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THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE EITHER (1) U.S. PERSONS WHO ARE QUALIFIED
INSTITUTIONAL BUYERS (QIBs) (WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT, AS
AMENDED (THE SECURITIES ACT) THAT ARE ALSO QUALIFIED PURCHASERS (QPs) WITHIN THE MEANING OF
SECTION 2 (A)(51) OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE INVESTMENT COMPANY ACT)
AND (2) NON-US PERSONS (WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) OUTSIDE THE
U.S.
IMPORTANT: You must read the following before continuing. The following applies to the Offering Memorandum following this
page, and you are advised to read this carefully before reading, accessing or making any other use of the Offering Memorandum. In
accessing the Offering Memorandum, you agree to be bound by the following terms and conditions, including any modifications to them
any time you receive any information from us as a result of such access.
NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN ANY
JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES HAVE NOT BEEN, AND WILL NOT BE,
REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE OF THE U.S. OR OTHER
JURISDICTION AND THE SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE U.S. OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT), EXCEPT
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE LAWS OF OTHER JURISDICTIONS. THE OFFERING
MEMORANDUM AND THE OFFER OF THE NOTES ARE ONLY ADDRESSED TO AND DIRECTED AT PERSONS IN
MEMBER STATES OF THE EUROPEAN ECONOMIC AREA WHO ARE QUALIFIED INVESTORS WITHIN THE MEANING
OF ARTICLE 2(1)(E) OF THE PROSPECTUS DIRECTIVE (DIRECTIVE 2003/71/EC) AND RELATED IMPLEMENTATION
MEASURES IN MEMBER STATES (QUALIFIED INVESTORS). IN ADDITION, IN THE UNITED KINGDOM THE OFFERING
MEMORANDUM IS ONLY BEING DISTRIBUTED TO PERSONS WHO HAVE PROFESSIONAL EXPERIENCE IN MATTERS
RELATING TO INVESTMENTS FALLING WITHIN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT
2000 (FINANCIAL PROMOTION) ORDER 2005, AND OTHER PERSONS TO WHOM IT MAY OTHERWISE LAWFULLY BE
COMMUNICATED (ALL SUCH PERSONS TOGETHER REFERRED TO AS RELEVANT PERSONS). ANY INVESTMENT OR
INVESTMENT ACTIVITY TO WHICH THIS OFFERING MEMORANDUM RELATES IS AVAILABLE ONLY TO (I) IN THE
UNITED KINGDOM, RELEVANT PERSONS, AND (II) IN ANY MEMBER STATE OF THE EUROPEAN ECONOMIC AREA
OTHER THAN THE UNITED KINGDOM, QUALIFIED INVESTORS, AND WILL BE ENGAGED IN ONLY WITH SUCH
PERSONS. IN ADDITION, NO PERSON MAY COMMUNICATE OR CAUSE TO BE COMMUNICATED ANY INVITATION OR
INDUCEMENT TO ENGAGE IN INVESTMENT ACTIVITY, WITHIN THE MEANING OF SECTION 21 OF THE FINANCIAL
SERVICES AND MARKETS ACT 2000 (THE FSMA), RECEIVED BY IT IN CONNECTION WITH THE ISSUE OR SALE OF
THE NOTES OTHER THAN IN CIRCUMSTANCES IN WHICH SECTION 21(1) OF THE FSMA DOES NOT APPLY TO US. THE
FOLLOWING OFFERING MEMORANDUM MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND
MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. ANY FORWARDING, DISTRIBUTION OR
REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS
DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER
JURISDICTIONS.
Confirmation of your Representation: In order to be eligible to view this Offering Memorandum or make an investment decision with
respect to the notes, an investor must be either (1) a U.S. Person who is a QIB and a QP or (2) a non-US person (within the meaning of
Regulation S under the Securities Act) outside the U.S. This Offering Memorandum is being sent at your request and by accepting the email and accessing this Offering Memorandum, you shall be deemed to have represented to us that (1) you and any customers you
represent are either (a) QIBs and QPs or (b) non-U.S. persons (within the meaning of Regulation S under the Securities Act) and that the
electronic mail address that you gave us and to which this Offering Memorandum has been delivered is not located in the U.S., and (2)
that you consent to delivery of such Offering Memorandum by electronic transmission.
You are reminded that this Offering Memorandum has been delivered to you on the basis that you are a person into whose possession
this Offering Memorandum may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you
may not, nor are you authorized to, deliver this Offering Memorandum to any other person.
The materials relating to the offering do not constitute, and may not be used in connection with, an offer or solicitation in any place
where offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker or dealer
and the Initial Purchasers or any affiliate of the Initial Purchasers is a licensed broker or dealer in that jurisdiction, the offering shall be
deemed to be made by the Initial Purchasers or such affiliate on behalf of the issuer in such jurisdiction.
This Offering Memorandum has been sent to you in an electronic form. You are reminded that documents transmitted via this medium
may be altered or changed during the process of electronic transmission, and consequently neither the Initial Purchasers, nor any person
who controls them nor any of their directors, officers, employees nor any of their agents nor any affiliate of any such person accept any
liability or responsibility whatsoever in respect of any difference between this Offering Memorandum distributed to you in electronic
format and the hard copy version available to you on request from the Initial Purchasers.
U.S.$400,000,000
Delivery of the notes is expected to be made to investors in book-entry form only through the facilities of The Depository Trust
Company, or DTC, and its participants, including Euroclear Bank S.A./N.V., or Euroclear, and Clearstream Banking, socit anonyme,
Luxembourg, or Clearstream, on or about July 2, 2014.
_________________
Joint Book-running Managers
BB Securities
Bradesco BBI
HSBC
Santander
TABLE OF CONTENTS
____________________
In this offering memorandum, except where otherwise specified or the context otherwise requires, we,
us, our, OAS, OAS Group and the Company refer to OAS S.A. and its subsidiaries. References to the
issuer are to OAS Finance Limited. References to the initial purchasers are to BB Securities Ltd., Banco
Bradesco BBI S.A., HSBC Securities (USA) Inc., and Santander Investment Securities Inc. and their affiliates.
In addition, the phrase Brazilian Government refers to the federal government of Brazil. References to
Central Bank are to the Brazilian Central Bank (Banco Central do Brasil) and the Brazilian National Monetary
Counsel (Conselho Monetrio Nacional). All references to real, reais or R$ are to the Brazilian real, the
official currency of Brazil and all references to U.S. dollar, U.S. dollars or U.S.$ are to U.S. dollars, the
official currency of the United States.
____________________
You should rely only on the information contained in this offering memorandum. None of us, the issuer,
the guarantors, or the initial purchasers have authorized anyone to provide you with different information.
The information contained in this offering memorandum is accurate only as of the date of this offering
memorandum, regardless of the time of delivery of this offering memorandum or of any sale of the notes.
Neither the delivery of this offering memorandum nor any sale made hereunder shall under any
circumstances imply that there has been no change in the affairs of OAS, the issuer, the guarantors or each of
their subsidiaries or that the information set forth herein is correct as of any date subsequent to the date
hereof.
This offering memorandum has been prepared by us solely for use in connection with the proposed offering
of the notes outside of Brazil and for listing of the notes on the Official List of the Irish Stock Exchange. This
offering memorandum does not constitute an offer to any other person or to the public generally to subscribe for or
otherwise acquire notes. Distribution of this offering memorandum to any other person other than the prospective
investor and any person retained to advise such prospective investor with respect to its purchase is unauthorized.
Application will be made to list the notes on the Official List of the Irish Stock Exchange and application
for admission to trading will be made on the Global Exchange Market of the Irish Stock Exchange. This offering
memorandum constitutes listing particulars for the purposes of the Irish Stock Exchange Guidelines and for
admission to the Irish Stock Exchange. The Irish Stock Exchange takes no responsibility for the contents of this
offering memorandum, makes no representations as to its accuracy or completeness and expressly disclaims any
liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of
this offering memorandum.
We are relying on an exemption from registration under the Securities Act for offers and sales of securities
that do not involve a public offering. The notes offered are subject to restrictions on transferability and resale and
may not be transferred or resold in the United States except as permitted under the Securities Act and applicable
U.S. state securities laws pursuant to registration or exemption from them. By purchasing the notes, you will be
deemed to have made the acknowledgements, representations and warranties and agreements described under the
heading Transfer Restrictions in this offering memorandum. You should understand that you may be required to
bear the financial risks of your investment for an indefinite period of time.
Neither the U.S. Securities and Exchange Commission, or the SEC, nor any state securities commission has
approved or disapproved of these securities or determined if this offering memorandum is truthful or complete. Any
representation to the contrary is a criminal offense.
The notes have not been registered with and this offering memorandum has not been reviewed by or
approved or disproved in any manner by the Financial Services Commission of the British Virgin Islands or any
regulatory or government body or agency in the British Virgin Islands. The offering and issue of the notes is not
subject to any regulation in the British Virgin Islands and there is no public compensation or similar scheme or pool
available to any investor in the notes maintained by the government of the British Virgin Islands. There are no
statutory investor protection provisions under British Virgin Islands law in connection with the offering or issuance
ii
of the notes. Investors should seek their own legal, tax and commercial advice regarding the suitability of the notes
for investment by them.
The notes have not been and will not be issued nor placed, distributed, offered or negotiated in the
Brazilian capital markets. The issuance of the notes and the notes have not been nor will be registered with the
Brazilian Securities Commission (Comisso de Valores Mobilirios), or the CVM. Any public offering or
distribution, as defined under Brazilian laws and regulations, of the notes in Brazil is not legal without prior
registration under Law No. 6,385, dated as of December 7, 1976, as amended, and Instruction No. 400, issued by the
CVM on December 29, 2003, as amended. Documents relating to the offering of the notes, as well as information
contained therein, may not be supplied to the public in Brazil (as the offering of the notes is not a public offering of
securities in Brazil), nor be used in connection with any offer for subscription or sale of the notes to the public in
Brazil.
The notes will not be offered or sold in Brazil, except in circumstances which do not constitute a public
offering, placement, distribution or trading of securities in the Brazilian capital markets regulated by Brazilian
legislation. Persons wishing to offer or acquire the notes within Brazil should consult with their own counsel as to
the applicability of registration requirements or any exemption therefrom.
This offering memorandum has been prepared on the basis that all offers of the notes will be made pursuant
to an exemption under Directive 2003/71/EC (together with any applicable implementing measures in any Member
State of the European Economic Area (EEA), the Prospectus Directive) from the requirement to produce a
prospectus for offers of the notes. Accordingly, any person making or intending to make any offer within the EEA
of the notes should only do so in circumstances in which no obligation arises for the initial purchasers or us to
produce a prospectus for that offer.
This offering memorandum contains summaries intended to be accurate with respect to certain terms of
certain documents, but reference is made to the actual documents, and all such summaries are qualified in their
entirety by such reference.
This offering memorandum is intended solely for the purpose of soliciting expressions of interest in the
notes from qualified investors and does not purport to summarize all of the terms, conditions, covenants and other
provisions contained in the Indenture, the notes and other transaction documents. Certain industry information in
this offering memorandum has been obtained by us and the guarantors from publicly available sources that we and
the guarantors deem reliable. The issuer and the guarantors have not independently verified such information.
The initial purchasers make no representation or warranty, express or implied, as to the accuracy or
completeness of the information contained in this offering memorandum, including, without limitation, the financial
statements included elsewhere in this offering memorandum. Nothing contained in this offering memorandum is, or
shall be relied upon as, a promise or representation by the initial purchasers, the issuer or the guarantors as to the
past or future. The issuer and the guarantors have prepared this offering memorandum.
The issuer and the guarantors confirm that this offering memorandum does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The issuer and the guarantors accept responsibility
for the information contained in this offering memorandum, and having taken all reasonable care to ensure that such
is the case, the information contained in this offering memorandum is, to the best of their knowledge, in accordance
with facts and contain no omission likely to affect its import in any material respect.
You hereby acknowledge that (1) you have been afforded an opportunity to request from us and the
guarantors and to review, and have received, all additional public information considered by you to be necessary to
verify the accuracy of, or to supplement, the information contained herein, (2) you have not relied on the initial
purchasers or any person affiliated with the initial purchasers in connection with any investigation of the accuracy of
such information or your investment decision, (3) this offering memorandum does not contain all the information
that would be included in a prospectus for this offering were this offering to be registered under the Securities Act
and (4) no person has been authorized to give any information or to make any representation concerning us, the
guarantors or the notes (other than as contained herein and information given by duly authorized officers and our
employees in connection with your examination of us, the guarantors and the terms of this offering) and, if given or
iii
made, you should not rely upon any such other information or representation as having been authorized by us, the
guarantors or the initial purchasers.
None of us, the guarantors, the initial purchasers, nor any of their respective affiliates or representatives are
making any representation to you regarding the legality of any investment by you under applicable legal investment
or similar laws. You should consult with your own advisors as to legal, tax, business, financial and related aspects
of a purchase of the notes.
We expect that delivery of the notes will be made against payment therefor on or about the date specified
on the cover of this offering memorandum, which is the fifth business day following the date of pricing of the notes
(such settlement cycle being referred to as T+5). You should note that trading of the notes on the date of pricing or
the next succeeding business day may be affected by this T+5 settlement. See Plan of Distribution.
NOTICE TO INVESTORS WITHIN BRAZIL
THE NOTES (AND RELATED GUARANTEES) HAVE NOT BEEN, AND WILL NOT BE,
REGISTERED WITH THE CVM. THE NOTES MAY NOT BE OFFERED OR SOLD IN BRAZIL,
EXCEPT IN CIRCUMSTANCES THAT DO NOT CONSTITUTE A PUBLIC OFFERING OR
UNAUTHORIZED DISTRIBUTION UNDER BRAZILIAN LAWS AND REGULATIONS. THE NOTES
(AND RELATED GUARANTEES) ARE NOT BEING OFFERED IN BRAZIL. DOCUMENTS RELATING
TO THE OFFERING OF THE NOTES, AS WELL AS INFORMATION CONTAINED THEREIN, MAY
NOT BE SUPPLIED TO THE PUBLIC IN BRAZIL, NOR BE USED IN CONNECTION WITH ANY
OFFER FOR SUBSCRIPTION OR SALE OF THE NOTES TO THE PUBLIC IN BRAZIL.
_____________________
NOTICE TO NEW HAMPSHIRE RESIDENTS
iv
NOTICE TO INVESTORS
Notwithstanding anything set forth herein or in any other document related to the notes, you and each of your
employees, representatives or other agents may disclose to any and all persons, without limitation of any kind, the
tax treatment and the tax structure of the transaction described herein and all materials of any kind, including any tax
analyses that we have provided to you relating to such tax treatment and tax structure. However, the foregoing does
not constitute an authorization to disclose the identity of the issuer, us or the initial purchasers or their respective
affiliates, agents or advisers or, except to the extent relating to such tax structure or tax treatment, any specific
pricing terms or commercial or financial information.
the foreign court issuing the judgment had jurisdiction in the matter and the judgment debtor either
submitted to such jurisdiction or was resident or carrying on business within such jurisdiction and was duly
served with process;
the judgment given by the foreign court was not in respect of penalties, taxes, fines or similar fiscal or
revenue obligations of the issuer;
in obtaining judgment there was no fraud on the part of the person in whose favor judgment was given, or
on the part of the foreign court;
recognition or enforcement of the judgment in the British Virgin Islands would not be contrary to public
policy;
the proceedings pursuant to which judgment was obtained were not contrary to natural justice; and
the judgment given by the foreign court is not the subject of an appeal.
Any final and conclusive monetary judgment obtained against the issuer in the courts of all countries not
covered by the Reciprocal Enforcement of Judgments Act (Cap. 65) against the issuer based upon the notes under
which a definite sum of money is payable, may be treated by the courts of the British Virgin Islands as a cause of
action in itself so that no retrial of the issues would be necessary provided that in respect of the foreign judgment:
the foreign court issuing the judgment had jurisdiction in the matter and the issuer either submitted to such
jurisdiction or was resident or carrying on business within such jurisdiction and was duly served with
process;
the judgment given by the foreign court was not in respect of penalties, taxes, fines or similar fiscal or
revenue obligations of the issuer;
in obtaining judgment there was no fraud on the part of the person in whose favor judgment was given or
on the part of the court;
recognition or enforcement of the judgment in the British Virgin Islands would not be contrary to public
policy; and
the proceedings pursuant to which judgment was obtained were not contrary to natural justice.
As a company incorporated under the BVI Business Company Act, 2004, most of the issuers assets are located
outside of the United States. In addition, most of the issuers directors and executive officers, as well as other
persons controlling the company, reside or are located outside of the United States. As a result, it may not be
possible for investors to effect service of process within the United States upon us or these persons or to enforce
judgments obtained against us or these persons in the U.S. courts predicated solely upon the civil liability provisions
of the U.S. federal or state securities laws. We have been advised by Maples and Calder, our British Virgin Islands
vi
counsel, that there is doubt as to the enforceability in the British Virgin Islands of original actions of U.S. courts, of
civil liabilities predicated upon the U.S. federal or state securities laws. There is also doubt as to enforceability of
judgments of this nature in several of the jurisdictions in which we operate and our assets are located.
Brazil
The guarantors are organized under the laws of Brazil. Each of our controlling shareholders and executive
officers and certain of our advisors named herein reside in Brazil. Substantially all of our assets and those of these
other persons are located outside the United States. As a result, it may not be possible, or it may be difficult, for
investors to effect service of process within the United States upon such persons or to enforce judgments obtained in
the United States courts against them or us, including those judgments predicated upon the civil liability provisions
of the federal securities laws of the United States.
We have been advised by our Brazilian counsel, Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados,
that judgments of United States courts for civil liabilities based upon the federal securities laws of the United States
may be enforced in Brazil, subject to certain requirements described below. We have been advised by our Brazilian
counsel that a judgment against us or the persons described above obtained outside Brazil would be enforceable in
Brazil without reconsideration of the merits, upon confirmation of that judgment by the Brazilian Superior Court of
Justice. That confirmation will be available if the foreign judgment:
fulfills all formalities required for its enforceability under the laws of the country where the foreign
judgment is granted;
is issued by a competent court after proper service of process on the parties, which service must be in
accordance with Brazilian law if made in Brazil, or after sufficient evidence of the parties absence has
been given, as required under applicable law;
is authenticated by a Brazilian consular office in the country where the foreign judgment is issued and
is accompanied by a sworn translation into Portuguese, and
is not against Brazilian national sovereignty, public policy, good morals or public morality.
Notwithstanding the foregoing, we cannot assure you that confirmation will be obtained, that the process
described above will be conducted in a timely manner or that Brazilian courts will enforce a monetary judgment for
violation of the U.S. securities laws with respect to the notes.
We have also been advised by our Brazilian counsel that:
original actions based on the federal securities laws of the United States may be brought in Brazilian
courts and that, subject to applicable law, Brazilian courts may enforce liabilities in such actions
against us (provided that provisions of the federal securities laws of the United States do not
contravene Brazilian public policy, good morals or national sovereignty and provided further that
Brazilian courts can assert jurisdiction over the particular action); and
the ability of a judgment creditor or the other persons named above to satisfy a judgment by attaching
certain assets of ours in Brazil is governed and limited by provisions of Brazilian law.
A plaintiff, whether Brazilian or non-Brazilian, who resides outside Brazil during the course of litigation in
Brazil must provide a bond to guarantee the payment of the defendants legal fees and court expenses if the plaintiff
owns no real estate in Brazil that could secure that payment, except in the case of collection claims based on an
instrument that may be enforced in Brazilian courts without the review of its merits (ttulo executivo extrajudicial)
or counterclaims as established under Article 836 of the Brazilian Code of Procedure. This bond must have a value
sufficient to satisfy the payment of court fees and the defendants attorney fees, as determined by a Brazilian judge.
vii
This requirement does not apply to the enforcement of foreign judgments which have been duly confirmed by the
Brazilian Superior Court of Justice.
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FORWARD-LOOKING STATEMENTS
This offering memorandum contains certain forward-looking statements. Some of the matters discussed
concerning our business operations and financial performance include forward-looking statements within the
meaning of the Securities Act or the U.S. Exchange Act of 1934, as amended, or the Act.
Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include
words such as expects, anticipates, intends, plans, believes, estimates and similar expressions are
forward-looking statements. Although we believe that these forward-looking statements are based upon reasonable
assumptions, they are subject to several risks and uncertainties and are made in light of information currently
available to us.
Our forward-looking statements may be influenced by factors, including, without limitation, the following:
our ability to complete our construction works and infrastructure projects currently under development;
our ability to win bids for new construction works and infrastructure projects, both in Brazil and
abroad;
our ability to obtain financing upon reasonable interest rates and terms, including financing from the
Brazilian government and multilateral financial institutions for construction works and infrastructure
projects that we undertake;
general economic conditions (including fluctuations of interest rates, inflation and exchange rates of
the real in relation to the U.S. dollar as well as the currencies of other countries in which we operate)
in Brazil and abroad;
political conditions in the markets in which we operate, in Brazil and abroad, and our ability to manage
political risks in these markets;
the performance of fixed-price and other projects, where a failure to meet schedules, cost estimates or
performance targets on a timely basis could result in reduced profit margins or losses;
the outcome of pending or threatened litigation or arbitration proceedings against us, any of our
subsidiaries or any entities we jointly control with third parties;
adverse financial developments that could reduce our available cash or lines of credit, or our inability
to provide adequate cash collateral for letters of credit or satisfy any other bonding requirements from
our customers;
the ability of our clients to timely pay any amounts that they owe to us;
negotiations of claims with our clients of cost and schedule variances and change orders on major
projects;
volatility in the surety bond market relating to the type of projects undertaken by us;
government regulations in the countries in which we operate, including regulations that encourage or
mandate the hiring of local contractors or that require foreign contractors to employ specific numbers
of citizens of, or purchase specific quantities of supplies from, a particular jurisdiction;
natural disasters, severe weather or other force majeure events that may adversely impact our business
and that could cause us to evacuate personnel, curtail our services, reduce productivity or fail to
perform our services in accordance with contract schedules;
other factors discussed under the section entitled Risk Factors in this offering memorandum.
Our forward-looking statements are not guarantees of future performance, and the actual results or
developments may differ materially from the expectations expressed in the forward-looking statements. As for the
forward-looking statements that relate to future financial results and other projections, actual results may be
different due to the inherent uncertainty of estimates, forecasts and projections. Because of these uncertainties,
potential investors should not rely on these forward-looking statements. We undertake no obligation to publicly
update any forward-looking statement, whether as a result of new information, future events or otherwise.
Brazilian Law No. 6,404/76, as amended, which we refer to herein as Brazilian corporate law;
the accounting standards, guidelines and interpretations, issued by the Accounting Pronouncements
Committee (Comit de Pronunciamentos Contbeis), or the CPC, and approved by the Brazilian
Federal Accounting Council (Conselho Federal de Contabilidade), or the CFC.
As we have subsidiaries involved in real estate development activities, our consolidated financial statements are
also prepared in accordance with International Financial Reporting Standards, or IFRS, applicable to real estate
development entities in Brazil, taking into consideration the technical orientation under OCPC 04 Application of
the Technical Interpretation of ICPC 02 to Brazilian Real Estate Development Entities (Aplicao da Interpretao
Tcnica ICPC 02 s Entidadesde Incorporao Imobiliria Brasileiras), issued by the CPC, which differs from
IFRS as issued by the International Accounting Standards Board, or the IASB.
Unless otherwise stated, the financial information included in this offering memorandum is presented on a
consolidated basis, which includes the financial information of OAS S.A. and its subsidiaries.
Our unaudited interim condensed consolidated financial statements as of March 31, 2014 and for the threemonth periods ended March 31, 2014 and 2013, and our audited consolidated financial statements as of and for the
years ended December 31, 2013 and 2012 have been prepared in accordance with Brazilian GAAP and IFRS
applicable to real estate development entities in Brazil.
Brazilian GAAP and IFRS applicable to real estate development entities in Brazil differ in significant respects
from IFRS, as issued by the IASB. Our consolidated financial statements contained in this offering memorandum
differ from those that would be prepared under IFRS, in light of our real estate development subsidiaries, with
respect to the revenue recognition from real estate developments of OAS Empreendimentos S.A., or OAS
Empreendimentos, and its subsidiaries using the percentage of completion method. In the three-month periods
ended March 31, 2014 and 2013 and in the years ended December 31, 2013 and 2012, OAS Empreendimentos
recorded consolidated net revenue of R$74.5 million, R$67.9 million, R$254.2 million and R$509.1 million,
respectively, and represented 4.2%, 4.7%, 3.2% and 8.7% of our consolidated net revenue, respectively. The
calculation of the consolidated revenue of OAS Empreendimentos for the three-month period ended March 31, 2014
and the years ended December 31, 2013 and 2012 takes into consideration our adoption of IFRS 11 (CPC 19 (R2))
as set forth below in Changes in Brazilian GAAP due to its convergence to IFRS. As of March 31, 2014 and
December 31, 2013 and 2012, OAS Empreendimentos consolidated equity totaled R$400.0 million, R$238.0 million
and R$429.5 million, respectively.
We have made no attempt to quantify the impact of those differences. No reconciliation to IFRS for any of the
financial statements presented in this offering memorandum has been prepared for the purpose of this offering of
notes. There can be no assurance that such reconciliations would not identify material quantitative differences as
well as disclosure and presentation differences from the financial statements included in this offering memorandum,
as prepared in accordance with Brazilian GAAP, or IFRS applicable to real estate development entities in Brazil, in
light of our real estate development subsidiaries, and the financial statements as prepared under IFRS. No such
reconciliation is included herein, and investors should consider this in making their investment decision. In making
an investment decision, investors must rely upon their own examination of us, the terms of the offering and the
financial information in this offering memorandum, including the financial statements and the notes thereto,
included elsewhere in this offering memorandum. Potential investors should consult their own professional advisers
for an understanding of the differences between Brazilian GAAP, IFRS applicable, in light of our real estate
development subsidiaries, to real estate development entities in Brazil and IFRS, and how those differences might
affect the financial information herein.
xi
This accounting standard was approved by the CVM in 2012, and converted into the following pronouncement
by the CPC:
The adoption of this pronouncement is mandatory and applicable for annual periods beginning on or after
January 1, 2013, with retrospective application to investments in jointly controlled entities on the date of the initial
adoption. The pronouncement provides that jointly controlled entities must be recorded in our financial statements
pursuant to the equity method. The proportional consolidation of jointly controlled entities, which was allowed
through the year ended December 31, 2012, is no longer permitted.
With the adoption of this new pronouncement in the year ended December 31, 2013, the joint ventures Ecovap
Engenharia e Construes Vale do Paraba Ltda., Fonte Nova Negcios e Participaes S.A., Investimentos e
Participaes em Infraestrutura S.A. INVEPAR, or Invepar, Concessionria Porto Novo S.A., Construtora OAS
LLC (Qatar) and OAS Emirates LLC are no longer proportionally consolidated.
As a result of the adoption of this new pronouncement, our consolidated financial statements as of and for the
year ended December 31, 2012 were restated for comparative purposes, and we have not retroactively applied this
new pronouncement to our historical financial information for the year ended December 31, 2011, which (1) is
therefore not comparable with our financial statements as of March 31, 2014 and for the three-month periods ended
March 31, 2014 and 2013 and as of and for the years ended December 31, 2013 and 2012, and (2) has not been
included elsewhere in this offering memorandum.
For further information regarding changes to our accounting practices, see note 3.1(d) to our audited financial
statements as of and for the years ended December 31, 2013 and 2012 and "Management's Discussion and Analysis
of Financial Condition and Results of OperationsChanges in Accounting Practices."
xii
as described in note 3.1, the unaudited interim condensed individual and consolidated financial statements
were prepared in accordance with Brazilian GAAP (CPC 21 (R1)). The consolidated interim financial
statements of the subsidiary OAS Empreendimentos S.A. were prepared in accordance with IFRS
applicable to real estate development entities in Brazil, taking into consideration the guidance from OCPC
04, issued by the CPC. This technical orientation refers to the revenue recognition of this sector and
comprises other matters related to the meaning and adoption of the concept of continuous transfer of the
risks, benefits and control over real estate unit sales, as further described in note 3.1. The conclusion of our
independent auditors does not contain any modification related to this matter.
The independent auditors report to our audited consolidated financial statements as of and for the years ended
December 31, 2013 and 2012, included elsewhere in this offering memorandum, contains emphasis of matter
paragraphs explaining that:
as described in note 3.1, our individual and consolidated financial statements as of and for the years ended
December 31, 2013 and 2012 were prepared in accordance with Brazilian GAAP. The consolidated
financial statements were prepared in accordance with IFRS applicable to real estate development entities
in Brazil, taking into consideration the guidance from OCPC 04, issued by the CPC. This guidance
establishes the revenue recognition method for the real estate industry and considers matters relating to the
meaning and application of the concept of continuous transfer of risks, rewards and control on sales of units
within real estate developments.
as described in note 3.1(d), as a result of the change in accounting policy we adopted in 2013, the
corresponding amounts as of and for the year ended December 31, 2012, presented for comparison
purposes, were adjusted and were restated as provided for in NBC TG 23 and in the Technical
Pronouncements CPC 23 Accounting Practices, Changes in Accounting Estimates and Errors. The
opinion of our independent auditor does not contain any modification related to this matter.
km are to kilometers;
MW are to megawatts. Megawatts are units of power with one megawatt being equal to one million
watts.
xiv
SUMMARY
This summary highlights information presented in greater detail elsewhere in this offering memorandum. This
summary is not complete and does not contain all the information you should consider before investing in the notes.
You should carefully read this entire offering memorandum before investing, including Risk Factors and our
financial statements. See Presentation of Financial and Other Information for information regarding our
financial statements, exchange rates and other matters.
Overview
We are among the largest and most experienced infrastructure companies in Brazil, focusing our operations on
heavy engineering and equity investments in infrastructure projects for both public and private clients. Since our
incorporation in 1976, we have executed many sizeable infrastructure projects and more than 1,700 large-scale
construction works in Latin America and Africa across a variety of industry sectors. We were ranked the fifth largest
heavy engineering company in Brazil as measured by gross revenues in the July 2013 edition of the Brazilian
magazine O Empreitero and the third largest Brazilian company in the construction industry as measured by net
revenues by the Brazilian magazine Valor Econmico: Valor 1000 in 2013. In 2012, we were also named Latin
America Developer of the Year by Project Finance Magazine.
We divide our operations within two divisions, our heavy engineering division and our investment division:
Our heavy engineering division specializes in the construction of complex construction works. We
maintain a diversified portfolio of construction works in the public and private sector, in Brazil and in
various other Latin American and African countries and across a variety of industries, including
transportation, urban infrastructure, oil and gas, energy, industrial facilities and sanitation, among
others.
Our investment division invests equity in infrastructure projects, which principally include concessions
granted by governmental authorities and projects sponsored by public or private clients as well as
public-private sector partnerships, or PPPs. Having structured and invested in select infrastructure
projects originated within our heavy engineering division since 1994, through our investment division
we directly and indirectly hold equity interests in and direct the operation of highway, subway,
sanitation, airport and sports arenas concessions, among others.
We seek to capitalize on the synergies between our heavy engineering and investment divisions by
participating, when advantageous, in each stage of the infrastructure value chain through the origination, structuring,
development, investment in and operation of infrastructure projects, generating equity investment opportunities for
our investment division and construction works for our heavy engineering division. This strategy enables us to
capture the margins generated by our heavy engineering services and participate in a projects return on investment
through our equity interest in the project.
Our consolidated net revenue grew at a compound annual growth rate, or CAGR, of 36% over the two-year
period ended December 31, 2013, from R$5,825.8 million (U.S.$2,574.4 million) in 2012 to R$7,926.8 million
(U.S.$3,502.8 million) in 2013.
As set forth in the table below, we have a significant and diversified backlog:
As of
March 31,
2014
Backlog (1) (millions of reais) .................................................................
Number of construction works comprising backlog .............................
Backlog by industry sector (percentage of backlog in reais)
Transportation ........................................................................................
Urban Infrastructure ..............................................................................
Energy ....................................................................................................
Buildings ................................................................................................
Oil and Gas ............................................................................................
2013
As of December 31,
2012
2011
2010
20,219
105
19,403
101
18,237
111
18,038
127
12,097
117
47%
21%
9%
9%
9%
53%
14%
11%
8%
9%
52%
16%
9%
7%
5%
37%
18%
11%
10%
10%
38%
14%
3%
10%
19%
As of
As of December 31,
March 31,
2013
2012
2011
2010
2014
Industrial Complexes .............................................................................
0%
0%
3%
7%
6%
Sanitation ...............................................................................................
5%
5%
4%
2%
3%
Other ......................................................................................................
0%
0%
4%
5%
7%
Backlog by client type (percentage of backlog in reais)
Public sector...........................................................................................
50%
54%
49%
47%
51%
Private sector .........................................................................................
50%
46%
51%
53%
49%
Backlog by geography (percentage of backlog in reais)
Brazil ......................................................................................................
66%
70%
74%
79%
84%
International ...........................................................................................
34%
30%
26%
21%
16%
___________________________________
(1) We define backlog as the total balance of payments under contracts that we have executed or are executing for a particular project and for
which an identified source of funding exists, but that has not yet been recognized as revenue by us.
Beginning in 2005, we have focused on our international expansion and have steadily increased our
participation in construction works located outside Brazil in our backlog from 3% as of December 31, 2007 to 34%
as of March 31, 2014. We are focused on expanding our operations in developing countries in Latin America and
Africa, given the projected higher margins for construction works in these countries. We have established a
presence in 19 countries and have been awarded construction works in 10 Latin American countries outside of
Brazil (Argentina, Bolivia, Chile, Colombia, Costa Rica, Ecuador, Honduras, Peru, Trinidad and Tobago and
Uruguay) and in five African countries (Angola, Equatorial Guinea, Ghana, Guinea and Mozambique). In 2013, we
initiated operations in Ghana and Honduras, which as of December 31, 2013 accounted for R$468.5 million
(U.S.$207.0 million) and R$257.6 million (U.S.$113.8 million) of our aggregate backlog, respectively.
The illustrations below show our geographic footprint:
______________________________
Countries in which we have executed contracts.
Countries in which we have a presence but have not executed contracts.
We have also succeeded in expanding our backlog in the midst of a challenging economic environment, with
our heavy engineering division having been awarded 20 new construction works in 2012 that accounted for R$5.6
billion (U.S.$2.5 billion) of our backlog as of December 31, 2012, and 23 new construction works in 2013 that
accounted for R$6.1 billion (U.S.$2.7 billion) of our backlog as of December 31, 2013. In the three-month period
2
ended March 31, 2014, we were awarded 8 new construction works that accounted for R$2.2 billion (U.S.$1.0
billion) of our backlog as of that date. In 2013, construction works awarded to us, individually or with strategic
partners, included (1) lots 2 and 3 of the Rodoanel Norte ring road in the State of So Paulo, (2) affordable housing
developments in Ghana, (3) a residential complex in the city of Rio de Janeiro, known as Porto 2016, to be
developed in connection with the Olympic games scheduled to take place in Rio de Janeiro in 2016, (4) urban access
roads in the city of Dabompa in Guinea, (5) a liquefied natural gas, or LNG, terminal in Uruguay, (6) the provision
of logistics services, materials and equipment for the construction of the Angra 3 nuclear plant in Angra dos Reis in
the State of Rio de Janeiro and (7) a 50 km two-lane road between Villa de San Antonio and Goascorn in
Honduras, among others. In the three-month period ended March 31, 2014, and through the date of this offering
memorandum, construction works awarded to us in Brazil, individually or with strategic partners, include (1) a 12.9
km roadway connecting the BR 324 highway to Luis Viana Filho Avenue and Otavio Mangabeira Avenue in the
city of Salvador in the State of Bahia, (2) an industrial treatment plant and cooling towers at the Abreu e Lima
Refinery in the city of Suape in the State of Pernanbuco, (3) the Mina Gerais State Radio and Television Center and
(4) the extension of the Avenida Lauro Gomes roadway in the city of Sao Bernardo do Campo in the State of So
Paulo. Construction works awarded to us outside of Brazil, individually or with strategic partners, during the threemonth period ended March 31, 2014 include (1) a suspension bridge connecting the Republic of Chile with Chiloe
Island, in the Chilean Lakes region, (2) the Lima Convention Center in Peru, scheduled to hold forums hosted by the
World Bank and the International Monetary Fund, or IMF, in 2015, and (3) a pipeline project in Montevideo,
Uruguay, connecting a liquefied petroleum gas terminal located in Punta de Sayago with an existing duct system in
the region.
Our investment division contributed 16 construction works to our backlog in 2012 corresponding to R$6,621
million (U.S.$2,926 million) of our backlog as of December 31, 2012; compared to 15 construction works in 2013
corresponding to R$5,784 million (U.S.$2,556 million) as of December 31, 2013. In the three-month period ended
March 31, 2014, our investment division contributed 16 construction works to our backlog corresponding to R$5.3
billion (U.S.$2.3 billion) of our backlog as of that date.
Market Opportunity
In Brazil, we believe we are positioned to benefit from the anticipated long-term Brazilian economic
environment and the need for large-scale infrastructure investments, particularly as a result of:
the Brazilian governments Program for Economic Growth Acceleration (Programa de Acelerao do
Crescimento), or the PAC Program, an investment program that was launched in January 2007 by the
Brazilian government aimed at improving the countrys infrastructure and is projected to invest
R$1,586 billion (U.S.$700.8 million) in infrastructure projects beginning in 2011;
the anticipated increase in financing for infrastructure projects by Brazilian governmental agencies,
including as a result of the approval of Provisory Measure (Medida Provisria) 628/2013, converted
into Law No. 12,979 in May 2014, pursuant to which the Brazilian government authorized BNDES to
invest R$24.0 billion in Brazilian infrastructure. Studies prepared by BNDES indicate that
infrastructure investments during the period from 2014 to 2017 will total approximately R$509.7
billion, an increase of 36.2% over infrastructure investments during the period from 2009 to 2012. It is
anticipated that transportation and logistics investments will account for approximately 32.0% of
infrastructure investments from 2014 to 2017 according to these studies;
Brazilian Law No. 12,431 enacted to incentivize private domestic and international funding of strategic
infrastructure projects in Brazil through tax exemptions;
3
the Olympic games scheduled to take place in the city of Rio de Janeiro in 2016; and
recent major discoveries of oil and natural gas potential offshore reserves in Brazil, recognized as some
of the largest in the world, and the related investments required in the Brazilian oil and gas industry to
develop and market these reserves, such as the construction of shipyards for offshore oil rigs and other
vessels and oil refineries. Expected investments include those resulting from Petrleo Brasileiro
S.A.s, or Petrobras, 2014 2018 business plan, approved in February 2014, that contemplates total
investments of U.S.$220.0 billion, including U.S.$153.9 billion for oil and gas exploration and
production (of which 73% is anticipated to be allocated to oil and gas production, 15% to oil and gas
exploration and 12% to oil and gas infrastructure).
We believe that efforts to improve infrastructure in developing countries throughout Latin America and Africa
present us with unique opportunities to leverage our proven experience in providing customized and innovative
engineering for complex, large-scale construction works and infrastructure projects. The Brazilian government
offers export financing for construction and engineering services related to projects undertaken in Latin America and
Africa, which we use as an important source of funding for our projects located in these countries, together with
support from multilateral financial institutions, including Corporacin Andina de Fomento, or CAF, and the
Interamerican Development Bank, or the IADB. We believe that the higher margins we may earn from projects in
certain of these countries compensate us for the related political risks to which we are subjected.
Financial highlights
The table below sets forth our financial highlights for the periods indicated:
As of and for the
Three-Month
Periods Ended March 31,
2014
2014
2013
(Unaudited)
(in millions of
U.S.$, except
(in millions of reais, except
percentages)(1)
percentages)
Consolidated Financial Information
Net revenue ...............................................
Total assets ...............................................
Total equity ...............................................
Other Financial Information
and Selected Ratios
EBITDA (3) ..............................................
EBITDA margin (4) .................................
Net debt (5) ...............................................
785.0
6,456.3
934.8
1,776.4
14,610.5
2,115.4
1,449.6
10,015.1
1,082.2
3,502.8
5,995.1
526.3
7,926.8
13,567.0
1,191.1
5,825.8
9,667.9
1,099.0
556.8
70.9%
2,198.9
1,260.0
70.9%
4,976.0
101.5
7.0%
3,604.0
307.0
8.8%
2,284.8
694.8
8.8%
5,170.5
922.2
15.8%
2,307.3
___________________________
(1) Solely for the convenience of the reader, Brazilian real amounts for the three-month period ended March 31, 2014 and the year ended
December 31, 2013 have been translated into U.S. dollars at the commercial selling rate as of March 31, 2014, of R$2.2630 per U.S.$1.00.
These translations should not be considered representations that any such amounts have been, could have been or could be converted into
U.S. dollars at that or at any other exchange rate. See Exchange Rates for further information about recent fluctuations in exchange rates.
(2) We have adopted CPC 19 (R2) as from January 1, 2013 and restated our consolidated financial statements as of and for the year ended
December 31, 2012 for comparative purposes. See "Management's Discussion and Analysis of Financial Condition and Results of
OperationsChanges in Accounting Practices."
(3) EBITDA means net income (loss) plus financial income (expenses) net, plus income tax and social contribution plus depreciation and
amortization. EBITDA is not an IFRS or Brazilian GAAP measure, does not represent cash flow for the years or periods indicated and
should not be considered an alternative to net income (loss), as an indicator of our performance or as an alternative to cash flow as a source
of liquidity. Our definition of EBITDA may not be comparable with EBITDA as defined by other companies. Our management considers
EBITDA, notwithstanding the limitations previously mentioned, and in conjunction with other accounting and financial information
available, a reasonable indicator for comparisons between us and our principal competitors in the market. For a reconciliation from our net
income (loss) to EBITDA, see Summary Financial Information and Other Information or Selected Financial Data and Other
Information.
(4) EBITDA margin means EBITDA divided by net revenues, expressed as a percentage.
(5) Net debt means current and non-current loans and financing, debentures and senior and perpetual notes, less cash and cash equivalents and
short-term investments and marketable securities.
Our Operations
Our heavy engineering division specializes in the construction of complex construction works across a variety
of industries, including transportation, urban infrastructure, oil and gas, energy, industrial facilities and sanitation,
among others. Our investment division invests in infrastructure projects, which principally include concessions
granted by governmental authorities and projects sponsored by public or private clients as well as PPPs.
We seek to capitalize on the synergies created by the experience and expertise of our professionals in our heavy
engineering and investment divisions. To originate new projects, our investment and heavy engineering
professionals work together to source and analyze opportunities that may develop into infrastructure projects,
including construction works for our heavy engineering division. Our investment and heavy engineering divisions
work in collaboration to evaluate these opportunities, discuss them with clients and prepare bids. This process is
undertaken within a well-defined and rigorous corporate governance structure in which professionals from each
division participate in approval committees. For infrastructure projects in which we invest, our investment division
professionals work with our heavy engineering professionals to determine whether a given project is projected to
provide a satisfactory rate of return on our investment, to structure the project and to negotiate documentation with
our strategic partners for the project.
Heavy Engineering Division
We provide our clients with customized heavy engineering services for a diversified range of complex, largescale construction works within a variety of industries, such as transportation (particularly highways, subway lines
and airports), urban infrastructure (including sanitation projects), oil and gas (including shipyards), energy
(principally hydroelectric plants and dams), retail buildings (principally malls and supermarkets) and sports arenas,
in addition to the development of industrial projects (such as industrial complexes and water facilities). In 2013, our
heavy engineering division accounted for 84.7%, or R$7,522.7 million (U.S.$3,324.2 million), of our consolidated
gross revenue, while in the three-month period ended March 31, 2014, our heavy engineering division accounted for
91.9%, or R$1,813.2 million (U.S.$801.2 million), of our consolidated gross revenue. In addition to originating its
own portfolio of construction works, our heavy engineering division also benefits from opportunities arising through
the origination of infrastructure projects by our investment division, which originated 26%, or R$5,293 billion
(U.S.$2,339 billion), of our aggregate backlog as of March 31, 2014.
Our private sector clients within our heavy engineering division include Invepar, in which we hold a 24.4%
equity interest, as well as large domestic and multinational companies, such as Vale S.A., or Vale, Petrobras,
CEMIG S.A., Carrefour Comrcio e Indstria Ltda. and Walmart Brasil Ltda., among others. Our public sector
clients include the So Paulo state government-owned transportation company, Companhia Paulista de Trens
Metropolitanos, or CPTM, the Brazilian government-owned logistics company Valec - Engenharia, Construes e
Ferrovias S.A., or Valec, the Peruvian ministry of transportation, the Brazilian Federal Government, as well as the
governments of the State of So Paulo and Rio de Janeiro. Our heavy engineering clients also include PPPs and
concession sponsors, which have become increasingly important participants in infrastructure development. We
have benefited from participation by our investment division in PPPs and concessions, which contract our heavy
engineering division as the heavy engineering service provider given its proven track record in successfully
completing both publicly and privately sponsored infrastructure projects.
In over 36 years of operation, we have been involved in the development of over 13 million m2 of construction
(including 192 industrial units), 4,600 km of highways and 33,000 km of pipelines, having participated in
groundbreaking construction works such as:
the Linha Amarela highway measuring 19 km in the State of Rio de Janeiro, the first private urban
road concession in Brazil;
the Joo Havelange Olympic stadium in the State of Rio de Janeiro, with a seating capacity of 45,000
sporting seats;
the GLP Urucu-Coari Duct in the State of Amazonas in 2009, a project comprising a 280 km pipeline
extension in the middle of the Amazon rainforest for Petrobras;
5
the Henrique Lage Refinery in the State of So Paulo in 2009, a project encompassing the expansion
and modernization of one of the largest refineries in Brazil for Petrobras;
the So Paulo City Subway Line 4 in the State of So Paulo, measuring 12.8 km underground;
the Rio Polmeros gas chemical complex in the State of Rio de Janeiro;
the Estreito hydroelectric plant in the State of Maranho and Tocantins, with a processing capacity of
1,087 MW;
the Estaiada Octavio Frias de Oliveira bridge in the State of So Paulo, with an area of 20,000 m and
at a mast height of 138 m; and
the Via Parque Rimac urban toll road in the Republic of Peru measuring 23.5 km.
Through our heavy engineering division, we offer our clients customized and innovative solutions for each
project type, taking into account the particular specifications of the projects location and its inherent complexity in
order to satisfy our clients. We believe that our operations in this division benefit from a variety of factors,
including our proven expertise, our clients confidence in our execution capability, the quality of our construction
works and our ability to offer project equipment on a large scale.
In order to maximize our ability to win competitive bids for construction works, we enter into partnerships
structured as consortia with leading companies to complement our capabilities and resources. Our strategic
operational partners include leading companies with proven track records such as Construtora Noberto Odebrecht
S.A., or Odebrecht, Bombardier, Inc., or Bombardier, and the Toyo Engineering Corporation, or Toyo.
Investment Division
Within our investment division, we structure and invest equity in infrastructure projects, seeking to contract our
heavy engineering division to provide engineering services for these projects in order to leverage its successful track
record of executing complex construction works (thereby reducing risks associated with project delays and quality)
and our leading positioning in Latin America. Our investment division (1) identifies, working together with our
heavy engineering division, infrastructure opportunities, coordinating the presentation of the bid to the project
sponsors and managing the bidding process, (2) participates in the structuring of the investment to be made by the
project sponsors, including the contribution of equity by us and our partners, as well as obtaining any necessary debt
financing and (3) directs the operation of the project. In 2013, our investment division accounted for 15.3%, or
R$1,354.4 million (U.S.$598.5 million), of our consolidated gross revenue, while in the three-month period ended
March 31, 2014, our investment division accounted for 8.1%, or R$160.1 million (U.S.$70.8 million), of our
consolidated gross revenue.
We invest directly and indirectly in joint ventures when we deem them beneficial on a case-by-case basis,
taking into account legal, tax and risk management considerations as well as the specific bidding requirements for a
particular infrastructure project. We invest together with strategic partners in order to aggregate financial resources
with well-capitalized partners, a strategy that we believe is an important risk management tool that enables us to
reduce our financial exposure to select projects and establish project companies that are financially independent
from us.
Our strategic partners in select infrastructure projects include (1) the three largest Brazilian pension funds
(Caixa de Previdncia dos Funcionrios do Banco do Brasil, or Previ, Fundao Petrobras de Seguridade Social, or
Petros, and Fundao dos Economirios Federais, or Funcef), through our joint venture vehicle Invepar, (2)
prominent Brazilian investment funds (such as the Fundo de Garantia do Tempo de Servio, or FGTS, a Brazilian
fund administered by one of the largest public banks in Latin America, and Caixa Econmica Federal), (3)
international investment funds (such as GID Investment Advisors LLC, or GID, a multi-family real estate asset
manager of the California Public Employees Retirement System, or CalPERS, and the California State Teachers
Retirement System, or CalSTRS), (4) the operating companies for which we develop infrastructure projects
(including Centrais Eltricas Brasileiras S.A., or Eletrobras, and Furnas Centrais Eltricas S.A., or Furnas) and
conglomerates such as Odebrecht, the Hyundai Group and Kawasaki Heavy Industries, Ltd., or Kawasaki.
6
Once an infrastructure project is operational, our investment division professionals direct the project companys
performance to drive growth, enhance profitability and optimize long-term value for project stakeholders. Our
investment professionals work closely with our project teams to define strategic priorities and develop operating
budgets and encourage our partners to invest for future competitiveness, improve operating efficiencies and make
strategic improvements. We establish clear monitoring guidelines to measure a projects performance and
frequently meet with project teams to review the project's financial and operating results and strategic priorities.
Our investment professionals and project managers meet with our senior management committee at regular intervals
to report on their progress and to address potential areas of concern and their proposed solutions.
In addition to entering into and operating our investment projects, we evaluate eventual opportunities to divest
our investments, in part or fully, consistent with market conditions and our strategic objectives. We utilize the
proceeds from divestments to both fund current and future infrastructure projects and to increase our liquidity.
Our long-term infrastructure projects include: (1) highway, subway and airport concessions in Brazil and abroad
through Invepar; (2) three sports arenas concessions (Arena Porto Alegrense in the State of Rio Grande do Sul,
Arena das Dunas in the State of Rio Grande do Norte, and Arena Fonte Nova in the State of Bahia); (3) the Enseada
Paraguau shipyard in the State of Bahia; (4) an urban infrastructure concession (Porto Novo) in the State of Rio de
Janeiro; (5) the Saneamento de Araatuba Ltda., or Samar, the sanitation concession in the State of So Paulo; (6) an
oil and gas project in the State of Rio de Janeiro; and (7) the guas Peruanas aqueduct concession in Peru.
We execute our investments in the oil and gas sector through our wholly-owned subsidiary OAS leo e Gs
S.A., or OAS leo e Gs. As of the date of this offering memorandum, OAS leo e Gs indirectly holds interests in
long-term charter and services agreements with Petrobras for the construction, chartering, operation, and
maintenance of five ultra-deepwater drilling rigs, which we, together with our strategic partners (Sete Brasil
Participaes S.A., or Sete Brasil, and Etesco Construes e Comrcio Ltda., or Etesco), were awarded following a
competitive bidding process. OAS leo e Gs, Etesco leo e Gs Ltda., or Etesco leo e Gs (an affiliate of
Etesco), and Piemonte Participaes e Investimentos Ltda., or Piemonte, each hold up to a twenty-five percent
(25%) equity interest in each charter project company, as an operator shareholder. The rigs will be built in two
Brazilian shipyards, Rio Grande 2 and Enseada do Paraguau shipyards in the States of Rio Grande do Sul and
Bahia, respectively, and will be operated by Atlas Servios de Perfurao Ltda., a Brazilian joint venture company
formed by Etesco leo e Gs, OAS leo e Gs, and Piemonte.
Invepar
Through Invepar, we together with Previ, Petros and Funcef (Brazils three largest pension funds with which we
have exclusivity for highway, airport and subway infrastructure projects) have long-term concessions for the
structuring and operation of infrastructure projects, such as: (1) toll roads, including the Linha Amarela urban
highway in the State of Rio de Janeiro and the Raposo Tavares highway in the State of So Paulo, and the Via
Parque Rimac urban highway in Lima, Peru, among others; (2) subway lines in the city of Rio de Janeiro (Metr
Rio); (3) an airport terminal at Guarulhos International Airport in the State of So Paulo, the airport with the greatest
number of passengers (30 million per year) in Latin America; and (4) the BR- 040 highway concession connecting
the Federal District of Brasilia, the State of Gois and the city of Juiz de Fora in the State of Minas Gerais.
As of the date of this offering memorandum, of the 19 infrastructure projects that comprise our and Invepars
infrastructure project portfolio of investments, three were pre-operational, and we anticipate that one of these
infrastructure projects will be operational by 2016.
We have invested in the following infrastructure projects pursuant to long-term concessions, which generally
have higher margins and more stable cash flows, allowing us to help to mitigate the effects of downturns in our
heavy engineering business:
Time
Time Elapsed
Remaining
Under
Under
Concessions
Concessions
(in years)
Investments
Sports Arenas
Porto Alegrense ............................................................................................................
Fonte Nova....................................................................................................................
Dunas ............................................................................................................................
Urban Infrastructure and Real Estate
Porto Novo ....................................................................................................................
guas Peruanas.............................................................................................................
PPP Guarulhos ..............................................................................................................
Samar ............................................................................................................................
OAS Empreendimentos(1) ...........................................................................................
Oil and Gas
Enseada Paraguau Shipyard(2) ...................................................................................
OAS leo e Gs S.A.(3)...............................................................................................
Status
1
4
3
19
31
17
Operational
Operational
Operational
3
4
0
1
NA
12
14
30
29
NA
Operational
Operational
Operational
Operational
Operational
N/A
N/A
N/A
N/A
Operational
Pre-operational
We generally seek to finance a portion of our investments through project financings extended on the basis of,
and with recourse to, a projects projected cash flow. Project financings generally permit us to limit our credit risk
given that they are structured with limited or no recourse to the shareholders of the project company. In addition,
we enter into equity support agreements, or ESAs, that generally (1) require us to contribute amounts to the project
company that may be necessary to pay for the completion of the construction of the project, (2) continue during the
projects construction period or until such time as the project company begins to generate operating cash flow, (3)
do not guarantee the indebtedness of the project company and (4) permit us to limit our obligations, including
exclusions for certain events outside of our control, such as force majeure.
We do not currently anticipate that we will be required to invest additional equity in Invepar in order for
Invepar to fulfill its current capital expenditure requirements.
We believe that our continued diversification is essential to reducing any dependency on a single client or group
of clients as well as creating new opportunities for growth through increased cross-selling and networking
opportunities.
Proven ability to capitalize on synergies deriving from our heavy engineering and investment divisions
We believe that our business model, comprising our heavy engineering and investment divisions, enables us to
take full advantage of the opportunities presented by complex, large-scale construction works and infrastructure
projects. As demonstrated by our portfolio of investments as well as completed and ongoing construction works, we
have successfully capitalized on the synergies created by our heavy engineering and investment divisions through
the selection of Construtora OAS as the provider of the construction and engineering services for concessions and
large-scale infrastructure projects in which we have invested equity through our investment division. Our business
model allows us to not only diversify our revenue, but also enables us to identify and capitalize on cross-selling
opportunities. We believe the success of our business model is demonstrated by (1) the fact that our heavy
engineering division has successfully executed, or is currently executing, each of the infrastructure projects
structured by our investment division and (2) the long term partnerships we have fostered with our strategic
investment partners, including Previ, Petros and Funcef, the three largest pension funds in Brazil.
Favorable prospects for government-sponsored infrastructure development in Brazil, Latin America and Africa
As a leader in Brazils infrastructure development sector, we believe that we are well positioned to take
advantage of the increased support from the Brazilian federal government in infrastructure development as a result
of new and substantial highway and railway concession investments, the PAC Program, investments in the Brazilian
oil and gas industry (particularly in relation to exploration of offshore pre-salt areas) and the 2016 Olympic games in
the city of Rio de Janeiro. For example, we are currently participating in the investment and construction of Porto
Novo in the City of Rio de Janeiro as part of a revitalization and redevelopment plan for the surrounding region,
and we participated in construction relating to the expansion and improvement of Guarulhos International Airport,
including with respect to preparations for the 2014 World Cup and 2016 Olympic Games, two stadiums being used
in the 2014 World Cup (Arena das Dunas in the State of Rio Grande do Norte, and Arena Fonte Nova in the State of
Bahia) as well as the Joo Havelange Olympic stadium in the city of Rio de Janeiro, the principal stadium used in
the Pan American Games in 2007.
We also believe we are uniquely positioned to take advantage of (1) recent measures announced by the
Brazilian government to stimulate the economy through large-scale investments in infrastructure, including an
infrastructure investment plan for Brazilian highways and railways announced by the Brazilian government in
August 2012 and totaling R$133.0 billion (U.S.$58.8 billion) over the next 25 years and (2) increased financing for
infrastructure projects by Brazilian governmental entities, such as BNDES.
Furthermore, we believe that our proven experience of providing customized and innovative financial and
engineering solutions for the most complex large-scale construction works and infrastructure projects in Brazil
provides us with a competitive advantage in capitalizing on the efforts to improve national infrastructure in
developing countries in other Latin American countries and in Africa. Evidence of our ability to capitalize on these
efforts includes our ongoing development of the guas Peruanas aqueduct and Via Parque Rimac urban highway in
Peru and our construction of the So Fernando highway in Trinidad and Tobago.
Proven ability to enter into successful strategic partnerships
As part of our business model, we have established solid relationships with several strategic partners that enable
us to identify and invest in large-scale infrastructure projects through our investment division and execute the
projects awarded to our heavy engineering division. Our association with strategic investment partners in select
infrastructure projects, which include Previ, Petros and Funcef (Brazils three largest pension funds with which we
have exclusivity for transportation infrastructure projects through Invepar), FGTS, Kawasaki, GID, Eletrobras and
Furnas, is an important risk management tool that enables us to reduce our financial exposure to select projects and
establish project companies that are financially independent from us. Our strategic operational partners in select
construction works and infrastructure projects, which include Odebrecht, Bombardier and Toyo, allow us to
aggregate our expertise, technical capabilities and resources with those of other established and experienced market
10
participants in order to win bids for complex, large-scale infrastructure projects that require the participation of a
consortium for execution.
In addition, we believe that our strategic investment and operational partnerships aid us in identifying new
business opportunities as our strategic partners for any particular project look to partner with us in future
infrastructure projects.
Proven ability to successfully develop innovative construction works and infrastructure projects that meet our
clients demands
We have the proven ability to develop innovative construction works and infrastructure projects that meet our
clients demands. Examples of our participation in innovative and groundbreaking engineering solutions include:
the Linha Amarela highway concession in the State of Rio de Janeiro, the first private urban road
concession in Brazil, measuring 19 km;
the So Paulo City Subway Line 4 in the State of So Paulo in 2010, measuring 12.8 km, which we
believe to be one of the most modern subway lines in the world;
the Henrique Lage Refinery in the State of So Paulo in 2009, a project encompassing the expansion
and modernization of one of the largest refineries in Brazil for Petrobras;
the GLP Urucu-Coari Duct in the State of Amazonas in 2009, a project comprising a 280 km pipeline
extension in the middle of the Amazon rainforest for Petrobras; and
the Octavio Frias de Oliveira Cable-Stayed Bridge in 2008 in the State of So Paulo, the only cablestayed bridge in the world consisting of two curve tracks connected to the same mast.
Our clients satisfaction is confirmed by the various accolades we have received, including (1) our second place
ranking for innovation and quality in heavy engineering in Brazil by the magazine Isto Dinheiro in August 2012,
(2) our first place ranking for Latin America Water Deal of the Year 2010 for the guas Peruanas aqueduct in
Peru awarded by the publication Project Finance Magazine (Euromoney) and (3) Construtora OAS prize for the
2012 Green Company Award from poca magazine for its commitment to environmentally-conscious practices
with respect to climate change, including monitoring its impact on biodiversity, usage of renewable raw materials,
water consumption, waste disposal and energy efficiency. Moreover, since our incorporation, none of our clients
has executed a performance guarantee against us for the underperformance of a construction work or concession.
Experienced and professional management team with strong entrepreneurial culture
Our management and our technical teams have an extensive understanding of our business and industry both in
Brazil and in the international area, are highly qualified and have a strong track record of executing investments,
developing construction works and satisfying exacting client demands. Our executives have an average of 27 years
of experience (with the management of Construtora OAS having an average of 28 years of experience within the
heavy engineering industry) and an average of 21 years within our company, with extensive experience servicing a
variety of clients, including federal, state and municipal authorities as well as large Brazilian and international
corporations. Moreover, our engineering and technical teams are experienced in designing, developing and
executing a variety of complex large-scale construction works, including refineries, hospitals, bridges, subways,
railways, highways, sports arenas and hydroelectric plants. We believe that the technical capabilities of our
professionals as demonstrated through the success of and our clients satisfaction with our construction works will
increase our ability to introduce innovative solutions within the markets in which we operate and attract and
maintain clients.
In addition, we have developed a corporate culture based upon professional development, meritocracy,
autonomy and transparency. We have a proven track record of incentivizing our employees through participation in
our results, training and career development opportunities. We believe that these measures promote loyalty,
commitment and motivation, reducing our employee turnover and strengthening the sustainability of our operations.
11
Our Strategy
Our results of operations are driven by the successful execution of our business plan, reflecting strong organic
growth, the development of new construction works, entry into new markets and investments in new concessions.
To further our growth, we intend to pursue to following strategies:
Continue to expand our focus on providing customized solutions for complex, large-scale engineering
construction works for leading companies across a variety of industry sectors
Complex and large-scale construction works, such as refineries, hydroelectric plants and transportation
construction works (including highways, subways and airports), face development obstacles that may be overcome
through efficient, customized and differentiated engineering solutions, which we have a proven history of providing
and upon which we may capitalize to increase our market share. To this end, we intend to continue to seek
opportunities to provide our customized and differentiated services on complex, large-scale construction works,
across a wide array of client sectors. Essential to this strategy will be our continued efforts to (1) create synergies
between our heavy engineering and investment divisions and (2) expand our client relationships by providing our
services across a variety of any individual clients business.
Capture growth opportunities in Brazil created by the Brazilian governments infrastructure promotion policies
We intend to further expand our heavy engineering business in Brazil, where we have amassed a successful
track record of completing complex, large-scale construction works and infrastructure projects throughout the
country. In particular, we intend to capitalize on increased spending by the Brazilian government to develop
Brazilian infrastructure through recently announced highway and railway concession investments, the PAC Program
investments in the Brazilian oil and gas industry, particularly the Brazilian pre-salt layer, as well as investments in
anticipation of the 2016 Olympic games to be held in Brazil.
Continue our geographical diversification outside of Brazil
To further diversify our revenue and increase our margins, we intend to leverage our successful track record and
current relationships to further diversify our operations into Latin America and Africa. In particular, we intend to
increase our market share in Latin American and African countries with excellent growth potential and
underdeveloped infrastructure. We also intend to focus our geographical diversification in countries in these
continents that have strong political relationships with the Brazilian government, including Angola and Mozambique
in Africa and members of the Mercosul (Mercado Comum do Sul) common market in Latin America, as we believe
that efforts to establish operation in these countries should benefit from existing trade relationships and close
governmental ties. In connection with this strategy, we intend to identify strategic local partners and clients with
long-term business development potential. To this end, we have established a presence in 19 countries in Latin
America and Africa staffed by professionals with the objective of building local relationships and expanding our
opportunities in each of these countries.
Continue to optimize the synergies between our heavy engineering and investment divisions
We intend to continue to identify opportunities to capitalize on the synergies between our heavy engineering
and investment divisions by actively seeking to invest in infrastructure projects through our investment division for
which our heavy engineering division may provide construction services. To execute this strategy, we have
developed a collaborative origination process in which our investment and heavy engineering professionals work
together to source and analyze infrastructure projects, prepare bids and identify strategic investment and operating
partners. Moreover, our investment professionals have a broad understanding of the technical capabilities and
strengths of our heavy engineering division in order to successfully cross-sell our construction services and
expertise, while working to maximize our return on investment.
Identify and execute new strategic partnerships
In order to further develop our growth objectives and reduce our financial and operational risk, we intend to
identify and enter into relationships with new strategic partners within both our heavy engineering and investment
divisions. We intend to continue to partner with well-established domestic and international companies with which
12
we may form joint ventures to win concessions and bids for complex, large-scale infrastructure projects, which we
believe is an important risk management tool that enables us to reduce our financial exposure to select projects and
establish project companies that are financially independent from us. Partnering also enhances our reputation for
excellence and innovation as well as our proven history in completing successful infrastructure projects. Within our
investment division, we will continue to identify well-capitalized financial partners, as an important risk
management tool that enables us to reduce our financial exposure to select projects and establish project companies
that are financially independent from us.
Manage the political risks associated with our international operations
We will continue to manage the political risks inherent in operating in countries outside Brazil, such as Angola,
Mozambique, Ecuador and Equatorial Guinea, among others. In particular, where we deem advantageous, we will
continue to bid on and execute infrastructure projects that are funded under Brazilian trade credit or multilateral
agency credit facilities. The Brazilian government offers export financing for the export of construction and
engineering services related to projects undertaken in Latin America and Africa, which are available to Brazilian
companies and are an important source of funding for our projects located in these countries, together with support
from multilateral financial institutions, including CAF and the IADB. We believe that the higher margins we may
earn from projects in these countries compensate us for the related political risks to which we are subject as a result.
We will also continue to mitigate political risks by continuing to develop our experience and knowledge of
international markets, by entering into joint ventures with locally-based companies and by using local
subcontractors, suppliers and labor. Our partnerships with local entities assist us in integrating our operations into
the communities in which we operate.
Moreover, we will continue to (1) endeavor to establish long-term operations in countries in which we seek to
operate and (2) identify appropriate project opportunities that meet our rigorous risk management criteria. We
believe that our involvement in high visibility projects that are important to a countrys economy and development,
have earned us goodwill with the governments of these countries and further reduces the political risks associated
with our international operations. While certain other construction companies may avoid operating in some of the
countries in which we are active, we believe that our experience in these countries, our diversification and our
extensive contract risk assessment and risk sharing with other project participants allow us to effectively manage the
political risks presented by construction projects in these countries.
Our risk management strategy will continue to include a comprehensive portfolio of insurance policies. As of
March 31, 2014, our insurance coverage, which protects us against construction and operational risks, at 100% of
the value at risk, totaled R$28.1 billion (U.S.$12.4 billion). Moreover, as of March 31, 2014, our surety bond
coverage, which ensures execution and performance of construction works, totaled R$3.3 billion (U.S.$1.5 billion).
To further reduce the risks associated with our international operations, we will continue to seek to receive
downpayments ranging from 10% to 20% of the contract amount upon the execution of a project contract with
clients outside of Brazil. As of March 31, 2014, we held R$188.3 million (U.S.$83.2 million) in short-term
advances from clients, and R$390.5 million (U.S.$172.6 million) in long-term advances from clients.
We will also continue to evaluate the profitability of our international markets and projects in order to exit those
markets and projects that do not meet our long-term objectives.
Invest in technology, project management and human resources
As a provider of specialized heavy engineering services, we believe that investing in technology, processes,
internal controls, control systems and personnel is fundamental to our ability to offer more complex and secure
services, reduce costs, increase efficiency and competitiveness and maintain our leadership position in the market.
We aim to continue our corporate policy of investing in technology and project management processes in order to
continue to provide innovative solutions for our clients. Likewise, we value our human resources and carefully
select new employees who train extensively in order to sustain our competitive advantages. We will continue to
focus on recruiting and retaining motivated and experienced employees. We believe that our continued growth and
financial success is directly related to the experience of our construction and engineering project managers, as well
as our ability to attract and train our other employees to develop the skills necessary to manage and execute future
13
projects. We believe that the success of this strategy is demonstrated by improvements in our quality indicators as
well as the low turnover among our executives and engineers.
Recent Events
Consrcio Puente Chacao S.A.
On April 3, 2014, we together with our partners incorporated the entity Consrcio Puente Chacao S.A. (in
which Construtora OAS holds a 49% interest) in Chile to design and build the Chacao Bridge in the Los Lagos
region of Chile.
Issuance of 10th Series of Debentures
On April 10, 2014, OAS S.A. issued its 10th series of unsecured non-convertible debentures in an aggregate
principal amount of R$160.0 million. These debentures have a final maturity of April 10, 2015, with interest
payable at a floating rate equal to 100% of the CDI rate, the interbank average daily interest rate in Brazil, calculated
and published by CETIP S.A. - Mercados Organizados, or CETIP, plus a spread of 2.10% per year. These
debentures are guaranteed by Construtora OAS.
Company History
We began our operations in the State of Bahia with the incorporation of Construtora OAS in 1976, focusing on
the construction division in the northeast Brazil. Beginning in the 1980s, we diversified our operations throughout
Brazil. In the early 1990s, we focused on the development of our heavy engineering business. In the late 1990s, we
expanded our business to public sector concessions, particularly in the transportation sector, and participated in the
first private urban road concession in Brazil for the Linha Amarela highway in the State of Rio de Janeiro. In recent
years, we have further diversified our operations to include new client sectors and geographical areas. In 2005, our
shareholders reformulated OAS strategy while maintaining its focus on the infrastructure sector. As a consequence,
we began our internationalization efforts, intensified the synergies between our heavy engineering and investment
divisions and diversified our client base.
Management and Corporate Governance
We are controlled by our shareholders, Mr. Cesar de Araujo Mata Pires, who holds 90% of our equity capital,
and Mr. Jos Adelmrio Pinheiro Filho who holds our remaining equity capital. As our controlling shareholders,
Mr. Pires and Mr. Pinheiro have the overall power to control us, and elect the executive officers who establish our
management policy and are responsible for determining our operating policies and guidelines for our business and
our subsidiaries.
The day-to-day management of our operations is led by experienced executive officers, including Mr. Cesar
Mata Pires Filho and Mr. Antonio Carlos Mata Pires, the sons of Mr. Pires, who have each worked with OAS for an
average of more than 10 years and serve as the non-statutory vice-presidents of our heavy engineering and
investment divisions, respectively, since 2011. In addition, our corporate governance comprises several corporate,
operational and investment committees which meet periodically to develop and implement our strategy. These
committees include, at the corporate level, our strategic direction committee, business committee, executive
committee and institutional committee, as well as, at the operational level, our construction works monitoring
committee. Each of these committees is comprised of members with extensive knowledge of our markets and our
operations and has been fundamental to our success over the years, establishing a governance culture based upon a
shared responsibility to each of our stakeholders, including our shareholders, investors, employees and business
partners. For additional information regarding our executive management and these committees, see
Management.
In order to increase our transparency and provide operational and financial information to the financial and
capital markets, we have, among other measures, established an investor relations department (including an investor
relations website), and we provide quarterly fact sheets and semi-annual earnings releases. We have also voluntarily
implemented numerous corporate governance practices adopted by public companies, including preparing audited
annual financial statements for over 16 years (and semi-annual unaudited financials for more than six years),
14
providing company information in three languages, obtaining and providing ratings information since 2009 and
educating investors in North and Latin America regarding our business since 2009.
Corporate Structure
The following is a structure chart of the OAS Group, including the issuer, as of the date of this offering
memorandum:
Cesar Mata
Pires
100%
CMP Participaes
Ltda.
LP Participaes e
Engenharia Ltda.
Jos
Adelmrio
Pinheiro
10%
90%
OAS Finance
Limited (Issuer)
100%
OAS S.A.
(5)
100%
100%
OAS Engineering
OAS Investments
Construtora OAS
OAS Investimentos
78,95%
(1)
Consortiums
International
Branches
24.44% (2)
(1)
100%
100%
37.5%
Arena do Grmio
SPVs
17.5%
Estaleiro
Enseada
Paraguau
100%
61%
(100%)
(100%) (3)
PPP Guarulhos(100%) (4)
___________________________
(1)
(2)
(3)
(4)
(5)
Variable percentage according to the ownership structure of each legal entity between OAS and its partners.
Includes the direct equity interests of (i) OAS Investimentos (15.55%), and (ii) of OAS S.A. (8.89%).
Empresa Peruana de guas S.A. is controlled by OAS S.A. (75%) and Construtora OAS (25%).
Awarded to us in May 2014. We intend to incorporate the relevant project company by the end of 2014.
The issuer of the notes.
15
THE OFFERING
The following is a summary of the basic terms of this offering. For a more complete description of the terms of
the notes, see Description of the Notes. Terms which are defined in other sections of the offering memorandum
have the same meaning when used in this summary.
Issuer..........................................................
Company ...................................................
OAS S.A.
Guarantors ................................................
Notes ..........................................................
Guarantee ..................................................
July 2, 2014
Maturity Date............................................
July 2, 2021.
Ranking .....................................................
Redemption ...............................................
Prior to July 2, 2018, we may, at our option, redeem all of the notes at
any time or part of the notes from time to time at a redemption price
equal to 100% of the principal amount of the notes plus a make-whole
premium as of the redemption date, plus accrued and unpaid interest
up to, but excluding, the date of redemption.
On and after July 2, 2018, we may, at our option, redeem all of the
notes at any time or part of the notes from time to time at the
redemption prices described in this offering memorandum, plus
accrued and unpaid interest up to, but excluding, the date of
redemption.
In addition, at any time prior to July 2, 2017, we may redeem up to
35% of the notes at a redemption price equal to 108.00% of their
principal amount, plus accrued and unpaid interest up to, but
excluding, the date of redemption, using the proceeds of certain equity
offerings, subject to some conditions specified herein.
See Description of the NotesOptional Redemption.
We may redeem the notes, in whole but not in part, at 100% of their
principal amount plus accrued and unpaid interest up to, but
excluding, the date of redemption, at any time upon the occurrence of
specified events relating to British Virgin Islands, Brazilian or other
relevant jurisdictions tax laws. See Description of the Notes
Optional RedemptionOptional Tax Redemption.
Covenants ..................................................
Listing ........................................................
The notes sold in the United States in reliance on Rule 144A will be
evidenced by a note in global form called a restricted global note,
which will be deposited with a custodian for, and registered in the
name of a nominee of DTC. The notes sold outside the United States
in reliance on Regulation S will be evidenced by a separate note in
global form called a Regulation S global note, which also will be
deposited with a custodian for, and registered in the name of a
nominee of DTC. Transfers of beneficial interests between the
restricted global note and the Regulation S global note are subject to
certification requirements.
The notes will be issued in fully registered form in denominations of
U.S.$200,000 and integral multiples of U.S.$1,000 in excess thereof.
See Description of the Notes.
The notes have not been registered under the Securities Act and are
subject to limitations on transfers, as described under Transfer
Restrictions.
The indenture and the notes will be governed by the law of New
York.
19
(Unaudited)
(in millions
of U.S.$)(1)
CONSOLIDATED STATEMENTS OF
OPERATIONS
Net revenue ..................................................................
