized as valuation allowance expense in the respective years are R$12,882 in 2014, R$35,363 in 2013 and R$62,175 in 2012).

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

(b)	Reconciliation of significant differences between Brazilian GAAP and US GAAP

(i)	Net income (loss)

	Note		2014			2013			2012

Net income (loss) under Brazilian GAAP attributable to owners of Gafisa S.A.				(42,549	)		867,443			(127,043	)
Revenue recognition - net operating revenue		33(a)(i)		295,550			(725,403	)		534,156
Revenue recognition - operating costs		33(a)(i)		(210,366	)		297,338			(491,167	)
Stock compensation reversal	33(a)(ii)			-			-			7,804
Business Combination of Tenda, Redevco and Cipesa	33(a)(iv)			28,130			(11,851	)		(54,431	)
Business Combination of Alphaville	33(a)(iv)			-			(10,874	)		(24,490	)
Non-controlling interests on adjustments above		33(a)(i)		895			5,232			16,545
Equity pick-up		33(a)(i)		(1,902	)		(23,137	)		48,198
Gain on disposal of Alphaville’s controlling interest	33(a)(iv)			-			764,272			-
Remeasurement of investment in associate	33(a)(iv)			-			184,005			-
Present value adjustment and other				(22,387	)		3,059			2,538
Deferred income tax on adjustments above, net of valuation allowance	33(a)(vii)			(5,066	)		(27,616	)		(33,314	)

Net income (loss) attributable to Gafisa under US GAAP				42,305			1,322,468			(121,203	)

Net income attributable to the non-controlling interests under US GAAP				(2,071	)		13,462			(32,048	)

Net income (loss) under US GAAP				40,234			1,335,930			(89,155	)
Weighted-average number of shares outstanding in the year (in thousands) (i)
Common shares				401,905			426,300			432,246
Earnings (loss) per share attributable to Gafisa Common
Basic	33(a)(iii)			0.1053			3.1022			(0.2804	)
Diluted	33(a)(iii)			0.1053			3.0835			(0.2804	)

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 – Continued

(ii)

Equity

	Note		2014			2013			2012

Equity under Brazilian GAAP				3,055,345			3,190,723			2,535,445
Revenue recognition - net operating revenue		33(a)(i)		(745,136	)		(1,017,849	)		(1,942,802	)
Revenue recognition - operating costs		33(a)(i)		502,365			712,731			1,313,745
Reversal of goodwill amortization of Alphaville	33(a)(iv)			-			-			18,234
Reversal of negative goodwill amortization of Redevco and Tenda	33(a)(iv)			(232,327	)		(232,327	)		(232,327	)
Gain on the transfer of FIT Residencial	33(a)(iv)			205,527			205,527			205,527
Business Combination – Tenda, Redevco and Cipesa	33(a)(iv)			83,066			(12,296	)		(444	)
Business Combination – Alphaville	33(a)(iv)			-			-			(123,686	)
Other, net		—		9,054			38,583			7,935
Non-controlling interests on adjustments above		33(a)(i)		1,580			38,401			80,213
US GAAP adjustment equity accounted investees		33(a)(i)		(14,818	)		(12,812	)		(11,760	)
AUSA – redeemable noncontrolling interest	33(a)(iv)			-			-			(319,802	)
Deferred income tax on adjustments above	33(a)(vii)			47,542			40,274			88,998
Deferred income tax valuation allowance	33(a)(vii)			(164,666	)		(151,784	)		-


Gafisa equity under US GAAP				2,747,532			2,799,171			1,619,276

Non-controlling interests under US GAAP				3,339			23,074			53,222

Equity under US GAAP				2,750,871			2,822,245			1,672,498

Condensed changes in total equity under US GAAP	2014			2013			2012

At beginning of the year		2,822,245			1,672,498			1,741,122
Changes in equity, BRGAAP		(108,344	)		(66,471	)		4,259
Stock options		15,514			17,419			17,377
Net profit (loss) attributable to Gafisa		42,305			1,322,468			(121,203	)
Declared mandatory dividend		-			(163,112	)		-
Non-controlling interests		(19,735	)		(30,148	)		32,048
AUSA – redeemable non-controlling interest		-			67,353			-
Other		(1,114	)		2,238			(1,105	)
At end of the year		2,750,871			2,822,245			1,672,498

Condensed equity under US GAAP	2014			2013			2012

Equity
Common shares, comprising 378,184,876 shares outstanding (2013 – 416,459,715; 2012 – 432,630,293)		2,740,662			2,740,662			2,735,794
Treasury shares		(79,059	)		(73,070	)		(1,731	)
Accumulated reserve (losses)		89,268			131,579			(1,114,787	)

Total Gafisa equity		2,750,871			2,799,171			1,619,276

Non-controlling interests		3,339			23,074			53,222

Total equity		2,750,871			2,822,245			1,672,498

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

(c)	Recent US GAAP accounting pronouncements

In July 2012, the FASB issued ASU 2012-02, “Intangible – Goodwill and Other” – Topic 350, which provides the option to perform a qualitative, rather than quantitative, assessment to determine whether it is more likely than not an indefinite-lived intangible asset is impaired. If the asset is considered impaired, an entity is required to perform the quantitative assessment under the existing guidance. The guidance is effective for our fiscal year beginning on January 1, 2013. The adoption of this guidance, which is intended to simplify the impairment testing, did not have a material impact on our consolidated financial statements.

In January 2013, the FASB issued ASU 2013-01, clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The amendments in ASU 2013-01 to Topic 210, Balance Sheet, clarify that the scope of Update 2011-11, Disclosures about Offsetting Assets and Liabilities, applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. The amendments were effective for the Company on January 01, 2013 and the disclosures are required to be retrospectively applied for all comparative periods presented. The effective date is the same as the effective date of Update 2011-11. The adoption of this guidance, which is related to disclosure only, did not have a material impact on our consolidated financial statements.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in ASU 2013-02 to Topic 220, Other Comprehensive Income, update, supersede and replace the presentation requirements for reclassifications out of accumulated other comprehensive income in ASUs 2011-05 and 2011-12. ASU 2013-02 requires either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. The new guidance was effective prospectively for the Company on January 01, 2013. The adoption of this guidance did not have a material impact on our consolidated financial statements. In February 2013, the FASB issued ASU 2013-04, Obligations Resulting From Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date. The amendments in ASU 2013-04 to Topic 405, Liabilities, provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the update is fixed at the reporting date, except for obligations addressed with existing U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on behalf of its co-obligors. The guidance also requires an entity to disclose the nature and amount of the obligation, as well as other information about those obligations. The amendment is effective retrospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In April 2013 the FASB issued ASU 2013-07, Liquidation Basis of Accounting. The amendments in ASU 2013-07 to Topic 205, Presentation of Financial Statements, clarify when an entity should apply the liquidation basis of accounting and provide principles for the recognition and measurement of associated assets and liabilities. In accordance with the amendments, an entity is required to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is considered imminent when the likelihood is remote that the organization will return from liquidation and either: (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties; or (b) a plan for liquidation is being imposed by other forces. The amendments in ASU 2013-07 are effective prospectively for entities that determine liquidation is imminent for reporting periods beginning after December 15, 2013, with early adoption permitted. The adoption of this guidance did not have a material impact on our consolidated financial statements.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

In July 2013 the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in ASU 2013-11 to Topic 740, Income Taxes, clarify that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The amendments in ASU 2013-11 are effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Retrospective application is permitted. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In January, 2014, the FASB issued ASU 2014-01 - Investments - Equity Method and Joint Ventures (Topic 323). The amendments in this Update provide guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit. The amendments permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. The amendments in this Update should be applied retrospectively to all periods presented and are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. The adoption of this Update is not expected to have a material impact on our consolidated financial statements.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

In April, 2014, the FASB issued ASU 2014-08 - Presentation of financial statements (topic 205) and property, plant, and equipment (Topic 360). The amendments in this Update change the requirements for reporting discontinued operations in Subtopic 205-20. A discontinued operation may include a component of an entity or a group of components of an entity, or a business or nonprofit activity. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when some criteria occurs. Examples of a strategic shift that has (or will have) a major effect on an entity’s operations and financial results could include a disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity. The amendments in this Update require an entity to present, for each comparative period, the assets and liabilities of a disposal group that includes a discontinued operation separately in the asset and liability sections, respectively, of the statement of financial position. The amendments in this Update require additional disclosures about discontinued operations. The amendments in this Update are effective to all disposals (or classifications as held for sale) of components of an entity and all businesses or nonprofit activities that, on acquisition, are classified as held for sale that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. The adoption of this guidance, which is related to disclosure only, did not have a material impact on our consolidated financial statements.

In May, 2014, the FASB issued ASU 2014-09 - Revenue from contracts with customers (Topic 606). The amendments in this Update create Topic 606, Revenue from Contracts with Customers, and supersede the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, the amendments supersede the cost guidance in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts, and create new Subtopic 340-40, Other Assets and Deferred Costs—Contracts with Customers. In summary, the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. We are currently evaluating the impacts of the adoption of this Update on our consolidated financial statements.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

In June, 2014, the FASB issued ASU 2014-12 - Compensation—stock compensation (Topic 718). Some share-based payment awards that require a specific performance target to be achieved before the employee can benefit from the award, also require an employee to render service until the performance target is achieved. In some cases, the terms of an award may provide that the performance target could be achieved after an employee completes the requisite service period. That is, the employee would be entitled to benefit from the award regardless of whether the employee is rendering service on the date the performance target is achieved. Some entities account for those performance targets as performance conditions that affect the vesting of the award and, therefore, do not reflect the performance target in the estimate of the grant-date fair value. Others treat them as nonvesting conditions that affect the grant-date fair value of the award. The amendments apply to reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target can be achieved after the requisite service period. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. We are currently evaluating the impacts of the adoption of this Update on our consolidated financial statements.

In August, 2014, the FASB issued ASU 2014-15 - Presentation of financial statements—going concern (Subtopic 205-40). The Update provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. We are currently evaluating the adoption of this Update on our consolidated financial statements.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

In November, 2014, the FASB issued ASU 2014-16 - Derivatives and hedging (Topic 815) - Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. Certain classes of shares include features that entitle the holders to preferences and rights (such as conversion rights, redemption rights, voting powers, and liquidation and dividend payment preferences) over the other shareholders. Shares that include embedded derivative features are referred to as hybrid financial instruments, which must be separated from the host contract and accounted for as a derivative if certain criteria are met under Subtopic 815-10.One criterion requires evaluating whether the nature of the host contract is more akin to debt or to equity and whether the economic characteristics and risks of the embedded derivative feature are “clearly and closely related” to the host contract. In making that evaluation, an issuer or investor may consider all terms and features in a hybrid financial instrument including the embedded derivative feature that is being evaluated for separate accounting or may consider all terms and features in the hybrid financial instrument except for the embedded derivative feature that is being evaluated for separate accounting. The use of different methods can result in different accounting outcomes for economically similar hybrid financial instruments. Additionally, there is diversity in practice with respect to the consideration of redemption features in relation to other features when determining whether the nature of a host contract is more akin to debt or to equity. The amendments apply to all reporting entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share. The amendments in this Update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption, including adoption in an interim period, is permitted. The adoption of this Update is not applicable to our consolidated financial statements.

In November, 2014, the FASB issued ASU 2014-17 - Business combinations (Topic 805) - Pushdown Accounting. The objective of this Update is to provide guidance for determining whether and at what threshold an acquiree (acquired entity) that is a business or nonprofit activity can reflect the acquirer's accounting and reporting basis (pushdown accounting) in its separate financial statements. Paragraphs 805-50-S99-1 through S99-4 of the Codification provide limited guidance for SEC registrants for determining whether and when a new accounting and reporting basis should be established in an acquiree's separate financial statements. However, because diversity in practice exists with respect to the application of pushdown accounting among entities that are not SEC registrants, the amendments provide guidance for entities that are SEC registrants and for those that are not. The amendments in this Update are effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. The adoption of this Update is not expected to have a material impact on our consolidated financial statements.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

In December, 2014, the FASB issued ASU 2014-18 Business combinations (Topic 805) - Accounting for Identifiable Intangible Assets in a Business Combination. The objective of the amendments in this Update is to address the concerns of private company stakeholders that the benefits of the current accounting for identifiable intangible assets acquired in a business combination do not justify the related costs. The amendments provide guidance about an accounting alternative for recognizing or otherwise considering the fair value of identifiable intangible assets acquired as a result of certain specified transactions, including business combinations. The decision to adopt the accounting alternative in this Update must be made upon the occurrence of the first transaction within the scope of this accounting alternative in fiscal years beginning after December 15, 2015, and the effective date of adoption depends on the timing of that first in-scope transaction. Early application is permitted for any interim and annual financial statements that have not yet been made available for issuance. The adoption of this Update is not expected to have a material impact on our consolidated financial statements.

In January 2015, the FASB issued ASU 2015-01, Income statement - Extraordinary and unusual items (Subtopic 225-20). The objective of this Update is to simplify the income statement presentation requirements in Subtopic 225-20 by eliminating the concept of extraordinary items. Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. Eliminating the extraordinary classification simplifies income statement presentation by altogether removing the concept of extraordinary items from consideration. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively and also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The adoption of this Update is not expected to have a material impact on our consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis. The amendments in this Update affect the following areas: (i) Limited partnerships and similar legal entities, (ii) Evaluating fees paid to a decision maker or a service provider as a variable interest, (iii) The effect of fee arrangements on the primary beneficiary determination, (iv) The effect of related parties on the primary beneficiary determination and (v) Certain investment funds. The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Overall, the amendments in this Update are an improvement to current GAAP because they simplify the Codification and reduce the number of consolidation models through the elimination of the indefinite deferral of Statement 167 and because they place more emphasis on risk of loss when determining a controlling financial interest. The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The adoption of this Update is not expected to have a material impact on our consolidated financial statements.

