a) financial and general shareholder equity conditions

The directors believe that Company is one of the leading players in the real estate development market, operating nationally with a focus on high-quality residential undertakings targeting all income brackets.

Company’s revenues are largely derived from the development and sale of real estate projects. Company recognizes the revenue from these real estate projects during the construction period, based on a financial calculation related to the value of the project on completion, and not when the sales contracts are signed. On a smaller scale, Company also generates revenue from the provision of real estate services, such as construction, technical and real estate management, to third parties. Company structures some of its projects through its subsidiaries or jointly controlled affiliates, set up as specific purpose enterprises (SPE).

Company’s current working capital is sufficient for its present requirements and its cash position, including loans to third parties, is sufficient to meet the financing of all its activities and cover its capital requirement, for at least the next 12 (twelve) months.

The Directors understand that Company has sufficient financial resources and shareholders’ equity to implement its business plan and comply with its short-to-medium-term obligations.

During the forth quarter of 2011, we have carried out detailed review of Company’s and its controlled companies’ operations and its working strategy. The outcome of such review was the implementation of the following changes:

• Establishment of a new organizational structure divided by brands, appointing the professionals in charge of the respective structures;
• Temporary reduction of Tenda brand’s operations, until we are able to operate in an efficient manner within the guideline of that segment, i.e., production at competitive costs (using aluminum mold technology) and immediate transfer promptly after sales, of the clients to the financial institution;
• Increase of investments in Alphaville brand, being the most profitable segment in our products portfolio; and
• Guidance of Gafisa brand in São Paulo and Rio de Janeiro markets.

The outcome of such review and the new structure implemented were several measures being taken:

• Detailed review of all cost estimates of the civil works ongoing;
• Review of the entire clients portfolio of Construtora Tenda S.A. aiming to confirm their adequacy to the financial institutions’ requirements; and
• Analysis of the impairment of lands located in non-priority regions.

As a result of such changes and reviews carried out, Company registered adjustments and provisions equal to 23.4% of the Shareholders’ Equity, equivalent to R$639.482 million in the fiscal year of 2011 and R$151.485 million in the fiscal year of 2010. Such adjustments and provisions did not impact Company’s liquidity position and shall not impact its capacity of paying future commitments, by the main reasons:

• The Company has R$983.660 million of cash and cash equivalent, bonds and securities, cautionated applications and restricted credits on December 31, 2011;
• The Company has a net current capital, post-classification of short-term financial liabilities (due to breach of restrict clauses of covenants, already negotiated) of 1.5 times, excluding the reclassified liability would be 2.5 times;
• The Company has receivables of delivered units approximate to R$300 million; and
• The Company has credit facilities for real estate financing of R$2.2 billion.

b) capital structure and the possibility of redeeming shares or quotas

Company’s shareholders’ equity on December 31, 2011, stood at R$2.7 billion, representing a decrease of 25%, or R$899 million, compared to December 31, 2010. Such reduction is a result of mainly due to adjustments of R$889.5 million, being 31% of Gafisa and 69% of Tenda, distributed among the fiscal years of 2010 and 2011, 19% and 81% respectively.

On December 31, 2011, Company held cash position of R$983.660 million. On the same date, its net debt together with investor obligations totaled R$3.2 million and its debt-to-capital ratio of net debt and obligations to investors over net shareholders’ equity and minority interests was 118.1% compared with 68.6% on December 31, 2010.

Company’s shareholders’ equity on December 31, 2010, stood at R$3.6 billion, representing an increase of 52%, or R$1.2 billion, compared with December 31, 2009. Of this increase, R$1.1 billion was due to the capital increase through the public offering of common stock finalized in March 2010, and R$246.6 million profit registered in the same financial year and R$98.8 million regarding distribution of dividends.

As of December 31, 2010, Company held a cash position of R$1.2 billion. On the same date, its net debt together with investor obligations totaled R$2.5 billion and its debt-to-capital ratio of net debt and obligations to investors over net shareholders’ equity and minority interests was 68.6% compared with 84.3% on December 31, 2009.

Company’s shareholders’ equity on December 31, 2009, totaled R$2.3 billion, representing an increase of 44%, or R$713.2 million compared with December 31, 2008. Of this increase, R$213.5 million was related to profit earned in the financial year. On December 31, 2007, Company’s shareholders’ equity stood at R$1.5 billion.

On December 31, 2009, Company held a cash position of R$1.4 billion. On the same date, its net debt together with obligations to investors totaled R$2.0 billion and its debt-to-capital ratio of net debt and obligations to investors over net shareholders’ equity and minority interests was 84.3% compared with 59.8% on December 31, 2008.

There is no hypothesis of redeeming shares issued by Company other than under the legally prescribed conditions.

c) capacity for payment in relation to the financial commitments assumed

We issued the fifth series of Company debentures in 2008, raising R$250 million, and invested most of the financial resources raised in the previous financial year due to the financial crisis that affected the main global markets. On December 31, 2008, we posted a net debt together with obligations to investors of R$1,247 million, representing 59.8% of shareholders’ equity and minority interests on the same date.

We issued the sixth and seventh series of Company debentures in 2009, raising R$250 million and R$600 million, respectively, for Company. On December 31, 2009, we presented a net debt together with obligations to investors of R$2,009 million, representing 84.3% of shareholders’ equity and minority interests on the same date.

We issued shares in March 2010, raising approximately R$1 billion. We issued the eighth series of Company debentures in November 2010, raising R$300 million. On December 31, 2010, we presented a net debt together with obligations to investors of R$2.493 billion, representing 68.6% of shareholders’ equity and minority interests on the same date.

We raised about R$840 million in 2011, R$230 million through Trade Promissory Notes, R$530 million by CCB-I and R$80 million through creation of paid usufruct over the controlled companies’ dividends. On December 31, 2011, we presented net debt, together with obligations with investors, of R$3,245 million, representing 118.1% of the shareholders’ equity and minority interests on the same date.

As a result, our net shareholders’ equity represented a coverage ratio of 0.85 times our net debt. This means for every R$1.00 of net debt we have R$0.85 of shareholders’ equity to cover this balance. As such, we believe that our existing financial resources and operating cash flow generation will be sufficient to meet our liquidity needs and financial commitments already contracted.

d) sources of financing for working capital and investments in non-current assets used

As and when appropriate, Company takes out debt with Brazil’s Housing Finance System (SFH), which offers lower interest rates than in the private market, and the amortization of which is made through the transfer of clients’ receivables from banks. The directors intend for Company to continue with its strategy to maintain low debt rates, made up largely of operations with the SFH, debentures with the federal savings bank, the Caixa Econômica Federal (CEF), or long-term operations.

Company’s operations are mainly financed with real estate financing, the securitization of receivables and, more importantly, the operating cash flow generated. If necessary, and in accordance with market demand, Company takes out long-term financing for the sale of its project developments.

