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Queiroz Galvão Financial Statements 2015 1
To the Stockholders,
In accordance with the by-laws, we are submitting for your consideration the annual report of the management, and the related financial statements for the year ended December 31, 2015, of Construtora Queiroz Galvão S/A.
The Management is grateful to all those who contributed toward the results achieved, especially our team of collaborators for their hard work and dedication, to suppliers and service providers for their good quality and punctuality and to clients for their faith in our work.
Rio de Janeiro, March, 22th, 2016.
ADMINISTRATIVE COUNCIL
Maurício José de Queiroz GalvãoPresident
Ricardo de Queiroz GalvãoFernando de Queiroz Galvão Counselors
EXECUTIVE BOARD
• PetrônioBrazJunior• CarlosAlbertoMendesdosSantos• RuiVazdaCostaFilho• MariaTerezaFernandesRodriguezdeCampos• RosaCecíliaAraújoFigueiroa• RosaliaMariaTerezaSergiAgatiCamello• AnaCristinaFreiredosSantos• GustavoSouza• JoséMarlonSouzaSerafim• LuizRonaldoCherulli• MárioBianchiniJunior• RuiNovaisDias• FlávioRobertoDornelasCâmaraPimentel• JoséHenriquedeÁvila• RicardoAulicinoAcar• UrbanoRamosdeAndradeLima• SávioRolembergAlbuquerquedeAguiar• AugustoNogueiradaSilva• PauloCesarMedeirosBrechbuhler• MárcioLuizJordãoCarneirodaCunha
ACCOUNTANT
RubensRufinodeOliveira-CRC-PE010.349/O-1T-RJ
Management ReportConstrutora Queiroz Galvão S.A.
Queiroz Galvão Financial Statements 2015 2
Independent
auditors’report
ToDirectors and ShareholdersConstrutora Queiroz Galvão S/ARio de Janeiro - RJ
We have audited the individual and consolidated financial statements of Construtora Queiroz Galvão S/A, identified asHoldingCompanyandConsolidated,respectively,whichcomprisethebalancesheetat31December2015andthe related statements of income, comprehensive income, changes in equity and cash flows for the year ended on that date, as well as the summary of significant accounting policies and other explanatory notes.
Management’s Responsibility on Financial Statements
The Company’s management is responsible for the preparation and fair presentation of the individual and consolidatedfinancialstatementsaccordingtoaccountingpracticesadoptedinBrazil,andinaccordancewithinternationalfinancialreportingstandards(IFRS)issuedbytheInternationalAccountingStandardsBoard-IASBas well as in accordance with the internal controls established by it as necessary to permit preparation of these financial statements free of material misstatement, regardless if it was caused by fraud or error.
Independent Auditor’s Responsibilities
Our responsibility is to express an opinion on these financial statements based on our audit conducted in accordancewiththeBrazilianandinternationalauditingstandards.Thosestandardsdemandscomplianceof ethical requirements by the auditors and that the audit is planned and implemented in order to obtain reasonable assurance that the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. Theproceduresselecteddependontheauditor’sjudgment,includingassessmentoftherisksofmaterialmisstatement of the financial statements, regardless if it was caused by fraud or error.
In this risk assessment, the auditor considers internal control relevant to the preparation and fair presentation of financial statements of the Company to plan audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of those internal controls of the Company.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the presentation of the financial statements taken as a whole.
We believe that the audit evidence obtained is sufficient and appropriate to base our opinion.
Queiroz Galvão Financial Statements 2015 3
Opinion
In our opinion, the individual and consolidated financial statements referred to above present fairly, in all material respects, the individual and consolidated equity and financial positions of Construtora Queiroz Galvão S/A on December 31, 2015, the individual and consolidated performance of its operations and its cash flows for the year ended on that date in accordance with international financial reporting standards (IFRS) issued by the International AccountingStandardsBoard-IASBandtheaccountingpracticesadoptedinBrazil.
Emphasis
AsmentionedinNote1tothefinancialstatements,areongoinginvestigationsrelatedtotheoperationcalled“LavaJato”.Inthiscontext,todate,theCompanyisnotawareofthefilingofanylegalproceedingsthatinvolveits subsidiaries or any of their representatives. The Company’s financial statements do not include any effects that eventually in the future may result from those investigations and our opinion is not modified in relation to this issue.
March 22th, 2016.
MárioVieiraLopes JoséCarlosdeAlmeidaMartinsContador-CRC-RJ 60.611/O Contador - CRC-RJ-036.737-0
(AtranslationoftheoriginalreportinPortuguesecontaining financial statements prepared in accordance with accounting practices generally acceptedinBrazil)
Queiroz Galvão Financial Statements 2015 4
Financial StatementsCONSTRUTORAQUEIROZGALVÃOS.A.
See notes to financial statements.