Cost of service and sales ..............................................
Gross profit .....................................................................
Operating income (expenses)
General and administrative expenses...........................
Management compensation .........................................
Depreciation and amortization .....................................
Employee profit-sharing ..............................................
Other operating income (expenses), net ......................
Income before equity pick-up, financial income
(expenses) and income taxes .........................................
Equity pick-up ..............................................................
Income before financial income (expenses) and
income taxes ....................................................................
785.0
(642.8)
142.2
1,776.4
(1,454.6)
321.9
1,449.6
(1,185.1)
264.6
3,502.8
(2,827.9)
674.9
7,926.8
(6,399.5)
1,527.3
5,825.8
(4,662.2)
1,163.6
(91.7)
(3.8)
(5.5)
(7.2)
499.9
(207.5)
(8.5)
(12.4)
(16.3)
1,131.2
(205.6)
(3.6)
(14.0)
(16.7)
24.6
(366.0)
(11.9)
(8.3)
(59.3)
(4.3)
(828.3)
(27.0)
(18.7)
(134.1)
(9.7)
(738.7)
(12.8)
(15.4)
(147.1)
536.5
534.0
0.4
1,208.4
1.0
49.3
0.9
225.1
(2.6)
509.4
(5.8)
786.1
31.4
534.4
1,209.3
50.2
222.5
503.6
817.6
189.4
(264.8)
(75.3)
428.6
(599.2)
(170.5)
113.7
(163.2)
(49.6)
623.2
(832.7)
(209.5)
1,410.3
(1,884.3)
(474.0)
184.2
(456.2)
(272.0)
459.0
1,038.8
0.6
13.1
29.6
545.5
(1.8)
(129.7)
327.5
(4.0)
(293.6)
741.2
(28.2)
20.2
(7.4)
(47.5)
42.0
7.6
(107.4)
95.0
17.2
(31.3)
(31.0)
483.3
20
As of March 31,
2014
2014
2013
(Unaudited)
(in millions of
(in millions of
U.S.$)(1)
reais)
(in millions of
U.S.$)(1)
704.0
173.4
4.2
1,518.7
13.4
324.4
1.0
111.9
177.9
3,028.9
1,593.2
392.5
9.4
3,436.8
30.3
734.1
2.2
253.3
402.7
6,854.4
891.5
295.3
4.1
1,219.4
24.2
307.5
1.0
104.6
202.3
3,049.9
As of December 31,
2013
2012
(As
restated)(2)
2,017.4
668.3
9.3
2,759.5
54.8
695.9
2.2
236.7
457.8
6,901.9
2,139.0
500.7
1,619.9
35.8
671.9
4.0
82.9
386.7
16.5
5,457.3
Non-current assets
Marketable securities .....................................................
352.2
797.0
356.3
806.2
12.4
Financial instruments derivatives ...............................
237.7
538.0
261.1
590.9
21
As of March 31,
2014
2014
(in millions of
U.S.$)(1)
Liabilities and equity
Current liabilities
Trade accounts payable ................................................
Loans and financing .....................................................
Debentures ....................................................................
Senior and perpetual notes ...........................................
Salaries, provisions and social contributions ...............
Taxes and contributions payable ..................................
Income tax and social contribution payable.................
Related parties ..............................................................
Advances from third parties .........................................
Deferred revenue ..........................................................
Tax installment program Law 11,941 .......................
Dividends and interest on equity payable ....................
Public services concessions..........................................
Provision for tax, civil and labor claims ......................
Other liabilities .............................................................
Total current liabilities
Non-current liabilities
Trade accounts payable ................................................
Loans and financing .....................................................
Debentures ....................................................................
Senior and perpetual notes ...........................................
Financial instruments derivatives..............................
Taxes and contributions payable ..................................
Deferred income tax and social contribution ...............
Tax installment program Law 11,941 .......................
Related parties ..............................................................
Advances from third parties .........................................
Public service concessions ...........................................
Provision for tax, civil and labor claims ......................
Provision for investment losses ....................................
Deferred revenue ..........................................................
Other liabilities .............................................................
Total non-current liabilities ..........................................
Equity
Capital...........................................................................
Revaluation reserve .....................................................
Income reserves ............................................................
Other reserves ...............................................................
Retained earnings .........................................................
Total equity attributed to controlling interest ..............
Non-controlling interest ...............................................
Total equity .....................................................................
Total liabilities and equity .............................................
(Unaudited)
(in millions of
reais)
2013
(in millions of
U.S.$)(1)
As of December 31,
2013
2012
(As
restated)(2)
366.7
337.4
224.5
41.1
150.1
45.2
28.5
138.0
83.2
12.3
0.0
1.6
1.0
82.5
1,512.3
829.9
763.6
508.0
93.0
339.6
102.3
64.6
312.2
188.3
27.9
0.0
3.6
2.3
186.9
3,422.4
402.6
345.2
269.3
23.7
132.6
49.4
39.9
115.2
103.0
12.2
0.0
1.6
1.5
99.0
1,595.2
911.1
781.3
609.5
53.7
300.0
111.9
90.3
260.6
233.0
27.5
0.0
3.7
3.3
224,1
3,610.0
551.8
804.6
444.2
17.1
251.6
130.8
48.9
0.6
186.4
252.9
25.8
104.6
22.2
5.8
233,3
3,080.6
2.5
627.4
857.2
1,340.9
276.8
60.5
263.0
52.7
44.1
123.6
20.8
11.8
11.5
172.6
143.7
4,009.1
5.7
1,419.8
1,939.8
3,034.5
626.4
137.0
595.1
119.3
99.8
279.7
47.1
26.8
26.1
390.5
325.3
9,072.7
0.6
547.1
899.6
1,386.5
269.3
47.8
137.1
54.8
9.1
144.7
20.8
8.6
10.3
188.5
148.5
3,873.5
1.4
1,238.2
2,035.9
3,137.6
609.4
108.1
310.2
124.1
20.7
327.5
47.1
19.5
23.4
426.6
336.1
8,765.8
6.3
1,283.2
1,401.0
996.9
26.8
290.9
134.0
28.1
598.9
44.2
16.8
15.3
570.2
75.7
5,488.3
220.9
7.6
169.2
89.3
325.2
812.2
122.6
934.8
6,456.3
500.0
17.1
382.9
202.1
735.9
1,838.0
277.4
2,115.4
14,610.5
220.9
7.6
169.2
28.1
425.9
100.4
526.3
5,995.1
500.0
17.3
382.9
63.6
963.8
227.3
1,191.1
13,567.0
500.0
19.4
334.7
108.1
962.2
136.8
1,099.0
9,667.9
___________________________
(1)
(2)
Solely for the convenience of the reader, Brazilian real amounts as of March 31, 2014 and December 31, 2013 have been translated into
U.S. dollars at the commercial selling rate as of March 31, 2014, of R$2.2630 per U.S.$1.00. These translations should not be considered
representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange
rate. See Exchange Rates for further information about recent fluctuations in exchange rates.
We have adopted CPC 19 (R2) as from January 1, 2013 and restated our consolidated balance sheet as of December 31, 2012 for
comparative purposes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Changes in
Accounting Practices."
22
327.5
75.3
131.5
22.4
556.8
(7.4)
49.6
8.0
51.3
101.5
17.2
474.0
12.4
191.2
694.8
483.3
272.0
62.3
104.6
922.2
___________________________
(1)
(2)
(3)
Solely for the convenience of the reader, Brazilian real amounts for the three-month period ended March 31, 2014 and for the year ended
December 31, 2013 have been translated into U.S. dollars at the commercial selling rate as of March 31, 2014, of R$2.2630 per U.S.$1.00.
These translations should not be considered representations that any such amounts have been, could have been or could be converted into
U.S. dollars at that or at any other exchange rate. See Exchange Rates for further information about recent fluctuations in exchange rates.
We have adopted CPC 19 (R2) as from January 1, 2013 and restated our consolidated statement of income for the year ended December 31,
2012 for comparative purposes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Changes
in Accounting Practices."
EBITDA means net income (loss) plus financial income (expenses) net, plus income tax and social contribution, plus depreciation and
amortization. EBITDA is not an IFRS or Brazilian GAAP measure, does not represent cash flow for the years and periods indicated and
should not be considered an alternative to net income (loss), as an indicator of our performance or as an alternative to cash flow as a source
of liquidity. Our definition of EBITDA may not be comparable with EBITDA as defined by other companies. Our management considers
EBITDA, notwithstanding the limitations previously mentioned, and in conjunction with other accounting and financial information
available, a reasonable indicator for comparisons between us and our principal competitors in the market.
23
RISK FACTORS
Prospective purchasers of notes should carefully consider the risks described below, as well as the other
information in this offering memorandum, before deciding to purchase any notes. Our business, results of
operations, financial condition or prospects could be negatively affected if any of these risks occurs, and as a result,
the trading price of the notes could decline and you could lose all or part of your investment.
Risks Relating to Our Company
We may be unable to successfully execute our business strategy.
We intend to expand our operations over the near term. Our expansion strategy is dependent upon several
factors, many of which are beyond our control. In particular, our strategy for growth is based on the premise that
construction works and infrastructure projects in Brazil and abroad will continue to grow significantly in the coming
years, motivated in large part by public investments aiming to improve infrastructure in areas such as energy,
sanitation, oil and gas and transportation. In Brazil, it is anticipated that these investments will result from, among
other developments, the successful execution of the PAC Program, the 2016 Olympic Games, the Program for
Investments in Logistics, as well as the growth of the Brazilian oil and gas industry following significant discoveries
of oil and gas reserves. If any of these investments are not realized, are delayed or generate a demand for products
and services that is below our estimates, we may not be able to successfully implement our expansion strategy.
Moreover, even if these investments are realized, there can be no assurance that we would win bids to develop the
resulting construction works and infrastructure projects. There can also be no assurance that economic and political
developments in Brazil, over which we have no control, will not materially adversely affect our operations.
Our organic growth strategy also includes geographic expansion of our activities. We may not be able to
successfully establish operations in new locations due to several factors, including a shortage of skilled labor.
Furthermore, even if the geographic expansion occurs satisfactorily, we will still be subject to the local economy and
local regulations and exposed to the political risks of the new regions or countries in which we will be operating.
Additionally, our future performance depends on our ability to manage the rapid and significant growth of our
operations. There is no guarantee that we would be able to manage our growth successfully or that such growth
would not interfere with our existing structure. If we are unable to manage our growth in a satisfactory manner, we
may lose our market position, which could have a material adverse effect on our business, results of operations and
financial condition.
Adverse conditions in the financial or credit markets, or our inability to obtain adequate financing, may impair
our capacity to operate our business and implement our strategy.
The implementation of our strategy, particularly within our investment division and in relation to Invepar, will
require additional investment and will result in increased capital requirements, which may not be accompanied by an
equivalent growth in our revenues. As with other companies in our industry, we require a significant amount of
capital to satisfy our working capital needs and finance our construction works and infrastructure projects.
Additionally, there may be an increase in our operating costs and general and administrative expenses, due to,
among other things, (1) expenses related to expansion, (2) a shortage of labor, (3) an increased cost of equipment
and (4) competition growth, requiring that we obtain additional funding.
We intend to utilize bank financings, cash generated by our business and issuance of securities in the capital
markets to meet our funding needs and there can be no assurance that such funding will be available or available to
us on favorable terms. Moreover, this funding, if available, may result in higher interest and amortization expenses,
higher leverage and lower profits available to fund our strategy, including our expansion and continued investment
in infrastructure projects. In addition, higher leverage may limit our ability to absorb competitive pressures and
leave us more vulnerable to economic difficulties. If we are unable to generate or obtain sufficient additional capital
in the future, we may be forced to reduce or delay our capital expenditures, sell assets or restructure our
indebtedness, which could materially adversely affect our business, our results of operations and financial condition.
If we are unable to obtain additional capital in the future to complete the construction, installation, development and
24
maintenance of our construction works and infrastructure projects, our future cash flow will be severely hampered,
which could materially adversely affect our business, results of operation and financial condition.
A substantial percentage of our consolidated cash and cash equivalents and short-term investments are held
through subsidiaries that are not wholly-owned or joint ventures to which we are a party, or are in accounts that
we cannot freely access.
The use of cash and cash equivalents and short-term investments by certain of subsidiaries that we do not
wholly own and joint ventures to which we are a party, requires the consent of the other shareholders or partners, as
applicable, of such subsidiaries or joint ventures. While the cash held in these entities is not necessarily destined for
a specific use or set aside for a particular purpose, we do not have ready access to the cash and cash equivalents and
short-term investments. Additionally, a portion of the cash and cash equivalents and short-term investments of
subsidiaries we do not wholly own and joint ventures to which we are a party are held in accounts pledged to secure
certain of our financings. These balances form part of our restricted cash as set forth on our balance sheet. As of
March 31, 2014, R$958.9 million (US$423.7 million) of short-term investments and marketable securities of OAS
S.A. and Construtora OAS were pledged to secure financings. Our lack of free access to cash and cash equivalents
could negatively affect our overall liquidity.
Our backlog is not necessarily indicative of our future revenues.
Our backlog is not necessarily indicative of our future revenues related to the performance of such work.
Although backlog represents only business that is considered to be contracted, we cannot assure you that
cancellations, failure to collect or scope adjustments will not occur. We cannot assure you that we will secure
contracts equivalent in scope and duration to replace our current backlog.
There can be no assurance that the revenues projected in our backlog at any given time will be realized, or if
realized, that they will perform as projected with respect to our margins. Construction works and infrastructure
projects may from time to time remain in our backlog for an extended period of time prior to contract
commencement, and, after commencement, may be realized unevenly over current and future earnings periods.
Construction works and infrastructure project suspensions, terminations or reductions in scope do occur from time to
time as a result of factors beyond our control and may have a material impact on our backlog as well as our future
revenues and profitability.
We define backlog as the total balance of payments schedules to be due under contracts that we have executed
or are executing for a particular project and for which an identified source of funding exists, but that has not yet
been recognized as revenue by us. This definition may not be similar or comparable to that of other companies in
our sector. We cannot assure you that our definition of backlog is comparable to those of our competitors.
If we are unable to assure the current backlog in the future, our future revenues may be hindered, we may lose
our market position and it could have a material adverse effect on our business, results of operations or financial
conditions.
Our performance is tied to Brazilian public sector spending on infrastructure projects and the Brazilian
governments efforts to promote Brazil-based multinational companies.
The Brazilian government has instituted a series of measures to promote the development and expansion of
Brazil-based multinational companies. These measures include favorable tax incentives and regulations that require
the contracting of Brazilian-based companies to provide services in respect of Brazilian government concessions
from which we have benefited.
As a significant portion of our revenues are derived from contracts with various governments or their agencies,
any reduction in demand for our services by the public sector whether from traditional funding constraints, the longterm impact of the recent economic crisis (including future budgetary constraints, concerns regarding deficits or an
eroding tax base), changing political priorities, change in government or delays in projects caused by the election
process would likely adversely affect us if that business could not be replaced from within the private sector.
25
Furthermore, large government sponsored construction works and infrastructure projects typically have long
and often unpredictable lead times associated with the government review and political assessment process. The
time delays and resulting costs incurred as a result of this lengthy process, as well as the unknown political
considerations that can be part of any final decision, constitute a significant risk to those pursuing such projects. In
the event the Brazilian government were to postpone, curtail or eliminate these or similar measures, our business,
results of operations or financial condition may be materially adversely affected.
Recently, in the second and third quarters of 2013, wide-scale protests throughout Brazil focused on economic
and political reform lead to a climate of growing uncertainty. In addition, Brazilian general elections will be held in
October 2014, the outcome of which may significantly impact the Brazilian economy. Brazilian presidents have
substantial power to determine public policy, as well as to introduce measures affecting the Brazilian economy and
the operations and financial results of companies such as ours.
We cannot provide any assurances that economic and political developments in Brazil, whether in response to
further protests or as a result of the upcoming general elections or otherwise, will not negatively affect our business,
results of operations or financial condition.
The success of our strategic partnerships depends on maintaining our existing strategic partnerships, identifying
and establishing new strategic partnerships and ensuring the satisfactory performance by our strategic partners
of their obligations to our strategic partnerships, the failure of any of which could impose additional financial
and performance obligations on us, reducing our profitability.
We enter into various strategic partnerships, joint-ventures, associations, alliances and collaborations as part of
our engineering, procurement, construction and infrastructure businesses, as well as project-specific strategic
partnerships. The success of these and other strategic partnerships depends, in part, on the satisfactory performance
by our partners of their partnership obligations. If our partners fail to satisfactorily perform their obligations to our
strategic partnerships as a result of financial or other difficulties, our partnerships may be unable to adequately
perform or deliver its contracted services. Under these circumstances, we may be required to make additional
investments and provide additional services to ensure the adequate performance and delivery of the contracted
services. The additional obligations that we may be required to perform could result in reduced profits or, in some
cases, significant losses for us with respect to the strategic partnership.
Furthermore, in both the private and public sectors, we partner with other companies to compete for
construction works and infrastructure projects, particularly those projects located outside of Brazil, where we may
seek local experience, or when such construction works and infrastructure projects involve a more complex
technical and/or financial structure. In particular, within our investment division, we partner with strategic financial
companies, such as investment funds, to finance our construction works and infrastructure projects, while
partnerships involving heavy engineering construction works are regularly forged based on the technical expertise
and capabilities of our strategic partner so as to enhance our bid and the eventual development of the project. These
strategic partnerships are essential for our continuing operations and growth. Should we encounter difficulty in
maintaining our existing partnerships, identifying new partnerships or if our strategic or business partnerships are
unsuccessful, our business, results of operation and financial condition may be materially adversely affected.
Our return on our investment in an infrastructure project may not meet the originally projected returns.
Our return on investment in a given project is based on the duration of the concession or PPP contract and the
amount of capital invested, in addition to the amount of usage revenues collected, debt service costs and other
factors. For example, traffic volumes, and thus toll revenues, are affected by a number of factors including toll
rates, the quality and proximity of alternative free roads, fuel prices, taxation, environmental regulations,
administrative regulations enacted by regulatory agencies, consumer purchasing power and general economic
conditions. The level of traffic on a given highway also is influenced heavily by its integration into other road
networks. In addition, our results of operations may be materially adversely affected by the failure of our public
clients to make payment for our services.
In circumstances in which our investment division invests equity in an infrastructure project, we assume a
degree of risk (equity risk) associated with the financial performance of the asset during the concession period. The
26
financing arrangements on such concession and PPP projects are typically based on a set of projections regarding the
cash flow to be generated by the asset during the life of the concession. The ability of the asset to generate the cash
flows required to provide a return to the concessionaire can be influenced by a number of factors such as, political or
legislative changes, traffic demands and thus operating revenues, collection success and operating cost levels,
among others.
Furthermore, particularly for new construction works and infrastructure projects in which we assume
construction risk, overruns of budgeted costs may create a higher capital investment base than expected, and
therefore a lower return on capital. Given these factors, we cannot assure you that our return on any investment in a
concession will meet the estimates contemplated in the relevant concession or PPP contract. In addition, our returns
on other types of projects may be lower than anticipated due to a variety of other factors, including higher-thananticipated financing costs, demand or counterparty risk, cost overruns and project delays, among others. Our
inability to attain our projected rates of return on our investments may materially adversely affect our business,
results of operations and financial condition.
We may encounter difficulties identifying new concession and PPP project opportunities and maintaining our
current portfolio of concession and PPP infrastructure projects.
Within the infrastructure industry, public bodies in general and concession and PPP sponsors in particular, have
become increasingly important clients within our portfolio, and we actively seek to benefit from the ability of our
investment division to participate in public projects, concessions and PPPs. However, we face challenges in
participating in concessions, PPPs and other public projects, such as:
a decrease in concession and PPP project opportunities in general as a result of adverse economic
and/or political conditions and a decrease in government or private sector interest and funding;
the imposition of penalties that may prevent us from participating in bids for construction works,
including (1) temporary suspensions that would prohibit us from bidding for, or contracting with, the
Brazilian government or (2) our inability to obtain certificates attesting to our good standing with
respect to bids for, or contracts with, the Brazilian government, as provided in Article 87, II and IV, of
Federal Law No. 8,666/1993;
In the event we are unable to identify new concession and PPP project opportunities or maintain our current
portfolio of concession and PPP infrastructure projects as a result of the above factors or otherwise, our business,
results of operations and financial condition may be materially adversely affected.
Our fixed-price contracts present risks, including cost overruns and operating cost inflation.
Certain of our contracts include fixed-price provisions. The margins we achieve on these contracts may vary in
relation to original estimates as a result of changes in costs and productivity during the execution of the project, such
as unanticipated increases in the cost of equipment, material or human resources due to inflation or unpredictable
events, difficulties we experience in meeting client requirements or obtaining, maintaining and renewing
government licenses or approvals, modifications to the project resulting from unanticipated costs, delays caused by
weather conditions or failure in performance of our suppliers or subcontractors. Our failure to estimate accurately
the resources and time required to complete a particular fixed-price project, or our inability to complete our
contractual obligations (or applicable milestones) within the contracted time frame, may result in financial losses,
indemnification payments, fines, termination of strategic partnerships or other consequences, which may materially
adversely affect our business, results of operations and financial condition.
Moreover, the Brazilian government, pursuant to Article 37 of Federal Law No. 8,987 dated as of February 13,
1995, may unilaterally suspend, in the public interest and following payment of fair compensation, a concession
27
agreement or PPP contract, independent of whether the concessionaire or similar contracting party fails to comply
with its obligations under the agreements or renders service in a deficient manner. Likewise, Article 55 of Federal
Law No. 8,666, dated as of June 21, 1993, grants the Brazilian government the right to unilaterally terminate
administrative contracts. Any such suspension or termination may materially adversely affect our business, results
of operations and financial conditions.
Under our construction contracts, we are increasingly required to assume the risk of inflation, increases in the
cost of raw materials and errors in contract specifications, which could jeopardize our profits and liquidity.
Historically, a majority of our construction business was conducted under unit-price-contracts, which contain an
escalation clause that permits us to increase unit-prices to reflect the impact of increases in the costs of labor,
materials and certain other items due to inflation. These unit-price contracts allow flexibility in adjusting the
contract price to reflect work actually performed and the effects of inflation. In recent years, however, our
construction contracts, and construction contracts throughout the industry, have been increasingly fixed price or notto-exceed contracts, under which we are committed to provide materials or services at fixed-unit-prices, including
our two major raw material requirementscement and steel. Fixed-price and not-to-exceed contracts shift the risk
of any increase in our unit cost over our unit bid price to us.
In the past, we experienced significant losses due to risks assumed by us in fixed price and not-to-exceed
contracts, and we may face similar difficulties in the future. For example, a number of our construction contracts
specify fixed prices for various raw materials and other inputs necessary for the construction business, including
steel, asphalt, cement, construction aggregates, fuels and various metal products. Increased prices of these materials
can negatively affect our results if we are unable to transfer the risk to the client. Under the terms of many of our
fixed price contracts, we have been required to bear the cost of the increases in the cost of raw materials from the
time we entered into the contracts, which has materially adversely affected our results of operations and liquidity.
Prices for various steel products increased significantly between 2003 and 2008, we believe due in part to a
decrease in production because of the global financial crisis, but stabilized beginning in 2009 and continuing
through 2012. Since 2010, labor costs have also increased in Brazil, primarily as a result of economic growth and
investments in infrastructure and construction. If we are unable to pass on to our clients the increase in the cost of
raw materials, our operating margins could be materially adversely affected.
We may also experience other construction and administrative cost overruns that we may be unable to fully pass
on to our clients, including as a result of incorrect contract specifications. We expect that future concession-related,
infrastructure and industrial construction contracts may not permit an adjustment of the contract price for additional
work done due to incorrect project specifications and, as a result, our operating margins and liquidity would be
materially adversely affected.
Our strategy of increasing the oil and gas infrastructure service projects within our project portfolio is dependent
on the success of the oil and gas industry.
As part of our business strategy, we intend to pursue infrastructure service projects in the oil and gas industry.
As a result, the success of our business strategy is dependent upon the development and growth of the oil and gas
industry (including the performance of Petrobras, Brazils largest oil and gas company), which is subject to various
risks, including those relating to:
the existence of oil and gas reserves and the successful exploration in known reserves;
regulations that negatively affect oil and gas exploration and operations.
Should the oil and gas industry encounter these risks and be negatively affected as a result, we may not realize
our business strategy of increasing our oil and gas infrastructure projects and our business, results of operations and
financial condition may be materially adversely affected.
28
The loss of members of our management or our inability to hire and retain qualified employees or properly train
our personnel may negatively affect us.
Our ability to maintain our competitive position depends in large part on the experience of our management in
the sectors in which we operate. We have not entered into employment contracts or long-term non-compete
agreements with any members of our management. There can be no assurance that we will be able to retain current
members of our management and the loss of any member of our senior management or the inability to attract and
retain experienced executives may materially adversely affect our business.
Furthermore, as part of our expansion strategy, we hire, train and retain new professionals working in various
sectors in which we provide engineering and construction services. We are subject to substantial competition in
seeking to hire these professionals and there can be no assurance that we will be able to attract and train qualified
professionals in sufficient numbers to provide our services and expand our business. Additionally, we may
experience difficulties in retaining professionals if we are not able to maintain an attractive corporate culture and
competitive levels of remuneration. We believe that the hiring, training and retention of skilled labor is a critical
factor for business success and growth in the long-term and unsatisfactory implementation or failure of this strategy
may materially adversely affect our business, results of operations or financial condition.
The loss of any member of our senior management or the inability to attract and retain experienced executives
may materially adversely affect our business.
The insurance policies that we hold may be insufficient to cover any damage or losses we may incur.
Natural disasters, adverse weather conditions, human error and other events may result in, among other
consequences, damage to our property, plant and equipment, interruptions to our business and pollution or
environmental damage. We engage in engineering and construction activities for large, complex projects where
design, construction or systems failures can result in substantial injury or damage to third parties or our clients.
There can be no assurance that the insurance policies that we purchase will be suitable and/or sufficient in all
circumstances or against all risks. The occurrence of a significant loss that is not insured or indemnified, in full or in
part, or any failure of our clients, subcontractors or strategic partners to meet their indemnity obligations may have a
material adverse effect on our business, results of operations or financial condition. In addition, even when we
purchase insurance for some of these risks, our policies have deductibles that we are required to pay prior to
receiving any amounts for claims. Furthermore, there can be no guarantee that we will be able to purchase or renew
insurance policies at commercial rates and on reasonable and acceptable terms in the future.
We may incur losses and spend time and money defending pending litigation and administrative proceedings.
We are currently a party to numerous legal proceedings relating to civil, administrative, environmental, labor
and tax claims filed against us. These claims involve substantial amounts of money and other remedies. Several
individual disputes account for a significant part of the total amount of claims against us. We have established
provisions for all amounts in dispute that represent a probable loss and in relation to those disputes that are covered
bylaws, administrative decrees, decrees or court rulings that have proven to be unfavorable in the view of our legal
advisors. As of March 31, 2014, we had provisioned a total aggregate amount of R$29.1 million in respect of our
legal proceedings, of which R$2.0 million were related to tax claims, R$2.1 million were related to civil claims,
R$17.0 million were related to labor claims and R$8.0 million were related to other claims.
In the event that claims involving a material amount and for which we have no provisions were to be decided
against us, or in the event that the losses turn out to be significantly higher than the provisions made, the aggregate
cost of unfavorable decisions could have a material adverse effect on our financial condition and results of
operations. In addition, our management may be required to direct its time and attention to defending these claims,
which could preclude them from focusing on our core business. Depending on the outcome, certain litigation could
result in restrictions in our operations suspending temporarily our businesses and have a material adverse effect on
our financial condition and certain of our businesses.
We are currently subject to claims alleging: (1) irregularities in certain bidding processes for which we were
awarded construction works and infrastructure projects, including allegations of having received unlawful
29
favoritism; (2) improprieties in amounts charged for the rendering of our services to certain public sector clients,
including allegations of embezzlement, unjust enrichment, overpricing and price adjustments; (3) irregularities with
the concession and PPP contracts that we have entered into with public sector entities; and (4) irregularities related
to the compliance with certain labor rules and regulations in some of our construction areas, including claims of
inadequate living conditions in accommodations that are alleged to (i) have been used by certain of our workers and
(ii) be owned by us. In addition to monetary damages, certain of these proceedings may seek injunctions against us
or may affect our ability to contract with government or public sector companies, financial institutions controlled by
the government or private institutions (depending on their internal policies), and, therefore, may lead to a material
adverse effect on our business, results of operations and financial condition. For additional information, see
Business OverviewLegal and Administrative Proceedings.
Adverse decisions against us in these claims may (1) temporarily suspend our participation in public biddings
and impede us from entering into contracts with the Brazilian government and/or (2) declare us as unfit to bid for or
to enter into contracts with the Brazilian government pending a determination of our culpability or until such time as
any penalties enforced against us are rescinded.
Public concessions in Brazil and in other countries in which we operate are generally characterized by extensive
regulation.
Article 175 of the Federal Constitution of Brazil states that public services performed in Brazil must be
provided by the government in accordance with applicable law, either directly or through concessions or
permissions granted to private companies through a public bidding process. Law No. 8,987 of February 13, 1995
establishes the regulatory framework for public concessions in Brazil, or the Concessions Law. Most of the
provisions of the Concessions Law are also applicable to PPP projects, pursuant to Law No. 11,079 of December 30,
2004.
Pursuant to the Concessions Law, the granting authority may intervene at any time in the operation of the
concession in order to ensure proper service and total commitment to contract terms and applicable regulations. The
intervention would be effected through a decree from the granting authority, which determines the intervention
period and purpose of the intervention. Other contractual or administrative penalties, such as fines, may also be
imposed against the concession holder. The Concessions Law is similar to corresponding laws in other countries in
which we operate.
Our clients generally require us to obtain bonds to secure, among other things, bids, advance payments and
performance. In recent years, however, our clients have increasingly required letters of credit and other forms of
guarantees to secure our obligations under our bids, for advance payments and to guarantee our performance. We
cannot assure you that in the future we will be able to obtain performance bonds, letters of credit or bank guarantees
on acceptable terms, particularly because, as a result of the ongoing global credit crisis, many lenders and other
guarantors have reduced the amount of credit they extend. Our ability to provide letters of credit and other forms of
guarantees secured by assets may be limited, which may materially adversely impact our ability to participate in
construction works and infrastructure projects in the future.
Additionally, in recent years we have increasingly been required to meet minimum equity requirements, satisfy
certain financial ratios or more stringent requirements and obtain ratings of our financial proposals from a
recognized credit rating agency in order to bid on large public construction works and infrastructure projects or be
eligible to obtain project financing. The levels and types of ratios vary substantially. Although we have historically
been able to comply with these requirements, we cannot assure you that we will be able to do so in the future. If we
do not meet these requirements, it could impair our ability to bid for potential construction works and infrastructure
projects, which could have a material adverse effect on our financial condition and results of operations.
Furthermore, pursuant to Article 38, paragraph one, I, of Federal Law No. 8,987, a concession agreement may
be terminated if the concessionaire loses the economic, technical and operational capability to adequately render
services under the concession.
A concession may also be revoked by a government for certain prescribed reasons pursuant to applicable law,
which may include failure to comply with development and/or maintenance programs, a temporary or permanent
suspension in our operations, failure to pay damages resulting from our operations or failure to comply with any
30
other material term of a concession. Generally, a concession may be revoked if: (1) the service is rendered in a
deficient manner under the rules, criteria, indicators and parameters defining the quality of the service; (2) the
concessionaire fails to comply with its obligations under the concession; (3) the concessionaire unexpectedly
suspends performance under the concession, with the exception of any suspension resulting from force majeure or
acts of God; (4) the concessionaire loses the economic, technical and operational capability to adequately render
services under the concession; (5) the concessionaire does not comply with any penalties imposed for violations; (6)
the concessionaire fails to answer any formal requests from the granting authority to restore service under the
concession; or (7) the concessionaire is found guilty of tax evasion under the concession.
The project company through which we operate the concession would be unable to continue the operations of a
particular concession without the concession right from the granting government. There can be no assurance that
our concessions will not be subject to such administrative or judicial sanctions. Any such sanctions, including the
revocation of a concession, may have a material adverse impact on our business, results of operations or financial
condition. Additionally, there can be no assurance that any indemnification for any such termination will be
sufficient to compensate us for any loss we may incur, including lost revenues.
We are subject to various environmental laws and regulations in Brazil and the other countries in which we
operate that currently impact our business and that may become more stringent in the future and could require
significant capital expenditures and increase our operating costs.
Our operations are subject to extensive federal, state and municipal governmental regulation in each of the
countries in which we operate regarding protection of the environment, including norms introduced to the legal
system through agreements and international treaties. Our efforts to comply with applicable environmental laws and
regulations may result in a need for us to allocate additional capital resources and may result in delays in our
executing our infrastructure projects and construction works than originally budgeted. The adoption of more
stringent environmental laws and regulations for any reason may force us to allocate even more investment in this
field and, consequently, alter the allocation of previously planned investment resources. Such changes could have a
material adverse effect on our financial conditions and results of operations.
We are also required to obtain, maintain and renew licenses and other authorizations from governmental
authorities for the planning, installation and operation of our activities as well as for certain specific aspects of our
operations, such as the use of water resources (impounding and discharge, including the use of artesian wells),
vegetation removal, disposal of the residues generated from our activities and interference in environmentally
protected areas, among others. We cannot assure you that we have been or will be at all times in full compliance
with these laws, regulations and permits. Any non-compliance with these laws and regulations may result in
penalties and other liabilities, including substantial fines, criminal sanctions, suspension of activities, embargo,
correction orders (including orders to investigate and/or clean up contamination) and/or revocation of operation
licenses. In addition, these laws, regulations and permits can often require us to purchase and install expensive
pollution control equipment or to make operational changes to limit impacts or potential impacts on the environment
and/or health of our employees.
We expect to make capital expenditures on an ongoing basis to continue to ensure our compliance with
environmental laws and regulations. However, due to the possibility of unanticipated regulatory or other
developments, the amount and timing of future environmental expenditures may vary substantially from those
currently anticipated and may affect the availability of funds to us for capital and other expenditures. We cannot
assure you that our costs of complying with current and future environmental and health and safety laws, and our
liabilities arising from, among other environmental factors, past or future releases of, or exposure to, hazardous
substances, will not materially adversely affect our business, results of operations or financial condition.
The occurrence of material climatic changes, including those resulting in flooding and erosion caused by
increased rainfall, may require the modification of technical specifications for construction works and infrastructure
projects and equipment, the use of additional inputs and the introduction of new practices in service delivery. In
addition, adverse weather conditions interfere with the implementation schedule of construction works and
infrastructure projects in general, which can lead to delays and negatively impact demand levels for such services.
If we are unable to satisfactorily adapt to possible climate change, it is possible that we will lose market share to our
competitors and our business, results of operations and financial condition will be materially adversely affected. In
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addition, in the ordinary course of our business we must comply with environmental regulations with respect to
which we are subject to administrative, criminal and civil liabilities in the event of our non-compliance.
The enforcement of environmental legislation in Brazil and abroad is supervised by governmental departments
and agencies, which may impose sanctions for environmental breaches. These sanctions may include, among others,
the imposition of fines, revocation of licenses and the temporary or permanent suspension of operations. Our failure
to comply with environmental protection legislation may result in the imposition of criminal penalties as well as
administrative sanctions or a civil obligation to repair related damages occasioned upon the environment or third
parties. Additional environmental requirements may be imposed in the future due to changes in environmental
legislation or due to the environmental impact of our activities, and we may be unable to obtain the necessary
environmental permits, which may result in our incurring additional costs and may lead a material adverse effect on
our business, results of operations and financial condition.
We face significant competition.
We face significant competition both in Brazil and in the other countries in which we operate and are
continually subject to further competition from the emergence of new competitors in these markets. Several factors
influence a clients hiring decision, including the quality and reliability of services, the degree of innovation added
by the contractor and the price charged. Fluctuations in demand in the sectors in which we operate may impact the
degree of competition for work. Competitive position is based on a multitude of factors including pricing, ability to
obtain adequate bonding, backlog, financial strength, appetite for risk and reputation for quality, timeliness and
experience. Our competitors devote substantial efforts to expand their market position by attracting our clients, even
those with which we have had long and successful relationships.
Furthermore, many of our ongoing construction works and infrastructure projects were awarded through
competitive bidding processes, and we face substantial competition for construction works and infrastructure
projects. While pricing generally is the most important factor that determines whether we will be awarded a
particular contract, other variables are also determining factors, including health, safety and environmental
protection records, service quality, technological capacity and performance, as well as reputation, experience, access
to funding sources and client relations. If we are unable to meet any of these competitive challenges, we could lose
market share to our competitors and experience an overall reduction in our profits, which could have a material
adverse effect on our business, financial condition and results of operations.
We face risks related to project performance requirements and completion schedules, which could jeopardize our
projected net income from these projects.
In certain instances, we have guaranteed completion of a project by a scheduled acceptance date or achievement
of certain acceptance and performance testing levels. However, there is a risk that we will not comply with these
guarantees.
Our failure to meet any schedule or performance requirements for any reason could result in costs that exceed
projected cash, including our required payment of liquidated damages up to a certain percentage of the overall
contract amount and/or guarantees for the entire contract amount. We cannot assure you that any financial penalties
resulting from our failure to meet agreed acceptance dates or to achieve required acceptance and performance testing
levels would not have a material adverse effect on our financial condition and results of operations.
The profitable completion of certain contracts depends significantly upon the satisfactory performance of the
subcontractors as well as design and engineering consultants who complete different elements of the work. If these
subcontractors do not perform to accepted standards, we may be required to hire different subcontractors to
complete the tasks, which may adversely impact our ability to meet scheduled deadlines, add costs to a contract,
impact profitability for a specific project and in certain circumstances, lead to significant losses. A major
subcontractor default or failure to properly manage subcontractor performance could materially adversely impact
our results of operations.
Environmental changes, such as floods and land erosion caused by higher precipitation levels in the regions
where we operate, may require us to make additional investments, which may have a material adverse effect on our
business, financial condition and results of operations. In addition, adverse climatic conditions may interfere with
32
the schedule of our construction works and infrastructure projects, which may lead to project and investment delays.
If we are unable to adapt satisfactorily to climatic changes by efficiently executing our construction works and
infrastructure projects, our results of operations and financial condition may be materially adversely affected. In
addition, in the ordinary course of our business we are required to comply with environmental laws, and any failure
to comply with these laws may expose us to administrative, criminal and civil penalties. See We are subject to
various environmental laws and regulations in Brazil and the other countries in which we operate that currently
impact our business and that may become more stringent in the future and could require significant capital
expenditures and increase our operating costs.
Our results of operations are dependent upon the financial condition of our clients and our ability to collect for
the services we provide.
As of March 31, 2014, our accounts receivables from clients totaled an aggregate R$4,343.3 million, while our
provision for doubtful accounts totaled R$214.4 million as of the same date. Our ability to collect upon our
accounts receivables is dependent upon the financial condition of our clients. A material adverse change in the
financial condition of our clients may result in their inability to pay for our services thereby increasing our past-due
accounts receivables, which may materially adversely affect our business, results of operations and financial
condition. In addition, we may incur increased litigation expenses in our attempt to recover past-due amounts due to
us from our clients, which may materially adversely affect our margins and results of operations.
The global credit crisis and unfavorable general economic and market conditions of recent years may negatively
affect our liquidity, business and results of operations, and may affect a portion of our client base, subcontractors
and suppliers.
The effect of a continued economic crisis and related turmoil in the global financial system on the economies in
which we operate, our clients, our subcontractors, our suppliers and us cannot be predicted. This crisis could lead to
reduced demand and lower prices for construction works and infrastructure projects and our related businesses. In
response to current market conditions, clients may choose to make fewer capital expenditures, to otherwise slow
their spending on or cancel our services, to delay payments (which may in turn cause us to pay our providers more
slowly) or to seek to renegotiate contract terms more favorable to them. Furthermore, any financial difficulties
suffered by our subcontractors or suppliers could increase our costs or adversely impact our compliance with project
schedules. Although during most of 2010 and during the first half of 2011 there were signs of recovery in the global
economy, this recovery may not continue and may only reflect temporary benefits from government stimulus
programs that may not be sustained. The subsequent slowdown in the United States and Europe during the second
half of 2011, which continued to some degree into 2012 and 2013, as well as concerns over the sovereign debt
obligations of several European countries (including Greece, Portugal, Spain, Ireland and Italy), macroeconomic and
political developments in the United States and China and the consequent impact on the solvency of European banks
has increased the possibility of another worldwide recession.
Many lenders and institutional investors have reduced and, in some cases, ceased to provide funding to
borrowers. Credit rating agencies have also become more stringent in their debt rating requirements. Continued
disruption of the credit markets could adversely affect our suppliers, clients (particularly our private sector
clients) and our own borrowing capacities, which could, in turn, materially adversely affect the continuation and
expansion of our construction works and infrastructure projects because of related contract cancellations or
suspensions, project delays (as delays in our supply chain can in turn affect our deliverables) or payment delays or
defaults by our clients, which could materially adversely affect our business.
The revenues we derive from public sector clients expose us to additional risks.
Our heavy engineering division derives a significant portion of its revenues from public sector clients in Brazil
and abroad. In the three-month period ended March 31, 2014 and the year ended December 31, 2013, 47.2% and
52.6%, respectively, of the total revenues of our engineering division derived from public sector clients. Risks
associated with public sector contracts include the fact that: (1) government expenditures in relation to public sector
contracts are dependent on legislative budgetary approvals throughout the life of the contracts; (2) public sector
contracts are subject to the request of third parties to audit volumes, processes and other terms and conditions under
the contracts; (3) public sector contracts are subject to complaints of competitors or other interested third parties
questioning the validity of the bidding process pursuant to which the public sector contracts were awarded; (4)
33
amendments that impact the original scope of the public sector contracts may result in litigation; (5) our image may
be materially adversely impacted if a government entity that awarded us a public sector contract is accused of
corruption or the unlawful use of public resources; (6) a newly elected government may prohibit the execution of
public sector contracts granted by the prior incumbent government, which may materially adversely affect our
ability to continue or renew certain public sector contracts in our backlog; and (7) public sector entities may be
unable to honor their commitments under contracts as a result of a reduction in tax collections.
The occurrence of any of these or other risks associated with public sector contracts may materially adversely
affect our business, financial condition and results of operations, particularly our ability to conduct business in
certain of our existing or developing markets.
Our international operations expose us to political and economic risks in other countries.
Our international activities expose us to risks not faced by companies that operate solely in Brazil. Risks
associated with our international operations include: (1) foreign exchange controls; (2) changes in the political or
economic conditions in a specific country or region, especially in emerging markets; (3) potentially negative
consequences resulting from changes to regulatory requirements; (4) difficulties and costs associated with our
observance of different laws, treaties and complex international regulations; (5) tax rates that may exceed those
applicable in Brazil and other countries or gains that may be subject to withholding regimes and an increase in
repatriation taxes; (6) imposition of trade barriers; and (7) limitations on the repatriation of undistributed profits.
Additionally, a significant portion of our revenue is derived from construction works undertaken in certain
countries in Latin America and Africa. Our operations in other countries expose us to significant risks including: (1)
expropriation and nationalization of our assets in a particular jurisdiction or related to a specific construction work
or infrastructure project; (2) social unrest, acts of terrorism, force majeure, war or other armed conflict; (3)
government activities that may result in the indirect deprivation of rights; and (4) risks associated with security of
staff or property, enforcement of obligations or cultural differences.
Certain of the countries in which we operate have significant levels of political risk. For example, civil
disturbances in Bolivia interrupted the construction of the Villa Tunari road, which resulted in the cancellation of
this construction work contract in the first semester of 2012.
The occurrence of any of these risks may materially adversely affect our results of operations and our ability to
conduct business in certain of our existing or developing markets.
We are directly affected by fluctuations in exchange rates between the real and the U.S. dollar and the currencies
of other countries in which we operate and our hedging contracts may not effectively protect us from any
resulting financial market risks.
Our results of operations and financial condition have been, and will continue to be, affected by the depreciation
or appreciation of the real against the currencies of the countries in which we operate, particularly the U.S. dollar
because our revenues, costs, assets and indebtedness are expressed in reais and these other currencies. From time to
time, there have been significant fluctuations in the exchange rate between the Brazilian currency and the U.S. dollar
and other currencies. For example, in 2008, the real depreciated by 31.9% against the U.S. dollar, while it
appreciated by 25.5% and 4.3% against the U.S. dollar in 2009 and 2010, respectively. However, in 2011, the real
depreciated by 12.6% against the U.S. dollar, and in 2012, the real depreciated by 8.9% against the U.S. dollar. On
December 31, 2012 and 2013, the real/U.S. dollar exchange rate was R$2.0435 per U.S.$1.00 and R$2.3426 per
U.S.$1.00, respectively. As of March 31, 2014, the real/U.S. dollar exchange rate was R$2.2630 per $1.00.
Appreciation of the real against the U.S. dollar may lead to the deterioration of Brazils current account and balance
of payments as well as hinder export growth. The depreciation of the real relative to the U.S. dollar generally makes
it more difficult for Brazilian companies to access foreign financial markets and the depreciation of the real would
also make it more costly for us to pay our debts denominated in U.S. dollars. In addition, such depreciation may
prompt government intervention, including recessionary economic policies. Accordingly, any major appreciation or
devaluation of the real against the U.S. dollar or the currencies of other countries in which we operate may have a
material adverse effect on our business, financial condition and results of operations. In addition, hedging contracts
we may enter into may not protect us from all exchange rate risks we may encounter, particularly in the event of a
major devaluation, appreciation of a currency or any resulting financial market risk. Any difficulties that we and our
34
subsidiaries encounter managing risks relating to foreign exchange rates could materially adversely affect our
business, financial condition or results of operations. For additional information relating to our hedging policies and
practices, see Management Discussion and Analysis of Financial Condition and Results of OperationsMarket
RisksForeign Exchange Risk.
Fluctuations in interest rates may materially adversely affect us.
A substantial portion of our indebtedness accrues interest at floating rates. In addition, we enter into derivative
transactions to exchange fixed rates for floating rates in respect of certain of our indebtedness. As of March 31,
2014, R$1,402.0 million (U.S.$619.5 million) and R$6,356.7 million (U.S.$2,809.0 million) of our indebtedness
accrued interest at fixed and floating rates, respectively, while as of the same date we had exchanged fixed rates for
floating rates under derivative transactions totaling an aggregate R$3,320.5 million (U.S.$1,467.3). In the event of
an increase in the floating rates under our indebtedness, including in relation to our derivative transactions, we may
incur substantial additional costs to service our indebtedness, which may materially adversely affect our business,
financial condition and results of operations.
Our use of the percentage-of-completion method of accounting for construction contracts could result in a
reduction or reversal of previously recorded revenues or profits.
Under our accounting policies, we measure and recognize a significant portion of our revenues and profits
under the percentage-of-completion accounting methodology for construction contracts. Under this methodology,
we recognize revenues and profits ratably over the life of a construction contract, without regard to the timing of
receipt of cash payments, by comparing the aggregate amount of costs incurred to date against the total amount of
costs expected to be incurred. The effect of revisions to estimated costs, and thus revenues, is recorded when the
amounts are known and can be reasonably estimated. These revisions can occur at any time and could be material.
Given the uncertainties associated with these types of contracts and inherent in the nature of our industry, it is
possible for actual costs to vary from estimates previously made, which may result in reductions or reversals of
previously recorded revenues and profits.
Furthermore, Law No. 11,079 sets forth that compensation to non-governmental parties under PPP contracts
may be variable and based upon performance evaluated against goals and standards of quality defined in each
contract. Accordingly, our variable compensation under these agreements may be considerably lower than the
contractual amounts based on an evaluation of the performance of our obligations.
Changes in Brazilian GAAP due to convergence to IFRS may adversely affect our consolidated financial
statements.
Brazilian corporate law was amended by Law No. 11,638 dated December 28, 2007 in order to facilitate the
convergence from Brazilian GAAP to IFRS, and thereafter, the CPC issued several new accounting standards that
progressively adapted Brazilian GAAP to IFRS.
Through December 31, 2009, our financial statements were prepared in accordance with Brazilian GAAP in
effect at that time. We elected January 1, 2009 as a transition date to fully comply with the new CPC standards and
amendments to certain Brazilian GAAP accounting in effect as of December 31, 2009. Our financial statements as
of and for the year ended December 31, 2009 were restated during 2010 to reflect these adjustments. We have
adopted all pronouncements, guidelines and interpretations of the CPC issued and effective through March 31, 2014.
Consequently, our consolidated financial statements are prepared in accordance with Brazilian GAAP and IFRS
applicable to real estate development entities in Brazil, in light of our real estate development activities, which
allows revenue recognition using the percentage of completion method for real estate developments from OAS
Empreendimentos and its subsidiaries (i.e., revenue is recorded in accordance with the state of completion of the real
estate development), and are therefore not compliant with IFRS as issued by IASB, which require revenue
recognition when the entity transfers to the buyer control and the significant risks and rewards of ownership of the
real estate in its entirely at a single time (i.e., revenue is recorded upon transferring to the buyer control and
ownership risks and benefits of the purchased of real estate, usually after the construction is completed and the unit
is delivered).
35
In addition, certain matters related to the meaning and application of the continuous transfer of the risks,
benefits and control over the real estate unit sales are under review by the IFRIC. The results of this review may
cause us to revise our accounting practices related to the recognition of revenues from OAS Empreendimentos and
its subsidiaries.
There can be no assurance that these modifications will not materially and adversely (1) affect our consolidated
financial statements, on a retrospective or prospective basis, in particular the recognition of revenues from OAS
Empreendimentos and its subsidiaries and related costs and our financial position and results of operations and (2)
impact the comparability of our financial statements for future periods with our consolidated financial statements
presented herein and the financial covenants of our indebtedness.
We have not included in this offering memorandum our historical financial information as of and for the year
ended December 31, 2011, which limits the comparability of our financial data.
In 2012, the CVM approved a new accounting standard (CPC 19 R2 Joint Arrangements), which impacted our
financial statements as from January 1, 2013. The adoption of this pronouncement was mandatory and applicable for
annual periods beginning on or after January 1, 2013, with retrospective application to investments in jointly
controlled entities on the date of its initial adoption. As a result of the adoption of this new pronouncement, we
restated our financial statements as of and for the year ended December 31, 2012 for comparative purposes, and we
have not retroactively applied this new pronouncement to our historical financial information for the year ended
December 31, 2011, which (1) is therefore not comparable with our financial statements as of and for the years
ended December 31, 2013 and 2012, and (2) has not been included elsewhere in this offering memorandum. Our
non-inclusion of financial information as of and for the year ended December 31, 2011 limits the comparability of
the financial information included in this offering memorandum. For further information regarding the adoption of
this pronouncement, see "Presentation of Financial and Other InformationChanges in Brazilian GAAP due to
convergence to IFRS."
We and our subsidiaries may incur significantly more indebtedness.
While provisions contained in the agreements relating to our indebtedness, including senior notes and perpetual
notes we have issued, limit our ability to incur additional indebtedness, these limitations are subject to certain
significant exceptions and qualifications, and the amount of indebtedness that we could incur in compliance with
these restrictions could be substantial. Accordingly, we or our subsidiaries (in particular our subsidiaries that are not
restricted by the terms of the notes) could incur significant additional indebtedness in the future, which may be
secured indebtedness.
Our indebtedness may adversely affect our financial health and operating flexibility and your investment in the
notes.
Our indebtedness and other financial obligations increase the possibility that we may be unable to generate
cash sufficient to pay, when due, the principal of, interest on, or other amounts due, in respect of our indebtedness,
including the notes. Our indebtedness may also have other significant consequences. For example, our indebtedness
may:
increase our vulnerability to general adverse economic, competitive and industry conditions;
limit our ability to obtain additional financing in the future required for working capital, capital
expenditures, debt, service requirements, acquisitions, general corporate purposes or other purposes on
satisfactory terms or at all;
require us to dedicate a substantial portion of our cash flow from operations to the service of our
indebtedness, thereby reducing the funds available to us for operations and any future business
opportunities;
expose us to the risk of increased interest rates as certain of our borrowings are at variable rates of interest;
36
expose us to the risk of the acceleration of our outstanding indebtedness should we be in default under the
terms of the agreements underlying our indebtedness;
limit our planning flexibility for, or ability to react to, changes in our business and the industries in which
we operate;
limit our ability to adjust to changing market conditions, react to competitive pressures and adverse
changes in government regulation;
limit our ability to enter into marketing and hedging transactions by reducing the number of counterparties
with whom we can enter into such transactions, as well as the volume of those transactions; and
place us at a competitive disadvantage with competitors who may have less indebtedness and other
obligations or greater access to financing.
The occurrence of any of these and other risks related to our indebtedness may have a material adverse effect on
our business, results of operations and financial condition.
Risks Relating to the Infrastructure Industry
The infrastructure industry is exposed to risks associated with the purchase, development, construction and
operation of large-scale construction works and infrastructure projects.
We engage principally in the development, construction and operation of large-scale construction works and
infrastructure projects. In addition to risks generally affecting our industry, such as (1) interruptions in supplies and
volatility in the prices of raw materials and equipment, (2) scarcity of labor, (3) variations in the supply and demand
for construction works and infrastructure projects in certain industries, (4) changes in urban zoning and
environmental regulations and (5) changes in public charges and tax laws applicable to our industry, our activities
may be specifically affected by the following risks:
increases in our costs (which we may not be able to pass on to our clients), capital needs and insurance
premiums;
the construction and delivery of our construction works and infrastructure projects may not be
completed on schedule, resulting in higher construction costs, fines or the unilateral rescission of sales
contracts by our clients;
development opportunities may disappear or significantly decrease, negatively affecting our ability to
implement our business strategy;
delays in the approval or licensing of our construction works and infrastructure projects by
governmental authorities or our failure to obtain any such licenses, as a result of untimely applications
for license renewals and/or uncertainties in connection with (1) technical aspects of studies presented
during the licensing process, (2) the competency of the licensing authority or (3) licensing procedures
in general; and
operating risks, such as fires, explosions, natural disasters and other adverse weather conditions, pipe
or cement failures, collapses, mechanical difficulties and environmental hazards, may lead to (1) injury
or loss of life, (2) severe damage to or destruction of property, natural resources and equipment, (3)
pollution, contamination and other environmental damage, (4) environmental clean-up or other
37
remediation responsibilities, (5) regulatory requirements, (6) investigations and administrative, civil
and criminal penalties, (7) suspension of our operations or (8) repairs to resume our operations.
The occurrence of any of the above-mentioned risks may have a material adverse effect on our business,
financial condition and results of operations.
The infrastructure industry is subject to extensive regulation, which may change from time to time.
The infrastructure industry is subject to extensive building, zoning, operational, regulatory and environmental
regulation by federal, state and municipal authorities both in Brazil and abroad. These regulations, such as
regulations relating to the use of raw materials, including the prohibition on using illegal wood or material
containing substances that may be hazardous to health, such as asbestos, as well as consumer and environmental
protection statutes and regulations, affect infrastructure activities. As a result, we may face delays in the
construction of our construction works and infrastructure projects and incur substantial compliance and other costs,
which may inhibit or severely restrict our activities. Changes to laws or regulations, or stricter interpretation or
enforcement of existing laws or regulations, may materially adversely affect our business, results of operations and
financial condition.
Moreover, we must comply with multiple labor, tax, environmental and administrative laws and regulations. If
they fail to comply with such rules and regulations, we may be subject to liability, which may materially adversely
affect our business, results of operations and financial condition.
We are subject to multiple federal, state and local laws and regulations, including those related to construction,
zoning, land use, environmental protection and the protection of national heritage, the consumer and competition.
We must obtain, maintain and renew licenses, permits and authorizations from government authorities to develop
our business. If we fail to comply with these laws and regulations, we may be subject to fines, injunctions,
suspension of licenses and revocation of permits and other restrictions to our development and construction
activities, which may materially adversely affect our financial condition and results of operations.
Regulations governing the infrastructure industry, including environmental laws, may become stricter in the
future. We cannot assure you that stricter rules will not be approved or that, if approved, they will not be applicable
to us and our subsidiaries, or that stricter interpretations of existing laws and regulations will not require us and our
subsidiaries to use additional funds to comply with such rules and interpretations, thus increasing the cost of our
construction works and infrastructure projects, which could materially adversely affect our business and the trading
price of the notes.
The development schedule of construction works and infrastructure projects is subject to delays, interruptions
and cost overruns.
Historically, some construction works and infrastructure projects have experienced cost increases and overruns
due to, among other factors, the unavailability or high cost of essential equipment, supplies, personnel and
engineering and construction services. Operating and capital costs are not fixed and remain dependent upon a
number of factors, including the completion of detailed cost estimates and final engineering, contracting and
procuring costs. There is no assurance that construction and operation schedules will proceed as planned without
any delays, interruptions or cost overruns. Any delays or interruptions may increase the costs of the construction
works and infrastructure projects, requiring additional capital, and there can be no assurance that the funding of such
increased costs will be available in a timely and cost-effective fashion.
Development of construction works and infrastructure projects may be materially adversely affected by one or
more factors commonly associated with large-scale construction works and infrastructure projects such as
political events;
blockades or embargoes;
litigation;
accidents;
difficulties in obtaining approval to relocate the population occupying a given construction work or
infrastructure project site to another site;
difficulties in obtaining or renewing licenses and/or authorizations from governmental agencies and
entities; and
Any of these events or other unanticipated events could give rise to delays in development and completion of
our construction works and infrastructure projects and cost overruns, which could have a material adverse effect on
our business, results of operations and financial condition.
We are subject to risks associated with the cyclical nature of the construction industry.
Fluctuating demand cycles are common in the heavy engineering industry and can have a significant impact on
the degree of competition for available projects. As such, fluctuations in the demand for heavy engineering services
or the ability of the private and/or public sector to fund projects in the current economic climate could materially
adversely affect our backlog and margin and thus our results. Given the cyclical nature of the heavy engineering
industry, our financial results, similar to others in the industry, may be materially adversely impacted in any given
period by a wide variety of factors beyond our control and as a result there may be from time to time significant and
unpredictable variations in our results of operations.
Costs related to occupational safety regulations, as well as those related to outsourced professionals, may be
relevant and materially adversely affect our results.
We operate in a sector that involves risks for our employees and for the employees of third-parties, including
risk of death, and are therefore subject to extensive occupational safety regulations in the countries in which we
operate. Under Brazilian law, for example, we must provide safety equipment to all employees working on our
construction works and infrastructure projects and certify that they are all using this equipment. Modifications to
regulations regarding occupational safety procedures may impose additional obligations and result in higher costs
for investments in equipment and safety practices. There can be no assurance that the modifications in legislation
will not have a material impact on our operations. Any of these events may materially adversely affect our business,
results of operations and financial condition.
Moreover, we are subject to periodic and regular investigations by labor officials and governmental bodies,
including the Brazilian Ministry of Labor and the Brazilian Office of the Public Prosecutor for Labor with respect to
our compliance with labor rules and regulations, including those relating to occupational health and safety. These
investigations could result in fines and proceedings that may materially and adversely affect our business, results of
operations and financial condition. For additional information, see Risk FactorsWe may incur losses and spend
time and money defending pending litigation and administrative proceedings and Business OverviewLegal and
Administrative Proceedings.
39
interest rates;
monetary policy;
currency fluctuation;
inflation;
In particular, Brazilian politics have historically affected the performance of the Brazilian economy. Past
political crises have affected the confidence of investors and the public, generally resulting in an economic
slowdown and volatility of securities issued by Brazilian companies. Recently, in the second and third quarters of
2013, wide-scale protests throughout Brazil focused on economic and political reform lead to a climate of growing
uncertainty. In addition, Brazilian general elections will be held in October 2014, the outcome of which may
significantly impact the Brazilian economy. Brazilian presidents have substantial power to determine public policy,
as well as to introduce measures affecting the Brazilian economy and the operations and financial results of
companies such as ours. New and amended Brazilian policies and regulations, whether in response to further
protests, as a result of the upcoming general elections or otherwise, could have a material adverse effect on our
business, financial condition and results of operations.
Uncertainty over whether the Brazilian government will implement changes in policies or regulations affecting
these and other factors may create instability in the Brazilian economy and increase the volatility of the Brazilian
securities markets, which may have a material adverse effect on us and the trading price of the notes.
Government efforts to combat inflation may hinder the growth of the Brazilian economy and could harm our
business.
In the past, Brazil has experienced extremely high inflation rates and has therefore enacted monetary policies
designed to combat inflation that have had adverse effects on the Brazilian economy. In 2010, 2011, 2012 and 2013
and the three-month period ended March 31, 2014, inflation rates in Brazil were 11.3%, 5.1%, 7.8%, 5.5% and
2.5%, respectively, according to the General Market Price Index (ndice Geral de Preos Mercado), or the IGPM, and 5.9%, 6.5%, 5.8%, 5.9% and 2.2%, respectively, according to the National Consumer Price Index (IPCA).
Inflation and the Brazilian government's measures to fight it, mainly implemented through the Brazilian Central
Bank, have had and may have significant effects on the Brazilian economy and our business. Tight monetary
policies with high interest rates may restrict Brazil's growth and the availability of credit. Conversely, more lenient
government and Brazilian Central Bank policies and interest rate decreases may trigger increases in inflation, and
consequently, volatility and the need for sudden and significant interest rate increases, which could negatively affect
40
our business. In addition, if Brazil experiences high inflation in the future, we may not be able to pass on to clients
all or part of such increase to adequately offset the effects of inflation on our cost structure, which may materially
adversely affect our operating margins. Furthermore, our debt and other obligations as adjusted for inflation would
increase proportionally, which could materially adversely affect our financial condition and operating results, if we
are not be able to pass on all or part of such increase to our clients.
Developments and the perception of risk in other countries, particularly in other emerging market countries and
the United States and the European Union, may materially adversely affect the market price of securities issued
or guaranteed by Brazilian companies, including the notes.
The market value of securities issued or guaranteed by Brazilian companies is affected by economic and market
conditions in other countries, particularly in other emerging market countries, in the United States and in the
European Union. Although economic conditions in other countries may differ significantly from economic
conditions in Brazil, investors' reactions to developments in other countries may have a material adverse effect on
the market value of Brazilian securities. Crises in emerging market countries, in the United States and in the
European Union may diminish investor interest in the securities of Brazilian issuers or guarantors, including our
notes. Share prices on the BM&FBOVESPA, for example, are historically affected by interest-rate fluctuations in
the United States as well as by variations of major U.S. stock indexes. This could materially adversely affect the
trading price of the notes and could also make it more difficult for us to gain access to the capital markets and
finance our operations in the future on acceptable terms or at all.
The global financial crisis that began during the second half of 2008 has had significant consequences,
including in Brazil (e.g., stock and credit market volatility, unavailability of credit, higher interest rates, general
economic slowdown, volatile exchange rates and inflationary pressure, among others), and may influence the market
price of the notes, and make it difficult or impossible for us to access the capital markets or obtain financing for our
operations on acceptable terms or at all. The duration and severity of this and other crises remain unpredictable and
continue to pose risks beyond our control, including currency and foreign exchange rates, interest rates, inflation,
liquidity, economic growth, trade flows, business investment and capital expenditures, corporate earnings,
government spending and commodity price risks.
Judgments of Brazilian courts enforcing our obligations under the notes are payable only in Brazilian reais.
If proceedings were brought in the courts of Brazil seeking to enforce our obligations under the guarantees, we
would not be required to discharge our obligations in a currency other than reais. Any judgment obtained against us
in Brazilian courts in respect of any payment obligations under the guarantees will be expressed in reais equivalent
to the U.S. dollar amount of such payment at the exchange rate on (1) the date of actual payment, (2) the date on
which such judgment is rendered or (3) the actual due date of the obligations, as published by the Central Bank.
There can be no assurance that such rate of exchange will afford you full compensation of the amount invested in
the notes plus accrued interest.
Changes in Brazilian tax laws may have a material adverse impact on the taxes applicable to our business.
The Brazilian government frequently implements changes to tax regimes that affect us and our clients. These
changes include changes in prevailing tax rates and, on occasion, enactment of temporary taxes, the proceeds of
which are earmarked for designated governmental purposes.
Some of these changes may result in increases in our payment of taxes, which could materially adversely impact
industry profitability and increase the prices of our services, restrict our ability to do business in our existing and
target markets and cause our financial results to suffer. There can be no assurance that we will be able to maintain
our projected cash flow and profitability following any increases in Brazilian taxes applicable to us and our
operations.
Brazilian foreign exchange policy may materially adversely affect our ability to make remittances outside Brazil
in respect of the guarantees.
Under Brazilian foreign exchange regulations, Brazilian companies are not required to obtain authorization
from the Central Bank or any other governmental authority, in order to make payments in U.S. dollars outside Brazil
41
under guarantees in favor of foreign persons, such as the holders of the notes. We cannot assure you that these
regulations will continue to be in force at the time we may be required to perform our payment obligations under the
guarantees. If these regulations or their current interpretations were modified and an authorization from the Central
Bank were required, we may need an authorization from the Central Bank to transfer the amounts under the
guarantees outside Brazil or, alternatively, be required to make such payments with any funds that we hold outside
Brazil. We cannot assure you that we would be able to obtain such an authorization or that we will have such funds
available.
Risks Relating to the Notes
The interests of the controlling shareholder of the issuer may conflict with your interest as a holder of the notes.
OAS S.A., the controlling shareholder of OAS Finance Limited, the issuer, and of Construtora OAS and OAS
Investimentos, holds 100% of the issuers and these guarantors voting share capital and has the power to, among
other things: (1) elect the majority of the issuers and the guarantorsexecutive officers; and (2) determine the
outcome of any action requiring shareholder approval, including transactions with related parties, acquisitions and
dispositions of assets and the timing and payment of any future dividends, according to the Brazilian Corporation
Law. OAS S.A., as OAS Finance Limiteds, Construtora OAS and OAS Investimentos controlling shareholder,
has the power to engage in transactions that may create the potential for, or could result in, conflicts of interests with
the holders of the notes.
We cannot assure you that a judgment of a United States court for liabilities under U.S. securities laws would be
enforceable in Brazil or the British Virgin Islands, or that an original action can be brought in Brazil or British
Virgin Islands against us for liabilities under U.S. securities laws.
The issuer has been organized under the laws of British Virgin Islands. All of its directors and our officers and
certain advisors named herein reside in Brazil. Substantially all of its assets and those of these other persons are
located outside the United States. We are organized under the laws of Brazil and a majority of our assets are located
in Brazil. In addition, each of our controlling shareholders, all of our executive officers and certain advisors named
herein reside in Brazil. As a result, it may not be possible for investors to effect service of process within the United
States upon us or our controlling shareholders, executive officers and advisors or to enforce against them in U.S.
courts any judgments predicated upon the civil liability provisions of the U.S. federal securities laws. See
Enforcement of Civil Liabilities.
We cannot assure you that an active trading market for the notes will develop.
The notes constitute an issue of securities for which there is no active trading market. Although we will apply
to list the notes on the Irish Stock Exchange for trading on the Global Exchange Market, there can be no assurance
that a trading market for the notes will develop or, if one does develop, will be maintained. As a result, we cannot
provide you with any assurances regarding the future development of a market for the notes, the ability of holders of
the notes to sell their notes, or the price at which such holders may be able to sell their notes. If such a market were
to develop, the notes could trade at prices that may be higher or lower than their initial offering price depending on
many factors, including prevailing interest rates, our results of operations and financial condition, political and
economic developments in and affecting Brazil and the market for similar securities. The initial purchasers of this
offering have advised us that they currently intend to make a market in the notes. However, the initial purchasers
are not obligated to do so, and any market making with the respect to the notes may be discontinued at any time
without notice.
The notes are subject to transfer restrictions.
The notes have not been registered under the Securities Act or the securities laws of any U.S. state or any other
jurisdiction, and, unless so registered, may not be offered, sold or otherwise transferred except pursuant to an
exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable
state securities laws. Due to these transfer restrictions, you may be required to bear the risk of your investment for
an indefinite period of time. For a discussion of certain restrictions on resale and transfer, see Transfer
Restrictions. In addition, we have not authorized any offer of notes to the public in the United Kingdom within the
meaning of the Regulations. Accordingly, the notes may not lawfully be offered or sold to persons in the United
42
Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which do not
and will not result in an offer to the public in the United Kingdom within the meaning of the Financial Services and
Markets Act 2000, or FSMA.
A downgrade, suspension or withdrawal of the rating assigned by any rating agency to the notes could result in a
reduction in the market value of the notes.
The notes have been rated by certain rating agencies. Any rating so assigned may be lowered, suspended or
withdrawn entirely by a rating agency if, in that rating agencys judgment, circumstances relating to the basis of the
rating, such as an adverse change to our business, so warrant. Any reduction, suspension or withdrawal of a rating
by a rating agency could reduce the market value of the notes.
Brazilian bankruptcy laws may be less favorable to you than U.S. bankruptcy and insolvency laws.
If we are unable to pay our indebtedness, including our obligations under the guarantees, then we may become
subject to bankruptcy proceedings in Brazil. Brazilian bankruptcy laws are significantly different from, and may be
less favorable to creditors than, those of the United States or of other jurisdictions. In addition, any judgment
obtained against us in Brazilian courts in respect of any payment obligations under the notes normally would be
expressed in the real equivalent of the U.S. dollar amount of such sum at the exchange rate in effect on the date
(1) of actual payment, (2) on which such judgment is rendered, or (3) on which collection or enforcement
proceedings are started against us. Consequently, in the event of our bankruptcy, all of our debt obligations that are
denominated in foreign currency, including the notes, will be converted into reais at the prevailing exchange rate on
the date of declaration of our bankruptcy by the court.
The obligations under the guarantees will be subordinated to certain statutory liabilities.
Under Brazilian law, our obligations under the guarantees are subordinated to certain statutory preferences. In the
event of our liquidation or bankruptcy, these statutory preferences, including motions for restitution, post-petition claims,
claims for salaries, wages, social security, taxes and court fees and expenses and claims secured by collateral, among
others, will have preference and priority over any other claims, including any claims in respect of the guarantees.
Not all our subsidiaries are guaranteeing the notes and not all future subsidiaries will be required to guarantee
the notes, and the assets of any non-guarantor subsidiaries may not be available to make payments on the notes.
The guarantors of the notes do not include all of our subsidiaries and holders of the notes will not have any
claim against those subsidiaries that are not guarantors of the notes. However, our financial information is presented
on a consolidated basis. In the event that any of our non-guarantor subsidiaries becomes insolvent, liquidates,
reorganizes, dissolves or otherwise winds up, holders of their debt, and their trade creditors generally, will be
entitled to payment on their claims from the assets of that subsidiary before any of those assets are made available to
us or any guarantors. Consequently your claims in respect of the notes will be effectively subordinated to all of the
liabilities of any of our subsidiaries that is not a guarantor, including their trade payables.
The guarantors hold a significant part of their assets indirectly through non-guarantor subsidiaries; creditors of
those non-guarantors subsidiaries have a claim the non-guarantor subsidiary guarantors assets that is effectively
senior to that of holders of the notes.
The guarantors hold a significant part of their assets indirectly through non-guarantor subsidiaries, that are separate
and distinct legal entities with no obligation, contingent or otherwise, to pay any amounts due under the notes or to make
any funds available for any of those payments. Claims of creditors of our non-guarantor subsidiaries, including trade
creditors and banks and other lenders, will effectively have priority over the holders of the notes with respect to the assets
and cash flows of those subsidiaries. In addition, the holders of the notes will be limited in their ability to participate in
distributions of assets of our subsidiaries to the extent that the outstanding shares of any of our subsidiaries are either
pledged as collateral to other creditors or are not owned by us.
The guarantees are unsecured and rank equally with our existing and future unsecured unsubordinated
indebtedness.
43
The guarantees are unsecured and constitute the unsubordinated and unsecured obligation of the guarantors and will
rank pari passu in priority of payment with all of the guarantors other present and future unsubordinated and unsecured
obligations. Although the guarantees provide noteholders with a direct, but unsecured, claim on our assets and property,
the guarantees are effectively junior to secured debt, to the extent of the assets and property securing such debt. The
guarantees will also be junior to the indebtedness of any of our non-guarantor subsidiaries. If we become insolvent or are
liquidated, or default in the payment of our obligations, secured creditors and other creditors that have senior claims will
be entitled to exercise the remedies available to them under applicable law and will have a prior claim on our assets
covered by their liens.
Certain of our subsidiaries are not subject to any covenants in the indenture governing the notes.
Only certain of our subsidiaries are subject to the covenants of the notes, including the restrictions to incur
additional debt or other liabilities and to pay dividends, leaving a number of our other subsidiaries unrestricted by the
covenants under the indenture. The indenture permits us to designate certain project companies and joint venture
companies as unrestricted subsidiaries if we have investment capacity under the indenture. We expect that our
unrestricted subsidiaries will, from time to time, incur additional debt and other liabilities. If these unrestricted
subsidiaries incur additional debt or liabilities or make significant payments of dividends, our ability to pay our
obligations on the notes could be adversely affected. See Description of the Notes Restrictive Covenants.
We may not be able to repurchase the notes upon a change of control.
Upon the occurrence of a Change of Control that results in a Ratings Decline, both defined below, unless we have
previously exercised our right to redeem the notes, each holder of the notes will have the right to require us to repurchase
all or any part of such holders notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest
and additional amounts, if any, to the date of repurchase. If we experience a Change of Control that results in a Ratings
Decline, there can be no assurance that we would have sufficient financial resources available to satisfy our obligations
to repurchase the notes. Our failure to repurchase the notes as required would result in a default under the indenture,
which could have material adverse consequences for us and the holders of the notes. See Description of the Notes
Repurchases at the Option of the Holders of the Notes upon Change of Control.
44
USE OF PROCEEDS
We estimate that our net proceeds from this offering will be approximately U.S.$395.2 million, after deducting
estimated commissions and offering expenses payable by us.
We intend to use (1) approximately U.S.$355.7 million to U.S$375.4 million (or 90% to 95%) of the net
proceeds of this offering to prepay a portion of our long-term indebtedness and (2) the remainder for general
corporate purposes.
In connection with our intended repayment of indebtedness using the net proceeds of this offering, we intend to
repay certain outstanding indebtedness owed to certain affiliates of the initial purchasers as set forth in the table
below:
Lender
Outstanding Amount
as of March 31, 2014
(in millions of
(in millions of reais)
U.S.$)(1)
247.2
109.2
89.6
202.8
198.8
450.0
(1) Solely for the convenience of the reader, Brazilian real amounts as of March 31, 2014 have been translated into U.S. dollars at the
commercial selling rate as of March 31, 2014, of R$2.2630 per U.S.$1.00. These translations should not be considered representations
that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate. See
Exchange Rates for further information about recent fluctuations in exchange rates.
45
EXCHANGE RATES
The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international
transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures.
