proposal for the annual general meeting

appendix I – MANAGEMENT COMMENTS

appendix II – allocation of net income

appendix III – BOARD OF DIRECTORS CANDIDATES’ PROFILE

appendix IV – FISCAL COUNCIL CANDIDATES’ PROFILE

appendix V – MANAGEMENT COMPENSATION

a) general financial condition and assets

The management believes 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.

The Company’s revenue is largely derived from the development and sale of real estate projects. The 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, the Company also generates revenue from the provision of real estate services, such as construction, technical and real estate management, to third parties. The Company structures some of its projects through its subsidiaries or jointly controlled affiliates, set up as specific purpose enterprises (SPE).

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

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

Gafisa ended 2013 having achieved solid operational and financial results during the period. Launches of R$1.6 billion in 4Q13 and R$2.9 billion in 2013 were in line with the full year launch guidance disclosed. Pre-sales of R$1.3 billion in the fourth quarter and R$2.6 billion in 2013 demonstrate ongoing healthy demand. Throughout 2013, we observed a gradual evolution in the Company's margins, with reduced operational complexity, coupled with Gafisa’s strategic consolidation and the resumption of Tenda launches. The gross margin reached 31.2% in 2013, compared to 24.4% in 2012 before interests.

Cash generation was a highlight in 2013, and particularly so in the last half of the year. The Company recorded cash generation of R$667.6 million in 2013 in both the Gafisa and Tenda operations, reaching free cash flow of R$97.3 million in the period.

The completion of the sale of an interest held at Alphaville Urbanismo S.A. represented a cash inflow of R$1.5 billion and contributed significantly to the 4Q13 net income, which reached R$921.3 million and resulted in a year-end figure of R$ 867.4 million. With the proceeds of the transaction, we were able to adjust the Company’s capital structure, reducing leverage, and reaching a net debt/equity ratio of 36%.

The proceeds from the completion of the Alphaville transaction are being used to repay approximately R$700 million in corporate debt scheduled to mature by December 2014. In addition to the reduction in debt, funds were allocated to the remuneration of the Company's shareholders through the payment of approximately R$130 million in interest on capital in February and an additional R$32 million in supplementary dividends to be paid in 2014, according to the proposal to be approved by the Annual General Meeting of Shareholders. We also launched a new stock buyback program for 32 million shares, underscoring Gafisa’s confidence in the Company’s value and future prospects.

Finally, 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 years to come, including the expected size of Gafisa and Tenda operations, appropriate leverage, profitability guidelines, and 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 enters 2014 on a strong footing, having benefited from all the initiatives implemented in the last two years. The reduction of our operational complexity, the adequacy of our cost structure and expenses, the new operating model at Tenda and the consolidation of Gafisa’s strategic positioning, coupled with the financial flexibility achieved by the sale of a stake in Alphaville, are all important steps in preparing the Company for future challenges.

b) capital structure and possibility of share or quota redemption

No redemption of shares issued by the Company will be made except for those legally provided for, and there is no provision in the Bylaws regarding the formula to calculate the redemption value.

On December 31, 2013, the Company had a cash position of R$2,024,162 thousand, total indebtedness of R$3,183,208 thousand including obligations with investors, and shareholders’ equity of R$3,214,483 including the non-controlling interest. The indebtedness ratio, represented by indebtedness net of cash position divided by shareholders’ equity (including the non-controlling interest) was 36.06%.

The Company’s shareholders' equity as at December 31, 2012, was R$2.686 billion, a decrease of 2.1%, or R$57 million, compared to December 31, 2011.

On December 31, 2012, the Company’s cash position was R$1,568 million. On the same date, net debt plus obligations with investors was R$2,073 billion, and the net debt and obligations with investors to shareholders’ equity and minority interest ratio was 89.2%, as compared to 111.3% on December 31, 2011.

On December 31, 2011, the Company’s shareholders’ equity was R$2.743 billion, cash position was R$858 million, net debt plus obligations with investors was R$3.053 billion, and the net debt and obligations with investors to shareholders’ equity and minority interest ratio was 111.3%.

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

Considering the Company’s indebtedness profile, cash flow projections for upcoming periods and the current liquidity position, the Company believes there is sufficient liquidity to meet the current contractual obligations.