ASSETS
Current assets:
Cash(Note3a,b)
Tradeaccountsreceivable(Note5)
Inventories
Taxes recoverable
Prepaidexpenses
Other receivables
Noncurrentassets:
Long-termassets:
Marketable securities
Relatedparties(Note8)
Deposits for fiscal investiments
Other accounts receivable
Investmentsinsubsidiariesandaffiliates(Note6)
Agio
Other investments
Fixedassets(Note7)
Intangibleassets(Note7)
Deferred assets
2015
516,466
595,063
39,235
103,498
7,232
17,576
1,279,070
102,730
63,796
319
459
53,385
1,703
2,260
195,815
9,164
2,304
431,935
1,711,005
2014
568,801
625,616
68,232
70,539
12,215
15,320
1,360,721
31,443
11,754
1,298
7,112
130,046
5,100
2,684
225,444
12,762
1,929
429,574
1,790,295
CONSOLIDATED
2015
126,847
279,413
11,959
31,546
5,261
4,206
459,232
7,360
75,397
-
79
322,623
-
1,376
78,900
8,508
-
494,243
953,475
2014
179,559
390,189
37,455
29,416
10,522
5,637
652,778
10,820
24,375
-
3,478
308,221
-
1,549
160,913
12,238
-
521,595
1,174,373
HOLDING COMPANY
CONSOLIDATED BALANCE SHEETSAtDecember31,2015and2014(InthousandsofUSdollars)
Queiroz Galvão Financial Statements 2015 5
Financial StatementsCONSTRUTORAQUEIROZGALVÃOS.A.
See notes to financial statements.
LIABILITIES
Current liabilities:
Trade accounts payable
Loans(Note10)
Payrollandsocialsecuritiesandtax
and social contribution payable
Other accounts payable
Noncurrentliabilities:
Loans(Note10)
Relatedparties(Note8)
Tax and social contribution payable
Deferred income tax and social contribution
Contingencies(Note9)
Other accounts payable
Deferred income
Shareholders’ equity:
Capitalstock(Note12)
Capital reserve
Revaluation reserve
Earningreserve
EquityValuationAdjustment
Participationofcontrollingshareholders
Participationofnoncontrollingshareholders
2015
117,524
271,144
107,883
22,335
518,886
203,463
-
1,813
25,907
2,768
310
406,802
641,063
322,146
192
7,905
102,797
89,568
522,608
28,448
551,056
1,711,005
2014
146,166
294,642
127,551
42,287
610,646
286,607
-
12,082
5,552
3,925
88
234,745
542,999
381,132
283
11,908
131,145
93,222
617,690
18,961
636,651
1,790,295
CONSOLIDATED
2015
29,026
146,013
30,720
11,522
217,281
82,606
-
1,811
11,177
2,768
-
115,224
213,586
322,146
192
7,905
102,797
89,568
522,608
-
522,608
953,475
2014
62,268
31,916
81,122
20,996
196,301
265,803
-
8,153
4,881
3,925
-
77,620
360,383
381,132
283
11,908
131,145
93,222
617,690
-
617,690
1,174,373
HOLDING COMPANY
CONSOLIDATED BALANCE SHEETSAtDecember31,2015and2014(InthousandsofUSdollars)
Queiroz Galvão Financial Statements 2015 6
See notes to financial statements.
Financial Statements
2011
CONSTRUTORAQUEIROZGALVÃOS.A.
ConsolIdated and HoldIng CoMpany stateMents oF InCoMeYearsEndedDecember31,2015and2014(InthousandsofUSdollars,exceptsharedata)
Service income
Equityinearningsofsubsidiariesandaffiliates
Cost of services
Gross profit
Operating income (expenses):
Administrative
Depreciation
Tax expenses
Other revenues (expenses)
Financial income
Financial expenses
Profitbeforesocialcontributionandincometax
Social contribution
Income tax
Reversal of deferred income tax and social contribution
Netincome(loss)fortheyear
Participationofnoncontrollingshareholders
Netincomeofcontrollingshareholders
Earning(loss)pershare
Numberofsharesofthecapitalstock
2015
1,512,099
4,694
(1,312,578)
204,215
(109,852)
(16,304)
(1,350)
6,873
(120,633)
220,031
(268,472)
(48,441)
35,141
(3,053)
(8,159)
(6,828)
17,101
1,552
18,653
2014
2,288,707
33,029
(2,111,012)
210,723
(174,557)
(8,463)
(4,377)
2,449
(184,949)
160,904
(176,702)
(15,798)
9,976
(581)
(15,711)
(16,140)
(22,456)
(4,400)
(26,856)
CONSOLIDATED
2015
1,209,648
17,307
(1,048,717)
178,238
(63,438)
(229)
(693)
448
(63,912)
56,330
(135,957)
(79,627)
34,699
(2,377)
(6,393)
(7,276)
18,653
-
18,653
0.02
865,618,938
2014
1,754,187
(7,583)
(1,638,772)
107,832
(140,462)
(1,585)
(1,038)
1,315
(141,769)
106,023
(83,365)
22,658
(11,279)
211
352
(16,140)
(26,856)
-
(26,856)
(0.03)
865,618,938
HOLDING COMPANY
Queiroz Galvão Financial Statements 2015 7
Financial StatementsCONSTRUTORAQUEIROZGALVÃOS.A.
stateMents oF CoMpReHensIve InCoMeYearsEndedDecember31,2015and2014(InthousandsofUSdollars)
2015 2014
Netincome(loss)fortheyear 18,653 (26,856)
Other Comprehensive Income:
Items to be subsequently reclassified to profit
Translationadjustmentsoninvestmentsabroad 31,774 3,787
Total comprehensive income (loss) 50,427 (23,069)
See notes to financial statements.