Since 1999, the Central Bank has allowed the real/U.S. dollar exchange rate to float freely, and, since that time,
the real/U.S. dollar exchange rate has fluctuated considerably. The real depreciated against the U.S. dollar by
18.7% in 2001 and 52.3% in 2002, and the real appreciated by 18.2%, 8.1%, 11.8%, 8.7% and 17.2% against the
U.S. dollar in 2003, 2004, 2005, 2006 and 2007, respectively. In 2008, the real depreciated by 31.9% against the
U.S. dollar, while it appreciated by 25.5% and 4.2% against the U.S. dollar in 2009 and 2010, respectively.
However, in 2011, the real depreciated by 12.6% against the U.S. dollar, and in 2012, the real depreciated by 8.9%
against the U.S. dollar. On December 31, 2012 and 2013, the real/U.S. dollar exchange rate was R$2.0435 per
U.S.$1.00 and R$2.3426 per U.S.$1.00, respectively. As of March 31, 2014, the real/U.S. dollar exchange rate was
R$2.2630 per $1.00.
In the past, the Brazilian federal government has implemented various economic plans and utilized a number of
exchange rate policies, including sudden devaluation, periodic mini-devaluation during which the frequency of
adjustments ranged from a daily to a monthly basis, floating exchange rate systems, exchange controls and dual
exchange rate markets. We cannot predict whether the Central Bank or the Brazilian federal government will
continue to allow the real to float freely or intervene in the foreign exchange rate market. The real may depreciate
or appreciate substantially against the U.S. dollar.
The following tables set forth the selling rate, expressed in reais per U.S. dollar (R$/U.S.$) for the years and
months indicated, as reported by the Central Bank:
Year Ended December 31,
Period-end
2009 ........................................................................
1.741
2010 ........................................................................
1.666
2011 ........................................................................
1.876
2012 ........................................................................
2.044
2013 ........................................................................
2.343
____________
(1) Represents the daily average of the exchange rates during the period.
Source: Central Bank
Month
December 2013 ....................................................
January 2014 ........................................................
February 2014 ......................................................
March 2014...........................................................
April 2014.............................................................
May 2014 ..............................................................
June 2014 (through June 16) ...................................
Period-end
2.343
2.426
2.333
2.263
2.236
2.239
2.231
Average for
Period (1)
Low
(reais per U.S. dollar)
1.994
1.702
1.759
1.655
1.675
1.535
1.955
1.702
2.161
1.953
Average for
Low
Period(1)
(reais per U.S. dollar)
2.345
2.310
2.382
2.334
2.384
2.333
2.326
2.260
2.233
2.197
2.221
2.210
2.247
2.230
High
2.422
1.881
1.902
2.112
2.446
High
2.382
2.440
2.424
2.365
2.281
2.241
2.280
(1) Represents the daily average of the exchange rates during the period.
Source: Central Bank.
As of June 16, 2014, the U.S. dollar selling rate published by the Central Bank was R$2.231 per U.S.$1.00.
46
CAPITALIZATION
The following table sets forth our consolidated short- and long-term loans and financing, debentures and senior
and perpetual notes, total equity and total capitalization:
as adjusted to give effect to the issuance by OAS S.A. of an aggregate R$160.0 million in debentures on
April 10, 2014; and
as further adjusted to give effect to (1) approximately U.S.$395.2 million in estimated net proceeds
from this offering, after the deduction of estimated commissions and offering expenses payable by us,
(2) our intended repayment of indebtedness using such net proceeds of an estimated U.S.$355.7
million of long-term loans and financing and our intended use of the remainder of such net proceeds
(U.S.$39.5 million) for general corporate purposes, assuming, in each case, that we use 90% of such
net proceeds for the repayment of indebtedness.
The information set forth below on an actual basis as of March 31, 2014 is derived from our consolidated
financial statements as of March 31, 2014.
You should read this table in conjunction with Presentation of Financial and Other Information, Selected
Financial and Other Information, Managements Discussion and Analysis of Financial Condition and Results of
Operations and our unaudited interim consolidated financial statements and notes thereto included elsewhere in this
offering memorandum.
As of March 31, 2014
(Unaudited)
(in millions
of reais)
Short-term indebtedness
Loans and financing ..................................
Debentures ................................................
Senior and perpetual notes ........................
Total short-term indebtedness...................
Long-term indebtedness
Loans and financing ..................................
Debentures ................................................
Senior and perpetual notes ........................
Total long-term indebtedness....................
Total indebtedness ..........................................
Total equity .....................................................
Total capitalization(4) ....................................
__________________________
Actual
(in millions of
U.S.$)(3)
As Adjusted(1)
(in millions
(in millions
of reais)
of U.S.$)(3)
As Further Adjusted(2)
(in millions
(in millions
of reais)
of U.S.$)(3)
763.6
508.0
93.0
1,364.6
337.4
224.5
41.1
603.0
763.6
508.0
93.0
1,364.6
337.4
224.5
41.1
603.0
763.6
508.0
93.0
1,364.6
337.4
224.5
41.1
603.0
1,419.8
1,939.8
3,034.5
6,394.1
7,758.7
2,115.4
9,874.1
627.4
857.2
1,340.9
2,825.5
3,428.5
934.8
4,363.3
1,419.8
2,099.8
3,034.5
6,554.1
7,918.7
2,115.4
10,034.1
627.4
927.9
1,340.9
2,896.2
3,449.2
934.8
4,434.0
1,124.6
1,590.1
3,928.8
6,643.5
8,008.1
2,115.4
10,123.5
497.0
702.6
1,736.1
2,935.7
3,538.7
934.8
4,473.5
(1)
(2)
As adjusted to give effect to the issuance by OAS S.A. of an aggregate R$160.0 million in debentures on April 10, 2014.
As further adjusted to give effect to (1) approximately U.S.$395.2 million in estimated net proceeds from this offering, after the deduction
of estimated commissions and offering expenses payable by us, (2) our intended repayment of indebtedness using such net proceeds of an
estimated U.S.$355.7 million of long-term loans and financing and our intended use of the remainder of such net proceeds (U.S.$39.5
million) for general corporate purposes, assuming, in each case, that we use 90% of such net proceeds for the repayment of indebtedness.
(3) Solely for the convenience of the reader, Brazilian real amounts as of March 31, 2014 have been translated into U.S. dollars at the
commercial selling rate as of March 31, of R$2.2630 per U.S.$1.00. These translations should not be considered representations that any
such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate. See Exchange
Rates for further information about recent fluctuations in exchange rates.
(4) Total capitalization corresponds to the sum of short- and long-term loans and financing and debentures, senior and perpetual notes and
total equity.
Except as set forth above, there have been no material changes to our total capitalization as of March 31, 2014,
except as described above.
47
(Unaudited)
(in millions
of U.S.$)(1)
CONSOLIDATED STATEMENTS OF
OPERATIONS
Net revenue ..................................................................
Cost of service and sales ..............................................
Gross profit .....................................................................
Operating income (expenses)
General and administrative expenses...........................
Management compensation .........................................
Depreciation and amortization .....................................
Employee profit-sharing ..............................................
Other operating income (expenses), net ......................
Income before equity pick-up, financial income
(expenses) and income taxes .........................................
Equity pick-up ..............................................................
Income before financial income (expenses) and
income taxes ....................................................................
785.0
(642.8)
142.2
1,776.4
(1,454.6)
321.9
1,449.6
(1,185.1)
264.6
3,502.8
(2,827.9)
674.9
7,926.8
(6,399.5)
1,527.3
5,825.8
(4,662.2)
1,163.6
(91.7)
(3.8)
(5.5)
(7.2)
499.9
(207.5)
(8.5)
(12.4)
(16.3)
1,131.2
(205.6)
(3.6)
(14.0)
(16.7)
24.6
(366.0)
(11.9)
(8.3)
(59.3)
(4.3)
(828.3)
(27.0)
(18.7)
(134.1)
(9.7)
(738.7)
(12.8)
(15.4)
(147.1)
536.5
534.0
0.4
1,208.4
1.0
49.3
0.9
225.1
(2.6)
509.4
(5.8)
786.1
31.4
534.4
1,209.3
50.2
222.5
503.6
817.6
189.4
(264.8)
(75.3)
428.6
(599.2)
(170.5)
113.7
(163.2)
(49.6)
623.2
(832.7)
(209.5)
1,410.3
(1,884.3)
(474.0)
184.2
(456.2)
(272.0)
459.0
1,038.8
0.6
13.1
29.6
545.5
(1.8)
(129.7)
327.5
(4.0)
(293.6)
741.2
(28.2)
20.2
(7.4)
(47.5)
42.0
7.6
(107.4)
95.0
17.2
(31.3)
(31.0)
483.3
48
As of March 31,
2014
2014
2013
(Unaudited)
(in millions of
(in millions of
U.S.$)(1)
reais)
(in millions of
U.S.$)(1)
704.0
173.4
4.2
1,518.7
13.4
324.4
1.0
111.9
177.9
3,028.9
1,593.2
392.5
9.4
3,436.8
30.3
734.1
2.2
253.3
402.7
6,854.4
891.5
295.3
4.1
1,219.4
24.2
307.5
1.0
104.6
202.3
3,049.9
As of December 31,
2013
2012
(As
restated)(2)
2,017.4
668.3
9.3
2,759.5
54.8
695.9
2.2
236.7
457.8
6,901.9
2,139.0
500.7
1,619.9
35.8
671.9
4.0
82.9
386.7
16.5
5,457.3
Non-current assets
Marketable securities .....................................................
352.2
797.0
356.3
806.2
12.4
Financial instruments derivatives ...............................
237.7
538.0
261.1
590.9
49
As of March 31,
2014
2014
(in millions of
U.S.$)(1)
Liabilities and equity
Current liabilities
Trade accounts payable ................................................
Loans and financing .....................................................
Debentures ....................................................................
Senior and perpetual notes ...........................................
Salaries, provisions and social contributions ...............
Taxes and contributions payable ..................................
Income tax and social contribution payable.................
Related parties ..............................................................
Advances from third parties .........................................
Deferred revenue ..........................................................
Tax installment program Law 11,941 .......................
Dividends and interest on equity payable ....................
Public services concessions..........................................
Provision for tax, civil and labor claims ......................
Other liabilities .............................................................
Total current liabilities
Non-current liabilities
Trade accounts payable ................................................
Loans and financing .....................................................
Debentures ....................................................................
Senior and perpetual notes ...........................................
Financial instruments derivatives..............................
Taxes and contributions payable ..................................
Deferred income tax and social contribution ...............
Tax installment program Law 11,941 .......................
Related parties ..............................................................
Advances from third parties .........................................
Public service concessions ...........................................
Provision for tax, civil and labor claims ......................
Provision for investment losses ....................................
Deferred revenue ..........................................................
Other liabilities .............................................................
Total non-current liabilities ..........................................
Equity
Capital...........................................................................
Revaluation reserve .....................................................
Income reserves ............................................................
Other reserves ...............................................................
Retained earnings .........................................................
Total equity attributed to controlling interest ..............
Non-controlling interest ...............................................
Total equity .....................................................................
Total liabilities and equity .............................................
(Unaudited)
(in millions of
reais)
2013
(in millions of
U.S.$)(1)
As of December 31,
2013
2012
(As
restated)(2)
366.7
337.4
224.5
41.1
150.1
45.2
28.5
138.0
83.2
12.3
0.0
1.6
1.0
82.5
1,512.3
829.9
763.6
508.0
93.0
339.6
102.3
64.6
312.2
188.3
27.9
0.0
3.6
2.3
186.9
3,422.4
402.6
345.2
269.3
23.7
132.6
49.4
39.9
115.2
103.0
12.2
0.0
1.6
1.5
99.0
1,595.2
911.1
781.3
609.5
53.7
300.0
111.9
90.3
260.6
233.0
27.5
0.0
3.7
3.3
224,1
3,610.0
551.8
804.6
444.2
17.1
251.6
130.8
48.9
0.6
186.4
252.9
25.8
104.6
22.2
5.8
233,3
3,080.6
2.5
627.4
857.2
1,340.9
276.8
60.5
263.0
52.7
44.1
123.6
20.8
11.8
11.5
172.6
143.7
4,009.1
5.7
1,419.8
1,939.8
3,034.5
626.4
137.0
595.1
119.3
99.8
279.7
47.1
26.8
26.1
390.5
325.3
9,072.7
0.6
547.1
899.6
1,386.5
269.3
47.8
137.1
54.8
9.1
144.7
20.8
8.6
10.3
188.5
148.5
3,873.5
1.4
1,238.2
2,035.9
3,137.6
609.4
108.1
310.2
124.1
20.7
327.5
47.1
19.5
23.4
426.6
336.1
8,765.8
6.3
1,283.2
1,401.0
996.9
26.8
290.9
134.0
28.1
598.9
44.2
16.8
15.3
570.2
75.7
5,488.3
220.9
7.6
169.2
89.3
325.2
812.2
122.6
934.8
6,456.3
500.0
17.1
382.9
202.1
735.9
1,838.0
277.4
2,115.4
14,610.5
220.9
7.6
169.2
28.1
425.9
100.4
526.3
5,995.1
500.0
17.3
382.9
63.6
963.8
227.3
1,191.1
13,567.0
500.0
19.4
334.7
108.1
962.2
136.8
1,099.0
9,667.9
___________________________
(1)
(2)
Solely for the convenience of the reader, Brazilian real amounts as of March 31, 2014 and December 31, 2013 have been translated into
U.S. dollars at the commercial selling rate as of March 31, 2014, of R$2.2630 per U.S.$1.00. These translations should not be considered
representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange
rate. See Exchange Rates for further information about recent fluctuations in exchange rates.
We have adopted CPC 19 (R2) as from January 1, 2013 and restated our consolidated balance sheet as of December 31, 2012 for
comparative purposes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Changes in
Accounting Practices."
50
327.5
75.3
131.5
22.4
556.8
(7.4)
49.6
8.0
51.3
101.5
17.2
474.0
12.4
191.2
694.8
483.3
272.0
62.3
104.6
922.2
___________________________
(1)
(2)
(3)
Solely for the convenience of the reader, Brazilian real amounts for the three-month period ended March 31, 2014 and for the year ended
December 31, 2013 have been translated into U.S. dollars at the commercial selling rate as of March 31, 2014, of R$2.2630 per U.S.$1.00.
These translations should not be considered representations that any such amounts have been, could have been or could be converted into
U.S. dollars at that or at any other exchange rate. See Exchange Rates for further information about recent fluctuations in exchange rates.
We have adopted CPC 19 (R2) as from January 1, 2013 and restated our consolidated statement of income for the year ended December 31,
2012 for comparative purposes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Changes
in Accounting Practices."
EBITDA means net income (loss) plus financial income (expenses) net, plus income tax and social contribution, plus depreciation and
amortization. EBITDA is not an IFRS or Brazilian GAAP measure, does not represent cash flow for the years and periods indicated and
should not be considered an alternative to net income (loss), as an indicator of our performance or as an alternative to cash flow as a source
of liquidity. Our definition of EBITDA may not be comparable with EBITDA as defined by other companies. Our management considers
EBITDA, notwithstanding the limitations previously mentioned, and in conjunction with other accounting and financial information
available, a reasonable indicator for comparisons between us and our principal competitors in the market.
51
Our heavy engineering division specializes in the construction of complex construction works. We
maintain a diversified portfolio of construction works in the public and private sector, in Brazil and in
various other Latin American and African countries and across a variety of industries, including
transportation, urban infrastructure, oil and gas, energy, industrial facilities and sanitation, among
others.
Our investment division invests equity in infrastructure projects, which principally include concessions
granted by governmental authorities and projects sponsored by public or private clients as well as
public-private sector partnerships, or PPPs. Having structured and invested in select infrastructure
projects originated within our heavy engineering division since 1994, through our investment division
we directly and indirectly hold equity interests in and direct the operation of highway, subway,
sanitation, airport and sports arenas concessions, among others.
We seek to capitalize on the synergies between our heavy engineering and investment divisions by
participating, when advantageous, in each stage of the infrastructure value chain through the origination, structuring,
development, investment in and operation of infrastructure projects, generating equity investment opportunities for
our investment division and construction works for our heavy engineering division. This strategy enables us to
capture the margins generated by our heavy engineering services and participate in a projects return on investment
through our equity interest in the project.
Changes in Accounting Practices
In May 2011, the IASB issued the following accounting standard, which impacts our financial statements as
from January 1, 2013:
This accounting standard was approved by the CVM in 2012, and converted into the following pronouncement
by the CPC:
The adoption of this pronouncement is mandatory and applicable for annual periods beginning on or after
January 1, 2013, with retrospective application to investments in jointly controlled entities on the date of the initial
adoption. This pronouncement provides that jointly controlled entities must be recorded in our financial statements
pursuant to the equity method. The proportional consolidation of jointly controlled entities, which was allowed
through the year ended December 31, 2012, is no longer permitted.
With the adoption of this new pronouncement for the year ended December 31, 2013, the joint ventures Ecovap
Engenharia e Construes Vale do Paraba Ltda., Fonte Nova Negcios e Participaes S.A., Invepar,
Concessionria Porto Novo S.A., Construtora OAS LLC (Qatar) and OAS Emirates LLC are no longer
proportionally consolidated.
As a result of the adoption of this new pronouncement, our consolidated financial statements as of and for the
year ended December 31, 2012 were restated for comparative purposes, and we have not retroactively applied this
new pronouncement to our historical financial information for the year ended December 31, 2011, which (1) is
therefore not comparable with our financial statements as of March 31, 2014 and for the three-month periods ended
March 31, 2014 and 2013 and as of and for the years ended December 31, 2013 and 2012, and (2) has not been
included elsewhere in this offering memorandum.
For further information regarding changes to our accounting practices, see note 3.1(d) to our audited financial
statements as of and for the years ended December 31, 2013 and 2012, which provides a reconciliation of the
amounts originally reported by us and the amounts restated as of January 1, 2012 and December 31, 2012 and for
the year ended December 31, 2012.
Critical Accounting Policies
The preparation of our financial statements requires us to use certain assumptions and/or estimates derived from
both our experience as well as a number of other factors that we believe to be reasonable and relevant. Critical
accounting policies are those that, in addition to being important to reflect our financial condition and results of
operations, require our management to make subjective or complex judgments, often with respect to future
assumptions and matters that are inherently uncertain. Critical accounting policies usually require the judgment of
our management in connection with matters relating to the value of our assets and liabilities and results of
operations. Settlement of transactions involving these estimates may affect our financial condition and
shareholders equity, as well as our results of operations, if they result in values that are materially different from the
estimates.
Set forth below is a discussion of what we consider to be our critical accounting policies, including some of the
variables, assumptions and sensitivities to which these estimates are subject.
Trade accounts receivable and allowance for doubtful account
Trade accounts receivable are recorded at their realization value and may include, when deemed necessary, an
allowance for doubtful accounts, the calculation of which is based on an estimate considered sufficient to cover
probable losses on realization of receivables, considering our historical receipts, the clients financial situation and
any related guarantees offered. This account includes amounts arising from unbilled construction services relating
to construction contracts, the recognition of which are based on the progress of completion of the related
construction.
For receivables stemming from real estate unit sales contracts (under construction) the corporate valuation
criteria described in OCPC Guidance 01 Real estate Development Entities are applied, which covers real estate
development entities as described under Calculation of income from development and sale of property and other
items. The amounts relating to the monetary restatement of receivables are recorded in the income statement for
the period, under Income from property sales upon delivery of the unit and as Financial income (interest
receivable) following delivery of the related unit.
53
Concession arrangements
We, through our indirect subsidiaries, record concession arrangements pursuant to ICPC 01 Concession
Arrangements, issued by the CPC, which specifies the conditions that must be met for a public concession to fall
within its scope. An infrastructure asset governed by ICPC 01 is not recorded as a fixed asset of the concessionaire
if the concession arrangement does not transfer the right to control the use of the public service infrastructure asset
to the concessionaire. Rather, ICPC 01 provides only for the assignment of ownership of the asset, which
assignment reverts to the granting authority upon termination of the concession arrangement. The concessionaire is
only granted access to operate the infrastructure to provide the public services on behalf of the granting authorities,
under concession arrangement provisions, acting as the service provider over a given term.
The concessionaire recognizes as an intangible asset the authorization (right) to charge from public utility users,
but does not recognize the unconditional right to receive cash or other financial assets from the granting authorities.
After its initial recognition, this intangible asset is measured at cost, which includes capitalized loan costs, less
accumulated amortization and impairment losses.
The concessionaire recognizes a financial asset resulting from a concession arrangement when it has an
unconditional contractual right to receive cash or other financial assets, or when instructed by the granting authority,
for the construction services or improvements performed. These financial assets are initially recognized at their fair
value. After their initial recognition, these financial assets are measured at their amortized cost.
If a company pays for construction partially through a financial asset and partially through an intangible asset,
each component of the compensation received or the receivable is recorded individually and initially recognized at
the fair value of the compensation received or receivable.
Our indirect subsidiary Arena Porto Alegrense records its agreement to operate the area taking into
consideration the concepts of ICPC 01, in view of the characteristics of the agreement for construction of an asset it
will operate.
Provision for recovery of long-term assets with defined useful lives
Our management reviews the book value of long-term assets, particularly fixed and intangible assets with finite
useful lives (mostly represented by intangible assets arising from concession agreements) to be maintained and used
in our operations, with the objective of determining and assessing events or changes in circumstances that could
indicate that the book value of an asset or group of assets may not be recovered.
Analysis is conducted to identify the circumstances that could require assessment of the recoverability of longterm assets, within no longer than one year, and measure their potential impairment rate. Assets are grouped and
assessed according to possible impairment, based on discounted projected future cash flows over the remaining lives
of the assets, as developments or new circumstances occur. Losses are recognized based on the amount by which
the book value exceeds the probable recoverable value of a long-lived asset.
The probable recovery value is determined as the higher of: (1) the estimated selling price of assets less
estimated selling costs; and (2) their value in use, determined by the present value of expected future cash flows of
the asset or of the cash generating unit.
Revenue recognition
Qualified construction contracts classified as construction services
Contract revenue includes the initially-agreed contractual amount plus variations from additional requests,
claims and contractual incentive payments, provided it is likely that they will result in revenue and may be reliably
measured. Once the result of a construction contract may be reliably estimated, the contract revenue is recognized
in the profit and loss statement based on the contracts completion stage. Contract expenses are recorded as
incurred, unless they create an asset related to the future contracts activity.
54
The completion stage is measured considering the physical or financial reference of work performed. The
criteria to be adopted depends on the related contractual conditions and any associated facts and circumstances.
When the result of a construction contract may not be reliably estimated, the contract revenue is recognized up to the
limit of costs recognized, provided that costs incurred may be recovered. Contract losses are immediately
recognized in the profit and loss statement.
Sales from real estate development
Revenues and costs from the sale of real properties comply with the procedures and standards established by
OCPC 01 R1 and OCPC 04, as described below:
Sales of completed properties revenue from sales and costs incurred are allocated to the income statement
upon execution of the transfer deed (the public or private instrument for purchase and sale), regardless of
receipt of the contractual amount.
Sales of properties under construction revenue from sales are allocated to the income statement as
follows:
(1) Revenues from sales are allocated to the income statement by the percentage of completion method for
each real estate development, and this percentage is measured based on the cost incurred in relation to
the total budgeted cost of the related developments;
(2) Revenues from sales calculated according to item (1), including monetary restatement, net of
installments received, are accounted for as accounts receivable, or as advances from clients, based on
the relation between recorded revenues and amounts received; and
(3) Land and construction costs from the related real estate developments are allocated to the income
statement by the sales percentage method for each real estate development, and this percentage is
measured based on the number of units sold in relation to total units of the related developments.
Additionally, we may experience an increase in our operating costs and general and administrative expenses,
due to, among other things, (1) expenses related to our expansion, (2) a labor shortage, (3) increased cost of
equipment and (4) our growth, requiring that we obtain additional funding.
We intend to utilize bank financings, cash generated by our operations and issuances of securities in the capital
markets to meet these needs, but there can be no assurance that adequate funding will be available or available to us
on favorable terms and conditions. Moreover, adequate funding, if available, may result in higher interest expenses,
higher leverage and lower profits available to fund our strategy, including our expansion and continued investment
in infrastructure and other projects. In addition, future funding may limit our ability to absorb competitive pressures
and leave us more vulnerable to economic difficulties. If we are unable to generate or obtain sufficient additional
capital in the future, we may be forced to reduce or delay capital expenditures, sell assets or restructure our
indebtedness, which could materially adversely affect our business, our results of operations and financial condition.
If we are unable to obtain additional capital in the future to complete the construction, installation, development and
maintenance of our construction works or infrastructure projects, our future cash flow will be severely hampered,
which could materially adversely affect our results of operations.
Growth of Infrastructure Spending in Brazil, throughout Latin America and Africa
Our performance historically has been tied to Brazilian public sector spending on infrastructure facilities and to
our ability to bid successfully for such contracts. In Brazil, we believe we are poised to benefit from the anticipated
long-term Brazilian economic environment and the need for large-scale infrastructure investments, particularly as a
result of:
the PAC Program, an investment program that was launched in January 2007 by the Brazilian
government aimed at improving the countrys infrastructure and is projected to invest R$1,586 billion
(U.S.$700.8 million) in infrastructure projects beginning in 2011;
the Program for Investments in Logistics launched to stimulate economic growth through investments
in infrastructure, including an infrastructure investment plan for Brazilian highways and railways
announced by the Brazilian government in August 2012 that contemplates total investments of
R$133.0 billion (U.S.$58.8 billion) over the next 25 years, of which R$80.0 billion (U.S.$35.4 billion)
is projected to be disbursed by 2017;
the anticipated increase in financing for infrastructure projects by Brazilian governmental agencies,
including as a result of the approval of Provisory Measure (Medida Provisria) 628/2013, converted
into Law No. 12,979 in May 2014, pursuant to which the Brazilian government authorized BNDES to
invest R$24.0 billion in Brazilian infrastructure. Studies prepared by BNDES indicate that
infrastructure investments in Brazil during the period from 2014 to 2017 will total approximately
R$509.7 billion, an increase of 36.2% over infrastructure investments during the period from 2009 to
2012. It is anticipated that transportation and logistics investments will account for approximately
32% of infrastructure investments from 2014 to 2017 according to these studies;
the Olympic games scheduled to take place in the city of Rio de Janeiro in 2016;
recent major discoveries of oil and natural gas potential offshore reserves in Brazil, recognized as some
of the largest in the world, and the related investments required in the Brazilian oil and gas industry to
develop and market these reserves, such as the construction of shipyards for offshore oil rigs and other
vessels and oil refineries. Expected investments include those resulting from Petrobras 2014 2018
business plan, approved in February 2014, that contemplates total investments of U.S.$220.0 billion,
including U.S.$153.9 billion for oil and gas exploration and production (of which 73% is anticipated to
be allocated to oil and gas production, 15% to oil and gas exploration and 12% to oil and gas
infrastructure).
Moreover, throughout Latin American and Africa, we believe that efforts to improve domestic infrastructure in
developing countries present us with unique opportunities to leverage our proven experience in providing
customized and innovative engineering for complex, large-scale infrastructure and concession projects in Brazil.
56
There can be no assurance, however, that (1) Brazilian government spending under the PAC Program or other
expenditure programs or (2) investments in infrastructure throughout Latin America and Africa will not be reduced
or eliminated, and that any such reduction or elimination would not have a material adverse effect on our business,
results of operations or financial condition.
Brazilian Macroeconomic Environment
Our results of operations and financial condition are affected by Brazilian economic conditions. The Brazilian
economic environment has been characterized by significant variations in economic growth, inflation and currency
exchange rates. The following table sets forth Brazilian inflation rates, interest rates, and exchange rates as of and
for the three-month period ended March 31, 2014 and the years ended December 31, 2013, 2012 and 2011.
March 31,
2014
2013
December 31,
2012
2011
Economic indicator
0.2%
2.3%
0.9%
2.7%
GDP growth (1) .................................................................................................................
2.5%
5.5%
7.8%
5.1%
Inflation (IGP-M) (2) ........................................................................................................
(3)
2.2%
5.9%
5.8%
6.5%
Inflation (IPCA) ..........................................................................................................
2.4%
8.1%
8.4%
11.6%
Interbank rate CDI (average) (4) ...................................................................................
5.0%
5.0%
5.5%
6.0%
Long-term interest rates (average) (5) ..............................................................................
Exchange rate at the end of the period per U.S. $1.00 ................................................... R$2.263
R$2.343
R$2.044
R$1.876
(6)
R$2.161
R$1.955
R$1.675
Average exchange rate per U.S. $1.00 ........................................................................ R$2.365
3.4%
(14.6)%
(8.9)%
(12.6)%
Appreciation of the real against the U.S. dollar (7) .........................................................
__________________________________
(1) As published by the Brazilian Geography and Statistics Institute (Instituto Brasileiro Geographia e Estatistica), or IBGE.
(2) IGP-M refers to the General Market Price Index measured by FGV(accumulated through the end of each period).
(3) IPCA is a consumer price index calculated by IBGE(accumulated through the end of each period).
(4) CDI refers to the average overnight interbank loan rates in Brazil.
(5) The Brazilian long-term interest rate (taxa de juros de longo prazo), or TJLP, is the rate applicable to long-term loans by BNDES (as of the
end of each period).
(6) Represents the daily average of the exchange rates during the year or month, as applicable.
(7) Comparing the PTAX exchange rate (the rate calculated by the Brazilian Central Bank) at the end of the periods last day with the periods
first day. PTAX is the exchange rate calculated at the end of each day by the Central Bank of Brazil. It is the average rate of all business
conducted in U.S. dollars on the determined date in the interbank exchange market.
consulting and other expenses. We record these marketing development expenses in the period in which they are
incurred, although they generally benefit future periods (to the extent that we successfully enter into a construction
contract for a project in which we incur these expenses) or may not generate eventual revenues (to the extent we are
unsuccessful in a competitive bidding situation for a particular construction work).
Effects of Fluctuations in Exchange Rates between the Real and Foreign Currencies
Our gross revenue from construction works and infrastructure projects outside Brazil represented 15.3% and
9.3% of our gross revenue in 2013, respectively. In the three-month period ended March 31, 2014, our gross
revenue from construction works and infrastructure projects outside Brazil represented 22,7% and 1,1%,
respectively, of our gross revenue. When the real appreciates against the currencies of foreign countries in which
we operate, our foreign currency revenues, when converted to reais, decrease. Conversely, when the real
depreciates against those currencies, our foreign currency revenues, when converted into reais, increase. As a result,
currency fluctuations may impact our operating margins.
In addition, any major depreciation of the real against those foreign currencies would significantly increase our
financial expenses and our short-term and long-term indebtedness denominated in foreign currency, as expressed in
reais. As of March 31, 2014, R$4,196.7 million, or 54.1%, of our total indebtedness was denominated in foreign
currencies, including the U.S. dollar. Conversely, any major appreciation of the real against the foreign currencies
would significantly decrease our financial expenses and our short-term and long-term indebtedness, as expressed in
reais. In light of this risk and when we have no natural hedge, we hedge certain of our foreign currency exposure
from our dollar-denominated indebtedness through long-term currency swaps for our interest payments and plainvanilla derivative instruments for our payments of principal.
Our net revenues outside Brazil enable us to generate receivables payable in foreign currencies and tend to
provide a natural hedge against a portion of our foreign currency-denominated debt service obligations.
Accordingly, we try to match revenues and costs in the same currencies, so that we can mitigate the risks of
currency fluctuations. When this is not possible, we may enter into hedging contracts to mitigate the effects of
foreign exchange rate fluctuations. We do not enter into any speculative hedging arrangements. For additional
information relating to our hedging policy, see Market RisksForeign Exchange Risk.
Effects of Fluctuations in Inflation Rates
Inflation in Brazil affects our financial performance by increasing some of our operating expenses denominated
in reais (and not linked to the U.S. dollar). A portion of our costs of service and sales, however, are linked to the
U.S. dollar and are not substantially affected by the Brazilian inflation rate.
Brazilian Taxes
We are subject to various Brazilian taxes. A description of the two main taxes is set forth below:
ISS, ICMS, INSS, PIS and COFINS. We pay ISS, a municipal tax applied to revenues from services
provided to a third party by a company, as well as ICMS, which is a value-added tax on sales and
certain services. We will also pay other taxes on our revenues related to the funding of social
programs (INSS, PIS and COFINS).
Income Tax and Social Contribution. We pay income tax and social contribution on our net income.
The current rate for social contribution on net income is 9%, while the current rate for income tax is
approximately 25%, for a total of approximately 34%.
On July 17, 2013, Law No 12.844 was enacted, establishing that, through December 31, 2014, certain civil
construction companies are required to pay a social security contribution at the rate of 2% of gross revenue in lieu of
a social security contribution calculated at 20% over their aggregate payroll.
Changes in Brazilian tax legislation and regulation, which may be frequent, may have a material adverse impact
on our results of operations. For example, on May 13, 2014, MP 627 was converted into Law No. 12,973, enacting
certain amendments to MP 627 relating to, among other matters, the treatment of dividends, interest on equity and
58
the valuation of investments using the equity method. In contrast to MP 627, Law No. 12,973 did not require us to
adopt its effects on our operations for the 2014 calendar year as a condition to our eliminating tax effects of certain
differences arising between current tax methodology and accounting criteria with those in effect on December 31,
2007. We have examined Law No. 12,973 and concluded that it will not have a material effect on our financial
statements for the three-month period ended March 31, 2013 and as of and for the year ended December 31, 2013,
and we are currently evaluating whether we will adopt the effects of Law No. 12,973 on our operations for the 2014
calendar year.
Description of Principal Income Statement Line Items
The following is a brief description of the principal line items that comprise our statement of operations:
Gross revenue
Gross revenue comprises primarily of revenue generated (1) under construction agreements for construction
services we provide, (2) from the sale of commercial and residential units and (3) under concession agreements.
Revenue deductions
Revenue deductions comprise (1) taxes, including ISS, INSS, PIS and COFINS and (2) returns and
cancellations.
Cost of service and sales
Cost of service and sales comprises mainly costs and expenses incurred in relation to (1) labor and raw
materials, (2) the depreciation of our equipment, (3) real estate developments and (4) operational and maintenance
activities under our concession agreements.
General and administrative expenses
General and administrative expenses comprise mainly expenses incurred in the management of our operations,
including administrative salaries, travel expenses, selling expenses and office supplies.
Management compensation
Management compensation comprises the remuneration of our statutory executive officers, including any
remuneration paid under our profit-sharing program.
Depreciation and amortization
Depreciation and amortization comprises the depreciation of our property and equipment and the amortization
of our intangible assets, such as concession rights.
Employee profit-sharing
Employee profit-sharing comprises remuneration paid to our non-management employees under our employee
profit-sharing program.
Other operating income (expenses), net
Other operating income (expenses), net mainly comprises income generated or losses incurred in connection
with the sale of our assets or investments.
Equity pick-up
Equity pick-up comprises the equity results of our unconsolidated investees.
59
1,973.3
(196.9)
1,776.4
(1,454.6)
321.9
(207.5)
(8.5)
(12.4)
(16.3)
1,131.2
1,208.4
1.0
1,209.3
(170.5)
1,038.8
(297.6)
741.2
111.1%
(11.1)%
100.0%
(81.9)%
18.1%
(11.7)%
(0.5)%
(0.7)%
(0.9)%
63.7%
68.0%
0.1%
68.1%
(9.6)%
58.5%
(16.8)%
41.7%
1,572.8
(123.2)
1,449.6
(1,185.1)
264.6
(205.6)
(3.6)
(14.0)
(16.7)
24.6
49.3
0.9
50.2
(49.6)
0.6
(8.0)
(7.4)
108.5%
(8.5)%
100.0%
(81.8)%
18.3%
(14.2)%
(0.2)%
(1.0)%
(1.2)%
1.7%
3.4%
0.1%
3.5%
(3.4)%
0.0%
(0.6)%
(0.5)%
Gross revenue
For the Three-Month Periods Ended March 31,
2014
2013
(Unaudited)
(in millions
(% of gross
(in millions
(% of gross
of reais)
revenue)
of reais)
revenue)
Gross revenue
Domestic market ..................................................................................................
Foreign market .....................................................................................................
Total .....................................................................................................................
1,502.5
470.8
1,973.3
76.1%
23.9%
100.0%
1,319.6
253.2
1,572.8
83.9%
16.1%
100.0%
Our gross revenue increased by 25.5% to R$1,973.3 million in the three-month period ended March 31, 2014,
compared to R$1,572.8 million in the corresponding period in 2013.
In Brazil, our gross revenue increased by 13.9% to R$1,502.5 million in the three-month period ended March
31, 2014, compared to R$1,319.6 million in the corresponding period in 2013. This increase was primarily due to
the increased revenue we generated in connection with the advancement of construction at the following
60
construction works: Guarulhos International Airport, the Corredor Raposo Tavares highway, Porto Novo, the
RNEST Refinery and the Belo Monte Hydroelectric plant.
Outside Brazil, our gross revenue measured in reais increased by 86.0% to R$470.8 million in the three-month
period ended March 31, 2014, compared to R$253.2 million in the corresponding period in 2013, primarily due to
the increased revenue we generated in connection with the advancement of construction at the following
construction works: the Via Parque Rimac highway in Peru; the Corredor Nacala highway in Mozambique; the San
Fernando highway in Trinidad and Tobago; and the LNG terminal in Uruguay.
Revenue deductions
Consistent with the increase in our gross revenue, revenue deductions increased by 59.9% to R$196.9 million in
the three-month period ended March 31, 2014, compared to R$123.2 million in the corresponding period in 2013.
This increase was primarily the result of the increase in our gross revenue over the period as well as a pension
contribution tax (contribuio previdenciaria), which was previously calculated as an administrative expense, but is
now deducted from our gross revenue following the enactment of Law No. 12.844 on July 17, 2013.
Net revenue
As a result of the foregoing, our net revenue increased by 22.5% to R$1,776.4 million in the three-month period
ended March 31, 2014, compared to R$1,449.6 million in the corresponding period in 2013.
Cost of service and sales
Our cost of service and sales increased by 22.7% to R$1,454.6 million in the three-month period ended March
31, 2014, compared to R$1,185.1 million in the corresponding period in 2013 consistent with the growth of our
operations and the increase in our gross revenue.
Gross profit
As a result of the foregoing, our gross profit increased by 21.7% to R$321.9 million in the three-month period
ended March 31, 2014, representing 18.1% of our net revenue in this period, compared to R$264.6 million in the
corresponding period in 2013, representing 18.3% of our net revenue in this period.
General and administrative expenses
Our general and administrative expenses increased by 0.9% to R$207.5 million in the three-month period ended
March 31, 2014, representing 11.7% of our net revenue, compared to R$205.6 million in the corresponding period in
2013, representing 14.2% of our net revenue. This decrease as a percentage of our net revenue is primarily due to
gains in our economies of scale as a result of the growth in our operations.
Management compensation
Our management compensation increased by 136.1% to R$8.5 million in the three-month period ended March
31, 2014, compared to R$3.6 million in the corresponding period in 2013. This increase was primarily the result of
the promotion of certain of our senior managers to executive officers within OAS S.A., Construtora OAS and OAS
Investimentos and the corresponding impact on our managements compensation.
Depreciation and amortization
Our depreciation and amortization expenses decreased by 11.4% to R$12.4 million in the three-month period
ended March 31, 2014, compared to R$14.0 million in the corresponding period in 2013 mainly as a result of the
depreciation in full of certain of our assets, mainly vehicles, after the three-month period ended March 31, 2013.
Employee profit-sharing
Our employee profit-sharing remained stable at R$16.3 million in the three-month period ended March 31,
2014, compared to R$16.7 million in the corresponding period in 2013.
61
62
Year ended December 31, 2013 compared to year ended December 31, 2012
The following table summarizes our consolidated statements of income for the periods indicated:
For the Years Ended December 31,
2013
2012
(As restated)(1)
(in millions
(% of net
(in millions
(% of net
of reais)
revenue)
of reais)
revenue)
Gross revenue ............................................................................................................
Revenue deductions ..................................................................................................
Net revenue................................................................................................................
Cost of service and sales ...........................................................................................
Gross profit ................................................................................................................
General and administrative expenses ........................................................................
Management compensation.......................................................................................
Depreciation and amortization ..................................................................................
Employee profit-sharing............................................................................................
Other operating income (expenses), net....................................................................
Income before equity pick-up, financial income (expenses) and income taxes .......
Equity pick-up ...........................................................................................................
Income before financial income (expenses) and income taxes ................................
Financial income (expenses), net ..............................................................................
Income before income taxes .....................................................................................
Income tax and social contribution ...........................................................................
Net income ................................................................................................................
8,877.1
(950.3)
7,926.8
(6,399.5)
1,527.3
(828.3)
(27.0)
(18.7)
(134.1)
(9.7)
509.4
(5.8)
503.6
(474.0)
29.6
(12.4)
17.2
112.0%
(12.0)%
100.0%
(80.7)%
19.3%
(10.4)%
(0.3)%
(0.2)%
(1.7)%
(0.1)%
6.4%
(0.1)%
6.4%
(6.0)%
0.4%
(0.2)%
0.2%
6,411.6
(585.8)
5,825.8
(4,662.2)
1,163.6
(738.7)
(12.8)
(15.4)
(147.1)
536.5
786.1
31.4
817.6
(272.0)
545.5
(62.3)
483.3
110.1%
(10.1)%
100.0%
(80.0)%
20.0%
(12.7)%
(0.2)%
(0.3)%
(2.5)%
9.2%
13.5%
0.5%
14.0%
(4.7)%
9.4%
(1.1)%
8.3%
___________________________
(1) We have adopted CPC 19 (R2) as from January 1, 2013 and restated our consolidated statement of income for the year ended December 31,
2012 for comparative purposes. See "Changes in Accounting Practices."
Gross revenue
For the Years Ended December 31,
2013
2012
(As restated)(1)
(in millions
(% of gross
(in millions
(% of gross
of reais)
revenue)
of reais)
revenue)
Gross revenue
Domestic market ..................................................................................................
Foreign market .....................................................................................................
Total .....................................................................................................................
6,686.2
2,190.9
8,877.1
75.3%
24.7%
100.0%
5,304.6
1,107.0
6,411.6
82.7%
17.3%
100.0%
___________________________
(1) We have adopted CPC 19 (R2) as from January 1, 2013 and restated our consolidated statement of income for the year ended December 31,
2012 for comparative purposes. See "Changes in Accounting Practices."
Our gross revenue increased by 38.5% to R$8,877.1 million in 2013, compared to R$6,411.6 million in 2012.
In Brazil, our gross revenue increased by 26.0% to R$6,686.2 million in 2013, compared to R$5,304.6 million
in 2012. This increase was primarily due to revenue we generated from new construction works, including the
construction of a new airport terminal at Guarulhos International Airport in the State of So Paulo and the Dunas
sports arena in the State of Rio Grande do Norte.
Outside Brazil, our gross revenue measured in reais increased by 97.9% to R$2,190.9 million in 2013,
compared to R$1,107.0 million in 2012, primarily due to (1) the commencement of new construction works in
Africa, including the Malabo roadway in Equatorial Guinea and the Nacala highway in Mozambique and (2) the
advancement of construction works in Latin America, including the San Fernando highway in Trinidad and Tobago
and the Via Parque Rimac infrastructure project in Peru.
63
Revenue deductions
Our revenue deductions increased by 62.2% from R$585.8 million in 2012 to R$950.3 million in 2013
consistent with the increase in our gross revenue and also as a result of an increase in returns and cancellations at
OAS Empreendimentos, our real estate investment and development subsidiary.
Net revenue
As a result of the foregoing, our net revenue increased by 36.1% to R$7,926.8 million in 2013, compared to
R$5,825.8 million in 2012.
Cost of service and sales
Our cost of service and sales increased by 37.3% to R$6,399.5 million in 2013, compared to R$4,662.2 million
in 2012 consistent with the growth of our operations and the increase in our gross revenue.
Gross profit
As a result of the foregoing, our gross profit increased by 31.3% to R$1,527.3 million in 2013, representing
19.3% of our net revenue in 2013, compared to R$1,163.6 million in 2012, representing 20.0% of our net revenue in
2012.
General and administrative expenses
Our general and administrative expenses increased by 12.1% to R$828.3 million in 2013, representing 10.4% of
our net revenue, compared to R$738.7 million in 2012, representing 12.7% of our net revenue. This increase was
primarily the result of (1) increased administrative expenses incurred in connection with both the growth of our
investment division and our entry into new concession agreements and (2) our international expansion efforts,
particularly in Africa following the opening of our branch offices in Guinea and Equatorial Guinea and
commencement of new construction works we were awarded in Angola and Mozambique. The decrease in general
and administrative expenses as a percentage of our net revenue was primarily the result of gains we achieved in
economies of scale consistent with the growth of our operations.
Management compensation
Our management compensation increased by 110.9% to R$27.0 million in 2013, compared to R$12.8 million in
2012. This increase was primarily the result of the promotion, as part of the reorganization of our corporate
governance, of certain of our senior managers to executive officers within OAS S.A., Construtora OAS and OAS
Investimentos and the positive financial performance of certain of our business units, which directly impacts our
managements compensation.
Depreciation and amortization
Our depreciation and amortization expenses increased by 21.4% to R$18.7 million in 2013, compared to R$15.4
million in 2012. This increase was primarily the result of an increase in our property, plant and equipment primarily
due to the start-up of our operations in Africa, including the establishment of our branch network in the region.
Employee profit-sharing
Our employee profit-sharing decreased by 8.8%to R$134.1 million in 2013, compared to R$147.1 million in
2012.This decrease was primarily the result of a reduction in certain of the performance metrics we use to calculate
profit-sharing amounts payable to our employees.
Other operating income (expenses), net
Our other operating income (expenses), net was an expense of R$9.7 million in 2013, compared to an income of
R$536.5 million in 2012. This change was primarily due to a gain of R$599.7 million we recorded in connection
64
with the transfer of our interest in the Via Parque Rimac infrastructure project to Invepar during 2012, and income
generated from the capital contribution by Invepars remaning shareholders.
Equity pick-up
Our equity pick-up was a loss of R$5.8 million in 2013, compared to an income of R$31.4 million in 2012. This
result was primarily due to the operating results of unconsolidated investees of OAS Empreendimentos.
Income before financial income (expenses) and income taxes
As a result of the foregoing, our income before financial income (expenses) and income taxes decreased by
38.4% to R$503.6 million in 2013, compared to R$817.6 million in 2012.
Financial income (expenses), net
Our financial expenses, net increased by 74.3% to R$474.0 million in 2013, compared to R$272.0 million in
2012. This increase was primarily due to an increase in (1) interest expense as a result of the higher amount of our
total indebtedness (current and non-current loans and financing, debentures and senior and perpetual notes) of
R$7,856.2 million as of December 31, 2013 compared to R$4,947.0 million as of December 31 2012, and (2) the
CDI rate to 9.7% per year as of December 31, 2013 compared to 6.9% per year as of December 31, 2012, which
resulted in higher interest expense for that portion of our indebtedness that incurs interest based on the CDI rate.
Income before income taxes
As a result of the foregoing, our income before income taxes decreased by 94.6% to R$29.6 million in 2013,
compared to R$545.5 million in 2012.
Income tax and social contribution
Our income tax and social contribution expenses decreased by 80.1% to R$12.4 million in 2013, compared to
R$62.3 million in 2012. This decrease was primarily due to the decrease in our income before income taxes.
Net income
As a result of the foregoing, our net income decreased by 96.4% to R$17.2 million in 2013, compared to
R$483.3 million in 2012.
Liquidity and Capital Resources
Our principal cash requirements consist of the following:
capital expenditures related to investments in operations, maintenance of equipment and facilities and
equity investments; and
dividend payments.
As of March 31, 2014, our cash and cash equivalents were R$1,593.2 million. For more information, see note 4
to our unaudited interim condensed consolidated financial statements as of March 31, 2014 and for the three-month
periods ended March 31, 2014 and 2013 included elsewhere in this offering memorandum.
Cash Flows
(630.2)
188.8
43.1
(335.0)
(653.0)
489.6
(247.1)
(1,139.0)
2,401.5
___________________________
(1) We have adopted CPC 19 (R2) as from January 1, 2013 and restated our consolidated statement of cash flows for the year ended December
31, 2012 for comparative purposes. See "Changes in Accounting Practices."
Operating Activities
Our cash used in operating activities totaled R$630.2 million in the three-month period ended March 31, 2014,
compared to R$335.0 million in the corresponding period in 2013. This change was primarily due to a 300.3%
increase in our trade accounts receivable to R$646.7 million in the three-month period ended March 31, 2014,
compared to R$161.5 million in the corresponding period in 2013 mainly as a result of (1) receipt cycles under our
construction contracts in Africa, particularly in Ghana and Equatorial Guinea, which are generally longer than our
average payment cycles and (2) our CART and Guarulhos International Airport infrastructure projects in respect of
which payments to us are subject to our completion of certain milestones resulting in longer receipt cycles than
those under contracts pursuant to which we receive ongoing monthly payments.
Our cash used in operating activities totaled R$592.6 million in 2013, compared to R$247.1 million in 2012.
This change was primarily due to
a 59.4% increase in our trade accounts receivable to R$1,433.2 million in 2013, compared to R$899.4
million in 2012 mainly as a result of (1) payment cycles under our construction contracts in Africa,
particularly in Ghana and Equatorial Guinea, which are generally longer than our average payment
cycles, and (2) our CART and Guarulhos International Airport infrastructure projects in respect of
which payments to us are subject to our completion of certain milestones resulting in longer payment
cycles than those under contracts pursuant to which we receive ongoing monthly payments; and
our utilization of cash we received in connection with advanced payments under our construction
contracts totaling an aggregate R$255.3 million in 2013, particularly in Africa where we receive a
higher volume of advanced payments under these contracts than in Latin America.
Investing Activities
Our cash from investing activities totaled R$188.8 million in the three-month period ended March 31, 2014,
compared to cash used in investing activities totaling R$653.0 million in the corresponding period in 2013. In the
three-month period ended March 31, 2014, our cash from investing activities primarily consisted of (1) R$262.0
66
million from short-term investments and marketable securities and (2) disbursements totaling R$50.3 million we
incurred in connection with the repositioning of certain of our equipment.
Our cash used in investing activities totaled R$1,472.9 million in 2013 and R$1,139.0 million in 2012. In 2013,
our cash used in investing activities primarily consisted of (1) short-term investments and marketable securities and
(2) investments we made in connection with OAS Empreendimentos and the Dunas sports arena.
Financing Activities
Our cash from financing activities totaled R$43.1 million in the three-month period ended March 31, 2014,
compared to R$489.6 million in the corresponding period in 2013. In the three-month period ended March 31,
2014, our cash from financing activities were significantly impacted by a reduction in our issuance of debt securities
when compared to the three-month period ended March 31, 2013.
Our cash from financing activities totaled R$1,806.2 million in 2013 and R$2,401.5 million in 2012. In 2013
and 2012,our cash from financing activities was significantly impacted by (1) our issuances of real-denominated
debentures, the perpetual notes and the additional senior notes in 2013 (see IndebtednessDebentures and
IndebtednessSenior and Perpetual Notes) and (2) loans and financing and debentures we incurred in 2013. These
financing activities were partially offset by repayments of loans, financing and debentures.
Capital Expenditures
In the three-month period ended March 31, 2014 and in the years ended December 31, 2013 and 2012, our
consolidated capital expenditures (relating to cash paid to acquire property, plant and equipment and intangibles)
totaled R$61.0 million, R$619.9 million and R$729.5 million, respectively. Our consolidated capital expenditures
in the three-month period ended March 31, 2014 were primarily related to capital expenditures we incurred in our
heavy engineering division with respect to ongoing construction works for certain of our infrastructure projects. The
reduction in our capital expenditures in the three-month period ended March 31, 2014 was primarily due to a
reduction in our equity contributions and investments as construction advanced with respect to certain of these
construction works.
As of March 31, 2014, we had budgeted capital expenditures of approximately R$150.0 million for nine-month
period ending December 31, 2014.
Indebtedness
As of March 31, 2014, our total indebtedness (comprising our current and non-current loans and financing,
debentures and senior and perpetual notes) was R$7,758.7 million, consisting of R$1,364.6 million in short-term
indebtedness and R$6,394.1million in long-term indebtedness. As of March 31, 2014, our real-denominated
indebtedness and foreign currency-denominated indebtedness were R$3,562.0 million and R$4,196.7 million,
respectively. As of March 31, 2014, R$566.4 million (or 7.3%) of our total indebtedness was secured by collateral,
mainly project finance indebtedness related to our infrastructure projects.
We divide our indebtedness into (1) loans and financing we obtain from financial institutions and governmental
agencies, which totaled R$2,183.5 million, or 28.1%, of our total indebtedness as of March 31, 2014, (2) debentures
we issued, which totaled R$2,447.8 million, or 31.6%, of our total indebtedness as of March 31, 2014 and (3) our
senior and perpetual notes, which totaled R$3,127.5 million, or 40.3% of our total indebtedness as of March 31,
2014.
67
65.4
121.5
28.7
534.9
859.4
2,183.5
Current ................................................................................................................................................................................
Non-current ........................................................................................................................................................................
Total loans and financing ................................................................................................................................................
763.6
1,419.8
2,183.5
564.4
9.2
___________________________
(1)
(2)
Comprising financing made available by FINEP (a Brazilian public entity linked to the Ministry of Science and Technology), in support of
science, technology and innovations in the public and private sector.
Issuances of National Treasury Certificates (Certificados do Tesouro Nacional), or CTNs, for sale to the beneficiaries of the Special
Agricultural Financing Program (Program Especial de Saneamento de Ativos) to guarantee rural debt over R$200 thousand to creditor
financial institutions, in accordance with terms of CMN Resolution No. 2,471, dated February 26, 1998.
For information regarding the maturity by year of our loans and financing, see note 12.2 to our unaudited
interim condensed consolidated financial statements as of March 31, 2014 and for the three-month periods ended
March 31, 2014 and 2013 included elsewhere in this offering memorandum.
Debentures
The following table sets forth select information regarding our debentures as of March 31, 2014:
Indebtedness(1)
Borrower/Issuer
OAS S.A.
OAS S.A.
OAS S.A.
OAS S.A.
OAS S.A.
OAS Empreendimentos
OAS Empreendimentos
OAS Empreendimentos
Dunas
Samar
OAS Investimentos
Guarantor(s)
Construtora OAS
Construtora OAS
Construtora OAS and
OAS Investimentos
Construtora OAS
Construtora OAS
Construtora OAS
Construtora OAS
OAS S.A.
OAS S.A.
OAS S.A.
None
Construtora OAS
None
Book value as of
March 31, 2014
(in millions of reais)
347.5
309.4
287.0
162.3
765.5
742.4
106.4
149.8
12.2
109.5
89.8
33.1
81.5
(748.6)
2,447.8
___________________________
(1)
(2)
(3)
(4)
Does not reflect the issuance by OAS S.A. of an aggregate R$160.0 million in debentures on April 10, 2014. See Debentures of OAS
S.A.
The CDI rate is the average interbank deposit index applicable in Brazil (accumulated for the end of each period).
TR is a consumer price index calculated by the Central Bank.
IPCA is a consumer price index calculated by the IBGE.
68
The following is a description of our material debentures as of the date of this offering memorandum:
Debentures of OAS S.A.
On October 29, 2010, OAS S.A. issued its 1st series of unsecured non-convertible debentures in an aggregate
principal amount of R$400 million, of which R$347.5 million was outstanding as of March 31, 2014. These
debentures have a final maturity of October 29, 2018, with interest paid at a floating rate equal to 100% of the CDI
rate, the interbank average daily interest rate in Brazil, calculated and published by CETIP, plus a spread of 3.25%
per year, computed on the basis of 252 days and expressed in the form of an annual percentage rate. These
debentures are guaranteed by Construtora OAS and are also secured by a pledge of 8,531,973 common shares and
17,063,946 preferred shares of Invepar that are owned by OAS Investimentos, including any related dividends,
profits or other payments distributed in connection with these shares. Under the agreement governing these
debentures, Construtora OAS is required to maintain a consolidated net debt to EBITDA ratio not in excess of
3.0:1.0 and OAS S.A. is required to maintain a consolidated net debt to total assets ratio not in excess of 60%.
On December 12, 2011, OAS S.A. issued its 3rd series of secured non-convertible debentures in an aggregate
principal amount of R$300 million, which remain outstanding in full. These debentures have a final maturity of
December 12, 2016, with interest paid on these debentures at a floating rate equal to 100% of the CDI rate, the
interbank average daily interest rate in Brazil, calculated and published by CETIP, plus a spread of 2.00% per year,
computed on the basis of 252 days and expressed in the form of an annual percentage rate. These debentures are
guaranteed by Construtora OAS. The required financial ratios are the same as those applicable to the 1st series of
debentures.
On January 13, 2012, OAS S.A. issued its 4th series of unsecured non-convertible debentures in an aggregate
principal amount of R$250 million. We began repayment of principal on these non-convertible debentures on
January 13, 2013. These debentures have a final maturity of January 13, 2027, with interest paid on these
debentures at a rate of 7.8% per year plus IPCA. These debentures are guaranteed by Construtora OAS and OAS
Investimentos. These debentures are secured by (1) a pledge over 8,531,973 common shares and 17,063,946
preferred shares of Invepar owned by OAS Investimentos; (2) an assignment of funds deposited by OAS S.A. in a
liquidation account; and (3) a trust assignment of credit rights resulting from services to be provided pursuant to the
Raposo Tavares Road System Construction Contract (Contrato de Execuo de Obras Civis no Sistema Rodovirio
Raposo Tavares) entered into by OAS S.A. and CART. Under the agreement governing these debentures,
Construtora OAS is required to maintain a consolidated net debt to EBITDA ratio not in excess of 3.0:1.0 and OAS
S.A. is required to maintain a consolidated net debt to total assets ratio not in excess of 60% and a cash available for
debt service to financial results ratio of 1.2:1 or greater.
On May 15, 2012, OAS S.A. issued its 5th series of unsecured non-convertible debentures in an aggregate
principal amount of R$209 million, of which R$162.3 million was outstanding as of March 31, 2014. These
debentures have a final maturity of May 15, 2015, with interest paid on these debentures at a floating rate equal to
100% of the CDI rate (inter-financial deposits), the interbank average daily interest rate in Brazil, calculated and
published by CETIP, plus a spread of 2.40% per year, computed on the basis of 252 days and expressed in the form
of an annual percentage rate. These debentures are guaranteed by Construtora OAS. The required financial ratios
are the same as applicable to the 1st series of debentures.
On March 11, 2013, OAS S.A. issued its 7th series of subordinated non-convertible debentures in an aggregate
principal amount of U.S.$330 million (or R$644.4 million as set forth in the agreement governing these debentures),
which remain outstanding in full. These debentures have a final maturity of March 16, 2018, with interest paid on
these debentures at a fixed rate 8.85% per year computed on the basis of 360 days. There are no financial ratios
required.
On July 11, 2013, OAS S.A. issued in the Brazilian capital markets its 8th series of secured non-convertible
debentures in an aggregate principal amount of R$694.7 million. The first tranche of these debentures have a final
maturity of July 21, 2024 and the second tranche of these debentures have a final maturity of October 21, 2024, with
interest paid at a fixed rate equal to 9.47% per year for both tranches. Our obligations under the debentures are
secured by a fiduciary assignment of a collateral account. Under the agreement governing these debentures, OAS
S.A. is required to maintain a consolidated net debt to total assets ratio not to exceed 60%.
69
On August 27, 2013, OAS S.A. issued its 9th series of unsecured non-convertible debentures in an aggregate
principal amount of R$100.0 million, which remain outstanding in full. These debentures have a final maturity of
April 11, 2016, with interest paid on these debentures at a floating rate equal to 100% of the CDI rate, the interbank
average daily interest rate in Brazil, calculated and published by CETIP, plus a spread of 2.65% per year. These
debentures are guaranteed by Construtora OAS. Under the agreement governing these debentures, Construtora OAS
is required to maintain a consolidated net debt to EBITDA ratio not in excess of 3.0:1.0.
On April 10, 2014, OAS S.A. issued its 10th series of unsecured non-convertible debentures in an aggregate
principal amount of R$160.0 million. These debentures have a final maturity of April 10, 2015, with interest paid
on these debentures at a floating rate equal to 100% of the CDI rate, the interbank average daily interest rate in
Brazil, calculated and published by CETIP, plus a spread of 2.10% per year. These debentures are guaranteed by
Construtora OAS. The required financial ratios are the same as those applicable to the 1st series of debentures.
Debentures of OAS Empreendimentos
On November 3, 2009, OAS Empreendimentos issued its 1st public issuance of simple non-convertible
debentures with a secured guarantee in an aggregate principal amount of R$300 million. FGTS subscribed to the
entirety of this issuance of debentures, which is classified as financing under the Financial Housing System Program
(Sistema Financeiro de Habitao), or SFH financing. Under this Brazilian government sponsored program, we
extend the proceeds of SFH financing to low-income individuals to enable them to purchase our housing units. The
debentures, which are guaranteed by OAS S.A., mature on November 3, 2016 and are further guaranteed through the
following collateral: (1) a pledge of shares (valued at R$300.0 million) to certain special-purpose vehicles, or SPVs,
controlled by OAS Empreendimentos; (2) a pledge of financial assets (valued at R$300.0 million); (3) an assignment
on bank account receivables (valued at R$300.0 million); and (4) the mortgages on the housing units to be built, at a
value of R$300.0 million. OAS Empreendimentos pays interest on these debentures semi-annually at a floating rate
equal to 100% of TR, plus a spread ranging from 8.5% to 10.5% per year. Under the agreement governing these
debentures, the principal is amortized semi-annually in five equal consecutive installments beginning the 36 month
after the issuance of the debentures.
On June 14, 2010, OAS Empreendimentos issued its 2nd public issuance of simple non-convertible debentures
in an aggregate principal amount of R$60 million. These debentures, which are guaranteed by OAS S.A., mature on
July 15, 2014. OAS Empreendimentos pays interest on these debentures semi-annually at a floating rate equal to
100% of the CDI rate, plus a spread of 2.9% per year. Under the agreement governing these debentures, the
principal is amortized every six months, to be paid in five equal installments.
On May 21, 2013, OAS Empreendimentos issued its 3rd issuance of secured simple non-convertible debentures,
in two tranches, in an aggregate principal amount of R$160 million. These debentures, which are guaranteed by
OAS S.A. and OAS Investimentos, mature on April 11, 2016, with interest on these debentures paid semi-annually
at a floating rate equal to 100% of the CDI rate, plus a spread of 2.98% per year. Under the agreement governing
these debentures, the first tranche amortizes in four quarterly installments and one monthly installment, while the
second tranche amortizes in four quarterly installments and one monthly installment. OAS Empreendimentos
obligations under the debentures are secured by a fiduciary assignment of a collateral account. Under the agreement
governing these debentures, OAS S.A., Construtora OAS and OAS Investments are required to maintain certain
financial covenants, such as a consolidated net debt to EBITDA ratio not to exceed 3.0:1.0 and a consolidated net
debt to total assets ratio not to exceed 60%.
Debentures of OAS Investimentos
On October 8, 2012, OAS Investimentos issued its 1st public issuance of simple non-convertible debentures
with a secured guarantee in an aggregate principal amount of R$65 million. These debentures have a final maturity
of May 30, 2020. OAS Investimentos has pledged the revenues resulting from its equity interest in OAS Arena,
including dividends, as collateral for these debentures. Interest on these debentures accrues at a floating rate equal to
10.50% per year plus IPCA. Under the agreement governing these debentures, the principal is amortized annually, to
be paid in six consecutively increasing installments. We invested the entirety of the net proceeds of these
debentures for the construction of the Porto Alegrense arena. On September 26, 2013, OAS Investimentos and SPE
Gesto e Explorao de Arenas Multiuso S.A, or SPE Gesto e Explorao, entered into an amendment to the
agreement governing these debentures pursuant to which SPE Gesto e Explorao assumed all of OAS
70
Investimentos obligations under these debentures and OAS Investimentos agreed to guarantee the full payment of
the debentures and other obligations set forth in the agreement governing these debentures.
Senior Notes and Perpetual Notes
On October 19, 2012, we issued the initial notes in the aggregate principal amount of U.S.$500 million through
our wholly-owned subsidiary, OAS Investments GmbH. The senior notes, which are guaranteed by us, OAS
Investimentos and Construtora OAS, accrue interest at the rate of 8.25% per year and mature on October 19, 2019.
Interest on these notes is payable semi-annually in arrears on April 19 and October 19 of each year. We used a
portion of the net proceeds of the issuance of the initial notes to refinance certain of our corporate short-term
indebtedness that matured in 2012, and the remainder of the net proceeds to refinance (1) a substantial portion of our
corporate short-term indebtedness maturing in 2013 and (2) a substantial portion of our long-term indebtedness
maturing in the first half of 2014. On October, 17, 2013, we issued an additional aggregate principal amount of
U.S.$375.0 million of our additional senior notes under the indenture governing the senior notes. The additional
senior notes have identical terms and conditions as the senior notes, other than the issue date, issue price and interest
accrual commencement date, and constitute part of the same series as, and vote together as a single class with, the
senior notes.
Pursuant to the terms of the indenture governing the senior notes, we are subject to certain covenants that,
among other restrictions, limit our and our restricted subsidiaries (as such term is defined in the indenture) ability to:
(1) pay dividends on, redeem or repurchase our capital stock; (2) make certain investments; (3) incur additional
indebtedness; (4) create liens; (5) sell assets, including capital stock of restricted subsidiaries; (6) engage in
transactions with affiliates; (7) enter into sale and lease-back transactions; (8) incur restrictions on the ability of our
restricted subsidiaries to pay dividends or make other payments to us; and (9) consolidate, merge or transfer all or
substantially all of our assets on a consolidated basis.
On April 18, 2013, we issued perpetual notes in the aggregate principal amount of U.S.$500 million through our
wholly-owned subsidiary, OAS Finance Limited. The perpetual notes, which are guaranteed by us, OAS
Investimentos and Construtora OAS, accrue interest at the rate of 8.875% per year from and including April 25,
2013 to, but excluding, April 25, 2018. In the period (1) from, and including the First Reset Date (as defined in the
indenture governing the senior perpetual notes) to, but excluding the immediately following Relevant Reset Date (as
defined in the indenture governing the senior perpetual notes), and (2) from, and including, each Relevant Reset
Date to, but excluding, the immediately following Relevant Reset Date, the notes will bear interest at the applicable
Reset Interest Rate (as defined in the indenture governing the notes). Interest on these notes is payable quarterly in
arrears on April 25, July 25, October 25 and January 25 of each year. We used the net proceeds of this offering to
(1) finance capital investments in infrastructure projects to be undertaken over the coming years, and (2) refinance
our long-term debt with Caixa Econmica Federal, as well as refinance a portion of the short- and long-term
indebtedness of OAS Empreendimentos S.A.
Pursuant to the terms of the indenture governing these perpetual notes, we are subject to certain covenants that,
among other restrictions, limit our and our restricted subsidiaries (as such term is defined in the indenture) ability to:
(1) engage in transactions with affiliates, (2) create liens and (3) change our line of business.
Project Financing
We generally seek to finance part of our investments through project financings extended on the basis of a
projects projected cash flow. Project financings generally permit us to limit credit risk given that they are generally
structured with limited or no recourse to the shareholders of the project company.
We believe that our ability to finance our projects has enabled us to compete more effectively in obtaining
contracts for our heavy engineering division. Providing financing for infrastructure projects, however, may increase
our capital requirements and expose us to the risk of loss of our investment in a project. We attempt to compensate
for this risk by entering into financing arrangements on terms that are generally intended to provide us with a
reasonable return on our investment. We are selective in choosing projects in which we expect to recover our
investment and earn a reasonable rate of return. However, we cannot assure prospective investors that we will be
able to realize these objectives or continue successfully financing our infrastructure projects.
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We have obtained project financing for the Araatuba sanitation infrastructure project and Dunas and PortoAlegrense sports arenas. Our project financings represented R$800.4 million (U.S.$353.7 million), or 10.3%, of our
total consolidated indebtedness of R$7,758.7 million (U.S.$3,428.5 million) as of March 31, 2014.
In support of our project financings we may also enter into equity support agreements, or ESAs, that generally:
require us to contribute amounts to the project company that may be necessary to pay for the
completion of the construction of the project;
continue during the projects construction period or until such time as the project company begins to
generate cash flow;
permit us to limit obligations, including exclusions for certain events outside of our control, such as
force majeure.
As of March 31, 2014, we provide the following equity support in respect of our existing project financings:
Fonte Nova Arena (Public Private Partnership). On February 8, 2011, Construtora OAS, Odebrecht
Participaes e Investimentos S.A., or Odebrecht Participaes, and Banco do Nordeste do Brasil S.A. executed an
ESA in respect of the Fonte Nova Arena infrastructure project, in which we and Odebrecht Participaes each own a
50% interest. On April 5, 2013, we inaugurated the Fonte Nova Arena, which hosted soccer matches during the
Confederations Cup tournament in 2013 and is hosting soccer matches during the 2014 World Cup in Brazil. The
ESA was executed in support of our obligations under three separate project financings for the infrastructure project
in the respective aggregate amounts of R$50.0 million, R$250.0 million and R$323.6 million. Pursuant to the ESA,
Construtora OAS is required to contribute an amount equal to 30% of the value of the related EPC construction
contract in the event of the early termination of the underlying concession agreement and 10% of the EPC contract
in the event Fonte Nova Negcios e Participaes S.A., or Fonte Nova Negcios, fails to make a payment of
principal or interest under any of the project financings.
Dunas Arena (Public Private Partnership). On December 1, 2011, Construtora OAS and BNDES executed an
ESA in respect of the Dunas Arena infrastructure project, in which Construtora OAS owns a 100% interest. On
January 22, 2014, we inaugurated the Dunas Arena, which is hosting soccer matches during the 2014 World Cup in
Brazil. The ESA was delivered in support of our obligations under project financing from BNDES in the aggregate
amount of R$396.6 million. Pursuant to the ESA, Construtora OAS is required to pay any shortfall payment
amounts (1) under the project financing or (2) for the planned capital expenditures related to the project, as
established in the related EPC construction contract, with such obligation to continue until the repayment in full of
the project financing.
Porto Alegrense Arena (Private Partnership). On December 16, 2011, OAS Investimentos and BNDES
executed an ESA in respect of the Porto Alegrense arena infrastructure project, in which Construtora OAS holds a
100% interest and which was inaugurated in December 2012. The ESA was delivered in support of our obligations
under project financing from BNDES in the aggregate amount of R$210.0 million. Pursuant to the ESA, in the
event Arena Porto Alegrense S.A. is not in compliance with a 1.3x coverage ratio for debt service (as defined in the
ESA) for a period of more than two years, to be measured at the end of each fiscal year, OAS Investimentos is
required to contribute such amounts as is necessary to bring Arena Porto Alegrense S.A. into compliance with this
ratio.
Samar Solues Ambientais de Araatuba S.A. (Public Service Concession). On December 20, 2012, we, Samar
Solues Ambientais de Araatuba S.A., Construtora OAS, and Planner Trustee DTVM Ltda. executed an ESA in
respect of the Araatuba sanitation project, in which Construtora OAS holds a 100% interest. The ESA was
delivered in support of our obligations under publicly financed debentures in the aggregate amount of R$40.0
million. Pursuant to the ESA, which is limited to the aggregate amount of R$20.0 million (an amount that is less
than 20% of the projects total required investment), in the event that Samar Solues Ambientais de Araatuba S.A.
(1) experiences a cost overrun pursuant to the terms of the related EPC construction contract, or (2) is in default of
any payments under its existing debt obligations, we shall be required to contribute such amounts as are necessary
72
for Samar Solues Ambientais de Araatuba S.A. to comply with its obligations. The ESA will automatically
terminate upon (1) the execution of a long term financing agreement with Caixa Econmica Federal S.A., and (2)
following compliance with a 1.3x coverage ratio (as defined in the ESA) for a period of 12 continuing months. As of
the date of this offering memorandum, 26.9% of the construction of this infrastructure project was completed.
Porto Novo Urban Infrastructure Project (Public Private Partnership).On December 21, 2012, Construtora
OAS executed an a financing agreement with Construtora Norberto Odebrecht Brasil S.A. and Carioca ChristianiNielsen Engenharia S.A., in respect of the Porto Novo urban infrastructure project, in which Construtora OAS owns
a 37.5% interest. The financing agreement includes an equity support clause in respect of our obligations under
project financing from CEF in the aggregate amount of R$588.0 million (executed on December 21, 2011).
Pursuant to this clause, in the event that the project company, Concessionria Porto Novo S.A., fails to pay the
amounts due to the project company under the related public private partnership agreement, Construtora OAS,
together with its partners, shall be required to contribute such amounts as is necessary to meet debt payment
obligations owed to the CEF. As of the date of this offering memorandum, 51.8% of the construction of this
infrastructure project was completed.
Estaleiro Enseada do Paraguau Shipyard. On July 31, 2013, Estaleiro Enseada do Paraguau S.A. (with
Estaleiro EEP Participaes S.A., Odebrecht Participaes e Investimentos S.A., UTC Participaes S.A., OAS
Investimentos S.A., Odebrecht S.A. and OAS S.A. as consenting parties), executed a financing agreement for an
aggregate R$1.0 billion with Banco do Brasil S.A. and Caixa Econmica Federal. This financing was obtained to
fund capital expenditures incurred in connection with the construction of the Estaleiro Enseada do Paraguau
shipyard. On July 31, 2013, OAS Investimentos S.A., UTC Participaes S.A., and Odebrecht S.A., as shareholders
of Estaleiro EEP Participaes S.A. (which, in turn, controls 70% of the project entity, Estaleiro Enseada do
Paraguau S.A.) executed an ESA pursuant to which each shareholder has agreed to contribute equity to Estaleiro
EEP Participaes S.A. in the event it fails to pay any amounts due in respect of the financing, or in the event of the
incurrence of cost overruns that are not covered under the corresponding EPC turnkey contract. As of the date of this
offering memorandum, 17.3% of the construction of this infrastructure project was completed.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements.
Market Risk
We are exposed to a number of market risks arising from our normal business activities. These market risks
principally involve the possibility that changes in currency exchange rates or interest rates will adversely affect the
value of our financial assets and liabilities or future cash flows and earnings. Market risk is the potential loss arising
from adverse changes in market rates and prices. We have established policies and procedures for risk assessment
and approval, reporting and monitoring of derivative financial activities.
Credit Risk
Accounts receivable. This risk arises from the possibility that we may incur losses from difficulty in receiving
amounts we have recorded.
Cash and cash equivalents, short-term investments and marketable securities. These financial instruments
potentially subject us and our subsidiaries to credit risks and primarily comprise cash and cash equivalents, shortterm investments and marketable securities. We generally enter into these transactions with first-tier banks, which
we believe mitigates these risks.