In addition, Company uses resources from debenture issues as a source of working capital (for more details about Company’s debenture issues please refer to Item 18.5).

Furthermore, in order to minimize Company’s working capital requirement and maximize the return, it transfers to the banks and sells in the market its portfolio of receivables from the units already completed.

In 2009, in addition to the operations together with the SFH, working capital and resources derived from debentures issues, Company used the sale of receivables from units already completed, from which it raised net resources amounting to R$139 million.

In 2010, Company once again used the SFH, working capital and resources derived from debentures issues as sources of financing.

In 2011, Company used SFH, working capital and resources derived from Promissory Notes issuing as sources of financing.

Company does not make investments in non-current assets.

e) sources of financing for working capital needs and investments in non-current assets intended to be used to cover liquidity shortfalls

Company does not currently have any approved line of credit for new working capital requirements, as the existing limit has already been fully drawn down. However, this does not exclude the possibility of structuring or obtaining new lines of credit for working capital depending on the instruments available and existing market conditions when contracted. Company’s current profile of financing for working capital is mainly comprised of debentures, bank credit notes (CCB) and Promissory Notes (NP). For more information about Company’s indebtedness, please refer to explanatory notes 10 and 11 in the Standardized Financial Statements and Item 10.1(f) of this Reference Form.

f) levels of indebtedness and debt characteristics

As of December 31, 2011:

R$ 000

Total

To Dec/2012

To Dec/2013

To Dec/2014

To Dec/2015

After 2016

Debentures

1,899,200

1,899,200

SFH

684,642

287,550

136,928

74,763

92,016

93,385

Working Capital

1,171,967

480,506

351,590

138,225

192,203

9,443

Total consolidated debt

3,755,809

2,667,256

488,518

212,988

284,219

102,828

% Total

71%

13%

6%

8%

3%

Breakdown of debt

R$ thou

%

Debentures

1.899.200

50,57%

Bradesco

601.996

16,03%

Votorantim

252.622

6,73%

HSBC

245.476

6,54%

Banco do Brasil

244.294

6,50%

Others

512.221

13,64%

As of December 31, 2010:

R$ 000

Total

To Dec/2011

To Dec/2012

To Dec/2013

To Dec/2014

After 2015

Debentures

1,879,932

26,532

272,557

722,557

558,708

299,578

SFH

745,707

548,303

156,760

40,644

-

-

Working Capital

664,471

249,600

88,405

79,268

247,198

-

Total consolidated debt

3,290,110

824,435

517,722

842,469

805,906

299,578

% Total

25%

16%

26%

24%

9%

Breadkdown of debt

R$ thou

%

Debentures

1,879,932

57.14%

Itaú Unibanco

383,314

11.65%

Santander

246,500

7.49%

Mercado

307,810

9.36%

Votorantim

222,450

6.76%

Banco do Brasil

113,625

3.45%

Others

136,479

4.15%

As of December 31, 2009:

(R$000)

Total

To Dec/2010 

To Dec/2011 

To Dec/2012 

To Dec/2013 

After Dec/2013

Debentures

1,918,377

122,377

346,000

275,000

725,000

450,000

SFH

467,019

269,986

168,737

23,536

4,760

-

Working Capital

736,736

408,326

244,846

48,318

35,246

-

Total consolidated debt

3,122,132

800,689

759,583

346,854

765,006

450,000

% Total

26%

24%

11%

25%

14%

Breakdown of debt

R$ thou

%

Debentures

1,918,378

61.4%

Itaú Unibanco

545,458

17.5%

Votorantim

111,814

3.6%

Banco do Brasil

107,269

3.4%

HSBC

103,916

3.3%

ABN Amro Real

93,179

3.0%

Others

242,119

7.8%

Company’s indebtedness on December 31, 2009 had increased to R$3.122 billion, mainly due to the issuance of new debentures during 2009.

Company’s indebtedness on December 31, 2010 had increased to R$3.290 billion, mainly due to the issuance of the new debenture during the year 2010.

Company’s indebtedness on December 31, 2011 had increased to R$3.756 billion, mainly due to the issuance of new bank credit notes (CCB). Among the main metrics used by Company to calculate the level of its indebtedness is the level of net debt in relation to net equity. On December 31, 2010, this indicator reached 68.6%, increasing to 118.1% at the end of December 2011. This increase reflected the cash consumption in the period, which was partially financed by issuance of new debts. Company’s long-term objective is to maintain this ratio below 70%.

For more details about Company’s indebtedness as a result of the issuance of debentures, please see item 18.5 below.

g) limits for the use of the financing already contracted

During the financial years ending on December 31, 2009, 2010 as well as December 31, 2011, the financing contracted by Company for construction from the largest banks in the Brazil within the scope of the SFH consist of financial resources for exclusive use in the works of the respective project undertakings. The resources are freed up during the physical and financial development of the project as required.

Company’s position in terms to the lines of financing extended by the SFH in December 2009 stood at R$1.2 billion, with an outstanding balance of R$467 million, and in 2010, SFH lending totaled R$2.4 billion with an outstanding balance of R$745.7 million.

On December 31, 2011, Company’s position in terms of the lines of financing extended by the SFH was R$2.2 billion, with an outstanding balance of R$684.6 million.

Company has not signed any financial instruments with exposure to variations in the foreign exchange rate.

h) significant alterations in each item of the financial statements

CONSOLIDATED FINANCIAL STATEMENT IN THE FINANCIAL YEAR:

2011

2010

2009

(restated)

Gross operating revenue

Property development and sale and exchange

3,441,279

3,834,230

3,096,881

Provision for dissolution of contracts

(301,394)

(182,832)

Rendering of construction services

29,607

24,289

47,999

Deductions from gross revenue

(228,986)

(272,637)

(122,534)

Net operating revenue  

2,940,506

3,403,050

3,022,346

Operating Costs

Property development and sale

(2,678,338)

(2,460,918)

(2,143,762)

Gross operating profit

262,168

942,132

878,584

Operating revenue (expenses)

Selling expenses

(393,181)

(266,660)

(226,621)

General and administrative expenses

(251,458)

(236,754)

(233,129)

Result of equity method

-

-

-

Depreciation and amortization

(83,428)

(33,816)

(34,170)

Others

(34,540)

(12,173)

(92,884)

Non-financial asset impairment expenses

(102,485)

-

-

Gross profit before financial revenues and expenses

(602,924)

392,729

291,780

Financial expenses

(252,876)

(210,202)

(240,572)

Financial revenues

92,973

128,085

129,566

Profit before income tax and social contribution and of non-controlling shareholders

(762,827)

310,612

180,774

Expense from income tax and social contribution (current)

(73,207)

(11,834)

(20,147)

(Expense) revenue from deferred income tax and social contribution

(69,155)

(10,294)

(17,665)

Total (expenses) revenue from taxes

(142,362)

(22,128)

(37,812)

Net profit before non-controlling shareholders interests

(905,189)

288,484

142,962

(-) Net profit in the financial year attributable to stakes of non-controlling shareholders

(39,679)

(23,919)

(41,222)

Financial year net profit

(944,868)

264,565

101,740

Operating Results related to the Financial years ending on December 31, 2011 compared with 2010

Gross Revenue from Sales and/or Services

The gross revenue from sales and/or services decreased 22%, from R$24 million in the financial year ending on December 31, 2010 to R$30 million in the financial year ending on December 31, 2011. The gross revenue generated from the sale of property and land swaps totaled R$3.8 million in the financial year ending in 2011, a decrease of R$393 million or 10% compared with the same period in 2010, while the revenue generated from property sales and swaps totaled R$3.2 billion, reflecting the impact of budget review in the period, mainly related to Construtora Tenda S.A, coupled with dissolutions of contracts at Tenda business.