8 Queiroz Galvão Financial Statements 2015
CONSTRUTORAQUEIROZGALVÃOS.A.
See notes to financial statements.
stateMents oF CHanges In sHaReHoldeRs` equItyYearsEndedDecember31,2015and2014(InthousandofUSdollars)
Balances at january 1, 2014
Gain (loss) on translation AdjustmentforhamonizationwiththenewaccountingstandardsIncreaseincapital-01/01/2014EquityValuationAdjustment-reflexTranslationadjustmentofforeigninvestments Dividends paid EquityValuationAdjustmentLossfortheyear Appropriation of earnings: Reversal of unrealized profits
Balances at December 31, 2014
Gain (loss) on translation AdjustmentforhamonizationwiththenewaccountingstandardsIncreaseincapital-28/12/2015EquityValuationAdjustment-reflexTranslationadjustmentofforeigninvestments Dividends paid Debentures Amortization Realization of Revaluation Reserve EquityValuationAdjustmentLossfortheyear Appropriation of earnings: Constitution of legal reserve Reversal of unrealized profits
Balances at December 31, 2015
CapitalStock
409,397
(51,021) -
22,756 - - - - -
-
381,132
(121,871) -
62,885 - - - - - - -
- -
322,146
CapitalReserve
320
(37) - - - - - - -
-
283
(91) - - - - - - - - -
- -
192
Earning Reserve
LegalReserve
8,513
(1,005) - - - - - - -
-
7,508
(2,400) - - - - - - - - -
933 -
6,041
RealizableProfits
199,411
(23,543) - - - -
(35,427) - -
(16,804)
123,637
(39,534) - - - -
(9,841) (3,765)
195 - -
- 26,064
96,756
RetainedEarnings
-
1 - - - - -
10,051 (26,856)
16,804
-
2 - - - - - - -
8,34218,653
(933)(26,064)
-
ComprehensiveIncome
7,768
(917) - - -
3,787 - - -
-
10,638
(3,402) - - -
31,774 - - - - -
- -
39,010
EquityValuation
Adjustment
102,960
(12,156) - -
(581) - -
(7,639) -
-
82,584
(26,408) - -
4,729 - - - -
(10,347) -
- -
50,558
Total
741,872
(90,273) -
22,756 (581)3,787
(35,427)2,412
(26,856)
-
617,690
(197,512) -
62,8854,729
31,774(9,841) (3,765)
- (2,005)18,653
- -
522,608
Total-
759,265
(92,326) 3,621
22,756 (581)3,787
(35,427)2,412
(26,856)
-
636,651
(203,575) 15,550 62,885
4,72931,774(9,841) (3,765)
- (2,005)18,653
- -
551,056
RevaluationReserve
13,503
(1,595) - - - - - - -
-
11,908
(3,808) - - - - - -
(195) - -
- -
7,905
Participationof non controlling
Shareholders
17,393
(2,053) 3,621
- - - - - -
-
18,961
(6,063) 15,550
- - - - - - - -
- -
28,448
Queiroz Galvão Financial Statements 2015 9
See notes to financial statements.
Financial StatementsCONSTRUTORAQUEIROZGALVÃOS.A.
stateMent oF CasH FlowYearsEndedDecember31,2015and2014(InthousandsofUSdollars)
2011
Cash flows from operating activities:
Income (loss) of the year
Adjustmentsfor:
Depreciation
Equityinearningsofsubsidiariesandaffiliates
Minority interest
Netvalueoffixedassetswrittenoff
Interest expenses
Decrease (increase) in accounts receivable
Decrease (increase) in inventories
Decrease (increase) in recoverable taxes
Decrease (increase) in other accounts receivable
Increase (decrease) in related parties
Increase (decrease) in suppliers
Increase (decrease) in salaries, charges and tax obligations to pay
Increase (decrease) in other trade accounts payable
Cash flows from operating activities
( - ) interests paid
Net cash provided by (used in) operating activities
2015
18,653
71,329
(4,694)
1,552
8,529
48,441
143,810
30,553
28,997
(32,959)
(60,928)
(52,042)
(28,642)
(19,668)
161,255
170,376
(268,472)
(98,096)
2014
(26,856)
73,722
(33,029)
(4,400)
4,954
15,798
30,189
(5,352)
2,882
(19,624)
88,222
(11,754)
(89,835)
13,000
(16,873)
(9,144)
(176,702)
(185,846)
CONSOLIDATED
2015
18,653
38,362
(17,307)
-
8,210
79,627
127,545
110,776
25,496
(2,130)
13,551
(51,022)
(33,242)
(50,401)
26,927
167,500
(135,957)
31,543
2014
(26,856)
58,278
7,583
-
3,514
(22,658)
19,861
47,616
10,475
(15,970)
(492)
(24,375)
(24,414)
(16,197)
(83,996)
(87,494)
(83,365)
(170,859)
HOLDING COMPANY
Queiroz Galvão Financial Statements 2015 10
Financial Statements
See notes to financial statements.