Foreign Exchange Rate Risk
We have adopted hedging policies and practices to address the principal foreign exchange risks associated with
our operations, including risks arising from the fluctuation of costs incurred for our construction works and
infrastructure projects, in order to mitigate contractual mismatches in amounts payable to or receivable from clients
or suppliers.
73
Our heavy engineering and investment divisions are required to maintain their cash flow through the application
of our hedging policies and practices and to identify, assess and eliminate any foreign exchange risks resulting from
their respective operations, including as they analyze the feasibility of potential construction works and
infrastructure projects. Under the current hedging practice, our operating divisions are prohibited from incurring
unnecessary foreign exchange risks. In order to mitigate foreign exchange risks, our operating divisions may, in
order of decreasing preference: (1) transfer the risk to the contractor or the client through contractual re-negotiation
of revenue expectations or the inclusion of material adverse effects clauses in our contractual arrangements; (2)
transfer the risk to suppliers through supply contracts; and (3) transfer the risk to the financial markets through the
use of derivative or traditional financial instruments.
We may enter into derivative financial instruments in order to attempt to minimize the potential negative effects
of these risks on our financial performance. As a corporate policy, we do not enter into derivative transactions for
speculative purposes. Furthermore, our Technical and Financial departments provide oversight to our operating
divisions with regards to financial risks, including foreign exchange risks. These departments: (1) coordinate the
limits of foreign exchange risk exposure; (2) approve measures for monitoring foreign exchange risk exposure; (3)
establish the methodologies for assessing the foreign exchange risks within, taking into account our operations as a
whole; and (4) support our operating divisions to seek alternatives to the foreign exchange risk, when necessary.
We may use conventional financial instruments (mainly non-deliverable forwards, or NDFs, options and swaps)
to reduce our foreign currency exposure. We have established a policy with respect to our currency exposure
positions in response to current economic information regarding the Brazilian and global macroeconomic
environment.
We monitor our foreign currency exchange rate risk through net foreign currency mismatching, in order to
reduce overexposure to risks in foreign exchange rate risks, by balancing our assets not denominated in reais against
our obligations not denominated in reais. However, we do not use such instruments for the purpose of financial
speculation. For more information on our foreign exchange rate risk, see Risk FactorsRisks Relating to Our
CompanyWe are directly affected by fluctuations in exchange rates between the real and the U.S. dollar and the
currencies of other countries in which we operate and our hedging contracts may not effectively protect us from any
resulting financial market risks.
Interest Rate Risk
This risk arises from the possibility that we may incur losses due to interest rate fluctuations that increase
financial expenses on loans and financing and debentures issued at floating interest rates. We and our subsidiaries
have short-term investments and most of our loans linked to floating interest rates (the majority of which linked to
the CDI). Interest rates on our loans and financing and debentures are also linked to TJLP, IPCA and the IGPM.
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BUSINESS OVERVIEW
Overview
We are among the largest and most experienced infrastructure companies in Brazil, focusing our operations on
heavy engineering and equity investments in infrastructure projects for both public and private clients. Since our
incorporation in 1976, we have executed many sizeable infrastructure projects and more than 1,700 large-scale
construction works in Latin America and Africa across a variety of industry sectors. We were ranked the fifth largest
heavy engineering company in Brazil as measured by gross revenues in the July 2013 edition of the Brazilian
magazine O Empreitero and the third largest Brazilian company in the construction industry as measured by net
revenues by the Brazilian magazine Valor Econmico: Valor 1000 in 2013. In 2012, we were also named Latin
America Developer of the Year by Project Finance Magazine.
We divide our operations within two divisions, our heavy engineering division and our investment division:
Our heavy engineering division specializes in the construction of complex construction works. We
maintain a diversified portfolio of construction works in the public and private sector, in Brazil and in
various other Latin American and African countries and across a variety of industries, including
transportation, urban infrastructure, oil and gas, energy, industrial facilities and sanitation, among
others.
Our investment division invests equity in infrastructure projects, which principally include concessions
granted by governmental authorities and projects sponsored by public or private clients as well as
PPPs. Having structured and invested in select infrastructure projects originated within our heavy
engineering division since 1994, through our investment division we directly and indirectly hold equity
interests in and direct the operation of highway, subway, sanitation, airport and sports arenas
concessions, among others.
We seek to capitalize on the synergies between our heavy engineering and investment divisions by
participating, when advantageous, in each stage of the infrastructure value chain through the origination, structuring,
development, investment in and operation of infrastructure projects, generating equity investment opportunities for
our investment division and construction works for our heavy engineering division. This strategy enables us to
capture the margins generated by our heavy engineering services and participate in a projects return on investment
through our equity interest in the project.
Our consolidated net revenue grew at a CAGR of 36% over the two-year period ended December 31, 2013,
from R$5,825.8 million (U.S.$2,574.4 million) in 2012 to R$7,926.8 million (U.S.$3,502.8 million) in 2013.
As set forth in the table below, we have a significant and diversified backlog:
As of
March 31,
2014
Backlog (1) (millions of reais) .................................................................
Number of construction works comprising backlog .............................
Backlog by industry sector (percentage of backlog in reais)
Transportation ........................................................................................
Urban Infrastructure ..............................................................................
Energy ....................................................................................................
Buildings ................................................................................................
Oil and Gas ............................................................................................
Industrial Complexes .............................................................................
Sanitation ...............................................................................................
Other ......................................................................................................
Backlog by client type (percentage of backlog in reais)
Public sector...........................................................................................
Private sector .........................................................................................
Backlog by geography (percentage of backlog in reais)
Brazil ......................................................................................................
International ...........................................................................................
75
2013
As of December 31,
2012
2011
2010
20,219
105
19,403
101
18,237
111
18,038
127
12,097
117
47%
21%
9%
9%
9%
0%
5%
0%
53%
14%
11%
8%
9%
0%
5%
0%
52%
16%
9%
7%
5%
3%
4%
4%
37%
18%
11%
10%
10%
7%
2%
5%
38%
14%
3%
10%
19%
6%
3%
7%
50%
50%
54%
46%
49%
51%
47%
53%
51%
49%
66%
34%
70%
30%
74%
26%
79%
21%
84%
16%
___________________________________
(1) We define backlog as the total balance of payments under contracts that we have executed or are executing for a particular project and for
which an identified source of funding exists, but that has not yet been recognized as revenue by us.
Beginning in 2005, we have focused on our international expansion and have steadily increased our
participation in construction works located outside Brazil in our backlog from 3% as of December 31, 2007 to 34%
as of March 31, 2014. We are focused on expanding our operations in developing countries in Latin America and
Africa, given the projected higher margins for construction works in these countries. We have established a
presence in 19 countries and have been awarded construction works in 10 Latin American countries outside of
Brazil (Argentina, Bolivia, Chile, Colombia, Costa Rica, Ecuador, Honduras, Peru, Trinidad and Tobago and
Uruguay) and in five African countries (Angola, Equatorial Guinea, Ghana, Guinea and Mozambique). In 2013, we
initiated operations in Ghana and Honduras, which as of December 31, 2013 accounted for R$468.5 million
(U.S.$207.0 million) and R$257.6 million (U.S.$113.8 million) of our aggregate backlog, respectively.
The illustrations below show our geographic footprint:
______________________________
Countries in which we have executed contracts.
Countries in which we have a presence but have not executed contracts.
We have also succeeded in expanding our backlog in the midst of a challenging economic environment, with
our heavy engineering division having been awarded 20 new construction works in 2012 that accounted for R$5.6
billion (U.S.$2.5 billion) of our backlog as of December 31, 2012, and 23 new construction works in 2013 that
accounted for R$6.1 billion (U.S.$2.7 billion) of our backlog as of December 31, 2013. In the three-month period
ended March 31, 2014, we were awarded 8 new construction works that accounted for R$2.2 billion (U.S.$1.0
billion) of our backlog as of that date. In 2013, construction works awarded to us, individually or with strategic
partners, included (1) lots 2 and 3 of the Rodoanel Norte ring road in the State of So Paulo, (2) affordable housing
developments in Ghana, (3) a residential complex in the city of Rio de Janeiro, known as Porto 2016, to be
developed in connection with the Olympic games scheduled to take place in Rio de Janeiro in 2016, (4) urban access
roads in the city of Dabompa in Guinea, (5) an LNG terminal in Uruguay, (6) the provision of logistics services,
materials and equipment for the construction of the Angra 3 nuclear plant in Angra dos Reis in the State of Rio de
Janeiro and (7) a 50 km two-lane road between Villa de San Antonio and Goascorn in Honduras, among others. In
the three-month period ended March 31, 2014, and through the date of this offering memorandum, construction
works awarded to us in Brazil, individually or with strategic partners, include (1) a 12.9 km roadway connecting the
76
BR 324 highway to Luis Viana Filho Avenue and Otavio Mangabeira Avenue in the city of Salvador in the State of
Bahia, (2) an industrial treatment plant and cooling towers at the Abreu e Lima Refinery in the city of Suape in the
State of Pernanbuco, (3) the Mina Gerais State Radio and Television Center and (4) the extension of the Avenida
Lauro Gomes roadway in the city of Sao Bernardo do Campo in the State of So Paulo. Construction works
awarded to us outside of Brazil, individually or with strategic partners, during the three-month period ended March
31, 2014 include (1) a suspension bridge connecting the Republic of Chile with Chiloe Island, in the Chilean Lakes
region, (2) the Lima Convention Center in Peru, scheduled to hold forums hosted by the World Bank and the IMF in
2015, and (3) a pipeline project in Montevideo, Uruguay, connecting a liquefied petroleum gas terminal located in
Punta de Sayago with an existing duct system in the region.
Our investment division contributed 16 construction works to our backlog in 2012 corresponding to R$6,621
million (U.S.$2,926 million) of our backlog as of December 31, 2012; compared to 15 construction works in 2013
corresponding to R$5,784 million (U.S.$2,556 million) as of December 31, 2013. In the three-month period ended
March 31, 2014, our investment division contributed 16 construction works to our backlog corresponding to R$5.3
billion (U.S.$2.3 billion) of our backlog as of that date.
Market Opportunity
In Brazil, we believe we are positioned to benefit from the anticipated long-term Brazilian economic
environment and the need for large-scale infrastructure investments, particularly as a result of:
the Brazilian governments PAC Program, an investment program that was launched in January 2007
by the Brazilian government aimed at improving the countrys infrastructure and is projected to invest
R$1,586 billion (U.S.$700.8 million) in infrastructure projects beginning in 2011;
the anticipated increase in financing for infrastructure projects by Brazilian governmental agencies,
including as a result of the approval of Provisory Measure (Medida Provisria) 628/2013, converted
into Law No. 12,979 in May 2014, pursuant to which the Brazilian government authorized BNDES to
invest R$24.0 billion in Brazilian infrastructure. Studies prepared by BNDES indicate that
infrastructure investments during the period from 2014 to 2017 will total approximately R$509.7
billion, an increase of 36.2% over infrastructure investments during the period from 2009 to 2012. It is
anticipated that transportation and logistics investments will account for approximately 32.0% of
infrastructure investments from 2014 to 2017 according to these studies;
Brazilian Law No. 12,431 enacted to incentivize private domestic and international funding of strategic
infrastructure projects in Brazil through tax exemptions;
the Olympic games scheduled to take place in the city of Rio de Janeiro in 2016; and
recent major discoveries of oil and natural gas potential offshore reserves in Brazil, recognized as some
of the largest in the world, and the related investments required in the Brazilian oil and gas industry to
develop and market these reserves, such as the construction of shipyards for offshore oil rigs and other
vessels and oil refineries. Expected investments include those resulting from Petrobras 2014 2018
business plan, approved in February 2014, that contemplates total investments of U.S.$220.0 billion,
including U.S.$153.9 billion for oil and gas exploration and production (of which 73% is anticipated to
be allocated to oil and gas production, 15% to oil and gas exploration and 12% to oil and gas
infrastructure).
We believe that efforts to improve infrastructure in developing countries throughout Latin America and Africa
present us with unique opportunities to leverage our proven experience in providing customized and innovative
77
engineering for complex, large-scale construction works and infrastructure projects. The Brazilian government
offers export financing for construction and engineering services related to projects undertaken in Latin America and
Africa, which we use as an important source of funding for our projects located in these countries, together with
support from multilateral financial institutions, including CAF and the IADB. We believe that the higher margins
we may earn from projects in certain of these countries compensate us for the related political risks to which we are
subjected.
Financial highlights
The table below sets forth our financial highlights for the periods indicated:
As of and for the
Three-Month
Periods Ended March 31,
2014
2014
2013
(Unaudited)
(in millions of
U.S.$, except
(in millions of reais, except
percentages)(1)
percentages)
Consolidated Financial Information
Net revenue ...............................................
Total assets ...............................................
Total equity ...............................................
Other Financial Information
and Selected Ratios
EBITDA (3) ..............................................
EBITDA margin (4) .................................
Net debt (5) ...............................................
785.0
6,456.3
934.8
1,776.4
14,610.5
2,115.4
1,449.6
10,015.1
1,082.2
3,502.8
5,995.1
526.3
7,926.8
13,567.0
1,191.1
5,825.8
9,667.9
1,099.0
556.8
70.9%
2,198.9
1,260.0
70.9%
4,976.0
101.5
7.0%
3,604.0
307.0
8.8%
2,284.8
694.8
8.8%
5,170.5
922.2
15.8%
2,307.3
___________________________
(1) Solely for the convenience of the reader, Brazilian real amounts for the three-month period ended March 31, 2014 and the year ended
December 31, 2013 have been translated into U.S. dollars at the commercial selling rate as of March 31, 2014, of R$2.2630 per U.S.$1.00.
These translations should not be considered representations that any such amounts have been, could have been or could be converted into
U.S. dollars at that or at any other exchange rate. See Exchange Rates for further information about recent fluctuations in exchange rates.
(2) We have adopted CPC 19 (R2) as from January 1, 2013 and restated our consolidated financial statements as of and for the year ended
December 31, 2012 for comparative purposes. See "Management's Discussion and Analysis of Financial Condition and Results of
OperationsChanges in Accounting Practices."
(3) EBITDA means net income (loss) plus financial income (expenses) net, plus income tax and social contribution plus depreciation and
amortization. EBITDA is not an IFRS or Brazilian GAAP measure, does not represent cash flow for the years or periods indicated and
should not be considered an alternative to net income (loss), as an indicator of our performance or as an alternative to cash flow as a source
of liquidity. Our definition of EBITDA may not be comparable with EBITDA as defined by other companies. Our management considers
EBITDA, notwithstanding the limitations previously mentioned, and in conjunction with other accounting and financial information
available, a reasonable indicator for comparisons between us and our principal competitors in the market. For a reconciliation from our net
income (loss) to EBITDA, see Summary Financial Information and Other Information or Selected Financial Data and Other
Information.
(4) EBITDA margin means EBITDA divided by net revenues, expressed as a percentage.
(5) Net debt means current and non-current loans and financing, debentures and senior and perpetual notes, less cash and cash equivalents and
short-term investments and marketable securities.
Our Operations
Our heavy engineering division specializes in the construction of complex construction works across a variety
of industries, including transportation, urban infrastructure, oil and gas, energy, industrial facilities and sanitation,
among others. Our investment division invests in infrastructure projects, which principally include concessions
granted by governmental authorities and projects sponsored by public or private clients as well as PPPs.
We seek to capitalize on the synergies created by the experience and expertise of our professionals in our heavy
engineering and investment divisions. To originate new projects, our investment and heavy engineering
professionals work together to source and analyze opportunities that may develop into infrastructure projects,
including construction works for our heavy engineering division. Our investment and heavy engineering divisions
work in collaboration to evaluate these opportunities, discuss them with clients and prepare bids. This process is
undertaken within a well-defined and rigorous corporate governance structure in which professionals from each
division participate in approval committees. For infrastructure projects in which we invest, our investment division
78
professionals work with our heavy engineering professionals to determine whether a given project is projected to
provide a satisfactory rate of return on our investment, to structure the project and to negotiate documentation with
our strategic partners for the project.
Heavy Engineering Division
We provide our clients with customized heavy engineering services for a diversified range of complex, largescale construction works within a variety of industries, such as transportation (particularly highways, subway lines
and airports), urban infrastructure (including sanitation projects), oil and gas (including shipyards), energy
(principally hydroelectric plants and dams), retail buildings (principally malls and supermarkets) and sports arenas,
in addition to the development of industrial projects (such as industrial complexes and water facilities). In 2013, our
heavy engineering division accounted for 84.7%, or R$7,522.7 million (U.S.$3,324.2 million), of our consolidated
gross revenue, while in the three-month period ended March 31, 2014, our heavy engineering division accounted for
91.9%, or R$1,813.2 million (U.S.$801.2 million), of our consolidated gross revenue. In addition to originating its
own portfolio of construction works, our heavy engineering division also benefits from opportunities arising through
the origination of infrastructure projects by our investment division, which originated 26%, or R$5,293 billion
(U.S.$2,339 billion), of our aggregate backlog as of March 31, 2014.
Our private sector clients within our heavy engineering division include Invepar, in which we hold a 24.4%
equity interest, as well as large domestic and multinational companies, such as Vale, Petrobras, CEMIG S.A.,
Carrefour Comrcio e Indstria Ltda. and Walmart Brasil Ltda., among others. Our public sector clients include the
CPTM (the So Paulo state government-owned transportation company), the Brazilian government-owned logistics
company Valec, the Peruvian ministry of transportation, the Brazilian Federal Government, as well as the
governments of the State of So Paulo and Rio de Janeiro. Our heavy engineering clients also include PPPs and
concession sponsors, which have become increasingly important participants in infrastructure development. We
have benefited from participation by our investment division in PPPs and concessions, which contract our heavy
engineering division as the heavy engineering service provider given its proven track record in successfully
completing both publicly and privately sponsored infrastructure projects.
In over 36 years of operation, we have been involved in the development of over 13 million m2 of construction
(including 192 industrial units), 4,600 km of highways and 33,000 km of pipelines, having participated in
groundbreaking construction works such as:
the Linha Amarela highway measuring 19 km in the State of Rio de Janeiro, the first private urban
road concession in Brazil;
the Joo Havelange Olympic stadium in the State of Rio de Janeiro, with a seating capacity of 45,000
sporting seats;
the GLP Urucu-Coari Duct in the State of Amazonas in 2009, a project comprising a 280 km pipeline
extension in the middle of the Amazon rainforest for Petrobras;
the Henrique Lage Refinery in the State of So Paulo in 2009, a project encompassing the expansion
and modernization of one of the largest refineries in Brazil for Petrobras;
the So Paulo City Subway Line 4 in the State of So Paulo, measuring 12.8 km underground;
the Rio Polmeros gas chemical complex in the State of Rio de Janeiro;
the Estreito hydroelectric plant in the State of Maranho and Tocantins, with a processing capacity of
1,087 MW;
the Estaiada Octavio Frias de Oliveira bridge in the State of So Paulo, with an area of 20,000 m and
at a mast height of 138 m; and
the Via Parque Rimac urban toll road in the Republic of Peru measuring 23.5 km.
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Through our heavy engineering division, we offer our clients customized and innovative solutions for each
project type, taking into account the particular specifications of the projects location and its inherent complexity in
order to satisfy our clients. We believe that our operations in this division benefit from a variety of factors,
including our proven expertise, our clients confidence in our execution capability, the quality of our construction
works and our ability to offer project equipment on a large scale.
In order to maximize our ability to win competitive bids for construction works, we enter into partnerships
structured as consortia with leading companies to complement our capabilities and resources. Our strategic
operational partners include leading companies with proven track records such as Odebrecht, Bombardier and Toyo.
Investment Division
Within our investment division, we structure and invest equity in infrastructure projects, seeking to contract our
heavy engineering division to provide engineering services for these projects in order to leverage its successful track
record of executing complex construction works (thereby reducing risks associated with project delays and quality)
and our leading positioning in Latin America. Our investment division (1) identifies, working together with our
heavy engineering division, infrastructure opportunities, coordinating the presentation of the bid to the project
sponsors and managing the bidding process, (2) participates in the structuring of the investment to be made by the
project sponsors, including the contribution of equity by us and our partners, as well as obtaining any necessary debt
financing and (3) directs the operation of the project. In 2013, our investment division accounted for 15.3%, or
R$1,354.4 million (U.S.$598.5 million), of our consolidated gross revenue, while in the three-month period ended
March 31, 2014, our investment division accounted for 8.1%, or R$160.1 million (U.S.$70.8 million), of our
consolidated gross revenue.
We invest directly and indirectly in joint ventures when we deem them beneficial on a case-by-case basis,
taking into account legal, tax and risk management considerations as well as the specific bidding requirements for a
particular infrastructure project. We invest together with strategic partners in order to aggregate financial resources
with well-capitalized partners, a strategy that we believe is an important risk management tool that enables us to
reduce our financial exposure to select projects and establish project companies that are financially independent
from us.
Our strategic partners in select infrastructure projects include (1) the three largest Brazilian pension funds
(Previ, Petros and Funcef), through our joint venture vehicle Invepar, (2) prominent Brazilian investment funds
(such as the Fundo de Garantia do Tempo de Servio, or FGTS, a Brazilian fund administered by one of the largest
public banks in Latin America, and Caixa Econmica Federal), (3) international investment funds (such as GID, a
multi-family real estate asset manager of CalPERS and CalSTRS), (4) the operating companies for which we
develop infrastructure projects (including Eletrobras and Furnas) and conglomerates such as Odebrecht, the Hyundai
Group and Kawasaki.
Once an infrastructure project is operational, our investment division professionals direct the project companys
performance to drive growth, enhance profitability and optimize long-term value for project stakeholders. Our
investment professionals work closely with our project teams to define strategic priorities and develop operating
budgets and encourage our partners to invest for future competitiveness, improve operating efficiencies and make
strategic improvements. We establish clear monitoring guidelines to measure a projects performance and
frequently meet with project teams to review the project's financial and operating results and strategic priorities.
Our investment professionals and project managers meet with our senior management committee at regular intervals
to report on their progress and to address potential areas of concern and their proposed solutions.
In addition to entering into and operating our investment projects, we evaluate eventual opportunities to divest
our investments, in part or fully, consistent with market conditions and our strategic objectives. We utilize the
proceeds from divestments to both fund current and future infrastructure projects and to increase our liquidity.
Our long-term infrastructure projects include: (1) highway, subway and airport concessions in Brazil and abroad
through Invepar; (2) three sports arenas concessions (Arena Porto Alegrense in the State of Rio Grande do Sul,
Arena das Dunas in the State of Rio Grande do Norte, and Arena Fonte Nova in the State of Bahia); (3) the Enseada
Paraguau shipyard in the State of Bahia; (4) an urban infrastructure concession (Porto Novo) in the State of Rio de
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Janeiro; (5) the Samar, the sanitation concession in the State of So Paulo; (6) an oil and gas project in the State of
Rio de Janeiro; and (7) the guas Peruanas aqueduct concession in Peru.
We execute our investments in the oil and gas sector through our wholly-owned subsidiary OAS leo e Gs.
As of the date of this offering memorandum, OAS leo e Gs indirectly holds interests in long-term charter and
services agreements with Petrobras for the construction, chartering, operation, and maintenance of five ultradeepwater drilling rigs, which we, together with our strategic partners (Sete Brasil and Etesco), were awarded
following a competitive bidding process. OAS leo e Gs Etesco leo e Gs (an affiliate of Etesco) and Piemonte,
each hold up to a twenty-five percent (25%) equity interest in each charter project company, as an operator
shareholder. The rigs will be built in two Brazilian shipyards, Rio Grande 2 and Enseada do Paraguau shipyards in
the States of Rio Grande do Sul and Bahia, respectively, and will be operated by Atlas Servios de Perfurao Ltda.,
a Brazilian joint venture company formed by Etesco leo e Gs, OAS leo e Gs, and Piemonte.
Invepar
Through Invepar, we together with Previ, Petros and Funcef (Brazils three largest pension funds with which we
have exclusivity for highway, airport and subway infrastructure projects) have long-term concessions for the
structuring and operation of infrastructure projects, such as: (1) toll roads, including the Linha Amarela urban
highway in the State of Rio de Janeiro and the Raposo Tavares highway in the State of So Paulo, and the Via
Parque Rimac urban highway in Lima, Peru, among others; (2) subway lines in the city of Rio de Janeiro (Metr
Rio); (3) an airport terminal at Guarulhos International Airport in the State of So Paulo, the airport with the greatest
number of passengers (30 million per year) in Latin America; and (4) the BR- 040 highway concession connecting
the Federal District of Brasilia, the State of Gois and the city of Juiz de Fora in the State of Minas Gerais.
As of the date of this offering memorandum, of the 19 infrastructure projects that comprise our and Invepars
infrastructure project portfolio of investments, three were pre-operational, and we anticipate that one of these
infrastructure projects will be operational by 2016.
We have invested in the following infrastructure projects pursuant to long-term concessions, which generally
have higher margins and more stable cash flows, allowing us to help to mitigate the effects of downturns in our
heavy engineering business:
81
Time
Time Elapsed
Remaining
Under
Under
Concessions
Concessions
(in years)
Investments
Sports Arenas
Porto Alegrense ............................................................................................................
Fonte Nova....................................................................................................................
Dunas ............................................................................................................................
Urban Infrastructure and Real Estate
Porto Novo ....................................................................................................................
guas Peruanas.............................................................................................................
PPP Guarulhos ..............................................................................................................
Samar ............................................................................................................................
OAS Empreendimentos(1) ...........................................................................................
Oil and Gas
Enseada Paraguau Shipyard(2) ...................................................................................
OAS leo e Gs S.A.(3)...............................................................................................
Status
1
4
3
19
31
17
Operational
Operational
Operational
3
4
0
1
NA
12
14
30
29
NA
Operational
Operational
Operational
Operational
Operational
N/A
N/A
N/A
N/A
Operational
Pre-operational
We generally seek to finance a portion of our investments through project financings extended on the basis of,
and with recourse to, a projects projected cash flow. Project financings generally permit us to limit our credit risk
given that they are structured with limited or no recourse to the shareholders of the project company. In addition,
we enter into ESAs, that generally (1) require us to contribute amounts to the project company that may be
necessary to pay for the completion of the construction of the project, (2) continue during the projects construction
period or until such time as the project company begins to generate operating cash flow, (3) do not guarantee the
indebtedness of the project company and (4) permit us to limit our obligations, including exclusions for certain
events outside of our control, such as force majeure.
We do not currently anticipate that we will be required to invest additional equity in Invepar in order for
Invepar to fulfill its current capital expenditure requirements.
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We believe that our continued diversification is essential to reducing any dependency on a single client or group
of clients as well as creating new opportunities for growth through increased cross-selling and networking
opportunities.
Proven ability to capitalize on synergies deriving from our heavy engineering and investment divisions
We believe that our business model, comprising our heavy engineering and investment divisions, enables us to
take full advantage of the opportunities presented by complex, large-scale construction works and infrastructure
projects. As demonstrated by our portfolio of investments as well as completed and ongoing construction works, we
have successfully capitalized on the synergies created by our heavy engineering and investment divisions through
the selection of Construtora OAS as the provider of the construction and engineering services for concessions and
large-scale infrastructure projects in which we have invested equity through our investment division. Our business
model allows us to not only diversify our revenue, but also enables us to identify and capitalize on cross-selling
opportunities. We believe the success of our business model is demonstrated by (1) the fact that our heavy
engineering division has successfully executed, or is currently executing, each of the infrastructure projects
structured by our investment division and (2) the long term partnerships we have fostered with our strategic
investment partners, including Previ, Petros and Funcef, the three largest pension funds in Brazil.
Favorable prospects for government-sponsored infrastructure development in Brazil, Latin America and Africa
As a leader in Brazils infrastructure development sector, we believe that we are well positioned to take
advantage of the increased support from the Brazilian federal government in infrastructure development as a result
of new and substantial highway and railway concession investments, the PAC Program, investments in the Brazilian
oil and gas industry (particularly in relation to exploration of offshore pre-salt areas) and the 2016 Olympic games in
the city of Rio de Janeiro. For example, we are currently participating in the investment and construction of Porto
Novo in the City of Rio de Janeiro as part of a revitalization and redevelopment plan for the surrounding region,
and we participated in construction relating to the expansion and improvement of Guarulhos International Airport,
including with respect to preparations for the 2014 World Cup and 2016 Olympic Games, two stadiums being used
in the 2014 World Cup (Arena das Dunas in the State of Rio Grande do Norte, and Arena Fonte Nova in the State of
Bahia) as well as the Joo Havelange Olympic stadium in the city of Rio de Janeiro, the principal stadium used in
the Pan American Games in 2007.
We also believe we are uniquely positioned to take advantage of (1) recent measures announced by the
Brazilian government to stimulate the economy through large-scale investments in infrastructure, including an
infrastructure investment plan for Brazilian highways and railways announced by the Brazilian government in
August 2012 and totaling R$133.0 billion (U.S.$58.8 billion) over the next 25 years and (2) increased financing for
infrastructure projects by Brazilian governmental entities, such as BNDES.
Furthermore, we believe that our proven experience of providing customized and innovative financial and
engineering solutions for the most complex large-scale construction works and infrastructure projects in Brazil
provides us with a competitive advantage in capitalizing on the efforts to improve national infrastructure in
developing countries in other Latin American countries and in Africa. Evidence of our ability to capitalize on these
efforts includes our ongoing development of the guas Peruanas aqueduct and Via Parque Rimac urban highway in
Peru and our construction of the So Fernando highway in Trinidad and Tobago.
Proven ability to enter into successful strategic partnerships
As part of our business model, we have established solid relationships with several strategic partners that enable
us to identify and invest in large-scale infrastructure projects through our investment division and execute the
projects awarded to our heavy engineering division. Our association with strategic investment partners in select
infrastructure projects, which include Previ, Petros and Funcef (Brazils three largest pension funds with which we
have exclusivity for transportation infrastructure projects through Invepar), FGTS, Kawasaki, GID, Eletrobras and
Furnas, is an important risk management tool that enables us to reduce our financial exposure to select projects and
establish project companies that are financially independent from us. Our strategic operational partners in select
construction works and infrastructure projects, which include Odebrecht, Bombardier and Toyo, allow us to
aggregate our expertise, technical capabilities and resources with those of other established and experienced market
84
participants in order to win bids for complex, large-scale infrastructure projects that require the participation of a
consortium for execution.
In addition, we believe that our strategic investment and operational partnerships aid us in identifying new
business opportunities as our strategic partners for any particular project look to partner with us in future
infrastructure projects.
Proven ability to successfully develop innovative construction works and infrastructure projects that meet our
clients demands
We have the proven ability to develop innovative construction works and infrastructure projects that meet our
clients demands. Examples of our participation in innovative and groundbreaking engineering solutions include:
the Linha Amarela highway concession in the State of Rio de Janeiro, the first private urban road
concession in Brazil, measuring 19 km;
the So Paulo City Subway Line 4 in the State of So Paulo in 2010, measuring 12.8 km, which we
believe to be one of the most modern subway lines in the world;
the Henrique Lage Refinery in the State of So Paulo in 2009, a project encompassing the expansion
and modernization of one of the largest refineries in Brazil for Petrobras;
the GLP Urucu-Coari Duct in the State of Amazonas in 2009, a project comprising a 280 km pipeline
extension in the middle of the Amazon rainforest for Petrobras; and
the Octavio Frias de Oliveira Cable-Stayed Bridge in 2008 in the State of So Paulo, the only cablestayed bridge in the world consisting of two curve tracks connected to the same mast.
Our clients satisfaction is confirmed by the various accolades we have received, including (1) our second place
ranking for innovation and quality in heavy engineering in Brazil by the magazine Isto Dinheiro in August 2012,
(2) our first place ranking for Latin America Water Deal of the Year 2010 for the guas Peruanas aqueduct in
Peru awarded by the publication Project Finance Magazine (Euromoney) and (3) Construtora OAS prize for the
2012 Green Company Award from poca magazine for its commitment to environmentally-conscious practices
with respect to climate change, including monitoring its impact on biodiversity, usage of renewable raw materials,
water consumption, waste disposal and energy efficiency. Moreover, since our incorporation, none of our clients
has executed a performance guarantee against us for the underperformance of a construction work or concession.
Experienced and professional management team with strong entrepreneurial culture
Our management and our technical teams have an extensive understanding of our business and industry both in
Brazil and in the international area, are highly qualified and have a strong track record of executing investments,
developing construction works and satisfying exacting client demands. Our executives have an average of 27 years
of experience (with the management of Construtora OAS having an average of 28 years of experience within the
heavy engineering industry) and an average of 21 years within our company, with extensive experience servicing a
variety of clients, including federal, state and municipal authorities as well as large Brazilian and international
corporations. Moreover, our engineering and technical teams are experienced in designing, developing and
executing a variety of complex large-scale construction works, including refineries, hospitals, bridges, subways,
railways, highways, sports arenas and hydroelectric plants. We believe that the technical capabilities of our
professionals as demonstrated through the success of and our clients satisfaction with our construction works will
increase our ability to introduce innovative solutions within the markets in which we operate and attract and
maintain clients.
In addition, we have developed a corporate culture based upon professional development, meritocracy,
autonomy and transparency. We have a proven track record of incentivizing our employees through participation in
our results, training and career development opportunities. We believe that these measures promote loyalty,
commitment and motivation, reducing our employee turnover and strengthening the sustainability of our operations.
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Our Strategy
Our results of operations are driven by the successful execution of our business plan, reflecting strong organic
growth, the development of new construction works, entry into new markets and investments in new concessions.
To further our growth, we intend to pursue to following strategies:
Continue to expand our focus on providing customized solutions for complex, large-scale engineering
construction works for leading companies across a variety of industry sectors
Complex and large-scale construction works, such as refineries, hydroelectric plants and transportation
construction works (including highways, subways and airports), face development obstacles that may be overcome
through efficient, customized and differentiated engineering solutions, which we have a proven history of providing
and upon which we may capitalize to increase our market share. To this end, we intend to continue to seek
opportunities to provide our customized and differentiated services on complex, large-scale construction works,
across a wide array of client sectors. Essential to this strategy will be our continued efforts to (1) create synergies
between our heavy engineering and investment divisions and (2) expand our client relationships by providing our
services across a variety of any individual clients business.
Capture growth opportunities in Brazil created by the Brazilian governments infrastructure promotion policies
We intend to further expand our heavy engineering business in Brazil, where we have amassed a successful
track record of completing complex, large-scale construction works and infrastructure projects throughout the
country. In particular, we intend to capitalize on increased spending by the Brazilian government to develop
Brazilian infrastructure through recently announced highway and railway concession investments, the PAC Program
investments in the Brazilian oil and gas industry, particularly the Brazilian pre-salt layer, as well as investments in
anticipation of the 2016 Olympic games to be held in Brazil.
Continue our geographical diversification outside of Brazil
To further diversify our revenue and increase our margins, we intend to leverage our successful track record and
current relationships to further diversify our operations into Latin America and Africa. In particular, we intend to
increase our market share in Latin American and African countries with excellent growth potential and
underdeveloped infrastructure. We also intend to focus our geographical diversification in countries in these
continents that have strong political relationships with the Brazilian government, including Angola and Mozambique
in Africa and members of the Mercosul (Mercado Comum do Sul) common market in Latin America, as we believe
that efforts to establish operation in these countries should benefit from existing trade relationships and close
governmental ties. In connection with this strategy, we intend to identify strategic local partners and clients with
long-term business development potential. To this end, we have established a presence in 19 countries in Latin
America and Africa staffed by professionals with the objective of building local relationships and expanding our
opportunities in each of these countries.
Continue to optimize the synergies between our heavy engineering and investment divisions
We intend to continue to identify opportunities to capitalize on the synergies between our heavy engineering
and investment divisions by actively seeking to invest in infrastructure projects through our investment division for
which our heavy engineering division may provide construction services. To execute this strategy, we have
developed a collaborative origination process in which our investment and heavy engineering professionals work
together to source and analyze infrastructure projects, prepare bids and identify strategic investment and operating
partners. Moreover, our investment professionals have a broad understanding of the technical capabilities and
strengths of our heavy engineering division in order to successfully cross-sell our construction services and
expertise, while working to maximize our return on investment.
Identify and execute new strategic partnerships
In order to further develop our growth objectives and reduce our financial and operational risk, we intend to
identify and enter into relationships with new strategic partners within both our heavy engineering and investment
divisions. We intend to continue to partner with well-established domestic and international companies with which
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we may form joint ventures to win concessions and bids for complex, large-scale infrastructure projects, which we
believe is an important risk management tool that enables us to reduce our financial exposure to select projects and
establish project companies that are financially independent from us. Partnering also enhances our reputation for
excellence and innovation as well as our proven history in completing successful infrastructure projects. Within our
investment division, we will continue to identify well-capitalized financial partners, as an important risk
management tool that enables us to reduce our financial exposure to select projects and establish project companies
that are financially independent from us.
Manage the political risks associated with our international operations
We will continue to manage the political risks inherent in operating in countries outside Brazil, such as Angola,
Mozambique, Ecuador and Equatorial Guinea, among others. In particular, where we deem advantageous, we will
continue to bid on and execute infrastructure projects that are funded under Brazilian trade credit or multilateral
agency credit facilities. The Brazilian government offers export financing for the export of construction and
engineering services related to projects undertaken in Latin America and Africa, which are available to Brazilian
companies and are an important source of funding for our projects located in these countries, together with support
from multilateral financial institutions, including CAF and the IADB. We believe that the higher margins we may
earn from projects in these countries compensate us for the related political risks to which we are subject as a result.
We will also continue to mitigate political risks by continuing to develop our experience and knowledge of
international markets, by entering into joint ventures with locally-based companies and by using local
subcontractors, suppliers and labor. Our partnerships with local entities assist us in integrating our operations into
the communities in which we operate.
Moreover, we will continue to (1) endeavor to establish long-term operations in countries in which we seek to
operate and (2) identify appropriate project opportunities that meet our rigorous risk management criteria. We
believe that our involvement in high visibility projects that are important to a countrys economy and development,
have earned us goodwill with the governments of these countries and further reduces the political risks associated
with our international operations. While certain other construction companies may avoid operating in some of the
countries in which we are active, we believe that our experience in these countries, our diversification and our
extensive contract risk assessment and risk sharing with other project participants allow us to effectively manage the
political risks presented by construction projects in these countries.
Our risk management strategy will continue to include a comprehensive portfolio of insurance policies. As of
March 31, 2014, our insurance coverage, which protects us against construction and operational risks, at 100% of
the value at risk, totaled R$28.1 billion (U.S.$12.4 billion). Moreover, as of March 31, 2014, our surety bond
coverage, which ensures execution and performance of construction works, totaled R$3.3 billion (U.S.$1.5 billion).
To further reduce the risks associated with our international operations, we will continue to seek to receive
downpayments ranging from 10% to 20% of the contract amount upon the execution of a project contract with
clients outside of Brazil. As of March 31, 2014, we held R$188.3 million (U.S.$83.2 million) in short-term
advances from clients, and R$390.5 million (U.S.$172.6 million) in long-term advances from clients.
We will also continue to evaluate the profitability of our international markets and projects in order to exit those
markets and projects that do not meet our long-term objectives.
Invest in technology, project management and human resources
As a provider of specialized heavy engineering services, we believe that investing in technology, processes,
internal controls, control systems and personnel is fundamental to our ability to offer more complex and secure
services, reduce costs, increase efficiency and competitiveness and maintain our leadership position in the market.
We aim to continue our corporate policy of investing in technology and project management processes in order to
continue to provide innovative solutions for our clients. Likewise, we value our human resources and carefully
select new employees who train extensively in order to sustain our competitive advantages. We will continue to
focus on recruiting and retaining motivated and experienced employees. We believe that our continued growth and
financial success is directly related to the experience of our construction and engineering project managers, as well
as our ability to attract and train our other employees to develop the skills necessary to manage and execute future
87
projects. We believe that the success of this strategy is demonstrated by improvements in our quality indicators as
well as the low turnover among our executives and engineers.
Recent Events
Consrcio Puente Chacao S.A.
On April 3, 2014, we together with our partners incorporated the entity Consrcio Puente Chacao S.A. (in
which Construtora OAS holds a 49% interest) in Chile to design and build the Chacao Bridge in the Los Lagos
region of Chile.
Issuance of 10th Series of Debentures
On April 10, 2014, OAS S.A. issued its 10th series of unsecured non-convertible debentures in an aggregate
principal amount of R$160.0 million. These debentures have a final maturity of April 10, 2015, with interest
payable at a floating rate equal to 100% of the CDI rate, the interbank average daily interest rate in Brazil, calculated
and published by CETIP plus a spread of 2.10% per year. These debentures are guaranteed by Construtora OAS.
Company History
We began our operations in the State of Bahia with the incorporation of Construtora OAS in 1976, focusing on
the construction division in the northeast Brazil. Beginning in the 1980s, we diversified our operations throughout
Brazil. In the early 1990s, we focused on the development of our heavy engineering business. In the late 1990s, we
expanded our business to public sector concessions, particularly in the transportation sector, and participated in the
first private urban road concession in Brazil for the Linha Amarela highway in the State of Rio de Janeiro. In recent
years, we have further diversified our operations to include new client sectors and geographical areas. In 2005, our
shareholders reformulated OAS strategy while maintaining its focus on the infrastructure sector. As a consequence,
we began our internationalization efforts, intensified the synergies between our heavy engineering and investment
divisions and diversified our client base.
Management and Corporate Governance
We are controlled by our shareholders, Mr. Cesar de Araujo Mata Pires, who holds 90% of our equity capital,
and Mr. Jos Adelmrio Pinheiro Filho who holds our remaining equity capital. As our controlling shareholders,
Mr. Pires and Mr. Pinheiro have the overall power to control us, and elect the executive officers who establish our
management policy and are responsible for determining our operating policies and guidelines for our business and
our subsidiaries.
The day-to-day management of our operations is led by experienced executive officers, including Mr. Cesar
Mata Pires Filho and Mr. Antonio Carlos Mata Pires, the sons of Mr. Pires, who have each worked with OAS for an
average of more than 10 years and serve as the non-statutory vice-presidents of our heavy engineering and
investment divisions, respectively, since 2011. In addition, our corporate governance comprises several corporate,
operational and investment committees which meet periodically to develop and implement our strategy. These
committees include, at the corporate level, our strategic direction committee, business committee, executive
committee and institutional committee, as well as, at the operational level, our construction works monitoring
committee. Each of these committees is comprised of members with extensive knowledge of our markets and our
operations and has been fundamental to our success over the years, establishing a governance culture based upon a
shared responsibility to each of our stakeholders, including our shareholders, investors, employees and business
partners. For additional information regarding our executive management and these committees, see
Management.
In order to increase our transparency and provide operational and financial information to the financial and
capital markets, we have, among other measures, established an investor relations department (including an investor
relations website), and we provide quarterly fact sheets and semi-annual earnings releases. We have also voluntarily
implemented numerous corporate governance practices adopted by public companies, including preparing audited
annual financial statements for over 16 years (and semi-annual unaudited financials for more than six years),
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providing company information in three languages, obtaining and providing ratings information since 2009 and
educating investors in North and Latin America regarding our business since 2009.
Corporate Structure
The following is a structure chart of the OAS Group, including the issuer, as of the date of this offering
memorandum:
Cesar Mata
Pires
100%
CMP Participaes
Ltda.
LP Participaes e
Engenharia Ltda.
Jos
Adelmrio
Pinheiro
10%
90%
OAS Finance
Limited (Issuer)
100%
OAS S.A.
(5)
100%
100%
OAS Engineering
OAS Investments
Construtora OAS
OAS Investimentos
78,95%
(1)
Consortiums
International
Branches
24.44% (2)
(1)
100%
100%
37.5%
Arena do Grmio
SPVs
17.5%
Estaleiro
Enseada
Paraguau
100%
61%
(100%)
(100%) (3)
PPP Guarulhos(100%) (4)
___________________________
(1)
(2)
(3)
(4)
(5)
Variable percentage according to the ownership structure of each legal entity between OAS and its partners.
Includes the direct equity interests of (i) OAS Investimentos (15.55%), and (ii) of OAS S.A. (8.89%).
Empresa Peruana de guas S.A. is controlled by OAS S.A. (75%) and Construtora OAS (25%).
Awarded to us in May 2014. We intend to incorporate the relevant project company by the end of 2014.
The issuer of the notes.
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To leverage our diversified client base, we seek to capitalize on the synergies between these divisions by
participating in each stage of the infrastructure value chain through the origination, structuring, development,
investment in and operation of infrastructure projects. This strategy enables us to capture the margins generated by
our heavy engineering services and participate in a projects return on investment through our equity interest in the
project.
Heavy Engineering Division
Our heavy engineering division originates and executes construction works in Brazil and abroad. Our heavy
engineering division has participated in approximately 261 million m3 of earthmoving projects since our inception,
including the construction of approximately 4.6 thousand km of highways and 33 thousand km of pipelines. Our
heavy engineering division performs activities such as demolition, clearing, excavation, drainage, embankment fill,
structural concrete construction, concrete and asphalt paving and tunneling. Our construction works are typically
large and complex and require the use of large construction equipment and sophisticated managerial and engineering
techniques.
We are active in construction works across a variety of industry sectors as described below:
Transportation. We believe that the construction works we have completed in the transportation sector
exemplify our contributions to infrastructure development in Brazil, encompassing construction works relating to
airports, highways, subway systems and ports. Since our inception, we have completed over 200 transportation
construction works, including (1) the construction of the Line 4 of the subway system in the city of So Paulo, (2)
the expansion of the Salvador Airport in the State of Bahia and the Congonhas Airport in the city of So Paulo, (3)
the construction of lot 5 of the Mrio Covas ring road connecting major highways that lead into the city of So
Paulo, (4) the construction of dock 4 at the Port of Suape in the State of Pernambuco and (5) a new terminal at
Guarulhos International Airport in the State of So Paulo and other related construction works. We are currently
participating in several transportation construction works in Brazil, including (1) the Tiradentes monorail in the city
of So Paulo, (2) the revitalization of terminals at the Guarulhos International Airport in the State of So Paulo and
other related construction at this airport, (3) the ViaRio urban highway in the State of Rio de Janeiro and (4) lots 2
and 3 of Rodoanel Norte ring road in the State of So Paulo. In addition, we are executing several transportation
construction works abroad including (1) the San Fernando Highway in Trinidad and Tobago, (2) the Malabo Luba
highway in Equatorial New Guinea and (3) the Transversal del Libertador highway in Colombia. As of March 31,
2014, our transportation construction works comprised 47% of our total backlog.
Urban Infrastructure. Within the urban infrastructure sector, the construction works we perform contribute to
the social development of underdeveloped areas characterized by substandard infrastructure, having alleviated basic
infrastructure problems and improved the living conditions of lower income populations. Construction works we
have completed in this sector include the paving of highways and the construction of sewage and drainage networks
for the neighborhood of Rocinha in the city of Rio de Janeiro and for the neighborhoods of Helipolis, Jos Paulino
and Jardim Imperador in the city of So Paulo. The urban infrastructure construction works we are currently
executing include (1) infrastructure improvements in the Complexo do Alemo informal settlement in the city of Rio
de Janeiro, (2) the redesign of a neighborhood proximate to the port of the city of Rio de Janeiro (3) other urban
infrastructure improvements in Angola and (4) the Chacao Bridge in Chile, a suspension bridge measuring 2.1 km.
As of March 31, 2014, our urban infrastructure construction works comprised 21% of our total backlog.
Energy. Within the energy sector, we have focused on the construction of hydroelectric and thermoelectric
plants, as well as power transmission lines. The construction works we have completed in this sector include (1) the
Termobahia thermoelectric power plant in the State of Bahia, with an aggregate installed capacity of 190 MW, (2)
the Candonga hydroelectric power plants in the State of Minas Gerais, with an aggregate installed capacity of140
MW and (3) the Estreito hydroelectric plant along the border between the States of Maranho and Tocantins, with an
aggregate installed capacity of 1,087 MW. The energy construction works we are currently executing include three
hydroelectric plants: (1) Belo Monte in the State of Par, (2) Baba in Ecuador and (3) Balsa Inferior in Costa Rica.
As of March 31, 2014, our energy construction works comprised 9% of our total backlog.
Buildings. We have completed over 470 building construction works for both public and private sector clients
using advanced technology in engineering that incorporates intelligent design as well as complex and innovative
architecture, with modern structures and high-quality finishing. The construction works we have completed in this
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sector include the construction of (1) the Paulnea City Hall in the State of So Paulo, (2) the Salvador Historical
Center in the State of Bahia and (3) the Joo Havelange Olympic Stadium in the State of Rio de Janeiro (4) Fonte
Nova arena in the State of Bahia, (5) the Dunas arena in the State of Rio Grande do Norte, each of which is hosting
soccer matches during the 2014 World Cup in Brazil and (6) the Porto Alegrense arena in the State of Rio Grande
do Sul. The construction works we are currently performing in this sector include (1) the Brazilian Paralympics
Complex in the City of So Paulo, (2) affordable housing developments in Ghana and (3) and the Lima Convention
Center in Peru, among others. As of March 31, 2014, our buildings construction works comprised 9% of our total
backlog.
Oil and Gas. We execute construction works for major oil and gas companies, such as Petrobras, having
completed significant projects for Petrobras that include (1) the Urucu-Coari gas pipeline in the State of Amazonas,
with 280 km of steel pipeline for the transportation of liquefied petroleum gas, or LPG, (2) the modernization of the
President Getlio Vargas Refinery REPAR, in the city of Araucria in the State of Paran and (3) the
modernization of the Henrique Lage Refinery REVAP, in the city of So Jos dos Campos in the State of So
Paulo. Other notable construction works we have completed in this sector include the construction of (1) industrial
units and related civil works at the Camaari petrochemical center in the State of Bahia, (2) two atmospheric
distillation units for the RNEST Refinery in the city of Ipojuca in the State of Pernambuco (3) a 146 km gas pipeline
extension in the city of Campinas in the State of So Paulo and (4) an LNG terminal in Uruguay, among others. As
of March 31, 2014, our oil and gas construction works comprised 9% of our total backlog.
Industrial Complexes. We have substantial expertise in this sector, having completed over 192 industrial
construction works, including complex projects for clients in the pulp and paper, chemical, textile, automotive,
metallurgical, food and beverage and pharmaceutical industries, among others. The construction works we have
completed in this sector include (1) the construction of the Campo Grande production facility in the State of Rio de
Janeiro for Companhia de Bebidas das Amricas Ambev, which produces Brahma-brand beer, (2) the excavation
and complementary civil works for General Motors do Brasil Ltda.s automotive industrial complex in the State of
Rio Grande do Sul, (3)an automotive industrial complex in the State of Bahia and (4) the construction of Monsanto
do Brasil Ltda.s herbicide facility at the Camaari petrochemical complex in the State of Bahia. We are currently
executing industrial construction works for Vale, including the Salobo mining plant in the State of Par and a mining
plant in Mozambique. As of March 31, 2014, there were no industrial complexes construction works in our backlog.
Sanitation. We have executed large sanitation construction works, including project planning, construction,
electromechanical assembly, operational testing and commissioning. In particular, we have completed significant
construction works in this sector in the metropolitan region of So Paulo, including (1) the lowering and enlarging
the Tiet River chute and (2) the construction of the Parque Novo Mundo sewerage treatment station and the Rio
Grande water treatment station. We have also completed water system extensions for several cities in the States of
Paraba and Bahia as well the sewage network for the city of Candeias in the State of Bahia. We are currently
executing sanitation construction works, including the OSE Maldonado sanitation project in Uruguay and the Chaco
aqueduct in Argentina. As of March 31, 2014, our sanitation construction works comprised 5% of our total backlog.
Other. We have developed technical experience in other complex and state-of-the-art construction works,
such as the Roberto Marinho suspension bridge that crosses the Pinheiros River, in the city of So Paulo, comprising
two curved suspension bridges that measure 1,200 meters each. We have completed other complex construction
works, including (1) the construction of the Santa Cruz do Apodi dam in the State of Rio Grande do Norte, (2) the
excavation of the Tiet River in the State of So Paulo and (3) the construction of three bridges in the city of Belm
in the State of Par. As of March 31, 2014, there were no other construction works in our backlog.
Our Backlog
We have accumulated a significant backlog of construction works, including construction works relating to our
infrastructure projects. We define our backlog as the aggregate amount of payments scheduled to be due under
contracts that we have entered into for a particular project and for which there is an identified source of funding and
that we have not yet recognized as revenue. As of March 31, 2014 and December 31, 2013, 2012 and 2011, our
aggregate backlog totaled R$20,219 million (U.S.$8,934 million), R$19,536 million (U.S.$8,633 million), R$18,237
million (U.S.$8,058.8 million) and R$18,038 million (U.S.$7,970.8 million), respectively.
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We have a diversified backlog. The table below sets forth the breakdown of our backlog by our principal
clients as of March 31, 2014:
Backlog by Client
Client
Invepar ...........................................................................................................................
Belo Monte ....................................................................................................................
Petrobras ........................................................................................................................
Porto Novo ....................................................................................................................
Gas Sayago S.A. ............................................................................................................
Government of Trinidad & Tobago ..............................................................................
Government of the State of So Paulo ..........................................................................
Areva S.A. .....................................................................................................................
Others ............................................................................................................................
Percentage
15.3%
4.4%
4.0%
4.4%
4.9%
7.3%
10.3%
4.4%
45.0%
Moreover, our backlog represents a cross section of industry sectors. The table below sets forth our backlog by
industry sectors as of the dates indicated:
47%
21%
9%
9%
9%
0%
5%
0%
2013
52%
14%
10%
8%
9%
0%
5%
0%
As of December 31,
2012
2011
52%
16%
9%
7%
5%
3%
2%
3%
37%
18%
11%
10%
10%
7%
2%
5%
2010
38%
14%
3%
10%
19%
6%
3%
7%
While we intend to continue to maintain a diversified backlog, we specifically intend to target the anticipated
construction works resulted from: (1) the Brazilian governments PAC Program, an investment program that was
launched in January 2007 by the Brazilian government aimed at improving the countrys infrastructure and is
projected to invest R$1,586 billion (U.S.$700.8 million) in infrastructure projects beginning in 2011 through the
next several years; (2) the Program for Investments in Logistics launched to stimulate economic growth through
investments in infrastructure, including an infrastructure investment plan for Brazilian highways and railways
announced by the Brazilian government in August 2012 that contemplates total investments of R$133.0 billion
(U.S.$58.8 billion) over the next 25 years, of which R$80.0 billion (U.S.$35.4 billion) is projected to be disbursed
by 2017; (3) the anticipated increase in financing for infrastructure projects by Brazilian governmental agencies,
including as a result of the approval of Provisory Measure (Medida Provisria) 628/2013, converted into Law No.
12,979 in May 2014, pursuant to which the Brazilian government authorized BNDES to invest R$24.0 billion in
Brazilian infrastructure. Studies prepared by BNDES indicate that infrastructure investments during the period from
2014 to 2017 will total approximately R$509.7 billion, an increase of 36.2% over infrastructure investments during
the period from 2009 to 2012. It is anticipated that transportation and logistics investments will account for
approximately 32.0% of infrastructure investments from 2014 to 2017 according to these studies; (4) Brazilian Law
No. 12,431 enacted to incentivize private domestic and international funding of strategic infrastructure projects in
Brazil through tax exemptions; (5) the Olympic games scheduled to take place in the city of Rio de Janeiro in 2016;
and (6) recent major discoveries of oil and natural gas potential offshore reserves in Brazil, recognized as some of
the largest in the world, and the related investments required in the Brazilian oil and gas industry to develop and
market these reserves, such as the construction of shipyards for offshore oil rigs and other vessels and oil refineries.
Expected investments include those resulting from Petrobras 2014 2018 business plan, approved in February
2014, that contemplates total investments of U.S.$220.0 billion, including U.S.$153.9 billion for oil and gas
exploration and production (of which 73% is anticipated to be allocated to oil and gas production, 15% to oil and gas
exploration and 12% to oil and gas infrastructure).
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Since 2008, we have steadily increased the participation of private sector clients within our client mix from 34%
of our backlog in 2008 to 50% in the three-month period ended March 31, 2014. The table below sets forth the
evolution of the participation in our public and private sector clients in our backlog as of the dates indicated:
50%
50%
2013
54%
46%
As of December 31,
2012
2011
49%
51%
47%
53%
2010
51%
49%
We have focused on our international expansion and have steadily increased our projects located outside Brazil
as a percentage of our total backlog from 16% as of December 31, 2010 to 34% in the three-month period ended
March 31, 2014. The table below sets forth the evolution of domestic and international clients in our backlog as of
the periods indicated:
66%
34%
2013
70%
30%
As of December 31,
2012
2011
74%
26%
79%
21%
2010
84%
16%
We are focused on expanding our operations in developing countries in Latin America and Africa, given the
expected opportunities for construction works in these countries. In particular, we intend to increase our market
share in Latin American and African countries with growth potential and underdeveloped infrastructure. We also
intend to focus our geographical diversification in countries in these regions that have strong political relationships
with the Brazilian government, including Angola and Mozambique in Africa and countries that are part of the
Mercosul common market in Latin America, as we believe that efforts to establish operation in these countries
should benefit from existing trade relationships and close governmental ties. In connection with this strategy, we
intend to identify strategic local partners and clients with long-term business development potential. We have
established a presence in 19 countries in Latin America and Africa, which offices are staffed by our professionals
who are working to build local relationships and further our opportunities in each of these countries.
Investment Division
Within our investment division, we structure and invest equity in infrastructure projects, which contract our
heavy engineering division to provide engineering and construction services for these projects. Our infrastructure
projects are typically awarded and governed by concession or similar agreements awarded for the construction,
operation and maintenance of the projects. A long-term concession is a license of specified duration (typically
between 20 and 40 years), granted by federal, state or municipal governments, private sector or public sector entities
or PPPs to finance, build, establish, operate and maintain public projects.
Historically, a substantial portion of heavy engineering services were performed by construction companies in
connection with infrastructure projects developed by governments and government agencies. However,
governments and government agencies, including in Brazil, have generally sought in recent years to stimulate
private investment and reduce the development and operation of infrastructure projects by governments and
governmental agencies. As a result, companies have participated in obtaining financing for the construction of
infrastructure projects and have invested equity or provided other financing for these projects. We have experienced
strong demand (and expect to continue to experience strong demand) for infrastructure projects in which we have
been required to participate in obtaining financing, particularly in projects for the construction and operation of
highways, railroads, subways, hydroelectric plants, sanitation facilities and oil drilling facilities and refineries.
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Since 1994 (with heightened focus after 2005), through our investment division, we directly and indirectly have
owned equity interests in and direct the operation of infrastructure projects. In particular, our investment division:
identifies infrastructure project opportunities for which our heavy engineering division provides
services, coordinating the presentation of the bid to the project sponsors and managing the bidding
process;
participates in the structuring of the investment to be made by the project sponsors, including the
contribution of equity by us and our partners in the applicable project; and
directs the project companys operation of the project, introducing new and improved services that we
may identify throughout its term of operation.
Identification of Opportunities
Our investment division works closely with our heavy engineering division to identify opportunities in which
we may invest equity in infrastructure projects for which our heavy engineering division provides construction
services. To this end, dedicated professionals within each division evaluate opportunities in order to select
infrastructure projects that we believe offer us the best potential to capitalize on our operational synergies. For
additional information, see Origination of Construction Works and Infrastructure Projects.
Our approach to investing equity in infrastructure projects focuses on achieving attractive rates of return by
selecting high-quality investments that we may make at attractive valuations, capitalizing on synergies with our
heavy engineering division, applying rigorous standards of due diligence when making investment decisions,
implementing strategic and operational changes that drive value for our infrastructure projects, carefully monitoring
investments and making informed decisions when analyzing investment exit strategies. We believe that we have
achieved a leading position within the infrastructure industry by leveraging our origination capacity, applying a
disciplined investment approach and establishing strong financial partnerships with highly motivated investment
funds and companies to share in the financial risk of our infrastructure projects.
Structuring of Investment
For infrastructure projects in which we invest equity, our investment division is responsible for analyzing and
establishing the appropriate capital structure of the project company, taking into consideration projected rates of
return, financing options and costs, as well as legal, tax and project specific considerations. Our return on
investment for a concession or similar agreement is based on factors that include, (1) the duration of the concession
or similar agreement, (2) the aggregate amount of toll revenues collected or other revenues projected to be generated
based upon the projects operations, (3) projected maintenance and operation costs and (4) projected debt service
costs. Due to the long-term nature of most infrastructure projects, we do not begin to recover our equity investment
or receive payment under the contract until we complete the construction phase. We typically recover our
investment in concessions through the collection of toll tariffs or, if under a PPP contract structure, through a fixed
payment. For projects that are not structured through PPPs, such as toll roads, airports, oil rigs, shipyards and real
estate development projects, and for which we do not receive fixed payments, our compensation is subject to enduser demand for the project.
Depending on the requirements of each specific infrastructure project, whether executed pursuant to a
concession agreement or otherwise, we typically seek to form a consortium with entities that have expertise in
different areas and that can assist us in financing the project. We invest through joint ventures with strategic
partners in order to aggregate financial resources with well-capitalized partners, a strategy that serves as an
important risk management tool by enabling us to reduce our financial exposure to select projects and establish
project companies that are financially independent from us. For each infrastructure project, we make legal, tax and
risk management considerations and take into account specific bidding requirements so as to choose the partner that
will best complement us in such venture. Our strategic partners include (1) the three largest Brazilian pension funds
(Previ, Petros and Funcef), (2) prominent Brazilian investment funds (such as the FGTS), (3) international
investment funds (such as GID), and (4) the operating companies for which we develop infrastructure projects
(including Eletrobras and Furnas) and conglomerates such as Odebrecht, the Hyundai Group and Kawasaki.
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During the structuring phase of an infrastructure project, we negotiate with each of the stakeholders in the
project, including the project sponsors and our strategic investment partners, in order to align our interests and arrive
at the optimal mix of debt and equity to be contributed to the project. In addition to providing equity capital to
infrastructure project companies, we arrange third party financing for the project obligations. The project revenues
and receivables are typically pledged to creditors to secure the project indebtedness.
We generally seek to finance part of our investments through project financings extended on the basis of a
projects projected cash flow. Project financings generally permit us to limit credit risk given that they are
structured with limited or no recourse to the shareholders of the project company.
In support of our project financings we may also enter into ESAs that generally:
require us to contribute amounts to the project company that may be necessary to pay for the
completion of the construction of the project;
continue during the projects construction period or until such time as the project company begins to
generate cash flow;
permit us to limit our obligations, including exclusions for certain events outside of our control, such
as force majeure.
We believe that our ability to finance our projects has enabled us to compete more effectively in obtaining
contracts for the construction of infrastructure projects. Providing financing for infrastructure projects, however,
may increase our capital requirements and expose us to the risk of loss of our investment in a project. We attempt to
compensate for this risk by entering into financing arrangements on terms that are generally intended to provide us
with a reasonable return on our investment. We are selective in choosing projects in which we expect to recover our
investment and earn a reasonable rate of return. However, we cannot assure prospective investors that we will be
able to realize these objectives or continue successfully financing our infrastructure projects.
Operation of Infrastructure Projects
Once an infrastructure project is operational, our investment division professionals direct the operation and
management of the project companys performance to drive growth, enhance profitability and optimize long-term
value for project stakeholders. Our investment professionals work closely with project teams to define strategic
priorities, develop operating budgets and encourage our partners to invest for future competitiveness, improve
operating efficiencies and make strategic improvements. We establish clear monitoring guidelines to measure a
projects performance and frequently meet with project teams to review the project's financial and operating results
and strategic priorities. Our investment professionals and project managers meet with our senior management
committee at regular intervals to report on their progress and to address potential areas of concern and their
proposed solutions.
Divestment of Infrastructure Projects
In addition to entering into and operating our investment projects, we evaluate eventual opportunities to divest
our investments, in part or fully, consistent with market conditions and our strategic objectives. We utilize the
proceeds from divestments to fund current and future infrastructure projects and to increase our liquidity.
Our Infrastructure Projects
Through OAS, OAS Investimentos and Construtora OAS, our investment division invests equity directly in
infrastructure projects, which may be structured through concessions, PPPs or other similar arrangements, in Brazil
and abroad. Through Invepar, we together with Previ, Petros and Funcef (Brazils three largest pension funds) have
long-term concessions for the structuring and operation of infrastructure projects in the transportation sector.
95
We hold equity interests in the following infrastructure projects pursuant to long-term concessions, which
generally have higher margins and more stable cash flows, allowing us to help to mitigate the effects of downturns
in our heavy engineering division:
Type
Location
Interest (1)
Time
Time
Elapsed
Remaining
(in years)
Status
Investments
Sports Arenas
Private
concession
PPP
100.0%
50.0%
1
4
19
31
Operational
Operational
PPP
100.0%
17
Operational
PPP
Public concession
Public concession
PPP
NA
37.5%
100.0%
100.0%
100.0%
100.0%
3
5
2
0
NA
12
13
28
30
NA
Operational
Operational
Operational
Operational
Operational
NA
NA
NA
NA
NA
NA
NA
NA
Operational
Pre-operational
Rio de Janeiro
Peru
Pernambuco
Rio de Janeiro
Bahia
So Paulo
Bahia
Rio de Janeiro
Mato Grosso/Gois
PPP
Public concession
Public concession
Public concession
Public concession
Public concession
Public concession
Public concession
Public Concession
33.4%
100.0%
50.0%
24.9%
50.0%
100.0%
91.5%
100.0%
100.0%
2
5
3
18
4
5
14
17
0
33
35
32
7
21
25
21
23
30
Pre-operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
So Paulo
Public concession
18
Operational
Rio de Janeiro
Rio de Janeiro
Public concession
PPP
16
1
24
24
24
Operational
Pre-operational
46.0%(5)
100.0%
24.44%
___________________________
(1)
(2)
(3)
(4)
(5)
Our heavy engineering division provides construction and engineering services for each of the infrastructure
projects listed above.
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Enseada Paraguau Shipyard. Through Estaleiro Enseada Paraguau S.A., or EEP, we, together with
Odebrecht, Kawasaki and UTC, will construct the Enseada Paraguau shipyard, which has been designed to build
drilling rigs, platforms and oil and gas vessels to meet exploration demands deriving from oil and gas discoveries in
the Brazilian pre-salt layer. The shipyard will be located in the city of Maragojipe in the State of Bahia. It is
anticipated that EEP will invest approximately R$2.6 billion (U.S.$1.1 billion) in the State of Bahia. The shipyard
holds contracts valued at R$13.1 billion (U.S.$5.8 billion) to construct six oil rigs and four conversions for the
exploitation of certain Brazilian reserves.
The following is a brief description of the infrastructure projects in which we hold an indirect interest through
Invepar.
ViaRio. Through the Consrcio Rio Olmpico, Invepar and its strategic partners Odebrecht Transport
Participaes S.A. and CCR S.A., won a public bid sponsored by the Public Works Municipal Secretariat
(Secretaria Municipal de Obras) of the city of Rio de Janeiro to develop and operate the ViaRio Express Corridor
that will connect the important highways Avenida Brasil and Avenida Salvador Allende in the city of Rio de Janeiro
as part of preparations for the 2016 Olympic games. This highway is expected to facilitate traffic flow for nearby
residents and promote economic development in the region.
Via Parque Rmac. Through its wholly-owned subsidiary, Linea Amarilla S.A.C., or Linea Amarilla, Invepar is
party to a concession agreement, with a term through 2039, with the municipal government of Lima, Peru for the
construction, operation and maintenance of the Via Parque Rmac highway in the city of Lima. Located within the
metropolitan region of the city of Lima, we believe that Via Parque Rmac highway is one of Perus most important
infrastructure projects in recent years. Invepars direct interest in Linea Amarilla resulted from our transfer to
Invepar on March 21, 2012 of our 100% interest in VPR Participaes S.A., which holds 100% of the outstanding
equity interest of Linea Amarilla.
Rota do Atlntico. Through Concessionria Rota do Atlntico S.A., or CRA, Invepar manages a portion of the
Complexo Virio e Logstico Suape highway extending 45 kilometers in the State of Pernambuco pursuant to a 35year term concession agreement entered into with the Governor Eraldo Gueiros Industrial Port Complex (Complexo
Industrial Porturio Governador Eraldo Gueiros) of the State of Pernambuco. CRA, which was incorporated on
June 10, 2011, is responsible for the construction, operation, conservation and improvement of this highway in
addition to the provision of services for highway users and providing logistics support for the technological
integration between the highway and the Suape industrial complex.
Rio Terespolis. Through Concessionria Rio Terespolis S.A., or CRT, Invepar manages the BR-116 highway
in the State of Rio de Janeiro. This concession, which was awarded to Construtora OAS and its concession partners
(Carioca Chrisitiani-Nielsen Engenharia S.A., Construtora Queiroz Galvo S.A. and EIT-Empresa Industrial
Tcnica S.A.) in 1995 by the National Department of Highways (Departamento Nacional de Estradas de Rodagem)
of the State of Rio de Janeiro and has a term of 25 years. This highway concession encompasses the municipalities
of Duque de Caixas, Mag, Guapimirim, Terespolis, So Jos do Vale do Rio Preto and Sapucaia, extending
approximately 143 kilometers. In accordance with the concession agreement, CRT is responsible for the
improvement, conservation and maintenance of the highway in addition to the provision of services for highway
users.
Bahia Norte. Through Concessionria Bahia Norte S.A., or CBN, Invepar, together with its consortium partner
Odebrecht, manages and operates the BA-093 highway in the State of Bahia, a highway which extends 125 km and
connects municipalities in the metropolitan region of the city of Salvador, including Pojuca, Mata de So Joo, Dias
DAvila, Camaari, Simes Filho, Lauro de Freitas, Candeias and Salvador. Pursuant to this concession agreement,
which was entered into with the Infrastructure Secretariat for the State of Bahia (Secretaria de Infra-estrutura do
Estado da Bahia), the Department of Transportation Infrastructure for the State of Bahia (Departamento de Infraestrutura de Transportes da Bahia) and the State Agency for the Public Services of Energy, Transport and
Communication for the State of Bahia (Agncia Estadual de Servios Pblicos de Energia, Transportes e
Comunicaes do Estado da Bahia) in August 2010, CBN has been responsible for the revitalization, conservation
and maintenance of this highway in addition to improving its access routes and providing services to its users.
Corredor Raposo Tavares. Through Concessionria Auto Raposo Tavares S.A., or CART, Invepar manages
the Corredor Raposo Tavares highway, a highway measuring 444 km with access to the municipalities of Bauru,
98
Ourinhos and Presidente Epitcio in the State of So Paulo. Invepar was awarded this concession in October 2008
by the Transportation Agency for the State of So Paulo (Agncia de Transporte do Estado de So Paulo) following
a competitive international bidding process. CART assumed this concession on March 17, 2009, and is responsible
for the maintenance and improvement of the highway as well as for the provision of medical and automotive
assistance to its users.
Litoral Norte. Through Concessionria Litoral Norte S.A., or CLN, Invepar manages the Litoral Norte
highway, which comprises the Estrada do Coco and the Linha Verde roads and connects the city of Lauro de Freitas
in the State of Bahia to the division between the States of Bahia to the border of the State of Sergipe. This highway
is managed by CLN pursuant to a concession agreement executed in 2000 with the Department of Transportation
Infrastructure for the State of Bahia (Departamento de Infra-estrutura de Transportes da Bahia) and with a term of
35 years. Located in a tourist region, the Litoral Norte highway provides access to beaches and other tourist
destinations. Under this concession, we believe that the Litoral Norte highway has become a reference for quality,
comfort and security and an important agent for economic and social development in the region. We further believe
that as a result of its quality, this highway has permitted the development of large-scale private initiatives in the
region, principally in the hotel sector.
Linha Amarela. Through Linha Amarela S.A., or LAMSA, Invepar manages 20 km of the Linha Amarela
urban toll highway in the city of Rio de Janeiro. This concession agreement was executed in 1997 with the
Municipal Secretariat of the city of Rio de Janeiro (Secretaria Municipal do Rio de Janeiro) and expires in 2037.
Guarulhos International Airport. Through Concessionria Aeroporto Internacional de Guarulhos S.A., Invepar
and its strategic partner, Airports Company South Africa Soc Limited, entered into a concession agreement with the
Brazilian federal government to operate Guarulhos International Airport, the largest airport in South America, for a
period of 20 years, during which time this airport is expected to receive investments to increase its capacity and
security and the services it offers to passengers. The airports new terminal is in operation and has increased this
airports capacity by 12 million passengers per year, with 22 new departure gates and 10,000 new parking spaces in
operation, among other improvements. By 2022, it is anticipated that further improvements in the airport will
permit an increase in the airports transport capacity to 60 million passengers per year.
Metr Rio. Through Concesso Metroviria do Rio de Janeiro S.A., or Metr Rio, Invepar manages, maintains
and operates subway Lines 1 and 2 in the city of Rio de Janeiro, which jointly extend 46.2 km and comprise 35
metro stations. Pursuant to the concession agreement granted by executive act by the Governor of the State of Rio
de Janeiro and which expires in 2038, Metr Rio has invested funds to modernize the subway lines and double their
capacity to transport 1.1 million passengers per day. As a result of these investments, Metr Rio constructed a new
Line 1-A and the Cidade Nova metro station, modernized the traffic control center, purchased 19 new trains and
initiated work on the Uruguai station. Metr Rio continues to extend and modernize the signaling, ventilation and
energy systems as well as ensuring access to these subway lines for persons with disabilities.
VLT Carioca. In April 2013, Concessionria VLT Carioca S.A. (in which Invepar holds a 24.4% interest) won
the bid for the development, operation and maintenance of a light rail vehicle, or LRV, transportation system in the
city in Rio de Janeiro. The project will be implemented through a public-private partnership pursuant to a 25-year
concession.The estimated cost of the project is R$1.2 billion, of which R$532 million will be financed with
Brazilian federal funding under the PAC Program. It is estimated that between 220,000 and 250,000 passengers per
day will be transported on the LRV transportation system, which is anticipated to comprise six lines circulating in
the downtown and port regions of Rio de Janeiro through 28 kilometers of railway, 38 stops and four stations. The
development of the LRV transportation system is part of the State of Rio de Janeiros strategy to implement
adequate transportation infrastructure for the 2016 Olympic games.
BR-040. In March 2014, Concessionria BR-040 S.A. (in which Invepar holds a 100% interest) and the
Brazilian federal government signed a concession agreement for the provision of operation, maintenance and
conservation services as well as the execution of improvements and expansions along the BR-040/DF/GO/MG
highway system for a period of thirty years, subject to renewal for an equal period. This toll road system measures
936.8 km and connects Brasilia with the city of Juiz de Fora in the State of Minas Gerais. It is anticipated that the
toll road will be expanded by 702 km over the next five years. The concession covers 38 municipalities in a region
with more than eight million inhabitants.
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2015
2016
2017
Total
Equity Contributions
(in millions of R$).......................................................