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 – Continued

In April 2015, the FASB issued ASU 2015-03 - Interest—Imputation of Interest (Subtopic 835-30). To simplify presentation of debt issuance costs, the amendments in this Update would require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs would not be affected by the amendments in this Update.For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted for financial statements that have not been previously issued. The adoption of this Update is not expected to have a material impact on our consolidated financial statements.

(d)	US GAAP condensed consolidated financial information

Based on the reconciling items and discussion above, the Gafisa S.A. consolidated balance sheets, statements of income (loss), and statement of changes in shareholders’ equity (see b(ii)) under US GAAP have been recast in condensed format as follows:

(i)	Condensed consolidated balance sheets under US GAAP

	2014		2013		2012
Assets
Current assets
Cash and cash equivalents		85,059		215,194		580,456
Short-term investments		998,208		1,637,602		690,053
Restricted short-term investments		73,987		171,367		295,533
Trade accounts receivable, net		1,016,806		1,515,648		1,970,051
Properties for sale		2,207,240		2,163,809		2,930,363
Prepaid expenses		15,997		35,126		59,785
Other		389,515		277,884		141,784
		4,786,812		6,016,630		6,668,025
Non-current assets
Investments in associates		943,289		1,068,238		466,094
Property and equipment, net		48,691		36,385		90,706
Intangibles assets		138,142		148,726		212,775
Goodwill		675		18,279		39,469
Trade accounts receivable, net		275,501		258,780		547,362
Properties for sale		816,525		652,395		330,348
Other		223,577		278,154		339,833
		2,446,400		2,460,957		2,026,587

Total assets		7,233,212		8,477,587		8,694,612

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

	2014		2013		2012
Liabilities
Current liabilities
Loans and financing		552,173		592,328		609,098
Debentures		506,103		566,048		349,059
Payables for purchase of properties		469,369		262,029		371,051
Payables for goods and services suppliers		95,131		79,342		154,657
Taxes and labor contributions		99,069		200,803		179,612
Advances from customers		203,189		813,289		890,016
Obligations assumed on the assignment of receivables		24,135		82,787		132,916
Payables for acquisition of investments		-		5,102		21,680
Declared dividends		-		150,067		12,667
Other		541,692		508,999		528,098
		2,490,861		3,260,794		3,248,854
Non-current liabilities
Loans and financing		848,861		1,051,034		1,292,060
Debentures		687,487		858,293		1,392,703
Deferred income tax and social contribution		151,864		168,162		116,069
Payables for purchase of properties		101,137		79,975		70,234
Obligations assumed on the assignment of receivables		31,994		37,110		155,976
Payables to venture partners		4,713		10,794		162,333
Provisions for legal claims		136,540		125,809		149,790
Other		28,884		63,371		75,110
		1,991,480		2,394,548		3,414,275

Alphaville redeemable non-controlling interest		-		-		358,985

Total Gafisa equity		2,747,532		2,799,171		1,619,276
Non-controlling interest		3,339		23,074		53,222

Total equity		2,750,871		2,822,245		1,672,498

Total liabilities and equity		7,233,212		8,477,587		8,694,612

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Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

(ii) Condensed consolidated statements of operations under US GAAP

	2014			2013			2012
Gross operating revenue
Real estate development and sales of properties		2,620,827			2,803,806			4,233,696
Taxes on services and revenues		(174,279	)		(237,818	)		(302,967	)

Net operating revenue		2,446,548			2,565,988			3,930,729
Operating costs		(1,819,612	)		(1,995,158	)		(3,008,345	)

Gross profit		626,936			570,830			922,384

Operating income (expenses)
Selling general and administrative expenses		(359,330	)		(602,767	)		(619,117	)
Remeasurement of investment in associate		-			559,858			-
Other		(192,470	)		(159,116	)		(240,540	)
Gain on disposal of controlling interest		-			1,228,429			-
Income before financial income and expenses and income tax and social contribution		75,136			1,597,234			62,727

Financial income		156,794			93,250			67,793
Financial expenses		(188,718	)		(280,548	)		(259,207	)
Income (loss) before income tax and social contribution		43,212			1,409,936			(128,687	)

Current income tax and social contribution		(33,330	)		(45,741	)		(30,662	)
Deferred income tax and social contribution		12,991			(6,470	)		(38,071	)
Total income tax and social contribution		(20,339	)		(52,211	)		(68,733	)

Income (loss) before equity in results and
non-controlling interests		22,873			1,357,725			(197,420	)
Income from equity method investments		17,361			(21,795	)		108,265

Net (loss) income for the year from continuing operations		40,234			1,335,930			(89,155	)

Net (loss) income attributable to the non-controlling interests		(2,071	)		13,462			32,048
Net (loss) income attributable to Gafisa		42,305			1,322,468			(121,203	)

F-116

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Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

(iii)

Condensed consolidated statements of comprehensive income (loss)

	2014			2013		2012
Net (loss) income for the year		40,234			1,335,930		(89,155	)

Total comprehensive (loss) income, net of taxes		40,234			1,335,930		(89,155	)

Attributable to:
Non-controlling interests		(2,071	)		13,462		32,048
Owners of Gafisa		42,305			1,322,468		(121,203	)

(iv)	Additional information – income taxes

Change in the valuation allowance for net operating losses and temporary differences was as follows:

	2014			2013			2012

Opening balance at January 1		(426,318	)		(657,130	)		(411,538	)
Benefit of the utilization of operating loss carryforwards		7,349			-			-
Change in valuation allowance		(22,455	)		230,812			(245,592	)
Closing balance at December 31		(441,424	)		(426,318	)		(657,130	)

The Company recognizes its deferred tax asset net of a valuation allowance such that the amount of the net deferred tax asset is more likely than not to be realized. During the year 2014, movements in the valuation allowance amounted to a net increase of R$15,106. This is primarily related to the continuing restructuring process implemented by management.

During the year 2013, movements in the valuation allowance related to changes in circumstances amounted to a reversal of R$230,812, mainly due to higher thanexpected taxable income. The aforementioned changes in circumstances primarily included a restructuring process implemented by management, which led to positive taxable income for fiscal year 2013 as well as a forecast of positive taxable income for fiscal year 2014.

The Company records the financial statement effects of an income tax position when it is more likely than not, based on the technical merits, that it will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold value added is measured and recorded as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority.

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Table of Contents

Gafisa S.A.

Notes to the consolidated financial statements--Continued
December 31, 2014
(Amounts in thousands of Reais, except as otherwise stated)

33.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014, 2013 and 2012 - Continued

As of December 31, 2014, 2013 and 2012, the Company has no amount recorded for any uncertainty in income taxes.

Gafisa S.A. and its subsidiaries file income tax returns in Brazil. Brazilian income tax returns are subject to inspections by tax authorities for the period beginning in 2009 and forward, i.e., within 5 years after the filing.

(v)

Statement of comprehensive income (loss)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss) that include charges or credits directly to equity which are not the result of transactions with owners.

(vi) Statement of cash flows

For each period for which a statement of operations is presented and required to be reconciled to US GAAP, SEC rules require that the Company provide either a statement of cash flows prepared in accordance with US GAAP or IFRS; or furnish in a note to the financial statements a qualified description of the material differences between cash or funds flows reported in the primary financial statements and cash flows that would be reported in a statement of cash flows, prepared in accordance with US GAAP.

The Company’s primary differences in net income (loss) between Brazilian GAAP and net income (loss) for US GAAP are explained in items 33(a) (ii) to (vii) above. The statement of cash flows for Brazilian GAAP was prepared based on CPC 3(R2) - Statement of Cash Flows, which conforms with IAS 7.

(vii)

Statement of value added

The statement of value added for new Brazilian GAAP was prepared based on CPC 09 - “Demonstração do Valor Adicionado.” For US GAAP, this statement is not required.

* * *

F-118

Table of Contents

Consolidated Financial Statements

Alphaville Urbanismo S.A.

December 31, 2014

and Report of Independent Public Accountant Firm

F-119

Table of Contents

Alphaville Urbanismo S.A.

Financial Statements as of December 31, 2014 and the twenty-two-day period ended December 31, 2013

and Report of Independent Public Accountant Firm

Table of contents

Report of Independent Public Accountant Firm	F-121
Consolidated balance sheet	F-122
Consolidated statement of operations	F-124
Consolidated statements of comprehensive income	F-125
Consolidated statements of cash flows	F-126
Statements of changes in equity	F-127
Notes to the consolidated financial statements	F-128

F-120

Table of Contents

Independent Auditors’ Report

The Board of Directors

Alphaville Urbanismo S.A.

We have audited the accompanying consolidated balance sheet of Alphaville Urbanismo S.A. (and subsidiaries) as of December 31, 2014, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alphaville Urbanismo S.A; (and subsidiaries) as of December 31, 2014, and the results of its operations and its cash flows for the year then ended in conformity with accounting practices adopted in Brazil applicable to real estate development entities.

São Paulo, Brazil

April 27, 2015

/s/ KPMG Auditores Independentes

F-121

Table of Contents

Alphaville Urbanismo S.A.

Consolidated balance sheets

December 31, 2014 and 2013

(In thousands of Brazilian Reais)

	Note	2014		2013
Assets
Current assets
Cash and cash equivalents	4.1		161,082		293,099
Short-term investments	4.2		59,887		76,135
Accounts receivable	5		452,661		446,935
Properties for sale	6		495,433		358,003
Dividends receivable	16.1		1,262		1,150
Other accounts receivable	-		87,357		39,686
Total current assets			1,257,682		1,215,008

Non-current assets
Accounts receivable	5		665,873		524,815
Properties for sale	6		60,491		45,051
Other accounts receivable	-		13,073		15,177
			739,437		585,043


Investments in associates	7		32,424		36,984
Property and equipment	-		21,072		16,570
			53,496		53,554

Total non-current assets			792,933		638,597


Total assets			2,050,615		1,853,605

See accompanying notes to consolidated financial statements.

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Table of Contents

Alphaville Urbanismo S.A.

Consolidated balance sheets

December 31, 2014 and 2013

(In thousands of Brazilian Reais)

	Note	2014			2013
Liabilities
Current liabilities
Loans and financing	8		234,177			79,634
Debentures	9		5,136			3,463
Payables for goods and service suppliers	15(i) (d)		36,850			64,009
Salaries, payroll charges, taxes and profit sharing	-		50,308			70,315
Payable for purchase of properties and advances from customers	10		59,348			130,367
Amounts to be transferred to venture partners	-		20,589			46,032
Dividends payable	16.1		1,489			-
Payables for venture partners	11		7,282			39,522
Obligations assumed on the assignment of receivables	-		20,245			30,228
Other payables	-		19,435			35,461
Total current liabilities			454,859			499,031

Non-current liabilities
Loans and financing	8		142,489			211,037
Debentures	9		650,000			500,000
Deferred income tax and social contribution	13.b		16,262			5,329
Payables for purchase of properties and advances from customers	10		11,057			-
Acquisition of ownership interests	-		20,924			19,725
Provision for legal claims	12		5,639			3,830
Warranty provision	-		26,594			11,504
Payables to venture partners	11		3,728			8,826
Obligations assumed on the assignment of receivables	-		21,069			37,701
Other payables	-		69,171			68,859
Total non-current liabilities			966,933			866,811

Equity
Capital	14(i)		290,447			285,806
Treasury shares	14(i)		(22,345	)		(17,704	)
Reserves for capital, income and granting stock options	14 (i) (ii)		313,630			185,582
			581,732			453,684
Noncontrolling interests			47,091			34,079
Total equity			628,823			487,763

Total liabilities and equity			2,050,615			1,853,605

See accompanying notes to consolidated financial statements.

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Table of Contents

Alphaville Urbanismo S.A.

Consolidated statements of operations

Year ended December 31, 2014 and the twenty two-day period ended December 31, 2013

(In thousands of Brazilian Reais)

	Notes	2014			2013
					(Unaudited)
Net operating revenue	17		958,248			148,847
Operating costs
Development and sales of lots	18		(500,836	)		(95,134	)

Gross profit			457,412			53,713

Operating (expenses) income
Selling expenses	18		(80,578	)		(17,241	)
General and administrative expenses	18		(97,987	)		(1,612	)
Stock options programs	21		(318	)		(62	)
Profit sharing expenses	-		2,299			(11,601	)
Income from equity method investments	7		(2,850	)		(217	)
Depreciation and amortization	-		(5,497	)		(518	)
Other income (expenses), net	-		(656	)		214
Income before financial income and expenses and income tax and social contribution			271,825			22,676

Financial expenses	19		(111,399	)		(21,743	)
Financial income	19		23,724			2,461

Income before income tax and social contribution			184,150			3,394

Current income tax and social contribution	13.a		(26,973	)		(4,382	)
Deferred income tax and social contribution	13.a		(10,934	)		2,344

Total income tax and social contribution			(37,907	)		(2,038	)

Net income from continuing operations			146,243			1,356

Net income attributable to:
Owners of Alphaville			128,955			(786	)
Noncontrolling interests			17,288			2,142

See accompanying notes to consolidated financial statements.

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Table of Contents

Alphaville Urbanismo S.A.

Consolidated statements of comprehensive income

Year ended December 31, 2014 and the twenty two-day period ended December 31, 2013

(In thousands of Brazilian Reais)

	2014		2013
			(Unaudited)
Net income for the year		146,243		1,356

Total comprehensive income for the year, net of taxes		146,243		1,356

Attributable to:
Owners of Alphaville		128,955		(786	)
Non-controlling interests		17,288		2,142

See accompanying notes to consolidated financial statements.

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Alphaville Urbanismo S.A.