CONSTRUTORAQUEIROZGALVÃOS.A.
stateMent oF CasH FlowYearsEndedDecember31,2015and2014(InthousandsofUSdollars)
2011
Cash flows used in investing activities
( - ) Additions in Fixed assets
( - ) Additions in Invest.in affiliates and subsidiaries
EquityValuationAdjustment
Interests received
Net cash used in investing activities
Cash flows from financing activities
Financing
EquityValuationAdjustment-reflex
Increase in capital
Adjustmentforhamonizationwiththenewaccountingstandards
Debentures Amortization
Translationadjustmentofforeigninvestments
Financial expenses- interest on shareholders’ equity and
dividends
Net cash provided by (used in) financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
Gain on translation
Increase (decrease) in cash and cash equivalents
2015
(47,005)
83,624
(2,005)
220,031
254,646
(106,642)
4,729
62,885
15,550
(3,765)
31,774
(9,841)
(5,310)
151,240
568,801
516,466
203,575
151,240
2014
(4,876)
21,076
2,412
160,904
179,515
98,330
(581)
22,756
3,621
-
3,787
(35,427)
92,486
86,155
574,972
568,801
92,326
86,155
CONSOLIDATED
2015
39,172
3,078
(2,005)
56,330
96,575
(69,100)
4,729
62,885
-
(3,765)
31,774
(9,841)
16,682
144,800
179,559
126,847
197,512
144,800
2014
(3,234)
(22,904)
2,412
106,023
82,297
59,204
(581)
22,756
-
-
3,787
(35,427)
49,739
(38,823)
308,655
179,559
90,273
(38,823)
HOLDING COMPANY
Queiroz Galvão Financial Statements 2015 11
1 - Operations
The company is primarily engaged in the engineering and construction business, including construction of bridges, tunnels, dams, roads, buildings, airports, hydroelectric power, industrial construction and other related works.
Withregardtoreportsinvariousmedia,aboutongoinginvestigationsconcerningtheoperationcalled“LavaJato”,relatingtocontractsexecutedwithPetrobras,theManagementofConstrutoraQueirozGalvaoS.A.clarifiesthat,according to the internal investigation carried out so far, have not been identified any evidence of non-compliance withlegalregulations,especiallyinrelationtotheapplicablelegislationstopublictenders(seenote14).
2 - Presentation of Financial Statements
The financial statements have been prepared and are presented in accordance with accounting practices adopted inBrazil,whichincludetheprovisionsoftheCorporationsLaw,andtheaccountingstandardsandproceduresissuedbytheSecuritiesandExchangeCommission-CVMandAccountingPronouncementsCommittee-CPC,resolutions approved by the Federal Accounting Council - CFC.
ThepreparationoffinancialstatementsaccordingtoIFRSstandardsandtheCPCrequiremanagementtomakejudgments,estimatesandassumptionsthataffecttheapplicationofaccountingpoliciesandthereportedamountsof assets, liabilities, revenues and expenses. Actual results could differ from those estimates.
Estimatesandassumptionsarereviewedonacontinuousbasis.Reviewwithrespecttoaccountingestimatesarerecognized in the fiscal year in which the estimates are revised and in any future periods affected.
ThefinancialstatementswereauthorizedforissuebytheBoardofDirectorsonMarch22,2016.
3 - Summary of Significant Accounting Policies
a. Cash and cash equivalent
Represent the company’s resources without restrictions for immediate use, in moving the company’s operations, they include cash balances, bank deposits and investments of immediate liquidity. They are classified as financial assets at fair value through income available for trading and are recorded at the original value plus accrued interest until the closing dates of the statements made by the pro-rata criterion which is equivalent to their market values.
b. Marketable securities
The company’s financial assets are classified as financial assets at fair value through income and are presented in the balance sheet at fair value with corresponding gains or losses recognized in the income statement.
notes to Individual and Consolidated Financial StatementsYearsEndedDecember31,2015and2014(InthousandofUSdollars)
Queiroz Galvão Financial Statements 2015 12
The company’s financial assets include cash and cash equivalents, accounts receivable and marketable securities.
c. Financial assets (including receivables)
A financial asset is not measured at fair value through profit or loss is assessed to each filing date to determine whetherthereisobjectiveevidencethattherehasbeenlossofitsrecoverableamount.Anassetislostinitsrecoverableamountifobjectiveevidenceindicatesthatalosseventoccurredaftertheinitialrecognitionofassets,andthatlosseventhadanegativeeffectonprojectedfuturecashflowsthatcanbeestimatedinareliablemanner.
d. Inventories
Inventories are valued at the lower value between the cost and net realizable value. The cost of inventories is based on the principle of the Average Cost of Acquisition and includes expenditure incurred for the purchase of inventory, production and processing costs and other costs incurred in bringing them to their locations and conditions.
e. Fixed Assets
The items of equipment are measured at historical cost of acquisition or construction, including revaluations in prior yearsandtheassetvaluationadjustmentsattributabletothecost,lessaccumulateddepreciationandlossesonimpairment (impairment) accumulated. Cost includes expenditures that are directly attributable to the acquisition of an asset.