A significant portion of the Company’s contracts uses the proceeds to fund the construction of real estate projects, and counts on fiduciary assignment or pledge of the real estate receivables of each project, which mostly mature upon the project’s delivery. Therefore, when finalizing the projects, the resources from the settlement of the outstanding balance by clients are obligatorily used to amortize the balance of the Company’s contracts.

If needed, the Company has capacity to take out additional loans to fund investments and operations.

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

As and when allowed, the Company takes out debt for all projects it develops with Brazil’s Housing Finance System (SFH/SFI), which offers lower interest rates than traditional working capital facilities, with actual guarantee and amortization connected with the settlement by clients through the transfer of clients’ receivables to banks. Using this credit facility, the Company intends to cover the cash exposure for each project, which is not covered by monthly payments received.

The Company used credit assignment and securitization instruments when it perceived a market demand for real estate receivables, and privileged definitive assignment structures with no right to withdraw. The transactions are subject to resolutive conditions, the main of which being the complete formalization of the guarantee to the assignee by the assignor, and the current amount of these transactions is recorded in the Company’s liabilities up to the resolution of the guarantee.

Additionally, the Company used the proceeds from the issue of bank bills of credit (CCB), debentures and Promissory Notes in the capital market to complete its funding strategy.

Still, the Company disposed of non-strategic assets to generate cash, especially items in the land bank in regions the Company understands are no longer strategic after its repositioning.

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

The Company currently has a liquidity level and cash generation prospects that allows for it to not use additional funding for its operations. But this does not eliminate the possibility to structure or take out new working capital facilities according to the instruments available and market conditions at the time of contracting, as indicated in items 10.1.c and 10.1.d.

In the year ended on December 31, 2013, the Company’s working capital funding profile mostly consists of Debentures, Bank Bills of Credit (CCB), and Structured Transactions, classified as Obligations with Investors. For further information on the Company’s indebtedness, see notes 12 to 15 to the Standardized Financial Statements, and items 10.1.d and 10.1.f of the Reference Form.

f) levels of indebtedness and debt characteristics

i)                     significant loan and financing agreements

The Company’s indebtedness is detailed in the table below for the last three fiscal years.

Total debt + Obligations

Debt Balance on December 31,

(R$000)

2013

2012

2011

Project Financing (SFH and SFI)

1,088,258

704,758

684,642

FGTS Debentures

961,416

1,163,204

1,214,258

Debentures

459,802

572,699

684,942

Working Capital

550,052

1,198,712

1,167,544

Obligations with Investor

123,680

323,706

473,186

Total debt

3,183,208

3,964,143

3,911,115

The schedule of maturities for the year ended December 31, 2013 is as follows

Year

Amount (R$000)

2014

1,267,110

2015

1,147,495

2016

458,329

2017

309,041

2018

1,238

After 2018

0

Project Financing (SFH and SFI)

Project financing is represented by loans from national commercial banks to raise the necessary funds to develop the real estate projects of the Company and its subsidiaries and affiliates. These contracts have an actual guarantee represented by the land’s mortgage and by the fiduciary assignment or pledge of receivables, and the funds are released upon proof of physical and financial development of the construction works; amortization begins after the construction works purpose of the contract are completed. During the amortization of the contract, the proceeds from the settlement of the outstanding balance by clients are used to amortize the debt.

FGTS Debentures

These refer to the Company’s 7th Issue and subsidiary Construtora Tenda S.A.’s 1st Issue. These issues use FGTS resources, and the proceeds are used to fund the construction works of the projects given as guarantee. For further information on these issues, please refer to item 18.5 of the Reference Form.

Debentures

As at December 31, 2013, these refer to the 2nd Series of the 6th Issue, and the 1st and 2nd Series of the 8th Issue, and the proceeds are allocated to the Company’s working capital. For further information on these issues, please refer to item 18.5 of the Reference Form.

Working Capital

It consists of Bank Bills of Credit (CCB), Promissory Notes, and other banking instruments that represent debt, and the proceeds are allocated to the Company’s working capital. These instruments may have actual guarantees or sureties, and feature covenants that may result in the early maturity of the obligations if not complied with. As at December 31, 2013, the Company was complying with all its contractual obligations.