Consolidated statements of cash flows

Year ended December 31, 2014 and the twenty two-day period ended December 31, 2013

(In thousands of Brazilian Reais)

	2014			2013
				(Unaudited)
Operating activities
Income before income tax and social contribution		184,150			3,764
Expenses/(income) not affecting cash and cash equivalents:
Depreciation and amortization		5,497			518
Stock option expenses		318			62
Unrealized interests and charges, net		109,225			5,476
Warranty provision		7,736			1,669
Provision for legal claims and commitments		1,050			-
Provision for profit sharing		(2,299	)		11,601
Income from equity method investments		2,850			217
Financial instruments		1,281			-

Decrease/(increase) in operating assets
Accounts receivable		(146,784	)		(60,889	)
Properties for sale		(152,870	)		423
Other accounts receivable and other		(46,846	)		6,025

Increase/(decrease) in operating liabilities
Payables for purchase of properties and advances from customers		(59,962	)		70,293
Taxes and contributions		(10,500	)		(16,313	)
Payables for goods and service suppliers		(27,159	)		3,466
Salaries, payable charges, taxes and profit sharing		(7,695	)		(2,408	)
Other payables		(18,066	)		42,923
Assignment of receivables, net		(26,616	)		(813	)

Income tax and social contribution paid		(26,486	)		(2,879	)

Cash and cash equivalents from (used in) operating activities		(213,176	)		63,135

Investing activities
Purchase of property and equipment and intangible assets		(9,999	)		(5,392	)
Purchase of short-term investments		(1,957,915	)		(84,291	)
Redemption of short-term investments		1,974,164			94,435
Dividends received		194			-
Increase in investments		-			136
Cash from (used in) investing activities		6,444			4,888

Financing activities
Capital increase		4,641			-
Increase in loans and financing		302,026			500,000
Payment of loans and financing - principal		(70,592	)		(4,832	)
Payment of loans and financing - interest		(102,990	)		(1,275	)
Payment of principal and dividends on payables to venture partners		(39,866	)		-
Repurchase of treasury shares		(18,504	)		-
Paid dividends		-			(290,378	)
Cash and cash equivalents from financing activities		74,715			203,515

Net increase/(decrease) in cash and cash equivalents		(132,017	)		271,538

Cash and cash equivalents
At the beginning of the year		293,099			21,561
At the end of the year		161,082			293,099

Net increase (decrease) in cash and cash equivalents		(132,017	)		271,538

See accompanying notes to consolidated financial statements.

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Table of Contents

Alphaville Urbanismo S.A.

Consolidated statements of changes in equity

Year ended December 31, 2014 and the twenty two-day period ended December 31, 2013

(In thousands of Brazilian Reais)


									Income reserves
	Notes	Capital		Treasury shares			Reserve for capital and grant of shares		Legal reserve		Retained earnings and investments			Accumulated losses			Total parent company			Noncontrolling interests			Total consolidated
Balances at December 9, 2013 (unaudited)			285,806		(17,704	)		26,737		34,164		125,405			-			454,408			31,800			486,208

Capital increase:
Capital contribution	-		-		-			-		-		-			-			-			137			137
Stock option program	21		-		-			62		-		-			-			62			-			62
Net income (loss) for the period	-		-		-			-		-		-			(786	)		(786	)		2,142			1,356
Allocation:
Legal reserve	14 (ii)		-		-			-		-		-			-			-			-
Absorption of current period loss by income reserves	14 (ii)		-		-			-		-		(786	)		786			-			-			-
Retained earnings reserve	14 (ii)		-		-			-		-		-			-			-			-			-
Balances at December 31, 2013			285,806		(17,704	)		26,799		34,164		124,619			-			453,684			34,079			487,763

Capital increase:
Exercise of stock options			4,641		-			-		-		-			-			4,641			-			4,641
Capital contribution			-		-			-		-		-			-			-			1,324			1,324
Stock option program	21		-		-			318		-		-			-			318			-			318
Purchase of treasury shares	14(i)		-		(4,641	)		-		-		-			-			(4,641	)		-			(4,641	)
Net income for the year	-		-		-			-		-		-			128,955			128,955			17,288			146,243
Allocation:
Legal reserve	14 (ii)		-		-			-		6,448		-			(6,448	)		-			-
Proposed dividends	14 (ii)		-		-			-		-		-			(1,225	)		(1,225	)		(5,600	)		(6,825	)
Retained earnings reserve	14 (ii)		-		-			-		-		121,282			(121,282	)		-			-			-
Balances at December 31, 2014			290,447		(22,345	)		27,117		40,612		245,901			-			581,732			47,091			628,823

See accompanying notes to consolidated financial statements.

F-127

Table of Contents

Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

1.	Operations

Alphaville Urbanismo S.A. ("AUSA" or "Company") is a privately held corporation with registered office at Av. das Nações Unidas, 8,501, 9th floor, in the city and state of São Paulo, Brazil, and operates in the development and urbanization of residential lots. The Company is focused on identifying, developing and selling residential lots targeted at many markets throughout the Brazilian territory.

As of December 31, 2014, the Company is a subsidiary of Private Equity firm called AE Investimentos e Participações S.A., which holds a 70% interest in the capital of the Company, while the other 30% interest is held by Gafisa S.A..

2.	Presentation of financial statements and summary of significant accounting policies

2.1.	Basis of presentation and preparation of individual and consolidated financial statements

The consolidated financial statements were authorized for issue by the Company’s Board of Directors on April 27, 2015.

Brazilian GAAP, or BR GAAP, differs from International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) in certain respects, including the fact that Brazilian GAAP permits the application of percentage of completion accounting by real estate companies in more circumstances than are permitted by IFRS. This application of Brazilian GAAP is commonly referred to in Brazil as “IFRS applicable to real estate development entities in Brazil, as approved by the Accounting Pronouncements Committee, or CPC, the CVM and the Federal Accounting Council, or CFC, including CPC Guideline 04 – Application of the Technical Interpretation ICPC 02 to the Brazilian Real Estate Development Entities – regarding revenue recognition, and the respective costs and expenses arising from real estate development operations by reference to the stage of completion (percentage of completion method)”. Accordingly, for the purpose of inclusion in a filing with the United States Securities and Exchange Commission, the consolidated financial statements prepared in accordance with BR GAAP have been reconciled to US GAAP as presented in Note 22. US GAAP condensed consolidated balance sheets have been included in Note 22 (d)(i) for 2014 and 2013 and US GAAP consolidated statement of operations and comprehensive income (loss) for the year ended December 31, 2014 and the twenty-two-day period ended December 31, 2013 have been included in Note 22 (d)(ii) and Note 22 (d)(iii), respectively.

The consolidated financial statements have been prepared in the normal course of business. Management makes an assessment of the Company’s ability to continue as a going concern when preparing the consolidated financial statements. The Company is in compliance with all of its debt covenants at the date of issue of these consolidated financial statements.

All amounts reported in the financial statements are in thousands of Reais, except as otherwise stated.

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Table of Contents

Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies -- Continued

2.1.	Basis of presentation and preparation of individual and consolidated financial statements -- Continued

a) Consolidated financial statements

The consolidated financial statements of the Company include the financial statements of Alphaville, and its direct and indirect subsidiaries. The control over these entities is obtained when the Company has the power to control its financial and operational policies, and can benefit from and is exposed to the risks of their activities. The subsidiaries are fully consolidated from the date that full control commences to the date it ceases to exist.

The accounting practices were uniformly adopted in all subsidiaries included in the consolidated financial statements and the fiscal year of these companies is the same as the Company. See further details in Note 7.

2.1.1.

Functional and presentation currency

The consolidated financial statements are presented in Reais (presentation currency), which is the functional currency of the Company and its subsidiaries.

2.2.1.

Accounting judgments, estimates and assumptions

Accounting estimates and judgments are evaluated on an ongoing basis based on historical experience and other factors, including expectations of future events, considered reasonable under the circumstances.

(i) Judgments

The preparation of the individual and consolidated financial statements of the Company requires management to make judgments, estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, as well as the disclosure of contingent liabilities, at the reporting date.

(ii) Estimates and assumptions

a) Impairment of assets

Management reviews annually and/or when a specific event occurs the carrying amount of assets with the objective of evaluating events or changes in the economic, operational or technological circumstances that may indicate an impairment. Should such evidences exist, and the carrying amount exceeds the recoverable amount, a provision for impairment is recognized by adjusting the carrying amount to the recoverable amount. These impairment losses are recognized in the statement of profit or loss when incurred.

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Table of Contents

Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies -- Continued

2.2.	Summary of significant accounting policies

2.2.1.

Accounting judgments, estimates and assumptions -- Continued

b) Share-based payment transactions

The Company measures the cost of transactions with employees to be settled with shares based on the fair value of equity instruments on the grant date.

The estimate of the fair value of share-based payments requires the determination of the most adequate pricing model to grant equity instruments, which depends on the grant terms and conditions. It also requires the determination of the most adequate data for the pricing model, including the expected option life, volatility and dividend income, and the corresponding assumptions. The assumptions and models used to estimate the fair value of share-based payments are disclosed in Note 21.

c) Fair value of financial instruments

When the fair values of the financial assets and liabilities presented in the balance sheet cannot be obtained in the active market, they are determined using valuation techniques, including the discounted cash flow method.

d) Estimated cost of construction and warranty provision

Estimated costs, mainly comprising the incurred and future costs for completing the construction projects, are regularly reviewed, based on the progress of construction, and any resulting adjustments are recognized in profit or loss of the Company. The effects of revisions to such estimates affect the statement of profit or loss. In addition, the Company and its subsidiaries recognize a provision to cover expenditures for repairing lots covered during the warranty period. The warranty period is five years from the delivery of the lot.

e) Taxes

There are uncertainties inherent in the interpretation of complex tax rules and in the value and timing of future taxable income. In the ordinary course of business, the Company and its subsidiaries are subject to assessments, audits, legal claims and administrative proceedings in tax and labor matters. Depending on the nature of such investigations, legal claims or administrative proceedings, the Company and its subsidiaries could be adversely affected, regardless of the respective final outcome.

f) Realization of deferred income tax

A deferred tax asset is recognized when it is probable that a taxable profit will be available in subsequent years to offset the deferred tax asset, based on projections of results and on internal assumptions and future economic scenarios that enable its total or partial use if the full amount is recorded.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies -- Continued

2.2.	Summary of significant accounting policies -- Continued

2.2.2.

Recognition of revenue and expenses

(i) Sale of lots

For the sales on credit, revenues are recognized upon completion of the sale, regardless of the timing of receipt from the customer. In the sale of lots not developed and residential units in construction, the following procedures were observed:

• The incurred cost that corresponds to the lots and units sold is included in profit or loss;

• The percentage of incurred cost (including land) is determined in relation to its total estimated cost; this percentage is applied to the total revenues of lots and units sold and adjusted for inflation in accordance with the terms established in the sales contracts, in order to determine the amount of revenue to be recognized in direct proportion to costs.

• Revenues recognized in excess of actual payments received from customers is recorded as either a current or non-current asset. Any payment received in connection with the sales of lots that exceeds the amount of revenues recognized is recorded as “Payables for purchase of property and advances from customers".

• Interest on accounts receivable, as well as the adjustment to present value of accounts receivable, are included in the lots development and sales when incurred, on a pro rata basis using the accrual basis of accounting.

• Taxes levied on the difference between real estate development revenues and the cumulative revenue subject to tax are calculated and recognized when this difference in revenues is recognized.

• Other expenses, including advertising and publicity are recognized in profit or loss when incurred.

(ii) ICPC 02 – paragraphs 20 and 21

In accordance with ICPC 02, the amounts of revenues recognized and costs incurred are recognized in profit or loss, and the advances received are recognized in the account “payables for purchase of property and advances from customers”.

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Table of Contents

Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies -- Continued

2.2.	Summary of significant accounting policies -- Continued

2.2.3.

Financial instruments

Financial instruments are recognized from the date the Company becomes a party to the contractual provisions of financial instruments, which mainly comprise cash and cash equivalents, short-term investments, accounts receivable, loans and financing, suppliers, and other debts. Financial Instruments not measured at fair value through profit or loss are recognized initially at fair value plus any directly related transaction costs.

After initial recognition, financial instruments are measured as described below:

(i) Financial instruments through profit or loss

A financial instrument is classified into fair value through profit or loss if it is held for trading, or designated as such when initially recognized.

Financial instruments are designated at fair value through profit or loss if the Company manages these investments and makes purchase and sale decisions based on their fair value in accordance with the investment strategy or risk management.

After initial recognition, related transaction costs are recognized in profit or loss when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and their changes therein are recognized in profit or loss.

In the year ended December 31, 2014, the Company held derivative financial instruments with the objective of mitigating the risk of its exposure to the volatility of indices and interest rates, recognized at fair value directly in profit or loss. In accordance with its treasury policies, the Company does not have or issue derivative financial instruments for purposes other than for hedging.

Subsequent to initial recognition, derivatives are measured at fair value and the changes are recognized in profit or loss - Note 15.

The Company does not adopt the hedge accounting practice.

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Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.	Summary of significant accounting policies -- Continued

2.2.3.

Financial instruments

(ii) Financial assets

Financial assets are classified into financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. The Company determines the classification of its financial assets at their initial recognition, when the company becomes a party to the contractual provisions of the instrument.

Financial assets are initially recognized at fair value, plus, in the case of investments not designated at fair value through profit or loss, directly attributable transaction costs.

The financial assets of the Company include cash and cash equivalents, short-term investments, trade accounts receivable and other accounts receivable, loans and other receivables and derivative financial instruments.

Derecognition (write-off)

A financial asset (or, as the case may be, a portion of a financial asset or portion of a group of similar financial assets) is derecognized when:

• The rights to receive cash inflows of an asset expire;

• The Company transfers its rights to receive cash inflows from an asset or assume an obligation of fully paying the cash inflows received, without significant delay, to a third party because of a contractual agreement; and (a) the Company substantially transfers the risks and rewards of the asset, or (b) the Company does not substantially transfer or retain all risks and rewards related to the asset, but transfers the control over the asset.

When the Company has transferred its rights to receive cash inflows of an asset, or signed an agreement to pass it on, and has not substantially transferred or has retained all risks and rewards related to the asset, an asset is recognized to the extent of the continuous involvement of the Company with the asset. In this case, the Company also recognizes a related liability. The transferred asset and related liability are measured based on the rights and obligations that the Company has maintained.