Wherepartsofanitemoffixedassetshavedifferentusefullives,theyarerecordedasseparateitems(majorcomponents) of property. Gains and losses on disposal of an item of fixed assets (calculated as the difference between the proceeds of the sale and the book value of fixed assets) are recognized in other income / expenses in the result.
The items of equipment are depreciated on the straight-line method in the income statement based on the useful lives of each component. Items of fixed assets are depreciated from the date they are installed and available for use, or in case of internally constructed assets, from the day on which construction is completed and the asset is available for use.
Depreciationmethods,usefullivesandresidualvaluesarereviewedeveryyearandanyclosingadjustmentsarerecognized as a change in accounting estimates.
f. Intangible Assets
It is represented by spending on software acquisition and registration of trademark, registered earlier in the group fixed assets.
notes to Individual and Consolidated Financial StatementsYearsEndedDecember31,2015and2014(InthousandofUSdollars)
Queiroz Galvão Financial Statements 2015 13
g. Investments
Investments in subsidiaries and affiliates, evaluated by the equity method, based on consolidated financial statements of the investee companies. The results obtained are shown as operating result in account equity income.
Investments in controlled entities and associates
Controlled entities are those that directly or indirectly, the controller has the power to regulate financial and operating policies, to obtain benefits from its activities usually accompanied by a participation of more than half of the voting rights (voting capital).
Associates are investments where the company has the power to exercise significant influence, but that does not havecontrolorjointcontrolthroughparticipationinthefinancialandoperationaldecisionsoftheCompany.
The use of the equity method is suspended from the date on which the Company fails to have significant influence over the associate.
h. Income tax and social contribution
The company adopts the taxable income as tax regime for calculation of income tax and social contribution.
Income tax and social contribution Current and deferred, are calculated based on the rates of 15%, plus a surcharge of 10% on taxable income exceeding two hundred and forty thousand dollars for annual income tax and 9%ontaxableincomeforsocialcontributiononnetincome.
i. Deferred revenues
IncompliancewithLaw11.638/07,theresultoftheworksofshort-term(previouslyclassifiedasDeferredIncome) is recorded in Deferred Revenue. The recognition in the income statement is made at the close of the work.
j. Provisions
A provision is recognized on the basis of a past event, the Company has a legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.Provisionsareclearedthrutheexpecteddiscountinginthefuturecashflowsatapre-taxratethatreflects current market assessments of the value of money over time and risks specific to the liability. The financial costs incurred are recorded in the result.
notes to Individual and Consolidated Financial StatementsYearsEndedDecember31,2015and2014(InthousandofUSdollars)
Queiroz Galvão Financial Statements 2015 14
k. Construction contracts
Contract revenue comprises the initial value agreed in the contract plus variations due to additional requests, claims and incentive payment contract, provided that it is probable that they result in revenue and can be measured reliably. As soon as the result of a construction contract can be estimated reliably, contract revenue is recognized in the result as far as the stage of completion of the contract. Contract expenses are recognized when incurred, unless they create an asset related to the activity of the futures contract.
The stage of completion is assessed by reference to the measurement of the work performed.
When the result of a construction contract can not be measured reliably, contract revenue is recognized to the extentofthecostsrecognizedonconditionthatthecostsincurredcanberecovered.Lossesoncontractsarerecognized immediately in the result.
l. Translation into United States dollars
TheUnitedStatesdollaramountsresultfromtranslationofthefinancialstatementsattheyear-endrateofexchange as follows:2015 R$3,9048toUS$1,002014 R$2,6562toUS$1,00
The translation should not be construed as representation that the real (R$) amounts actually represent or have been,orcouldbeconvertedintoUnitedStatesdollars.
4 - Summary of the Main Procedures used in the Consolidated of the Financial Statements
TheconsolidatedfinancialstatementsatDecember31,2015and2014covertheparentConstrutoraQueirozGalvão S.A. and subsidiaries in which it holds the participation as detailed in note 6;
The financial statements were prepared and are presented in accordance with accounting practices adopted in Brazil,whichincludetheprovisionsoftheLawofCorporations,andtheaccountingstandardsandproceduresissuedbytheBrazilianSecuritiesCommission-CVMandtheAccountingPronouncementsCommittee-CPC,approved by resolutions of the Federal Accounting Council - CFC.