Obligations with Investor

These are structured transactions that involved the restructuring of Company subsidiaries to capture the distribution of results from the development of selected real estate projects the investor holds an interest in. These investments feature clauses of return on capital after a certain period and priority in the distribution of results, reason why they are recorded under “Obligations with Investors” in the Company’s financial statements. For further information, please refer to note 15 to the Company’s financial statements.

ii)                   other long-term arrangements with financial institutions

There are no other long-term arrangements with financial institutions but those detailed in this item.

iii)                  degree of Company debt subordination

There is no degree of contractual subordination among the unsecured debts. Our debts with actual and floating guarantee have the preferences and prerogatives provided for by the law.

iv)                  restrictions imposed to the issuer, especially with regard to indebtedness limits, taking of new loans, distribution of dividends, disposal of assets, issuance of new securities, and sale of controlling interest

The Company is party to agreements that set minimum and maximum limits on specific topics, in addition to restricting the Company regarding the taking of some actions. Noncompliance with the agreed ratios or restrictions may result in the early maturity of the agreements.

The financial instruments’ major restrictions in the year ended December 31, 2013 are as follows:

·      request of any judicial or extra-judicial recovery plan to any creditor or class of creditors, regardless of a judicial approval having been requested or obtained for said plan; or file a court request for judicial recovery;

·      change in the direct or indirect control of the Issuer, under article 116 of Law 6,404 of December 15, 1976, as amended (“Brazilian Corporate Law”), that result in a downgrade in the Company’s risk rating to a lower level than that at the time of the issue or, in some cases, to a rating lower than A- or equivalent in national scale by the leading rating agencies;

·      payment by the Company of dividends, interest on equity, or any other profit sharing provided for in the Company’s bylaws, whenever it is in arrears regarding the issues in effect at the time the event is declared, except for the payment of the minimum compulsory dividend provided for in article 202 of the Brazilian Corporate Law;

·      declaration of early maturity of any financial obligation and debts of the Company and/or its Relevant Subsidiaries, in the domestic or international market;

·      amendment to or change in the Company’s business purpose so that the Company no longer operates as a real estate developer and construction Company;

·      change in the corporate nature of the Company to limited liability, under articles 220 through 222 of the Brazilian Corporate Law;

·      spin-off, or merger of the Company into another Company, unless such transaction is approved by the holders of debt securities or holders are granted the right to withdraw;

·      reduction in the Company’s capital stock that results in a capital stock lower than ninety-five percent (95%) of the existing capital stock, except (i) in the case the capital reduction is carried out to absorb losses under article 173 of the Brazilian Corporate Law, or (ii) it is previously approved by the holders of debt securities;

·      disposal, expropriation, seizure, or any other form of disposal of fixed assets by the Company in equivalent amount, as determined in indentures or contracts, and that may affect the Company’s financial capacity.

The restrictions described above may not fully apply to all agreements in effect on this date, and different limits may be determined to each agreement.

The Company has also committed to keeping the following financial indicators within the limits set. The formulas and maximum and minimum limits are presented below:

For the Company’s issues of debentures, the financial indicators are as follows:

2013

2012

2011

7th issuance

(restated)

(restated)

Total accounts receivable plus inventories must be less than zero or higher than 2.0 times net debt minus project debt^(3).

-6.21 times

46.13 times

8.53 times

Total debt, minus project debt⁽³⁾, minus cash⁽¹⁾, should not exceed 75% of Shareholders' equity plus minority shareholders.

-31.6%

7.6%

45.6%

Total receivables plus revenues to be recognized plus inventory of finish units must be higher than 1.5 times the net debt +obligations related to construction + costs to be incurred.

2.79 times

1.85 times

1.56 times

8th issuance – Gafisa

Total accounts receivable plus inventory of finish units must be less than zero or higher than 2.0 times net debt minus project debt.

-4.31 times

36.51 times

6.55 times

Total debt, minus project debt, minus cash⁽¹⁾, should not exceed 75% of Shareholders' equity plus minority shareholders.

-31.6%

7.6%

45.6%

1st issuance – Tenda

Total accounts receivable plus inventories must be equal or higher than 2.0 times net debt minus debt with real guarantee ⁽³⁾ or less than zero, being TR⁽⁴⁾ plus TE⁽⁵⁾ always higher than zero.

-2.49 times

-3.19 times

-6.41 times

Net debt minus debt with real guarantee⁽³⁾ should not exceed 50% of Shareholders' equity.

-56.97%

-41.97%

-37.97%

Total receivables plus revenues to be recognized plus inventory of finish units must be higher than 1.5 times the net debt plus obligations related to construction plus costs to be incurred.