The continuous involvement by means of a guarantee on the transferred asset is measured at the lower of the original carrying amount of the asset, and the highest consideration that may be required from the Company.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.	Summary of significant accounting policies -- Continued

2.2.3.

Financial instruments

(iii) Financial liabilities at fair value through profit or loss

Financial liabilities through profit or loss include trading financial liabilities and financial liabilities designated as such upon initial recognition.

Financial liabilities are classified into held for trading when they are acquired with the objective of selling them in the short term.

Loans and financing

Subsequent to initial recognition, loans and financing accruing interest are measured at amortized cost, using the effective interest rate method. Gains and losses are recognized in statement of profit or loss, at the time liabilities are written-off, as well as during the amortization process using the effective interest rate method.

Derecognition (write-off)

Financial instrument – net presentation

Financial assets and liabilities are stated at their net amounts in the balance sheet when, and only when, there is a current and executable legal right to offset the amounts, and the Company intends to settle them on a net basis or realize the asset and settle the liability simultaneously.

(iv) Available-for sale financial instruments

For available-for-sale financial instruments, the Company assesses if there is any objective evidence of impairment at each reporting date. Subsequent to initial recognition, available-for-sale financial assets are measured at fair value, with unrealized gains and losses recognized in other comprehensive income, when applicable; except for impairment losses of interests calculated using the effective interest rate method, and the exchange gains or losses on monetary assets that are directly recognized in profit or loss.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.	Summary of significant accounting policies -- Continued

2.2.4.

Cash and cash equivalents and short-term investments

Cash and cash equivalents substantially comprise demand deposits and bank certificates of deposit held under resale agreements, denominated in Reais, with high market liquidity and original contractual maturities of 90 days or less, and for which there are no penalties or other restrictions for the immediate redemption thereof.

Cash equivalents are classified as financial assets at fair value through profit or loss and are recorded at the original amounts plus income earned through the reporting dates of the financial statements, calculated on a “pro rata basis", which are equivalent to their market values, not having any impact to be accounted for in the Company’s equity.

Short-term investments include bank deposit certificates, restricted credits in view of the temporary blocked amounts due to the participation of partners (see Note 4.2) and are classified as financial assets at fair value through profit or loss.

2.2.5.

Accounts receivable

These are presented at present and realization amounts. The classification between current and noncurrent is made based on the expected maturity of contract installments. The installments outstanding are mainly adjusted based on the General Market Price Index (IGP-M).

2.2.6.

Mortgage-backed Securities (CRIs) and Housing Loan Certificate (CCI)

The Company carried out the assignment of real estate receivables for securitization and issue of CRIs (“Cédula de Recebível Imobiliário” – CRI). When there is no right of recourse, this assignment is recorded as a reduction of accounts receivable. When there is right of recourse against the Company, the assigned receivable is maintained in the balance sheet and as contra-entry an account in liabilities is recorded. The financial guarantees, when a participation is acquired (subordinated CRI), are recorded on the balance sheet in “non-current assets” in “short-term investments” at the realization amount, which is equivalent to fair value.

The Company and its subsidiaries carried out the assignment and/or securitization of receivables in 2012, related to receivables from the conditional sale of completed lots and those still under construction. This securitization is carried out through the issuance of the “Housing loan certificate” (“Cédula de Crédito Imobiliário” or “CCI”), which is assigned to financial institutions. The funds from assignment are classified into the account “Obligations assumed on assignment of receivable”, until certificates are settled by customers.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.	Summary of significant accounting policies -- Continued

2.2.7.

Lots for sale

Lots for sale are measured at cost of land acquisition and include the accumulated costs of infrastructure and the financial costs eligible to subdivisions, not in excess of its net realization amount. In the case of lots in development, the portion in inventory corresponds to the incurred cost of lots not yet sold.

When the cost of lots for sale exceeds the expected cash flow from sales, completed or in development, an impairment charge is recognized in the period when it is determined that the amount shall not be recoverable.

2.2.8.

Selling expenses - Commissions

2.2.9.

Warranty provision

The Company and its subsidiaries recognize a provision to cover expenditures for repairing lots covered during the warranty period. The warranty period is five years from the delivery of the lot.

2.2.10. Investments

Investments in associates are recorded in the Company using the equity method.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies--Continued

2.2.	Summary of significant accounting policies -- Continued

2.2.11.

Property and equipment

Items of property and equipment are measured at cost, less accumulated depreciation and/or any accumulated impairment losses, if applicable.

Depreciation is calculated based on the straight-line method considering the estimated useful lives of the assets, as follows:

(i) Vehicles – five years;

(ii) Furniture, fixtures and installations – ten years;

(iii) Computers and software licenses – five years.

The residual amount, useful life, and depreciation methods are reviewed when there are modifications in relation to the information from the prior year or in relation to the current status of assets.

Expenditures incurred in the construction of sales stands and related furnishings are used for the maximum term of one year, considered as expense upon the launch of the venture.

An item of property and equipment is derecognized when sold or no future economic benefits are expected from its use or disposal. Possible gain or loss arising from derecognition of an asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized in profit or loss upon derecognition.

Property and equipment are subject to periodic assessments of impairment.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.	Summary of significant accounting policies -- Continued

2.2.12.

Income tax and social contribution

(i) Current income tax and social contribution

As permitted by tax legislation, certain subsidiaries and jointly-controlled investees opted for the presumed profit regime, a method under which the taxable profit is calculated as a percentage of gross sales. For these companies, the income tax is calculated on estimated profits at rate of 8% and 12% of gross revenues, respectively, on which the rates of the respective tax and contribution are levied.

(ii) Deferred income tax and social contribution

They are recognized to the extent that it is probable that future taxable income will be available to be used to offset deferred tax assets, based on profit projections made using internal assumptions and considering future economic scenarios that make it possible their full or partial use, upon the recognition of a provision for the non-realization of the balance.

The recognized amounts are periodically reviewed and the impacts of realization or settlement are reflected in compliance with tax legislation provisions.

2.2.13. Other current and non-current liabilities

These liabilities are stated at their known or estimated amounts, plus, when applicable, adjustment for charges and inflation-indexed variations through the balance sheet date, which contra-entry is recorded in profit or loss. When applicable, current and non-current liabilities are recorded at present value based on interest rates that reflect the term, currency and risk of each transaction.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.	Summary of significant accounting policies -- Continued

2.2.14.

Stock option plans

As approved by its Board of Directors, the Company offers to executives and employees share-based compensation plans (“Stock Options”), as payments for services received.

The fair value of the services received from employees participating in the plans, in exchange for options, is determined based on the fair value of stocks, set on the grant date. The fair value of the services received from employees and management members in exchange of options is recognized in profit or loss as contra-entry to equity, to the extent services are provided by employees and executives.

In an equity-settled transaction, in which the plan is modified, a minimum expense is recognized corresponding to the expense as if the terms have not been changed. An additional expense is recognized for any modification that increases the total fair value of granted options, or that otherwise benefits the employee, measured on the modification date.

In case of cancellation of a stock option plan, this is treated as if it had been granted on the cancellation date, and any unrecognized plan expense is immediately recognized. However, if a new plan replaces the cancelled plan, and a substitute plan is designated on the grant date, the cancelled plan and the new plan are treated as if they were a modification of the original plan, as previously mentioned.

2.2.15.

Other employee benefits

The benefits granted to the Company’s employees and executives include fixed compensation (salaries, social security contributions (INSS), Government Severance Indemnity Fund for Employees (FGTS), vacation and 13th monthly salary) and variable compensation such as profit sharing, bonus, and share-based compensation. These benefits are recorded in profit or loss for the year, under the account “General and administrative expenses”, as they are incurred.

The bonus system operates with individual corporate targets, structured based on the efficiency of corporate goals, followed by the business goals and, finally, individual goals.

The Company and its subsidiaries do not offer private pension or retirement plans or other post-employment benefits.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.	Summary of significant accounting policies -- Continued

2.2.16.

Present value adjustment – assets and liabilities

Assets and liabilities arising from long or short-term transactions are adjusted to present value if significant.

In installment sales of not completed units, real estate development entities adjust receivables by an inflation index, and shall be discounted to present value, as the agreed inflation indexes do not include interest. The reversal of the present value adjustment, considering that an important part of the Company operations consists of financing its customers, was carried out as contra-entry to the group of real estate development revenue.

Accordingly, certain assets and liabilities are adjusted to present value based on discount rates that reflect the best estimate of the time-value of the money.

The applied discount rate’s underlying economic basis and assumption is the average rate of the financing and loans obtained by the Company, net of the inflation-index effect (Note 5).

2.2.17.

Borrowing costs

The borrowing costs that are attributable to the development of assets for sale and land are capitalized as part of the cost of that asset during the construction period. Additionally, since there are borrowings outstanding, which are recognized in profit or loss to the extent units are sold, this same criteria is used for other costs. All other borrowing costs are recorded as expense when incurred. Borrowing costs comprise interest and other related costs incurred, including those for obtaining financing.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.	Summary of significant accounting policies -- Continued

2.2.18.

Provisions

(i) Provision for legal claims

Contingent liabilities for which losses are considered possible are only disclosed in a note to financial statements, and those significant for which losses are considered remote are neither accrued nor disclosed.

(ii) Allowance for doubtful account

Allowance for doubtful accounts, when necessary, is measured to cover the estimate of future losses in the realization of accounts receivable, as these credits have secured guarantees of lots sold, to the extent the corresponding deeds are granted upon settlement and/or negotiation of receivables from customers.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

2.	Presentation of financial statements and summary of significant accounting policies --Continued

2.2.	Summary of significant accounting policies -- Continued

2.2.19.

Sales taxes

Revenues, expenses and assets are recognized net of sales taxes, except:

• when the sales taxes incurred in the purchase of goods or services are not recoverable from tax authorities, in which event sales taxes are recognized as a portion of the acquisition cost of the asset or expense item, as the case may be; and

• when the amounts receivable and payable are shown together with the sales taxes.

• when the net amount of sales taxes, recoverable or payable, is included as a receivables or payable item in the balance sheet.

Under the non-cumulative taxation regime, the PIS and COFINS contribution rates are 1.65% and 7.6%, respectively, for companies under the taxable profit taxation regime, levied on gross revenue and discounting certain credits determined based on costs and expenses. For companies that opt for the presumed profit taxation regime, under the cumulative taxation regime, the PIS and COFINS contribution rates are 0.65% and 3%, respectively, on gross revenue, without deductions in relation to incurred costs.

2.2.20.

Treasury shares

Equity instruments that are repurchased (treasury shares) are recognized at cost and charged to equity.

No gain or loss is recognized in the statement of profit or loss upon purchase, sale, issue or cancellation of the Company’s own equity instruments.

2.2.21. Payables for purchase of properties and advances from customers

Payables for purchase of lots are recognized at the amounts corresponding to the contractual obligations assumed. Subsequently they are measured at amortized cost, that is, plus interest and charges proportional to the incurred period (“pro rata” basis), net of present value adjustments, when applicable.

2.2.22. Statement of comprehensive income

In order to meet the statutory provisions (CPC 26 (R1)), the Company prepared the statement of comprehensive income in its financial statements. The Company does not have other comprehensive income other than the profit or loss for the year.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

3.	Pronouncements (new or revised) and interpretation adopted from January 1, 2014 and new and revised standards and interpretation already issued and not yet adopted

3.1	Pronouncements (new or revised) and interpretation adopted from 2014

The Company adopted all of the pronouncements (new or revised) and interpretations issued by the CPC which were effective as of December 31, 2014.

The pronouncements (new or revised) and the interpretation listed below, issued by CPC and approved by CVM, are mandatory for the years beginning January 1, 2014 or later. They are the following:

• OCPC 07 - Providing Evidence in the Disclosure of General Purpose Financial and Accounting Reports. This standard aims at addressing the basic requirements for preparing and providing evidence to be observed when disclosing general purpose financial and accounting reports. It specifically addresses the provision of evidence about information of annual and interim financial and accounting statements, particularly those contained in the accompanying notes. The standard establishes that the evidenced information shall be relevant to external users. And relevant are only those that influence the investors’ and creditors’ decision-making process. Consequently, the non-relevant ones shall not be disclosed.

• ICPC 09 (R2) - Individual, Separate and Consolidated Financial Statements and the Equity Method of Accounting - The objective of the ICPC 09 revision is substantially derived from the issue of the technical pronouncements CPC 18 (R2), CPC 19 (R2) and CPC 36 (R3), in view of the changes made by the International Accounting Standards Board (IASB) in the international accounting standards IAS 28, IFRS 10 and IFRS 11. Other items were also revised aimed at adjusting the text to the current needs and keeping them convergent with the international standards.

ICPC 19 - Levies – CVM Resolution 730 of November 27, 2014;

The Interpretation is correlated with the IFRIC Interpretation 21 – Levies, issued by the International Accounting Standards Board (IASB). The document provides for the accounting for a liability for a levy, if the liability is in the scope of the Technical Pronouncement CPC 25, and also deals with the accounting for the liability for levy which timing and amount are not certain.

• Amendment to the CPC 01/IAS 36 – Impairment of Assets about the disclosure of the recoverable amount of non-financial assets. This amendment eliminates certain disclosures of the recoverable amount of cash generating units that had been included in the IAS 36 with the issue of the IFRS 13.

• Amendment to the CPC 39/IAS 32 – Financial Instruments: Presentation, about the offsetting of financial assets and liabilities. This amendment clarifies that the right to offset shall not be contingent on a future event. It also shall be legally applicable to all counterparties in the normal course of business, as well as in the case of default, insolvency or bankruptcy. The amendment also considers liquidation mechanisms.

• Revision of Technical Pronouncement 7 – Equity Method in Separate Financial Statements, amends the wording of the CPC 35 – Separate Financial Statements to incorporate the modifications made by the IASB to the IAS 27 - Separate Financial Statements, which now permits the adoption of the equity method for subsidiaries in the separate financial statements, thus aligning the accounting practices adopted in Brazil with the international accounting standards. For the IFRS purposes, the modifications to the IAS 27 were early adopted.