From2014,theaccountingpracticesadoptedinBrazilapplicabletotheindividualfinancialstatementsdonotdifferfromIFRSapplicabletoseparatefinancialstatements,sincetheAccountingPronouncementsCommittee(“CPC”)nowallowtheapplicationoftheequitymethodinsubsidiariesinseparatefinancialstatements(pursuanttoCVMResolutionNo.733/14).Thus,theyarealsoinaccordancewithinternationalfinancialreportingstandards
notes to Individual and Consolidated Financial StatementsYearsEndedDecember31,2015and2014(InthousandofUSdollars)
Queiroz Galvão Financial Statements 2015 15
notes to Individual and Consolidated Financial StatementsYearsEndedDecember31,2015and2014(InthousandofUSdollars)
(InternationalFinancialReportingStandards-IFRS)issuedbytheInternationalAccountingStandardsBoard(IASB).These individual statements are disclosed together with the consolidated financial statements.
The process of consolidating the balance sheet and income is the sum of balances of assets, liabilities, revenues and expenses according to their nature, supplemented with the following eliminations:
Of profit sharing, reserves and accumulated results held between them;
The balance of current accounts and other asset and / or liability held between the companies whose balance sheets were consolidated;
Effectsarisingfromtransactionsbetweenthesecompanies;
NegativegoodwillandgoodwilloninvestmentswerebasedontheexpectationoffutureresultsandinlinewiththereferredCVMandCPCinstruction,andwereclassifiedasdeferredincome;and
The rights of non-controlling are shown in liabilities and results of Investments in non Controllers.
5 - Customers
The accounting records of the accounts receivable of the company are carried out in accordance with the accrual basis, including measurements from unbilled services, whose corresponding costs have ocurred at the balance sheet date.
6 - Investments in Subsidiaries and Affiliates
During2015,theCompanyrecordedU$D30,029equity.
Thetablebelowshowsthecompositionofthebalanceofinvestmentinsubsidiaries,associatesandjointlycontrolled entities.
Queiroz Galvão Financial Statements 2015 16
a) TheinvestmentsincludeanagiooveramountofR$5.542equivalentofUSD1,445in2015.
b) ThebalanceofU$D53,385inDec/15andU$D130,046inDec/2014,theinvestmentaccountoftheConsolidatedFinancialStatementsasperCPC19iscomposedofthefollowinginvestmentsincompanieswheremanagement is shared:
2015 % 2014 %
AgropecuáriaRioArataúS.A. 793 35,72 659,13 35,72
CHC–CentralesHidroeletricasdeCentroamericaS.A. 25.229 50,00 29,771 50,00
Cia.SiderúrgicaValedoPindaré - 10,37 2,437 10,37
ConcessionáriaRioTeresópolisS.A. 5.390 9,48 7,704 9,48
ConstructoraRecifeS.A.C. 12.488 100,00 8,714 100,00
ConstructoraSURS.A. 153 33,33 164 33,33
EnobConcessõesS.A. - 63,25 4,432 63,25
GuaranySiderurgiaeMineraçãoS.A. 31.724 44,94 51,175 44,94
IntersurConcesionesS.A. 3.986 33,33 3,976 33,33
LOCAVLocadoraLtda. 4.009 50,00 6,594 50,00
OperadoraSURPERUS/A 964 33,33 1,528 33,33
Q.GalvãoImportaçãoeExportaçãoLtda. 33 100,00 70 100,00
Quebec–Constr.,MontagemeTransp.deEstruturasLtda. 162 65,00 292 65,00
Queiroz Galvão Alimentos S.A. 755 7,71 2,550 7,71
QueirozGalvãoInternationalLtd. - 100,00 273 100,00
QueirozGalvãoServiçosEspeciaisdeEngenhariaLtda. - 99,99 2,521 99,99
QueirozPetroS.A. 47 40,59 69 40,59
QueirozGalvãoTecnologiaemDefesaeSegurançaS/A 9.255 100,00 13,141 100,00
QUIPS/A 5.290 29,75 6,907 29,75
JointVentures - 65,00 6,024 65,00
ConstrutoraQueirozGalvãoS.A.–Branchesabroad 166.362 100,00 92,832 100,00
TransportadoraGuaranyLtda. 2.009 100,00 2,979 100,00
RIGOIL&GasContractors 2.232 25,48 2,790 25,48
ConcessionáriaMoveSãoPaulo 3.183 19,61 3,767 19,61
QueirozGalvãoZCSDesenvolvimentoImobiliárioS/A 4.181 26,00 4,694 26,00
ConcessionáriaRodoviadosTamoios 1.183 20,00 1,033 20,00
QGIBrasilS/A 25.900 78,12 37,377 78,12
QGIOIL&GasContractors 17.295 80,00 13749 80,00
322.623 308,221
notes to Individual and Consolidated Financial StatementsYearsEndedDecember31,2015and2014(InthousandofUSdollars)
Queiroz Galvão Financial Statements 2015 17
notes to Individual and Consolidated Financial StatementsYearsEndedDecember31,2015and2014(InthousandofUSdollars)
2015 % 2014 %
AgropecuáriaRioArataúS.A. 793 35,72 658 35,72
Cia.SiderúrgicaValedoPindaré - 7,42 2,437 7,42
ConcessionáriaRioTeresópolisS.A. 5.390 9,48 7,704 9,48