115.3
97.5
29.6
23.9
266.4
51.0
43.1
13.1
10.6
117.7
___________________________
(1) Includes R$44.9 million (U.S.$20.1 million) invested through March 2014.
In addition, as of the date of this offering memorandum, we anticipate that we will enter into additional
agreements with respect to our investment business, which agreements will also require us to make equity
contributions.
We do not currently anticipate that we will be required to invest additional equity in Invepar in order for
Invepar to fulfill its existing capital expenditure requirements.
Origination of Construction Works and Infrastructure Projects
We have access to opportunities to execute construction works and infrastructure projects as a result of our
network of contacts at major corporations, private and public sponsors, PPPs and federal, state and local
governments. We are frequently contacted with new opportunities, including a number of exclusive opportunities
that are made available to only a very limited number of other firms. We believe that our industry-specific expertise
provides us with important opportunities (by enabling us to identify market opportunities and trends) and provides
us with a significant advantage when taking on more complex projects.
Once we identify a potential construction work or infrastructure project, we subject it to a rigorous approval
process at specified intervals within certain of our operating committees in order to confirm our participation in the
construction work or infrastructure project. Our evaluation of a potential construction works and infrastructure
projects includes an extensive due diligence process designed to identify attractive opportunities based on the facts
and circumstances surrounding a construction work or infrastructure project and to prepare a framework that may be
used from the date of our participation in the work or project to drive operational achievement and value creation.
When conducting due diligence, our professionals evaluate a number of important business, financial, tax,
accounting, environmental and legal issues in order to determine whether a particular opportunity is suitable. In
connection with this due diligence process, our professionals spend significant amounts of time and resources
meeting with clients, strategic partners and government officials, among others, in order to better understand and
evaluate the opportunities and risks associated with a particular construction work or infrastructure project
opportunity. Our professionals may engage outside professionals including consultants, lawyers and industry
experts as appropriate to assist them in this process.
Throughout the process of identifying new construction work or infrastructure project opportunities, our
professionals prepare the following strategic, financial and operational analysis for review by our approval
committee (Comit de Validao):
Project Description. This analysis summarizes the principal characteristics of the opportunity,
including its general concept, the proposed level of our participation, the principal technical parameters
of the project and timetable of the project;
Strategic Rational. This analysis seeks to determine the alignment of the construction work or
infrastructure project with our strategic priorities, including the potential direct and indirect benefits
the opportunity would bring to us;
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Economic Analysis. Through our economic analysis, we evaluate the construction work or
infrastructure projects potential impact on our margins/returns and the profile of the expected cash
inflows and outflows from the construction work or infrastructure project;
Risk Analysis. This analysis examines the potential risks involved in our participation in the
construction work or infrastructure project, including risks relating the price of raw materials,
exchange rates and credit risks. Our analysis also includes an evaluation of the potential means to
mitigate these risks;
Client Analysis. This analysis focuses on our historical relationship with the client, the strategic
importance of the particular construction work or infrastructure project to that relationship and the
clients financial strength;
Technical Analysis. Our technical analysis is centered on an engineering study, including the
necessary raw materials, the timeline for the construction work or infrastructure project, an estimate of
construction costs and the specifications of the service contract;
Financial Viability. This analysis centers on the sources of financing necessary to complete the
construction work or infrastructure project, as well as the risks inherent to each source; and
Corporate Structuring and Governance. Through our corporate structuring and governance analysis,
we analyze the participation of the various parties in the construction work or infrastructure project as
well as the allocation and mechanisms in place to effect decisions relating to the construction work or
infrastructure project.
The analysis highlighted above is evaluated in a four-stage process by our approval committee:
Initial Determination. At this stage, our approval committee meets to make an initial decision as to
whether we should proceed with the proposed construction work or infrastructure project. In making
its decision, our approval committee examines the construction work or infrastructure project
description, strategic rationale, economic analysis, risk analysis and client analysis in order to
determine its viability. For infrastructure projects in which we invest equity, our investment division
participates in both the analysis and approval of the project;
Revision of Assumptions and Pre-Validation. During this stage, our approval committee meets to
analyze the costs, risks and investment in order to determine whether the proposed construction work
or infrastructure project is aligned with our strategies and philosophy. This stage also involves a
revised evaluation of the construction work`s or infrastructure projects risks, the preparation of
economic projections and a detailed credit analysis;
Final Determination and Approval of the Investment Proposal. During this stage, our approval
committee makes a final determination as to our participation in the proposed construction work or
infrastructure project. Our Central Board of Excellence (Diretoria Centro de Excelncia), or DCE,
initially convened during the revision of assumptions and pre-validation stage, also must review and
approve the proposed construction work or infrastructure project, taking into consideration critical
factors identified in the technical and commercial analyses; and
Approval of the Strategic Execution Plan (Planejamento Estratgico do Contrato), or PEC. If the
proposed construction work or infrastructure project is approved by our approval committee and DCE,
our approval committee will meet for a fourth time to approve the PEC, allocate funding and define the
corporate governance and structure of the construction work or infrastructure project.
conduct public bidding processes for their projects. However, public sector construction contracts may be awarded
without a public bidding process under limited circumstances, such as: (1) in response to certain emergencies,
including those relating to public health and safety as well as environmental disasters; (2) when the project to be
executed will be performed exclusively for military purposes or if the bidding process could jeopardize national
security; (3) when a publicly-bid contract has been rescinded due to a breach by the winning contractor; (4) when a
public bidding process is declared void due to a lack of offers that comply with the bidding guidelines or prices or
inputs are unacceptable, provided that the conditions of contracting are the same as those originally published; or (5)
when there is a proven strategic alliance between the government and the contractor in order to promote
technological innovation in projects.
Bidding Process
The competitive bidding process poses two basic risks: we may bid too high and lose the bid or bid too low and
adversely affect our gross margins. The volume of work generally available in the market at the time of the bid, the
size of our backlog at that time, the number and financial strength of potential bidders, whether the project requires
the contractor to contribute equity or extend financing to the project, the availability of equipment and the
complexity of the project under bid are all factors that may impact the competitiveness of a particular bidding
process. In determining whether to bid for a project, we take into account (apart from the cost, including the cost of
financing, and potential profit) efficient usage of machinery, the relative ease or difficulty of obtaining financing,
geographic location, project- specific risks, current and projected backlog of work to be performed, our particular
areas of expertise and our relationship with the client.
As part of our business model, we have established solid relationships with several strategic partners with which
we enter into consortia to bid on and execute projects. Our strategic investment partners in select infrastructure
projects, which include Previ, Petros and Funcef (Brazils three largest pension funds with which we have
exclusivity through Invepar for transportation infrastructure projects), FGTS, Kawasaki, GID, Eletrobras and Furnas
is an important risk management tool that enables us to reduce our financial exposure to select projects and establish
project companies that are financially independent from us. Our strategic operational partners in select construction
works and infrastructure projects, which include Odebrecht, Bombardier and Toyo, allow us to aggregate our
expertise, technical capabilities and resources with those of other established and experienced market participants in
order to win bids for complex, large-scale infrastructure projects that require the participation of a consortium for
execution.
Moreover, as is customary in the construction business, from time to time we contract with sub-contractors for
particular projects, such as specialists in electrical, hydraulic and electromechanical installations. We are not
dependent upon any particular sub-contractor or group of sub-contractors.
Contracting Process
Fixed or Global Price Contracts (Lump Sum)
Construction contracts have been increasingly structured as fixed price contracts. Under fixed price contracts,
also known as global price or lump sum contracts, the contractor undertakes to carry out construction for a fixed
price and by a pre-determined date. Typically, the project and detailed engineering plans remain under the clients
control and the contractor is obliged to complete construction work at its own risk, including the risk of cost
overruns and project delays. After execution of the contract, any changes to the detailed engineering plans that
generate modifications to the target price or completion date of the construction work may give rise to modifications
these benchmarks.
Profitability under fixed-price contracts is dependent upon the service providers ability to accurately estimate
costs and productivity as well as upon unexpected cost increases or events (particularly events resulting in project
delays, such as the failure to obtain licenses or adequate financing). Accordingly, contractors under fixed price
contracts must take care to develop precise engineering plans in order to avoid any future disagreements between the
client and the contractor with respect to the impact of changes to project and technical specifications during
construction. The ability of the contractor to identify project risks is therefore crucial for the assessment and
accurate estimation of the final price and minimizing possible cost expectation differentials.
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For projects that are less complex, the client may elect to specify only the principal guidelines for technical and
performance specifications, leaving the determination of the construction methods, services provided and
construction materials to the discretion of the contractor, provided, however, that the final product is in compliance
with the technical and performance specifications. Under this approach, the clients interaction with construction
parties is limited to the contractor.
With respect to fixed price construction contracts tendered by public entities, there is a general consensus that a
detailed budget for unit prices must be prepared in order to better estimate the cost of the construction work and
determine if the contractual prices are consistent with market prices, thereby minimizing the risk of overpricing and
billing fraud.
Importantly, the Brazilian governments Court of Auditors (Tribunal de Contas da Unio) has determined that
contractors are due compensation for small increases or decreases in unit prices without the need for a contractual
amendment. Accordingly, public project sponsors may not argue that small variations in unit prices, for example,
are quantitative errors to be borne by the contractor.
Under fixed price contracts, competent contractual management is crucial for effective construction execution
by the contractor, enabling the contractor document potential project modifications or uncertainty generated from
insufficient information in order to renegotiate contractual obligation, if permissible.
Cost Plus or Cost Reimbursable Contracts
Under cost plus contracts, also known as cost reimbursable contracts, the contractor is reimbursed for the actual
cost of materials and labor, plus a fee that takes into account overhead expenses and a profit to the contractor. This
fee may be calculated as a fixed/global value or a percentage of total costs.
Typically, elaborate engineering details are not initially prepared for cost plus contracts as the client and the
contractor develop preliminary technical specifications and an estimated budget. Clients are generally reluctant to
enter into cost plus contracts given that complex projects are subject to significant uncertainties and cost overruns.
However, clients may be willing to enter into cost plus contracts if they are able to effectively control the contracts
execution, including material selection and price monitoring.
In Brazil, proposals to permit the use of cost plus contracts in public contracting were vetoed by the president as
being against the interest of the public, given (1) that contractors may increase the cost of the work in order to
increase their compensation and (2) the difficulty of defining pre-contract costs in these contracts.
EPC or Turn-key Contracts
Under EPC and turn-key contracts, a contractor performs a package of works and services with target dates and
under fixed prices in order to deliver the construction work ready to run to the client.
Under EPC contracts, the client determines and selects the basic design technology (delegating the
responsibility for the engineering specifications and the execution of the project to the contractor), while under turnkey contracts, the client acquires a complete solution from the executor of the work, including the basic project
scope, technology and detailed engineering specifications.
Finally, there exists a variation of EPC contracts, known as EPCM contracts, pursuant to which the contractor
of the work is responsible for the preparation of the engineering design, the specification and purchasing of the
materials and the management of the construction process as an agent of the client.
Unit Prices Contracts
Under unit price contracts, the contractor receives a certain pre-determined amount per unit of service, though
the total value of the contract remains an estimate or is undefined until completion of the construction work. Under
unit price contracts, the basic design of the construction work must be sufficiently detailed, identifying the means
and methods of construction and indicating precisely the quantity of services and materials, as these specifications
form the basis of the entire bidding and contracting process. Risks associated with unit price contracts derive
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primarily from schedule delays and rising construction costs. Bidding processes grounded in basic designs that are
poorly defined may lead to projects executed within timeframes and at costs that can far exceed those originally
estimated. The principal advantage of unit price contracts from a clients perspective is the control the client may
exert over the construction design and the contractor.
Alliance Contracts
Under alliance contracts, the client and the contractor (referred to as allies) agree to execute a construction work
at a specified target price by a specified target date, subject to bonuses and penalties for performance execution and
delays, with the management of the construction directed by an integrated project team comprising employees of
both the client and the contractor.
Given that there is typically insufficient information to determine the completion date and price for a
construction work at the commencement of contract negotiations, the parties initially agree on both a reference price
and a reference date. Once work under the contract begins and the specifications of the project become clear, the
parties are able to define a preliminary target date and a price ceiling.
Having established a preliminary target date and a price ceiling, the parties work proactively and cooperatively
to develop more accurate information regarding the details of the engineering project, with a definitive target date
and target price established only once sufficient project information is available. Bonuses and penalties under an
alliance contract are paid on assessed based upon cost and time savings/overruns. As such, the selection of the price
ceiling and preliminary target date is of critical importance to the contractor.
Property, Plant and Equipment
Our principal executive offices, which we lease, are located in the States of So Paulo and Rio de Janeiro. We
also lease properties located in the State of Bahia and in the Federal District.
As part of our business strategy and in order to benefit from economies of scale by leveraging our purchase
power, we own and manage a physical inventory of equipment necessary for our projects, referred to as our
equipment bank (parque de equipamentos) and which mainly comprises strategic equipment that is often difficult to
acquire in the market and equipment for which we incur higher depreciation expenses. Through our equipment
bank, we seek to (1) ensure a sufficient inventory of equipment that meets the strategic needs of our projects over
the short- to medium-term and (2) obtain a satisfactory return on the capital we invested to acquire and service the
equipment through usage rates that we charge to the various project companies to which the equipment is leased. In
addition, we monitor the performance of our equipment through performance indicators linked to utilization,
operational efficiency and cost, allowing us to develop a strategy for the sale of equipment with low rates of
performance and utilization.
As of March 31, 2014, our property, plant and equipment totaled R$757.5 million of which R$451.5 million (or
59.5%) was allocated to projects within Brazil and R$306.0 million (or 40.5%) was allocated to our projects outside
of Brazil.
We have implemented a centralized management control system for the operation of our equipment bank,
including:
Directives and Policies (Diretrizes e Polticas), which comprise our internal rules and operating
procedures for the management and utilization of our equipment and vehicles;
Master Equipment Spreadsheet (Tabela Mestre de Equipamentos), a management tool made available
on our intranet containing technical information, location, market value and the utilization expectation
of our equipment over a 12-month period;
Refueling Control System (Controle de Abastecimento), software that manages our equipments
consumption of fuel, including the approval, monitoring and documentation processes; and
Management Indicators (Indicadores Mdulo Gerencial), software that enables users to manage the
performance of our equipment at our project sites.
105
Bid Bonds
A bid bond is purchased when a contractor bids upon a tendered contract. A bid bond is issued by the insurance
company or bank to the project sponsor to guarantee that the winning bidder will undertake the contract under the
terms at which it bid. A cash deposit is paid by the contractor to the insurance company and is subject to full or
partial forfeiture if the winning contractor fails to execute the contract or provide the required performance and/or
advance payment bonds. As of March 31, 2014, the aggregate amount of our bids for construction works and
infrastructure projects secured by bid bonds was approximately R$143.8 million (U.S.$63.5 million) issued by
insurance companies and approximately R$31.3 million (U.S.$13.8 million) issued by banks.
Performance Bonds
A performance bond is a written guarantee from a third party guarantor (typically a bank or an insurance
company) submitted to the project sponsor by a contractor upon winning the bid, which ensures payment of a sum of
money in the event the contractor fails to fully perform the project contract. Performance bonds typically cover 10
percent of the contract price and replace bid bonds upon the award of bid contract. As of March 31, 2014, the
aggregate amount of our construction works and infrastructure projects secured by performance bonds was
approximately R$2.4 billion (U.S.$1.1 billion) issued by insurance companies and approximately R$406.8 million
(U.S.$179.8 million) issued by banks.
Advance Payment Bonds
An advance payment bond is a standby letter of credit from a bank or a bond from an insurance company issued
to a project sponsor making an advance payment under a project agreement and which ensures a refund to the
project owner if the contractor is unable to fulfill the terms of the agreement. As of March 31, 2014, the aggregate
amount of our construction works and infrastructure projects secured by advance payment bonds was approximately
R$395.7 million (U.S.$174.8 million) issued by insurance companies and approximately R$720.3 million
(U.S.$318.3 million) issued by banks.
Retention Money Bonds
Issued upon completion of a project, a retention money bond ensures that a contractor will carry out all
necessary work to correct structural and/or other defects discovered immediately after completion of the contract,
even if full payment has been made to the contractor. As of March 31, 2014, the aggregate amount of our
construction works and infrastructure projects secured by retention money bonds was approximately R$66.8 million
(U.S.$29.5 million) issued by insurance companies and approximately R$70.3 million (U.S.$31.1 million) issued by
banks.
Others
In the ordinary course of our business, we also contract other forms of insurance and guarantees, including (1)
judicial guarantees in respect of proceedings to which we are a party, which totaled approximately R$255.9 million
(U.S.$113.1 million) as of March 31, 2014 and (2)financial guarantees given in respect of our indebtedness or the
indebtedness of our subsidiaries, which totaled approximately R$286.2 million (U.S.$126.5 million) as of March 31,
2014.
Competition
We were ranked the fifth largest heavy engineering company in Brazil as measured by gross revenues in the
July 2013 edition of the Brazilian magazine O Empreitero and the third largest Brazilian company in the
construction industry as measured by net revenues by the Brazilian magazine Valor Econmico: Valor 1000 in 2013.
In 2012, we were also named Latin America Developer of the Year by Project Finance Magazine. Most of our
ongoing construction works and infrastructure projects were awarded through a competitive bidding process. While
price generally is the most important factor that determines whether we will be awarded a contract through
competitive bidding procedures, other important factors in competitive bidding procedures include health, safety and
environmental compliance records, service quality, technological capacity and performance, as well as reputation,
experience, access to funding sources and client relationships. In some cases, we can even be invited by one of our
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competitors to enter into a joint-venture with it for a particular project. The number of competitors for a particular
contract generally depends on a number of factors, including scale, complexity and scheduling of the project.
Given our focus on large-scale construction works, which only a few Brazilian companies are able to execute,
we do not face the same type of competition as construction companies that focus on all types and sizes of
construction works. In Brazil, our principal competitors include Andrade Gutierrez S.A., Camargo Corra S.A.,
Odebrecht and Queiroz Galvo S.A. A variety of other companies may bid on specific types of projects or on
projects in specific regions of Brazil, but we believe that we have a competitive advantage with respect to other
Brazilian engineering and construction companies as a result of our experience, reputation, capacity, efficiency,
trained personnel, size, financial resources and technological capabilities.
We also face competition from international construction companies in Brazil. International companies
generally have participated in the Brazilian market through consortia that include a local partner. While
international firms are seeking to increase their presence in the Brazilian construction industry, we believe that
domestic players benefit from greater knowledge of local market practices, better relationships with local suppliers
and labor, established client relationships and reputation and name recognition within the industry and in Brazil. For
a particular project, we may also enter into consortia with other Brazilian companies, including with our principal
competitors.
Internationally, we generally compete with some of the largest contractors in the world, as well as local firms
based in some of the markets in which we operate. We believe that we are able to make competitive bids in Brazil
and internationally for three principal reasons: (1) our engineering capabilities and experience enable us to
accurately assess the nature and extent of the work required to complete our projects, to create efficient engineering
plans and, on occasion, to offer more cost-effective alternatives to proposed plans of governmental authorities in
invitations for bids; (2) our decentralized management approach has generally allowed us to efficiently manage our
projects; and (3) our international projects are often eligible for funding from the Brazilian government for service
exports and from multilateral financial institutions. In addition, in many emerging countries local construction
companies are unable to execute complex large-scale construction works, and we consequently face competition
from other Brazilian companies and from other international companies (based in countries such as Spain, Portugal
and China) in these countries, particularly in Africa.
Human Resources
Employees
As of March 31, 2014, we had 127,453 employees. We employ both permanent employees and temporary
employees, whose duration of employment is generally based upon the particular needs of our ongoing projects.
Consistent with our strategy, the number of our employees has grown as we have expanded our operations and
increased the number of our projects. The table below summarizes certain information regarding our employees as
of the dates indicated:
As of
March 31,
2014
2013
As of December 31,
2012
2011
127,453
5.5
122,383
5.4
70,527
5.5
59,391
5.2
plan with directives regarding recruiting, training, health and safety, union representation, working conditions and
relationships with communities in which we operate.
Human Resources Policies
Career Development
We divide the career development of our professionals into three stages:
OAS Intern (OAS Estgio). Our internship program seeks to attract, develop and train potential recruits by
providing them with internship opportunities and professional development. This program focuses on university
students in their last two years of study within the following disciplines: engineering, business administration,
accounting and economics.
OAS Young Professionals (OAS Jovens). Through OAS Young Professionals, we seek to integrate recent
university graduates in our operations through a process of business culture immersion and career development.
This program promotes on-the-job training through our projects and involves corporate events that foster our
business culture.
Professional Career. After the initial two stages, we aim to continue to develop the professional skills and
managerial competence of our employees through their exercise of increasingly complex activities. During this
stage, we also encourage self-development of our employees and provide technical and managerial training. Given
the nature of our operations, our employees may work in various areas of our business in a variety of positions,
allowing them to develop as either specialists or generalists and take advantage of new opportunities as they arise
within our company, including opportunities outside of Brazil.
Remuneration
Our remuneration structure seeks to provide us with the capability to attract, retain and motivate our employees
through salaries, employee benefits and our profit-sharing program. Our remuneration structure defines a salary
range that is calculated based on a review of market practice and our internal policies. In addition to salaries, our
employees receive employee benefits, including health insurance and food vouchers. Our employees are eligible to
participate in our employee profit-sharing program, which we developed to increase productivity and our
competitiveness.
In addition, our employees are eligible to participate in our defined contribution pension plan, which is
administered by Brasilprev Seguros e Previdncia S.A. for beneficiaries residing in Brazil and by Zurich
International Life Ltd. for beneficiaries residing abroad. Pursuant to our pension plan, our employees may
contribute annually an aggregate amount equal to less than 10% of their salary compensation, which amount we
match. In 2014, we anticipate that our matching contributions in respect of our pension plan will total R$11.0
million.
Quality, Health, Safety and Environmental Management System
We have implemented a comprehensive quality, health, safety and environmental management system managed
by dedicated personnel, which permits us to manage risk, meet legal requirements and improve our operational
efficiency and performance, having obtained the following certifications:
Environmental Matters
We enter into many contracts with public sector entities. Pursuant to applicable law in Brazil and in other
jurisdictions in which we operate, the project owner is required to prepare environmental studies and obtain
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environmental licenses as conditions to the commencement of the bidding process for public sector projects.
Private-sectors projects are also subject to similar requirements with studies and licenses required before
construction may begin. Pursuant to Brazilian law, the construction, installation, expansion and operation of any
establishment or activity using environmental resources or that is deemed actually or potentially polluting, as well as
those capable of causing any kind of environmental degradation, must be duly licensed. In addition to obtaining the
required licenses, the project owner must obtain necessary permits and authorizations issued by the applicable public
authorities. Large infrastructure construction projects may also be subject to stricter standards imposed by
international agencies such as the World Bank and the IFC. We believe that, to the extent applicable to us and to
our project operations, we are substantially in compliance with environmental licenses and do not anticipate
significant difficulty in maintaining our ongoing compliance with environmental regulations. In addition, we
undertake a substantial portion of our business outside Brazil, in some cases under stricter and broader
environmental regulations than those imposed in Brazil. Even though we are involved in a number of judicial and
administrative proceedings relating to environmental matters, we do not presently believe that these proceedings will
have a material adverse effect on our operations or financial condition on a consolidated basis.
In addition, we are a party to civil inquiries and civil class actions (Aes Civis Pblicas) that allege that we
caused environmental damage. Civil inquiries are administrative proceedings under Brazilian law brought by a
government prosecutor in order to investigate alleged environmental damage or non-compliance with Brazilian
legislation. Based on the findings of these proceedings, the prosecutor will determine whether to file a civil class
action against the alleged infractor. Civil inquiries and civil class actions may materially adversely affect our
business, results of operations and financial condition and may require us to expend substantial resources to
remediate the damages allegedly caused by our actions.
For more information regarding our environmental risks, see Risk FactorsRisks Relating to Our Company
We are subject to various environmental laws and regulations in Brazil and the other countries in which we operate
that may become more stringent in the future and could require significant capital expenditures and increase our
operating costs.
Intellectual Property
We own the trademark OAS, which has been registered with the Brazilian National Institute of Industrial
Property (Instituto Nacional da Propriedade Industrial), or the INPI.
We also have applied to the INPI for the registration of several trademarks related to our real estate
developments, such as OAS Imveis, OAS Exclusive, OAS Empreendimentos inovao e solidez do tamanho
dos seus sonhos, eusonhoassim, Shopping Imobilirio and Jardins. These requests remain pending. In
accordance with Brazilian legislation, requests for registration of trademarks constitute solely expectations of a right
which may or may not be granted.
In addition, we own, directly or through our subsidiaries, several domain names, including www.oas.com.br
and oasempreendimentos.com.br all of which are registered with the Registro.Br (the Brazilian entity
responsible for domain name registrations in Brazil).
Legal and Administrative Proceedings
We are currently involved in certain administrative and judicial proceedings relating to civil, labor and tax
matters arising in the ordinary course of our business, including proceedings that involve material amounts and for
which we have recorded provisions for contingencies. Based on the opinions of our internal and external counsel,
we establish provisions for contingencies in respect of proceedings for which our risk of loss is deemed probable to
have a material impact on our results of operations or our financial condition. See Risk FactorsRisks Relating to
our CompanyWe may incur losses and spend time and money defending pending litigation and administrative
proceedings
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The following table sets forth our provisions in respect of our civil, labor, tax and other proceedings as of
March 31, 2014 for which our risk of loss has been deemed probable.
As of
March 31, 2014
(in millions of
reais)
Civil proceedings ......................................................................
Labor proceedings .....................................................................
Tax proceedings ........................................................................
Other proceedings .....................................................................
Total ..........................................................................................
2.1
17.1
2.0
8.0
29.2
The following table sets forth our estimates in respect of our civil, labor and tax proceedings as of March 31,
2014 for which our risk of loss has been deemed possible.
As of
March 31, 2014
(in millions of
reais)
Civil proceedings ......................................................................
Labor proceedings .....................................................................
Tax proceedings ........................................................................
Total ..........................................................................................
178.2
12.0
52.8
243.0
Civil Proceedings
The principal claims in these proceedings relate to (1) alleged irregularities in certain bidding processes for
which we were awarded our construction works and infrastructure projects, (2) eminent domain, (3) allegations of
physical or moral damages, (4) past-due payments, (5) indemnification proceedings and (6) civil class action
lawsuits. In addition to monetary damages, plaintiffs in these proceedings have sought injunctions against our ability
to contract with the government or public sector companies. Based on the opinion of our internal and external legal
counsel, we have established provisions for probable contingencies in respect of civil proceedings totaling R$2.1
million.
Labor Proceedings
As of March 31, 2014, we and our subsidiaries were defendants in several legal proceedings involving labor
matters. Based on the opinion of our internal and external counsel, we have established provisions for probable
contingences arising from these proceedings totaling R$17.1 million. These proceedings were primarily filed by
individuals, while a portion of the proceedings were brought by the Brazilian Ministry of Labor and Employment
and by the Brazilian Public Ministry of Labor. The principal claims filed by individuals related to payments of
overtime, wages, severance, moral damages and vicarious liability, while the primary claim filed by the Brazilian
Public Ministry of Labor relates to non-compliance with a legal quote for the performance of services.
Tax Proceedings
The principal claims in these proceedings relate to, among other matters, (1) the offsetting and payment of taxes
on services (ISS, PIS and COFINS) and social security contribution (INSS), (2) withholding income tax (IRRF)
credits and (3) the collection of tax debts. Based on the opinion of our internal and external counsel, we have
recorded provisions for probable contingences arising from tax proceedings totaling R$2.0 million as of March 31,
2014.
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THE ISSUER
OAS Finance Limited is a special purpose finance company and our wholly-owned subsidiary, incorporated in
the British Virgin Islands as a BVI business company on March 22, 2013 for an unlimited period. The registered
address of the issuer is at Trident Trust Company (B.V.I.) Limited, Trident Chambers, P.O. Box 146, Road Town,
Tortola, British Virgin Islands. The issuer is registered with the Registrar of Corporate Affairs under BVI Company
Number 1766299. The issuer is authorized to issue 50,000 shares, which we hold indirectly in their entirety, each
having a nominal value of U.S.$100.
The issuer does not have subsidiaries or equity participation in any other person or entity.
The issuers directors are appointed by the issuers sole shareholder, OAS Investments Limited, a BVI business
company wholly-owned by OAS S.A. The directors of OAS Finance Limited are Mr. Alexandre Louzada Tourinho
and Mr. Josedir Barreto dos Santos, whose business address is Avenida Anglica n. 2,330/2,346/2,364 9th Floor,
Suite 904, 01228-200 So Paulo, Brazil.
The issuer believes that there are no potential conflicts of interests between any duties of its director owing to
the issuer and his private interests and/or other duties.
Pursuant to Section 5.1 of OAS Finance Limiteds articles of association, OAS Finance Limited may carry on
or undertake any business or activity, do any act or enter into any transaction, subject to applicable British Virgin
Islands legislation.
We have not included any financial statements of OAS Finance Limited in this offering memorandum. There
are no pending litigation or arbitration proceedings (including any such proceedings which are, to our knowledge,
are threatened) which may have a material adverse effect on the issuers financial position.
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MANAGEMENT
OAS S.A.
We are currently administered by our non-statutory chief executive officer, Mr. Cesar de Arajo Mata Pires,
and our non-statutory executive vice president, Mr. Jos Adelmrio Pinheiro Filho, who are also our controlling
shareholders and have the overall power to control us, including the power to establish our management policy. Mr.
Pires and Mr. Pinheiro Filho are responsible for determining the operating policies and guidelines of our business
and our subsidiaries.
Summarized below is information regarding the business experience and areas of expertise of Mr. Pires and Mr.
Pinheiro Filho:
Cesar de Arajo Mata Pires Mr. Pires founded our company in 1976. Prior to founding us, Mr. Pires
worked for Odebrecht between 1968 and 1976. Mr. Pires graduated from the Federal University of Bahia in 1971
with a bachelors degree in civil engineering.
Jos Adelmrio Pinheiro Filho Mr. Pinheiro began his career with us in 1980 as a Contract Manager and has
since then held the positions of Operational Leader (focusing on business development), Operational Director
(contributing to technical and managerial innovation) and Associate Director (managing employee technical
education). Mr. Pinheiro received a degree in civil engineering from the Federal University of Bahia in 1974.
Board of Executive Officers
In addition, our day-to-day affairs are managed by our board of executive officers who are appointed and serve
at the discretion of Mr. Pires and Mr. Pinheiro Filho.
The table below sets forth the current members of our board of executive officers:
Name
Position
Chief Legal Officer and
Maria Beatriz Lira Gomes Ferraz .................................................... Corporate Governance Officer
Josedir Barreto ................................................................................
Chief Financial Officer
Summarized below is information regarding the business experience and areas of expertise of each member of
our board of our executive officers:
Maria Beatriz Lira Gomes Ferraz Ms. Gomes Ferraz has been our Chief Legal Officer and Corporate
Governance Officer since February 10, 2014. Prior to joining OAS Investimentos, Ms. Gomes Ferraz was an
associate in corporate and capital markets law at Barbosa, Mssnich e Arago Advogados. She holds a law degree
from the Pontifical Catholic University of So Paulo.
Josedir Barreto Mr. Barreto was appointed our Chief Financial Officer in 2013. He began his career with us
in 2008 when he joined our tax department, and that same year was promoted to Manager of Tax Planning. In 2011,
he became head of our tax-planning department. Mr. Barreto received his Law degree from the University of
Salvador in 2006 and a post-graduate degree in Tax Law from Brazilian Institute for Tax Law (Instituto Brasileiro
de Estudos Tributrios).
In addition, Mr. Pires, Mr. Pinheiro Filho and our board of executive officers are assisted in the day-to-day
management of our operations by executive officers of our subsidiaries, Construtora OAS and OAS Investimentos,
in which our heavy engineering and investment divisions, respectively, are concentrated.
Construtora OAS
The operations of Construtora OAS and the implementation of our general policies and guidelines within
Construtora OAS are administered by Mr. Pinheiro Filho, Construtora OAS non-statutory chief executive officer,
and Mr. Cesar de Arajo Mata Pires Filho, Construtora OAS non-statutory vice president, who are assisted in the
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day-to-day management of Construtora OAS by its board of executive officers, which serves at the discretion of Mr.
Pires and Mr. Pinheiro Filho.
Summarized below is information regarding the business experience and areas of expertise of Mr. Pinheiro
Filho and Mr. Pires Filho:
Jos Adelmrio Pinheiro Filho See OAS S.A.
Cesar de Arajo Mata Pires Filho Mr. Mata Pires Filho has been the Vice President of Construtora OAS
since 2011. He began his career with us in 1999 as an intern and has since then held the positions of Production
Manager, Sales Assistant, Commercial Manager and Technical Manager, having managed the expansion and
lowering of the Tiet river, the expansion of the Congonhas Airport and the construction of the So Paulo City
Subway Line 4 in the State of So Paulo. Mr. Mata Pires Filho received a degree in civil engineering from
Mackenzie University in So Paulo in 2001 and a masters degree in project administration from Fundao Instituto
de Administrao in So Paulo.
Board of Executive Officers
The table below sets forth the current members of Construtora OAS board of executive officers:
Name
Alexandre Tourinho ..................................
Roberto Zardi ............................................
Henrique Andion .......................................
Jos Maurcio Sollero Filho ......................
Dilson Paiva ..............................................
Bruno Brasil ..............................................
Agenor Medeiros.......................................
Fernando Quintas ......................................
Carlos Henrique Lemos.............................
Reginaldo Assuno ..................................
Elmar Juan Varjo Passos .........................
Paulo Venuto .............................................
Jos Lunguinho Filho ................................
Position
Chief Financial Officer
Chief Institutional Relations Officer
Chief Center for Excellence Officer
Chief Legal Officer
Chief Administrative Officer
Chief Legal Officer Civil Proceedings
Chief Commercial Officer International Division
Chief Commercial Officer Oil and Gas Division
Chief Commercial Officer So Paulo and South Division
Chief Commercial Officer East Division
Chief Commercial Officer Northeast Division
Chief Commercial Officer Energy and Mining Division
Chief Commercial Officer Middle West Division/Special Projects
Summarized below is information regarding the business experience and areas of expertise of each member
Construtora OAS board of executive officers:
Alexandre Tourinho Mr. Tourinho has been the Chief Financial Officer of Construtora OAS since 2012. He
joined Construtora OAS in 1996 as Chief of Financial Planning and has since held the positions of Treasurer,
Financial Control Manager, Managing Controller and Lead Controller. Mr. Tourinho became Chief Financial
Officer of OAS in 2006. Mr. Tourinho graduated with a degree in business administration from the Pontifical
Catholic University of So Paulo (Pontifcia Universidade Catlica de So Paulo), or PUC, in 1996 and a masters
degree in finance from IBMEC in So Paulo in 2001.
Roberto Zardi Mr. Zardi has been the Chief Institutional Relations Officer for Construtora OAS since 1998.
He joined our group in 1987 as a Commercial Manager and in 1996 became Operational Leader. Mr. Zardi received
a degree in civil engineering from the Federal University of Paraba in 1977.
Henrique Andion Mr. Andion has been the Chief Center for Excellence Officer for Construtora OAS since
2008. Mr. Andion began his career with us as an intern in 1978 and has since then held the positions of Civil
Engineer, Production Manager and Construction Contract Manager. In 1992, Mr. Andion became Operational
Leader, where he was active in several projects. Mr. Andion served as Director of Operational Control from 1993
until 2004, when he became Director of Control and Management, and in 2007, as Director of Construction Projects.
Mr. Andion graduated from the Federal University of Bahia in 1981.
Jos Maurcio Sollero Filho Mr. Sollero was appointed Chief Legal Officer of Construtora OAS in 2014. He
began his career with Construtora OAS in 2011when he joined its legal department, rising to the position of manager
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in 2012 and superintendent in 2013. Mr. Sollero received his Law degree from Milton Campos College of Law in
2005 and post-graduate degrees in Private Law from the Metodista Izabela Hendrix Institute and in Contract Law
from the Institute for Learning and Research (Instituto de Ensino e Pesquisa), or Insper.
Dilson Paiva Mr. Paiva has been the Chief Administrative Officer for Construtora OAS since 2010 and in
2012 he was appointed its Chief of Human Resources. He joined our group as an intern in 1993, becoming a
Financial Assistant in 1994. Mr. Paiva has since then held the positions of Administrative and Financial Officer,
Audit Manager, and Corporate Administrative Leader. Mr. Paiva holds a bachelors degree in Economics from the
Catholic University of Salvador and was trained in Project Management at the Fundao Instituto de Administrao.
Bruno Brasil Mr. Brasil has been the Chief Legal Officer Civil Proceedings of Construtora OAS since
2010. He joined our group in 2000 as a Financial Assistant and has since held the positions of Legal Advisor, Legal
Counsel specializing in labor matters, General Counsel for OAS and Head of the Legal Department of OAS. In
2010, Mr. Brasil became Director of Civil Actions for Construtora OAS. Mr. Brasil graduated in law in 2001 from
the Federal University of Bahia and received his masters degree in Business Law from PUC.
Agenor Medeiros Mr. Medeiros has been a Chief Commercial Officer for Construtora OAS since 2004 and
the President of OAS Internacional since 2014. He joined Construtora OAS in 1981 as a Contract Manager and
became Chief Operations Officer in 1990 where he was responsible for several projects. Mr. Medeiros began his
career in 1973 as Manager of Construction Works at Construtora Soares Leone. Mr. Medeiros graduated with a
degree in civil engineering from the Federal University of Bahia in 1972.
Fernando Quintas Mr. Quintas has been the Chief Commercial Officer for the oil and gas division of
Construtora OAS since 2014. He joined Construtora OAS as an intern in 1997 and has held various positions since
then, including: Production Manager, Contract Manager and Project Leader. He received a degree in Engineering
from Mackenzie Universitys School of Engineering in 1999 and a post-graduate degree in Civil Construction
Businesses and Projects from the Polytechnic College of the University of So Paulo in 2006.
Carlos Henrique Lemos Mr. Lemos has been the Chief Commercial Officer for the So Paulo and South
Division of Construtora OAS since 2011. He joined Construtora OAS in 1991 as a Commercial Manager
responsible for our operations in the State of Pernambuco. In 1996, he became Operational Leader and participated
in the supervision of various projects. Mr. Lemos began his career in 1978 as an intern at Esusa Engineering and
Construction, later becoming a Site Engineer in 1981 and a Resident Engineer in 1982. In 1984, he joined Limoeiro
Construction as a Production Manager and in 1985 became a Contract Manager. Mr. Lemos became Managing
Partner at Construction Services Companhia Construo Ltda. In 1986 and in 1987, he joined Concic Engenharia as
a Contract Manager. Mr. Lemos received a degree in civil engineering from the Federal University of Minas Gerais
in 1981.
Reginaldo Assuno Mr. Assuno has been a Chief Commercial Officer for the East Division of Construtora
OAS since 1999. He joined Construtora OAS in 1993 as a Superintendent and became a Commercial Manager in
1994. Mr. Assuno began his career in 1976 as a Site Engineer at the David Cohen Civil Construction Company.
In 1977, he became Director and Technical Manager at Construtora Teor, and in 1985 he joined the Menezes
Assumption Construction Company as Projects and Technical Director. Mr. Assuno joined Santa Barbara
Engenharia in 1986 as the Sergipe Branch Superintendent Engineer, later becoming Director for the Northeast
Region. Mr. Assuno graduated with a degree in civil engineering from the Federal University of Minas Gerais in
1975.
Elmar Juan Varjo Passos Mr. Varjo Passos has been Chief Commercial Officer for the Northeast Division
of Construtora OAS since January 2013. Previously, he was our Commercial Director for the Northeast Division of
Construtora OAS since March 2010. He joined Construtora OAS in 1992 as an engineer responsible for
productivity in various projects, becoming a project manager in 1997. In 2001, Mr. Varjo Passos was appointed
our operational leader responsible for various Brazilian states. Mr. Varjo Passos obtained a degree in civil
engineering from the Federal University of Bahia in 1991.
Paulo Venuto Mr. Venuto has been the Chief Commercial Officer for the Energy and Mining Division of
Construtora OAS since 2011. He joined Construtora OAS in 1993 as a Contract Manager and became an
Operational Leader in 2002. Mr. Venuto began his career in 1978 as a Site Engineer at Inocoop. In 1983, he joined
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Agrovila Industrial Company as a Site Engineer and in 1985 he joined Austen Process Chemists and Technicians to
work as a Site Engineer. Mr. Venuto joined Santa Barbara Engineering in 1986 as Production Manager, and from
1999 to 2002, was working there as a Superintendent Director. Mr. Venuto graduated with a degree in civil
engineering from the Federal University of Minas Gerais in 1977.
Jos Lunguinho Filho Mr. Lunguinho Filho has been a Chief Commercial Officer for the Middle West
Division and Special Projects of Construtora OAS since 2012. He joined Construtora OAS in 1983 as a Civil
Engineer and became a Commercial Manager in 1991. In 1999, he transferred to Coesa Engenharia as Commercial
Manager and then as Leader of Development. In 2007, Mr. Lunguinho Filho returned to Construtora OAS as
Operational Leader. Mr. Lunguinho Filho began his career in 1983 as a Civil Engineer at Construtora Suba and in
1985 he moved to Impresul, an affiliate of Construtora Suba, where he worked as a Civil Engineer. Mr. Lunguinho
Filho received a degree in civil engineering from the Federal University of Paraba in 1982.
OAS Investimentos
The operations of OAS Investimentos and the implementation of our general policies and guidelines within
OAS Investimentos are managed by Mr. Pinheiro Filho, OAS Investimentos non statutory chief executive officer,
and Mr. Antonio Carlos Mata Pires, OAS Investimentos non-statutory vice president, who are assisted in the dayto-day management of OAS Investimentos by its board of executive officers, which serves at the discretion of Mr.
Pires and Mr. Pinheiro Filho.
Summarized below is information regarding the business experience and areas of expertise of Mr. Pinheiro
Filho and Mr. Antonio Pires:
Jos Adelmrio Pinheiro Filho See OAS S.A.
Antonio Carlos Mata Pires Mr. Mata Pires began his career with us in 2001 as an intern and has since held
the positions within our financial and business development departments, having managed several transactions,
including mergers and acquisitions and the execution of joint ventures with Brazilian and foreign investment funds.
Mr. Mata Pires graduated from the Fundao Armando lvares Penteado in 2005 with a bachelors degree in
business administration.
Board of Executive Officers
The table below sets forth the current members of OAS Investimentos board of executive officers:
Name
Position
Mateus Coutinho de S Oliveira ........................... Chief Financial Officer
Renato Fermiano Tavares ..................................... Chief Legal Officer
Summarized below is information regarding the business experience and areas of expertise of each member of
OAS Investimentos board of executive officers:
Mateus Coutinho de S Oliveira Mr. Oliveira was appointed Chief Financial Officer of OAS Investimentos
on January 3, 2014. He first joined us in 2002 and has held a variety of positions within our company, including
Head of Structured Projects, Controller and Financial Manager and Chief Financial Officer. Mr. Oliveira graduated
with a degree in business administration from the Federal University of Bahia and a masters degree in finance from
IBMEC/INSPER in So Paulo in 2008.
Renato Fermiano Tavares Mr. Tavares has been Chief Legal Officer of OAS Investimentos since January 3,
2014. He first joined us in 2009, working as a manager in our and OAS Investimentos legal departments. He
received his Law degree from United City Colleges (Faculdades Metropolitanas Unidas), a post graduate degree in
Civil Law and Proceedings from So Paulo Law School (Escola Paulista de Direito) and an LLM in Corporate Law
from the Insper.
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Committees
In addition to our board of executive officers and the senior managers of OAS S.A., Construtora OAS and OAS
Investimentos, our corporate governance comprises select operating, finance and investment committees, as detailed
below:
Executive Committee
Our Executive Committee carries out several tasks, including: (1) holding bimonthly lectures where guests are
invited to speak on macroeconomic and political topics relevant to the company; (2) monitoring annual cash flow
projections provided by the Business Committee; (3) discussing changes in legislation relevant to us; (4) approving
internal policies, standards, procedures and management practices; (5) validating and monitoring human resource
programs; (6) performing strategic evaluations of development opportunities; and (7) holding a quarterly
review/comparison of the performance of our portfolio with the greater market. This Committee meets monthly and
includes our Chief Executive Officer, select senior managers and other participants by invitation.
Business Committee
Our Business Committee develops employment, spending and revenue projections for the coming year,
monitors technical and financial risks and analyses possible financial opportunities. The Business Committee also
provides advice to the Executive Committee when financial or commercial analysis is necessary in making a
decision. The Business Committee meets monthly and includes our Chief Executive Officer, select senior managers
and other participants by invitation.
Institutional Committee
Our Institutional Committee performs several functions, including: (1) the evaluation of trends, opportunities
and market movements; (2) the analysis of the composition of our business portfolio for statistical or other purposes;
(3) the identification of development opportunities and critical success factors; and (4) the monitoring of customer
satisfaction. The Institutional Committee meets quarterly and includes our Chief Executive Officer, select senior
managers and other participants by invitation.
Strategic Directions Committee
Our Strategic Directions Committee evaluates the performance of our employees against our strategic
objectives. This Committee meets annually and includes Mr. Pires, Mr. Pinheiro and select senior managers.
Investment Committee
Our Investment Committee analyses business opportunities sourced by our senior managers, in order to
determine the alignment of the particular opportunity with our strategy. In particular, this committee evaluates an
infrastructure projects potential impact on our returns as well as its cash flow profile. Our investment committee
also examines sources of financing for our infrastructure projects as well as the risks inherent to each source.
Finally, by way of our corporate structuring and governance analysis, this committee analyzes the participation of
the various parties in the project as well as mechanisms in place to effect decisions relating to the project.
QHSE Committee
Our QHSE Committee identifies ways to improve our overall system and product efficiency and develops plans
to implement such suggestions which include an evaluation of performance indicators, the need for and suggested
allocation of certain resources, an explanation of preventative and corrective actions and deadlines for
implementation. This Committee meets semiannually and includes select senior managers and other participants by
invitation.
Compliance Committee
Our Compliance Committee aims to promote the long-term continuity of our business by monitoring our
compliance with laws and regulations in the countries in which we operate as well as with our Code of Conduct.
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The basic principals of our Code of Conduct are: (1) compliance with the laws and regulations in the countries in
which we operate, as well as our Code of Conduct and our internal rules and regulations; (2) the performance of our
activities based upon core OAS values: focus on results, professional competence, determination and confidence; (3)
focus on customer service, (4) overcoming obstacles with dedication and confidence, while observing applicable
laws and regulation, as well as our Code of Conduct and our internal rules and regualtions; (5) promoting equality,
transparency, respect, honesty and responsibility in all our operations; (6) zero tolerance for fraud and corruption;
and (7) respect for life, including in relation to health, safety and the environment.
Compensation
According to our bylaws and to Brazilian corporate law, our shareholders are responsible for establishing at the
annual shareholders meeting the aggregate compensation we pay to our statutory executive officers. Our board of
executive officers is responsible for allocating the aggregate compensation individually among its members.
In 2013 and 2012, the management compensation of our statutory executive officers totaled R$27.0 million and
R$12.8 million, respectively, including the executive officers of Construtora OAS and OAS Investimentos. In the
three-month period ended March 31, 2014, the relevant shareholder bodies approved management compensation of
our statutory executive officers totaling R$8.5 million.
Contracts and Other Material Obligations between Us and Our Executive Officers
There are currently no contracts or other material obligations between us and our executive officers.
Family Relationships among our Executive Officers and Controlling Shareholders
Our controlling shareholder, Mr. Cesar de Araujo Mata Pires, who is also our non-statutory Chief Executive
Officer, is the father of Mr. Pires Filho and Mr. Antonio Carlos Mata Pires, who serve as non-statutory vice
presidents of Construtora OAS and OAS Investimentos, respectively.
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PRINCIPAL SHAREHOLDERS
The Issuer
The issuer was incorporated on March 22, 2013 and is a wholly-owned subsidiary of OAS S.A.
OAS
The table sets forth the shareholders of OAS S.A. as of the date of this offering memorandum:
Common Shares
Number of Shares
% of Total
450,000,000
90%
50,000,000
10%
500,000,000
100%
___________________________
(1)
(2)
99.9% owned by Cesar de Arajo Mata Pires, one of our controlling shareholders.
99.9% owned by Jos Adelmrio Pinheiro Filho, one of our controlling shareholders.
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119
of and interest on the Notes will be payable in U.S. dollars or in such other coin or currency of the United States as
at the time of payment is legal tender for the payment of public and private debts.
Note Guarantee
The Company and each Subsidiary Guarantor will, subject to applicable legal limitations, fully and
unconditionally guarantee the due and punctual payment of the principal of, and interest and Additional Amounts
on, the Notes, as well as any other amounts whatsoever owed under the Indenture.
Neither the Companys nor the Subsidiary Guarantors guarantees of the Notes will be secured by any of their
assets or properties. As a result, if the Company or the Subsidiary Guarantors are required to pay under the
guarantees, Holders of the Notes would be unsecured creditors of the Company and the Subsidiary Guarantors. See
Risk FactorsRisks relating to the NotesThe guarantors hold a significant part of their assets indirectly through
non-guarantor subsidiaries; creditors of those non-guarantors subsidiaries have a claim the non-guarantor subsidiary
guarantors assets that is effectively senior to that of holders of the notes. The Guarantees will not be subordinated
to any of the Companys or the Subsidiary Guarantors other unsecured debt obligations. In the event of a
bankruptcy or liquidation proceeding against the Company or any of the Subsidiary Guarantors, the guarantees
would rank equally in right of payment with all of the Companys or such Subsidiary Guarantors other unsecured
and unsubordinated debt.
Not all of the Company's Subsidiaries will guarantee the Notes. The Companys Unrestricted Subsidiaries and
certain of the Companys Restricted Subsidiaries will not guarantee the Notes. The Notes and the Guarantees will
be effectively subordinated to claims of creditors (including trade creditors and preferred stockholders, if any) of
each of the Companys Subsidiaries that do not guarantee the Notes. As of the Closing Date, the Subsidiary
Guarantors are the following Subsidiaries of the Company: Construtora OAS Ltda. and OAS Investimentos S.A.
As of and for the three-month period ended March 31, 2014, the Company and the Subsidiary Guarantors generated
91.2% of the Companys consolidated net revenue and 71.5% of the Companys consolidated combined total assets.
In addition, as of March 31, 2014, the non-guarantor Subsidiaries held 28.5% of the Companys total assets and had
U.S.$380.0 million of trade payables that would have ranked effectively senior to the Notes.
If, after the Closing Date, the Company or any Subsidiary Guarantor acquires, creates or forms a new
Construction Subsidiary, the Company will cause such Construction Subsidiary to:
(1) execute and deliver to the trustee a supplemental indenture in the form attached as an exhibit to the
Indenture pursuant to which such subsidiary shall unconditionally guarantee all of the Issuers obligations
under the Notes and the Indenture; and
(2) deliver to the trustee one or more opinions of counsel that such supplemental indenture (a) has been duly
authorized, executed and delivered by such subsidiary and (b) constitutes a valid and legally binding
obligation of such subsidiary in accordance with its terms;
in each case, within 30 days of acquisition, creation or formation, provided that a newly-acquired, created or formed
Construction Subsidiary will not be required to execute a guarantee and become a Subsidiary Guarantor if, on a pro
forma basis after giving effect to the acquisition, creation or formation of such new Subsidiary:
(i) the Issuer, the Company and the Subsidiary Guarantors directly (1) hold at least 90% of the Companys
Consolidated Total Assets and (2) generate at least 90% of the Companys Consolidated Total Revenue; or
(ii) such Construction Subsidiary has less than U.S.$25.0 million of Indebtedness (other than intercompany
indebtedness) outstanding. Any newly-acquired, created or formed Construction Subsidiary that
subsequently incurs, assumes or otherwise becomes liable for more than U.S.$25.0 million of Indebtedness
(other than intercompany indebtedness) shall within 30 days of such Incurrence become a Subsidiary
Guarantor and shall comply with clauses (1) and (2) of this paragraph.
Concurrently with the delivery of annual financial information in accordance with the covenant described below
under Reports, the Company shall cause additional Construction Subsidiaries to become Subsidiary Guarantors
such that the Issuer, the Company and the Subsidiary Guarantors directly (1) hold at least 90% of the Companys
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Consolidated Total Assets determined as of the end of such fiscal year and (2) generate at least 90% of the
Companys Consolidated Total Revenue determined for the most recent fiscal year; provided that the requirements
of this paragraph shall not apply if all Construction Subsidiaries are Subsidiary Guarantors. If, at the time of the
delivery of such annual financial information, the Issuer, the Company and the Subsidiary Guarantors directly (1)
hold more than 90% of the Companys Consolidated Total Assets determined as of the end of such fiscal year and
(2) generate more than 90% of the Companys Consolidated Total Revenue determined for the most recent fiscal
year, the Company shall be permitted to release one or more Subsidiary Guarantors so long as the Company
maintains compliance with the 90% Consolidated Total Assets and Consolidated Total Revenues minimum
thresholds set forth in the first sentence of this paragraph.
Notwithstanding anything contained in this covenant, each guarantee of the Issuers obligations under the Notes
and the Indenture will be limited to the maximum amount that (1) would not render the applicable Subsidiarys
obligations subject to avoidance under applicable law, including applicable fraudulent conveyance laws, or (2)
would not result in a breach or violation by the applicable Subsidiary of any then-existing agreement to which it is a
party.
A Subsidiary Guarantor will be released from its obligations under its guarantee:
(i) upon a sale or disposition (including by way of consolidation or merger) of all or a portion of the Capital
Stock of such Subsidiary Guarantor following which such Subsidiary Guarantor is no longer a Subsidiary
of the Company;
(ii) upon a sale or disposition (including by way of consolidation or merger) of all or substantially all of the
assets of such Subsidiary Guarantor to a Person that is not the Company or a Restricted Subsidiary;
(iii) upon defeasance or discharge of the Notes, as described in Satisfaction and Discharge and
Defeasance; or
(iv) upon the designation of such Subsidiary Guarantor as an Unrestricted Subsidiary;
provided that the transaction is carried out pursuant to, and in accordance with, all other applicable provisions of the
Indenture.
Ranking
The Notes will:
rank equally in right of payment with all other existing and future Senior Indebtedness of the Issuer;
rank senior in right of payment to all existing and future Subordinated Obligations of the Issuer;
be effectively subordinated to all existing and future secured Indebtedness of the Issuer, to the extent of the
value of the assets securing such secured Indebtedness;
be structurally subordinated to all existing and future Indebtedness of the Companys Subsidiaries (other
than the Issuer and the Subsidiary Guarantors); and
rank equally in right of payment to all other existing and future Senior Indebtedness of the Company and
the Subsidiary Guarantors;
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rank senior in right of payment to all existing and future Subordinated Obligations of the Company and the
Subsidiary Guarantors;
be effectively subordinated to all existing and future secured Indebtedness of the Company and the
Subsidiary Guarantors, to the extent of the value of the assets securing such secured Indebtedness; and
Optional Redemption
Optional Redemption with a Make-Whole Premium
Prior to July 2, 2018, the Issuer may, at its option, redeem all of the Notes at any time or part of the Notes from
time to time at a redemption price equal to 100% of the principal amount of the Notes plus the Applicable Premium
as of, and accrued and unpaid interest to, but excluding, the redemption date (subject to the right of holders of the
Notes on the relevant Record Date to receive interest due on the relevant interest payment date).
Applicable Premium means with respect to a Note at any redemption date, the greater of (1) 1.0% of the
principal amount of such Note on such redemption date and (2) the excess, if any, of (A) an amount equal to the
present value at such redemption date of (i) the redemption price of such Note on July 2, 2018 (such redemption
price being described in the Optional Redemption without a Make-Whole Premium section exclusive of any
accrued interest) plus (ii) all required remaining scheduled interest payments due on such Note (assuming that the
interest rate per annum on the Notes applicable on the date on which the notice of redemption was given was in
effect for the entire period) through July 2, 2018 (but excluding accrued and unpaid interest to the redemption date),
in each case, computed using a discount rate equal to the Adjusted Treasury Rate plus 0.50%, over (B) the principal
amount of such Note on such redemption date.
Adjusted Treasury Rate means, with respect to any redemption date, (1) the yield, under the heading which
represents the average for the immediately preceding week, appearing in the most recently published statistical
release designated H. 15(519) or any successor publication which is published weekly by the Board of Governors
of the Federal Reserve System and which establishes yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption Treasury Constant Maturities for the maturity corresponding to the
Comparable Treasury Issue (if no maturity is within three months before or after July 2, 2018, yields for the two
published maturities most closely corresponding to the Comparable Treasury Issue shall be determined and the
Adjusted Treasury Rate shall be interpolated or extrapolated from such yields on a straight line basis, rounding to
the nearest month) or (2) if such release (or any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per year equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date, in each
case calculated on the third Business Day immediately preceding the redemption date.
Comparable Treasury Issue means, with respect to any redemption date, the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to July 2, 2018 that would be utilized, at the time
of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities
of a maturity most nearly equal to July 2, 2018.
Comparable Treasury Price means, with respect to any redemption date, if clause (2) of the Adjusted Treasury
Rate is applicable, the average of three, or such lesser number as is obtained by the Quotation Agent, Reference
Treasury Dealer Quotations for such redemption date.
Quotation Agent means the Reference Treasury Dealer selected by the Company.
Reference Treasury Dealer means at least three nationally recognized investment banking firms selected by
the Issuer that are primary U.S. Government securities dealers.
Reference Treasury Dealer Quotations means, with respect to each Reference Treasury Dealer and any
redemption date, the average, as calculated by the Quotation Agent, of the bid and asked prices for the Comparable
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Treasury Issue, expressed in each case as a percentage of its principal amount, quoted in writing to the Quotation
Agent by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day immediately
preceding such redemption date.
Optional Redemption without a Make-Whole Premium
On and after July 2, 2018, the Issuer may, at its option, redeem all of the Notes at any time or part of the Notes
from time to time at the following redemption prices (expressed as a percentage of principal amount), plus accrued
and unpaid interest to, but excluding, the redemption date (subject to the right of holders of the Notes on the relevant
Record Date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period
commencing on July 2 of the years set forth below:
Period
2018
2019
2020
Redemption Price
..............................................................................................................................................
..............................................................................................................................................
and thereafter........................................................................................................................
104.00%
102.00%
100.00%
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Prior to the giving of any such notice of redemption, the Issuer will deliver to the Trustee (i) an Officers
Certificate stating that the Issuer is entitled to effect such redemption and setting forth a statement of facts showing
that the conditions precedent to the right of the Issuer to so redeem have occurred; and (ii) an opinion of independent
legal counsel of recognized standing, to the effect that the Issuer, Company or Subsidiary Guarantor, as the case may
be, has or will become obligated to pay Additional Amounts due to a Change in Tax Law. The Trustee will be
required to accept this Officers Certificate and opinion of legal counsel as sufficient evidence of the satisfaction of
the conditions precedent set forth in the preceding paragraph, which acceptance will be conclusive and biding on
holders.
Notice of Redemption
Notice of any redemption will be mailed to the holders of the Notes at least 30 days but not more than 60 days
before the redemption date to each holder of Notes to be redeemed. Notice of any redemption may, at the Issuers
option, be subject to the completion of one or more Incurrence(s) of Indebtedness or other financings, the proceeds
of which are used to fund such redemption.
Unless the Issuer and the Company default in payment of the redemption price, on and after the redemption date
interest will cease to accrue on the Notes.
If the Issuer is redeeming less than all the Notes at any time, the Trustee will select Notes on a pro rata basis, by
lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate, unless
otherwise required by law or applicable stock exchange or depositary requirements. Any such partial redemption in
accordance with the indenture will be permitted so long as at least U.S.$100.0 million of Notes remain outstanding
after giving effect to such redemption. If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note will state the portion of the principal amount thereof to be redeemed.
Repurchases at the Option of the Holders of the Notes upon Change of Control
If a Change of Control that results in a Rating Decline occurs, each holder of Notes will have the right to require
the Issuer to repurchase all or any part (in integral multiples of U.S.$1,000) of that holders Notes pursuant to a
Change of Control Offer (as defined below) on the terms set forth in the Indenture. No such purchase in part shall
reduce the outstanding principal amount of the Notes held by any holder to below U.S.$200,000. In the Change of
Control Offer, the Issuer will offer a Change of Control Payment in U.S. dollars equal to 101% of the aggregate
principal amount of Notes repurchased plus accrued and unpaid interest and Additional Amounts, if any, on the
Notes repurchased, to the date of purchase (subject to the right of the holders of record on the relevant Record Date
to receive interest and Additional Amounts, if any, on the relevant interest payment date).
No later than 30 days following a Change of Control that results in a Rating Decline, the Issuer will make a
Change of Control Offer by notice to each holder of Notes by mailing and publishing such notice in accordance
with the provision set out under Notices below, describing the transaction or transactions that constitute the
Change of Control that results in a Ratings Decline and offering to repurchase Notes on the date specified in the
notice (the Change of Control Payment Date), which date will be no earlier than 30 days and no later than 60 days
from the date such notice is mailed, pursuant to the procedures required by the Indenture and described in such
notice.
The Issuer will comply, to the extent applicable, with the requirements of Section 14(e)-1 of the Exchange Act
and any other applicable securities laws or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any applicable securities laws or regulations conflict with provisions
of this covenant, the Issuer will comply with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue of its compliance with such securities laws or
regulations.
The paying agents will promptly mail to each holder of Notes properly tendered the Change of Control Payment
for such Notes. The Issuer will publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
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The provisions described above that require the Issuer to make a Change of Control Offer following a Change
of Control that results in a Rating Decline will be applicable whether or not any other provisions of the Indenture are
applicable. Except as described above with respect to a Change of Control that results in a Rating Decline, the
Indenture does not contain provisions that permit the holders of the Notes to require that the Issuer repurchase or
redeem the Notes in the event of a takeover, recapitalization or similar transaction.
The Issuer will not be required to make a Change of Control Offer if (i) a third party makes the Change of
Control Offer in the manner, at the times and otherwise in compliance with the requirements, set forth in the
Indenture, that are applicable to a Change of Control Offer made by the Issuer and such third party purchases all
Notes properly tendered and not withdrawn under the Change of Control Offer or (ii) notice of redemption for all
outstanding Notes has been given pursuant to the Indenture as described above, unless and until there is a default in
payment of the applicable redemption price. Notwithstanding anything to the contrary contained herein, the Issuer
may make an offer to purchase in advance of a Change of Control and conditioned upon the consummation of such
Change of Control that results in a Ratings Decline, if a definitive agreement is in place for the Change of Control at
the time the offer to purchase is made.
In the event that the holders of not less than 90% of the aggregate principal amount of the outstanding Notes
accept a Change of Control Offer and the Issuer or a third party purchases all the Notes held by such holders, the
Issuer will have the right, on not less than 30 nor more than 60 days prior notice, given not more than 30 days
following the purchase pursuant to the Change of Control Offer described above, to redeem all of the Notes that
remain outstanding following such purchase at the purchase price equal to that in the Change of Control Offer plus,
to the extent not included in the Change of Control Offer payment, accrued and unpaid interest and additional
amounts, if any, on the Notes that remain outstanding, to, but excluding, the date of redemption.
Open Market Purchases
The Issuer, the Company or any of their Affiliates may purchase Notes in the market or in negotiated
transactions at any time (in any manner and at any price), provided that any such purchased Notes will not be resold,
except in compliance with applicable requirements or exemptions under the relevant securities laws. Any Notes
redeemed or repurchased by the Issuer, the Company or any affiliate may, at the option of the Issuer, continue to be
outstanding or be cancelled.
Restrictive Covenants
Limitations with respect to the Issuer
The Issuer shall not, so long as any of the Notes are outstanding:
(i) engage in any business or enter into, or be party to, any transaction or agreement, except (A) the issuance,
sale, redemption, repurchase, or defeasance of the Notes (including any Additional Notes) and any other
Indebtedness for the financing of the Company and the Restricted Subsidiaries not otherwise prohibited by
the Indenture and activities incidentally related thereto, (B) enter into affiliate debt transactions with
regards to proceeds from the Notes (including any Additional Notes) and any other Indebtedness not
otherwise prohibited by the Indenture, (C) enter into hedging agreements not for speculative purposes, (D)
as required by law, (E) in order to maintain its existence as a corporation, (F) any financing transaction
structured as a back-to-back financing or similar transaction, directly or indirectly, with respect to the
proceeds from any financing, and (G) any transaction not otherwise prohibited by the Indenture;
(ii) acquire or own any Subsidiary or other assets or properties, except (A) an interest in hedging agreements
relating to its or its Affiliates Indebtedness and instruments evidencing interests in the foregoing, (B) cash
and cash equivalents, (C) any assets related to affiliate debt transactions, including any Indebtedness not
otherwise prohibited by the Indenture, (D) the Notes and other Indebtedness not otherwise prohibited by
the Indenture, and (E) other non-material assets and properties; and
(iii) Incur or suffer to exist any Lien upon any properties or assets whatsoever, except (A) Liens imposed by law
and (B) any Liens that in the aggregate are not material to the Issuer.
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In addition, the Issuer shall at all times be a Wholly-Owned Subsidiary of the Company.
Limitation on Restricted Payments
(1) The Company will not, and will not permit any Restricted Subsidiary, directly or indirectly, to:
(a) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any
payment in connection with any merger or consolidation involving the Company or any Restricted
Subsidiary) except dividends or distributions payable solely in the form of its Capital Stock (other than
Disqualified Stock) and except dividends or distributions payable to the Company or any Restricted
Subsidiary (and, if such Restricted Subsidiary has shareholders other than the Company or any other
Restricted Subsidiary, to its other shareholders on a pro rata basis);
(b) purchase, redeem, retire or otherwise acquire for value any Capital Stock of the Company held by Persons
other than the Company or any Restricted Subsidiary;
(c) make any payment on or with respect to, or purchase, repurchase, redeem, defease or otherwise acquire or
retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Obligations (other than (i) the purchase, repurchase, redemption, defeasance or other
acquisition of Subordinated Obligations made in anticipation of satisfying a sinking fund obligation, a
principal installment or a final maturity, in each case, due within one year of the date of such purchase,
repurchase, redemption, defeasance or other acquisition and (ii) the payment of scheduled interest and other
scheduled payments); or
(d) make any Investment (other than a Permitted Investment) in any Person;
(the actions described in clauses (a) through (d) above being herein referred to as Restricted Payments and
each, a Restricted Payment), unless, at the time of such Restricted Payment:
(i) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence
thereof;
(ii) immediately after giving effect to such transaction on a pro forma basis, the Company could Incur at
least U.S.$1.00 of additional Indebtedness pursuant to clause (1) of Limitation on Indebtedness;
and
(iii) the aggregate amount of such Restricted Payment and all other Restricted Payments made subsequent
to the Closing Date (excluding Restricted Payments made pursuant to clauses (a), (b), (c), (h), (i), and
(k) of the following paragraph) shall not exceed the sum of, without duplication:
(A) 50% of the Companys Consolidated Net Income for the period (treated as one accounting period)
from January 1, 2012 (the Measurement Date) and ending on the last day of the most recent
fiscal quarter for which internal financial statements are available prior to the date of such
Restricted Payment (or, in case such Consolidated Net Income is a loss, minus 100% of such loss);
plus
(B) the aggregate Net Cash Proceeds, and the Fair Market Value of any property, received (x) by the
Company as capital contributions to the Company after the Measurement Date or from the
issuance or sale (other than to a Restricted Subsidiary) of its Capital Stock (other than Disqualified
Stock) after the Measurement Date or (y) by the Company or any Restricted Subsidiary from the
issuance and sale by the Company or any Restricted Subsidiary after the Measurement Date of
Indebtedness that shall have been converted into or exchanged for Capital Stock of the Company
(other than Disqualified Stock); plus
(C) the amount equal to the net reduction of any Investment constituting a Restricted Payment made
by the Company or any Restricted Subsidiary in any Person resulting from repurchases or
redemptions of such Investment by such Person, proceeds realized upon the sale of such
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for all repurchased, redeemed, acquired or retired Capital Stock in all cases does not exceed U.S.$5.0
million in the aggregate in any fiscal year (with unused amounts in any fiscal year being carried over to the
following fiscal year); provided, that the amounts in any fiscal year may be increased by an amount not to
exceed: (A) the cash proceeds received by the Company from the sale of Capital Stock (other than
Disqualified Stock) of the Company to any present or former employees, directors, officers or consultants
(or their respective permitted transferees) of the Company or any Restricted Subsidiary following the
Closing Date, plus (B) the cash proceeds of key man life insurance policies received by the Company or
any Restricted Subsidiary since the Closing Date; and
(k) other Restricted Payments in an aggregate amount not to exceed U.S.$50.0 million since the Closing Date.
The amount of all Restricted Payments (other than cash) shall be the Fair Market Value on the date of such
Restricted Payment of the asset(s) or securities proposed to be paid, transferred, issued, purchased, repurchased,
redeemed, retired, defeased or otherwise acquired by the Company or such Restricted Subsidiary, as the case may
be, pursuant to such Restricted Payment; provided, that if such Restricted Payment or a series of related Restricted
Payments involves aggregate consideration in excess of U.S.$50.0 million, as determined by the management of the
Company, the Company shall comply with the covenant described under Limitation on Transactions with
Affiliates.
Limitation on Indebtedness
(1) The Company will not, and will not permit any Restricted Subsidiary to, Incur any Indebtedness; provided,
however, that the Company or any Restricted Subsidiary may Incur Indebtedness if, on the date of such
incurrence and after giving pro forma effect thereto and the application of the proceeds therefrom, the
Consolidated Coverage Ratio of the Company would be at least (i) 2.0 to 1.0 if such Incurrence occurs after the
Closing Date and on or prior to December 31, 2014; or (ii) 2.25 to 1.0 if such Incurrence occurs on or after
January 1, 2015.
(2) Notwithstanding clause (1) above, the Company or any Restricted Subsidiary may Incur the following
Indebtedness:
(a) intercompany Indebtedness between or among the Company and any Restricted Subsidiary or between or
among Restricted Subsidiaries; provided, however, that:
(i) if the Company or any Subsidiary Guarantor is the obligor on such Indebtedness Incurred and the
obligee is a Person other than the Company or a Subsidiary Guarantor, such Indebtedness must be
expressly subordinated in right of payment to the payment in full to the Notes or the applicable
Guarantee of the Notes; and
(ii) any subsequent issuance or transfer of Capital Stock or any other event that results in any such
Indebtedness being held by a Person other than the Company or a Restricted Subsidiary and any sale or
other transfer of any such Indebtedness to a Person that is neither the Company nor a Restricted
Subsidiary will be deemed, in each case, to constitute an incurrence of such Indebtedness by the
Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (a);
(b) Indebtedness:
(i) represented by the Notes (other than any Additional Notes) and the guarantees by the Company and the
Subsidiary Guarantors of the Notes;
(ii) outstanding on the Closing Date;
(iii) consisting of Refinancing Indebtedness Incurred in respect of any Indebtedness described in this
clause (b) or the foregoing clause (1); or
(iv) consisting of Guarantees of any Indebtedness permitted under the Indenture;
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(c) (i) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred in contemplation of,
or as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate,
the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary of, or was otherwise acquired by, the Company) and (ii) Refinancing Indebtedness
Incurred by the Company or any Restricted Subsidiary in respect of Indebtedness Incurred pursuant to this
clause (c);
(d) Hedging Obligations of the Company or any Restricted Subsidiary (entered into for non-speculative
purposes) in the ordinary course of business or directly related to Indebtedness permitted to be Incurred by
the Company or any Restricted Subsidiary pursuant to the Indenture;
(e) Indebtedness arising from agreements providing for indemnification, adjustment of purchase price or
similar obligations, or guarantees or letters of credit, advance bonds, retention bonds, judicial bonds, surety
bonds, performance bonds or similar bonds securing any obligations of the Company or any Restricted
Subsidiary pursuant to such agreements, in any case Incurred in connection with the disposition of any
business, assets or Subsidiary (other than guarantees of Indebtedness Incurred by any Person acquiring all
or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition), so long
as the amount does not exceed the gross proceeds (including non-cash proceeds) actually received by the
Company or any Restricted Subsidiary thereof in connection with such disposition;
(f) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar
instrument drawn against insufficient funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within five Business Days of its Incurrence;
(g) Indebtedness to the extent that the net proceeds thereof are promptly deposited to defease or to satisfy and
discharge the Notes in accordance with the Indenture;
(h) Indebtedness Incurred in connection with a SFH Financing;
(i) Indebtedness in respect of bankers acceptances, deposits, promissory notes, letters of credit, self-insurance
obligations, completion guarantees, performance, surety, appeal or similar bonds and Guarantees provided
by the Company or any Restricted Subsidiary in the ordinary course of its business or Indebtedness with
respect to reimbursement type obligations regarding workers compensation claims;
(j) Indebtedness consisting of (i) the financing of insurance premiums or (ii) take or pay obligations contained
in supply agreements in the ordinary course of business; and
(k) other Indebtedness in an aggregate principal amount not to exceed the greater of (x) U.S.$325.0 million and
(y) 5% of the Companys Consolidated Total Assets.
(3) For purposes of determining compliance with this covenant:
(a) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness
described above, including clause (1) above, the Company, in its sole discretion, may classify, and from
time to time may reclassify, such item of Indebtedness in one of the types of Indebtedness described above,
including clause (1) above; and
(b) the Company will be entitled to divide and classify, and from time to time may reclassify, an item of
Indebtedness in more than one of the types of Indebtedness described above, including clause (1) above.
Notwithstanding any other provision of this covenant, neither the Company nor any Restricted Subsidiary shall,
with respect to any outstanding Indebtedness Incurred, be deemed to be in violation of this covenant solely as a
result of fluctuations in the exchange rates of currencies.
For purposes of determining compliance with any U.S. dollar-denominated restriction on the Incurrence of
Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness denominated in a foreign currency shall
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be calculated based on the relevant currency exchange rate determined on the date of Incurrence, in the case of term
Indebtedness, or first committed, in the case of revolving credit Indebtedness. The principal amount of any
Indebtedness Incurred to Refinance other Indebtedness, if Incurred in a different currency from the Indebtedness
being Refinanced, shall be calculated based on the currency exchange rate applicable to the currencies in which such
Refinancing Indebtedness is denominated calculated based on the relevant currency exchange rates as calculated in
the first sentence of this paragraph.
The accrual of interest, the accretion or amortization of original issue discount, the payment of regularly
scheduled interest in the form of additional Indebtedness of the same instrument will not be deemed to be an
Incurrence of Indebtedness for purposes of this covenant; provided that any such outstanding additional
Indebtedness in respect of Indebtedness Incurred pursuant to any provision of clause (2) above will be counted as
Indebtedness outstanding for purposes of any future Incurrence of Indebtedness pursuant to clause (1) above.
Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary to, issue or assume any Indebtedness
secured by a Lien (other than Permitted Liens) (the Initial Lien) on any of its property or assets (including Capital
Stock of any other Person) unless contemporaneously therewith effective provision is made to secure the
Indebtedness due under the Indenture and the Notes or, in respect of Liens on any Restricted Subsidiarys property
or assets, any Guarantee of such Restricted Subsidiary, equally and ratably with (or on a senior basis to, in the case
of Subordinated Obligations) such obligation for so long as such obligation is so secured by such Initial Lien. Any
such Lien thereby created in favor of the Notes or any such Guarantee of a Subsidiary Guarantor will be
automatically and unconditionally released and discharged upon (i) the release and discharge of the Initial Lien to
which it relates or (ii) any sale, exchange or transfer to any Person (other than the Company and any Restricted
Subsidiary) of the property or assets secured by such Initial Lien, or of all of the Capital Stock held by the Company
or any Restricted Subsidiary in, or all or substantially all the assets of, any Restricted Subsidiary creating such Initial
Lien.
Permitted Liens means:
(a) Liens which secure Indebtedness owing by any Restricted Subsidiary to the Company and/or by the
Company to one or more Restricted Subsidiaries;
(b) Liens on any property or assets acquired from a Person which is merged with or into the Company or any
Restricted Subsidiary, or any Liens on the property or assets of any Person or other entity existing at the
time such Person or other entity becomes a Restricted Subsidiary and, in either such case, is not created as a
result of or in connection with or in anticipation of any such transaction; provided that such Liens may not
extend to any other property owned by the Company or any Restricted Subsidiary;
(c) any Lien on any property or assets existing at the time of acquisition thereof and which is not created as a
result of or in connection with or in anticipation of such acquisition; provided that such Liens may not
extend to any other property owned by the Company or any Restricted Subsidiary;
(d) Liens for taxes, assessments, governmental charges, levies or claims which are not yet due or thereafter can
be paid without penalty or are being contested in good faith by appropriate proceedings;
(e) pledges or deposits in connection with workers compensation laws, unemployment insurance laws or
similar legislation, any deposit to secure appeal bonds in proceedings being contested in good faith to
which the Company or any Restricted Subsidiary is a party, good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases to which the Company or any
Restricted Subsidiary is a party or deposits for the payment of rent, in each case made in the ordinary
course of business;
(f) any Lien in favor of issuers of surety or performance bonds or similar bonds or letters of credit issued
pursuant to the request of and for the account of the Company or any Restricted Subsidiary in the ordinary
course of business;
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(g) Liens imposed by law, such as carriers, warehousemens and mechanics Liens and other similar Liens, on
the property or assets of the Company or any Restricted Subsidiary arising in the ordinary course of
business and securing payment of obligations that are not yet due or are being contested in good faith by
appropriate proceedings;
(h) easements, rights of way, restrictions, defects or irregularities in title and other similar charges or
encumbrances not interfering in any material respect with the business of the Company or any Restricted
Subsidiary, and any leases and subleases of real property that do not interfere with the ordinary conduct of
the business of the Company or any Restricted Subsidiary, and which are made on customary and usual
terms applicable to similar properties;
(i) (x) Liens arising solely by virtue of any statutory or common law provision relating to bankers liens, rights
of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided, however, that such deposit account is not a dedicated cash collateral
account and is not intended by the Company or any Restricted Subsidiary to provide collateral to such
depository institution; and (y) any rights of set-off of any Person with respect to any deposit account of the
Company or any Restricted Subsidiary arising in the ordinary course of business;
(j) judgment Liens not giving rise to an Event of Default so long as such Lien is bonded in accordance with
applicable law and any appropriate legal proceedings which may have been duly initiated for the review of
such judgment have not been finally terminated or the period within which such proceedings may be
initiated has not expired;
(k) Liens granted to secure borrowing from, directly or indirectly, (i) Banco Nacional de Desenvolvimento
Econmico e SocialBNDES (including loans from Financiadora de Estudos e ProjectosFINEP) or any
other Brazilian governmental development bank or credit agency, or (ii) any international or multilateral
development bank, government-sponsored agency, export-import bank or official export-import credit
insurer;
(l) Liens on property or assets (including Capital Stock) of any Person that secure Indebtedness Incurred for
the purpose of financing all or any part of the purchase price or cost of construction or improvement of
such property or asset and which attach within 365 days after the date of such purchase or the completion
of construction or improvement; provided, that to the extent that the property or asset acquired is Capital
Stock, the Lien also may encumber other property or assets of the Person acquired;
(m) Liens in existence on the Closing Date;
(n) any Lien securing Hedging Obligations so long as such Hedging Obligations are entered into for bona fide,
non-speculative purposes;
(o) any Lien on the inventory or receivables and related assets of any Person securing the obligations of such
person under any lines of credit or working capital facility or in connection with any structured export or
import financing or other trade transaction; provided that the aggregate amount of receivables securing
Indebtedness shall not exceed (a) with respect to transactions secured by receivables from export sales,
80% of such Persons consolidated gross revenues from export sales for the most recently concluded period
of four consecutive fiscal quarters; or (b) with respect to transactions secured by receivables from domestic
sales, 80% of such Persons consolidated gross revenues from sales for the most recently concluded period
of four consecutive fiscal quarters; and provided, further, that Advance Transactions will not be deemed
transactions secured by receivables for purpose of the above calculation;
(p) Liens on the Capital Stock of any Unrestricted Subsidiary;
(q) Liens securing Indebtedness Incurred by a Subsidiary that was an Unrestricted Subsidiary at the time of
such Incurrence and the granting of such Liens that continue to exist after the date that the Company redesignates such Subsidiary as a Restricted Subsidiary;
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(r) any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in
part, of any Lien referred to in the clauses (b), (c), (k), (l), (m) or (q) above or clause (s) below, provided
that the principal amount of Indebtedness secured by any such extension, renewal or replacement shall not
exceed the principal amount of Indebtedness so secured at the time it was initially incurred (plus premiums,
interest and reasonable expenses incurred in connection therewith), and that such extension, renewal or
replacement Lien shall be limited to all or part of the property which secured the Lien extended, renewed or
replaced (plus improvements on or additions to such property); and
(s) other Liens securing Indebtedness in an aggregate principal amount not to exceed the greater of (x)
U.S.$325.0 million and (y) 5% of the Companys Consolidated Total Assets at any one time outstanding.
Limitation on Sales of Assets
(1) The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless the
following conditions are met:
(a) The Asset Disposition is for Fair Market Value;
(b) At least 75% of the consideration consists of (i) cash and Temporary Cash Investments and/or (ii)
Additional Assets. (For purposes of this clause (b), the assumption by the purchaser of Indebtedness or
other obligations (other than Subordinated Debt) of the Company or any Restricted Subsidiary pursuant to a
customary novation agreement, and instruments or securities received by the Company or any Restricted
Subsidiary from the purchasers that are converted into cash or Temporary Cash Investments within 120
days of the closing shall be considered to be cash); and
(c) Within 365 days after the receipt of any Net Available Cash from an Asset Disposition, the Net Available
Cash may be used:
to permanently repay Indebtedness, other than Subordinated Obligations, of the Company or of any
Restricted Subsidiary, in each case owing to a Person other than the Company or any Subsidiary;
to acquire (or within such 365-day period, the Company shall have entered into a binding commitment
to acquire or make capital expenditures, which acquisition shall be consummated, or capital
expenditure shall be made, prior to the second anniversary of such Asset Disposition) (i) all or
substantially all of the assets of a Related Business, or a majority of the Voting Stock of another
Person that thereupon becomes a Restricted Subsidiary engaged in a Related Business, or to make
capital expenditures or otherwise acquire long-term assets that are to be used by the Company or any
Restricted Subsidiary in a Related Business; or (ii) to acquire Additional Assets for the Company or
any Restricted Subsidiary;
(2) Pending the final application of any Net Available Cash, the Company or any Restricted Subsidiary may
temporarily reduce revolving credit borrowings or otherwise invest the Net Available Cash in any manner that
is not prohibited by the indenture.
(3) Any Net Available Cash from Asset Sales that are not applied or invested as provided in the preceding
paragraph will constitute Excess Proceeds. When the aggregate amount of Excess Proceeds exceeds
U.S.$15.0 million, the Issuer will make an offer (an Offer) to all Holders of Notes and all holders of other
Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the indenture
with respect to offers to purchase or redeem with the proceeds of sales of assets to purchase the maximum
principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess
Proceeds. The offer price in any Offer will be equal to 100% of principal amount plus accrued and unpaid
interest and Additional Amounts, if any, to the date of purchase, and will be payable in cash. If any Excess
Proceeds remain after consummation of an Offer, the Company may use those Excess Proceeds for any purpose
not otherwise prohibited by the indenture. If the aggregate principal amount of Notes and other pari passu
Indebtedness tendered into such Offer exceeds the amount of Excess Proceeds, the Notes and such other pari
passu Indebtedness will be purchased on a pro rata basis. Upon completion of each Offer, the amount of Excess
Proceeds will be reset at zero.
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(4) The Issuer will comply, to the extent applicable, with the requirements of Section 14(e)-1 of the Exchange Act
and any other applicable securities laws or regulations in connection with any repurchase of Notes pursuant to
this covenant. To the extent that the provisions of any applicable securities laws or regulations conflict with
provisions of this covenant, the Issuer will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates
The Company will not, and will not permit any Restricted Subsidiary to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each, an Affiliate Transaction), unless:
(a) the Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted
Subsidiary, taken as a whole, than those that would have been obtained in a comparable arms-length
transaction by the Company or such Restricted Subsidiary with a Person that is not an Affiliate; and
(b) the Company delivers to the Trustee, with respect of any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of U.S.$50.0 million, an Officers Certificate
stating that such Affiliate Transaction complies with this covenant.
The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to
the provisions of the prior paragraph:
(i) transactions between or among the Company and any Restricted Subsidiary or between two or more
Restricted Subsidiaries;
(ii) the payment of reasonable and customary regular fees to directors of the Company;
(iii) transactions or payments (including loans and advances) pursuant to any employee, officer or director
compensation or benefit plans, customary indemnifications or arrangements entered into in the
ordinary course of business;
(iv) any agreement in effect as of the Closing Date or any amendment, supplement, restatement,
replacement, renewal, extension, refinancing thereof or thereto (so long as the renewed or replaced
agreement, when taken as a whole, is not materially more disadvantageous to the holders of the Notes
than the original agreement in effect on the Closing Date) or any transaction contemplated thereby;
(v) any Sale Leaseback Transaction otherwise permitted under the caption Limitation on Sale and
Lease Back Transactions if such transaction is on market terms;
(vi) any issuance or sale of equity interests (other than Disqualified Stock);
(vii) any sale of equipment in the ordinary course of business;
(viii) Permitted Investments and Restricted Payments that are permitted by the provisions of the covenant
described under Limitation on Restricted Payments; and
(ix) the provision of administrative services to any joint venture or Unrestricted Subsidiary on substantially
the same terms provided to or by Restricted Subsidiaries.
Limitation on Sale and Lease-Back Transactions
The Company will not and will not permit any Restricted Subsidiary to enter into any Sale and Lease-Back
Transaction unless either the Company or such Restricted Subsidiary would be entitled:
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(a) (i) pursuant to the provisions of the covenant described under Limitation on Indebtedness above to
Incur Indebtedness in a principal amount equal to or exceeding the Attributable Debt in respect of such Sale
and Lease-Back Transaction; and
(ii) pursuant to the provisions of the covenant described under Limitation on Liens above to Incur a
Lien to secure such Indebtedness; or
(b) the Company, during or immediately after the expiration of three months after the effective date of such
Sale and Lease-Back Transaction (whether made by the Company or any Restricted Subsidiary), applies to
the voluntary retirement of Funded Debt, an amount equal to the Value of such Sale and Lease-Back
Transaction, less an amount equal to the sum of: (i) the principal amount of Notes delivered, within such
three-month period, to the Trustee for retirement and cancellation and (ii) the principal amount of other
Funded Debt voluntarily retired by the Company within such three-month period, in each case excluding
retirements of Notes and other Funded Debt as a result of conversions or pursuant to mandatory sinking
fund or mandatory prepayment provisions or by payment at maturity.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on the Capital Stock of the Restricted Subsidiary owned by
the Company to the Company or any Restricted Subsidiary;
(2) pay any Indebtedness owed to the Company or any Restricted Subsidiary;
(3) make loans or advances to the Company or any Restricted Subsidiary; or
(4) transfer any of its properties or assets to the Company or any Restricted Subsidiary.
However, the preceding restrictions will not apply to encumbrances or restrictions:
(i) existing under or by reason of applicable law or governmental rule, regulation or order;
(ii) existing with respect to any Person, or on any property or assets acquired from a Person which is
acquired by or merged with or into the Company or any Restricted Subsidiary, or by reason of any
Liens on the property or assets, or relating to the Indebtedness, of any Person or other entity existing at
the time such Person or other entity becomes a Restricted Subsidiary, or restriction relating to
Indebtedness of any such Person and, in any such case, is not created as a result of or in connection
with or in anticipation of any such transaction; provided that such Liens and any extensions, renewals,
replacements or refinancing thereof may not extend to any other property owned by the Company or
any Restricted Subsidiary; and provided further that the encumbrances and restrictions in the
extension, renewal, replacement or refinancing are, taken as a whole, no less favorable in any material
respect to the holders of the Notes than the encumbrances or restrictions being extended, renewed,
replaced or refinanced;
(iii) on any property or assets existing at the time of acquisition thereof and which are not created as a
result of or in connection with or in anticipation of such acquisition; provided that such encumbrances
and restrictions and any extensions, renewals, replacements or refinancing thereof may not extend to
any other property owned by the Company or any Restricted Subsidiary; and provided further that the
encumbrances and restrictions in the extension, renewal, replacement or refinancing are, taken as a
whole, no less favorable in any material respect to the holders of the Notes than the encumbrances or
restrictions being extended, renewed, replaced or refinanced;
(iv) in the case of clause (4) above:
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(a) that exist by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited
by the Indenture;
(b) that restrict in a customary manner the subletting, assignment or transfer of any property or asset
that is subject to a lease, license or similar contract, or the assignment or transfer of any such
lease, license or other contract or contractual right;
(c) contained in mortgages, pledges or other security agreements permitted under the Indenture
securing Indebtedness of the Company or any Restricted Subsidiary to the extent such
encumbrances or restrictions restrict the transfer of the property subject to such mortgages,
pledges or other security agreements;
(d) imposed by Purchase Money Indebtedness for property acquired in the ordinary course of business
or by Capitalized Lease Obligations permitted under the Indenture on the property so acquired, but
only to the extent that such encumbrances or restrictions restrict the transfer of the property; or
(e) arising or agreed to in the ordinary course of business, not relating to Indebtedness, and that do
not, individually or in the aggregate, detract from the value of the property or assets of the
Company or any Restricted Subsidiary in any manner material to the Company and the Restricted
Subsidiaries.
(v) imposed by the standard loan documentation in connection with loans from (i) Banco Nacional de
Desenvolvimento Econmico e SocialBNDES (including loans from Financiadora de Estudos e
ProjectosFINEP) or any other Brazilian governmental development bank or credit agency, or (ii)
any international or multilateral development bank, government sponsored agency, export-import bank
or official export-import credit insurer;
(vi) imposed by any agreement governing Indebtedness of any Restricted Subsidiary that is permitted to be
Incurred by the covenant described under Limitation on Indebtedness; provided that the
encumbrance or restriction, taken as a whole, will not materially impair the Issuers, the Companys or
the Subsidiary Guarantors (taken as a whole) ability to pay interest or principal, when due, on the
Notes;
(vii) existing by reason of Liens that secure Indebtedness otherwise permitted to be incurred under the
provisions of the covenant described under Limitation on Liens above and that limit the right of
the debtor to dispose of the assets subject to such Liens;
(viii) imposed with respect of a Restricted Subsidiary pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending
the closing of such sale or disposition;
(ix) with respect to a Restricted Subsidiary and imposed pursuant to a customary provision in a joint
venture or other similar agreement with respect to such Restricted Subsidiary that was entered into in
the ordinary course of business;
(x) required pursuant to the Indenture; or
(xi) existing on the Closing Date and any amendments, extensions, renewals, replacements or refinancing
thereof; provided that the encumbrances and restrictions in the extension, renewal, replacement or
refinancing are, taken as a whole, not materially less favorable to the holders of the Notes than the
encumbrances or restrictions being extended, renewed, replaced or refinanced.
Consolidation, Merger, Conveyance, Sale or Lease
The Company will not consolidate with or merge into another Person or convey, transfer or lease all or
substantially all of its assets (determined on a consolidated basis) to any Person unless:
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(a) (i) the Company is the continuing Person or (ii) the resulting, surviving or transferee Person (the
Successor Company) is organized and existing under the laws of the British Virgin Islands, Brazil or any
political subdivision thereof, the United States of America, any state thereof or the District of Columbia or
any other country member of the Organization for Economic Co-operation and Development (OECD) and
expressly assumes by supplemental indenture, executed and delivered to the Trustee, in form as set forth in
the indenture or as otherwise satisfactory to the Trustee, all of the obligations of the Company under the
Indenture and the Guarantee;
(b) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and
be continuing;
(c) immediately after giving effect to such transaction, the Company or the Successor Company (i) could Incur
at least U.S.$1.00 of Indebtedness under clause (1) of the covenant described under Limitation on
Indebtedness above or (ii) would have a Consolidated Coverage Ratio greater than or equal to the
Companys Consolidated Coverage Ratio immediately prior to such transaction;
(d) each Subsidiary Guarantor (unless it is the other party to the transactions above, in which case clause (a)
above shall apply) shall have by supplemental indenture confirmed that its Subsidiary Guarantee shall
apply to such Persons obligations in respect of the Indenture and the Notes unless such Subsidiary
Guarantors then existing Subsidiary Guarantee remains in full force and effect; and
(e) the Company has delivered to the Trustee an Officers Certificate and an opinion of counsel, each stating
that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required
in connection with such transaction, such supplemental indenture comply with the Indenture and that all
conditions precedent therein relating to such transaction have been complied with.
None of the Subsidiary Guarantors shall, and the Company will not cause or permit any Subsidiary Guarantor
to, consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions,
all or substantially all of its assets to any Person (other than the Company or any Restricted Subsidiary) unless:
(1) (x) the resulting, surviving or transferee Person (if not such Subsidiary Guarantor) shall be a Person
organized and existing under the laws of the jurisdiction under which such Subsidiary Guarantor was
organized or under the laws of the British Virgin Islands, Brazil or any political subdivision thereof, the
United States of America or any state thereof or the District of Columbia or any other country member of
the Organization for Economic Co-operation and Development (OECD), and (y) such Person shall
expressly assume, by supplemental indenture, all the obligations of such Subsidiary Guarantor, if any,
under such Subsidiary Guarantee;
(2) immediately after giving effect to such transaction or transactions on a pro forma basis (and treating any
Indebtedness which becomes an obligation of the resulting, surviving or transferee Person as a result of
such transaction as having been issued by such Person at the time of such transaction), no Default shall
have occurred and be continuing; and
(3) the Company delivers to the Trustee an Officers Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and such guarantee agreement, if any, complies with the Indenture;
provided, however, that the provisions of this paragraph shall not apply if such Subsidiary Guarantor is released
from its Subsidiary Guarantee pursuant to clause (ii) of the last paragraph set forth under the caption Note
Guarantee as a result of such sale, disposition, consolidation, amalgamation or merger.
Limitation on Business Activities
The Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than
Permitted Businesses, except to such extent as would not be material to the Company and the Restricted Subsidiaries
taken as a whole.
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Reports
The Company shall provide the Trustee and, upon request, the holders of the Notes:
within 120 days following the end of each fiscal year of the Company, the audited annual consolidated
financial statements (including the notes thereto) of the Company prepared in accordance with Brazilian
GAAP and presented in the English language and a report thereon by the Companys certified independent
accountants; and
within 75 days following the end of first, second and third quarter in each fiscal year of the Company, all
quarterly consolidated financial statements (including the notes thereto) of the Company, prepared in
accordance with Brazilian GAAP and presented in the English language,
in each case, which shall include a reasonably detailed presentation of financial information relating the Company
and the Restricted Subsidiaries, on a consolidated basis, including calculations of Consolidated Net Income,
Consolidated EBITDA, Consolidated Interest Expense and Consolidated Total Assets if such calculations cannot be
prepared based on the information otherwise provided.
In addition, the Issuer will furnish to the holders of the Notes and to prospective investors, upon request of such
holders or investors, any information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act
so long as the Notes are not freely tradable under the Securities Act.
For so long as any of the Notes are outstanding, the above information will be made available at the specified
offices of each paying agent. For so long as the Notes are listed on the Official List of the Irish Stock Exchange and
the rules of such exchange so require, the above information will also be made available in Ireland through the
offices of the Irish Paying Agent.
Notwithstanding the foregoing, if the Company makes available the reports described in the first paragraph of
this covenant on the Companys website and notifies the Trustee in writing thereof, it will be deemed to have
satisfied the reporting requirement set forth in such applicable clause.
Delivery of the above reports to the Trustee is for informational purposes only and the Trustees receipt of such
reports will not constitute constructive notice of any information contained therein or determinable from information
contained therein, including the Companys or any Subsidiary Guarantors compliance with any of its covenants in
the Indenture (as to which the Trustee is entitled to rely exclusively on Officers Certificates).
Suspension of Covenants
If on any date following the Closing Date (a Covenant Suspension Event):
(1) the Notes have been assigned an Investment Grade Rating by any two Rating Agencies; and
(2) no Default shall have occurred and be continuing,
then, beginning on that day and subject to the provisions of the following paragraph, the covenants specifically
listed under the following captions will automatically, without any notice of any kind, be suspended (and the
Company and the Restricted Subsidiaries will have no obligation or liability whatsoever with respect to such
covenants):
(a) Limitation on Restricted Payments;
(b) Limitation on Indebtedness;
(c) Limitation on Transactions with Affiliates;
(d) Limitation on Sales of Assets;
(e) Limitation on Sale and Lease-Back Transactions;
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(f) Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries; and
(g) clause (c) of the first paragraph of Consolidation, Merger, Conveyance, Sale or Lease.
Clauses (a) through (g) above are collectively referred to as the Suspended Covenants.
If, after the occurrence of a Covenant Suspension Event, the Notes cease to have an Investment Grade Rating by
two Rating Agencies (the date of such event, the Reversion Date), the Suspended Covenants will thereafter be
reinstated and be applicable pursuant to the terms of the Indenture (including in connection with performing any
calculation or assessment to determine compliance with the terms of the Indenture), unless and until the Notes
subsequently attain an Investment Grade Rating by any two Rating Agencies (in which event the Suspended
Covenants will again be suspended for such time that the Notes maintain an Investment Grade Rating by any two
Rating Agencies); provided, however, that no Default or breach or violation of any kind will be deemed to exist
under the Indenture, the Notes or any Subsidiary Guarantee with respect to the Suspended Covenants (whether
during the period when the Suspended Covenants were suspended or thereafter) based on, and none of the Issuer, the
Company or any Restricted Subsidiary will bear any liability (whether during the period when the Suspended
Covenants were suspended or thereafter) for, any actions taken or events occurring during the period (such period,
the Suspension Period) after a Covenant Suspension Event and prior to the applicable Reversion Date or any
actions taken at any time (whether during a Suspension Period or thereafter) pursuant to any contractual obligation
arising prior to the reinstatement, regardless of whether those actions or events would have been permitted if the
applicable Suspended Covenant had remained in effect during such period.
On the Reversion Date, all Indebtedness Incurred during the Suspension Period will be classified to have been
Incurred pursuant to paragraph (1) of Limitation on Indebtedness or one of the clauses set forth in paragraph (b)
thereto (to the extent such Indebtedness would be permitted to be Incurred thereunder as of the Reversion Date and
after giving effect to the Indebtedness Incurred prior to the Suspension Period and outstanding on the Reversion
Date). To the extent such Indebtedness would not be permitted to be Incurred pursuant to Limitation on
Indebtedness, such Debt Indebtedness be deemed to have been outstanding on the Closing Date, so that it is
classified as permitted under clause (2)(b)(ii) of Limitation on Indebtedness. The Company will give the
Trustee notification upon the occurrence of a covenant suspension or any Reversion Date.
The Company shall give the Trustee written notice of any Covenant Suspension Event and in any event not later
than five (5) Business Days after such Covenant Suspension Event has occurred. In the absence of such notice, the
Trustee shall assume the Suspended Covenants apply and are in full force and effect. The Company shall give the
Trustee written notice of any occurrence of a Reversion Date not later than five (5) Business Days after such
Reversion Date. After any such notice of the occurrence of a Reversion Date, the Trustee shall assume the
Suspended Covenants apply and are in full force and effect.
Notwithstanding the foregoing, the Company may not designate any of its Subsidiaries as Unrestricted
Subsidiaries during a Suspension Period.
Events of Default
An Event of Default with respect to the Notes is defined in the Indenture as being a:
default for 30 days in payment of any interest or Additional Amounts on the Notes when the same becomes
due and payable;
default in payment of principal of or premium, if any, on the Notes when the same becomes due and
payable, upon optional redemption, upon required purchase, upon declaration of acceleration or otherwise;
failure by the Company to comply with the provisions described under Restrictive Covenants
Consolidation, Merger, Conveyance, Sale or Lease;
default in the performance, or breach, of any other covenant or obligation of the Issuer, the Company or
any Restricted Subsidiary in the Indenture and continuance of such default or breach for a period of 60
consecutive days after written notice specifying such default or breach is given to the Company by the
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Trustee or to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of
the Notes;
default under any mortgage, indenture or instrument under which there may be issued or by which there
may be secured or evidenced any Indebtedness by the Company or any Restricted Subsidiary (or the
payment of which is Guaranteed by the Company or any Restricted Subsidiary) whether such Indebtedness
or Guarantee now exists, or is created after the Closing Date, if that default:
is caused by a failure to pay principal of or interest or premium (or Additional Amounts) on such
Indebtedness within any applicable grace period (a Payment Default); or
and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates U.S.$25.0 million (or its equivalent in other currencies at the time of
determination) or more;
any final judgment or order for the payment of money in excess of U.S.$25.0 million (or its equivalent in
other currencies at the time of determination) is rendered against the Company or any Significant
Subsidiary and such judgment or order is not paid (whether in full or if there is a failure to pay installments
in accordance with the terms of the judgment aggregating in excess of U.S.$25.0 million) or otherwise
discharged and remains unstayed for a period of 60 days after such judgment becomes final and
non-appealable;
any involuntary case or other proceeding is commenced against the Issuer, the Company or any Significant
Subsidiary with respect to it or its debts under any bankruptcy, insolvency, recuperao judicial or other
similar law now or hereafter in effect seeking the appointment of a trustee, receiver, administrador judicial,
liquidator, custodian or other similar official of it or any substantial part of its assets, and such involuntary
case or other proceeding remains undismissed and unstayed for a period of 60 days; or a non-appealable
final order for relief is entered against the Issuer, the Company or any Significant Subsidiary under relevant
bankruptcy laws as now or hereafter in effect;
the Issuer, the Company or any Significant Subsidiary (i) commences a voluntary case or other proceeding
seeking liquidation, reorganization, recuperao judicial or extrajudicial or other relief with respect to
itself or its debts under any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an involuntary case under any such law, (ii) consents
to the appointment of or taking possession by a receiver, administrador judicial, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer, the Company or any Significant Subsidiary
or for all or substantially all of the assets of the Issuer, the Company or any such Significant Subsidiary or
(iii) effects any general assignment for the benefit of creditors;
any guarantee of the Notes by the Company or any Significant Subsidiary of the Company ceases to be in
full force and effect, other than in accordance with the terms of the Indenture, or the Company or any
Significant Subsidiary denies or disaffirms its obligations under the Notes; and
all or substantially all of the assets and revenues of the Issuer, the Company and the Restricted Subsidiaries,
taken as a whole, is condemned, seized or otherwise appropriated by any Person acting under the authority
of any national, regional or local government or the Issuer, the Company or any Significant Subsidiary is
prevented by any such Person for a period of 60 consecutive days or longer from exercising normal control
over all or substantially all of the assets and revenues of the Issuer, the Company and the Restricted
Subsidiaries, taken as a whole.
Any default under the fourth bullet above will be deemed a Technical Default except the failure to perform or
comply with any of the provisions described under (i) Restrictive CovenantsLimitation on Restricted
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such holder has previously given written notice to the Trustee of a continuing Event of Default with respect
to the Notes;
the holders of not less than 25% in principal amount of the outstanding Notes shall have made written
request to the Trustee to institute proceedings in respect of such Event of Default in its own name as
Trustee thereunder;
such holder or holders have offered to the Trustee indemnity and/or security reasonably satisfactory to the
Trustee against the costs, expenses and liabilities to be incurred in compliance with such request;
the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute
any such proceeding; and
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no direction inconsistent with such written request has been given to the Trustee during such 60-day period
by the holders of a majority in principal amount of the outstanding Notes,
it being understood and intended that no one or more of such holders shall have any right in any manner whatsoever
by virtue of, or by availing of, any provision of the Indenture to affect, disturb or prejudice the rights of any other of
such holders, or to obtain or to seek to obtain priority or preference over any other of such holders or to enforce any
right under the Indenture, except in the manner therein provided and for the equal and ratable benefit of all such
holders.
Notwithstanding any other provision of the Indenture, the holder of any Note shall have the right, which is
absolute and unconditional, to receive payment of the principal of (and premium, if any) and interest (and Additional
Amounts), if any, on such Note and to institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such holder.
The Trustee shall not be deemed to have notice of any Default or Event of Default (other than a payment
default) unless a responsible officer of the Trustee has actual knowledge thereof or unless written notice of any
event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such
notice references the Notes and the Indenture.
Additional Amounts
All payments of principal and interest by or on behalf of the Issuer, the Company or any Subsidiary Guarantor
in respect of the Notes shall be made without withholding or deduction for or on account of, any present or future
taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or
assessed by or within the British Virgin Islands, Brazil or any other jurisdiction in which the Issuer, the Company or
any Subsidiary Guarantor is organized, engaged in business or resident for tax purposes, or from or through which
such payments are made or by any political subdivision thereof or any authority therein or thereof having power to
tax (each a Relevant Jurisdiction), unless such withholding or deduction is required by law. In the event of any
such withholding or deduction, the Issuer, the Company or such Subsidiary Guarantor (in the case of payments made
by the Company or such Subsidiary Guarantor) shall pay to holders of the Notes in U.S. dollars such additional
amounts (Additional Amounts) as will result in the payment to such holder of the U.S. dollar amount that would
otherwise have been receivable by such holder in the absence of such withholding or deduction, except that no such
Additional Amounts shall be payable:
(a) in respect of any tax that would not have been so withheld or deducted but for the existence of any present
or former connection, including a permanent establishment, between the holder or beneficial owner of the
Note (or, if the holder or beneficial owner is an estate, nominee, trust, partnership or corporation, between a
fiduciary, settlor, beneficiary, member or shareholder of, or possessor of power over, the holder or
beneficial owner) and the Relevant Jurisdiction, other than the mere receipt of payment on the Note or the
mere holding or ownership of such Note or beneficial interest or enforcement of rights thereunder;
(b) in respect of any tax that would not have been so withheld or deducted if the Note had been presented for
payment within 30 days after the Relevant Date (as defined below);
(c) in respect of any tax that would not have been so withheld or deducted but for the failure by the holder or
the beneficial owner of the Note to (i) make a declaration of non-residence, or any other claim or filing for
exemption, to which it is entitled or (ii) comply with any reasonable certification, identification,
information, documentation or other reporting requirement concerning its nationality, residence, identity or
connection with the Relevant Jurisdiction;
(d) in respect of any estate, inheritance, gift, value added, sales, use, excise, transfer, personal property or
similar taxes, duties, assessments or other governmental charges;
(e) in respect of any tax, assessment or other government charge payable other than by withholding or
deduction;
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(f) in respect of any payment to a holder of a Note that is a fiduciary or partnership or any Person other than
the sole beneficial owner of such payment or Note, to the extent that a beneficiary or settlor with respect to
such fiduciary, a member of such partnership or the beneficial owner of such payment or Note would not
have been entitled to the Additional Amounts had such beneficiary, settlor, member or beneficial owner
been the actual holder of such Note;
(g) in respect of any withholding or deduction imposed on a payment to an individual that is required to be
made pursuant to the European Council Directive 2003/48/EC (the Directive) or any other Directive
implementing the conclusions of the European Council of Economic and Finance Ministers (ECOFIN)
meeting of November 26-27, 2000 on the taxation of savings income, or any law implementing or
complying with, or introduced in order to conform to, such Directive; or
(h) in respect of any taxes imposed in connection with a Note presented for payment by or on behalf of a
holder thereof who is a resident of the European Union for tax purposes and who would have been able to
avoid such tax by presenting the relevant Note to another paying agent in a member state of the European
Union to whom presentation could have been made;
(i) in respect of any combination of (a) through (h) above.
Notwithstanding anything to the contrary in the preceding paragraph, none of the Issuer, the Subsidiary
Guarantors, any paying agent or any other person shall be required to pay any additional amounts with respect to
any withholding or deduction imposed on or in respect of any Note pursuant to FACTA, the laws of the British
Virgin Islands implementing FATCA, or any agreement between the Issuer and the United States or any authority
thereof entered into for FATCA purposes.
Relevant Date means, with respect to any payment due under the Notes, whichever is the later of (i) the date
on which such payment first becomes due and (ii) if the full amount payable has not been received in New York
City, New York by the Trustee on or prior to such due date, the date on which, the full amount having been so
received, notice to that effect shall have been given to the holders of the Notes in accordance with the Indenture.
All references to principal and interest in respect of the Notes shall be deemed also to refer to any Additional
Amounts, unless the context requires otherwise, which may be payable as set forth in the Indenture or in the Notes.
At least 30 days prior to the first Interest Payment Date (and at least 30 days prior to each succeeding Interest
Payment Date if there has been any change with respect to the matters set forth in the below-mentioned Officers
Certificate), the Issuer, the Company or the relevant Subsidiary Guarantor, as the case may be, will furnish to the
Trustee and each paying agent an Officers Certificate instructing the Trustee and each such paying agent whether
payments of principal of or interest on the Notes due on such Interest Payment Date shall be without deduction or
withholding for or on account of any tax. If any such deduction or withholding shall be required, on a date that is at
least 30 days prior to such Interest Payment Date, the Issuer, the Company or the relevant Subsidiary Guarantor, as
the case may be, will furnish the Trustee and each such paying agent with an Officers Certificate which specifies
the amount, if any, required to be withheld on such payment to holders of the Notes and certifies that the Issuer, the
Company or the relevant Subsidiary Guarantor, as the case may be, shall pay such withholding or deduction. Any
Officers Certificate required by the Indenture to be provided to the Trustee and any paying agent for these purposes
shall be deemed to be duly provided if faxed to the Trustee and such paying agent.
The Issuer, the Company or the relevant Subsidiary Guarantor, as the case may be, shall furnish to the Trustee
the official receipts (or a certified copy of the official receipts) evidencing payment of any tax. Copies of such
receipts shall be made available to holders of the Notes upon written request.
The Issuer, the Company and each Subsidiary Guarantor shall promptly pay when due and indemnify the holder
for any present or future stamp, issue, registration, court or documentary taxes or any other excise or property taxes,
charges or similar levies that arise in any jurisdiction from the execution, delivery, issuance or registration of each
Note or any other document or instrument referred to herein or therein, excluding any such taxes, charges or similar
levies imposed by any jurisdiction other than a Relevant Jurisdiction and except, in certain cases, for taxes, charges
or similar levies resulting from certain registration of transfer or exchange of Notes.
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change the stated maturity upon which the principal of or the interest on any Note is due and payable, or
reduce the principal amount thereof or the rate of interest thereon (including Additional Amounts) or any
premium payable upon the redemption thereof, or change any place of payment or the currency in which,
any Note or any premium or the interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the stated maturity thereof (or, in the case of redemption, on
or after redemption date);
reduce the percentage of the principal amount of the outstanding Notes whose holders consent is required
for any waiver (of compliance with certain provisions of the Indenture or certain defaults thereunder and
their consequences) provided for in the Indenture;
amend or modify any payment provision of the guarantees of the Notes by the Company or any Subsidiary
Guarantor that would adversely affect holders of the Notes or release any guarantee of any Significant
Subsidiary (other than in accordance with the terms of the Indenture);
modify the obligations of the Company to make a Change of Control Offer upon a Change of Control or
from the Excess Proceeds of Asset Sales if such modification was done after the occurrence of such Change
of Control or such Asset Sale; or
modify or change any provision of the Indenture affecting the ranking of the Notes or any Note guarantee
in a manner adverse to the holders of the Notes.
The Indenture provides that Notes owned by the Issuer, the Company, the Subsidiary Guarantors or any of their
Affiliates shall be deemed not to be outstanding for, among other purposes, consenting to any modification.
The Indenture also contains provisions permitting the Issuer, the Company and the Trustee to amend the
Indenture in certain circumstances without notice to or consent of the holders of any Notes to:
provide for the assumption by a successor Person of the obligations of the Issuer, the Company and any
Subsidiary Guarantor under the Indenture;
add to the covenants of the Issuer, the Company or the Restricted Subsidiaries for the benefit of the holders
or surrender any right or power conferred upon the Issuer, the Company or the Restricted Subsidiaries;
make any change that does not adversely affect the rights of the holders in any material respect;
conform the text of the Indenture to any provision of this Description of the Notes; or
provide for the appointment of a successor trustee; provided that the successor trustee is otherwise qualified
and eligible to act as such under the terms of the Indenture.
After any amendment described herein becomes effective, the Company will mail to the holders of the Notes a
notice in accordance with the procedure set forth in Notices briefly describing such amendment. However, the
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failure to give notice to all holders of the Notes, or any defect therein, will not impair or affect the validity of the
amendment.
No Personal Liability of Directors, Officers, Employees and Shareholders
No past, present or future director, officer, partner, employee, incorporator, shareholder or member of the
Issuer, the Company or any Subsidiary of the Company shall have any liability for any obligations of the Issuer, the
Company or any Subsidiary of the Company under the Notes or the Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each holder of Notes, by accepting a Note, waives and
releases all such liability. Such waivers and releases are part of the consideration for issuance of the Notes. The
waivers may not be effective to waive liabilities under the U.S. federal securities laws or under the Brazilian
Corporate Law.
Listing
Application has been made to list the Notes on the Official List of the Irish Stock Exchange and to trade on the
Global Exchange Market of the Irish Stock Exchange, and the Issuer will use commercially reasonable efforts to
obtain and maintain listing of the Notes on the Official List of the Irish Stock Exchange; however, the Notes are not
yet listed and the Issuer cannot assure the holders of the Notes that they will be accepted for listing.
Trustee
Deutsche Bank Trust Company Americas is the Trustee under the Indenture. The Issuer may have normal
banking relationships with the Trustee and its affiliates in the ordinary course of business. So long as no Default has
occurred and is continuing, the Issuer may remove the Trustee and appoint a new Trustee, subject to the terms and
conditions of the Indenture.
Irish Listing Agent, Irish Paying Agent and Irish Transfer Agent
Deutsche Bank Trust Company Americas is the Paying Agent in respect of the Notes. Deutsche Bank
Luxembourg S.A. is the Irish Listing Agent, Irish Paying Agent and Irish Transfer Agent in respect of the Notes.
The Issuer and the Company will maintain such agencies so long as the Notes are listed on the Official List of the
Irish Stock Exchange and the rules of the exchange so require. The address of the Paying Agent, Irish Listing
Agent, the Irish Paying Agent and the Irish Transfer Agent are set forth on the inside back cover of this offering
memorandum.
Notices
The Indenture contains certain notice provisions, including notice requirements to the Trustee, the holders of the
Notes and, to the extent required, to the Irish Stock Exchange, or such other exchange on which the Notes may be
listed. Neither the failure to give any notice to a particular holder of Notes, nor any defect in a notice given to a
particular holder of Notes, will affect the sufficiency of any notice given to another holder of Notes.
Satisfaction and Discharge
The Indenture will be discharged and (together with all Guarantees) will cease to be of further effect as to all
Notes issued thereunder, when:
(1) (a) all Notes that have been authenticated, except lost, stolen or destroyed Notes that have been replaced
or paid and Notes for whose payment money has been deposited in trust and thereafter repaid to the
Issuer, have been delivered to the Trustee for cancellation; or
(b) all Notes that have not been delivered to the Trustee for cancellation (i) have become due and payable,
(ii) will become due and payable within one year of their Stated Maturity or (iii) are to be called for
redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of a
redemption by the Trustee and, in each case, the Issuer or the Company or any Restricted Subsidiary
has irrevocably deposited or caused to be deposited with the Trustee as funds in trust solely for the
benefit of the holders, cash in U.S. dollars, in amounts as will be sufficient without consideration of
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any reinvestment of interest, to pay and discharge the entire Indebtedness on the Notes not delivered to
the Trustee for cancellation for principal, premium and Additional Amounts, if any, and accrued
interest to the date of maturity or redemption;
(2) no Default or Event of Default has occurred and is continuing on the date of the deposit or will occur as a
result of the deposit and the deposit will not result in a breach or violation of, or constitute a default under,
any other material instrument to which the Issuer, the Company or any Significant Subsidiary is a party or
by which the Company or any Significant Subsidiary is bound;
(3) the Issuer, the Company or any Restricted Subsidiary has paid or caused to be paid all other sums payable
by it under the Indenture; and
(4) the Issuer has delivered irrevocable instructions to the Trustee under the Indenture to apply the deposited
money toward the payment of the Notes at maturity or the redemption date, as the case may be.
In addition the Issuer must deliver an Officers Certificate and an opinion of counsel to the Trustee stating that
all conditions precedent to satisfaction and discharge have been satisfied.
Defeasance
The Issuer, the Company, the Subsidiary Guarantors and the Restricted Subsidiaries, at the Companys option:
(1) will be discharged from any and all obligations in respect of the Indenture, the Notes and the Guarantees
(except in each case for certain obligations, including to register the transfer or exchange of Notes, replace
stolen, lost or mutilated Notes, maintain paying agencies and hold moneys for payment in trust), or
(2) need not comply with certain covenants of the Indenture and any omission to comply with such obligations
will not constitute a Default or an Event of Default with respect to the Indenture, the Notes and the
Guarantees
if the Issuer irrevocably deposits with the Trustee, in trust:
money, or
in certain cases, U.S. Government Obligations which through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount, or
a combination thereof,
in each case, sufficient to pay and discharge the principal of each installment of principal and interest, if any, on the
outstanding Notes on the dates such payments are due, in accordance with the terms of the Notes, to, but excluding,
the redemption date irrevocably designated by the Issuer pursuant to the final sentence of this section on the day on
which payments are due and payable in accordance with the terms of the Indenture and of the Notes.
To exercise any such option, the Issuer is required to deliver to the Trustee:
(a) an opinion of recognized U.S. counsel independent of the Issuer to the effect that the holders of the Notes
will not recognize income, gain or loss for federal income tax purposes as a result of such deposit,
defeasance and discharge of certain obligations, which in the case of clause (1) above must be based on a
change in law or a ruling by the U.S. Internal Revenue Service; and
(b) an opinion of counsel and an Officers Certificate as to compliance with all conditions precedent provided
for in the Indenture relating to the satisfaction and discharge of the Notes.
If the Issuer has deposited or caused to be deposited money or U.S. Government Obligations to pay or discharge
the principal of (and premium, if any) and interest, if any, on the outstanding Notes to and including a redemption
date on which all of the outstanding Notes are to be redeemed, such redemption date shall be irrevocably designated
by the Issuer on or prior to the date of deposit of such money or U.S. Government Obligations, and such designation
147
shall be accompanied by an irrevocable request from the Issuer that the Trustee give notice of such redemption in
the name and at the expense of the Issuer not less than 30 nor more than 60 days prior to such redemption date in
accordance with the Indenture.
Governing Law; Consent to Jurisdiction; Service of Process and Currency Indemnity
The Indenture and the Notes provide that they will be governed by, and construed in accordance with, the laws
of the State of New York. Each of the Issuer, the Company and each Subsidiary Guarantor has each consented to
the non-exclusive jurisdiction of the courts of the State of New York and the United States courts located in the
Borough of Manhattan, New York City, New York with respect to any action that may be brought in connection
with the Indenture or the Notes and have irrevocably appointed National Corporate Research Ltd., 10 East 40th
Street, 10th Floor, New York, New York 10016, as agent for service of process.
If for the purpose of obtaining judgment in any court it is necessary to convert a sum due hereunder to the
holder of a Note from U.S. dollars into another currency, the Issuer has agreed, and each holder by holding such
Note will be deemed to have agreed, to the fullest extent that the Issuer and they may effectively do so, that the rate
of exchange used shall be that at which in accordance with normal banking procedures such holder could purchase
U.S. dollars with such other currency in New York City, New York on the day two Business Days preceding the day
on which final judgment is given.
The Issuers, the Companys and each Subsidiary Guarantors obligation in respect of any sum payable by it to
the holder of a Note shall, notwithstanding any judgment in a currency (the judgment currency) other than U.S.
dollars, be discharged only to the extent that on the Business Day following receipt by the holder of such Note of
any sum adjudged to be so due in the judgment currency, the holder of such Note may, in accordance with normal
banking procedures, purchase U.S. dollars with the judgment currency; if the amount of the U.S. dollars so
purchased is less than the sum originally due to the holder of such Note in the judgment currency (determined in the
manner set forth in the preceding paragraph), each of the Issuer, the Company and each Subsidiary Guarantor
agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the holder of such Note
against such loss, and if the amount of the U.S. dollars so purchased exceeds the sum originally due to the holder of
such Note, such holder agrees to remit to the Issuer, the Company or the relevant Subsidiary Guarantor such excess,
provided that such holder shall have no obligation to remit any such excess as long as the Issuer, the Company or
such relevant Subsidiary Guarantor shall have failed to pay such holder any obligations due and payable under such
Note, in which case such excess may be applied to the Issuers, the Companys and each Subsidiary Guarantors
obligations under such Note in accordance with the terms thereof.
Certain Definitions
Set out below is a summary of certain of the defined terms used in the Indenture. Reference is made to the
Indenture for the full definition of all such terms as well as any other capitalized terms used herein for which no
definition is provided. Unless the context otherwise requires, an accounting term not otherwise defined has the
meaning assigned to it under and in accordance with Brazilian GAAP.
Additional Amounts has the meaning given to it under Additional Amounts.
Additional Assets means:
(1) any property or other long-term assets (other than Indebtedness and Capital Stock) to be used by the
Company or any Restricted Subsidiary in a Related Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such
Capital Stock by the Company or another Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary;
provided, however, that any such Restricted Subsidiary described in clause (2) or (3) above is primarily engaged in a
Related Business.
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outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving
effect to such issuance).
Change of Control Offer has the meaning given to it under Repurchases at the Option of the Holders of
the Notes Upon Change of Control.
Change of Control Payment has the meaning given to it under Repurchases at the Option of the Holders of
the Notes Upon Change of Control.
Change of Control Payment Date has the meaning given to it under Repurchases at the Option of the
Holders of the Notes Upon Change of Control.
Closing Date means the date that initial Notes under the Indenture are issued.
Company means OAS S.A. and its successors under the Indenture.
Consolidated Coverage Ratio means, on any date (the transaction date), the ratio of:
(1) Consolidated EBITDA for the four fiscal quarters immediately prior to the transaction date for which
financial statements have been delivered to the trustee (the reference period) to
(2) the Consolidated Interest Expense for such reference period.
In making the foregoing calculation,
(a) pro forma effect will be given to (A) any Indebtedness Incurred (and the application of proceeds
thereof) during or after the reference period to the extent the Indebtedness is outstanding or is to be
Incurred on the transaction date as if the Indebtedness had been Incurred on the first day of the
reference period and (B) any Indebtedness repaid during or after the reference period as if the
Indebtedness had been repaid on the first day of the reference period; and
(b) pro forma effect will be given to:
(A) the acquisition or disposition of companies, divisions or lines of businesses by the Company and
the Restricted Subsidiaries, including any acquisition or disposition of a company, division or line
of business since the beginning of the reference period by a Person that became a Restricted
Subsidiary after the beginning of the reference period, and
(B) the discontinuation of any discontinued operations that have occurred since the beginning of the
reference period as if such events had occurred, and, in the case of any disposition, the proceeds
thereof applied, on the first day of the reference period.
To the extent that pro forma effect is to be given to the calculation of the Consolidated Coverage Ratio, such
pro forma calculation will be (i) based upon the most recent four full fiscal quarters for which the relevant financial
information is available and (ii) determined in good faith by the chief financial officer, the treasurer or another
accounting officer of the Company.
Consolidated EBITDA means, for any period, the amount equal to:
(x) the sum of Consolidated Net Income for such period plus, to the extent deducted in calculating such
Consolidated Net Income:
(1) consolidated financial expenses, net for such period;
(2) consolidated income tax and social contribution for such period;
(3) consolidated depreciation and amortization for such period;
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(4) any restructuring charges or reserves, including any one-time costs incurred in connection with
acquisitions after the Closing Date and costs related to the closure and/or consolidation of facilities,
and any other non-recurring charges for such period; and
(5) any non-cash charges of the Company and the consolidated Restricted Subsidiaries (excluding any
such non-cash charge to the extent that it represents an accrual of or reserve for cash expenditures in
any future period), plus
(y) the aggregate amount of cash payments in the form of dividends or interest on shareholders equity (juros
sobre capital prprio) received by the Company or any Restricted Subsidiary during such period, plus
(z) any losses (and minus any gains) from equity pickup included in Consolidated Net Income for such period,
in each case in conformity with Brazilian GAAP. Notwithstanding the foregoing, any of the items described in
clauses (1) through (5) above of any consolidated Restricted Subsidiary of the Company will be added to
Consolidated Net Income to compute Consolidated EBITDA only to the extent (and in the same proportion) that the
net income (loss) of such Subsidiary was included in calculating Consolidated Net Income in such period.
Consolidated Interest Expense means, for any Person, for any period, the amount equal to (without
duplication):
(i) such Persons and its Restricted Subsidiaries aggregate interest expense calculated in accordance with
Brazilian GAAP (and including, in any case, the portion of any payments made in respect of Capitalized
Lease Obligations allocable to interest expense), but excluding (A) interest expense incurred in connection
with intercompany indebtedness, (B) interest expense and expenses incurred in connection with a financing
transaction structured as a back-to-back financing or similar transaction, directly or indirectly, with
respect to the proceeds from any financing, (C) expenses arising in connection with foreign exchange
losses, including foreign exchange losses upon loans and foreign currency translation adjustments or
monetary correction, and (D) expenses related to the issuance of indebtedness (including commissions,
discounts and other fees for such indebtedness (other than with respect to prepaid interest), including with
respect to letters of credit and bankers acceptance financing); plus
(ii) interest expense on Indebtedness (other than intercompany indebtedness) of another Person (other than a
Restricted Subsidiary) (the Underlying Indebtedness) that is Guaranteed by such Person or one of its
Restricted Subsidiaries (other than a Guarantee in connection with a SFH Financing) or secured by a Lien
on the assets of such Person or one of its Restricted Subsidiaries (other than the Capital Stock of an
Unrestricted Subsidiary), whether or not such Guarantee or Lien is called upon; provided that if (i) the
amount of such Guarantee of the Underlying Indebtedness by such Person or one of its Restricted
Subsidiaries is for less than the outstanding principal amount of the Underlying Indebtedness or (ii) the
Underlying Indebtedness is secured by such Lien on assets of such Person or one of its Restricted
Subsidiaries whose Fair Market Value is less than the outstanding principal amount of the Underlying
Indebtedness, then, in each case, only the interest expense associated with such lesser amount of the
Underlying Indebtedness shall be included for purposes of this definition; plus
(iii) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of
Preferred Stock of such Person or any of its Restricted Subsidiaries, other than dividends on Capital Stock
payable solely in Capital Stock of the Company or payable to a Restricted Subsidiary (other than
Disqualified Stock), times (b) a fraction, the numerator of which is one and the denominator of which is
one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as
a decimal, in each case, on a consolidated basis and in accordance with Brazilian GAAP; less
(iv) such Persons and its Restricted Subsidiaries aggregate interest income for such period, excluding any
interest income related to a transaction set forth in clause (i)(B) of this definition.
Consolidated Net Income means, for any period, the aggregate net income (or loss) of the Company and the
Restricted Subsidiaries for such period determined on a consolidated basis in conformity with Brazilian GAAP.
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Consolidated Total Assets means the consolidated total assets of the Company and the Restricted Subsidiaries
based (i) on the balance sheet for the fiscal quarter most recently ended for which internal financial statements are
available, (ii) in accordance with Brazilian GAAP and (iii) on a pro forma basis to give effect to any acquisition or
disposition of companies, divisions, lines of businesses or operations by the Company and the Restricted
Subsidiaries subsequent to such date and on or prior to the date of determination.
Consolidated Total Revenue means, for any period, the consolidated net revenue of the Company and the
Restricted Subsidiaries based (i) on the latest twelve month period for which internal financial statements are
available, (ii) in accordance with Brazilian GAAP and (iii) on a pro forma basis to give effect to any acquisition or
disposition of companies, divisions, lines of businesses or operations by the Company and the Restricted
Subsidiaries subsequent to such date and on or prior to the date of determination.
Construction Subsidiary means a Wholly-Owned Subsidiary that generates substantially all of its revenues
from its provision of construction services.
Contingent Equity Contribution means any obligation pursuant to a contingent equity contribution agreement,
completion guarantees, cost overruns and similar matters related to Project Companies, including equity support
agreements granted in connection with the construction and financing of a Development Project by the Company or
any Restricted Subsidiary, in each case in the ordinary course of business of the Company and consistent with
industry practice.
Default means any event which is an Event of Default or which, after notice or passage of time or both, would
be an Event of Default.
Development Project means any Person in which the Company, its Subsidiaries or its affiliates participates
and holds, directly or indirectly, an equity interest; provided that such Person is involved in a Permitted Business
(other than Construction Subsidiaries). On the Closing Date, OAS Investimentos S.A., its Subsidiaries and entities
in which they hold, directly or indirectly, an equity interest are the existing Development Projects.
Disqualified Stock means, with respect to any Person, any Capital Stock that by its terms (or by the terms of
any security into which it is convertible or for which it is exchangeable or exercisable) or upon the happening of any
event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise;
(2) is convertible or exchangeable for Indebtedness or Disqualified Stock; or
(3) is redeemable at the option of the holder thereof, in whole or in part,
in each case on or prior to the 91st day after the Stated Maturity of the Notes; provided, however, that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to
require such Person to repurchase or redeem such Capital Stock upon the occurrence of an asset sale or change of
control occurring prior to the 91st day after the Stated Maturity of the Notes shall not constitute Disqualified Stock
if the asset sale or change of control provisions applicable to such Capital Stock are not more favorable to the
holders of such Capital Stock than the comparable provisions of the Indenture.
Eligible Equity Offering means any contribution to the common equity capital of the Company or the
issuance and sale for cash of Capital Stock (other than Disqualified Stock) of the Company to any Person (other than
a Restricted Subsidiary) pursuant to (i) a public offering in accordance with applicable laws, rules and regulations,
or (ii) a private offering in accordance with Rule 144A, Regulation S and/or another exemption under the Securities
Act.
Event of Default has the meaning given to it under Events of Default.
Excess Additional Amounts has the meaning given to it under Optional Tax Redemption.
Exchange Act means the United States Securities and Exchange Act of 1934, as amended.
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Fair Market Value of any property, asset, share of Capital Stock, other security, Investment or other item
means, on any date, the fair market value of such property, asset, share of Capital Stock, other security, Investment
or other item on that date as determined in good faith by the management of the Company.
Fitch means Fitch Ratings Ltd. and its successors.
Funded Debt means Indebtedness of the Company (including the Notes) or any Restricted Subsidiary
maturing by the terms thereof more than one year after the original creation thereof.
Global Notes has the meaning given to it under Book EntryForm and Registration.
Guarantee means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing
any Indebtedness or other obligation of any other Person and any obligation, direct or indirect, contingent or
otherwise, of any Person:
(1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other
obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise); or
(2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in
part),
provided, however, that the term Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term Guarantee used as a verb has a correlative meaning. The term Guarantor
shall mean any Person Guaranteeing any obligation.
Hedging Obligations of any Person means the obligations of such Person under any agreement relating to any
swap, option, forward sale, forward purchase, index transaction, cap transaction, floor transaction, collar transaction
or any other similar transaction, in each case, for purposes of hedging or capping against Brazilian inflation, interest
rates, currency or commodities price fluctuations.
Incur means issue, assume, Guarantee, incur or otherwise become liable for Indebtedness or Capital Stock;
provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person is merged or
consolidated with the Company or becomes a Subsidiary of the Company (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Person at the time of such merger or consolidation
or at the time it becomes a Subsidiary of the Company. The term Incurrence when used as a noun shall have a
correlative meaning. Neither the accretion of principal of a non-interest bearing or other discount security nor the
capitalization of interest on Indebtedness shall be deemed the Incurrence of Indebtedness.
Indebtedness means, with respect to any Person on any date of determination (without duplication):
(1) the principal in respect of indebtedness of such Person for borrowed money;
(2) the principal and premium, if any, in respect of obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(3) all obligations of such Person to pay the deferred and unpaid purchase price of property (except trade
payables and contingent obligations to pay earn-outs), which purchase price is due more than six months
after the date of placing such property in service or taking delivery and title thereto;
(4) all reimbursement obligations of such Person in respect of the face amount of letters of credit or other
similar instruments (other than obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (1) through (3) above) entered into in the ordinary course of business of
such Person, such as import tax credits and import transactions, to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third business
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day following receipt by such Person of a demand for reimbursement following payment on the letter of
credit);
(5) the redemption, repayment or other repurchase amount of such Person with respect to any Disqualified
Stock of such Person or any Preferred Stock of a Restricted Subsidiary of the Company, but excluding, in
each case, any accrued dividends (the amount of such obligation to be equal at any time to the maximum
fixed involuntary redemption, repayment or repurchase price for such Capital Stock, or if less (or if such
Capital Stock has no such fixed price), to the involuntary redemption, repayment or repurchase price
therefor calculated in accordance with the terms thereof as if then redeemed, repaid or repurchased, and if
such price is based upon or measured by the fair market value of such Capital Stock, such fair market value
shall be as determined in good faith by the Board of Directors or the board of directors or other governing
body of the issuer of such Capital Stock),
(6) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided, however, that the amount of Indebtedness of such
Person shall be the lesser of:
(a) the Fair Market Value of such asset at such date of determination; and
(b) the amount of such Indebtedness of such other Persons;
(7) to the extent not otherwise included in this definition, all Hedging Obligations of such Person;
(8) all Capitalized Lease Obligations and all Attributable Debt of such Person; and
(9) all obligations of the type referred to in clauses (1) through (8) above of other Persons that is Guaranteed by
such Person to the extent so Guaranteed;
if and to the extent any of the preceding items (other than letters of credit, Hedging Obligations and obligations
under clauses (6) and (9) above) would appear as a liability upon a balance sheet of the specified Person prepared in
accordance with Brazilian GAAP. Notwithstanding anything to the contrary contained herein, Indebtedness shall
not include any advances by customers in connection with construction.
Indenture has the meaning given to it in the first paragraph of this Description of the Notes.
Initial Lien has the meaning given to it under Restrictive CovenantsLimitation on Liens.
Interest Payment Date means each January 2 and July 2 of each year, commencing on January 2, 2015.
Investment in any Person means any direct or indirect advance, loan (other than advances to customers or
suppliers in the ordinary course of business that are recorded as accounts receivable, prepaid expenses or deposits on
the balance sheet of the applicable lender) or other extension of credit (including by way of Guarantee or similar
arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment
for property or services for the account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by, such Person. For purposes of the definition of Unrestricted
Subsidiary and the covenant described under Restrictive CovenantsLimitation on Restricted Payments:
(1) Investment shall include the portion (proportionate to the Companys equity interest in such Subsidiary) of
the Fair Market Value of the net assets of any Subsidiary of the Company at the time that such Subsidiary
is designated an Unrestricted Subsidiary; provided, however, that, upon a redesignation of such Subsidiary
as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent Investment in
an Unrestricted Subsidiary in an amount (if positive) equal to:
(a) the Companys Investment in such Subsidiary at the time of such redesignation, minus
(b) the portion (proportionate to the Companys equity interest in such Subsidiary) of the Fair Market
Value of the net assets of such Subsidiary at the time of such redesignation; and
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(2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its Fair Market Value at
the time of such transfer.
Investment Grade Rating means a rating equal to or higher than (a) BBB-, by S&P or Fitch and (b) Baa3, by
Moodys.
Lien means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any
conditional sale or other title retention agreement or lease in the nature thereof).
Maturity Date has the meaning given to it under General.
Minimum Legally Required Dividend means, for any Person and any period, an amount equal to the sum of
(a) the minimum dividend required to be distributed under applicable Brazilian law by such Person to holders of its
Capital Stock during such period and (b) the minimum dividend required to be distributed to holders of Preferred
Stock in such Person during such period so as to avoid such holders from acquiring or maintaining any voting rights
under Brazilian law, and in each case (a) and (b), any such amounts may be paid in the form of interest on
shareholders equity.
Moodys means Moodys Investors Service, Inc. and its successors.
Net Available Cash from an Asset Disposition means cash payments received therefrom, in each case minus:
(1) all legal fees and expenses, title and recording tax expenses, commissions and other fees and expenses
Incurred, and all federal, state, provincial, foreign and local taxes required to be paid or accrued as a
liability in accordance with Brazilian GAAP, as a consequence of such Asset Disposition;
(2) all payments, including any prepayment premiums or penalties, made on any Indebtedness that is secured
by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other
security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain
a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such
Asset Disposition;
(3) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Disposition; and
(4) appropriate amounts to be provided by the seller as a reserve, in accordance with Brazilian GAAP, against
any liabilities associated with the property or other assets disposed of in such Asset Disposition and
retained by the Company or any Restricted Subsidiary after such Asset Disposition.
Net Cash Proceeds with respect to any issuance or sale of Capital Stock or sale or other disposition of any
Investment, means the cash proceeds of such issuance or sale net of attorneys fees, accountants fees, underwriters
or placement agents fees, discounts or commissions and brokerage, consultant and other fees and expenses actually
Incurred in connection with such issuance or sale and net of taxes paid or payable in connection with such issuance,
sale or disposition.
Notes has the meaning given to it in the first paragraph of this Description of Notes.
Offer has the meaning given to it under Restrictive CovenantsLimitation on Sales of Assets.
Officers Certificate means a certificate signed by any of the chief executive officer, the chief operating
officer, the chief financial officer, the chief accounting officer, the treasurer, a director, the general counsel or any
vice president (or any equivalent of the foregoing) of such Person.
Permitted Business means any business conducted or proposed to be conducted (as described in the offering
memorandum) by the Company and any Subsidiary on the Closing Date and other businesses related,
complimentary or ancillary thereto, including any businesses related to the infrastructure industry.
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Permitted Financial Institution means any financial institution existing under the laws of the United States
that at least one rating agency has assigned an Investment Grade Rating or any other financial institution that at least
one rating agency has assigned a rating equivalent to an Investment Grade Rating, but based on local jurisdictional
standards, and in each case, any of its affiliates.
Permitted Holders means (a) Cesar de Arajo Mata Pires, Jos Adelmrio Pinheiro Filho, their respective
wife, sons, daughters or any of their respective heirs and (ii) any Affiliate of such persons, including any trust
established for the benefit of any such person.
Permitted Investment means:
(1) an Investment by the Company or any Restricted Subsidiary in the Company or any Restricted Subsidiary;
(2) an Investment by the Company or any Restricted Subsidiary in another Person if as a result of such
Investment such other Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or any Restricted Subsidiary or becomes a Restricted
Subsidiary;
(3) Temporary Cash Investments;
(4) any Investment acquired from a Person which is merged with or into the Company or any Restricted
Subsidiary, or any Investment of any Person existing at the time such Person becomes a Restricted
Subsidiary and, in either such case, is not created as a result of or in connection with or in anticipation of
any such transaction;
(5) stocks, obligations or securities received in settlement of (or foreclosure with respect to) debts created in
the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of
judgments or in satisfaction of judgments or pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of a debtor;
(6) any Investment existing on, or made pursuant to written agreements existing on, the Closing Date, an
Investment consisting of an extension, modification or renewal of any such Investment in existence on the
Closing Date or any new Investment made with any such Investment in existence on the Closing Date
(other than Investments permitted under clause (1) above);
(7) Hedging Obligations permitted under clause (2)(f) of the covenant described under Restrictive
CovenantsLimitation on Indebtedness;
(8) Guarantees of Indebtedness permitted under the covenant described under Restrictive Covenants
Limitation on Indebtedness;
(9) Investments which are made exclusively with Capital Stock of the Company (other than Disqualified
Stock), Capital Stock of an Unrestricted Subsidiary or Capital Stock of any other entity that is not a
Restricted Subsidiary;
(10) Investments made as a result of the receipt of non-cash consideration from an Asset Disposition that was
made in compliance with the covenant described in Restrictive CovenantsLimitation on Sales of
Assets;
(11) receivables owing to the Company or any Restricted Subsidiary, if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with customary trade terms; provided that
such trade terms may include such trade terms as the Company or such Restricted Subsidiary deems
reasonable under the circumstances;
(12) any advance, loan or extension of credit arising in connection with the purchase of inventory, equipment or
supplies in the ordinary course of business;
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(13) loans and advances pursuant to any employee, officer or director compensation or benefit plans, customary
indemnifications or arrangements entered into in the ordinary course of business, provided, however, that
such loans and advances do not exceed U.S.$5.0 million in one or a series of related transactions;
(14) Investments in connection with pledges, deposits, payments or performance bonds made or given in the
ordinary course of business in connection with or to secure statutory, regulatory or similar obligations,
including obligations under health, safety or environmental obligations;
(15) repurchases of the Notes and the related Guarantees;
(16) any Investment by the Company or any Restricted Subsidiary made pursuant to, or in connection with, a
Contingent Equity Contribution in a Development Project; provided, however, (1) that any investment
made pursuant to this clause (16) shall not exceed 20% of the greater of the total amount to be invested by
all Persons and the total cost of such Development Project; and (2) no Default (other than a Technical
Default) or Event of Default shall have occurred or be continuing after giving pro forma effect to such
Investment;
(17) any Investment by the Company or any Restricted Subsidiary in one or more Project Companies so long as
(i) no Default (other than a Technical Default) or Event of Default shall have occurred or be continuing
after giving pro forma effect to such Investment and (ii) after giving pro forma effect to such Investment,
the Company is able to Incur at least U.S.$1.00 of Indebtedness pursuant to clause (1) of Limitation on
Indebtedness;
(18) Investments made in connection with guarantees of a SFH Financing;
(19) Investments consisting of the contribution of project assets or Development Projects originated or
developed by Construtora OAS S.A., OAS Investimentos S.A. or the Company in connection with a
corporate re-organization;
(20) Investments made in connection with any financing transaction structured as a back-to-back financing or
similar transaction, directly or indirectly, with respect to the proceeds from any financing; and
(21) additional Investments by the Company or any Restricted Subsidiary having an aggregate Fair Market
Value, taken together with all other Investments made pursuant to this clause (21) that are at the time
outstanding, not to exceed U.S.$100.0 million at the time of such Investment (with the Fair Market Value
of each Investment being measured at the time made and without giving effect to subsequent changes in
value).
Person means any individual, corporation, partnership, limited liability company, joint venture, association,
joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof
or any other entity.
Preferred Stock, as applied to the Capital Stock of any Person, means Capital Stock of any class or classes
(however designated) that is preferred as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of
such Person.
Project Company means any Person, whose activities involve one or more Development Projects.
Purchase Money Indebtedness means Indebtedness:
(1) consisting of the deferred purchase price of an asset, conditional sale obligations, obligations under any title
retention agreement and other purchase money obligations; or
(2) Incurred to finance all or any part of the purchase price, or other cost of construction or improvement, of
any property;
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provided, however, that the aggregate principal amount of such Indebtedness does not exceed the lesser of the Fair
Market Value of such asset or property or such purchase price or cost, including any Refinancing of such
Indebtedness that does not increase the aggregate principal amount (or accreted amount, if less) thereof as of the
date of Refinancing.
Rating Agency means any of Fitch, Moodys and S&P.
Rating Decline means that at any time within 90 days (which period shall be extended so long as the rating of
the Notes is under publicly announced consideration for possible down grade by either Rating Agency) after the
earlier of the date of public notice of a Change of Control and of the Companys intention or that of any Person to
effect a Change of Control, (i) in the event the Notes are assigned an Investment Grade Rating by at least two of the
Rating Agencies prior to such public notice, the rating of the Notes by at least two of the Rating Agencies shall be
below an Investment Grade Rating; or (ii) in the event the Notes are rated below an Investment Grade Rating by at
least two of the Rating Agencies prior to such public notice, the rating of the Notes by at least two of the Rating
Agencies shall be decreased by one or more categories; provided that, in each case, any such Rating Decline is in
whole or in part in connection with a Change of Control.
Real, Reais or R$ means the lawful currency of Brazil.
Refinance means, in respect of any Indebtedness, to refinance, extend (including pursuant to any defeasance
or discharge mechanism), renew, refund, repay, replace, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. Refinanced and Refinancing shall have
correlative meanings.
Refinancing Indebtedness means Indebtedness that is Incurred to Refinance any Indebtedness of the
Company or any Restricted Subsidiary existing on the Closing Date or Incurred in compliance with the Indenture
(including Indebtedness that Refinances Refinancing Indebtedness); provided, however, that:
(1) the Refinancing Indebtedness has a Stated Maturity no earlier than (i) the Stated Maturity of the
Indebtedness being Refinanced or (ii) the 91st day after the Maturity Date of the Notes;
(2) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue
discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if issued
with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being
Refinanced (plus premiums, interest and reasonable expenses incurred in connection therewith); and
(3) if the Indebtedness being Refinanced is Subordinated Obligations, such Refinancing Indebtedness is
subordinated in right of payment to the Notes at least to the same extent as the Indebtedness being
Refinanced;
provided, further, that Refinancing Indebtedness shall not include Indebtedness of the Company or any Restricted
Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary.
Related Business means any business conducted by the Company and the Restricted Subsidiaries on the
Closing Date and any business related, ancillary or complementary thereto.
Relevant Date has the meaning given to it under Additional Amounts.
Restricted Payment has the meaning given to it under Restrictive CovenantsLimitation on Restricted
Payments.
Restricted Subsidiary means the Issuer and any Subsidiary of the Company other than an Unrestricted
Subsidiary. On the Closing Date, the Issuer, OAS Investments GmbH, Construtora OAS S.A. and OAS
Investimentos S.A. will be the only Restricted Subsidiaries.
S&P means Standard & Poors Ratings Services, a division of The McGraw-Hill Companies Inc., and its
successors.
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Sale and Lease Back Transaction means any arrangement with any Person (other than the Company or any
Restricted Subsidiary), or to which any such Person is a party, providing for the leasing to the Company or any
Restricted Subsidiary for a period of more than three years of any property or assets which property or assets have
been or are to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other
Person (other than the Company or any Restricted Subsidiary) to which funds have been or are to be advanced by
such Person on the security of the leased property or assets.
SEC means the United States Securities and Exchange Commission.
Securities Act means the United States Securities Act of 1933, as amended.
Senior Indebtedness means all unsubordinated Indebtedness of the Company or any Restricted Subsidiary,
whether outstanding on the Closing Date or Incurred thereafter.
SFH Financing means Indebtedness Incurred by OAS Empreendimentos S.A., or one of its subsidiaries, in
connection with, or related to, real estate financing for developers.
Significant Subsidiary means any Restricted Subsidiary of the Company which at the time of determination
either (i) had assets which, based on the consolidated balance sheet of the Company for the fiscal quarter most
recently ended for which internal financial statements are available, constituted at least 10% of the Companys total
assets on a consolidated basis as of such date or (ii) had revenues for the 12-month period which, based on the
consolidated income statements of the Company for the fiscal quarter most recently ended for which internal
financial statements are available, constituted at least 10% of the Companys total revenues on a consolidated basis
for such period, in each case, (i) measure in accordance with Brazilian GAAP and (ii) on a pro forma basis to give
effect to any acquisition or disposition of companies, divisions, lines of businesses or operations by the Company
and the Restricted Subsidiaries subsequent to such date and on or prior to the date of determination.
Stated Maturity means, with respect to any Indebtedness, the date specified in such Indebtedness as the fixed
date on which the final payment of principal of such Indebtedness is due and payable, including, with respect to any
principal amount which is then due and payable pursuant to any mandatory redemption provision, the date specified
for the payment thereof (but excluding any provision providing for the repurchase of any such Indebtedness upon
the happening of any contingency unless such contingency has occurred).
Subordinated Obligation means any Indebtedness that is subordinate or junior in right of payment to the
Notes and Subsidiary Guarantees pursuant to a written agreement.
Subsidiary means, with respect to any Person (the parent) at any date, any corporation, limited liability
company, partnership, association or other entity the accounts of which more than 50% of the outstanding Voting
Stock is owned, directly or indirectly, by such Person and one or more Subsidiaries of such Person (or a combination
thereof).
Subsidiary Guarantee means any Guarantee by a Restricted Subsidiary of the Issuers obligations with respect
to the Securities, executed pursuant to the provisions of the Indenture.
Subsidiary Guarantor means any Restricted Subsidiary that has provided a Subsidiary Guarantee.
Successor Company has the meaning given to it under Consolidation, Merger, Conveyance, Sale or
Lease.
Technical Default has the meaning given to it under Events of Default.
Temporary Cash Investments means any of the following:
(1) any investment in direct obligations of Brazil, the United States or any agency thereof or obligations
Guaranteed by Brazil, the United States or any agency thereof;
(2) investments in time deposit accounts, certificates of deposit and money market deposits (collectively,
Deposit Accounts) issued by a bank or trust company that is organized under the laws of the United
160
States, any state thereof, Brazil or any foreign country recognized by the United States having capital,
surplus and undivided profits aggregating in excess of U.S.$500.0 million (or the foreign currency
equivalent thereof) and whose long-term debt is rated A (or such similar equivalent rating, including
similar equivalent ratings in foreign countries) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act);
(3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described
in clause (1) above entered into with a bank meeting the qualifications described in clause (2) above;
(4) investments in commercial paper maturing not more than 90 days after the date of acquisition issued by a
corporation (other than an Affiliate of the Company) organized and in existence under the laws of the
United States, Brazil or any other foreign country recognized by the United States with a rating at the time
as of which any investment therein is made of P-1 (or higher) according to Moodys or A-1 (or higher)
according to S&P (or such similar equivalent rating, including similar equivalent ratings in foreign
countries);
(5) investments in securities with maturities of twelve months or less from the date of acquisition issued or
fully Guaranteed by any state, commonwealth or territory of the United States, or by any political
subdivision or taxing authority thereof, and rated at least A by S&P or A by Moodys (or such similar
equivalent rating);
(6) investments in securities with maturities of twelve months or less from the date of acquisition issued or
fully Guaranteed by Brazil;
(7) certificates of deposit, bankers acceptances and time deposits issued or guaranteed by or placed with, and
money market deposit accounts issued or offered by, any Brazilian or United States office of any Permitted
Financial Institution; and
(8) investments in money market funds substantially all the assets of which are comprised of investments of
the types described in clauses (1) through (7) above.