There are no other standards and interpretations that were issued and not yet adopted that could, on the Management’s opinion, have significant impact on the profit or loss or equity disclosed by the Company.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

3.	Pronouncements (new or revised) and interpretation adopted from January 1, 2014 and new and revised standards and interpretation already issued and not yet adopted -- Continued

3.2	New and revised interpretations already issued and not yet adopted

· IFRS 15 – Revenue from contracts with customers

On May 28, 2014, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) issued new requirements for recognition of revenue under both IFRS and U.S. GAAP, respectively. The IFRS 15 – Revenue from Contracts with Customers, requires an entity to recognize the amount of revenue reflecting the consideration it expects to receive in exchange for the control over such goods or services. The new standard is going to replace most of the detailed guidance on the recognition of revenue that currently exists under the IFRS and U.S. GAAP when it is adopted. Its application is required for annual years beginning on or after January 1, 2017, with early adoption permitted for the IFRS purposes, and not permitted locally before the harmonization and approval from the CPC and CVM.

The Company is evaluating the effects of the IFRS 15 on its financial statements and has not yet completed its analysis thus far, not being able to estimate the impact of the adoption of this standard.

There is no other IFRS standard or IFRIC interpretation that have not yet entered into effect that could have a significant impact on the Company.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

4.	Cash and cash equivalents and short-term investments

4.1	Cash and cash equivalents

	2014		2013
Cash and banks		13,912		17,659
Securities purchased under resale agreements
(Note 15 (i) (e) and (a))		144,560		250,076
Amounts in transit (b)		2,610		25,364
Cash and cash equivalents		161,082		293,099

(a) Securities purchased under agreement to resale agreement comprise securities issued by Banks with a repurchase commitment by the bank, and resale commitment by the customer, at rates and terms agreed upon, backed by private or government securities, depending on the bank. The securities are registered with the CETIP.

(b) Amounts in transit are represented by checks in transit received upon launch of ventures and cashed in a subsequent period of up to 90 days

As of December 31, 2014, the securities purchased under resale agreement include interest earned from 90% to 102.0% of Interbank Deposit Certificates (CDI) (from 75% to 101.8% of CDI in 2013). All transactions are with what management considers being top tier financial institutions.

4.2	Short-term investments

	2014		2013
Investment funds (a)		16,461		-
Bank certificates of deposit (b)		37,072		23,005
Restricted credits (c)		6,354		53,130
Total short-term investments (Note 14 (i) e)		59,887		76,135

(a) In 2014, we started operations with Fund (PP Portfolio) with daily liquidity and earning interests at 102% CDI in average, with possible variations, but with the levy of IOF tax (for redemptions before 30 days).

(b) In 2014, Bank Certificates of Deposit (CDBs) include interest earned varying from 93% to 101% (from 93% to 101.3% in 2013) of Interbank Deposit Certificates rate (CDI). The Company invests in short term (up to 20 working days) through securities purchased under resale agreements in which the interest is lower (from 90% of CDI). On the other hand, this investment is exempt of IOF, which is not granted in the case of CDBs.

(c) Amounts related to credit to temporarily blocked checking accounts in view of the participation of the Partner, which the Company is expected to be cleared in 45 days or less.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

5.	Accounts receivable

	2014			2013

Committed purchaser of lots		1,292,451			1,120,964
(-)Present value adjustments		(173,917	)		(149,214	)
		1,118,534			971,750
Current		452,661			446,935
Non-current		665,873			524,815

The current and non-current portions have the following maturities:

Maturity		2014			2013
	2014		-			446,935
	2015		452,661			184,004
	2016		214,585			138,215
	2017		162,247			102,080
	2018 onwards		462,958			249,730
Total			1,292,451			1,120,964
(-)Adjustment to present value			(173,917	)		(149,214	)
Total (Note 15 (i) e)			1,118,534			971,750

The balance of accounts receivable from lots sold and not yet delivered is not fully reflected in the financial statements. The recovery is limited to the portion of the recorded revenues net of the amounts already received.

Advances from customers in excess of the revenues recorded in the period are shown in Note 10.

Accounts receivable, financed by the Company, are in general subject to IGP-M variation, with revenue being recorded in profit or loss in the account “Revenue from sale of lots".

The net amount of the present value adjustment recognized in revenue from real estate development for the year ended December 31, 2014 was an expense of R$13,169 (R$26,624 in the twenty-two-day period ended December 31, 2013) in the consolidated financial statements.

Accounts receivables from lots not yet completed were measured at present value using a discount rate determined according to the criteria described in Note 2.2.16. The rate applied by the Company and its subsidiaries was 7.78% in 2014 (5.76% in 2013), net of IGP-M.

On November 14, 2012, the Company and its subsidiaries entered into an Assignment of Real Estate Receivables Agreement (CCI), which consists of an assignment by the Assignor to the Assignee of a portfolio comprising select residential real estate receivables performed and to be performed arising out of the Company and its subsidiaries and jointly-controlled investees. The portfolio continues to be recorded in accounts receivable until it is settled by the customer. As of December 31, 2014, the liability balance of this operation amounts to R$41,314 in the consolidated financial statements (R$67,929 in 2013).

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

6.	Properties for sale

	2014		2013
Land		92,568		70,066
Lots in development		270,537		243,258
Lots completed		192,819		89,730
		555,924		403,054

Current		495,433		358,003
Non-current		60,491		45,051

As mentioned in Note 8, the balance of consolidated capitalized financial charges as of December 31, 2014 is R$24,671 (R$11,640 in 2013).

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

7.	Investments in associates

(i) Ownership interest

a) Associates and jointly-controlled investees

The main full information on ownership interests held are summarized as follows:

	Ownership interests %		Total assets	Total liabilities	Equity and advance for future capital increase		Profit (loss) for the year (2014) and for the 22 day period ended December 31 (2013)		Investments		Income from equity method investments for the year (2014) and for the 22 day period ended December 31 (2013)
Direct investments	2014	2013	2014	2014	2014	2013	2014	2013	2014	2013	2014	2013
								(Unaudited)				(Unaudited)
SPE Leblon Incorporadora S.A.	40%	40%	36,443	7,505	28,938	32,780	(3,818)	(503)	11,575	13,112	(1,537)	(201)
Krahô Empr. Imob. S.A.	48%	48%	61,078	39,226	21,852	24,222	(2,370)	(371)	10,380	11,505	(1,126)	(176)
Alphaville Reserva Santa Clara Empr. Imob. Ltda.	25%	25%	16,843	23	16,820	16,849	(51)	(8)	4,205	4,212	(13)	(2)
Sociedade Loteadora	31%	31%	11,926	865	11,061	14,025	550	361	3,429	4,348	321	112
Gafisa SPE-77 Empr. Imob. Ltda.	35%	35%	25,751	17,600	8,151	9,565	(1,414)	143	2,853	3,348	(495)	50

Other (*)			1,062	6	1,056	1,136	(76)	-	(18)	459	-	-

Total investments			153,103	65,225	87,878	98,577	(7,179)	(378)	32,424	36,984	(2,850)	(217)

(*) Amount obtained from the sum of investments below R$14, except when it is required to make comparison with the year 2013.

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Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

7.	Investments in associates--Continued

(i) Ownership interest --Continued

a) Change in investments

	2014			2013
Balance at the beginning of the year / period		36,984			37,374
Income from equity method investments		(2,850	)		(217	)
Advance for future capital increase		6			-
Dividends receivable		(1,240	)		-
Other investments		(476	)		(173	)
Balance at the December 31,		32,424			36,984

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

8.	Loans and financing

Type	Maturity	Annual interest rate	2014		2013

		CDI+0.82% to CDI+3.04%
Working capital (a)	Mar/14 to Oct/23	IGP-DI+8.95%		376,666		290,671
		IPCA+8.38%
				376,666		290,671
Current portion				234,177		79,634
Non-current portion				142,489		211,037

(a) It corresponds to credit lines of financial institutions to raise funds required for developing the ventures.

On December 21, 2012, the Company issued Certificates of Bank Credit (CCB), in the amount of R$130,000 aimed at raise funds to build select real estate ventures. The CCB has a personal security represented by the suretyship of the Company and pledge of receivables.

On December 4, 2013, the Company amended the CCB to: (i) exclude the personal guarantee represented by the suretyship of the stockholder Gafisa S.A.; (ii) change the interest of the guarantee represented by the pledge of Receivables from 100% to 146.6% of the debt balance of the issue; (iii) change in the method of calculation of the indexes and limits of special issue obligations, becoming the issuer’s responsibility for fulfilling the following indexes:

(a) The ratio of Net Financial Debt to EBITDA shall be equal to or lower than 3.

(b) The ratio of total receivables plus properties for sale to net financial debt plus properties payable plus costs and expenses to be appropriated shall be equal to or higher than 1.30 or lower than zero.

On August 28, 2013 the Company issued a CCB in the amount of R$50,000 with final maturity in August 2017, being guaranteed by the fiduciary assignment of select real estate receivables owned by the Issuer and its Subsidiaries. The CCB was subject to assignment to the securitizing company that issued the Real Estate Receivable Certificate, which public distribution with restricted efforts ended on such date.

On October 15, 2013 the Company issued a CCB in the amount of R$48,042 with final maturity in 120 months, being guaranteed by the fiduciary assignment of select real estate receivables owned by the Issuer and its Subsidiaries. The CCB was subject to assignment to the securitizing company that issued the Real Estate Receivable Certificate, which public distribution with restricted efforts ended on such date.

On November 25, 2014 the Company made the Issue and Offering of Promissory Notes totaling R$150,000 with total period of 180 days, being guaranteed by the fiduciary assignment of select real estate receivables owned by the Issuer and its Subsidiaries. The Promissory Notes are issued by the company in the First Issue of 15 (fifteen) commercial promissory notes, with unit value of R$ 10,000 on the issue date, under the terms of CVM Instruction No. 134 and the other applicable legal provisions and regulations.

The Company has restrictive covenants under certain loans and financing that limit its ability to perform certain actions, such as the issuance of new debts, and that could require the early redemption or refinancing of loans if the Company does not fulfill such covenants.

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Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

8.	Loans and financing--Continued

The Company is subject to indexes and default limits (covenants), as follows: (i) limits to total indebtedness, and (ii) maintenance of the net debt ratio, as described below:

	2014		2013
Total accounts receivable plus inventory of finished units required to be 1.3 times greater than the net debt plus payables for purchase of properties plus unappropriated costs and expenses		1.98		5.07
Ratio of net debt to EBITDA required to be 3 or lower		2.82		1.51

As of December 31, 2014, the Company is in compliance with the covenants described above and other non-restrictive covenants.

The maturities of the current and non-current installments are as follows:

	2014		2013
2014		-		79,634
2015		234,390		61,717
2016		84,310		89,366
2017 onwards		57,966		59,954
Total		376,666		290,671

Financial expenses of loans are capitalized at the cost of venture in progress and land with prospects for launch, according to the use of funds, and recognized in profit or loss for the year in proportion to the units sold, as shown below. The capitalization rate used in the determination of costs of loans eligible to capitalization was 14.02% as of December 31, 2014 (12.54% as of December 31, 2013).

	2014			22 day period ended December 31, 2013
				(Unaudited)
Net financial expenses		107,216			10,663
Capitalized financial charges		(26,449	)		(6,331	)
Net financial charges (Note 19)		80,767			4,332


Financial charges included in “Properties for sale”
Opening balance		11,640			14,300
Capitalized financial charges		26,449			6,331
Charges recognized in profit or loss		(13,418	)		(8,991	)
Closing balance (Note 6)		24,671			11,640

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

9.	Debentures


Placement	Principal – R$	Annual interest	Final maturity	2014	2013
First placement	650,000	CDI+2.29%	December 2021	655,136	503,463
				655,136	503,463

Current portion				5,136	3,463
Non-current portion				650,000	500,000

The maturities of the current and non-current installments are as follows:

Maturity	2014		2013
2016		65,000		50,000
2017		117,000		90,000
2018 onwards		468,000		360,000
		650,000		500,000

On September 9, 2013, the Company obtained approval for the public distribution with restricted efforts of its 1st Placement of non-convertible simple debentures in a single series, which have general guarantee, maturing in eight years totaling a maximum of R$800,000, guaranteed by the fiduciary assignment of select real estate receivables arising from the Company or its subsidiaries.

On December 9, 2013, the amount of R$500,000 was received, and on July 17, 2014, R$150,000. The indenture has clauses that restrict the Company’s ability of taking some actions, and may require the early maturity in case of non-compliance with these clauses; as of December 31, 2014, the Company is compliant with its contractual obligations.

The ratios and minimum and maximum amounts required under such restrictive covenants as of December 31, 2014 are as follows:

	2014		2013
First placement
Ratio of net debt to EBITDA shall always be equal to 3.5 or lower		2.82		1.51
Ratio of total receivables to net debt shall always be equal to 1.1 or higher		2.56		5.07

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

10.	Payables for purchase of properties and advances from customers

	2014		2013
Payables for purchase of properties		17,894		465
Advances from customers:
-Developments		52,511		129,902
		70,405		130,367
Current		59,348		130,367
Non-current		11,057		-

The payables are substantially adjusted by the variation of the General Price Index – Market (IGP-M).

11.	Payables to venture partners

	2014		2013
Payable to venture partners		2,184		32,218
Usufruct of shares		8,826		16,130
		11,010		48,348
Current portion		7,282		39,522
Non-current portion		3,728		8,826

The maturities of the current and non-current installments are as follows:

	2014		2013
2014		-		39,522
2015		7,282		5,098
2016		2,815		2,815
2017		913		913
Total		11,010		48,348

In April 2010, the Company acquired the capital of a company which corporate purpose is to hold interest in other companies, which in turn shall have as corporate purpose the development and carry out real estate ventures. As of December 31, 2013, the Company subscribed and acquired capital of R$108,386 (comprising 81,719,641 common shares held by the Company and 26,666,666 preferred shares held by other shareholders). On March 31, 2014, the Company made the last principal payment in the amount of R$26,667 and R$3,600 in dividends to the shareholders who own preferred shares, settling the transaction.