Deductions from Gross Revenue – Taxes on Property Sales and Services

The deductions from gross revenue relating to taxes on property sales and services decreased by 16%, from R$273 million in the financial year ending on December 31, 2010 to R$229 million in the 2011 financial year. This decrease was mainly due to the decrease in revenue as a result of the lower sales volume in the period.

Net Revenue from Sales and/or Services

Net revenue of sales/or services decreased by 14%, from R$3.4 million in the financial year ending on 2010 to R$2.9 billion in the 2011 financial year. This decrease was mainly due to the adjustments of R$739 million (23% attributed to Gafisa segment and 77% to Tenda busimess). Results for 2011 were mainly impacted by the following factors: (i) cost revisions of Company and of Construtora Tenda (R$214 million and R$227 million, respectively); (ii) dissolution of contracts held in 4^th quarter of 2011 at Construtora Tenda S.A. (gross loss adjustment of R$91 million); (iii) provision for bad debt at Construtora Tenda S.A. (operating expense adjustment of R$105 million); (iv) provision for future dissolution of contracts at Construtora Tenda S.A. (gross loss adjustment of R$80 million); (v) impairment related write-down of assets of Company and of Construtora Tenda S.A. (total adjustments of R$53 million and R$68 million, respectively); (vi) provision for penalties from delayed projects of Company and of Construtora Tenda S.A. (total adjustments of R$13 million and R$38 million, respectively); (vii) and cancellation of projects of Construtora Tenda (total adjustments of R$17 million).

Cost of Development and Sale of Property

The cost of development and sale of property and physical swap during 2011financial year totaled R$2.8 million, 9% increase compared with R$2.5 billion during 2010 financial year. Such increase derives from major budget cost review for Company and Construtora Tenda S.A..

Gross Result

Gross profit posted in 2011 totaled R$262 million, representing a 72% decrease compared with R$942 million profit reported in 2010. This decrease can largely be attributed to the higher gross operating revenue and less sharp gross revenue during 2011. In 2011 financial year, the gross margin for Company’s activities declined to 9%, compared to 28% in 2010. This sharp fall was due to the increased recognition of lower margins from recent projects.

Selling Expenses

Selling expenses in 2011 totaled R$393 million, representing an increase of 47% compared to the R$267 million posted in 2010. Selling expenses during 2011 represented 13.4% of its net operating revenue, compared to 7.4% in 2010, mainly due to the provision for doubtful debts, of R$87 million recorded as additional expenses. Excluding these amounts, selling expenses totaled R$124 million in 2011, a 15% increase over 2010.

General and Administrative Expenses Arising from the Stock Options Plan

General and administrative expenses totaled R$251.5 million in the 2011 financial year compared with R$236.8 million in 2010, an increase of 6%, or R$14.7 million, which is below inflation - IPCA 6,5% in the same period. These expenses were comprised of profit sharing and other administrative expenses.

Depreciation and Amortization

The depreciation and amortization seen during the 2011 financial year totaled R$83 million, evidencing increase compared with the R$34 million reported in 2010. Depreciation of sales stands accounted for 6% of the expenses in the period.

Other Operating Expenses

In 2011, our results reflected negative impact of R$79 million, compared with the R$19 million reported in 2010, mainly due to higher level of provision for contingencies in the last quarter of the year, reflecting more conservative positioning and accounting write-off corresponding to R$58 million (Construtora Tenda S.A.) and R$34 million (Gafisa S.A.) in the expenses related to a downward valuation of land bank, as a result of Company’s strategy of reduction of geographic expansion. As Company does not intend to develop projects in those areas, in the short-term, it generated significant prices decrease.

Financial Revenue

Financial revenue decreased to R$93 million in the 2011 financial year, compared with the R$128 million reported in 2010, mainly due to lower cash position. The difference is mainly due to the decrease in financial revenues of 27%.

Financial Expenses

Net financial expenses in the 2011 financial year totaled R$253 million, compared with net financial revenues of R$210 million in 2010, a 20% increase due to higher leveraging rate and, consequently, higher interest expenses.

Provision for Income Tax and Social Contribution and Deferred Income Tax

Social contribution and income tax in 2011 totaled expenses of R$142 million, or 543% higher than in 2010, when the same totaled R$69 million. In the 2011 and 2010 financial years, the effective combined rates for income tax and social contribution, calculated as a percentage of pre-tax profit, were 20.5% and 7.2%, respectively. This variation is due to the full loss provision constituted relative to deferred assets as a result of unrealized deferred income tax and social contribution credits.

Stakes held by Non-Controlling Shareholders (Minority Interests)

The increase in the stakes of non-controlling shareholders (minorities in subsidiaries in which Company has investment) from R$24 million in 2010 to R$40 million in 2011, an increase of 66% when compared to the previous year.

Net Profit (Loss)

Net loss during the 2011 financial year totaled R$945 million, which represents a decrease of 457% when compared to the R$265 million profit posted in 2010.

Operating Results for the Financial years ending on December 31, 2010 compared with 2009

Gross Revenue on Sales and/or Services

The gross revenue on sales and/or services increased by 24%, from R$48 million in the financial year ending on December 31, 2009 to R$24 million in the financial year ending on December 31, 2010. The gross revenue generated from the sale of property and swaps totaled R$3.8 billion in the financial year ending in 2010, representing an increase of R$737 million or 24% compared with the same period in 2009, when the revenue generated from the sale of property and swaps totaled R$3.1 million, reflecting the overall growth in the real estate market in Brazil and the consolidation of results of Construtora Tenda S.A..

Deductions from Gross Revenue – Taxes on Property Sales and Services and Brokerage on Sales

The deductions from gross revenue increased by 122%, from R$122 million in the financial year ending on December 31, 2009 to R$273 million in the 2010 financial year. This increase was mainly due to the increase in revenue as a result of the higher sales volume in the period. The property and services sales taxes of R$108 million in the financial year ending on December 31, 2009, as a result of the increase in Company’s business volume.