56.85 times

6.18 times

2.39 times

⁽¹⁾       Cash refers to cash and cash equivalents and marketable securities.

⁽²⁾       Total receivables, whenever mentioned, refers to the amount reflected in the Balance Sheet plus the portion not shown on the Balance Sheet.

⁽³⁾       Project debt and debt with real guarantee refers to the Housing Finance System (SFH) debt, defined as the sum of all loans contracts disbursed whose funds are from Housing Finance System (SFH), and also the debt related to the seventh issuance.

⁽⁴⁾       Total accounts receivable.

⁽⁵⁾       Total inventory.

Issues of Bank Bills of Credit (CCB), Promissory Notes, and other debt instruments have the following indicators:

Bank Bills of Credit (CCB), Promissory Notes and others

2013

2012

2011

Total accounts receivable plus inventory of finish units must be less than zero or higher than 2.0 times net debt minus project debt.

-4.31 times

36.51 times

6.55 times

Total debt, minus project debt, minus cash⁽¹⁾, should not exceed 75% of Shareholders' equity plus minority shareholders.

-31.6%

7.6%

45.6%

⁽¹⁾       Cash refers to cash and cash equivalents and marketable securities.

b) changes in revenue attributable to variations in prices, exchange rates, inflation, changes in volumes or the introduction of new products and services

The Company recognizes revenue from real estate developments according to their construction, based on a financial calculation of project completion and not at the moment that the sale contract is signed. The main impacts on revenue variations between the 2011, 2012 and 2013 fiscal years are changes in sales volumes and the Company’s introduction of new products and services, as well as a detailed review of the Company’s operations and strategy in 2011.

The decrease of 11.5% in revenues in 2013 year-over-year is due to the lower number of launches compared to 2012 and 2011, and to the volume of deliveries, which generates a lower recognition of revenue from pre-sales in prior periods..

The decrease of 4.61% in net operating revenues in 2012 year-over-year, is partly due to the recognition of revenue from pre-sales in previous years, and the re-presentation of balances, with the reclassification of Alphaville’s Net Revenue to Revenue from Operations Held for Sale. Revenue recognized in 2011 was negatively impacted by the revision of all construction works cost budgets and of the whole customer portfolio of Tenda.

R$ ‘000

2013

2012

2011

2013 vs 2012

2012 vs 2011

Contracted Sales

2,513,858

2,633,104

3,352,288

-4.5%

-21%

Launches

2,886,204

2,951,161

3,526,298

-2.2%

-16%

Net revenue

2,481,211

2,805,086

2,940,506

-11.5%

-4,61%

c) impact of inflation, variation in the prices of the company’s main inputs and products, exchange rates and interest rates on the company’s operating and financial results

As mentioned in item 5.1 of the Reference Form, the main indexers used in Company’s business plan are the INCC, IGP-M and CDI:

INCC: (National Building Cost Index): most of the Company’s costs and all its revenue portfolio from unfinished projects are adjusted according to this index.

IGP-M: (General Market Price Index): all of the Company’s revenue portfolio from completed projects is adjusted according to this index.

CDI: (Interbank Deposit Certificate): all of the Company’s financial investments and roughly 50% of total indebtedness are pegged to the CDI.

Exchange rates: the Company does not have any debts or amounts receivable denominated in foreign currency.

Furthermore, none of the Company’s significant costs are denominated in foreign currency.

a) significant changes in accounting practices

Pronouncements (new or revised) and interpretations adopted starting in 2012 or applicable as of January 1, 2013

Pronouncements (new or revised) and interpretations adopted starting in 2012

The Company adopted all pronouncements (new or revised) and interpretations issued by the CPC that were in force on December 31, 2012.

Regarding the adoption of the pronouncements and interpretations listed below, which became effective as of January 1, 2012, these pronouncements and interpretations had no impact on the Company's separate and consolidated financial statements as at December 31, 2012. They are:

·            CPC 17 (R1) – Construction Contracts - CVM Resolution 691 of November 8, 2012;

·            CPC 18 (R1) - Investment in Subsidiaries and Affiliates - CVM Resolution 688 of October 4, 2012;

·            CPC 30 (R1) – Revenues - CVM Resolution 692 of November 8, 2012;

·            CPC 35 (R2) – Separate Statements - CVM Resolution 693 of November 8, 2012;

·            CPC 40 (R1) – Financial Instruments: Disclosure - CVM Resolution 684 of August 30, 2012;

·            ICPC 08 (R1) – Accounting of proposed dividend payment - CVM Resolution 683 of August 30, 2012; and

·            ICPC 09 (R1) – Individual, separate and consolidated financial statements and application of the Equity Method - CVM Resolution 687 of August 4, 2012.