ConstructoraSURS.A. 153 33,33 164 33,33
GuaranySiderurgiaeMineraçãoS.A. - 44,94 51,175 44,94
IntersurConcesionesS.A. 3.986 33,33 3,976 33,33
OperadoraSURPERUS/A 964 33,33 1,528 33,33
Queiroz Galvão Alimentos S.A. 755 7,71 2,550 7,71
QueirozPetroS.A. 47 40,59 69 40,59
QUIPS/A 5.290 29,75 6,907 29,75
RIGOil&GasContractors 2.232 25,48 2,790 25,48
CHC–CentralesHidroeletricasdeCentroamericaS.A. 25.229 50,00 29,771 50,00
SociedadeemContadeParticipação - 65,00 5,553 65,00
ConcessionáriaMoveSãoPauloS.A. 3.183 19,61 3,767 19,61
QueirozGalvãoZCSDesenvolvimentoImobiliárioS.A. 4.181 26,00 4,694 26,00
ConcessionáriaRodoviasTamoiosS.A. 1.183 20,00 1,033 20,00
EcourbisAmbientalS.A. - 12,14 5,270 12,14
53.385 130,046
7 - Fixed assets and Intangible
7.1 - Fixed assets
estimated Consolidated Holding Company useful lives (years) 2015 2014 2015 2014
Fieldequipment 5 240,107 350,201 166,455 275,441
Vehicles 5 163,002 232,292 68,046 116,088
Buildings 25 36,214 21,817 12,419 18,553
Maintenanceequipment 10 26,263 48,122 16,600 30,541
Lands - 51,293 10,939 7,441 10,939
Constructioninprogress - 114 1,048 - -
Furnitureandfixtures 10 20,406 5,341 4,657 9,492
Otherfixedassets Many 6,954 8,941 4,128 7,442
544,353 678,701 279,746 468,496
Less:
Accumulateddepreciation (348,538) (453,257) (200,846) (307,583)
195,815 225,444 78,900 160,913
Queiroz Galvão Financial Statements 2015 18
notes to Individual and Consolidated Financial StatementsYearsEndedDecember31,2015and2014(InthousandofUSdollars)
7.2 - Intangible
Consolidated Holding Company 2015 2014 2015 2014
Software 621 735 327 211
Trademarksandtechnology 8,181 12,027 8,181 12,027
Research and Development 362 - - -
9,164 12,762 8,508 12,238
8 - Related Parties
The balances arising from loans and transactions with related companies are:
Consolidated Holding Company 2015 2014 2015 2014
QueirozGalvãoS.A. (2,048) 952 (2,048) 952
QueirozGalvãoTecnologiaemDefesaeSegurança - - 4,384 6,511
CQGOil&Gas (3,754) - - -
CQGOffshore (55,541) - - -
CQG Offshore - -
AgropecuáriaRioArataú - (1,014) - (1,014)
QUIPS.A. (11,667) (15,965) (11,273) (15,965)
Operationswithbranches - - (47,291) (18,668)
QueirozPetroS.A. 2,260 4,273 2,260 4,273
QueirozGalvãoNaval (15,003) - (15,003) -
QueirozGalvãoAlimentos (6,140) - (6,140) -
QueirozGalvãoMineração (3,890) - - -
TimbaubaInternationalLtd 32,135 - - -
Other (148) - (284) (463)
(63,796) (11,754) (75,397) (24,375)
Queiroz Galvão Financial Statements 2015 19
notes to Individual and Consolidated Financial StatementsYearsEndedDecember31,2015and2014(InthousandofUSdollars)
9 - Contingencies
The estimated time frame for settlement of provisions was based on management’s best estimate at the balance sheet date. The company is engaged in labor lawsuits considered as probable losses involving former employees of the Company, or service providers. These processes mainly involve claims for overtime, intra-day interval and unsanitary conditions, as well as their consequences and related charges.
10 - Loans
Banks
BancoAlfaS/A
C.E.F.
Itaú-BBA
BancoBradesco
ABC-Brasil
BancoIndustrial
BancoItaú
BancoSafraS/A
BancoDaimlerChryslerS.A
BancoGuanabaraS/A
BancoPine
BancoVotorantim
Caterpillar Financial
C.N.H.Capital
BancoItaúChileS/A
BancoSantander
SaharaBank
UPS
LandesBankWutemberg
Debentures
Other
Total
Current
1,120
214
1,398
138,012
532
78
682
5
1,218
10
1
381
1,867
71
20,500
43,374
6,698
418
2,074
52,491
-
271,144
Non Current
1,681
1,065
4,226
124,032
1,714
352
436
-
95
-
243
1,355
4,466
46
-
-
-
694
2,085
60,973
-
203,463
CONSOLIDATED
Current
1,120
214
1,398
84,162
532
-
-
-
1,201
-
-
381
1,867
-
-
-
-
-
2,074
52,491
573
146,013
Non Current
1,681
1,065
4,226
4,353
1,714
-
-
-
48
-
-
1,355
4,466
-
-
-
-
-
2,085
60,973
640
82,606
HOLDING COMPANY
Queiroz Galvão Financial Statements 2015 20
notes to Individual and Consolidated Financial StatementsYearsEndedDecember31,2015and2014(InthousandofUSdollars)
11 - Perpetual Debentures
OnMay25,2011,theCompanyissued250convertibledebentureswithBrazilXXIEquityInvestmentFund(PIFBRAZIL).TheDebenturesareinregisteredform,bookandwillbeconvertibleatanytimefromthedateofissuanceofpreferredshareswithoutvotingrights,issuedbytheIssuer(“PreferredShares”).TheDebenturesareunsecuredand have indeterminate maturity.