Net Revenue from Sales and/or Services

Net revenue of sales/or services increased by 13%, from R$3.0 billion in the financial year ending on 2009 to R$3.4 million in the 2010 financial year. This increase was mainly due to the higher recognition of revenue during the period, after posting a solid sales performance, both in terms of projects launched and inventory, as well as the strong pace in construction work.

Cost of Development and Sale of Property

The costs of the sale and swap of property in 2010 totaled R$2.5 billion, an increase of 15% compared with R$2.1 billion in 2009. This increase was largely due to the significant volume of constructions underway during 2010, compared with the volume reported in 2009. The cost of land and land swaps represented 12.3% of total operating costs in the financial year ending on 2010, compared with 11% in 2009. The costs of construction and development represented 87% of total operating costs in the financial year ending on 2010, compared with 82% in 2009. These variations were mainly due to the expansion in ongoing operations during the year.

The costs of the development and sale of property, as a percentage of net operating revenue, represented 74% in 2010 compared with 71% in 2009, mainly due to the higher sales volume.

Gross Profit

The gross profit posted in 2010 totaled R$942 million, representing an increase of 7% compared with the R$878.6 million profit reported in 2009. This increase can largely be attributed to the higher gross operating revenue derived from a wider scope of activities in 2010. The gross margin for Company’s activities in 2010 went down to 26% compared with 29% in 2009. This stability was due to the decreased recognition of margins from Company’s recent projects.

Selling Expenses

Selling expenses in 2010 totaled R$267 million, representing an increase of 18% compared to the R$226 million posted in 2009. This increase reflects: (i) an increase in Company’s sales volume and launches and (ii) Company’s active marketing and growth strategy through geographical diversification and income bracket. Sales expenses in 2010 represented 7.5% of net operating revenue compared with 8.0% in 2009, showing an increase in operating efficiency.

General and Administrative Expenses Arising from the Stock Options Plan

General and administrative expenses totaled R$267 million in the 2010 financial year compared with R$233 million in 2009, an increase of 18%, or R$4 million. These expenses were comprised of profit sharing and other administrative expenses.

Depreciation and Amortization

The depreciation and amortization seen during the 2010 financial year totaled R$34 million, stable compared with the R$34 million reported in 2009. Depreciation of sales stands accounted for 60% of the expenses in the period.

Other Operating Expenses

The other operating expenses related to the 2010 financial year totaled a negative amount of R$12 million compared with the R$93 million reported in 2009, a 87% decrease when compared to the previous year. The volume of expenses during 2010 was reduced, as a provision for contingencies was registered in 2009 for legal cases against Company as the successor in suits in which the original debtor was a former shareholder in Company, Cimob Companhia Imobiliária, totaling R$66 million. The plaintiff alleges that Company should be responsible for Cimob Companhia Imobiliária’s debts. Company is appealing all these decisions, as it considers Company’s inclusion in these legal processes as unjustified.

Financial Revenue

Financial revenue remained stable at R$128 million in the 2010 financial year compared with the R$130 million reported in 2009, mainly due to the interest received on average cash balances being similar to what had been recorded in the previous year.

Financial Expenses

Financial expenses in the 2010 financial year totaled R$210 million compared with R$240 million in 2009. This reduction was due to the higher capitalization of interest to be allocated as operating costs made during the year, and that was partially compensated for by the higher average level of indebtedness during 2010.

Provision for Income Tax and Social Contribution and Deferred Income Tax

Social contribution and income tax in 2010 totaled R$20 million, or 41% higher than in 2009, when the same totaled R$11 million. In the 2010 and 2009 financial years, the effective combined rates for income tax and social contribution, calculated as a percentage of pre-tax profit, was 7% and 20.9%, respectively. This result was due to the optimization of fiscal planning that maximized the reduction of tax obligations, resulting in a reduction in the balance of deferred tax provisioned for in Company’s balance sheet.

The effective combined rates during these periods were lower than the combined fiscal rate of 34%, as some subsidiaries under joint control calculated their taxes under based on the presumed profit regime.

Stakes held by Non-Controlling Shareholders (Minority Interests)

The reduction in the stakes of non-controlling shareholders (minorities in subsidiaries in which Company has an investment) from R$41 million in 2009 to R$24 million in 2010, was largely due to the increase in interest in our subsidiary Alphaville Urbanismos S.A. during 2010.

Net Profit

The net profit during the 2010 financial year totaled R$265 million, which represents an increase of 160% compared with the R$102 million posted in 2009.

Operating Results for the Financial years ending on December 31, 2011 compared with 2010 – By Operating Segment

Gafisa S/A. (i)

Tenda

AUSA

Total 2011

Net operating revenue

1,821,925

445,982

672,599

2,940,506

Operating cost

(1,601,727)

(725,459)

(351,152)

(2,678,338)

Gross operating profit

220,198

(279,477)

321,447

262,168

Gafisa S/A. (i)

Tenda

AUSA

Total 2010

(restated)

(restated)

(restated)

(restated)

Net operating revenue

1,894,498

1,235,226

446,964

3,576,688

Operating cost

(1,477,751)

(905,629)

(251,176)

(2,634,556)

Gross operating profit

416,747

329,597

195,788

942,132

Company

Net Revenue from Sales and/or Services

The net revenue from sales and/or services decreased by 3.4%, from R$1.9 billion in the 2010 financial year to R$1.9 billion in 2011. This decrease was mainly due to cost excess of R$214 million, total adjustments of the segment answering for 23% of total costs adjustments of Company. In 2011, Gafisa segment answered for 62% of Company’s consolidated net revenue.

Cost of Development and Sale of Property

The costs of the sale and swap of property in 2011 totaled R$1.6 million, an increase of 8.4% compared with the R$1.5 million reported in 2010. This increase was mainly due to an impairment of development expenses related to the process of Company’s land acquisition of R$ 15 million recognized as lost costs. The decrease also reflects review in the estimated costs, leading to reversion of R$ 161 million revenue for Company, related to constructions administered by third parties and discontinued regions.

Gross Profit

The gross profit in the 2011 financial year was R$220 million, representing a decrease of 47% compared with the R$417 million reported in 2010. Decrease in the gross profit can be largely attributed to the excessive costs which evidence 60% related to third parties’ constructions and 27% discontinued sites. The gross margin in 2011 generated by Company’s projects sales reduced to 12% compared to 22% in the same period of 2010.

Construtora Tenda S.A.

Net Revenue from Sales and/or Services

Net revenue of sales/or services during 2011 financial year totaled R$446 million, compared to R$1.0 billion in the former financial year, a decrease of 58% in the comparison with the previous year. In 2011, Construtora Tenda S.A answered for 15% of the consolidated net revenue. The main reasons for the excess were (i) cost overruns of R$227 million; (ii) adjustment of R$35 million in cancelled projects; (iii) gross loss of R$284 million in efective dissolutions of contracts; (iv) cost of R$35 million as penalty for delayed projects; and (v) impairment of R$51 million. Total adjustments in the segment answered for 77% of Company’s total adjustments.