As part of the process of raising funds by issuing Certificates of Bank Credit (CCB) in 2011, the Company entered into a private instrument for establishing the usufruct of 100% preferred shares of Alphaville Ribeirão Preto Empreendimentos Imobiliários S.A., over a period of six years, with maturity in 2017, and raising funds amounting to R$35,000, recorded based on amortized cost using the effective interest rate of the transaction. As of December 31, 2014, the total amount of dividends paid to the holders of preferred shares amounted to R$9,600.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

12.	Provisions for legal claims

The Company and its subsidiaries are parties to lawsuits and administrative proceedings at various courts and government agencies that arise from the ordinary course of business, involving tax, labor, civil and other matters. Management, based on information provided by its legal counsel and analysis of the pending claims and, with respect to the labor claims, based on past experience regarding the amounts claimed, recognized a provision in an amount considered sufficient to cover the losses on lawsuits in progress. The Company does not expect any reimbursement in connection with these claims.

For the years ended December 31, 2014 and 2013, the changes in the provision are summarized as follows:

	Civil lawsuits			Tax proceedings (a)		Labor claims		Total consolidated
Balance at December 09, 2013		1,725			14,129		976		3,830
Additional provision		-			-		-		-
Amounts not used/reversed		-			-		-		-
Balance at December 31, 2013		1,725			1,129		976		3,830
Additional provision		715			93		242		1,050
Amounts not used/reversed		(151	)		509		401		759
Balance at December 31, 2014		2,289			1,731		1,619		5,639
Non-current portion		2,289			1,731		1,619		5,639

Civil lawsuits, tax proceedings and labor claims

The Company and its subsidiaries are parties to other legal claims, tax proceedings and civil lawsuits arising from the ordinary course of business, which, on the opinion of Management and its legal counsel, expectations of losses are classified into possible, but no provision was recognized to face the respective unfavorable outcomes. As of December 31, 2014, these claims, proceedings and lawsuits amount to R$135,342 (R$72,713 in 2013), as described below:

	2014		2013
Civil lawsuits		111,778		60,769
Tax proceedings		10,754		7,018
Labor claims		12,809		4,926
		135,341		72,713

As of December 31, 2014, the balance of the judicial deposits of the Company and its subsidiaries corresponded to R$3,717 (R$2,651 in 2013) recorded in the heading other receivables in noncurrent assets.

ii) Environmental risk

There are various environmental laws at the federal, state and municipal levels. These environmental laws may result in delays for the Company in connection with adjustments for compliance and other costs, and impede or restrict ventures. Before the subdivision partnership agreement, the Company assesses all necessary and applicable environmental issues, including the possible existence of hazardous or toxic materials, residual substance, trees, vegetation and the proximity of the land to permanent preservation areas. Therefore, before the launch of a subdivision, the Company obtains all governmental approvals, including environmental licenses.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

12.	Provisions for legal claims--Continued

ii) Environmental risk - Continued

In addition, the environmental legislation establishes criminal, civil and administrative sanctions to individuals and legal entities for activities considered as environmental infringements or offense. The penalties include the stop of development activities, loss of tax benefits, confinement and fines.

iii) Payable related to the completion of subdivisions

The Company and its subsidiaries are committed to deliver real estate units that will be built in exchange for the acquired land.

Also the Company committed to completing units sold and to comply with the laws regulating the civil construction sector, including the obtainment of licenses from the proper authorities, and compliance with the terms for starting and delivering the ventures, being subject to legal and contractual penalties.

The Company has commitments to third parties (partners) and partners in joint ventures:

• Partnership contracts with owners of land, which shall be a partner or real estate partner;

• Commitment to suppliers which are being contracted, or to any third parties in the pre-launch or business evaluation.

As of December 31, 2014, the Company, by means of its subsidiaries, has long-term obligations in the amount of R$25,406 (R$19,887 in 2013), related to the supply of services and raw materials used in the development of real estate ventures.

The Company has contract for renting the real estate where its office is located, the monthly cost amounting to R$500 adjusted by the IGP-M variation.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

13.	Income tax and social contribution

a) Current income tax and social contribution

The reconciliation of the effective tax rate for the year ended December 31, 2014 and the 22 day period ended December 31, 2013 is as follows:


	2014			2013
				(Unaudited)
Profit before income tax and social contribution, and statutory interest		184,151			3,394
Income tax calculated at the applicable rate – 34%		(62,611	)		(1,154	)
Net effect of subsidiaries taxed by presumed profit		87,725			3,780
Stock option plan		(108	)		(21	)
Other permanent differences		(8,859	)		(307	)
Changes in payables to venture partners		(1,016	)		(191	)
Income from equity method investments		(969	)		119
Tax benefits recognized (not recognized)		(52,069	)		(4,264	)
		(37,907	)		(2,038	)

Tax expenses – current		(26,973	)		(4,382	)
Tax income (expenses) – deferred		(10,934	)		2,344

b) Deferred income tax and social contribution

As of December 31, 2014 and 2013, deferred income tax and social contribution are from the following sources:

	2014			2013
Temporary differences				(Unaudited)
Taxation on income between cash and accrual basis		(47,608	)		(30,361	)
Other		-			(1,034	)
Temporary differences – PIS and COFINS deferred		3,406			3,047
Provisions for legal claims		1,917			1,536
CPC adjustment		17,249			12,982
Other provisions		1,804			6,218
		(23,232	)		(7,612	)
Deferred tax assets
Tax loss and income tax and social contribution loss carryforwards		123,446			66,690
Tax benefits not recognized		(116,476	)		(64,407	)
		6,970			2,283

Deferred tax asset		31,346			26,066
Deferred tax liability		(47,608	)		(31,395	)

Total net		(16,262	)		(5,329	)

As of December 31, 2014 and 2013, the Company had income tax and social contribution loss carryforwards in the amounts of R$363,076 and R$196,147, respectively.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

14.

Equity

(i) Capital

As of December 31, 2014, the subscribed and paid-in capital amounts to R$290,447 (R$285,805 in 2013) represented by 117,510,769 shares, of which 115,347,000 are registered common shares, without par value, and 2,163,769 are registered common shares, without par value, held in treasury. The Board of Directors of the Company is authorized to take resolution on the issue of common shares, up to the authorized capital limit, not requiring amendment to bylaws.

On June 26, 2014, in the Extraordinary Shareholders’ Meeting, an increase in the Company’ capital was approved in the amount of R$4,641 by issuing 1,103,410 new registered common shares without par value, in view of the exercise of the acquisition of shares granted in the scope of the stock option plan of the company. Immediately thereafter, an approval was granted for the acquisition by the Company of such 1,103,410 new shares for cancellation or holding in treasury, without capital reduction.

The change in the amount of shares is as follows:

	Common							Preferred
	Shares – in thousands

	Capital R$ thousand		Registered			Treasury		Registered		Treasury		Total
December 09, 2013		285,806		115,347			1,060		-		-		116,407
Increase in capital without issue of shares		-		-			-		-		-		-
Exercise of stock options		-		-			-		-		-		-
Repurchase of shares		-		-			-		-		-		-
Cancellation of treasury shares		-		-			-		-		-		-
December 31, 2013		285,806		115,347			1,060		-		-		116,407
Increase in capital without issue of shares		-		-			-		-		-		-
Exercise of stock options		4,641		1,103			-		-		-		1,103
Repurchase of shares		-		(1,103	)		1,103		-		-		-
Cancellation of treasury shares		-		-			-		-		-		-
December 31, 2014		290,447		115,347			2,163		-		-		117,510

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

14.	Equity-- Continued

(ii) Allocation of net income (loss)

• Legal reserve

Legal reserve is annually recorded as allocation of 5% of net income for the year, reaching up to 20% of capital stock. The legal reserve is aimed at assuring the integrity of capital stock and may only be used to offset losses and increase capital.

• Proposed and distributed dividends

Proposed dividends are calculated under the bylaws terms approved in the Extraordinary Shareholders’ Meeting held on December 9, 2013, assuring the right to mandatory dividend of at least 1% on net income, calculated under the terms of the Brazilian Corporate Law.

On April 30, 2014, the minutes of the Annual and Extraordinary Shareholders’ Meeting took the resolution to allocate the net income for the year ended December 31, 2013, in the amount of R$175,651 as follows:

• R$8,783 to Legal Reserve;

• R$42,173 was declared as interim dividend to be allocated to the shareholders of the Company on December 9, 2013.

• R$124,696 was retained, according to the capital budget prepared by the management, then approved by the shareholders.

There was no distribution of dividends to shareholders in 2014, and the calculation of proposed dividends is as established in the company’s bylaws.

The calculation of legal reserve and proposed dividends is as follows:

	2014		FY2013
Net income (loss) for the year		128,955		(786	)
Legal reserve - 5%		6,448		-
		122,507		(786	)
Minimum mandatory dividend (1% in 2014)		1,225		-
Distributed dividends		-		-
Surplus of dividends distributed according to the bylaws		-		-
Absorption of current period loss by income reserves		-		786
Value of dividend per share - common		0.0106		-

• Income reserve

The Bylaws establishes that in case the income reserve is in excess of capital stock, the Shareholders’ Meeting shall take resolution on investing such surplus by paying-in or increasing capital, or even distributing an additional amount to shareholders.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

15.	Financial instruments

The Company and its subsidiaries engage in operations involving financial instruments to hedge the volatility of price indexes and interest rates, the instruments being managed through operational strategies and internal controls aimed at providing liquidity, return and safety. The Company and its subsidiaries do not use derivatives or any other risky assets for speculative purposes. The Company and its subsidiaries operations are subject to the risk factors described below:

(i) Risk considerations

a) Credit risk

The Company and its subsidiaries restrict their exposure to credit risks associated with cash and cash equivalents, investing only short-term securities from top tier financial institutions.

With regards to account receivable, the Company restricts its exposure to credit risks through sales to a broad base of customers and ongoing credit analysis. Additionally, there is no relevant history of losses due to the existence of secured guarantee for the recovery of its products in the cases of default during the construction period. As of December 31, 2014 and 2013, there was no significant credit risk concentration associated with customers.

b) Derivative financial instruments

The Company holds derivative instruments (swap) to mitigate the risk arising from its exposure to index and interest volatility recognized at their fair value in profit or loss for the year. Pursuant to its treasury policies, the Company does not own or issue derivative financial instruments other than for hedging purposes.

As of December 31, 2014 and 2013, the Company had derivative instruments contracts for hedging purposes in relation to interest fluctuations, with final maturity in March 2017. The derivative contracts are as follows:

Swap agreements (fixed for CDI)	Face value	Original index – asset portion	Swap – liability portion	Beginning	End	2014	2013
Banco Votorantim S.A.	90,000	Fixed 14.2511%	CDI 2.41%	09/30/2013	03/28/2014	-	753
Banco Votorantim S.A.	67,500	Fixed 12.6190%	CDI 0.31%	03/28/2014	09/30/2014	-	504
Banco Votorantim S.A.	67,500	Fixed 15.0964%	CDI 2.41%	09/30/2014	03/30/2015	227	280
Banco Votorantim S.A.	45,000	Fixed 11.3249%	CDI 0.31%	03/30/2015	09/30/2015	(426)	(352)
Banco Votorantim S.A.	45,000	Fixed 14.7577%	CDI 2.41%	09/30/2015	03/31/2016	(217)	(200)
Banco Votorantim S.A.	22,500	Fixed 10.7711%	CDI 0.31%	03/31/2016	09/30/2016	(221)	(254)
Banco Votorantim S.A.	22,500	Fixed 17.2387%	CDI 2.41%	09/30/2016	03/30/2017	163	76
						(474)	807

					Current	(199)	807
					Non-current	(275)	-

During the year ended December 31, 2014, the amount of R$1,281 (zero amount in the 22 day period ended December 31, 2013) (Note 19), which refers to net result of the interest swap transaction, was recognized in the “financial income (expenses)” line, allowing correlation between the effect of such transactions and interest rate fluctuation in the Company’s balance sheet.

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Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

15.	Financial instruments--Continued

c) Interest rate risk

Interest rate risk arises from the possibility that the Company and its subsidiaries may experience gains or losses because of fluctuations in the interest rates of its financial assets and liabilities. Aiming to mitigating this kind, the Company and its subsidiaries seek to diversify funding in terms of fixed and floating rates. The interest rates on loans are disclosed in Note 8. The interest rates contracted on financial investments are disclosed in Note 4.

d) Liquidity risk

Liquidity risk refers to the possibility that the Company and its subsidiaries do not have sufficient funds to meet their commitments as they become due.

To mitigate liquidity risks, and to optimize the weighted average cost of capital, the Company monitor on an on-going basis the indebtedness level according to the market standards and the fulfillment of covenants provided for in loan contracts in order to guarantee that the operating-cash generation and the advance funding, when necessary, are sufficient to meet the schedule of commitments.

The maturities of financial instruments, loans, financing, suppliers and payables to venture partners are as follows:

As of December 31, 2014	Less than 1 year		1 to 3 years		4 to 5 years		More than 5 years		Total
Loans and financing (Note 8)		25,195		336,379		15,092		-		376,666
Debentures (Note 9)		5,136		182,000		468,000		-		655,136
Suppliers		36,850		-		-		-		36,850
Payables to venture partners (Note 11)		2,184		8,826		-		-		11,010

As of December 31, 2013	Less than 1 year		1 to 3 years		4 to 5 years		More than 5 years		Total
Loans and financing (Note 8)		79,634		196,821		14,216		-		290,671
Debentures (Note 9)		3,463		140,000		360,000		-		503,463
Suppliers		64,009		-		-		-		64,009
Payables to venture partners (Note 11)		39,522		8,826		-		-		48,348

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

15.	Financial instruments--Continued

(i) Risk considerations --Continued

e) Fair value classification

The Company uses the following classification to determine and disclose the fair value of financial instruments by the valuation technique:

Level 1: quoted prices (without adjustments) in active markets for identical assets or liabilities;

Level 2: input different from the quoted prices in active markets included in Level 1, which are observable, directly (as prices) or indirectly (prices derivate); and

Level 3: inputs to asset or liability not based on observable market data (nonobservable inputs).