Trustee has the meaning given to it in the first paragraph of this Description of the Notes.
United States means United States of America.
Unrestricted Subsidiary means:
(1) any Person (other than the Issuer) that, at the time of determination, shall be designated an Unrestricted
Subsidiary by the management of the Company in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The management of the Company may designate any Restricted Subsidiary of the Company (including any
newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary pursuant to clause (1)
above; provided, however, that either:
(a) the Subsidiary to be so designated has total consolidated assets of U.S.$100,000 or less; or
(b) if such Subsidiary has total consolidated assets greater than U.S.$100,000, then such Investment and
designation would be permitted under Restrictive CovenantsLimitation on Restricted Payments.
The management of the Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided, however, that immediately after giving effect to such designation:
(i) such designation shall be deemed an Incurrence of Indebtedness by a Restricted Subsidiary and such
designation shall only be permitted if such Indebtedness is permitted under Restrictive Covenants
Limitation on Indebtedness; and
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162
FORM OF NOTES
Notes sold in offshore transactions in reliance on Regulation S will be represented by a permanent global note
or notes in fully registered form without interest coupons (the Regulation S Global Note) and will be registered in
the name of a nominee of DTC and deposited with a custodian for DTC. Notes sold in reliance on Rule 144A will be
represented by a permanent global note or notes in fully registered form without interest coupons (the Restricted
Global Note and, together with the Regulation S Global Note, the global notes) and will be deposited with a
custodian for DTC and registered in the name of a nominee of DTC. The notes will also be registered in the register
of holder of the notes held at the registered office of the issuer (the Note Register). In case of discrepancies
between the Note Register and any other register, the Note Register shall prevail for evidence of ownership.
The notes will be subject to certain restrictions on transfer as described in Transfer Restrictions. On or prior
to the 40th day after the later of the commencement of the offering and the closing date of this offering, a beneficial
interest in the Regulation S Global Note may be transferred to a person who takes delivery in the form of an interest
in the Restricted Global Note only upon receipt by the registrar of a written certification from the transferor (in the
form provided in the indenture) to the effect that such transfer is being made to a person whom the transferor
reasonably believes to be a qualified institutional buyer within the meaning of Rule 144A that is also a Qualified
Purchaser in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities
laws of any state of the United States or any other jurisdiction (a Restricted Global Note Certificate). After such
40th day, this certification requirement will no longer apply to such transfers. Beneficial interests in the Restricted
Global Note may be transferred to a person who takes delivery in the form of an interest in the Regulation S Global
Note, whether before, on or after such 40th day, only upon receipt by the registrar of a written certification from the
transferor (in the form provided in the indenture) to the effect that such transfer is being made in accordance with
Rule 903 or Rule 904 of Regulation S or Rule 144 under the Securities Act (a Regulation S Global Note
Certificate). Any beneficial interest in one of the global notes that is transferred to a person who takes delivery in
the form of an interest in the other global note will, upon transfer, cease to be an interest in such global note and
become an interest in the other global note and, accordingly, will thereafter be subject to all transfer restrictions and
other procedures applicable to beneficial interests in such other global note for as long as it remains an interest.
Except in the limited circumstances described under Global Notes, owners of the beneficial interests in
global notes will not be entitled to receive physical delivery of individual definitive notes. The notes are not issuable
in bearer form.
Global Notes
Upon the issuance of the Regulation S Global Note and the Restricted Global Note, DTC will credit, on its
internal system, the respective principal amount of the individual beneficial interests represented by such global note
to the accounts of persons who have accounts with DTC. Such accounts initially will be designated by or on behalf
of the initial purchasers. Ownership of beneficial interests in a global note will be limited to persons who have
accounts with DTC (DTC Participants) or persons who hold interests through DTC Participants. Ownership of
beneficial interests in the global notes will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of DTC Participants) and the records
of DTC Participants (with respect to interests of persons other than DTC Participants).
So long as DTC, or its nominee, is the registered owner or holder of a global note, DTC or such nominee, as the
case may be, will be considered the sole owner or holder of the notes represented by such global note for all
purposes under the indenture and the notes. Unless DTC notifies the issuer that it is unwilling or unable to continue
as depositary for a global note, or ceases to be a clearing agency registered under the Exchange Act, or any of the
notes becomes immediately due and payable in accordance with Description of the NotesEvents of Default,
owners of beneficial interests in a global note will not be entitled to have any portions of such global note registered
in their names, will not receive or be entitled to receive physical delivery of notes in individual definitive form and
will not be considered the owners or holders of the global note (or any notes represented thereby) under the
indenture or the notes. In addition, no beneficial owner of an interest in a global note will be able to transfer that
interest except in accordance with DTCs applicable procedures (in addition to the procedures under the indenture
referred to herein and, if applicable, those of Euroclear and Clearstream).
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Investors may hold interests in the Regulation S Global Note through Euroclear or Clearstream, if they are
participants in such systems. Euroclear and Clearstream will hold interests in the Regulation S Global Note on
behalf of their account holders through customers securities accounts in their respective names on the books of their
respective depositaries, which, in turn, will hold such interests in the Regulation S Global Note in customers
securities accounts in the depositaries names on the books of DTC. Investors may hold their interests in the
Restricted Global Note directly through DTC, if they are DTC Participants, or indirectly through organizations
which are DTC Participants.
Payments of the principal of and interest on global notes will be made to the paying agent who will forward
such payments to the trustee who will forward such payments to DTC or its nominee as the registered owner thereof.
Neither the issuer, any initial purchasers nor any paying agent will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership interests in the global notes or for
maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
The issuer anticipates that DTC or its nominee, upon receipt of any payment of principal or interest in respect of
a global note representing any notes held by its nominee, will immediately credit DTC Participants accounts with
payments in amounts proportionate to their respective beneficial interests in the principal amount of such global note
as shown on the records of DTC or its nominee. The issuer also expects that payments by DTC Participants to
owners of beneficial interests in such global note held through such DTC Participants will be governed by standing
instructions and customary practices, as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the responsibility of such DTC Participants.
Transfers between DTC Participants will be effected in accordance with DTCs procedures, and will be settled
in same-day funds. The laws of some jurisdictions require that certain persons take physical delivery of securities in
definitive form. Consequently, the ability to transfer beneficial interests in a global note to such persons may be
limited. Because DTC can only act on behalf of DTC Participants, who in turn act on behalf of indirect participants
and certain banks, the ability of a person having a beneficial interest in a global note to pledge such interest to
persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interest,
may be affected by the lack of a physical individual definitive certificate in respect of such interest. Transfers
between accountholders in Euroclear and Clearstream will be effected in the ordinary way in accordance with their
respective rules and operating procedures.
Subject to compliance with the transfer restrictions available to the notes described above, cross-market
transfers between DTC participants, on the one hand, and directly or indirectly through Euroclear or Clearstream
account holders, on the other hand, will be effected in DTC in accordance with DTC rules on behalf of Euroclear or
Clearstream, as the case may be, by its respective depositary; however, such crossmarket transactions will require
delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines. Euroclear or Clearstream, as the case
may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or receiving interests in the Regulation S Global
Note in DTC, and making or receiving payment in accordance with normal procedures for same day funds
settlement applicable to DTC. Euroclear and Clearstream account holders may not deliver instructions directly to the
depositaries for Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or Clearstream account holder
purchasing an interest in a global note from a DTC Participant will be credited during the securities settlement
processing day (which must be a business day for Euroclear or Clearstream, as the case may be) immediately
following the DTC settlement date and such credit of any transactions in interests in a global note settled during
such processing day will be reported to the relevant Euroclear or Clearstream accountholder on such day. Cash
received in Euroclear or Clearstream as a result of sales of interests in a global note by or through a Euroclear or
Clearstream account holder to a DTC Participant will be received for value on the DTC settlement date but will be
available in the relevant Euroclear or Clearstream cash account only as of the business day following settlement in
DTC.
DTC has advised that it will take any action permitted to be taken by holder of notes (including the presentation
of notes for exchange as described below) only at the direction of one or more DTC Participants to whose account or
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accounts with DTC interests in the global notes are credited and only in respect of such portion of the aggregate
principal amount of the notes as to which such DTC Participant or DTC Participants has or have given such
direction. However, in the limited circumstances described above, DTC will exchange the global notes for
individual definitive notes (in the case of notes represented by the Restricted Global Note, bearing a restrictive
legend), which will be distributed to its participants. Holders of indirect interests in the global notes through DTC
Participants have no direct rights to enforce such interests while the notes are in global form.
The giving of notices and other communications by DTC to DTC Participants, by DTC Participants to persons
who hold accounts with them and by such persons to holders of beneficial interests in a global note will be governed
by arrangements between them, subject to any statutory or regulatory requirements as may exist from time to time.
DTC has advised as follows: DTC is a limited purpose trust company organized under the laws of the State of
New York, a member of the Federal Reserve System, a clearing corporation within the meaning of the Uniform
Commercial Code and a Clearing Agency registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities for DTC Participants and to facilitate the clearance and settlement of
securities transactions between DTC Participants through electronic book-entry changes in accounts of DTC
Participants, thereby eliminating the need for physical movement of certificates. DTC Participants include security
brokers and dealers, banks, trust companies and clearing corporations and may include certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (indirect
participants).
Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures in order to facilitate
transfers of interests in the Regulation S Global Note and in the Restricted Global Note among participants and
accountholders of DTC, Clearstream and Euroclear, they are under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither the issuer nor the trustee, the paying
agent or any other paying agent will have any responsibility for the performance of DTC, Euroclear or Clearstream
or their respective participants, indirect participants or accountholders of their respective obligations under the rules
and procedures governing their operations.
Individual Definitive Notes
If (i) DTC or any successor to DTC is at any time unwilling or unable to continue as a depositary for the reasons
described in Global Notes and a successor depositary is not appointed by the issuer within 90 days or (ii) any of
the notes has become immediately due and payable in accordance with Description of the NotesEvents of
Default, the issuer will issue individual definitive notes in registered form in exchange for the Regulation S Global
Note and the Restricted Global Note, as the case may be. Upon receipt of such notice from DTC or any paying
agent, as the case may be, the issuer will use its best efforts to make arrangements with DTC for the exchange of
interests in the global notes for individual definitive notes and cause the requested individual definitive notes to be
executed and delivered to the registrar in sufficient quantities and authenticated by the registrar for delivery to
holders. Persons exchanging interests in a global note for individual definitive notes will be required to provide the
registrar with (a) written instruction and other information required by the issuer and the registrar to complete,
execute and deliver such individual definitive notes and (b) in the case of an exchange of an interest in a Restricted
Global Note, certification that such interest is not being transferred or is being transferred only in compliance with
Rule 144A under the Securities Act. In all cases, individual definitive notes delivered in exchange for any global
note or beneficial interests therein will be registered in the names, and issued in any approved denominations,
requested by DTC.
In the case of individual definitive notes issued in exchange for the Restricted Global Note, such individual
definitive notes will bear, and be subject to, the legend described in Transfer Restrictions (unless the issuer
determines otherwise in accordance with applicable law). The holder of a restricted individual definitive note may
transfer such note, subject to compliance with the provisions of such legend, as provided in Description of the
Notes. Upon the transfer, exchange or replacement of notes bearing the legend, or upon specific request for
removal of the legend on a note, the issuer will deliver only notes that bear such legend, or will refuse to remove
such legend, as the case may be, unless there is delivered to the issuer such satisfactory evidence, which may include
an opinion of counsel, as may reasonably be required by the issuer that neither the legend nor the restrictions on
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transfer set forth therein are required to ensure compliance with the provisions of the Securities Act. Before any
individual definitive note may be transferred to a person who takes delivery in the form of an interest in any global
note, the transferor will be required to provide the registrar with a Restricted Global Note Certificate or a Regulation
S Global Note Certificate, as the case may be.
Individual definitive notes will not be eligible for clearing and settlement through Euroclear, Clearstream or
DTC.
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TAXATION
The following discussion contains a description of certain material British Virgin Islands, Brazilian and United
States federal income tax considerations that may be relevant to the acquisition, ownership and disposition of notes
by a holder. This summary does not describe all of the tax considerations that may be relevant to you or your
situation, particularly if you are subject to special tax rules. You should consult your own tax advisors about the tax
consequences of investing in and holding the notes, including the relevance to your particular situation of the
considerations discussed below, as well as of state, local and other tax laws.
This summary is based upon tax laws of the British Virgin Islands, Brazil and the United States as in effect on
the date of this offering memorandum, which are subject to change, possibly with retroactive effect, and to differing
interpretations. You should consult your own tax advisors as to the British Virgin Islands, Brazilian, the United
States or other tax consequences of the purchase, ownership and disposition of notes.
Certain British Virgin Islands Tax Considerations
The following is a discussion of certain British Virgin Islands tax consequences of an investment in the notes.
The discussion is a general summary of present law, which is subject to prospective and retroactive change. It is not
intended as tax advice, does not consider any investors particular circumstances, and does not consider tax
consequences other than those arising under British Virgin Islands law:
a)
The issuer and all payments of interest and principal on the notes to persons who are not persons
resident in the British Virgin Islands are exempt from the provisions of the Income Tax Ordinance in
the British Virgin Islands, and any capital gains realized by persons who are not persons resident in the
British Virgin Islands with respect to the notes is exempt from all forms of taxation in the British
Virgin Islands. As of 1 January 2005, the Payroll Taxes Act, 2004 came into force. It does not apply to
the issuer except to the extent that the issuer has employees (or deemed employees) rendering services
to the issuer wholly or mainly in the British Virgin Islands. The issuer at present has no employees in
the British Virgin Islands and no intention of having any employees in the British Virgin Islands.
No estate, inheritance, succession or gift tax, rate, duty, levy or other charge is payable by persons who are
not persons resident in the British Virgin Islands.
Certain Brazilian Tax Considerations
The following discussion is a general description of certain Brazilian tax aspects of the notes applicable to a
holder that is an individual, entity, trust or organization resident or domiciled outside Brazil for tax purpose (NonResident Holder), does not purport to be a comprehensive description thereof and does not address all of the
Brazilian tax considerations relating to the acquisition, ownership and disposition of the notes applicable to any
Non-Resident Holder. Therefore, each Non-Resident Holder should consult his/her/its own tax advisor concerning
the Brazilian tax consequences in respect of the notes.
Investors should note that, as to the discussion below, other income tax rates or treatment may be provided for
in any applicable tax treaty between Brazil and the country where the Non-Resident Holder is domiciled. Investors
should also note that there is no tax treaty between Brazil and the United States. This summary does not address any
tax issues that affect solely our company, such as deductibility of expenses.
Payments in Respect of the Notes, and Sale or Other Disposition of Notes
Generally, a Non-Resident Holder is taxed in Brazil only when income is derived from Brazilian sources or
gains are realized on the disposition of assets located in Brazil. Thus, based on the fact that the issuer is considered
for tax purposes as domiciled abroad, any income, which for the purposes of this paragraph includes any deemed
income on the difference between the issue price of the notes and the price at which the notes are redeemed
(original discount) payable by the issuer in respect of the notes to Non-Resident Holders, should not, under
Brazilian law, be regarded as payable by a Brazilian obligor and, accordingly, Brazilian income and withholding
taxes should not apply to payments made by the issuer, provided that such payments are made with funds held by
the issuer outside of Brazil.
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Any capital gains generated outside Brazil as a result of a transaction between two non-residents of Brazil with
respect to assets not located in Brazil are not subject to tax in Brazil. On the other hand, when the assets are located
in Brazil, such capital gains are subject to income tax, according to Law No.10,833, enacted on December 29, 2003.
Based on the fact that the notes are issued and registered abroad and, thus, the notes should not fall within the
definition of assets located in Brazil for purposes of Law No. 10,833, gains on the sale or other disposition of the
notes made outside Brazil by a Non-Resident Holder to another non-Brazilian resident should not be subject to
Brazilian taxes.
Notwithstanding the foregoing, considering the general and unclear scope of this legislation and the absence of
judicial guidance in respect thereof, we cannot assure prospective investors that such interpretation will prevail in
the courts of Brazil.
As a result, gains recognized by a Non-Resident Holder from the sale or other disposition of the notes to (1) a
non-resident in Brazil in case the notes are deemed to be located in Brazil or (2) a resident in Brazil may be subject
to income tax in Brazil at a rate of 15%, or 25% if such Non-Resident Holder is located in a country that does
not impose any income tax or which imposes it at a maximum rate lower than 20% (Low or Nil Tax Jurisdiction)
or in a country or location where the local legislation does not allow access to information related to the
shareholding composition of legal entities, to their ownership or to the identity of the effective beneficiary
of the income attributed to non-residents, unless a lower rate is provided for in an applicable tax treaty between
Brazil and the country where the Non-Resident Holder has its domicile.
Payments Made by the Brazilian Guarantor
If, by any chance, a Brazilian source is required, as a guarantor, to assume the obligation to pay any amount in
connection with the notes to a Non-Resident Holder, Brazilian tax authorities could attempt to impose withholding
income tax at the rate of 15% or 25%, being the rate variable depending on the nature of the payment and the
location of the respective Non-Resident Holder. In this circumstance, other income tax rate may be provided for in
an applicable tax treaty between Brazil and the country of residence of the beneficiary. There is some uncertainty
regarding the applicable tax treatment to payments of the principal amount by the guarantor to the Non-Resident
Holder.
Although there is an argument according to which such payments made by the guarantor do not convert the
nature of the payment from principal into taxable income, there are no precedents from Brazilian courts endorsing
that position and it is not possible to assure that such argument would prevail in court.
In the event the guarantors are required to make any payment as guarantors in connection with the notes to the
Non-Resident Holder, the guarantors would be required to pay such additional amounts as may be necessary to
ensure that the net amounts receivable by the Non-Resident Holder after withholding for taxes will equal the
amounts that would have been payable in the absence of such withholding.
Discussion on Low or Nil Tax Jurisdiction
Law No. 11,727 also changed the scope of new transactions that would be subject to Brazilian transfer pricing
rules, with the creation of the concept of a privileged tax regime. Pursuant to Law No. 11, 727, a jurisdiction will be
considered a privileged tax regime if it (i) does not tax income or taxes it at a maximum rate lower than 20%; (ii)
grants tax advantages to a non-resident entity or individual (a) without the need to carry out a substantial economic
activity in the country or a said territory or (b) conditioned upon the non-exercise of a substantial economic activity
in the country or a said territory; (iii) does not tax or taxes proceeds generated abroad at a maximum rate lower than
20%; or (iv) restricts the ownership disclosure of assets and ownership rights or restricts disclosure about
economic transactions carried out. Because several Brazilian regulations refer to the concepts defined in the
Brazilian transfer pricing rules when referring to tax haven jurisdictions and despite the understanding that the
changes discussed in this paragraph should apply exclusively for transfer pricing purposes and thin capitalization
rules, there is a risk that a privileged tax regime will be treated similarly to a tax heaven jurisdiction, and therefore
the concept could be extended to the burdensome income tax rates mentioned above.
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Due to the recent enactment of the above-referenced law, it is not possible to ascertain if such privileged tax
regime concept will only be applied to determine the scope of transactions subject to transfer pricing and thin
capitalization rules or whether it will also serve to extend the concept of tax haven jurisdictions provided by other
Brazilian regulations.
We recommend prospective investors to consult their own tax advisors from time to time to verify any possible
tax consequences arising of Normative Ruling No. 1,037 and Law No. 11,727.
Other Brazilian Tax Considerations
Pursuant to Decree n. 6,306, of December 14, 2007, the conversion of foreign currency into Brazilian reais and
the conversion of Brazilian reais into foreign currency are subject to IOF/Exchange, including foreign exchange
transactions in connection with payments made by a Brazilian guarantor under the guarantee to Non-Resident
Holders. Currently, the IOF/Exchange rate is 0.38% for most foreign exchange transactions, including foreign
exchange transactions in connection with payments under the guarantee by a Brazilian Subsidiary Guarantor to NonResident Holders. However, the Brazilian government may increase the current IOF/Exchange rate at any time, up
to a maximum rate of 25.0%. Any such new rate would only apply to future foreign exchange transactions.
Generally, there are no stamp, transfer or other similar taxes in Brazil applicable to the transfer, assignment or
sale of the notes outside Brazil, nor any inheritance, gift or succession tax applicable to the ownership, transfer or
disposition of the notes, except for gift and inheritance taxes imposed in some states of Brazil on gifts and bequests
by a Non-Resident Holder to individuals or entities domiciled or residing within such Brazilian states.
THE ABOVE DESCRIPTION IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF
ALL BRAZILIAN TAX CONSEQUENCES RELATING TO THE OWNERSHIP OF NOTES.
PROSPECTIVE PURCHASERS OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE TAX CONSEQUENCES OF THEIR PARTICULAR SITUATIONS.
Certain U.S. Federal Income Tax Considerations
The following discussion is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, the
Treasury regulations promulgated thereunder, the judicial decisions and U.S. Internal Revenue Service, or IRS,
rulings and administrative pronouncements, all as in effect on the date hereof and all of which are subject to change,
perhaps with retroactive effect. The discussion addresses only purchasers of notes in this offering that hold the notes
as capital assets, within the meaning of Section 1221 of the Code, and that use the United States dollar as their
functional currency. The discussion does not consider the circumstances of particular investors, some of which
(such as banks, financial institutions, insurance companies, dealers in securities, partnerships and other pass-through
entities (and investors in such partnerships or entities), tax-exempt entities, traders who elect to mark their
investment to market and persons holding the notes as part of a hedge, straddle, conversion, constructive sale or
integrated transaction) are subject to special tax regimes. Special rules also apply to individuals. The discussion
does not address any U.S. federal tax consequences, such as the estate tax, gift tax or Medicare tax on net investment
income, other than U.S. federal income tax consequences. Prospective investors should consult their own tax
advisors regarding the specific U.S. federal tax consequences of purchasing, holding and disposing of the notes, as
well as the effects of state, local and foreign tax law and any proposed tax law changes.
For purposes of this discussion, U.S. Holder means a beneficial owner of a note that is for U.S. federal
income tax purposes (1) a citizen or individual resident of the United States, (2) a corporation or other business
entity treated as a corporation for U.S. federal income tax purposes and organized in or under the laws of the United
States, any state thereof or the District of Columbia, (3) an estate, the income of which is subject to U.S. federal
income taxation regardless of its source, or (4) a trust (i)(a) the administration of which a U.S. court can exercise
primary supervision and (b) all of the substantial decisions of which one or more U.S. persons have the authority to
control, or (ii) that has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person
for U.S. federal income tax purposes.
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If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds notes, the
U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of
the partnership (or other entity). A partner in a partnership (or other entity treated as a partnership for U.S. federal
income tax purposes) holding notes should consult its own tax advisor with regard to the U.S. federal income tax
consequences of acquiring, holding and disposing of notes.
Characterization of the Notes
In certain circumstances, we may be obligated to make payments on the notes in excess of stated interest and
principal. Under the relevant U.S. Treasury Regulations, the possibility of a contingent payment will be disregarded
if, based on all the facts and circumstances as of the date on which the notes are issued, the likelihood of the
contingent is remote or incidental. We believe that, as of the issue date of the notes, there is no more than a remote
chance that we will make such payments on the notes, and, therefore, we do not intend to treat the notes as
contingent payment debt instruments. Our determination is not binding on the IRS and if the IRS were to challenge
this determination, a U.S. holder might be required under the contingent payment debt instrument rules to accrue
income on the notes that such U.S. Holder owns in excess of stated interest, and to treat as ordinary income rather
than capital gain any income realized on the taxable disposition of such notes before the resolution of the
contingency. In the event that any such contingency were to occur, it would affect the amount and timing of the
income that such U.S. Holder recognizes. U.S. Holders should consult their own tax advisors regarding the potential
application to the notes of the contingent payment debt instrument rules and the consequences thereof.
Stated Interest
Stated interest on the notes, including any Additional Amounts with respect thereto as described under
Description of the NotesAdditional Amounts, will be includible in the gross income of a U.S. Holder as
ordinary interest income in accordance with such holders method of accounting for U.S. federal income tax
purposes. The interest, including any Additional Amounts with respect thereto, will constitute foreign-source
income for U.S. federal income tax purposes, which may be relevant to a U.S. Holder in calculating such U.S.
Holders foreign tax credit limitation. Subject to certain conditions and limitations, Brazilian or other foreign taxes,
if any, withheld on interest payments may be treated as foreign taxes eligible for credit against such holders U.S.
federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with respect to
specific classes of income. For this purpose, interest paid on the notes generally will constitute passive category
income. The rules governing the foreign tax credit are complex. U.S. Holders are urged to consult their tax
advisors regarding the availability of the foreign tax credit under their particular circumstances.
Disposition of the Notes
A U.S. Holder generally will recognize gain or loss on the sale, exchange, retirement or other taxable
disposition of a note equal to the difference between the amount realized on the sale, exchange, retirement or other
taxable disposition (other than payments attributable to accrued but unpaid interest which will be treated as
described under Stated Interest above) and the U.S. Holders tax basis in the note. A U.S. Holders tax basis in a
note generally will be its cost to the U.S.. Any gain or loss recognized upon the sale or other taxable disposition of a
note by a U.S. Holder generally will be U.S.-source capital gain or loss. Any gain or loss will be treated as long-term
capital gain or loss if, at the time of the sale or other taxable disposition, the U.S. Holder held the note for more than
one year. Long-term capital gains recognized by an individual U.S. Holder generally are subject to U.S. federal
income taxation at preferential rates. The deductibility of capital losses is subject to significant limitations.
Substitution of the Issuer
The Issuer may, subject to certain conditions, be replaced and substituted by any Subsidiary Guarantor or by
any Wholly-Owned Subsidiary of a Subsidiary Guarantor as principal debtor (the Substituted Issuer) in respect of
the notes (see Description of the NotesRestrictive CovenantsSubstitution of the Issuer), which may result in
certain adverse tax consequences to U.S. holders. If the Substituted Issuer is organized in a jurisdiction other than
British Virgin Islands, we will have an obligation to indemnify and hold harmless each holder and beneficial owner
of the notes (a) against all taxes or duties which arise by reason of a law or regulation in effect or contemplated on
the effective date of the substitution, which may be incurred or levied against such holder or beneficial owner as a
result of the substitution described under Description of the NotesRestrictive Covenants Substitution of the
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Issuer and which would not have been so incurred or levied had such substitution not been made, and (b) against all
taxes or duties which are imposed on such holder or beneficial owner of the notes by any country (including any
political subdivision or taxing authority thereof ) in which such holder or beneficial owner of the notes resides or is
subject to any such tax or duty and which would not have been so imposed had the substitution not been made, in
each case subject to certain exceptions. U.S. Holders should consult their tax advisors regarding any potential
adverse tax consequences that may result from a substitution of the Issuer.
Information Reporting and Backup Withholding
Generally, tax reporting and backup withholding of U.S. federal income tax may apply to payments made by a
payor in the United States or a United States middleman to a U.S. Holder with respect to the notes, or to proceeds
from the sale by a U.S. Holder of the notes, if such U.S. Holder is not an exempt recipient and fails to provide
certain identifying information (such as the U.S. Holders taxpayer identification number) in the required manner, or
the IRS otherwise directs the payor to withhold. Any amounts withheld under the backup withholding rules from
payments to a U.S. Holder would be allowed as a refund or a credit against such U.S. Holders U.S. federal income
tax provided the required information is furnished to the IRS in a timely manner.
Foreign Asset Reporting
Certain U.S. Holders who are individuals are required to report information relating to an interest in the notes,
subject to certain exceptions (including an exception for notes held in accounts maintained by financial institutions).
U.S. Holders should consult their tax advisors regarding their information reporting obligations, if any, with respect
to their ownership and disposition of the notes.
The above summary is not intended to constitute a complete analysis of all U.S. federal income tax
consequences relating to purchasing, holding and disposing of the notes. Prospective investors in the notes
should consult their own tax advisors concerning the tax consequences in their particular situations.
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PLAN OF DISTRIBUTION
Subject to the terms and conditions of the purchase agreement, the initial purchasers named below have
severally agreed to purchase from us the following respective principal amounts of notes listed opposite their name
below at the initial offering price set forth on the cover page of this offering memorandum less underwriting
discounts and commissions:
Underwriters
BB Securities Ltd ................................................................................................................
Banco Bradesco BBI S.A.. ..................................................................................................
HSBC Securities (USA) Inc................................................................................................
Santander Investment Securities Inc. ..................................................................................
Total ............................................................................................................................
Principal
Amount of Notes
U.S.$100,000,000
100,000,000
100,000,000
100,000,000
U.S.$400,000,000
The purchase agreement provides that the obligations of the initial purchasers to purchase the notes are subject
to the approval of certain legal matters by counsel and certain other conditions. The initial purchasers are obligated
to take and pay for all the notes, if any are not taken.
The purchase agreement provides that the issuer and the guarantors will, jointly and severally, indemnify the
initial purchasers against certain liabilities, including liabilities under the U.S. federal securities laws, and will
contribute to payments the initial purchasers may be required to make in respect thereof.
The initial purchasers propose to resell the notes at the offering price set forth on the cover page, and to selling
group members at that price less a selling concession, within the United States to QIBs that are also Qualified
Purchasers in reliance on Rule 144A and outside the United States in reliance on Regulation S. The price at which
the notes are offered may be changed at any time without notice.
BB Securities Ltd. is not a broker-dealer registered with the SEC, and therefore may not make sales of any
notes in the United States or to U.S. persons except in compliance with applicable U.S. laws and regulations. To the
extent that BB Securities Ltd. intends to effect sales of the notes in the United States, it will do so only through
Banco do Brasil Securities LLC or one or more U.S. registered broker dealers, or otherwise as permitted by
applicable U.S. law. BB Securities Asia Pte. Ltd. may be involved in the sales of the notes in Asia.
Bradesco Securities Inc. will act as agent of Banco Bradesco BBI S.A. for sales of the notes in the United
States. Banco Bradesco BBI S.A. is not a broker dealer registered with the SEC, and therefore may not make sales
of any notes in the United States. To the extent that Banco Bradesco BBI S.A. intends to effect sales of the notes in
the United States to U.S. persons, it may do so through Banco Bradesco BBI S.A. and Bradesco Securities Inc.,
which are affiliates of Banco Bradesco S.A.
Some of the initial purchasers and their affiliates have engaged in, and may in the future engage in, investment
banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have
received, or may in the future receive, customary fees and commissions for these transactions. Certain of the initial
purchasers and/or their affiliates acted as initial purchasers of the initial notes. Certain of the initial purchasers or
their respective affiliates may enter into derivative and/or structured transactions with clients, at their request, in
connection with the notes and the initial purchasers and/or their affiliates may also purchase some of the notes to
hedge their risk exposure in connection with such transactions.
In addition, in the ordinary course of their business activities, the initial purchasers and their affiliates may
make or hold a broad array of investments and actively trade debt and equity securities (or related derivative
securities) and financial instruments (including bank loans) for their own account and for the accounts of their
customers. Such investments and securities activities may involve securities and/or instruments of ours or our
affiliates. Certain initial purchasers and/or their affiliates are holders of existing notes issued by us or our affiliates.
Certain of the initial purchasers or their affiliates that have a lending relationship with us routinely hedge their credit
exposure to us consistent with their customary risk management policies. Typically, such initial purchasers and their
affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit
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default swaps or the creation of short positions in our securities, including potentially the notes offered hereby. Any
such short positions could adversely affect future trading prices of the notes offered hereby. The initial purchasers
and their affiliates may also make investment recommendations and/or publish or express independent research
views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire,
long and/or short positions in such securities and instruments. Also, the initial purchasers or their affiliates may
acquire the notes for their own proprietary accounts. Such transactions may have an effect on demand, price and
other terms of the offering.
We anticipate that we will use part of the net proceeds of this offering to repay a portion of our outstanding
indebtedness owed to certain affiliates of the initial purchasers. See Use of Proceeds.
Each purchaser of notes will be deemed to have made acknowledgments, representations and agreements as
described under "Notice to Investors."
The issuer has agreed that, for a period of 90 days following the closing date of this offering, it will not,
without the prior written consent of the initial purchasers, offer, sell or contract to sell, or otherwise dispose of,
directly or indirectly, or announce the offering of, any debt securities offered or guaranteed by it.
The initial purchasers have agreed in the purchase agreement that (1) they have not offered or sold, and will not
offer or sell any notes except (a) to persons they reasonably believe to be QIBs (that are also Qualified Purchasers)
in accordance with Rule 144A and (b) to non-U.S. Persons in offshore transactions in accordance with Regulation S;
and (2) except as permitted under Rule 144A, they will not offer, sell or deliver the notes (a) as part of its
distribution at any time or (b) otherwise until 40 days after the later of the commencement of this offering and the
closing date of this offering, within the United States or to, or for the account or benefit of, U.S. persons, and they
will have sent to each distributor, dealer or person to which they sell the notes other than a sale pursuant to Rule
144A during such 40-day period, a confirmation or other notice detailing the restrictions on offers and sales of the
notes within the United States or to, or for the account or benefit of, U.S. persons.
In addition, until 40 days after the commencement of the offering, an offer or sale of the notes within the
United States by any dealer (whether or not participating in the offering) may violate the registration requirements of
the Securities Act if such offer or sale is made otherwise than in accordance with an exemption under the Securities
Act.
The notes are a new issue of securities with no established trading market. An application will be made for the
notes to be admitted to listing on the Official List of the Irish Stock Exchange and for admission to trading on the
Global Exchange Market of the Irish Stock Exchange. The initial purchasers may make a market in the notes after
completion of the offering, but will not be obligated to do so and may discontinue any market-making activities at
any time without notice. No assurance can be given as to the liquidity of the trading market for the notes or that an
active public market for the notes will develop. If an active public trading market for the notes does not develop, the
market price and liquidity of the notes may be adversely affected.
No action has been or will be taken in any jurisdiction by us or the initial purchasers that would, or are intended
to, permit a public offering of the notes, or possession or distribution of this offering memorandum or any other
offering material, in any country or jurisdiction where action for that purpose is required. Persons into whose hands
this offering memorandum comes are required by us and the initial purchasers to comply with all applicable laws
and regulations of each country or jurisdiction in which they purchase, offer, sell or deliver the notes or have in their
possession, distribute or publish this offering memorandum or any other offering material relating to the notes, in all
cases at their own expense.
We expect that delivery of the notes will be made against payment therefor on or about the date specified on
the cover of this offering memorandum, which is the fifth business day following the date of pricing of the notes
(such settlement cycle being referred to as T+5). Purchasers of the notes should note that trading of the notes on the
date of pricing of the notes and the next succeeding business day may be affected by this T+5 settlement.
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Selling Restrictions
Neither we nor the initial purchasers are making an offer to sell, or seeking offers to buy, the notes in any
jurisdiction where the offer and sale is not permitted. You must comply with all applicable laws and regulations in
force in any jurisdiction in which you purchase, offer or sell the notes or possess or distribute this offering
memorandum, and you must obtain any consent, approval or permission required for your purchase, offer or sale of
the notes under the laws and regulations in force in any jurisdiction to which you are subject or in which you make
such purchases, offers or sales. Neither we nor the initial purchasers will have any responsibility therefor.
Brazil
The notes have not been and will not be issued nor placed, distributed, offered or negotiated in the Brazilian
capital markets. The notes have not been nor will be registered with the CVM. Any public offering or distribution,
as defined under Brazilian laws and regulations, of the notes in Brazil is not legal without prior registration under
Law No. 6,385, dated as of December 7, 1976, as amended, and Instruction No. 400, issued by the CVM on
December 29, 2003, as amended. Documents relating to the offering of the notes, as well as information contained
therein, may not be supplied to the public in Brazil (as the offering of the notes is not a public offering of securities
in Brazil), nor be used in connection with any offer for subscription or sale of the notes to the public in Brazil.
United Kingdom
Each of the initial purchasers has represented and agreed that:
it has only communicated or caused to be communicated and will only communicate or cause to be
communicated an invitation or inducement to engage in investment activity (within the meaning of
Section 21 of the FSMA) received by it in connection with the issue or sale of any notes in
circumstances in which Section 21(1) of the FSMA does not apply to the issuer or the guarantors; and
it has complied and will comply with all applicable provisions of the FSMA with respect to anything
done by it in relation to the notes in, from or otherwise involving the United Kingdom.
In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any
offer subsequently made may only be directed at persons who are "qualified investors" (as defined in the Prospectus
Directive) (1) who have professional experience in matters relating to investments falling within Article 19 (5) of the
Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or the Order, and/or (2)
who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within
Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). This document
must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. In the United
Kingdom, any investment or investment activity to which this document relates is only available to, and will be
engaged in with, relevant persons.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus
Directive (each, a "Relevant Member State"), with effect from and including the date on which the Prospectus
Directive is implemented in that Relevant Member State, or the Relevant Implementation Date, an offer to the public
of any notes which are the subject of the offering contemplated by this offering memorandum may not be made in
that Relevant Member State, except that an offer to the public in that Relevant Member State of any notes may be
made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in
that Relevant Member State:
to any legal entity which is a qualified investor as defined in the Prospectus Directive;
to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010
PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the
Prospectus Directive) subject to obtaining the prior consent of the initial purchasers; or
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in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of notes shall result in a requirement by us or any representative to publish a
prospectus pursuant to Article 3 of the Prospectus Directive, or supplement a prospectus pursuant to Article 16 of
the Prospectus Directive.
For the purposes of this provision, the expression an "offer to the public" in relation to any notes in any
Relevant Member State means the communication in any form and by any means of sufficient information on the
terms of the offer and the notes to be offered so as to enable an investor to decide to purchase or subscribe to the
notes, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus
Directive in that Relevant Member State, the expression "Prospectus Directive" means Directive 2003/71/EC (and
the amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant
Member State in question) and includes any relevant implementing measure in that Relevant Member State, and the
expression "2010 PD Amending Directive" means Directive 2010/73/EU.
Chile
The notes will not be registered under Law 18,045, as amended, of Chile with the Superintendencia de Valores
y Seguros (Chilean Securities Commission), and accordingly, they may be not be offered to persons in Chile, except
in circumstances that do not constitute a public offering under Chilean law and the regulations from the
Superintendencia de Valores y Seguros of the Republic of Chile)). Chilean institutional investors (such as banks,
pension funds and insurance companies) are required to comply with specific restrictions relating to the purchase of
the notes.
Colombia
The notes have not been and will not be offered in Colombia through a public offering of securities pursuant to
Colombian laws and regulations, nor will they be registered in the Colombian National Registry of Securities and
Issuers or listed on a regulated securities trading system such as the Colombian Stock Exchange.
Dubai
This offering memorandum relates to an Exempt Offer in accordance with the Offered Securities Rules of the
Dubai Financial Services Authority ("DFSA"). This offering memorandum is intended for distribution only to
persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by,
any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with
Exempt Offers. The DFSA has not approved this offering memorandum nor taken steps to verify the information set
forth herein and has no responsibility for the offering memorandum. The notes to which this offering memorandum
relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the notes offered
should conduct their own due diligence on the notes. If you do not understand the contents of this offering
memorandum you should consult an authorized financial advisor.
Ireland
The notes will not be placed otherwise than in conformity than with the provisions of the Irish Investment
Intermediaries Act 1995 (as amended), including, without limitation, Sections 9 and 23 thereof and any codes of
conduct rules made under Section 37 thereof and the provisions of the Investor Compensation Act 1998.
Hong Kong
The notes may not be offered or sold by means of any document other than (1) in circumstances which do not
constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or
(2) to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong
Kong) and any rules made thereunder, or (3) in other circumstances which do not result in the document being a
"prospectus" within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement,
invitation or document relating to the notes may be issued or may be in the possession of any person for the purpose
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of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely
to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other
than with respect to notes which are or are intended to be disposed of only to persons outside Hong Kong or only to
"professional investors" within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong)
and any rules made thereunder.
Italy
To the extent that the offering of the notes has not been registered pursuant to Italian securities legislation and,
therefore, no notes may be offered, sold or delivered, nor may copies of this offering memorandum or of any other
document relating to the notes be distributed in the Republic of Italy, except:
(a) to qualified investors (investitori qualificati) as defined in Article 100 of Legislative Decree No. 58 of 24
February 1998, as amended (the "Financial Services Act") and Article 34-ter, first paragraph, letter b) of
CONSOB Regulation No. 11971 of 14 May 1999, as amended from time to time ("Regulation No. 11971");
or
(b) in other circumstances which are exempted from the rules on public offerings pursuant to Article 100 of the
Financial Services Act and Article 34-ter of Regulation No. 11971.
Any offer, sale or delivery of the notes or distribution of copies of this offering memorandum or any other
document relating to the notes in the Republic of Italy under (a) or (b) above must be:
(i) made by an investment firm, bank or financial intermediary permitted to conduct such activities in the
Republic of Italy in accordance with the Financial Services Act, CONSOB Regulation No. 16190 of 29
October 2007 (as amended from time to time) and Legislative Decree No. 385 of 1 September 1993, as
amended (the "Banking Act"); and
(ii) in compliance with Article 129 of the Banking Act, as amended, and the implementing guidelines of
the Bank of Italy, as amended from time to time, pursuant to which the Bank of Italy may request
information on the issue or the offer of securities in the Republic of Italy; and
(iii) in compliance with any other applicable laws and regulations or requirement imposed by CONSOB or
any other Italian authority.
Please note that in accordance with Article 100-bis of the Financial Services Act, where no exemption from
the rules on public offerings applies under (a) and (b) above, the subsequent distribution of the notes on the
secondary market in Italy must be made in compliance with the public offer and the prospectus requirement rules
provided under the Financial Services Act and Regulation No. 11971. Failure to comply with such rules may result
in the sale of such notes being declared null and void and in the liability of the intermediary transferring the
financial instruments for any damages suffered by the investors.
Japan
The notes have not been and will not be registered under the Financial Instruments and Exchange Law of Japan
(the Financial Instruments and Exchange Law) and each initial purchaser has agreed that it will not offer or sell any
notes, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein
means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or
to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an
exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and
Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
Mexico
The notes have not been and will not be registered with the National Securities Registry (Registro Nacional
de Valores) maintained by the CNBV, and may not be offered or sold publicly, or otherwise be subject of brokerage
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activities in Mexico, except pursuant to a private placement exemption set forth under Article 8 of the Mexican
Securities Market Law. As required under the Mexican Securities Market Law, we will notify the CNBV of the
offering of the notes outside of Mexico. Such notice will be delivered to the CNBV to comply with a legal
requirement and for information purposes and the delivery and the acceptance by the CNBV of such notice, does not
imply any certification as to the investment quality of the notes or our solvency, liquidity or credit quality.
Singapore
This offering memorandum has not been registered as a prospectus with the Monetary Authority of Singapore.
Accordingly, this offering memorandum and any other document or material in connection with the offer or sale, or
invitation for subscription or purchase, of the notes may not be circulated or distributed, nor may the notes be
offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to
persons in Singapore other than (1) to an institutional investor under Section 274, Chapter 289, of the Securities and
Futures Act of Singapore, or the SFA, (2) to a relevant person, or any person pursuant to Section 275(1A), and in
accordance with the conditions, specified in Section 275 of the SFA or (3) otherwise pursuant to, and in accordance
with the conditions of, any other applicable provision of the SFA.
Where the notes are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation
(which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of
which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee
is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited
investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries' rights and
interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the notes
under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or
any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA;
(2) where no consideration is given for the transfer; or (3) by operation of law.
Switzerland
The notes may not and will not be publicly offered, distributed or redistributed on a professional basis in or
from Switzerland, and neither the offering memorandum nor any other solicitation for investments in our securities
may be communicated or distributed in Switzerland in any way that could constitute a public offering within the
meaning of articles 652a or 1156 of the Swiss Federal Code of Obligations or of Article 3 of the Federal Act on
Collective Investment Schemes of June 23, 2006. This offering memorandum may not be copied, reproduced,
distributed or passed on to others without the Managers' prior written consent. This offering memorandum is not a
prospectus within the meaning of Articles 1156 and 652a of the Swiss Code of Obligations or a listing prospectus
according to article 27 of the Listing Rules of the Swiss Exchange and may not comply with the information
standards required thereunder. We will not apply for a listing of the notes on any Swiss stock exchange or other
Swiss regulated market and this offering memorandum may not comply with the information required under the
relevant listing rules. The notes have not been and will not be approved by any Swiss regulatory authority. The notes
have not been and will not be registered with or supervised by the Swiss Federal Banking Commission, and have not
been and will not be authorized under the Federal Act on Collective Investment Schemes of June 23, 2006. The
investor protection afforded to acquirers of investment fund certificates by the Federal Act on Collective Investment
Schemes of June 23, 2006 does not extend to acquirers of the notes.
Taiwan
The notes have not been and will not be registered with the Financial Supervisory Commission of Taiwan, the
Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold in Taiwan, the
Republic of China through a public offering or in any circumstance which constitutes an offer within the meaning of
the Securities and Exchange Act of Taiwan, the Republic of China that requires a registration approval of the
Financial Supervisory Commission of Taiwan, the Republic of China. No person or entity in Taiwan, the Republic
of China has been authorized to offer or sell the notes in Taiwan, the Republic of China.
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TRANSFER RESTRICTIONS
The notes have not been registered under the Securities Act and may not be offered or sold in the United States
or to, or for the account or benefit of, U.S. persons except in accordance with an applicable exemption from the
registration requirements thereof and any applicable securities laws of any state of the United States and other
jurisdictions. Accordingly, the notes are being offered and sold only (1) in the United States to certain QIBs (as
defined in Rule 144A) that are also qualified purchasers (as defined in Section 2(a)(51) of the Investment Company
Act) in compliance with Rule 144A, or (2) outside the United States to non-U.S. persons in reliance upon Regulation
S. As used in this section, the terms "United States," "U.S. person" and "offshore transactions" have the meanings
given to them in Regulation S.
Each purchaser of notes or beneficial owner of the notes, including any person who acquires such notes in the
future,, by its acceptance thereof, will be deemed to have acknowledged, represented to and agreed with us and the
initial purchasers as follows:
1.
It is:
(i) a qualified institutional buyer (as defined in Rule 144A) that is also a qualified purchaser (as
defined in Section 2(a)(51) of the Investment Company Act, which term generally includes (a) any
natural person (including any person who holds a joint, community property, or other similar
shared ownership interest in an issuer that is excepted under Section 3(c)(7) of the Investment
Company Act with that person's qualified purchaser spouse) who owns not less than
U.S.$5,000,000 in investments, as defined by the SEC; (b) any company that owns not less than
U.S.$5,000,000 in investments and that is owned directly or indirectly by or for two or more
natural persons who are related as siblings or spouses (including former spouses), or direct lineal
descendants by birth or adoption, spouses of such persons, the estates of such persons, or
foundations, charitable organizations, or trusts established by or for the benefit of such persons;
(c) any trust that is not covered by clause (b) and that was not formed for the specific purpose of
acquiring the securities offered, as to which the trustee or other person authorized to make
decisions with respect to the trust, and each settlor or other person who has contributed assets to
the trust, is a person described in clause (a), (b), or (d); or (d) any person, acting for its own
account or the accounts of other qualified purchasers, who in the aggregate owns and invests, on a
discretionary basis, not less than U.S.$25,000,000 in investments), (ii) not a broker-dealer that
owns and invests on a discretionary basis less than U.S.$25 million in securities of unaffiliated
issuers, (iii) aware that the sale of the notes to it is being made in reliance on Rule 144A and (iv) is
acquiring the notes for its own account or for the account of one or more qualified institutional
buyers that is also a qualified purchaser; or
not a U.S. person (and is not purchasing for the account or benefit of a U.S. person) and is
purchasing the notes outside the United States in compliance with Regulation S.
2.
It understands that the notes are being offered in a transaction not involving any public offering in the
United States within the meaning of the Securities Act and that the notes have not been and will not be
registered under the Securities Act.
3.
If it is acquiring the notes in a sale made in reliance upon Rule 144A, it will not offer, resell, pledge or
otherwise transfer notes except: (i) in the United States to a qualified institutional buyer (as defined in
Rule 144A) that is also a qualified purchaser (as defined in Section 2(a)(51) of the Investment
Company Act) in a transaction that is exempt from registration under the Securities Act or (ii) outside
the United States to non-U.S. persons in offshore transactions in accordance with Rule 903 or Rule 904
of Regulations S.
180
4.
If it is acquiring the notes in a sale being made in reliance upon Rule 144A, it understands that the
notes will, unless otherwise agreed by us and the noteholder, bear a legend substantially to the
following effect:
"The issuer and guarantors of this security are not, and will not be, registered as an
investment company under the Investment Company Act of 1940, or the Investment Company
Act. This security has not been and will not be registered under the Securities Act of 1933, or the
Securities Act, or with any securities regulatory authority of any state or other jurisdiction of the
United States. Neither this security nor any interest or participation herein may be reoffered,
sold, assigned, transferred, pledged, encumbered or otherwise disposed of except (A)(1) in
accordance with Rule 144A, to a person that the holder and any person acting on its behalf
reasonably believe is both a "qualified institutional buyer" (as defined in Rule 144A) and a
"qualified purchaser" (as defined in Section 2(a)(51) of the Investment Company Act) that (i) is
purchasing this security for its own account or for the account of one or more qualified
institutional buyers in a principal amount not less than the minimum denomination for the
notes; (ii) was not formed for the purposes of investing in this security and (iii) will provide
notice of these transfer restrictions to any subsequent transferee, (2) in an offshore transaction
in accordance with Rule 903 or 904 under Regulation S under the Securities Act to a person who
is not a U.S. person (as defined in Regulation S under the Securities Act and (B) in accordance
with all applicable securities laws of any state of the United States and any other Applicable
Jurisdiction.
BY ITS PURCHASE AND HOLDING OF THIS NOTE (OR ANY INTEREST HEREIN), THE
PURCHASER OR HOLDER WILL BE DEEMED TO HAVE REPRESENTED, WARRANTED
AND AGREED THAT (1) EITHER (A) IT IS NOT, AND IS NOT ACTING ON BEHALF OF (AND
FOR SO LONG AS IT HOLDS THIS NOTE (OR ANY INTEREST HEREIN) WILL NOT BE, OR
BE ACTING ON BEHALF OF), (I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION
3(3) OF THE U.S. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA")) SUBJECT TO TITLE I OF ERISA, (II) A PLAN (AS DEFINED IN
SECTION 4975(e)(1) OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED ("THE
CODE")) TO WHICH SECTION 4975 OF THE CODE APPLIES, (III) AN ENTITY WHOSE
UNDERLYING ASSETS INCLUDE "PLAN ASSETS" OF ANY PLAN DESCRIBED IN (I) OR (II)
BY REASON OF SUCH PLAN'S INVESTMENT IN THE ENTITY (INCLUDING WITHOUT
LIMITATION, AS APPLICABLE, AN INSURANCE COMPANY GENERAL ACCOUNT) (EACH
OF THE FOREGOING, AN ERISA PLAN) OR (IV) A GOVERNMENTAL, CHURCH OR
NON-U.S. PLAN WHICH IS SUBJECT TO ANY FEDERAL, NON-US STATE OR LOCAL LAWS,
REGULATIONS OR RULES THAT ARE SIMILAR TO SECTION 406 OF ERISA AND/OR
SECTION 4975 OF THE CODE (SIMILAR LAWS), AND NO PART OF THE ASSETS USED
BY IT TO ACQUIRE OR HOLD THIS NOTE (OR ANY INTEREST HEREIN) CONSTITUTES
THE ASSETS OF SUCH AN ERISA PLAN OR PLAN SUBJECT TO ANY SIMILAR LAWS OR
(B) ITS ACQUISITION, HOLDING AND DISPOSITION OF THIS NOTE (OR ANY INTEREST
HEREIN) DOES NOT AND WILL NOT CONSTITUTE OR OTHERWISE RESULT IN A NONEXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA AND/OR SECTION
4975 OF THE CODE (OR, IN THE CASE OF A GOVERNMENTAL, CHURCH OR NON-U.S.
PLAN, A NON-EXEMPT VIOLATION OF ANY SIMILAR LAWS); AND (2) IT WILL NOT SELL
OR OTHERWISE TRANSFER THIS NOTE (OR ANY INTEREST HEREIN) OTHERWISE THAN
TO AN ACQUIRER OR TRANSFEREE THAT IS DEEMED TO MAKE THESE SAME
REPRESENTATIONS, WARRANTIES AND AGREEMENTS WITH RESPECT TO ITS
ACQUISITION, HOLDING AND DISPOSITION OF THIS NOTE (OR ANY INTEREST HEREIN).
Any transfer in violation of the foregoing will be of no force and effect, will be void ab initio, and
will not operate to transfer any rights to the transferee, notwithstanding any instructions to the
contrary to us, the transfer agent or any intermediary. "
5.
If it is acquiring the notes in a sale being made in reliance upon Regulation S, it understands that the
notes will bear a legend substantially to the following effect:
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"The issuer and guarantors of this security are not, and will not be, registered as an
investment company under the Investment Company Act. This security has not been and will
not be registered under the Securities Act of 1933, or the Securities Act, or with any securities
regulatory authority of any state or other jurisdiction of the United States. This security may
not be offered, sold, pledged or otherwise transferred within the United States or to or for the
account or benefit of U.S. persons (as defined in Regulation S under the Securities Act) except
pursuant to an exemption from registration under the Securities Act.
BY ITS PURCHASE AND HOLDING OF THIS NOTE (OR ANY INTEREST HEREIN), THE
PURCHASER OR HOLDER WILL BE DEEMED TO HAVE REPRESENTED, WARRANTED
AND AGREED THAT (1) EITHER (A) IT IS NOT, AND IS NOT ACTING ON BEHALF OF (AND
FOR SO LONG AS IT HOLDS THIS NOTE (OR ANY INTEREST HEREIN) WILL NOT BE, OR
BE ACTING ON BEHALF OF), (I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION
3(3) OF THE U.S. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA")) SUBJECT TO TITLE I OF ERISA, (II) A PLAN (AS DEFINED IN
SECTION 4975(e)(1) OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED ("THE
CODE")) TO WHICH SECTION 4975 OF THE CODE APPLIES, (III) AN ENTITY WHOSE
UNDERLYING ASSETS INCLUDE "PLAN ASSETS" OF ANY PLAN DESCRIBED IN (I) OR (II)
BY REASON OF SUCH PLAN'S INVESTMENT IN THE ENTITY (INCLUDING WITHOUT
LIMITATION, AS APPLICABLE, AN INSURANCE COMPANY GENERAL ACCOUNT) (EACH
OF THE FOREGOING, AN ERISA PLAN) OR (IV) A GOVERNMENTAL, CHURCH OR
NON-U.S. PLAN WHICH IS SUBJECT TO ANY FEDERAL, NON-US STATE OR LOCAL LAWS,
REGULATIONS OR RULES THAT ARE SIMILAR TO SECTION 406 OF ERISA AND/OR
SECTION 4975 OF THE CODE (SIMILAR LAWS), AND NO PART OF THE ASSETS USED
BY IT TO ACQUIRE OR HOLD THIS NOTE (OR ANY INTEREST HEREIN) CONSTITUTES
THE ASSETS OF SUCH AN ERISA PLAN OR PLAN SUBJECT TO ANY SIMILAR LAWS OR
(B) ITS ACQUISITION, HOLDING AND DISPOSITION OF THIS NOTE (OR ANY INTEREST
HEREIN) DOES NOT AND WILL NOT CONSTITUTE OR OTHERWISE RESULT IN A NONEXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA AND/OR SECTION
4975 OF THE CODE (OR, IN THE CASE OF A GOVERNMENTAL, CHURCH OR NON-U.S.
PLAN, A NON-EXEMPT VIOLATION OF ANY SIMILAR LAWS); AND (2) IT WILL NOT SELL
OR OTHERWISE TRANSFER THIS NOTE (OR ANY INTEREST HEREIN) OTHERWISE THAN
TO AN ACQUIRER OR TRANSFEREE THAT IS DEEMED TO MAKE THESE SAME
REPRESENTATIONS, WARRANTIES AND AGREEMENTS WITH RESPECT TO ITS
ACQUISITION, HOLDING AND DISPOSITION OF THIS NOTE (OR ANY INTEREST HEREIN).
Any transfer in violation of the foregoing will be of no force and effect, will be void ab initio, and
will not operate to transfer any rights to the transferee, notwithstanding any instructions to the
contrary to us, the transfer agent or any intermediary."
6.
If it is a purchaser in a sale that occurs outside the United States within the meaning of Regulation S, it
agrees that no offer or sale of the notes shall be made by it to a U.S. person or for the account or
benefit of a U.S. person within the meaning of Rule 902(o) of the Securities Act except to a qualified
institutional buyer (as defined in Rule 144A) that is a qualified purchaser (as defined in Section
2(a)(51) of the Investment Company Act) and in compliance with the applicable restrictions set forth
in paragraph (4) above.
7.
It will be deemed to have represented, warranted and agreed that (1) either (A) it is not, and is not
acting on behalf of (and for so long as it holds the notes or any interest therein will not be, or be acting
on behalf of) (i) an employee benefit plan (as defined in Section 3(3) of ERISA) subject to Title I of
ERISA, (ii) a plan (as defined in Section 4975(e)(1) of the Code) to which Section 4975 of the Code
applies, (iii) an entity whose underlying assets include "plan assets" of any plan described in (i) or (ii)
by reason of such plan's investment in the entity (including without limitation, as applicable, an
insurance company general account) (each of the foregoing, an ERISA Plan) or (iv) a governmental,
church or non-U.S. plan which is subject to any Similar Laws, and no part of the assets used by it to
acquire or hold such notes or any interest therein constitutes the assets of any such ERISA Plan or
182
plan subject to any Similar Laws or (B) its acquisition, holding and disposition of such notes or any
interest therein does not and will not constitute or otherwise result in a non-exempt prohibited
transaction under Section 406 of ERISA and/or Section 4975 of the Code (or, in the case of a
governmental, church or non-U.S. plan, a non-exempt violation of any similar laws), and (ii) will not
cause any assets of the issuer to be treated as assets of the plan for purposes of any Similar Laws or
otherwise subject the issuer, the initial purchaser or any of their respective affiliates to any fiduciary or
other duties or requirements under any Similar Laws; and (2) it will not sell or otherwise transfer such
notes or any interest therein otherwise than to a purchaser or transferee that is deemed to make these
same representations, warranties and agreements with respect to its acquisition, holding and disposition
of such notes and any interest therein.
8.
It acknowledges that we and the initial purchasers will rely upon the truth and accuracy of the
foregoing acknowledgments, representations and agreements and agrees that, if any of the
acknowledgments, representations or warranties deemed to have been made by its purchase of notes
are no longer accurate, it will promptly notify us and the initial purchasers. If it is acquiring any notes
as a fiduciary or agent for one or more investor accounts, it represents that is has sole investment
discretion with respect to each such account and that it has full power to make the foregoing
acknowledgments, representations and agreements on behalf of each such account.
9.
It understands that the issuer may receive a list of participants holding positions in its securities from
one or more book-entry depositories.
In addition, it will, and each subsequent holder is required to, notify any subsequent purchaser of those notes
from it of the resale restrictions referred to above.
The applicable resale restriction periods referred to above may be extended, in our discretion, in the event of
one or more issuances of additional notes as described under "Description of the Notes Additional Notes." The
legends described above (including the restrictions on resale specified therein) may be removed solely in our
discretion and at our direction.
Each purchaser of notes will be deemed to acknowledge that the foregoing restrictions apply to holders of
beneficial interests in the notes, as well as holders of the notes.
Each person purchasing notes from the initial purchasers or through an affiliate of the initial purchasers
pursuant to Rule 144A, by accepting delivery of this offering memorandum, acknowledges that: (i) it has not relied
on the initial purchasers or any person affiliated with the initial purchasers in connection with its investigation of the
accuracy of the information contained in this offering memorandum or its investment decision; and (ii) no person
has been authorized to give any information or to make any representation concerning us or the notes other than
those contained in this offering memorandum and, if given or made, such other information or representation should
not be relied upon as having been authorized by us or the initial purchasers.
Any resale or other transfer, or attempted resale of other transfer, made other than in compliance with the above
stated restrictions shall not be recognized by us.
We have prepared this offering memorandum solely for use in connection with the offer and sale of the notes
outside the United States and for the private placement of the notes in the United States. We and the initial
purchasers reserve the right to reject any offer to purchase, in whole or in part, for any reason, or to sell less than the
amount of notes offered pursuant to Rule 144A. This offering memorandum does not constitute an offer to any
person in the United States other than any QIB, that is also a qualified purchaser, under the Securities Act to whom
an offer has been made directly by the initial purchasers or an affiliate of the initial purchasers.
Each purchaser of notes must comply with all applicable laws and regulations in force in any jurisdiction in
which it purchases, offers or sells notes or possesses or distributes this offering memorandum or any part of it and
must obtain any consent, approval or permission required by it for the purchase, offer or sale by it of notes under the
laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers or
resales, and neither we nor the initial purchasers shall have any responsibility therefor.
183
VALIDITY OF NOTES
The validity of the notes (including the guarantees) offered and sold in this offering will be passed upon for us
by White & Case LLP, and for the initial purchasers by Skadden, Arps, Slate, Meagher & Flom LLP. Certain
matters of Brazilian law relating to the notes (including the guarantees) will be passed upon for us by Mattos Filho,
Veiga Filho, Marrey Jr. e Quiroga Advogados, and for the initial purchasers by Machado, Meyer, Sendacz e Opice
Advogados. Certain matters of British Virgin Island law, including the validity of the notes, will be passed upon for
us by Maples and Calder.
184
INDEPENDENT AUDITORS
With respect to the unaudited interim individual and consolidated financial statements of OAS S.A. as of March
31, 2014 and for the three-month period ended March 31, 2014, included in this offering memorandum, Deloitte
Touche Tohmatsu Auditores Independentes reported that they have applied a review in accordance with Review of
Interim Financial Information Performed by Independent Auditor (NBC TR2410 and ISRE 2410) standards.
However, their separate report dated June 10, 2014 included in this offering memorandum states that they did not
audit and did not express an opinion on those interim financial statements. Accordingly, the degree of reliance on
their report on such information should be restricted in light of the limited nature of the review conducted.
Deloitte Touche Tohmatsu Auditores Independentes is registered under number CRC 2SP 011609/O-8 FBA
with the Regional Accounting Council of the State of So Paulo (Conselho Regional de Contabilidade do Estado de
So Paulo, or CRC-SP and Branch in the State of Bahia), an accounting professional body. Deloitte Touche
Tohmatsu Auditores Independentess address is Av. Tancredo Neves, 450, 29th floor, 41820-020, Salvador, Bahia,
Brazil.
The consolidated financial statements of OAS S.A. as of and for the years ended December 31, 2013 and 2012
included elsewhere in this offering memorandum have been audited by Ernst & Young Auditores Independentes
S.S., independent auditors, as stated in their report appearing herein.
With respect to the unaudited interim condensed consolidated financial information of OAS S.A. for the three
month period ended March 31, 2013, included in this offering memorandum, Ernst & Young Auditores
Independentes S.S. reported that they have applied limited procedures in accordance with professional standards for
a review of such information. However, their separate report dated June 10, 2014, included in this offering
memorandum, states that they do not audit and did not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited
nature of the review procedures applied.
Ernst & Young Auditores Independentes S.S. is registered under number CRC 2SP 015199/O-6 with the
Regional Accounting Council of the State of So Paulo (Conselho Regional de Contabilidade do Estado de So
Paulo, or CRC-SP), an accounting professional body. Ernst & Young Auditores Independentes S.S.s address is Av.
Presidente Juscelino Kubitschek, 1830, 8th floor, 04543-900, So Paulo, SP, Brazil.
185
67104HAB2
US67104HAB24
G6688YAB0
USG6688YAB05
CUSIP ....................................................................
ISIN........................................................................
2. Copies of our latest audited financial statements and unaudited interim financial statements, copies of our
estatuto social (bylaws), as well as the indenture (including forms of notes) and the contracts of the guarantees, will
be available (free of charge) at the offices of any paying agent. Physical copies of our certificate of incorporation
and a register of members and directors can be inspected in physical form at our headquarters at Avenida Anglica,
2346, 9th floor, 01228-200, So Paulo, SP, 01228-200, Brazil.
3. Except as disclosed in this offering memorandum, there has been no material adverse change in our
financial position since March 31, 2014, the date of our most recent financial statements included in this offering
memorandum.
4. We will apply to list the notes offered pursuant to this offering memorandum on the Official List of the
Irish Stock Exchange.
5. We are not involved in any legal, administrative or arbitration proceeding that is material in the context of
the issuance of the notes. We are not aware of any material legal, administrative or arbitration proceeding that is
pending or threatened against us that is not described elsewhere in this offering memorandum.
6.
The issuance of the notes was authorized by the board of directors of the issuer on June 25, 2014.
186
Financial Statements of OAS S.A. as at and for the years ended December 31, 2013 and 2012
Independent Auditors Report on the Financial Statements .............................................................................................. F-68
Balance Sheets as at December 31, 2013 and 2012 ........................................................................................................... F-71
Statements of Income for the years ended December 31, 2013 and 2012 ......................................................................... F-73
Statements of Comprehensive Income (Loss) for the years ended December 31, 2013 and 2012 .................................... F-74
Statements of Changes in Equity for the years ended December 31, 2013 and 2012 ........................................................ F-75
Statements of Cash Flows for the years ended December 31, 2013 and 2012 .................................................................. F-76
Notes to the Financial Statements ..................................................................................................................................... F-78
F-1
OAS S.A.
and Subsidiaries
Individual and Consolidated Interim Financial
Statements for the three-month period ended
March 31, 2014 and
Review Report of Independent Auditors
Deloitte Touche Tohmatsu Auditores Independentes
F-2
(Convenience Translation into English from the Original Previously Issued in Portuguese)
REPORT ON REVIEW OF INTERIM FINANCIAL STATEMENTS
To the Shareholders and Directors of
OAS S.A.
So Paulo SP
Introduction
We have reviewed the accompanying individual and consolidated interim financial statements of OAS
S.A. (Company), identified as Company and Consolidated, respectively, for the quarter ended
March 31, 2014, which comprises the balance sheet as at March 31, 2014 and the related income
statement, statement of comprehensive income, statement of changes in equity, and statement of cash
flows for the three-month period then ended, including the explanatory notes.
Management is responsible for the preparation of the individual interim financial information in
accordance with CPC 21 (R1) - Interim Financial Reporting and the consolidated interim financial
information in accordance with CPC 21 (R1) and IAS 34 - Interim Financial Reporting, issued by the
International Accounting Standards Board (IASB), which takes into consideration technical guideline
OCPC 04 - Application of Technical Interpretation ICPC 02 to Real Estate Development Entities in
Brazil, issued by the Accounting Pronouncements Committee (CPC) and approved by the Federal
Accounting Council (CFC). Our responsibility is to express a conclusion on these interim financial
statements based on our review.
Scope of review
We conducted our review in accordance with Brazilian and international standards on review of
interim financial information (NBC TR 2410 and ISRE 2410 Review of Interim Financial
Information Performed by the Independent Auditor of the Entity, respectively). A review of interim
financial information consists of making inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with the standards on auditing and consequently
does not enable us to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion on the individual and consolidated interim financial information prepared in
accordance with CPC 21 (R1)
Based on our review, nothing has come to our attention that causes us to believe that the
accompanying consolidated interim financial statements referred to above are not prepared, in all
material respects, in accordance with technical pronouncement CPC 21 (R1).
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of
which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu
Limited and its member firms.
Deloitte Touche Tohmatsu Auditores Independentes. All rights reserved.
F-3
F-4
Condomnio So Luiz
Av. Pres. Juscelino Kubitschek, 1830
Torre I - 8 Andar - Itaim Bibi
04543-900 - So Paulo, SP, Brasil
A convenience translation into English from the report on review of interim financial information originally issued in
Portuguese.
OAS S.A
So Paulo - SP
Introduction
We have reviewed the accompanying, individual and consolidated, interim statements of income,
comprehensive income, changes in equity and cash flows, of OAS S.A (the Company) for the threemonth period ended March 31, 2013 and explanatory notes.
Management is responsible for the preparation and presentation of these individual interim financial
information in accordance with the Accounting Pronouncement issued by the Accounting
Pronouncements Committee (CPC) 21 (R1) - Interim Financial Information and the consolidated
interim financial information in accordance with CPC 21 (R1) and International Financial Reporting
Standard IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards
Board (IASB) takes into consideration the Technical Orientation - OCPC 04 - Application of the
Technical Interpretation ICPC 02 for Real Estate Development Entities in Brazil, issued by the
Accounting Pronouncements Committee (CPC) and approved by the Brazilian Federal Accounting
Council (CFC). Our responsibility is to express a conclusion on these interim financial information
based on our review.
Scope of review
We conducted our review according with Brazilian and International Standards on Review
Engagements (NBC TR 2410 - Review of Interim Financial Information Performed by the Independent
Auditor of the Entity, and ISRE 2410 - Review of Interim Financial Information Performed by the
Independent Auditor of the Entity). A review of interim financial information consists of making
inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical
and other review procedures. A review is substantially less in scope than an audit conducted in
accordance with Brazilian and International Standards on Auditing and, consequently, does not enable
us to obtain assurance that we would become aware of all significant matters that might be identified
in an audit. Accordingly, we do not express an audit opinion.
F-5
Uma empresa-membro da Ernst & Young Global Limited
Conclusion from the individual and consolidated interim financial information prepared in
accordance with CPC 21 (R1)
Based on our review, nothing has come to our attention that causes us to believe that the
accompanying individual and consolidated interim financial information is not prepared, in all material
respects, in accordance with CPC 21 (R1).
Conclusion from the consolidated interim financial information prepared in accordance with
IAS 34, which considers the Technical Orientation - OCPC 04 - Application of the Technical
Interpretation ICPC 02 for Real Estate Development Entities in Brazil, edited by the CPC and
approved by the CFC
Based on our review, nothing has come to our attention that causes us to believe that the
accompanying consolidated interim financial information is not prepared, in all material respects, in
accordance with IAS 34, which considers the Technical Orientation - OCPC 04 - Application of
Technical Interpretation ICPC 02 for Real Estate Development Entities in Brazil, issued by the CPC,
and approved by CFC.
Emphasis of matter
Revenue recognition
As described in Note 3, the individual and consolidated interim financial information was prepared in
accordance with accounting practices adopted in Brazil (CPC21 (R1)). The consolidated interim
financial information of the subsidiary OAS Empreendimentos S.A. were prepared in accordance with
IFRS applicable to Real Estate Development Entities in Brazil, also considers the Technical
Orientation OCPC 04, issued by the Accounting Pronouncements Committee (CPC). This Technical
Orientation refers to the revenue recognition of this sector and comprises other matters related to the
meaning and adoption of the concept of continuous transfer of the risks, benefits and control over real
estate unit sales, as further described in Note 3. Our conclusion is not modified in relation to this
matter.
F-6
Uma empresa-membro da Ernst & Young Global Limited
Convenience translation into English from the interim financial statements originally issued in Portuguese
Note
Assets
Current assets
Cash and cash equivalents
Short-term investments and marketable securities
Financial instruments derivatives
Trade accounts receivable
Related parties
Inventories
Dividends and interest on equity
Taxes recoverable
Other assets
Total current assets
Non-current assets
Marketable securities
Financial instruments derivatives
Trade accounts receivable
Related parties
Inventories
Taxes recoverable
Deferred income tax and social contribution
Other assets
Investments
Property, plant and equipment
Intangible assets
Total non-current assets
4
12.1
12.5
5
7.1
6
8
12.1
12.5
5
7.1
6
8
16
9
10
11
Total assets
Company
03/31/2014
12/31/2013
267,266
165,058
9,120
521,171
26,363
9,504
110,664
37,314
5,473
1,151,933
793,349
161,154
8,964
403,432
26,364
10,361
91,114
29,377
7,367
1,531,482
1,593,162
392,465
9,355
3,436,813
30,328
734,118
2,199
253,272
402,725
6,854,437
2,017,398
668,286
9,345
2,759,465
54,782
695,879
2,199
236,727
457,845
6,901,926
18,250
470,746
8,933
228,270
2,115
5,864,827
102,643
33
6,695,817
17,484
519,941
11,787
156,135
21,837
1,986
4,837,733
91,513
36
5,658,452
797,045
537,990
906,540
259,850
151,222
68,914
224,729
189,117
2,924,797
757,539
938,346
7,756,089
806,225
590,928
903,743
248,196
151,090
69,062
220,362
222,373
1,720,459
772,693
959,901
6,665,032
7,847,750
7,189,934
14,610,526
13,566,958
The accompanying notes are an integral part of these interim financial statements.
F-7
Consolidated
03/31/2014
12/31/2013
Note
Liabilities
Current liabilities
Trade accounts payable
Loans and financing
Debentures
Senior and perpetual notes
Salaries, provisions and social contributions
Taxes and contributions payable
Income tax and social contribution payable
Related parties
Advances from third parties
Deferred revenue
Tax installment program - Law 11,941
Dividends and interest on equity payable
Public services concessions
Provision for tax, civil and labor claims
Other liabilities
Total current liabilities
Company
03/31/2014
12/31/2013
Consolidated
03/31/2014
12/31/2013
132,918
144,843
433,559
21,776
9,156
7,673
22,932
21
5,796
778,674
90,781
145,139
531,550
15,643
14,126
7,136
22,533
21
5,380
832,309
829,916
763,638
508,012
92,999
339,608
102,330
64,621
312,154
188,304
27,945
21
3,552
2,283
186,985
3,422,368
911,140
781,318
609,471
53,705
300,019
111,949
90,314
260,602
232,962
27,461
21
3,655
3,304
224,121
3,610,042
245,633
2,286,891
525,921
21,878
72,272
1,684,917
3,889
203
373,706
408
15,334
5,231,052
223,139
2,366,790
531,354
76,649
1,874,241
5,654
176
300,218
407
15,213
5,393,841
5,664
1,419,813
1,939,775
3,034,454
626,430
136,976
595,056
119,310
99,750
279,681
47,103
26,821
26,091
390,468
325,348
9,072,740
1,430
1,238,233
2,035,895
3,137,588
609,353
108,128
310,186
124,076
20,743
327,503
47,103
19,492
23,442
426,580
336,076
8,765,828
500,000
17,108
382,891
202,126
735,899
1,838,024
500,000
17,253
382,891
63,640
963,784
500,000
17,108
382,891
202,126
735,899
1,838,024
500,000
17,253
382,891
63,640
963,784
Non-controlling interest
Total equity
1,838,024
963,784
277,394
2,115,418
227,304
1,191,088
7,847,750
7,189,934
14,610,526
13,566,958
Non-current liabilities
Trade accounts payable
Loans and financing
Debentures
Senior and perpetual notes
Financial instruments derivatives
Taxes and contributions payable
Deferred income tax and social contribution
Tax installment program - Law 11,941
Related parties
Advances from third parties
Public services concessions
Provision for tax, civil and labor claims
Provision for investment losses
Deferred revenue
Other liabilities
Total non-current liabilities
Equity
Capital
Revaluation reserve
Income reserve
Other reserves
Retained earnings
Total equity attributed to controlling interest
12.2
12.3
12.4
7.1
14
15
18
12.2
12.3
12.4
12.5
16
15
7.1
18
9
14
17
The accompanying notes are an integral part of these interim financial statements.