Cost of Development and Sale of Property

The costs of development and sale of property and swap in 2011 totaled R$725 million, an increase of 20% compared with the R$906 million reported in 2010. This increase was mainly due to (i) provisions of dissolutions of contracts at R$159 million, impacting sales expenses; (ii) cost of R$23 million with cancelled projects; (iii) cost of R$193 million in actual rescissions; (iv) cost of R$35 million as penalty for delay in project delivery; and (v) impairment of R$58 million.

Gross Profit

The gross loss in the 2011 financial year, compared to 2010, was R$279 million and R$330 million, respectively. In 2010, sales margins fell from 27% in 2010 to -63% in 2011, due to adjustments with cost overruns, provisions for dissolutions of contracts, cancelled projects, effective dissolutions, penalties for delayed projects, and impairments, as previously detailed.

Alphaville Urbanismo S.A.

Net Revenue from Sales and/or Services

The net revenue from sales and/or services increased by 51%, from R$446 million in the 2010 financial year to R$1.1 billion in 2011. This increase was mainly due to large continuous demand for Alphaville Urbanismo S.A.’s properties and recognition of the revenues derived from sales contracted in former periods. In 2011, Alphaville Urbanismo S.A. answered for 21% of the consolidated net revenue.

Cost of Development and Sale of Property

The costs of development and sale of property and swap in 2011 totaled R$351 million, an increase of 40% compared with the R$251 million reported in 2010. This increase was mainly due to the higher volume of construction in progress during 2011 compared to 2010.

Gross Profit

The gross profit in the 2011 financial year was R$322 million, representing an increase of 64.2% compared with the R$196 million reported in 2010. Increase in the gross profit can be largely attributed to the higher gross revenue derived from the large number of construction projects in progress. The gross margin in 2011 generated by Company’s projects sales increased to 48% compared to 44% in the same period of 2010. Such increase derives from the higher sales margins to the extent that we have recognized revenues derived from projects launched in former years.

Operating Results related to the Financial years ending on December 31, 2010 compared with 2009 – By Operating Segment

Gafisa S/A. (i)

Tenda

AUSA

Total 2010

(restated)

(restated)

(restated)

(restated)

Net Operating Revenue

1,894,498

1,235,226

446,964

3,576,688

Operating Cost

(1,477,751)

(905,629)

(251,176)

(2,634,556)

Gross operating profit

416,747

329,597

195,788

942,132

Gafisa S/A. (i)

Tenda

AUSA

Total 2009

(restated)

(restated)

(restated)

(restated)

Net Operating Revenue

1,757,195

988,444

276,707

3,022,346

Operating Cost

(1,297,036)

(671,629)

(175,097)

(2,143,762)

Gross operating profit

460,159

316,815

101,610

878,584

Company

Net Revenue from Sales and/or Services

The net revenue from sales and/or services increased by 8%, from R$1.7 billion in the 2009 financial year to R$1.9 million in 2010. This was primarily due to the continued high demand for Company’s property and the increase in recognition of revenue derived from sales contracted in previous periods.

Property Development and Sales Costs

Property development, sales and swap costs in the 2010 financial year totaled R$1.5 million, representing an increase of 14% compared with the R$1.3 million reported in 2009. This increase was largely due the increased volume of construction ongoing during 2010 compared with 2009.

Gross Profit

The gross profit in the 2010 financial year was R$417 million, representing an increase of 9% compared with the profit of R$460 million reported in 2009. The increase in gross profit can largely be attributed to the higher gross revenue from the large number of project undertakings. The gross margin generated in 2010 by sales of Company’s projects fell to 22% compared with the 26% reported in the period in 2009. This reduction was mainly due to the higher amortization expenses arising from the interest capitalized and a less profitable mix of units under construction due to the process of geographical diversification that took place in the previous years, particularly certain projects located in Rio de Janeiro.

Construtora Tenda S.A.

Net Revenue from Sales and/or Services

The net revenue from sales and/or services in the 2010 financial year totaled R$1.2 million, compared with the R$988 million posted in the previous year. There was an increase in demand for properties developed by Construtora Tenda S.A. in 2010, mainly due to the domestic demand created by the federal government’s housing program: “Minha Casa, Minha Vida”. 

Property Sales and Development Costs

The costs of development and sales of property and swaps in the 2010 financial year totaled R$906 million, compared with R$672 million in 2009. This increase was due to the continued growth in the volume of units under construction by Company over the years.

Gross Profit

The gross profits in the financial years 2010 and 2009 were R$330 million and R$317 million, respectively. The sales margins decreased to 26.7% in 2010 from 32.1% in 2009, mainly as a result of the higher recognition of revenue from undertakings with lower margins, arising from older non-standardized products.

Alphaville Urbanismo S.A.

Net Revenue from Sales and/or Services

The net revenue from sales and/or services increased 61.0%, from R$277 million in the financial year 2009 to R$445 million in 2010. This was mainly due to the continued increase in the level of demand for property developed by Alphaville Urbanismo S.A. and the recognition of revenue derived from sales contracted in previous periods.

Property Sales and Development Costs

The costs of development and sales of property and swaps in the financial year 2010 totaled R$251 million, an increase of 43% compared with R$175 million in the financial year 2009. This increase was due to the higher volume of construction underway during 2010 compared with 2009.

Gross Profit

The gross profit in 2010 was R$194 million, representing an increase of 91% compared with the R$102 million reported in the financial year 2009. The increase in gross profit can largely be attributed to the higher gross revenue from the number of developments under construction. The gross sales margin in 2010 increased to 43.6% compared with 36.7% in 2009. The higher sales margin was due to the increase in total sales as a result of the recognition of revenue from property developments launched in previous years.