UnderthetermsofCPCs38,39and40convergedtoIAS39,IAS32andIFRS7,theManagementclassifiedthePerpetualHybridasanequityinstrument.
Management believes, based also on the position issued by the International Financial Reporting Interpretations Committee(IFRIC)andapprovedbytheInternationalFinancialReportingStandardsBoard(IASB),anincentiveor management’s intent to pay does not create a present obligation for the entity and for it cannot generate a financial instrument classified as financial liabilities. The Company’s management also noted the international practice in relation to the registration of perpetual instruments of similar nature, noting that several companies in severalcountriesthatadopttheinternationalaccountingstandardsIFRSasissuedbyIASB,havesuchinstrumentsasequity.Additionally,theAdministrationestimatedthattheCompany,pursuanttoLaw6.404/76includesitsshareholders as part of its corporate structure, retains the right to allocate the balance of revenue reserves that mayexceedthelimitslegal/statutoryforcapitalincrease,subjecttotheminimummandatorydividend.
12 - Capital
Thecapital,subscribedandfullypaid,comprises982.219.515ordinarynominativeshareswithnoparvalue.OnDecember31,2015theCompany’sbookvalueperthousandofshareswasR$2,44equivalenttoUS$0,62(R$1,84equivalenttoUS$0,69in2014).
The shareholders have the right to a minimum dividend of 3% of the net income for the year, according to the company’s by-law. The shareholders’ general meeting has the power to decide for lower distribution or retention of the whole net income. Also, 5% of the net income for the year is appropriated to legal reserve limited to 20% of the capital stock.
13 - Financial Instruments
ThefinancialinstrumentsarerecordedinbalancesheetsatDecember31,2015and2014withvaluescompatiblewith those practiced by the market on that date. The management of these instruments is done through operational strategies aimed at liquidity, profitability and security.
The control policy is to ensure continuous monitoring of contracted rates versus current market.
Queiroz Galvão Financial Statements 2015 21
notes to Individual and Consolidated Financial StatementsYearsEndedDecember31,2015and2014(InthousandofUSdollars)
Society does not have the practice to operate with derivatives or other risky assets.
The company has exposure to the following risks arising from financial instruments: credit risk, liquidity risk and market risk.
The risk management policies of the Company has been established to identify and analyze risks, set risk limits and appropriate controls and to monitor risks and adherence to the established limits. Risk policies and systems are reviewed regularly to reflect changes in market conditions and activities of the group.
14 - News Published – “Lava Jato” Operation
AsmentionedinNote1,regardingthenewspublishedinthemedia,concerningtheongoinginvestigationsrelatedtotheoperationcalled“LavaJato”,regardingcontractsconcludedwithPetrobras,accordingtointernalinvestigations carried out until now, no evidence of non-compliance with legal regulations have been identified, especially with regards to provisions of the legislation applicable to public tenders.
As a result of such press reports, some administrative processes were initiated, in order to investigate any possible irregularities, however there are no current deadlines for such processes, nor any conclusive decisions.
Itisimportanttonotice,especially,thattheadministrativeproceedingsinitiatedbyPetrobras,whichledtosuspendpreventively more than twenty companies in its register, among them the Company, preventing them from participatinginnewcontractingprocesses,werefiledbytheComptrollerGeneraloftheUnion,havingnodecisionrelated to the Company.
As an exceptional measure, a relative to the writs of payment enforceable to the Government of the State of Alagoas owed by the Company, in the amount close to R$ 163 million, was provisionally suspended by the Federal Court, even before those values were made available to the company. Given the disagreement as to the regularity ofjudicialmeasuresapplied,alegalproceedingwasinitiatedthatstillremainspending.
Finally, it is worth mentioning that Construtora Queiroz Galvão SA has no knowledge of any criminal action that has been proposed against the Company or its legal representatives, due to the mentioned investigations.
15 - Integrity Program
TheCompany,duringtheyear2015,stronglyimproveditsIntegrityProgram,creatingaComplianceManagementdirectly linked to senior management, including responsibility to risk assessment and internal controls.
Severalrelevantpolicieswerepublished,whichcurrentlymakeuptheIntegrityProgram,havingbeendevelopedtargeted training for all levels of Company leadership.
Queiroz Galvão Financial Statements 2015 22
notes to Individual and Consolidated Financial StatementsYearsEndedDecember31,2015and2014(InthousandofUSdollars)
TheEthicsCommittee,whichalsoreportstoseniormanagementhasbeenworkingdiligentlyinthisprocess,bothasregardstheimplementationofcontinuousimprovementoftheIntegrityProgram,andinsearchofitseffectiveness.