Pronouncements (new or revised) and interpretations applicable to fiscal years starting as of January 1, 2013

The Pronouncements (new or revised) and interpretations listed below, issued by the CPC and resolved on by the CVM, have mandatory application for the fiscal years beginning on or after January 1, 2013. They are:

·            CPC 18 (R2) - Investment in Subsidiaries, Affiliates and Joint Ventures - CVM Resolution 696 of December 13, 2012;

·            CPC 19 (R2) – Joint Ventures - CVM Resolution 694 of November 23, 2012;

·            CPC 33 (R1) – Benefits and employees - CVM Resolution 695 of December 13, 2012;

·            CPC 36 (R3) – Consolidated Statements - CVM Resolution 698 of December 20, 2012;

·            CPC 45 - Disclosure of shareholdings in other entities - CVM Resolution 697 of December 13, 2012; and

·            CPC 46 – Fair value measurements - CVM Resolution 699 of December 20, 2012.

The Company is not an early adopter of these pronouncements (new or revised) and interpretations for its separate and consolidated financial statements as at December 31, 2012.

Based on preliminary analysis conducted to date, Management estimates that the adoption of CPCs 19 (R2) and 36 (R3) will significantly impact the Company's consolidated financial statements in 2013 as certain investments in joint ventures will no longer be proportionally consolidated and will be accounted for under the equity method.

As required by CPC 23 - Accounting Policies, Changes in Accounting Estimates and Correction of Errors, in its consolidated financial statements for 2013, the Company will adopt CPCs 19 (R2) and 36 (R3) retroactively (adjusting the comparative balances of 2012) and the management, based on preliminary analysis conducted to date, identifies below its best estimate of the possible impact on balances presented in 2012.

b) Material effects of the changes in accounting practices

There were no material effects arising from the changes in accounting practices for fiscal years ended December 31, 2013, 2012 and 2011.

c) reservations and emphasis in the auditor’s report

The report of the independent auditors on the financial statements for the fiscal year ended on December 31, 2013 emphasized the fact that the separate (parent company) and consolidated financial statements were prepared in accordance with the accounting practices adopted in Brazil, as stated in Note 2.1 to the financial statements. The consolidated financial statements prepared in accordance with the IFRS standards applicable to real estate development entities also consider Guidance OCPC 04 published by the Accounting Pronouncements Committee which addresses recognition of revenue for this sector. Certain issues regarding the meaning and application of the concept of continuous transfer of risk, benefits and control in the sale of residential units will be analyzed by the International Financial Reporting Interpretation Committee (IFRIC). Furthermore, due to the project to publish a revised standard for revenue recognition, IFRIC is discussing this matter, arguing that the concept of revenue recognition is addressed in the standard currently under discussion. Thus, it is expected that the matter be finalized only after publication of the revised standard for revenue recognition.

The report of the independent auditors on the financial statements for the fiscal year ended December 31, 2012 emphasized the fact that the separate (parent company) and consolidated financial statements were prepared in accordance with the accounting practices adopted in Brazil, as stated in Note 2.1 to the financial statements. The consolidated financial statements prepared in accordance with the IFRS standards applicable to real estate development entities also consider Guidance OCPC 04 published by the Accounting Standards Board which addresses recognition of revenue for this sector. Certain issues regarding the meaning and application of the concept of continuous transfer of risk, benefits and control in the sale of residential units will be analyzed by the International Financial Reporting Interpretation Committee (IFRIC). Furthermore, due to the project to publish a revised standard for revenue recognition, IFRIC is discussing this matter, arguing that the concept of revenue recognition is addressed in the standard currently under discussion. Thus, it is expected that the matter be finalized only after publication of the revised standard for revenue recognition.