CONSOLIDATED BALANCE SHEET

2011

2010

2009

(restated)

Assets

Current assets

Cash and cash equivalents

137,598

256,382

292,940

Open-market securities, guaranteed investments and earmarked credit

846,062

944,766

1,131,113

Accounts receivables from contracted sales and services rendered

3,962,574

3,704,709

2,008,464

Property for sale

2,049,084

1,707,892

1,332,374

Other accounts receivables and other items

111,072

178,305

108,791

Prepaid expenses and others

73,532

21,216

18,766

Property for sale

93,188

Derivative financial instruments

7,735

Total current assets

7,314,358

6,813,270

4,892,448

Non-current assets

Long term receivables

Long term accounts receivables from property development and services rendered

863,874

1,247,265

1,768,182

Property for sale

798,206

498,180

416,083

Related parties

104,059

71,163

17,344

Other accounts receivables and other items

143,850

120,107

100,202

1,909,989

1,936,715

2,301,811

Investments in subsidiaries

-

-

Fixed

52,793

68,977

56,476

Intangible

229,484

221,829

204,686

282,277

290,806

261,162

Total non-current assets

2,192,266

2,227,521

2,562,973

Total assets

9,506,624

9,040,791

7,455,421

2011

2010

2009

(restated)

Liability and shareholders’ equity

Current liability

Loans and financing

843,283

797,903

678,312

Loans and financing – reclassification of long term

292,260

0

Debentures

303,239

26,532

122,377

Debentures – reclassification of long term

1,595,961

0

0

Obligations for property purchases and advances to clients

610,555

420,199

475,409

Suppliers of materials and services

135,720

190,461

194,331

Taxes and contributions

250,578

230,888

177,392

Salaries, social charges and profit sharing

75,002

72,154

61,320

Minimum mandatory dividends

11,774

102,767

54,279

Provision for judicial rulings and commitments

34,875

14,155

11,266

Obligations to investors and others

662,692

149,873

205,657

Total current liabilities

4,815,939

2,004,932

1,980,343

Non-current liabilities

Loans and financing

721,067

612,275

525,443

Debentures

0

1,853,399

1,796,000

Obligations for property purchases and advances to clients

177,135

177,860

146,401

Deferred income tax and social contribution

83,002

13,847

3,553

Provision for judicial rulings and commitments

134,914

124,537

110,073

Obligations to investors and others

827,473

621,768

509,427

Total non-current liabilities

1,943,591

3,403,686

3,090,897

Net Shareholders’ Equity

Corporate capital

2,734,157

2,729,198

1,627,275

Shares held in treasury

-1,731

(1,731)

(1,731)

Capital reserve and granting of stock options

18,076

295,879

318,439

Profit Reserve

-

547,403

381,651

Loss (Profit) accumulated

(102,109)

-

-

2,648,473

3,570,749

2,325,634

Minority interests

98,621

61,423

58,547

Total net shareholders’ equity

2,747,094

3,632,172

2,384,181

Total liabilities and net equity

9,506,624

9,040,791

7,455,421

Balance Sheet related to the Financial year ending on December 31, 2011 compared with 2010

Current Assets

Availabilities – Cash and Banks, Financial Investments

Company’s cash and cash equivalents as of December 31, 2011 totaled R$984 million, compared with R$1.2 billion on December 31, 2010, a reduction of R$217 million, or 18%. This reduction was mainly due to the consumption of cash in the period and amortization of debt.

Accounts receivable from contracted sales and services rendered – Current and Non-Current

The following tables show the client accounts receivable from contracted sales and the sale of Company property, as well as the receivables to be appropriated, and the maturing of Company’s portfolio:

(in R$ million)

As of December 31,

Clients of property development and sales

2011

2010

2009

(restated)

Current

3,962

3,844

2,009

Non-current

864

1,247

1,768

4,826

5,091

3,777

(in R$ million)

As of December 31,

Receivables for appropriation

2011

2010

2009

(restated)

4,686

4,113

3,139

Total receivables

9,512

9,204

6,916

(in R$ million)

Until December 31,

After 2016

Maturity of receivables as of December 31, 2011

Total

2012

2013

2014

2015

Total

9,512.6

3,962.6

3,220.9

1,418.4

224.3

686.5

As of December 31, 2011, the balance of clients by property development totaled R$4.8 million, compared with R$5.1 million on December 31, 2010. This decrease of 5% was mainly attributed to major increase in clients’ dissolution, as receivable clients return to the inventory. Receivables from services and construction in 2011 totaled R$11 million compared with R$60 million in 2010, representing a decrease of 81%, due to the completion of some projects carried out for third parties.

All the balances of accounts receivable presented herein are adjusted to present value, as required by the Technical Pronouncement CPC 12 “Adjustment to present value”,

Property for sale – Current and Non-Current

The balance of property for sale was comprised as follows, in the periods indicated:

Other accounts receivable - Current

The balance of other accounts receivable held by Company on December 31, 2011 stood at R$111 million, 24% lower than in the same period in 2010. This decrease was mainly due to provision for potential dissolutions and projects cancellation, due to financial or technical infeasibility.

Intangibles

On December 31, 2011, the balance of intangible assets totaled R$229 million compared with R$222 million on December 31, 2010. We amortized R$ 10 million from CIPESA Empreendimentos Imobiliários S.A..

Deferred income tax and social contributions

The balance of deferred income tax and social contributions on December 31, 2011 totaled R$80 million, an increase of 94% compared to the balance of R$42 million registered on December 31, 2010. Liabilities are being presented net of assets. The increase is due to asset impairment.

Liabilities

Loans, Financing and Debentures – Current and Non-Current

Company’s total level of indebtedness on December 31, 2011, was R$1.8 billion, an increase of 32% compared with the balance of R$1.4 million on December 31, 2010. This increase was mainly generated by loans linked to construction financing, reflecting Company’s capacity to finance its ongoing projects, increasing the Company’s level of leverage.

The table below shows the development of net indebtedness and obligations with investors in Company:

Total indebtedness

(in R$ thou)

Balance in

Type of Transaction

Rate

2011

2010

2009

Banking Note - CCB

1,30% a 2,20% + CDI

937,019

664,471

736,736

Promissory Note

25% a 126% do CDI

231,068

-

-

Construction Financing (SFH)

TR + 8,3% até 12,68%

684,642

745,707

467,019

Assumption of debts due to incorporation of debts of controlled
companies and others

TR + 12%

3,881

-

-

1,856,610

1,410,178

1,203,755

Short-term installment

1,135,543

797,903

678,312

Long-term installment

721,067

612,275

525,443

Payables to Suppliers of materials and services

The balance of payables due to suppliers of materials and services on December 31, 2011 stood at R$251 million, equivalent to a decrease of 30% compared with the 2010 balance of R$231 million. The reduction in this liability is due to the maintenance of the volume of property construction projects.

Taxes and social contributions – Current

The balance of taxes and social contributions (current) on December 31, 2011 was R$251 million, which corresponds to an increase of 30% compared with the balance on December 31, 2010 of R$231 million. This increase reflects the expansion in Company’s operations.

Deferred Income tax and social contribution – current and non-current

On December 31, 2011, the balance of deferred income tax and social contributions, in terms of current and non-current liabilities totaled R$83 million, an increase of 499% in relation to the balance on December 31, 2010 of R$14 million. This variation is due to the losses related to the SPE and to net loss.

Provision for Contingencies – Current and non-current

Company and its subsidiaries are parties in legal actions and administrative processes in various courts and with several government bodies, as a result of normal business operations, involving tax, labor, and civil questions, among other issues. Company, based on information from its legal advisers, analysis of the pending legal demands and, when concerning labor cases, based on its prior experience in terms of the settlements made, made a provision considered sufficient to cover the estimated losses as a result of the claims being made.