The fair value classification of financial instruments assets measured at fair value through profit or loss of the Company presented in the financial statements for the year ended December 31, 2014 and 2013 is as follows.

	Fair value classification – 2014
	Level 1		Level 2		Level 3
Financial assets
Cash equivalents (Note 4.1)		-		161,082		-
Short-term investments (Note 412)		-		59,887		-

	Fair value classification – 2013
	Level 1		Level 2		Level 3
Financial assets
Cash equivalents (Note 4.1)		-		293,099		-
Short-term investments (Note 412)		-		76,135		-
Derivative financial instruments (Note 15.b)				807

In addition, the fair value classification of financial instruments liabilities is as follows:

	Fair value classification – 2014
	Level 1		Level 2		Level 3
Financial liabilities
Loans and financing (Note 8)		-		376,666		-
Debentures		-		655,136		-
Derivative financial instruments				474
Suppliers		-		36,850		-
Payables to venture partners (Note 11)				11,010

	Fair value classification – 2013
	Level 1		Level 2		Level 3
Financial liabilities
Loans and financing (Note 8)		-		290,671		-
Debentures		-		503,463		-
Suppliers		-		64,009		-
Payables to venture partners (Note 11)				48,348

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

15.	Financial instruments--Continued

(i) Risk considerations --Continued

In the years ended December 31, 2014 and 2013, there were no transfers between the levels 1 and 2 fair value valuation, nor were transfers between levels 3 and 2 fair value valuation.

(ii) Fair value of financial instruments

a) Fair value measurement

The following estimate fair values were determined using available market information and proper measurement methodologies. However, a considerable amount of judgment is necessary to interpret market information and estimate fair value. Accordingly, the estimates presented in this document are not necessarily indicative of amounts that the Company could realize in the current market. The use of different market assumptions and/or estimation methodology may have a significant effect on estimated fair values.

The following methods and assumptions were used in order to estimate the fair value for each financial instrument type for which the estimate of values is practicable:

(i) The amounts of cash and cash equivalents, short-term investments, accounts receivable and other receivables and other current liabilities approximate to their fair values, recorded in the financial statements, in view of their short-term natures.

(ii) The fair value of bank loans and other financial debts is estimated through future cash flows discounted using rates that are annually available for similar and outstanding debts or terms.

The carrying and fair values of the main financial assets and liabilities as of December 31, 2014 and 2013 are as follows:

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

15.	Financial instruments--Continued

(ii) Fair value measurement --Continued

	2014				2013
	Carrying amount		Fair value		Carrying amount		Fair value
Financial assets
Cash and cash equivalents (Note 4.1)		161,082		161,082		293,099		293,099
Short-term investments (Note 4,2)		59,887		59,887		76,135		76,135
Derivative financial instruments (Note 15 (i)(b))		-		-		807		807
Accounts receivable (Note 5)		1,118,534		1,118,534		971,750		971,750
Financial liabilities
Loans and financing (Note 8)		376,666		376,666		290,671		306,831
Debentures (Note 9)		655,136		711,392		503,463		526,494
Derivative financial instruments (Note 15 (i)(b))		474		474		-		-
Payables to venture partners (Note 11)		11,010		12,532		48,348		64,009

b) Risk of debt acceleration

As of December 31, 2014 and 2013, the Company has loans and financing, with restrictive covenants related to cash generation, indebtedness ratios and other. These restrictive covenants have been complied with by the Company and do not limit its ability to conduct its business as usual.

c) Market risk

The Company carries out the development, construction and sales of subdivisions. In addition to the risks that affect the real estate market as a whole, such as supply disruptions and volatility in the prices of construction materials and equipment, changes in the supply and demand for ventures in certain regions, strikes and environmental rules and zoning, the Company’s operations are particularly affected by the following risks:

• The state of the economy of Brazil, which may inhibit the development of the real estate industry as a whole, through the slowdown in economy, increase in interest rates, fluctuation of currency and political instability, besides other factors.

• Future impediments, as a result of a new regulation or market conditions, to adjust for inflation receivables using certain inflation indexes, as currently permitted, which could make a venture financially or economically unviable.

• The level of interest of buyers in a new venture launched or the sale price per unit necessary to sell all units may be below expectations, making the venture less profitable than expected.

• In the event of bankruptcy or significant financial difficulties of a large company of the real estate industry, the industry as a whole may be adversely affected, which could decrease the customer confidence in other companies operating in the industry.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

15.	Financial instruments--Continued

(ii) Fair value measurement --Continued

c) Market risk --Continued

• Local and regional real estate market conditions, such as oversupply, land shortage or significant increase in land acquisition cost.

• Risk of buyers having a negative perception of the security, convenience and appeal of the Company’s properties, as well as about their location.

• The Company’s profit margins may be affected by the increase in operating costs, including investments, insurance premium, real estate taxes and government rates.

• The opportunities for development may decrease.

The building and sale of real estate units may not be completed as scheduled, thus increasing the construction costs or cancellation of sale contracts.

• Delinquency after the delivery of units acquired on credit. The Company has the right to file a collection action to receive the amounts due and/or repossess the real estate unit from the delinquent buyer, not being possible to guarantee that it will be able to recover the total amount of the debt balance or, once the real estate unit is repossessed, its sale in satisfactory conditions.

• Drop in the market value of land held in inventory, before the development of a real estate venture to which it was intended, and the incapacity to maintain the margins that were previously projected for such developments.

(iii) Capital stock management

The Company included in its net debt structure: loans and payables to venture partners less cash and cash equivalents and short-term investments (cash and cash equivalents and short-term investments):

	2014			2013
Loans and financing (Note 8)		376,666			290,671
Debentures (Note 9)		655,136			503,463
Payables to venture partners (Note 11)		11,010			48,348
(-) Cash and cash equivalents and short-term investments (Note 4.1 and 4.2)		(220,969	)		(369,234	)
Net debt		821,843			473,248
Equity		628,823			487,763
Equity and net debt		1,450,666			961,011

(iv) Sensitivity analysis

The sensitivity analysis of the financial instruments for one year, except swap contracts, which are analyzed through their due dates, describing the risks that may incur material losses on the

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

15.	Financial instruments--Continued

Company’s profit or loss in order to show a 25% and 50% increase/decrease in the risk variable considered is as follows.

As of December 31, 2014, the Company has the following financial instruments:

a) Short-term investments, loans and financing and derivative financial instruments linked to Interbank Deposit Certificates (CDI);

b) Accounts receivable linked to the IGP-M;

The scenarios considered were as follows:

Scenario I: 50% increase in the risk variables used for pricing

Scenario II: 25% increase in the risk variables used for pricing

Scenario III: 25% decrease in the risk variables used for pricing

Scenario IV: 50% decrease in the risk variables used for pricing

As of December 31, 2014:

		Scenario
		I			II			III			IV
Instrument	Risk	Increase 50%			Increase 25%			Decrease 25%			Decrease 50%
Short-term investments	Increase/Decrease of CDI		10,207			5,104			(5,104	)		(10,207	)
Loans and financing	Increase/Decrease of CDI		(14,756	)		(7,378	)		7,378			14,756
Debentures	Increase/Decrease of CDI		(33,757	)		(16,879	)		16,879			33,757
Derivative financial instruments	Increase/Decrease of CDI		(7,882	)		(5,904	)		(1,472	)		1,019
Net effect of CDI variation			(46,188	)		(25,057	)		17,681			39,325

Loans and financing	Increase/Decrease of IGP-DI		(662	)		(331	)		331			662
Net effect of IGP-DI variation			(662	)		(331	)		331			662

Accounts receivable	Increase/Decrease of IGP-M		20,266			10,133			(10,133	)		(20,266	)
Net effect of IGP-M variation			20,266			10,133			(10,133	)		(20,266	)

As of December 31, 2013:

		Scenario
			I		II			III			IV
Instrument	Risk	Increase 50%			Increase 25%			Decrease 25%			Decrease 50%
Short-term investments	Increase/Decrease of CDI		12,161			6,080			(6,080	)		(12,161	)
Loans and financing	Increase/Decrease of CDI		(5,055	)		(2,528	)		2,528			5,055
Debentures	Increase/Decrease of CDI		(22,420	)		(11,210	)		11,210			22,420
Derivative financial instruments	Increase/Decrease of CDI		(6,841	)		(3,567	)		3,567			6,841
Net effect of CDI variation			(22,155	)		(11,225	)		11,225			22,155

Payables to venture partners	Increase/Decrease of IGP-M		(762	)		(381	)		381			762
Accounts receivable	Increase/Decrease of IGP-M		11,570			5,785			(5,785	)		(11,570	)
Net effect of IGP-M variation			10,808			5,404			(5,404	)		(10,808	)

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

16.	Related parties

16.1 Balances with related parties

The balances between the Company and related companies are realized under conditions and prices established between the parties.

The transactions with related parties substantially refer to debit notes and financial contribution to SPEs and Consortia for development of real estate ventures, which balance is as follows:

	2014		2013
Dividends receivable
SPE Leblon Incorporadora S.A.		761		883
Krahô Empr. Imob. S.A.		195		267
Other (*)		306		-
		1,262		1,150
Total Assets		1,262		1,150

(*) Represented by diluted amounts of R$4,150 or less, except when required to compare with the year.

Related parties	2014		2013
Liabilities
Dividends payable
Private Equity AE Investimentos e Participações S.A.		858		-
Gafisa S.A.		367		-
Other		264		-
		1,489		-
Total Liabilities		1,489		-

16.2 Endorsements, guarantees and sureties

The financial transactions of wholly-owned subsidiaries or joint ventures of the Company have endorsement or surety in proportion to the interest of the Company in the capital stock of such companies, except certain specific cases in which the Company provides guarantees for its financial institutions, in which amount is R$1,527,296 as of December 31, 2014.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

16.	Related parties--Continued

16.3 Management compensation

As of December 31, 2014 and 2013, the amounts recorded in the account “general and administrative expenses” related to the compensation of the Company’s key management personnel are as follows:

	As of December 31, 2014
	Management compensation
	Board of directors		Statutory board		Total		Fiscal council
Number of members		6		10		16		-
Annual fixed compensation (in R$)		-		5,214		5,214		-
Salary / Fees		-		4,652		4,652		-
Direct and indirect benefits		-		562		562		-
Monthly compensation (in R$)		-		358		358		-
Total compensation		-		5,214		5,214		-

	As of December 31, 2013
	Management compensation
	Board of directors		Statutory board		Total		Fiscal council
Number of members		5		6		11		1
Annual fixed compensation (in R$)		-		149		149		3
Salary / Fees		-		134		134		3
Direct and indirect benefits		-		15		15		-
Monthly compensation (in R$)		-		203		203		4
Profit sharing		-		2,160		2,160		-
Total compensation				149		149		3

Annual aggregate amount approved to be distributed among the Company’s management members for the year 2014 as fixed and variable compensation is up to R$15,201. The Board of Directors of the Company is not remunerated.

The share-based payment is described in Note 21.

16.4 Sales

As of December 31, 2014, no lot was sold to the management. The total balance receivable for lots sold is R$218 (R$562 in 2013).

16.5. Profit sharing

The Company has a profit sharing plan that entitles its employees and management members, and those of its subsidiaries to participate in the distribution of profits the Company.

This plan is tied to the achievement of specific targets, established, agreed-upon and approved by the Board of Directors at the beginning of each year.

In the year ended December 31, 2014, the Company did not meet the specific targets which were set, agreed and approved; accordingly, it did not recorded a reserve for profit sharing payment.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

16.	Related parties--Continued

16.5. Profit sharing - Continued

	2014		22 day period ended December 31, 2013
			(Unaudited)
Statutory Board		-		2,160
Other employees		-		9,441
		-		11,601

17.	Net operating revenue

	2014			22 day period ended December 31, 2013
Gross operating revenue				(Unaudited)
Sale of lots		996,298			158,790
Services		5,051			187
Deductions from gross revenue		(43,101	)		(10,130	)
Net operating revenue		958,248			148,847

18.	Costs and expenses by nature

These are represented by the following:

	2014			22 day period ended December 31, 2013
Cost of real estate development and sale:				(Unaudited)
Construction cost		(452,013	)		(81,057	)
Land cost		(7,817	)		(4,121	)
Development cost		(19,852	)		(1,956	)
Maintenance / warranty		(7,736	)		(1,669	)
Development cost:		(487,418	)		(88,803	)
Capitalized financial charges		(13,418	)		(6,331	)
		(500,836	)		(95,134	)

Commercial expenses:
Marketing expenses		(64,638	)		(16,310	)
Brokerage and sale commission		(15,940	)		(931	)
		(80,578	)		(17,241	)

General and administrative expenses:
Salaries and payroll charges		(46,312	)		(779	)
Employee benefits		(3,819	)		(71	)
Travel and utilities		(4,848	)		(95	)
Services		(14,456	)		(237	)
Rents and condominium fees		(7,016	)		(63	)
IT		(13,179	)		(80	)
Expenses with organizational development		(3,605	)		(56	)
Other		(4,752	)		(231	)
		(97,987	)		(1,612	)

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

19.	Financial income (expenses)

	2014			22 day period ended December 31, 2013
				(Unaudited)
Financial income
Income from financial investments		18,122			1,025
Other financial income		5,602			1,436
		23,724			2,461
Financial expenses
Interest on funding, net of capitalization (Note 8)		(80,767	)		(4,332	)
Amortization of debenture cost		(214	)		(11,699	)
Payables to venture partners		(2,444	)		(561	)
Derivative transactions (Nota 15 (i)(b))		(1,281	)		-
Banking expenses		(2,927	)		(172	)
Offered discount and other financial expenses		(23,766	)		(4,979	)
		(111,399	)		(21,743	)

Net financial income (expenses)		(87,675	)		(19,282	)

20.