The report of the independent auditors on the financial statements for the fiscal year ended December 31, 2011 emphasized the fact that the separate (parent company) and consolidated financial statements were prepared in accordance with the accounting practices adopted in Brazil, as stated in Note 2 to the financial statements. The consolidated financial statements prepared in accordance with the IFRS standards applicable to real estate development entities also consider Guidance OCPC 04 published by the Accounting Pronouncements Committee which addresses recognition of revenue for this sector. Certain issues regarding the meaning and application of the concept of continuous transfer of risk, benefits and control in the sale of residential units will be analyzed by the International Financial Reporting Interpretation Committee (IFRIC). The results of this analysis could mean that real estate developers will have to revise their accounting practices regarding revenue recognition. Additionally, as described in Note 2.1.3, the financial statements as at December 31, 2010 were adjusted for certain items to recognize adjustments to net operating income and related tax effects arising from the review of construction budgets, imputed to the 2010 fiscal year.

Share %

2013

2012

2011

Gafisa and subsidiaries (*)

100

100

100

Construtora Tenda and subsidiaries (*)

100

100

100

Alphaville Urbanismo and subsidiaries (*)

-

80

80

a) efficiency of such controls, indicating possible flaws and the steps taken to rectify them

The Company’s Management, and especially the Chief Executive Officer and the Chief Financial and Investor Relations Officer, is responsible for implementing and maintaining a suitable internal control structure for the preparation of the financial statements.

The internal controls over the preparation of the Financial Statements are evaluated to ensure a reasonable level of confidence as to the reliability of the accounting information and the preparation of the financial statements in accordance with Brazilian accounting practices for outside disclosure. The Company’s internal controls over the preparation of the financial statements include policies and procedures that: (i) reflect precisely and appropriately the Company’s transactions and asset disposal; (ii) provide a reasonable degree of confidence that the transactions are recorded in such a way as to enable the preparation of the financial statements in accordance with Brazilian accounting practices and that the Company’s receipts and payments are in strict compliance with the authorizations granted by the Company’s management; and (iii) provide a reasonable degree of confidence regarding the timely prevention or detection of any unauthorized acquisition, use or disposal of Company assets that could have a material effect on the financial statements.

Due to their inherent limitations, the internal controls over the preparation of the financial statements could fail to identify or prevent errors.

The Company’s Management performed an assessment of the internal controls on the preparation of the Financial Statements as at December 31, 2013, based on the criteria established in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission - COSO, and, according to said methodology, concluded that, as of December 31, 2013, the Company’s Internal Control structure for the preparation of the Financial Statements in BRGAAP was considered to be effective.

Finally, it should be pointed out that the Company meets all the corporate governance requirements of the BM&FBOVESPA’s Novo Mercado and Section 404 of the Sarbanes-Oxley Act.

b) shortcomings and recommendations regarding internal controls mentioned in the independent auditor’s report

The Company’s independent auditors identified the need to improve certain internal controls while auditing the financial statements for 2013. The Company is currently analyzing together with the independent auditors the shortcomings identified in the tests so as to measure and classify their relevance, and it will report on them in this item 10.6 of the Reference Form as soon as the independent auditors’ recommendations report is finalized.

We list on items (a) to (f) below the recommendations for the shortcomings identified as significant in 2012 as the actions taken to mitigate them.

a) Failures in the closing of the Company’s financial statements prepared under the Brazilian generally accepted accounting principles (“BRGAAP”). The Independent Auditor has recommended that the Company improves the closing of its financial statements and the disclosure of other financial information and their respective controls, so as to improve the timeliness, assertiveness and quality of the information disclosed by the Company. Moreover, do so in order to solidify such information so that it is trustworthy and can be used in decision making by users of such information. In addition, observing the procedures above and others that may support the closing of the financial statements and corporate governance add value to the Company and generate clearer and more assertive quality information.

The Company has implemented the following improvements:

• Improved the internal procedures checklist in order to close the financial statements observing predetermined activities and schedules.

• Implemented a formal policy for all accounts that involve estimates and judgment, considering criteria and assumptions to determine provision, doubtful accounts, onerous agreements, budgeted cost, provision for construction works delay, impairment analysis, and other.

• Contracted and qualified professionals to support the closing of the financial statements.

• Improved the periodic and timely revision of updates in accounting standards.

• Discussed with Auditors and Company areas so as to improve the formalization and preparation of memos on technical matters.

• Implemented an internal process of financial statements certification by the Upper Management in order to ensure the financial statements are trustworthy. This process consists in a letter of individual representation where each executive officer certifies, based on the best knowledge and understanding of their responsibilities and considering all information that has come to their knowledge, that the report presents adequate and reliable information and does not omit information about the Company.