The following table shows the development of Company’s provisions for contingencies:

Consolidated

Civil lawsuits

Tax litigation

Labor litigation

Total
Consolidated

Balance on December 31, 2010

92.821

10.894

17.624

121.339

Complement for provision

18.432

1.869

16.354

36.655

Payments and reversals in the provision not used

(8.425)

(655)

(10.222)

(19.302)

Balance on December 31, 2011

102.828

12.108

23.756

138.692

Additional Provison

22.874

4.379

30.649

57.902

Payments and Provision Reversal

(11.525)

(635)

(14.645)

(26.805)

Balance on December 31, 2011

114.177

15.852

39.760

169.789

The provision for contingencies related to civil processes on December 31, 2011, included R$114 million for cases in which Company was named as the successor in existing legal actions in which the original debtor is a former shareholder of Cimob Companhia Imobiliária, among other group companies. The plaintiff alleges that Company should be held responsible for Cimob Companhia Imobiliária’s debts. Some cases, totaling an amount of R$ 7 million, are backed by a judicial insurance guarantee, and in addition, there are judicial deposits of R$ 64 million, derived from Company’s bank accounts blocking, and there is also a block on Company’s shares held in treasury to guarantee performance.

Company is appealing all these decisions, believing that Company’s inclusion into the lawsuits is legally unreasonable, thus aiming to release its amounts and ensuring recognition that it cannot be held responsible for the debt of a company with which it has no ties. Company has won similar actions previously, definitively determining that it is not responsible for the debts of Cimob Companhia Imobiliária, The final ruling on Company’s appeal, however, cannot be taken for granted at this time.

Other accounts payable – Current and Non-Current

The balance of other accounts payables on December 31, 2011 was R$574 million, an increase of 137% compared with the balance of R$242 million on December 31, 2010. The variation in balance in this account is mainly due to R$135 million.

Net Shareholders’ Equity

The balance of shareholders’ equity in Company on December 31, 2011, stood at R$2.7 billion, a decrease of 25%, or R$3.6 billion, compared with December 31, 2010.

Other accounts

Company’s other shareholder equity accounts not discussed in this analysis varied in the normal course of its business activities, and are of little importance in terms of the total consolidated balance sheet.

Balance Sheet related to the Financial year ending on December 31, 2010 compared with 2009

Current Assets

Availabilities – Cash and Banks, Financial Investments

Company’s cash and cash equivalents as at December 31, 2010 totaled R$1.2 million, compared with R$1.4 million on December 31, 2009, a reduction of R$223 million, or 16%. This reduction was mainly due to the consumption of cash in the period and amortization of debt, which was more than offset for by the financial resources raised through the share offering made at the beginning of the year, of R$1.1 billion.

Accounts receivable from development and services rendered – Current and Non-Current

The following tables show the client accounts receivable from development and the sale of Company property, as well as the receivables to be appropriated, and the maturing of Company’s portfolio:

(in R$ million)

As of December 31,

Clients of property incorporation and sales

2010

2009

01/01/2009

(restated)

(restated)

Current

3,843.6

2,009

1,255

Non-current

1,247.3

1,768

864

5,091

3,777

2,119

(in R$ million)

As of December 31,

Receivables for appropriation

2010

2009

01/01/2009

(restated)

(restated)

Current

2,466

1,556

812

Non-current

1,647

1,583

2,755

4,113

3,139

3,567

Total receivables

9,384

6,916

5,685

(in R$ million)

Until December 31,

After 2015

Maturing of receivables as of December 31, 2010

Total

2011

2012

2013

2014

Total

9,384

5,624

1,715

1,290

307

448

On December 31, 2010, the balance of property for sale, current and non-current, totaled R$2.1 billion, compared with R$1.7 billion on December 31, 2009. This increase was due to the growth in the volume of projects launched by Company in the period, which are still under construction.

Other accounts receivable - Current

The balance of other accounts receivable held by Company on December 31, 2010 stood at R$178 million, 64% higher than in the same period in 2009. This increase was mainly due to the increase in accounts receivable from condominiums and purchasing pools for real estate project developments.

Intangibles

On December 31, 2010, the balance of intangible assets totaled R$222 million compared with R$ 205 million on December 31, 2009. During the 2010 financial year, there were no changes in the net balance of premium, as the premiums were no longer amortized after the first of January 2009, pursuant to the new accounting standards.

Deferred income tax and social contributions

The balance of deferred income tax and social contributions on December 31, 2010 totaled R$338 million, a decrease of 100% compared with the balance of R$281 million registered on December 31, 2009. This variation was due to the increase in temporary fiscal differences, the base for drawing up tax credits and the balance of fiscal losses and negative bases for income tax and social contributions.

Liabilities

Loans, Financing and Debentures – Current and Non-Current

Company’s total level of indebtedness on December 31, 2010, was R$3.2 billion, an increase of 5.4% compared with the balance of R$3.1 billion on December 31, 2009. This increase was mainly generated by loans linked to construction financing, reflecting Company’s capacity to finance its ongoing projects.

The table below shows the development of net indebtedness and obligations with investors in Company:

Total indebtedness

(in R$ thou)

Balance in

Type of Transaction

Rate

2010

2009

2008

Debentures

CDI + (1.5%-1.95%)/(8.25%-9.06) + TR

1,879,931

1,918,377

503,945

Construction Financing (SFH)

TR + 8.3%-12% p.a.

745,707

467,019

372,255

Downstream merger obligations

TR + 10% p.a.

-

-

8,810

Working Capital

CDI + (1.30%-4.9% p.a.)

664,471

736,736

662,535

Others

TR + 6.2%

-

-

4,576

Total Debt

3,290,109

3,122,132

1,552,121

Availabilities

1,201,148

1,424,053

605,502

Net Debt

2,088,961

1,698,079

946,619

Obligations related to the client purchase of property under construction – Current and Non-Current

Company’s obligations for the purchase of property and client advances totaled R$598 million on December 31, 2010, a reduction of 4% compared with the same period in 2009. Of this total, 70%, or R$420 million, matures in the short term, of which R$260 million relate to property purchase obligations, R$160 million are client advances and swaps. The R$178 million maturing in the long term fully corresponds to the acquisition of property.

The following table shows the development of obligations for the purchase of properties and client advances, as well as its distribution between the short and long terms.

Balance of obligations for the acquisition of property and client advances

Payables to Suppliers of materials and services

The balance of payables due to suppliers of materials and services on December 31, 2010 stood at R$190 million, equivalent to an increase of 2.0% compared with the 2009 balance of R$194 million. The slight reduction or stabilization in this obligation is due to the maintenance of the volume of Company’s property construction projects.

Taxes and social contributions – Current

The balance of taxes and social contributions (current) on December 31, 2010 was R$231 million, which corresponds to an increase of 30% compared with the balance on December 31, 2009 de R$177 million. This increase reflects the expansion in Company’s operations.