Insurance

The Company and its subsidiaries have insurance coverage for personal damages caused to third parties and material damages to tangible assets, as well as against fire hazards, lightning strikes, electrical damages, natural disasters and gas explosion. The contracted coverage has a maximum limit of R$10,480, considered sufficient by Management to cover possible risks involving its assets and/or responsibilities.

The adopted risk assumptions, given the nature and peculiarity are not part of the scope of the audit of the financial statements, accordingly, they were not audited by our independent auditors.

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Alphaville Urbanismo S.A.

Notes to the consolidated financial statements

December 31, 2014

(In thousands of Brazilian Reais, except as otherwise stated)

21.	Stock option plan

The Company has a total of two stock option plans comprising preferred shares, following the model of Phantom Stock Plans, which were launched in 2010 and 2011.

The granted options entitle their holders (employees) to purchase preferred shares of the Company’s capital, after periods that vary from one to five years of employment in the Company (essential condition to exercise the option), and expire ten years after the grant date.

Changes in the stock options outstanding in the year ended December 31, 2014 and in the 22 day period ended December 31, 2013, including the respective weighted average exercise prices are as follows:

	2014					22 day period ended December 31, 2013
	Number of options			Weighted average exercise price (Reais)		Number of options		Weighted average exercise price (Reais)
Options outstanding at the beginning of the year/period		876,743			2.99		876,743		2.99
Options exercised (i)		(465,684	)		4.21		-		-
Options expired		(107,338	)		4.93		-		-

Options outstanding at the end of the year / period		303,721			2.49		876,743		2.99

The options outstanding and the options exercisable as of December 31, 2014 are as follows:

Options outstanding				Options exercisable
Number of options		Weighted average remaining contractual life (years)		Weighted average exercise price (R$)		Weighted average exercise price (R$)

	303,722		3.87		2.49		2.49

During the year ended December 31, 2014 and in the 22 day period ended December 31, 2013, the Company did not grant any options in connection with its stock option plans comprising common shares.

The Company recorded expenses with stock option plans in the amount of R$318 in the year ended December 31, 2014 (R$62 in the twenty-two-day period ended December 31, 2013).

In the period ended December 31, 2014, the expenses with stock option plan are the responsibility of the former parent company Gafisa S.A., according to the agreement between the parties.

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22.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the year ended December 31, 2014 and the twenty-two-day period ended December 31, 2013

(a) Description of the GAAP differences

The Company’s accounting policies and its consolidated financial statements comply with and are prepared in accordance with Brazilian GAAP.

A summary of the Company’s principal accounting policies under Brazilian GAAP that differ significantly from US GAAP is set forth below.

(i) Revenue recognition

a. The period of cancellation with refund has expired;

b. Cumulative payments equal or exceed 10 percent;

c. Receivables are collectible;

d. Receivables are not subject to subordination;

e. There has been progress on improvements. The project’s improvements have progressed beyond preliminary stages, and there are indications that the work will be completed according to plan;

Additionally, as part of the analysis of this adjustment, the Company also determined the effect over the minority interest from their consolidated subsidiaries. The reclassification of income to the minority interest for this adjustment was R$3,852 and R$42,260 for the years ended December 31, 2014 and the twenty-two-day period ended December 31, 2013, respectively (Note 22(b)(i)).

The Company also determined the effect for their investments in affiliates that are recognized through the equity method under US GAAP. This reclassification resulted in an equity pick-up of R$8,795 in December 31, 2014 and (R$44,880) in the twenty-two-day period ended December 31, 2013 (Note 22(b)(i))).

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(ii) Classification of balance sheet line items

Under Brazilian GAAP, the classification of certain balance sheet items is presented differently from US GAAP. The Company has recast its consolidated balance sheet under Brazilian GAAP to present a condensed consolidated balance sheet in accordance with US GAAP (Note 22(d)(i)). The reclassifications are summarized as follows:

· Under Brazilian GAAP, restricted cash is presented as short-term investment in the balance sheet. For US GAAP purposes, restricted cash is presented separately outside of short-term investment.

(iii) Classification of statement of income (operations) line items

Under Brazilian GAAP, in addition to the issues noted above, the classification of certain income and expense items is presented differently from US GAAP. The Company has recast its statement of income (loss) prepared under the Brazilian GAAP to present a condensed consolidated statement of income (loss) in accordance with US GAAP (Note 22(d)(ii)). The reclassifications are summarized as follows:

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· The net income differences between Brazilian GAAP and US GAAP (Note 22(b)(i)) were incorporated in the consolidated statement of operations in accordance with US GAAP.

(iv) Deferred income tax

Deferred income tax differences between Brazilian GAAP and US GAAP are related to the recognition of deferred income tax on the adjustments mentioned above.

A valuation allowance to reduce the deferred tax asset is recognized if upon available evidences, both positive and negative, and the weight of those evidences, the deferred tax asset is deemed to be not recoverable.

(b) Reconciliation of significant differences between Brazilian GAAP and US GAAP

(i) Net income (loss)

	Note	2014			22 day period ended December 31, 2013
					(Unaudited)
Net income under Brazilian GAAP attributable to owners of Alphaville Urbanismo S.A.			128,954			(786	)
Revenue recognition - net operating revenue	22(a)(i)		(43,718	)		(78,051	)
Revenue recognition - operating costs	22(a)(i)		8,627			34,935
Equity pick-up	22(a)(i)		8,795			(44,880	)
Present value adjustment and other			10,998			10,076
Non-controlling interests on adjustments above	22(a)(i)		3,852			42,260
Deferred income tax on adjustments above, net of valuation allowance	22(a)(iv)		10,633			3,504

Net income (loss) attributable to Alphaville Urbanismo under US GAAP			128,141			(32,942	)

Net income attributable to the non-controlling interests under US GAAP			13,437			(40,119	)
Net income (loss) under US GAAP			141,578			(73,061	)

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(ii) Equity

	Note		2014			2013
						(Unaudited)
Equity under Brazilian GAAP				581,732			453,684
Revenue recognition - net operating revenue		22(a)(i)		(1,349,493	)		(1,316,773	)
Revenue recognition - operating costs		22(a)(i)		584,217			575,590
US GAAP adjustment equity accounted investees		22(a)(i)		(6,138	)		6,471
Non-controlling interests on adjustments above		22(a)(i)		51,683			26,428
Deferred income tax on adjustments above	22(a)(iv)			53,411			42,778

Alphaville Urbanismo S.A. equity under US GAAP				(84,588	)		(211,822	)

Non-controlling interests under US GAAP				(4,591	)		7,651


Equity under US GAAP				(89,179	)		(204,171	)

Condensed changes in total equity under US GAAP	2014			22 day period ended December 31, 2013
				(Unaudited)
At beginning of the period		(211,822	)		(178,942	)
Changes in equity, BRGAAP					-
Stock options		318			62
Net profit (loss) attributable to Alphaville Urbanismo S.A.		128,141			(32,942	)
Declared mandatory dividend		(1,225	)		-
At end of the year / period		(84,588	)		(211,822	)

Condensed equity under US GAAP	2014			2013
				(Unaudited)
Equity
Common shares, comprising 117,510,769 shares (2013 - 116,407,359)		290,447			285,806
Treasury shares		(22,345	)		(17,704	)
Accumulated reserve (losses)		(352,690	)		(479,924	)

Total Alphaville Urbanismo equity		(84,588	)		(211,822	)

Non-controlling interests		(4,591	)		7,651

Total equity		(89,179	)		(204,171	)

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22.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014 and the twenty-two-day period ended December 31, 2013- Continued

In July 2012, the FASB issued ASU 2012-02, “Intangible – Goodwill and Other” – Topic 350, which provides the option to perform a qualitative, rather than quantitative, assessment to determine whether it is more likely than not an indefinite-lived intangible asset is impaired. If the asset is considered impaired, an entity is required to perform the quantitative assessment under the existing guidance. The guidance is effective for our fiscal year beginning on January 1, 2013. The adoption of this guidance, which is intended to simplify the impairment testing, did not have a material impact on our consolidated financial statements.

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22.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014 and the twenty-two-day period ended December 31, 2013- Continued

In April 2015, the FASB issued ASU 2015-03 - Interest—Imputation of Interest (Subtopic 835-30). To simplify presentation of debt issuance costs, the amendments in this Update would require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs would not be affected by the amendments in this Update. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted for financial statements that have not been previously issued. The adoption of this Update is not expected to have a material impact on our consolidated financial statements.

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(d) US GAAP condensed consolidated financial information

Based on the reconciling items and discussion above, the Alphaville Urbanismo S.A. consolidated balance sheets, statements of income (loss), and statement of changes in shareholders’ equity (see b(ii)) under US GAAP have been recast in condensed format as follows:

(i) Condensed consolidated balance sheets under US GAAP

	2014		2013
Assets			(Unaudited)
Current assets
Cash and cash equivalents		132,912		17,659
Short-term investments		81,703		298,445
Restricted short-term investments		6,354		53,130
Trade accounts receivable, net		173,511		135,910
Properties for sale		1,079,650		950,707
Other		122,015		78,775
		1,596,145		1,534,626
Non-current assets
Investments in associates		26,287		40,773
Property and equipment, net		21,072		16,570
Trade accounts receivable		155,499		55,754
Properties for sale		60,491		45,051
Deferred income tax and social contribution		37,149		35,748
Other		13,073		15,176
		313,571		209,072

Total assets		1,909,716		1,743,698

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	2014			2013
Liabilities				(Unaudited)
Current liabilities
Loans and financing		234,177			79,634
Debentures		5,136			3,463
Payables for purchase of properties		6,836			465
Payables for goods and services suppliers		36,850			64,009
Taxes and labor contributions		23,547			51,469
Advances from customers		672,638			736,103
Obligations assumed on the assignment of receivables		20,245			30,228
Payables for venture partners		7,282			39,522
Declared dividends		1,489			216
Other		40,024			81,277
		1,048,224			1,086,386
Non-current liabilities
Loans and financing		142,489			211,037
Debentures		650,000			500,000
Payables for purchase of properties		11,057			-
Obligations assumed on the assignment of receivables		21,069			37,701
Payables to venture partners		3,728			8,826
Provisions for legal claims		5,639			3,830
Warranty Provision		26,594			11,504
Acquisition of ownership interests		2,924			19,725
Other		87,171			68,860
		950,671			861,483

Total Alphaville equity		(84,588	)		(211,822	)
Non-controlling interest		(4,591	)		7,651
Total equity		(89,179	)		(204,171	)
Total liabilities and equity		1,909,716			1,743,698

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22.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014 and the twenty-two-day period ended December 31, 2013- Continued

(ii)	Condensed consolidated statements of operations under US GAAP

	2014			22 day period ended December 31, 2013
Gross operating revenue				(Unaudited)
Real estate development and sales of properties		954,730			104,936
Taxes on services and revenues		(40,200	)		(7,517	)

Net operating revenue		914,530			97,419
Operating costs		(492,208	)		(60,199	)

Gross profit		422,322			37,220

Operating income (expenses)
Selling general and administrative expenses		(176,584	)		(30,517	)
Other		(6,152	)		(304	)
Income before financial income and expenses and income tax and social contribution		239,586			6,399

Financial income		34,722			2,461
Financial expenses		(111,399	)		(38,290	)
Income (loss) before income tax and social contribution		162,909			(29,430	)

Current income tax and social contribution		(26,973	)		(4,382	)
Deferred income tax and social contribution		(302	)		5,848
Total income tax and social contribution		(27,275	)		1,466

Income (loss) before equity in results and
non-controlling interests		135,634			(27,964	)
Income from equity method investments		5,944			(45,097	)

Net (loss) income for the year/period from continuing operations		141,578			(73,061	)

Net (loss) income attributable to the non-controlling interests		(13,437	)		40,119
Net (loss) income attributable to Alphaville		128,141			(32,942	)

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22.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014 and the twenty-two-day period ended December 31, 2013- Continued

(iii)

Condensed consolidated statements of comprehensive income (loss)

	2014			22 day period ended December 31, 2013
				(Unaudited)
Net (loss) income for the year / period		141,578			(73,061	)

Total comprehensive (loss) income, net of taxes		141,578			(73,061	)

Attributable to:
Non-controlling interests		(13,437	)		40,119
Owners of Alphaville Urbanismo S.A.		128,141			(32,942	)

(iv)	Additional information – income taxes

Change in the valuation allowance for net operating losses and temporary differences was as follows:

	2014		22 day period ended December 31, 2013

Opening balance at January 1, 2014 and December 09, 2013		103,948		103,948
Change in valuation allowance		43,676		-
Closing balance at December 31		147,624		103,948

The Company recognizes its deferred tax asset net of a valuation allowance such that the amount of the net deferred tax asset is more likely than not to be realized. During the year 2014, movements in the valuation allowance amounted to a net increase of R$43,676. This is primarily related to the continuing restructuring process implemented by management.

As of December 31, 2014 and 2013, the Company has no amount recorded for any uncertainty in income taxes.

Alphavile Urbanismo S.A. and its subsidiaries file income tax returns in Brazil. Brazilian income tax returns are subject to inspections by tax authorities for the period beginning in 2009 and forward, i.e., within 5 years after the filing.

(v) Statement of comprehensive income (loss)

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22.	Supplemental Information - Summary of Principal Differences between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended December 31, 2014 and the twenty-two-day period ended December 31, 2013- Continued

(vi) Statement of cash flows

The Company’s primary differences in net income (loss) between Brazilian GAAP and net income (loss) for US GAAP are explained in items 22(a) (ii) to (iv) above. The statement of cash flows for Brazilian GAAP was prepared based on CPC 3(R2) - Statement of Cash Flows, which conforms with IAS 7.

* * *

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