Deferred Income tax and social contribution – current and non-current

On December 31, 2010, the balance of deferred income tax and social contributions, in terms of current and non-current liabilities totaled R$42 million, a decrease of 89% in relation to the balance on December 31, 2009 of R$377 million. This variation is due to the optimization of fiscal planning that maximized the reduction in tax obligations, resulting in a reduction in the balance of deferred tax provisioned in Company’s balance sheet.

Provision for Contingencies – Current and non-current

Company and its subsidiaries are parties in legal actions and administrative processes in various courts and with several government bodies, as a result of normal business operations, involving tax, labor, and civil matters, among other issues. Company, based on information from its legal advisers, analysis of the pending lawsuits and, when concerning labor cases, based on its prior experience in terms of the claimed amounts, made a provision considered sufficient to cover the estimated losses as a result of the claims being made.

The following table shows the development of Company’s provisions for contingencies,

Consolidated

Civil lawsuits

Tax litigation

Labor litigation

Total
Consolidated

Balance on December 31, 2009 (restated)

92,821

10,894

17,624

121,339

Complement for provision

18,432

1,869

16,354

36,655

Payments and reversals or unused provision

(8,425)

(655)

(10,222)

(19,298)

Balance on December 31, 2010

102,828

12,108

23,756

138,692

Current portion

8,347

640

5,168

14,155

Non-Current portion

94,481

11,468

18,588

124,537

The provision for contingencies related to civil processes on December 31, 2010, included R$73 million for cases in which Company was named as the successor in existing execution actions in which the original debtor is a former shareholder of Cimob Companhia Imobiliária, among other group companies. The plaintiff alleges that Company should be held responsible for Cimob’s debts. Some cases, totaling an amount of R$7 million, are backed by a judicial insurance guarantee, and in addition, there are judicial deposits of R$64 million, derived from Gafisa’s bank accounts blocking, and there is also a block on Gafisa’s shares held in treasury to guarantee performance.

Company is appealing all these decisions, believing that Company’s inclusion into the lawsuits is legally unreasonable, thus aiming to release its amounts and ensuring recognition that it cannot be held responsible for the debt of a company with which it has no ties. Company has won similar actions previously, definitively determining that it is not responsible for the debts of Cimob Companhia Imobiliária, The final ruling on Company’s appeal, however, cannot be taken for granted at this time.

During the financial year ending on December 31, 2010, Company registered an additional provision of R$66 million, based on unfavorable legal rulings, and which led Company to seek a second legal opinion and reevaluate its estimated probable loss. Some lawsuits, totaling R$18 million, are backed by judicial insurance guarantees. In addition, there are judicial deposits of R$65 million, derived from Company’s bank accounts blocking, and there is also a block on Company’s shares held in treasury to guarantee performance.

Other accounts payable – Current and Non-Current

The balance of other accounts payables on December 31, 2010 was R$692 million, an increase of 11% compared with the balance of R$623.4 million on December 31, 2009. The variation in balance in this account is mainly due to the incorporation of share capital in Alphaville Urbanismo S.A. in 2010.

The remaining accounts on the Company's balance sheet that were not discussed in the analyses suffered variations normal to the course of the Company's business or were not material considering the consolidated balance sheet.

Net Shareholders’ Equity

The balance of shareholders’ equity in Company on December 31, 2010, stood at R$3.6 billion, an increase of 52%, or R$2.4 million, compared with December 31, 2009. Of this increase, R$2.7 billion is related to the capital increase from the share offering made at the beginning of 2010 and R$416.0 million from profit retained in the same year. Offsetting this there was a R$51 million reduction in the form of dividends distributed related to the profit reported in 2009.

Other accounts

Company’s other shareholder equity accounts not discussed in this analysis varied in the normal course of its business activities, and are of little importance in terms of the total consolidated balance sheet.

Cash Flow

The table below summarizes Company’s Cash Flow for the financial years indicated therein:

Financial years ended on December 31,

(in R$ thou)

2011

2010

2009

Cash Flow

Operating

(831,743)

(1,079,643)

(712,232)

Investment

8,376

122,888

(762,163)

Financing

704,583

920,197

1,575,892

Total

(118,784)

(36,558)

101,497

Cash Flow related to the Financial Year ending on December 31, 2011 compared with 2010

Operating Activities

Net cash used in operations, in 2011, totaled R$832 million compared with negative R$1.1 billion in 2010, mainly due to the increase in provisions for bad debt of R$1 million in 2010 and of R$106 million in 2011.

Investment Activities

Net cash used in investment activities, including the acquisition of goods, equipment and new investments, was positive in 2011, in the amount of R$8 million.

Company’s disbursements during 2011 were largely related to the investments made in goods, mostly land for future developments, and equipment, in the amount of R$(90) million compared with the R$(63) million registered in 2010, an increase in redemption of securities of R$2.5 billion in 2011 compared to R$2.0 billion in 2010, and investment in securities of negative R$2.4 billion in 2011 compared to negative R$1.9 billion in 2010.

Financing Activities

The net cash generated in 2011 by financial activities totaled R$704 million, compared with R$920 million in 2010. Such decrease was due to the increase in assignment of credit receivables.

Cash Flow related to the Financial Year ending on December 31, 2010 compared with 2009

Operating Activities

The net cash used in operations in 2010 totaled negative R$1.1 billion compared with R$712 million in 2009, mainly due to the net impact of the increase in the balance of property for sale and outstanding receivables.

Investment Activities

The net cash used in investment activities, including the acquisition of goods, equipment and new investments, was positive R$123 million in 2010, mainly due to the share offering (Follow-on) made during the year, the increase in net debt and freeing up of restricted capital. The net cash positions in 2009 and 2008, were R$762 million and R$127 million, respectively.

Company’s disbursements during 2010 were largely related to the investments made in goods, mostly land for future developments, and equipment of R$63 million compared with the R$45 million registered in 2009, and a reduction in cash restricted for loan guarantees of R$156 million in 2010, compared with an increase in restricted cash of R$717 million in 2009.

Financing Activities

The net cash generated in 2010 by financial activities totaled R$974 million, compared with R$1.5 billion in 2009. This decline in net cash was the result of Company’s financing activities in 2010 and mainly the paying down of borrowings during the period, contrary to the high volume of debenture issues and other debts raised during 2009.

a) Company operating results

Description of more important revenue items

Company’s revenues come mainly from incorporation and selling of real estate developments. It also earns revenue, on a smaller scale, from providing real estate services, such as construction, technical and real estate management to third parties.

2011

2010

2009

Real estate sales

3.441.279

3.834.230

3.096.881

Dissolution provision

(301.394)

(182.832)

Construction services rendering to third parties

29.607

24.289

47.999

Deductions from gross revenue

(228.986)

(272.637)

(122.534)

Total net revenue

2.940.506

3.403.050

3.022.346