F-8
Consolidated
03/31/2014
03/31/2013
39,728
(18,973)
20,755
121,527
(79,234)
42,293
1,776,437
(1,454,581)
321,856
1,449,643
(1,185,076)
264,567
(24,212)
(745)
(528)
(2,301)
(91,426)
(119,212)
(17,406)
(496)
(706)
15,218
(3,390)
(207,514)
(8,493)
(12,359)
(16,318)
1,131,181
886,497
(205,569)
(3,640)
(13,976)
(16,661)
24,591
(215,255)
(98,457)
38,903
1,208,353
49,312
985,250
(18,407)
996
920
886,793
20,496
1,209,349
50,232
200,477
(308,374)
37,392
(65,178)
428,626
(599,153)
113,652
(163,244)
(107,897)
(27,786)
(170,527)
(49,592)
778,896
(7,290)
(43,715)
(6,028)
(4,005)
(293,624)
(28,210)
20,214
735,181
(13,318)
741,193
(7,356)
735,181
735,181
(13,318)
(13,318)
735,181
6,012
741,193
(13,318)
5,962
(7,356)
20
21
Company
03/31/2014
03/31/2013
7.3 - 21
22
21
23
1,038,822
640
16
The accompanying notes are an integral part of these interim financial statements.
F-9
735,181
(13,318)
741,193
(7,356)
12,035
(1,330)
7,596
(1,523)
747,216
(14,648)
748,789
(8,879)
747,216
1,573
748,789
(14,648)
5,769
(8,879)
The accompanying notes are an integral part of these interim financial statements.
F-10
Consolidated
03/31/2014 03/31/2013
Capital
Balances as at December 31, 2012
Loss for the period
Currency translation gain (losses) on foreign subsidiaries
financial statements
Total comprehensive income for the period
Other changes in equity:
Realization of revaluation reserves and deemed cost, net of
taxes
Absorption of losses with income reserve
Non-controlling interest in subsidiaries equity
Own Assets
Subsidiaries
assets
Income reserves
Retained
Legal
earnings
reserve
reserve
Other
reserves
500,000
8,690
10,710
23,379
311,275
108,145
(1)
-
(8)
-
(13,188)
-
(1,330)
(1,330)
(121)
-
Retained
earnings
Noncontrolling
interest
Total
Company
-
962,199
136,827
Total
consolidated
1,099,026
(13,318)
(13,318)
5,962
(7,356)
(13,318)
(1,330)
(14,648)
(193)
5,769
(1,523)
(8,879)
(7,917)
(7,917)
130
13,188
-
947,551
134,679
1,082,230
F-11
500,000
8,689
10,702
23,379
298,087
106,694
500,000
8,685
8,568
23,379
359,512
63,640
963,784
227,304
1,191,088
735,181
735,181
6,012
741,193
12,035
12,035
(4,439)
12,035
735,181
747,216
1,573
748,789
(1)
-
(573)
127,024
-
718
-
127,024
-
(23,952)
72,469
127,024
(23,952)
72,469
23,379
359,512
735,899
1,838,024
500,000
8,684
(144)
8,424
The accompanying notes are an integral part of these interim financial statements.
202,126
277,394
7,596
2,115,418
Note
Cash flow from operating activities
Net income (loss) for the period before taxes
Adjustments to reconcile the net income (loss) for the period
before taxes with net cash generated by (used in) operating
activities:
Equity pick-up
Depreciation and amortization
Result at formation of joint venture
Provision for investment losses
Monetary, foreign exchange variations and charges, net
Gain (loss) on disposed of property, plant & equipment
Qualifiable assets write-off
Realization of gains on barter transactions
Construction margin
Estimated doubtful account losses
Provision for profit sharing
Financial asset adjustment
Other
(Increase) decrease in operating assets:
Trade accounts receivable
Inventories
Taxes recoverable
Prepaid expenses
Advances to third parties
Other assets
9
21
9
9
22
9
F-12
Company
03/31/2014 03/31/2013
Consolidated
03/31/2014 03/31/2013
778,896
(7,290)
1,038,822
640
(985,250)
5,474
87,429
98,212
(400)
25,124
1,125
4,646
18,407
2,250
(10,172)
43,244
(4,749)
-
(996)
50,730
(1,160,010)
2,669
224,298
3,292
25,124
(5,835)
(272)
(2,043)
15,142
(26,419)
15,364
(920)
51,309
28
90,595
4,004
(2,232)
(2,551)
(127,561)
16,661
(13,308)
6,301
(115,200)
856
(4,568)
111
2,058
(4)
(62,850)
2,272
(1,627)
614
623
(557)
(646,673)
(20,743)
(7,210)
(2,005)
(22,199)
68,728
(161,525)
(30,585)
(14,410)
(39)
22,715
(32,820)
41,303
5,008
(4,970)
(1,765)
1
(5,491)
(2,750)
3,489
(1,395)
6,830
82
(4,833)
(114,757)
3,620
(965)
(10,900)
20,885
8,277
(64,833)
(843)
(20,536)
15,572
31,008
(37,676)
(8,350)
(157,438)
3,835
97,688
(13,968)
(71,965)
(67,405)
(18,412)
(630,288)
(334,992)
Company
03/31/2014
03/31/2013
Consolidated
03/31/2014
03/31/2013
(2,731)
(16,601)
-
(18,484)
(36,121)
(10,515)
-
261,996
(12,193)
(50,378)
(10,641)
-
(463,012)
(7,823)
(158,000)
(52,749)
31,415
(2,795)
(19,332)
(65,120)
188,784
(652,964)
38,279
361,005
(16,655)
(586,720)
(50,421)
(184,834)
-
3,179
396,588
744,954
(62,772)
(323,561)
(50,810)
(85,680)
-
338,291
13,148
3,633
(147,948)
(10,157)
(125,170)
(228,669)
200,000
-
145,749
12,119
744,954
(228,688)
(33,231)
(61,868)
(97,486)
12,083
(3,992)
(439,346)
621,898
43,128
489,640
(8,423)
(17,437)
(26,728)
(526,083)
538,366
(424,236)
(525,044)
793,349
267,266
174,240
712,606
(526,083)
538,366
9
10
11
4
4
2,017,398
1,593,162
(424,236)
2,139,007
1,613,963
(525,044)
In the three-month period ended March 31, 2014, the Company and subsidiaries performed the
following non-cash operations, which, therefore, are not reflected in the statements of cash flows
Company
03/31/14
03/31/13
Interest on equity proposed by subsidiaries
Capitalized interest Qualifiable Assets
Capitalized interest Real estate units under construction
Gain on variation of interest percentage in investee
Acquisition of property, plant and equipment suppliers
Acquisition of intangible assets - suppliers
23,000
2,731
127,024
-
36,121
-
The accompanying notes are an integral part of these interim financial statements.
F-13
Consolidated
03/31/14
03/31/13
20,395
246
8,497
Convenience translation into English from the interim financial statements originally issued in Portuguese
1.
Operations
OAS S.A. (OAS or the Company), is domiciled in Brazil, with registered office at Avenida
Anglica, 2.346, Consolao, in the city of So Paulo. The Companys individual and consolidated
interim financial statements for the three-month period ended March 31, 2014 comprise the
Company and its subsidiaries (jointly referred to as OAS Group or Group and individually as
Group entities), as described in Note 2.a.
The Company and its subsidiaries are engaged in the performance of civil engineering and heavy
construction services, management and execution of projects and works, purchase and sale of
properties and intermediation, investment and/or shareholding in other entities, consortia,
condominiums and/or investment and/or real estate funds, in addition to investments and/or
participation in infrastructure projects under concessions, permissions or authorizations for public
utility, including in the form of direct or indirect exploration, through subsidiaries or affiliates.
2.
Group companies
a)
Subsidiaries
The following list presents the interest in subsidiaries considered in the consolidated information, as
follows:
Percentage of equity interest
03/31/2014
12/31/2013
Direct
Indirect
Direct
Indirect
Companies
Construction:
Coesa Engenharia Ltda. (Coesa)
Concessionria Vial Vale Central
Consrcio OAS Engevix Ltda.
Construtora OAS Angola Ltda.
Construtora OAS GE S.A. (Construtora OAS GE)
Construtora OAS Ghana Ltd (Construtora OAS Ghana)
Construtora OAS Guine
Construtora OAS Moambique
Construtora OAS S.A. (Construtora OAS)
Construtora OAS S.A. Sucursal Argentina
Construtora OAS S.A. Sucursal Bolvia
Construtora OAS S.A. Sucursal Chile
Construtora OAS S.A. Sucursal Colmbia
Construtora OAS S.A. Sucursal Costa Rica
Construtora OAS S.A. Sucursal Equador
Construtora OAS S.A. Sucursal Guatemala
Construtora OAS S.A. Sucursal Haiti ("Construtora OAS Haiti")
Construtora OAS S.A. Sucursal Honduras
Construtora OAS S.A. Sucursal Panam
Construtora OAS S.A. Sucursal Peru
F-14
99.90%
99.99%
-
100.00%
100.00%
100.00%
0.10%
53.00%
70.00%
100.00%
99.99%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
99.90%
99.99%
-
100.00%
100.00%
100.00%
0.10%
53.00%
70.00%
100.00%
99.99%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Companies
Construction--Continued
Construtora OAS S.A. Sucursal Repblica Dominicana
Construtora OAS S.A. Sucursal Trinidad & Tobago ("Construtora OAS T & T")
Construtora OAS S.A. Sucursal Uruguai
Construtora OAS S.A. Sucursal Venezuela
Edificaes Itaigara S.A. (Edificaes Itaigara)
Construtora OAS LLC Qatar (Construtora OAS LLC)
OAS Engenharia e Construo S.A.
OAS Nacala Ltda.
Rodoanel Sul 5 Engenharia Ltda. (Rodoanel)
Defense and Technology:
OAS Defesa S.A.
Real Estate:
Fundo de Investimento em Participaes OAS Empreendimentos (FIP OASE) (i)
OAS Empreendimentos S.A. (OAS Empreendimentos)
100.00%
-
100.00%
100.00%
100.00%
100.00%
50.10%
49.00%
100.00%
42.86%
100.00%
-
100.00%
100.00%
100.00%
100.00%
50.10%
49.00%
100.00%
42.86%
99.99%
0.01%
99.99%
0.01%
78.95%
100.00%
100.00%
100.00%
Infrastructure:
Arena das Dunas Concesso e Eventos S.A. (Arena das Dunas)
Arena Porto-Alegrense S.A. (Arena Porto-Alegrense)
BR Terminais e Logstica S.A.
Empresa Peruana de guas EPASA
EPP - Energia Eltrica, Promoes e Participaes Ltda. ("EPP")
OAS Arenas S.A.
OAS Engenharia S.A.
OAS Infraestrutura S.A.
OAS Investimentos S.A. ("OAS Investimentos")
OAS Solues Ambientais S.A. (OAS Solues Ambientais)
Oil & Gas GmbH
Samar Solues Ambientais de Araatuba S.A. (Samar)
Sanear - Saneamento de Araatuba S.A.(Sanear)
Seaworthy Investments Gmbh (Seaworthy)
SPE Gesto de Arenas S.A.
100.00%
75.00%
99.99%
100.00%
100.00%
-
100.00%
100.00%
25.00%
0.01%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
89.00%
100.00%
100.00%
75.00%
99.99%
100.00%
100.00%
-
100.00%
100.00%
25.00%
0.01%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
89.00%
100.00%
Other investees:
Hidroelectrica Chihuidos
OAS African Investments Limited
OAS Central American Investing
OAS Chile Inversiones
OAS Energia e Minerao S.A.
OAS Energy GMBH
OAS Finance Ltd
OAS Internacional S.A.
OAS International Engineering GMBH
OAS Investments GMBH
OAS Investments Limited
OAS Petroleo e Gas S.A.
OGI Assets Ltd.
99.99%
100.00%
100.00%
100.00%
100.00%
100.00%
-
1.00%
100.00%
100.00%
0.01%
100.00%
100.00%
100.00%
100.00%
99.99%
100.00%
100.00%
100.00%
100.00%
100.00%
-
1.00%
100.00%
100.00%
0.01%
100.00%
100.00%
100.00%
100.00%
F-15
Joint ventures
Interest in the investees listed below was accounted for by the equity method in the individual and
consolidated financial statements.
Percentage of equity interest
03/31/2014
12/31/2013
Direct
Indirect
Direct
Indirect
Companies
Construction:
Ecovap Engenharia e Construes Vale do Paraba Ltda.
OAS Emirates LLC
Infrastructure:
Aeroporto de Guarulhos Participaes S.A,
Atlas Servios de Perfurao Ltda.
Concesso Metroviria do Rio de Janeiro S.A, (Metr Rio)
Concessionria Auto Raposo Tavares S.A. CART S.A. (CART)
Concessionria Bahia Norte S.A. CBN (CBN)
Concessionria do Aeroporto Internacional de Guarulhos S.A (GRU)
Concessionria Litoral Norte S.A. CLN (CLN)
Concessionria Porto Novo S.A. (Porto Novo)
Concessionria Rio Terespolis S.A. CRT (CRT)
Concessionria Rota Atlntico S.A. CRA (CRA)
Concessionria Transolmpica S.A. CTO (CTO)
Concessionrio do VLT Carioca S.A. (VLT Carioca)
Consrcio Hospital de Rancagua S.A. ("Hospital Rancgua")
Cassino Drilling B.V
Comandatuba Drilling B.V
Curumim Drilling B.V
EEP Overseas Ltd.
Enseada Indstria Naval Participaes S.A. (i)
Enseada Indstria Naval S.A. (ii)
Fonte Nova Negcios e Participaes S.A. ("Fonte Nova")
Investimentos e Participaes em Infraestrutura S.A. INVEPAR
Itapema Drilling B.V
Linea Amarilla Brasil Participaes S.A. (LAMBRA)
Linea Amarilla S.A.C. (LAMSAC)
Linha Amarela S.A. LAMSA (LAMSA)
Metro Barra
OAS leo e Gs S.A. (leo e Gs) (iii)
Pex S.A.
Salinas Drilling B.V
Real estate development:
Karagounis Participaes S.A. (Karagounis)
8.89%
-
22.00%
48.00%
21.61%
25.00%
24.44%
24.44%
12.22%
11.22%
22.36%
37.50%
6.09%
12.22%
8.15%
5.97%
33.33%
25.00%
25.00%
25.00%
17.50%
25.00%
17.50%
50.00%
15.55%
25.00%
24.44%
24.44%
24.44%
24.44%
61.00%
24.44%
25.00%
20.00%
F-16
8.89%
-
22.00%
48.00%
21.61%
25.00%
24.44%
24.44%
12.22%
11.22%
22.36%
37.50%
6.09%
12.22%
8.15%
5.97%
33.33%
25.00%
25.00%
25.00%
17.50%
25.00%
17.50%
50.00%
15.55%
25.00%
24.44%
24.44%
24.44%
24.44%
100.00%
24.44%
25.00%
20.00%
3.
F-17
4.
727
156,488
110,051
267,266
1,195
375,109
417,045
793,349
Consolidated
03/31/2014 12/31/2013
427,374
737,147
418,312
10,329
1,593,162
445,337
831,219
719,310
21,532
2,017,398
The short-term investments are basically compromised investments and CDBs remunerated at
rates ranging from 99.7% to 105% of the CDI (on December 31, 2013, 99.7% to 105% of CDI).
Investments deemed cash equivalent have the immediate liquidity and are maintained to meet the
short-term cash commitments other than the investment and other purposes.
F-18
5.
Consolidated
03/31/2014
12/31/2013
3,982
69
526,109
(56)
-
8,654
406,621
(56)
-
1,791,771
533,969
557,458
685,634
997,081
(214,445)
(8,115)
1,574,478
682,769
549,056
692,010
395,647
(221,773)
(8,979)
Subtotal
530,104
415,219
4,343,353
3,663,208
Current
Non-current
521,171
8,933
403,432
11,787
3,436,813
906,540
2,759,465
903,743
Total
530,104
415,219
4,343,353
3,663,208
Amounts relating to trade accounts receivable from real estate sales, arising from indirect
subsidiary OAS Empreendimentos S.A. transactions, are guaranteed by the property itself. In
accordance with contractual conditions, the receivables from finished units are monetarily adjusted
by the General Market Price Index (IGP-M), plus interest of 12% per year.
The present value adjustment related to accounts receivable from properties was calculated
according to CPC 12 and OCPC 01 as of March 31, 2014 and December 31, 2013, at the interest
rate for government securities, NTN B - National Treasury Notes, indexed to the IPCA.
On March 31, 2014, the balance of trade accounts receivable recorded in consolidated non-current
assets includes the amount of R$140,807 and R$95,370 of subsidiaries Construtora OAS and
COESA (on December 31, 2013, R$140,807 and R$95,370), arising from rights receivable in Brazil
from the federal, state and municipal governments. The credits mainly refer to services rendered,
measured, approved and outstanding invoices, to which collection administrative and judicial
measures have been taken. The Companys Management does not expect to incur in losses,
besides the amounts accrued.
F-19
Consolidated
03/31/2014 12/31/2013
511,665
2,979
2,919
285
3,324
8,988
306,512
10
337
21,816
74,757
11,843
3,604,756
175,320
56,216
56,673
72,746
100,552
499,650
2,711,963
260,046
86,483
35,058
65,257
209,116
526,037
Subtotal
530,160
415,275
4,565,913
3,893,960
(56)
-
Total
530,104
(56)
415,219
(214,445)
(8,115)
4,343,353
(221,773)
(8,979)
3,663,208
The estimated loss from doubtful accounts was set up based on analysis of each clients financial
status and, in the event of any judicial collection proceeding is in place, the opinion of legal
counsels is deemed sufficient by the Management to cover any credit risk.
For accounts receivable related to property sale, the Management deems it is unnecessary to set
up a provision by virtue of the possibility to terminate an agreement referring to property under
construction or to repossess the properties in the case of real estate developments already
concluded.
Changes in estimated losses from doubtful accounts:
Company
03/31/2014 03/31/2013
Consolidated
03/31/2014 03/31/2013
(56)
-
(56)
-
(221,773)
2,043
5,285
(202,918)
(6,155)
133,716
1,162
(56)
(56)
(214,445)
(74,195)
F-20
Consolidated
03/31/2014 12/31/2013
431,320
292,828
2,323,396
1,438,026
431,320
292,828
2,323,396
1,438,026
(408)
(5,027)
(3,889)
(407)
(4,706)
(5,654)
(578,772)
(46,745)
(591,835)
(659,542)
(49,939)
(588,105)
(9,324)
(10,767)
(1,217,352)
(1,297,586)
282,061
1,106,044
421,996
140,440
Gross revenue accrued in the period ended March 31, 2014, referring to such construction
agreements amounted to R$27,956 and R$1,802,990 (March 31, 2013, R$127,487 and
R$1,332,242), Company and consolidated, respectively.
Advances received from clients in connection with contracts related to construction work in
progress refer to amounts received in a proportion higher than the services already performed.
6.
Inventories
Consolidated
03/31/2014 12/31/2013
Land
Real estate units under construction
Finished real estate units
Advances to suppliers
Imports in transit
Materials
Other
212,330
289,425
51,546
14,605
19,894
234,284
63,256
191,972
218,823
122,137
14,687
7,571
233,361
58,418
Total
885,340
846,969
Current
Non-current
734,118
151,222
695,879
151,090
Total
885,340
846,969
The amounts recorded under real estate units under construction and finished real estate units
refer to costs incurred, including land, on the construction of unsold real estate units by the indirect
subsidiary OAS Empreendimentos.
On March 31, 2014, capitalized financial charges from transactions carried out by the subsidiary
OAS Empreendimentos amounted to R$25,237 (December 31, 2013, R$20,977).
F-21
7.
The Company and its subsidiaries maintain transactions with the Groups companies.
The operations between any related party of the Company, its subsidiaries and joint ventures,
whether managers and employees, shareholders, subsidiaries or associated companies are carried
out under the conditions agreed upon the parties, approved by the appropriate Management's
bodies and disclosed in the financial statements.
7.1. Subsidiaries and associated companies: loans and purchase and sale operations of
assets
Intercompany loans and purchase and sale of assets between the Groups companies are shown
below:
Company
03/31/2014
12/31/2013
Consolidated
03/31/2014
12/31/2013
Assets
CMP Participaes Ltda. (a)
LP Participaes Ltda. (a)
OAS Empreendimentos (b)
Odebrecht Realizaes e Participaes
Hospital Rancgua
Manhattan square (g)
OAS Investimentos
Fonte Nova
Others
109,410
12,156
75,537
54,150
3,380
104,000
11,555
63,488
3,456
112,960
12,156
9,040
16,734
88,816
4,221
46,251
107,550
11,555
34,784
21,959
62,499
64,631
Total
254,633
182,499
290,178
302,978
Current assets
Non-current assets
26,363
228,270
26,364
156,135
30,328
259,850
54,782
248,196
Total
254,633
182,499
290,178
302,978
Company
03/31/2014
12/31/2013
Liabilities
Coesa (c)
Construtora OAS (d)
OAS Investimentos (e)
Construtora OAS - T & T (f)
Construtora OAS - Haiti
EPP
leo e Gs (h)
Others
Consolidated
03/31/2014
12/31/2013
109,194
478,032
94,964
991,194
9,734
5,472
4,000
109,194
631,611
94,964
1,026,059
10,076
5,472
4,001
78,890
20,860
20,743
Total
1,692,590
1,881,377
99,750
20,743
Current liabilities
Non-current liabilities
7,673
1,684,917
7,136
1,874,241
99,750
20,743
Total
1,692,590
1,881,377
99,750
20,743
F-22
It basically refers to credits assigned to the Companys shareholders, 90% for CMP Participaes Ltda (CMP Participaes),
which corresponds to the amount of R$237,280 and 10% for LP Participaes Ltda (LP Participaes), corresponding to
R$26,364. The agreement for the assignment of these credits foresees up to 10-year maturity. In March 31, 2014, the balance also
includes advances in the amounts of R$22.363 and R$2.485 (December 31, 2013, R$16.953 and R$1.884), to CMP Participaes
Ltda and LP Participaes e Engenharia Ltda, respectivily, which will be offset with dividends in the following years;
b)
The positive balance with OAS Empreendimentos, on March 31, 2014, refers to advance for future capital increase, to which there
is no formal payment commitment;
c)
It basically refers to (i) credits assigned by Coesa in the amount of R$55,140, with 10-year maturity as of December 2010, and this
balance on March 31, 2014, totals R$38,598; and (ii) related parties current account balance in the amount of R$61,201;
d)
e)
It refers to the assignment of Construtora OAS credits to OAS Investimentos, with maturity in 8 annual installments, starting in
February 2012;
f)
Loan between Construtora OAS S.A. Sucursal Trinidad & Tobago referring to the inflow of funds raised in the reopening of senior
notes in October 2013 (Note 12.4).
g)
These refer to loans of the indirect subsidiary OAS Empreendimentos with its joint ventures with Gafisa S.A., originated due to the
eed of cash of these companies for the development of their activities. These loans are subject to financial charges according to
the conditions agreed upon between the parties.
h)
It refers to the commitment assumed by the subsidiary OAS Investimentos in making capital contributions to the investee OAS
leo e Gs as per investment schedule in Holland.
Consolidated
03/31/2014
12/31/2013
Assets
Accounts receivable
Construtora OAS S.A. Sucursal Bolvia
Construtora OAS S.A. Sucursal Equador
Construtora OAS Sucursal Guin Equatorial
Construtora OAS Sucursal Ghana
Construtora OAS S.A. Sucursal Peru
Construtora OAS - T & T
CART
GRU
OAS Nacala Ltda.
Others
6,668
2,670
32,315
12,105
6,548
3,904
430,589
20,043
11,267
6,903
2,969
30,855
12,105
4,336
33,348
290,929
20,043
5,133
430,589
539,823
26,669
290,929
94,936
9,782
Total
526,109
406,621
997,081
395,647
Current assets
Non-current assets
517,490
8,619
395,316
11,305
997,081
-
395,498
149
Total
526,109
406,621
997,081
395,647
F-23
16,023
127
-
Subtotal
16,023
127
2,878
3,205
2,883
3,344
2,818
8,021
5,200
434
3,330
657
4,000
10,283
3
34,112
Subtotal
23,149
58,019
Total
39,172
58,146
The items accounts receivable and gross revenue state the balances of business transactions
carried out with the Companys related parties. In Brazil, revenues and receivables are mainly
related to the rendering of construction services, while abroad, these balances are mostly related to
royalties.
745
F-24
496
Consolidated
03/31/2014
03/31/2013
8,493
3,640
8.
Taxes recoverable
Company
03/31/2014 12/31/2013
Consolidated
03/31/2014 12/31/2013
37,314
-
5,327
24,050
108,028
19,867
64,118
55,714
68,662
5,797
62,522
15,440
64,089
54,030
80,242
29,466
Total
37,314
29,377
322,186
305,789
Current
Non-current
37,314
-
29,377
-
253,272
68,914
236,727
69,062
Total
37,314
29,377
322,186
305,789
a) Refers to IR and CSLL balances related to withholding taxes on short term investments gains and invoices.
b) PIS and COFINS recoverable relate to credits mainly arising from acquisition of inputs and services contracted from legal entities.
They are recovered to the extent trade accounts receivable are realized.
c) The deferred PIS and COFINS amounts refer to taxes levied on construction revenue of Arena Porto Alegrense.
d) Refers to the tax balance at aggregated amount from operations of subsidiaries abroad, which the Management expects to recover
within less than 12 months.
e) In 1993, the subsidiary Construtora OAS filed a Declaratory Judgment Action against the Federal Finance Office (Federal
Government) to ensure its right to a credit of approximately R$105,973, referring to increasing the FINSOCIAL rates, from 0.6% to
1%, from 1% to 1.2% and from 1.2% to 2%, in the period between September 1989 and March 1992, declared unconstitutional by
Federal Senate Resolution, RSF n 49/95.
th
On November 20, 2013, the Judge of the 6 Federal Court of the Federal District sentenced the Federal Revenue Office to
authorize the amount of R$114,951, monetarily restated until October 2012, for offset purposes on behalf of Construtora OAS S.A.
On December 19, 2013 a request for authorization of credit was filed with the Federal Revenue Office, which was granted on
February 17, 2014, and Construtora OAS has already started the appropriate offset.
F-25
9.
Investments
Interest (%)
03/31/2014
12/31/2013
Total assets
03/31/2014
12/31/2013
Total liabilities
03/31/2014
12/31/2013
F-26
Subsidiaries
Construtora OAS
Coesa Engenharia
BR Terminais
OAS Investimentos
OAS Empreendimentos
EPP Energia
OAS Defesa
OAS Chile Inversiones
OAS Invest. Ltda.
OAS Invest. GMbH
EPASA S/A
OAS AFRICAN
Construtora OAS Angola
99.99%
100.00%
100.00%
99.99%
99.99%
99.99%
100.00%
100.00%
75.00%
99.90%
99.99%
100.00%
100.00%
99.99%
99.99%
99.99%
100.00%
100.00%
75.00%
99.90%
7,983,562
1
5,978,506
5,704
11,707
597
3,404,425
2,056,382
17,792
37,461
8,192,810
1
4,468,037
5,703
11,425
644
3,588,671
2,085,939
18,370
37,165
5,506,502
3,250,728
2,694
2,276
3,778,131
2,054,589
3,087
31,413
5,775,466
2,732,510
2,694
1,968
3,888,889
2,084,400
2,756
32,124
Joint ventures
Invepar (a)
Karagounis
8.89%
20.00%
8.89%
20.00%
4,265,127
317,281
3,932,038
300,373
349,031
16,060
Associated company
Ecovap
22.00%
22.00%
14,827
15,245
10,559
Equity
03/31/2014
12/31/2013
2,477,060
1
2,727,778
3,010
9,431
597
(373,706)
1,793
14,705
6,048
2,417,344
1
1,735,527
3,009
9,457
644
(300,218)
1,539
15,614
5,041
113,667
869,205
1
(26)
3
(87,357)
320
(246)
1,230
30,151
(14)
(415)
(40,366)
1
(189)
(1)
(23,572)
178
105
30,762
2,985
19,472
1,265
3,916,096
301,221
3,912,566
299,108
15,187
2,113
29,314
807
17,801
4,268
6,825
129
(a) Invepars financial statements are available to the market at the Brazilian Securities and Exchange Commissions website (www.cvm.gov.br).
(2,556)
Balances at 03/31/14
Gain in
variation on
interest
Investments
Provision
for losses
Investments
Provision
for losses
Interest in Brazil
Construtora OAS S/A
OAS Investimentos S/A
Investimentos e Participaes em Infraestrutura - Invepar
Investimentos e Participaes em Infraestrutura - Invepar (goodwill)
Qualifiable assets (a)
Others
2,376,909
1,707,129
348,348
257,821
116,131
12,466
2,731
-
113,667
869,205
1,351
(255)
(26)
(23,000)
-
(30,951)
(3,983)
(1,402)
-
(2,674)
(25,124)
-
127,024
-
2,436,625
2,699,375
348,297
255,147
93,483
12,440
Subtotal
4,818,804
2,731
983,942
(23,000)
(36,336)
(27,798)
127,024
5,845,367
Write-offs
F-27
Interest overseas
OAS Investments Limited
Construtora OAS Angola Ltda
EPASA
Others
5,035
11,711
2,183
(300,218)
-
1,231
(246)
323
(87,429)
-
13,941
(224)
(437)
(116)
6,042
11,028
2,390
(373,706)
-
Subtotal
18,929
(300,218)
1,308
(87,429)
13,164
19,460
(373,706)
4,837,733
(300,218)
2,731
985,250
(87,429)
(27,798)
127,024
5,864,827
(373,706)
Equity
valuation
adjustment
Total
(23,000)
(23,172)
(a) Capitalization of interest over concession assets, which will be amortized until the end of operations.
Balances at 12/31/12
Investments
Provision
for losses
Paid in capital
Balances at 03/31/13
Investments
Provision
for losses
Interest in Brazil
Interest overseas
3,632,002
10,863
(162,645)
36,121
-
(18,689)
282
10,172
(12,500)
-
(5,039)
1,709
3,631,895
10,851
(150,470)
Total
3,642,865
(162,645)
36,121
(18,407)
10,172
(12,500)
(3,330)
3,642,746
(150,470)
Investments
F-28
Interest in Brazil
Inambari G. Energia
Fonte Nova
Invepar
Invepar (goodwill)
Porto Novo
Karagounis Participaes S.A.
Manhattan Square Empr. Imob. Res. 01 SPE Ltda.
IOTA Empr. Imobilirios Ltda.
Estaleiro EEP Participaes
Consrcio Hospital Rancagua
leo e Gs (b)
Qualifiable assets (a)
Others
Subtotal
Provision
for losses
470
58,976
957,393
462,860
15,781
59,861
36,300
34,023
16,132
23,412
(22,331)
(548)
(563)
12,048
3,361
4,883
-
1,665,208
(23,442)
20,292
7,331
3,713
(4,608)
423
(716)
1,096
(4,518)
(2,043)
(168)
486
996
Balances at 03/31/14
Write-offs
Gain in
variation on
interest
Investments
Provision
for losses
(3,760)
528
563
(3,854)
(542)
5
(909)
-
(5,200)
(2,617)
139
1,251,207
92
-
470
66,307
957,252
457,660
11,173
60,284
47,632
38,077
350
1,248,255
16,056
21,281
(26,091)
-
(2,669)
(5,300)
(7,817)
1,251,438
2,924,797
(26,091)
Interest overseas
Oil & Gas Austria (b)
55,251
(55,251)
Subtotal
55,251
(55,251)
20,292
996
(63,068)
1,251,438
2,924,797
Total
1,720,459
(23,442)
(a) Capitalization of interest over concession assets, which will be amortized until the end of operations.
(b) This investee is no longer consolidated due to the loss of control with the inclusion of the new shareholders FI-FGTS.
(2,669)
(5,300)
(26,091)
Investments
Provision
for losses
Paid in capital
Balances at 03/31/13
Other
transactions
Investments
Provision
for losses
Interest in Brazil
Interest overseas
1,640,312
23,818
(15,336)
-
11,355
4,798
920
-
(28)
-
(35)
(5)
1,052
-
1,655,128
28,611
(16,888)
-
Total
1,664,130
(15,336)
16,153
920
(28)
(40)
1,052
1,683,739
(16,888)
F-29
F-30
F-31
1,251,281
(91,271)
1,160,010
(i) Recorded in the Companys statement of income in the three-month period ended March 31, 2014. This amount includes
R$452,403 referring to the gain on variation of interest in investee and R$707,007 (R$467,020 net of taxes)) referring to the
fair value in remaining interest in investee (Note 19 (a)).
Samar
On November 5, 2013, the subsidiary OAS Solues Ambientais acquired from Construtora OAS,
15,457,000 shares representing 100% of Samars capital for R$20,885, corresponding to the
investees carrying amount. The amount payable is still outstanding and is recorded under Related
Parties under current liabilities.
On December 31, 2013 the Shareholders Extraordinary Meeting approved the capital increase of
Samar at R$3,100, by means of the issue of 3,100,000 non-par registered common shares. The
increase was made through the payment of credits held by OAS Solues with the subsidiary.
Sanear
Sanear was acquired by OAS Solues Ambientais on September 27, 2013 and its purpose is to
explore the municipal public utility services for removal, treatment and exploration through
concession, sewage treatment services of Machado de Melo and Baguau basins, in the city of
Araatuba - SP
On September 27, 2013, the indirect subsidiary OAS Solues Ambientais, acquired 9,050 shares
of Sanear, representing 100% of this subsidiarys capital for the total amount of R$25,821.
F-32
24,387
44
15,326
26,592
1,865
(14,695)
29,132
4,745
The Management of OAS Solues prepared a study to allocate the acquisition price. The
acquisition price was defined considering the profitability of future cash flows and the cost savings
in order to comply with concession agreement requirements, making it, therefore, more efficient.
Within this context, the valuation of the intangible asset resulted in R$26,592. After analysis of
other assets and liabilities, OAS Solues recorded the amount of R$4,745 as gain on bargain
purchase, under Other operating income (expenses) in the profit and loss for the year.
Subsidiaries with relevant non-controlling interest
Information for the subsidiaries for which relevant non-controlling interest is included in the
consolidated interim financial statements as follow:
Interest (%)
03/31/2014 12/31/2013
Construtora OAS GE
Construtora OAS Ghana
Construtora OAS LLC
FIP OASE
OAS Empreendimentos
Other
47.00%
30.00%
51.00%
21.05%
20.00%
47.00%
30.00%
51.00%
0.00%
20.00%
Total
F-33
Equity
03/31/2014 12/31/2013
Net income
03/31/2014
03/31/2013
60,503
14,306
2,099
66,315
87,418
46,753
58,451
8,564
2,274
82,082
75,933
4,309
7,853
(102)
(6,805)
(148)
905
4,518
73
1,859
(488)
277,394
227,304
6,012
5,962
12/31/2013
Consolidated
Cost
Land
Machinery and equipment
Hardware
Furniture and fixtures
Vehicles
Leasehold improvements
Other
18,480
768,093
35,729
64,314
194,477
9,382
103,546
(256,718)
(22,774)
(20,281)
(106,151)
(900)
(29,658)
18,480
511,375
12,955
44,033
88,326
8,482
73,888
18,531
512,266
12,315
42,856
94,231
4,787
87,707
1,194,021
(436,482)
757,539
772,693
Total
Net balance
Net balance
% p.a.
Depreciation
rates
10
20
10
20
10
10
In March 31, 2014, the Company carried out finance lease operations for the acquisition of
property, plant and equipment, in the amount of R$2,591. On March 31, 2014, the balance payable
of these operations, classified into loans and financing (Note 12.2), totals R$65,422.
Changes in property, plant and equipment (consolidated) were as follows:
Consolidated
03/31/2014
03/31/2013
At the beginning of year
772,693
540,836
Acquisitions
Write-offs, net of depreciation
Foreign exchange variation
Change on shareholding interest
Depreciation
50,378
(11,881)
(15,544)
(5)
(38,102)
158,000
(43,279)
(4,218)
(34,385)
757,539
616,954
The Company did not identify indicators that could reduce the realization value of its assets on
March 31, 2014 and December 31, 2013.
Consolidated
Cost
Software
Capitalized developments
Concession rights (a)
Other
28,871
3,840
851,882
122,186
Total
1,006,779
03/31/2014
Accumulated
amortization
12/31/2013
Net balance
Net balance
(12,197)
(480)
(49,889)
(5,867)
16,674
3,360
801,993
116,319
8,554
4,398
811,540
135,409
(68,433)
938,346
959,901
(a) Refers to concession rights from the indirect subsidiaries Arena Porto Alegrense, Samar e Sanear.
F-34
959,901
Acquisitions
Write-offs, net of amortization
Foreign exchange variation
Change on shareholding interest
Amortization
19,139
(25,138)
(981)
(564)
(14,011)
938,346
755,635
52,749
(1,663)
(293)
(3,793)
802,635
F-35
161,154
17,484
178,638
Total
183,308
178,638
Current
Non-current
165,058
18,250
161,154
17,484
Total
183,308
178,638
Consolidated
03/31/2014
12/31/2013
242,347
816,119
18,250
779,145
82,252
1,938,113
(748,603)
1,189,510
392,465
797,045
1,189,510
303,151
1,892,078
17,484
27,664
2,240,377
(765,866)
1,474,511
668,286
806,225
1,474,511
(a) On March 31, 2014, the short-term investment in debentures of Bolvia branch in consolidated
amounts to R$748,603 (December 31, 2013, R$765,866)
Foreign short-term investments were classified as short-term investments and marketable
securities as they are tied to loans taken out by the investees without immediate liquidity. Certain
investments in debentures were classified as short-term investments and marketable securities,
since different from short-term investments classified as cash equivalents, these may suffer
reduction in the event of immediate redemption.
F-36
Loans
Working capital
Working capital
Currency
Maturity
R$
USD
CDI+2.00% to CDI+3.00%
Fixed: 2.00%
2014 to 2015
2014
Company
03/31/2014
12/31/2013
152,085
9,116
142,636
9,391
161,201
152,027
11,208
121,485
28,724
65,549
2,309
11,299
118,844
28,060
55,492
2,556
Subtotal
229,275
216,251
Total
390,476
368,278
Current liabilities
Non-current liabilities
144,843
245,633
145,139
223,139
Total
390,476
368,278
Subtotal
Financing
Finance lease
Study and Project Financing - FINEP
Assets Sanitation Special Program - PESA
Financing of machinery and equipment FINAME
Other fixed assets financing
R$
R$
R$
R$
CDI+2.00% to CDI+4.01%
Fixed 3.50% to 8.00%
IGP-M +4.82%
TJLP + 1.60% to 7.00%
Fixed: 3.04% to 12.39%
2014 to 2018
2018 to 2023
2019
2014 to 2018
2015 to 2017
F-37
Maturity
CDI+0.24% to CDI+3.00%,
TJLP+3.44% and
fixed from 3.80% to 12.50%
135% CDI, CDI+5.54% and
fixed from 3.00% to 8.08%
2014 to 2015
Consolidated
03/31/2014
12/31/2013
Loans
Working capital
Current account overdrafts
2014
Subtotal
564,367
856,011
9,159
3,582
573,526
859,593
Financing
Finance lease
Study and Project Financing - FINEP
Assets Sanitation Special Program - PESA
Financing to support production
F-38
R$ and USD
R$
R$
R$, USD, TT e
MZN
2014 to 2018
2019
2019
2018
65,422
121,485
28,724
534,850
61,790
118,844
28,060
734,373
2014 to 2019
859,444
216,891
Subtotal
1,609,925
1,159,958
Total
2,183,451
2,019,551
Current liabilities
Non-current liabilities
763,638
1,419,813
781,318
1,238,233
Total
2,183,451
2,019,551
Consolidated
03/31/2014
2014
2015
2016
2017
2018
2019 onwards
129,773
86,112
40,614
57,630
20,940
55,407
674,234
478,777
278,139
221,620
131,929
398,752
Total
390,476
2,183,451
Current
Non-current
144,843
245,633
763,638
1,419,813
Total
390,476
2,183,451
Guarantees
The Companys subsidiaries have various loans whereby actual assets guarantee the related
creditors. These loans refer to Structured Projects or SPEs that develop real estate transaction at
OAS Empreendimentos S.A.. These assets aim at individually separating the credit risk from
Structured Projects or real estate SPEs, enabling segregated allocation of risks assumed by the
Company at the corporate level vs. project level, as explained in Note 13. These assets are
substantially represented by pledge of shares, assignment in trust of the flow of receivables and
chattel mortgage of land.
Covenants
Certain loans have covenants related to the maintenance of commitments. On March 31, 2014, the
Company has adequately met all the terms and/or conditions of those contracts.
F-39
Debentures
Companies
Company
OAS S.A.
Principal
Charges
153,615
(19,653)
Total
12/31/2013
2,720,450
2,898,340
Current
Non-current
433,559
2,286,891
531,550
2,366,790
Total
2,720,450
2,898,340
313,561
85,946
35,156
78,229
Subsidiaries
OAS Empreendimentos S.A.
Arena das Dunas Concesses e Eventos S.A.
Samar Solues Ambientais de
SPE Gesto Arenas
2,586,488
03/31/14
Costs to amortize
262,756
79,280
33,340
78,236
10,329
10,902
252
3,303
(1,633)
(334)
(491)
-
271,452
89,848
33,101
81,539
3,040,100
178,401
(22,111)
2,447,787
2,645,366
Current
Non-current
508,012
1,939,775
609,471
2,035,895
Total
2,447,787
2,645,366
(748,603)
(765,866)
According to CPC 08 Cost of Transactions and Premium on the Issue of Marketable Securities,
the transaction costs to be amortized are recorded as a reduction of respective loan.
The consolidated debt by year of maturity is included below:
2014
Company
OAS S.A.
Subsidiaries
OAS Empreendimentos S.A.
Arena das Dunas Concesses e Eventos S.A.
Samar Solues Ambientais de Araatuba S.A
SPE Gesto Arenas
Subtotal
(-) Transaction cost to amortize
(-) Short-term investments
Total
2016
345,860
302,875
305,897
85,897
831,798
867,776
2,740,103
52,329
10,902
9,132
3,303
120,454
8,973
8,153
2,744
100,302
10,352
8,153
5,487
11,943
8,154
9,407
13,778
13,718
34,234
46,880
273,085
90,182
33,592
81,539
421,526
443,199
430,191
115,401
859,294
948,890
3,218,501
(6,656)
414,870
(3,975)
439,224
F-40
(4,507)
425,684
2017
(3,959)
111,442
2018
After 2019
2015
(1,628)
857,666
(1,386)
(748,603)
198,901
Total
(22,111)
(748,603)
2,447,787
Balances at
12/31/2013
347,498
309,407
287,018
162,250
765,485
742,402
106,390
336,418
300,604
297,716
196,961
161,558
775,972
725,947
103,164
Total Company
2,720,450
2,898,340
Current liabilities
Non-current liabilities
433,559
2,286,891
531,550
2,366,790
2,720,450
2,898,340
149,767
12,233
109,452
89,848
33,101
81,539
-
182,371
25,186
106,004
85,946
35,155
78,230
Issuer
Company
OAS S.A.
OAS S.A.
OAS S.A.
OAS S.A.
OAS S.A.
OAS S.A.
OAS S.A.
OAS S.A.
F-41
Subsidiaries
OAS Empreend.
OAS Empreend.
OAS Empreend.
Arena das Dunas
Samar
OASI
SPE Gesto
Issue
1st
3rd
4th
5th
6th
7th
8th
9th
Issue
Issue
Issue
Issue
Issue
Issue
Issue
Issue
(i)
(iii)
(iv)
(i)
(i)
(i)
(i)
(i)
Guarantor
Construtora
Construtora
Construtora
Construtora
Construtora
Construtora
Construtora
Construtora
OAS S.A.
OAS S.A.
OAS S.A.
-
OAS
OAS
OAS/OAS Inv.
OAS
OAS
OAS
OAS
OAS
Date of
issue
Maturity
date
Issue
amount
10/29/2010
12/12/2011
01/13/2012
05/15/2012
03/08/2013
03/11/2013
07/11/2013
08/27/2013
10/29/2018
12/12/2016
01/13/2027
05/15/2015
03/08/2014
03/16/2018
07/21/2024
04/11/2016
400,000
300,000
250,000
209,000
150,000
644,424
694,700
100,000
11/03/2009
06/14/2010
(vi)
05/08/2012
12/20/2012
12/08/2012
12/08/2012
11/03/2016
07/15/2014
04/11/2016
05/30/2020
12/20/2017
05/30/2020
05/30/2020
300,000
60,000
40,000
79,280
40,000
65,000
65,000
Financial charges
CDI + 3.25% p.a
CDI + 2.00% p.a
IPCA + 7.8% p.a.
CDI + 2.40% p.a.
CDI + 1.50% p.a.
8.85% p.a.
9.47% p.a.
CDI + 2.65% p.a.
(748,603)
(765,866)
Total Company
2,447,787
2,645,366
Current liabilities
Non-current liabilities
508,012
1,939,775
609,471
2,035,895
2,447,787
2,645,366
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
The issues with restricted placement efforts were carried out pursuant to CVM Rule 476/09. There was no issue of debentures convertible into shares.
On March 31, 2014, the Company has adequately met all the terms and/or conditions of those
contracts.
12.4.
Senior notes
On October 19, 2012, OAS Investments GmbH, a wholly-owned subsidiary of the Company with
head offices in Austria, issued US$ 500 million (corresponding to R$1,013,600) in Senior Notes
with fixed, non-convertible interest of 8.25% p.a. (Senior Notes), and interest payable semiannually at April 19 and October 19 each year, with repayment of principal on maturity, October 19,
2019 (Senior Notes).
On October 17, 2013, OAS Investments GmbH reopened the Senior Notes and issued another
US$375 million (corresponding to R$825,113), under same conditions as Senior Notes (Retap).
The Senior Notes hold a corporate warranty from the companies, Construtora OAS S.A. and OAS
Investimentos S.A.
F-42
F-43
Consolidated
Perpetual
Total
1,014,028
825,113
111,396
(96,632)
1,007,300
71,323
(51,976)
1,014,028
1,832,413
182,719
(148,608)
Subtotal
1,853,905
1,026,647
2,880,552
(27,957)
5,901
201,781
Transaction cost
Amortization of transaction cost
Foreign exchange variation
(38,092)
5,107
164,001
(66,049)
11,008
365,782
2,033,630
1,157,663
3,191,293
Current
Non-current
34,358
1,999,272
19,347
1,138,316
53,705
3,137,588
42,685
-
Funding
Interest rates
Payment of Interest rates
2,076,315
Subtotal
(432)
2,157
(71,005)
Transaction cost
Amortization of transaction cost
Foreign exchange variation
25,014
(24,739)
1,157,938
1,896
(39,416)
67,699
(24,739)
3,234,253
(432)
4,053
(110,421)
2,007,035
1,120,418
3,127,453
Current
Non-current
74,031
1,933,004
18,968
1,101,450
92,999
3,034,454
Pursuant to the indenture of the Perpetual Senior Notes, there are nonfinancial covenants. On
March 31, 2014, the Company has adequately met all the terms and/or conditions of those
contracts.
F-44
On March 31, 2014, the Company and its subsidiaries have derivative transactions totaling
R$3,543,105 (US$1,512,467), contracted with the purpose of reducing the Groups currency
exposures. These derivatives were not designated as hedge instruments according to the hedge
accounting rules. The table below shows the transactions with derivatives of the Company and its
subsidiaries as at March 31, 2014. The column "Fair value" column shows the changes in fair
value of derivatives in the period ended March 31, 2014; whereas the column "Settlement in the
period shows the effect recognized in financial income or expense associated with the settlement
of derivatives in the period ended March 31, 2014. The column "Total effects on profit and loss
represents the effects of change in value of derivatives (change in fair value and settlements) in
the Companys profit and loss:
Currency
Face
value
Maturity
Company
Cupom Swaps USD - CDI
Cupom Swaps USD - CDI
Opo BRL - USD
Opo BRL - USD
Swaps USD/Libor - CDI
Swaps USD - CDI
Swaps USD - CDI
R$
R$
R$
R$
R$
R$
R$
707,340
1,091,350
707,340
865,350
26,200
19,920
7,939
03/16/2018
04/25/2018
03/16/2018
04/18/2018
09/02/2014
03/27/2015
09/01/2014
(150,878)
(137,571)
137,700
125,461
8,795
2,494
168
(15,865)
(20,225)
(2,459)
(4,992)
(1,180)
(988)
(474)
(166,743)
(157,796)
135,240
120,469
7,615
1,505
(305)
(13,593)
(20,184)
(2,459)
(4,992)
(1,180)
(988)
(474)
Investees
Cupom Swaps USD - CDI
Opo BRL - USD
Swaps USD - CDI
US$
US$
R$
470,000
170,000
13,018
04/19/2018
04/19/2018
08/01/2014
(48,383)
30,303
381
(23,435)
(3,742)
(611)
(136,777)
67,245
(230)
536
-
(26,751)
(1,330)
(611)
Description
12.6.
Fair value
on 12/31/13
Fair value
variation
Fair value
on 03/31/14
Settlement
in the year
41
Effect on
profit and loss
Fair value
A comparison by class of carrying amount and the fair value of the Group's financial instruments
reported in the financial statements is included below.
Fair value
Hierarchy
Balances at 03/31/14
Company
Consolidated
Carrying
Market
Carrying
amount
value
amount
Market value
Financial assets
Cash and cash equivalents
Short-term investments and marketable securities
Trade accounts receivable
Derivatives
2
2
2
2
267,266
183,308
530,104
479,866
267,266
183,308
530,104
479,866
1,593,162
1,189,510
4,343,353
547,345
1,593,162
1,189,510
4,343,353
547,345
Financial liabilities
Trade accounts payable
Loans and financing
Debntures (a)
Senior Notes
Derivatives
Other liabilities
2
2
2
1
2
2
132,918
390,476
2,720,450
525,921
21,130
132,918
391,571
2,720,450
525,921
21,130
835,580
2,183,451
2,447,787
3,127,453
626,430
512,333
835,580
2,250,252
2,447,787
3,095,014
626,430
512,333
F-45
F-46
13.
The Structured Project debts of the OAS Group are characterized by Financing to Special Purpose
Entities (SPEs) under the "Structured Project" type which are granted primarily based on the SPEs
cash generation capacity. Such financing arrangements enable individual segregation of a credit
risk, as they are structured without right of recourse against the SPEs shareholders.
This SPEs financing structuring strategy adopted by the Company (OAS SA) enables segregated
allocation of risks assumed by the Company at the corporate level in relation to the project level.
Upon the Company granting guarantees to the SPE, these operations are mainly formalized by
means of supporting agreements for contingent capital contribution, with specific coverage
conditions and values threshold. Negotiations are also conducted with lenders, so that such
guarantees are released automatically as the risk inherent to the SPE reduces with time and with
the advance of the project, aiming at their full release when the SPE becomes operational.
The SPEs directly or indirectly controlled by the Company that fall under the Structured Project
concept are as follows: Arena das Dunas, Arena Porto-Alegrense S.A., Samar and Sanear, and
few SPEs of OAS Empreendimentos. On March 31, 2014, the total amount of Loans and
financing (R$2,183,451) and Debentures (R$2,447,787), R$595,870 (27%) and R$204,488 (8%),
respectively, correspond to Structured Project debts.
03/31/2014
Loans and financing
Arena das Dunas
Arena Porto Alegrense
Samar
400,176
192,678
3,016
Subtotal Loans
595,870
Debentures
Arena das Dunas
Samar
SPE Gesto
89,848
33,101
81,539
Subtotal Debentures
204,488
Total
800,358
F-47
Consolidated
Structured
Projects
Interest %
2,183,451
2,447,787
595,870
204,488
27%
8%
Gross debt
4,631,238
800,358
17%
Consolidated
03/31/2014
12/31/2013
408
407
442,195
73,170
63,407
578,320
24,633
56,589
Total
408
407
578,772
659,542
Current
Non-current
408
407
188,304
390,468
232,962
426,580
Total
408
407
578,772
659,542
Deferred revenue refers to advanced billings on ongoing construction contracts, which are settled
based on the progress of the projects, measured based on the costs incurred in relation to the
respective budgeted costs.
F-48
Consolidated
107,304
159,839
13,789
(21,911)
105
18,194
(26,601)
99,182
151,537
Current
Non-current
22,533
76,649
27,461
124,076
1,722
(5,700)
95,204
147,255
Current liabilities
Non-current liabilities
22,932
72,272
27,945
119,310
2,638
(6,920)
The short and long-term amounts by year of maturity are included below:
Company
Consolidated
2014
2015
2016
2017 onwards
17,199
22,932
22,932
32,141
20,985
27,840
27,840
70,590
Total
95,204
147,255
F-49
Consolidated
03/31/2014
03/31/2013
778,896
34%
(264,825)
(7,290)
34%
2,479
1,038,822
34%
(353,199)
640
34%
(218)
Permanent additions:
Non-deductible expenses
Revaluation reserve
Interest on equity
Foreign exchange variation
Provision for investments losses
Equity pickup
Reversal of presumed loss effect in investees
Taxation of investees opting for profit as a percentage of gross sales
Losses with equity interests
Other
(33)
(1)
(7,820)
(11,970)
(29,726)
(301)
(14)
(4,250)
(6,258)
(1,443)
(4,197)
(8)
(13,594)
(907)
(14,358)
(5,226)
(6,445)
(2,058)
(10)
(1,365)
(649)
(3,407)
Permanent exclusions:
Equity pickup
Reversal of provision for investments losses
Gains from equity interests
Reversal of investees presumed profit effect
Reversal of effect of foreign investees profit
Taxation of investees abroad
Other
334,985
314
3,458
-
339
153,818
11
10,999
2,550
1,319
490
3,354
6,221
(67,412)
(11,986)
(64,338)
313
(43,715)
(6,028)
(297,629)
(7,996)
(43,715)
(6,028)
(4,005)
(293,624)
(28,210)
20,214
Total
(43,715)
(6,028)
(297,629)
(7,996)
Based on the budget plan, the Management expects that deferred income and social contribution
tax assets and liabilities on March 31, 2014 shall be realized by 2018. Estimates on the recovery of
tax credits were based on projections of taxable income taking into consideration various financial
and business assumptions at the end of the reporting period. These assumptions are regularly
revised by Management.
F-50
Consolidated
03/31/2014
12/31/2013
90,817
368
90,817
368
140,107
23,662
136,153
52,076
31,075
47,676
10,431
51,112
7,560
90,100
359,559
8,728
53,990
210,278
(169,936)
(130,891)
(396,259)
(240,863)
21,837
224,729
220,362
11,537
31,784
3,663
39,484
173,726
8,610
11,537
31,784
169,487
28,925
3,663
39,484
86,741
61,752
87,659
85
15,734
86,741
663,183
36,914
87,659
184,917
(169,936)
(130,891)
(396,259)
(240,863)
595,056
310,186
21,878
For balance sheet reporting purposes, the deferred assets and liabilities of same nature are reported
by their net value, considering the legal entitys calculation.
Provisional Measure 627 (MP 627)
On November 11, 2013, Provisional Measure 27 (MP 627) was enacted, significantly changing the
tax rules related to federal taxes, amongst them, we point out the following: (i) revocation of the
Transition Tax Regime; (ii) amendments to Decree-Law 1598/1977; (iii) inclusion of provisions on the
taxation of profits and dividends; (iv) inclusion of provisions on the calculation of interest on equity;
(v) inclusion of provisions on investments measured by the equity method; (vi) changes in taxation of
legal entity domiciled in Brazil, referring to equity addition due to profit sharing earned by subsidiaries
and associated companies abroad. Although the MP 627 shall be effective as of the 2015 calendar
year, taxpayers have the option to anticipate its effects for the 2014 calendar year (note 28).
F-51
17. Equity
Capital
On March 31, 2014 and December 31, 2013, the subscribed and paid in capital is represented by
500 million common shares with par value of R$1.00 each, totaling R$500,000.
Legal Reserve
The Brazilian corporation law requires that listed companies allocate 5% of annual net income to the
income reserve, before profit sharing and such reserve is limited to 20% of total capital. The reserve
aims at ensuring the corporate capital integrity and should be used only to offset the losses and
increase the capital.
Revaluation reserve and deemed cost of the Company and subsidiaries
These represent the unrealized portion of the revaluation and the deemed cost of land, civil works,
machinery and equipment and vehicles, net of tax effects.
The realized portion based on the depreciation and disposal of revalued assets is transferred to the
accumulated losses, together with respective deferred taxes recorded by the Company.
Income Reserve
The balance of retained earnings to be allocated according to Managements decision was
transferred to the income reserve account.
Other reserves
This refers substantially to currency translation differences on subsidiaries transactions abroad, and
gain on interest variation on foreign investees.
Dividends
The Companys Bylaws determines the payment of minimum mandatory annual dividends equivalent
to 25% of the profit and loss for the year, as set forth by Article 202 of Law No. 6,404/76.According to
the Minutes of the Extraordinary and Annual Shareholders Meeting of April 30, 2014 there was
neither profit sharing nor payment of dividends related to the fiscal year ended December 31,
2013.
F-52
1,950
2,092
17,079
7,983
1,950
919
11,322
8,605
Subtotal
29,104
22,796
(1,820)
(1,787)
Total
27,284
21,009
Current
Non-current
2,283
26,821
3,304
19,492
Total
29,104
22,796
Provisions
Payments
Balance on
03/31/2014
Reversals
Tax
Civil
Labor
Other
1,950
919
11,322
8,605
1,560
11,019
9,051
(40)
(954)
(387)
(5,222)
(8,719)
1,950
2,092
17,079
7,983
Subtotal
22,796
21,630
(994)
(14,328)
29,104
(1,787)
Total
21,009
F-53
(40)
21,590
7
(987)
(14,328)
(1,820)
27,284
52,798
178,165
12,006
61,714
147,209
10,158
Total
242,969
219,081
The Company is party to legal proceedings involving tax, civil and labor claims in the amount of
R$7,710 on March 31, 2014 (R$1,573 on December 31, 2013), which based on the opinion of legal
counsels are classified as possible loss.
F-54
Consolidated
03/31/2014
03/31/2013
Gross revenue:
Domestic market
Foreign market
29,318
14,895
108,780
18,834
1,502,527
470,808
1,319,642
253,168
Total
44,213
127,614
1,973,335
1,572,810
(4,485)
Net revenue
39,728
(6,087)
121,527
(30,754)
(166,144)
1,776,437
(29,944)
(93,223)
1,449,643
The Company analyzes the gross revenue per business line. The information, by type of revenue
for the period ended March 31, 2014 is as follows:
Heavy
engineering
Investments in
infrastructure
projects
Consolidated
Gross revenue:
Domestic market
Foreign market
1,364,838
448,370
137,689
22,438
1,502,527
470,808
Total
1,813,208
160,127
1,973,335
F-55
Consolidated
03/31/2014
03/31/2013
(104,525)
(22,240)
(66,472)
(7,174)
(917,777)
(184,711)
(755,331)
(65,879)
(25,667)
(705)
(745)
(68,339)
(123)
(5,474)
(3,010)
(3,213)
95,856
(10,558)
(651)
(496)
(6,755)
(294)
(2,250)
(1,941)
(1,420)
15,387
(157,803)
(18,503)
(8,493)
(333,278)
(151,543)
(50,730)
(20,771)
(9,985)
1,160,010
125,500
(102,165)
(17,382)
(3,640)
(136,505)
(160,228)
(51,309)
(20,546)
(29,971)
(57,375)
Total
(138,185)
(82,624)
(568,084)
(1,400,331)
(18,973)
(119,212)
(79,234)
(3,390)
(1,454,581)
886,497
(1,185,076)
(215,255)
Total
(138,185)
(82,624)
(568,084)
(1,400,331)
F-56
Consolidated
03/31/2014
03/31/2013
Recovery of expenses
Income from creation of shared control (note 9)
Gain/loss on sale of property, plant and equipment
Provision/reversal for investment losses
Other
1,260
400
(87,429)
(5,657)
468
4,749
10,172
(171)
19,293
1,160,010
(3,292)
(2,669)
(42,161)
34,201
(4,004)
(28)
(5,578)
Total
(91,426)
15,218
1,131,181
24,591
Consolidated
03/31/2014
03/31/2013
Financial income
Interests from:
Short-term investments
Notes receivable
Others
Foreign exchange gains
Discounts obtained
Hedge operations/swap (Note 24)
Other financial income
17,483
546
82
56,711
448
125,207
-
6,443
2,671
21,760
280
6,238
-
70,490
75,307
3,464
136,862
5,666
126,867
9,970
16,326
9,298
29,207
35,921
1,763
11,196
9,941
Subtotal
200,477
37,392
428,626
113,652
Financial expenses
Interests payable:
Loans and financing
Debentures
Others
Foreign exchange losses
Discounts granted
Bank commissions and charges
Bank guarantees
Hedge operations/swap (Note 24)
Other financial expenses
(5,077)
(100,343)
(2,558)
(29,339)
(124)
(5)
(169,078)
(1,850)
(3,133)
(10,606)
(897)
(22,292)
(10)
(40)
(26,692)
(1,508)
(107,968)
(187,111)
(4,188)
(76,140)
(3,091)
(5,557)
(7,837)
(198,839)
(8,422)
(63,892)
(21,733)
(6,869)
(33,238)
(789)
(1,294)
(4,760)
(27,075)
(3,594)
Subtotal
(308,374)
(65,178)
(599,153)
(163,244)
Total
(107,897)
(27,786)
(170,527)
(49,592)
F-57
F-58
Risk
Rate
TJLP
CDI
TR
IGPM
5.00%
8.90%
0.38%
7.31%
Total
Assets:
Short-term investments
CDI
8.90%
Total
Derivatives:
Hedge operations
CDI
8.90%
Total
Equity effects considering the scenarios
Likely
Scenario
Scenario A
25%
Scenario B
50%
648,758
671,647
254,213
30,823
656,482
685,372
254,456
31,348
664,206
699,096
254,699
31,872
1,605,441
1,627,658
1,649,873
3,264,819
3,331,534
3,398,249
3,264,819
3,331,534
3,398,249
(263,040)
(434,460)
(691,602)
(263,040)
(434,460)
(691,602)
(82,488)
(250,700)
In order to determine the estimated fair value of financial instruments, available market information
and appropriate valuation methodologies were applied. The estimates do not necessarily indicate
that such instruments cannot be operated in the market as distinct from the rates used. The use of
different market information and/ or valuation methodologies may have a material effect on the
markets estimated value.
The Company's practice is not to be exposed to market risks, monitoring them continuously and
only operating instruments that allow the control and the mitigation of these risks.
Currency risk
This risk arises from the possibility that Company may incur losses due to foreign exchange
fluctuations that increase financial expenses on loans and financing contracted in foreign
currencies. The profit and loss of subsidiary Construtora OAS S.A. are not subject to significant
variations, resulting from volatility in the exchange rate of the U.S. Dollar, as the portion relating to
its foreign currency loans is hedged by swap operations and/ or assets linked to the same
currency.
F-59
Assets
Accounts receivable:
Construtora OAS S.A. Sucursal Bolvia
Construtora OAS S.A. Sucursal Honduras
Construtora OAS S.A. Sucursal Uruguai
Construtora OAS S.A. Sucursal Equador
Construtora OAS S.A. Sucursal Chile
Construtora OAS S.A. Sucursal Peru
Construtora OAS S.A. Sucursal Argentina
Construtora OAS S.A. Sucursal Haiti
Construtora OAS S.A. Sucursal Colmbia
Construtora OAS S.A. Sucursal Costa Rica
Construtora OAS S.A. Sucursal Trinidad & Tobago
Construtora OAS Guine
Construtora OAS Guin Equatorial
OAS Nacala Ltda
OAS African Investments Limited
OGI Assets Ltda.
OAS Central American Investing
Empresa Peruana de guas EPASA
Construtora OAS Angola Ltda.
Risk
Rate
Original
Currency
Likely
Scenario
Possible
Scenario
R$/USD
R$/LPS
R$/UYU
R$/USD
R$/CLP
R$/PEN
R$/ARS
R$/USD
R$/COP
R$/CRC
R$/T&T
R$/USD
R$/USD
R$/USD
R$/USD
R$/USD
R$/USD
R$/PEN
R$/USD
2.2630
0.1177
0.1004
2.2630
0.0041
0.8056
0.2825
2.2630
0.0011
0.0042
0.3549
2.2630
2.2630
2.2630
2.2630
2.2630
2.2630
0.8056
2.2630
65,870
52
1,443,134
4,795
1,050,366
33,574
101,846
20,100
3,121,077
1,075,286
273,311
25,935
88,340
53,164
14,795
34,105
22,087
5,939
17,303
149,064
6
144,891
10,851
4,317
27,047
28,771
45,486
3,586
4,521
96,998
58,691
199,913
120,310
33,481
77,180
49,983
4,784
39,157
186,330
8
181,114
13,564
5,396
33,809
35,964
56,858
4,483
5,651
121,248
73,364
249,891
150,388
41,851
96,475
62,479
5,980
48,946
223,596
9
217,337
16,277
6,476
40,571
43,157
68,229
5,379
6,782
145,497
88,037
299,870
180,465
50,222
115,770
74,975
7,176
58,736
1,099,037
1,373,799
1,648,561
F-60
Remote
Scenario
Rate
Original
Currency
Likely
Scenario
Scenario A
25%
Scenario B
50%
R$/USD
R$/LPS
R$/UYU
R$/USD
R$/CLP
R$/PEN
R$/ARS
R$/USD
R$/COP
R$/DOP
R$/CRC
R$/T&T
R$/VEF
R$/USD
R$/Rande
R$/USD
R$/USD
R$/USD
R$/USD
R$/USD
R$/USD
R$/USD
R$/PEN
R$/USD
R$/USD
2.2630
0.1177
0.1004
2.2630
0.0041
0.8056
0.2825
2.2630
0.0011
0.0525
0.0042
0.3549
0.3601
2.2630
0.2150
2.2630
2.2630
2.2630
2.2630
2.2630
2.2630
2.2630
0.8056
2.2630
2.2630
6,312
619
118,648
4,438
24,310
107,374
54,048
101
1,044,110
350
5,184,470
87,745
83
35
138
6,984
44,625
16,528
12,273
38
43,626
5,780
221
7,163
123
14,284
73
11,912
10,043
100
86,500
15,269
229
1,200
18
21,796
31,141
30
79
30
15,805
100,986
37,403
27,774
86
98,726
13,080
178
16,210
278
17,855
91
14,890
12,554
125
108,125
19,086
286
1,500
23
27,245
38,926
38
99
38
19,756
126,233
46,754
34,718
108
123,408
16,350
223
20,263
348
21,426
110
17,868
15,065
150
129,750
22,904
344
1,800
27
32,694
46,712
45
119
45
23,708
151,479
56,105
41,661
129
148,089
19,620
267
24,315
417
503,230
629,042
754,849
R$/USD
2.2630
1,805,411
4,085,645
5,107,056
6,128,468
Hedge operations
R$/USD
2.2630
241,867
547,345
684,181
821,018
Liabilities
Trade accounts payable
Construtora OAS S.A. Sucursal Bolvia
Construtora OAS S.A. Sucursal Honduras
Construtora OAS S.A. Sucursal Uruguai
Construtora OAS S.A. Sucursal Equador
Construtora OAS S.A. Sucursal Chile
Construtora OAS S.A. Sucursal Peru
Construtora OAS S.A. Sucursal Argentina
Construtora OAS S.A. Sucursal Haiti
Construtora OAS S.A. Sucursal Colmbia
Construtora OAS S.A. Sucursal Repblica Dominicana
Construtora OAS S.A. Sucursal Costa Rica
Construtora OAS S.A. Sucursal Trinidad & Tobago
Construtora OAS S.A. Sucursal Venezuela
OAS Energy GMBH
Construtora OAS South Africa Ltd
Construtora OAS Guine
Construtora OAS Guin Equatorial
OAS Nacala Ltda
Construtora OAS Ghana Ltd
OAS African Investments Limited
OGI Assets Ltd
OAS Central American Investing
Empresa Peruana de guas EPASA
Construtora OAS Angola Ltda.
OAS Austria GMBH
(735,625)
(1,471,245)
Credit Risk
Accounts receivable
This risk arises from the possibility that the Company and its subsidiaries may incur losses from
difficulty in receiving amounts invoiced to clients.
Cash and cash equivalents, short-term investments and marketable securities
These financial instruments potentially subject the Company and its subsidiaries to credit risks and
primarily comprise cash, banks and short-term investments. These transactions are performed with
first-tier banks, therefore, mitigating risks.
Liquidity risk
Main financial liabilities of the Company and its subsidiaries include trade accounts payable,
debentures, loans and financing. The maturity profiles of loans, financing and debentures as of
December 31, 2013 are described in Notes 12.2 and 12.3, respectively. Trade accounts payable
have less than one year maturity profile.
F-61
Consolidated
03/31/2014
12/31/2013
Financial liabilities
Loans and financing
Debentures and Senior Notes
Financial instruments derivatives
390,476
2,720,450
525,921
368,278
2,898,340
531,354
2,183,451
5,575,240
626,430
2,019,551
5,836,659
609,353
Total
3,636,847
3,797,972
8,385,121
8,465,563
Financial liabilities
Cash and cash equivalents
Short-term investments
Financial instruments derivatives
267,266
183,308
479,866
793,349
178,638
528,905
1,593,162
1,189,510
547,345
2,017,398
1,474,511
600,273
Total
930,440
1,500,892
3,330,017
4,092,182
2,706,407
1,838,024
2,297,080
963,784
5,055,104
2,115,418
4,373,381
1,191,088
1.4725
2.3834
2.3896
3.6718
Net debt
Equity
Indebtedness ratio
25. Insurance
Concession Property damages and civil liability
The concession business subsidiaries have insurance against property damages, loss of revenue
and civil liability.
Engineering risks and other
On March 31, 2014, the Company had insurance coverage against sundry risks, including, among
other, property (fire), engineering risks, civil liability and property damages to own vehicles and
equipment.
Insurance against engineering risks aims to cover property damages to own construction works,
while civil liability insurance is aimed to cover damages unwillingly caused to third parties during
the performance of works.
Guarantees and Surety Consolidated
On March 31, 2014, there was no change in the amount referring to guarantees and surety given
by financial institutions, in connection with the execution of subsidiaries and associated
companies works, as compared to December 31, 2013.
The independent auditor's scope does not consider examining the sufficiency of the insurance
coverage, adequacy of which was determined and assessed by the Companys Management.
F-62
F-63
F-64
27. Commitments
Operating lease obligations
The Company and its subsidiaries are subject to commitments arising from operating lease
agreements referring to properties where some subsidiaries in foreign countries are located, as
well as its administrative headquarters in Brazil, and properties where its subsidiaries in Brazil are
located.
As of March 31, 2014, these agreements have a 58-month residual lease term (expiring on
December 31, 2017) and without purchase option clause at the end of this period, but suitable
renewals are allowed according to the market conditions wherein these lease agreements were
entered into.
F-65
F-66
Financial Statements
OAS S.A.
December 31, 2013
and the Independent Auditors Report on
the Financial Statements
F-67
Condomnio So Luiz
Av. Presidente Juscelino Kubitschek, 1830
Torre I - 8 Andar - Itaim Bibi
04543-900 - So Paulo - SP - Brasil
Tel: (5511) 2573-3000
ey.com.br
A convenience translation into English from the Independent auditors report on financial statements originally
issued in Portuguese
OAS S.A
So Paulo - SP
Introduction
We have audited the accompanying individual and consolidated balance sheet of OAS S.A.
(Company), identified as Company and Consolidated, respectively, as of December 31, 2013, and
the related individual and consolidated statements of income, comprehensive income, changes in
equity and cash flows for the year then ended and a summary of significant accounting practices and
other explanatory information.
Management's responsibility for the financial statements
Management is responsible for the preparation and fair presentation of the individual financial
statements in accordance with the accounting practices adopted in Brazil and of the consolidated
financial statements in accordance with International Financial Reporting Standards (IFRS) applicable
to real estate development entities in Brazil, which takes into consideration the guidance of Technical
Orientation - OCPC04 - Application of the Technical Interpretation ICPC02 for Real Estate
Development Entities in Brazil, issued by the Accounting Pronouncements Committee (CPC) and
approved by the Brazilian Federal Accounting Council (CFC), and for such internal control as
management determines is necessary to enable the preparation of these financial statements that are
free from material misstatement, whether due to fraud or error.
Auditors responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with Brazilian and International Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether theses financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the
Companys preparation and fair presentation of the Companys financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control. An audit also includes evaluating the
appropriateness of accounting practices used and the reasonableness of accounting estimates made
F-68
Uma empresa-membro da Ernst & Young Global Limited
F-69
Restatement of corresponding amounts as of and for the year ended December 31, 2012
As mentioned in note 3.1(d), as a result of the change in accounting policy adopted by the Company in
2013, the corresponding amounts as of and for the year ended December 31, 2012, presented for
comparison purposes, were adjusted and were restated as provided for in NBC TG 23 and in the
Technical Pronouncement CPC 23 - Accounting Policies, Changes in Accounting Estimates and
Errors. Our opinion is not modified in relation to this matter.
So Paulo, March 21, 2014.
ERNST & YOUNG
Auditores Independentes S.S.
CRC-2SP015199/O-6
F-70
Convenience translation into English from the financial statements originally issued in Portuguese
OAS S.A.
Balance Sheets as at December 31, 2013 and 2012 and January 1, 2012
(In thousands of Brazilian Reais)
Company
Note
Assets
Current assets
Cash and cash equivalents
Short-term investments and marketable
securities
Financial instruments derivatives
Trade accounts receivable
Related parties
Inventories
Advances to third parties
Dividends and interest on equity
Prepaid expenses
Taxes recoverable
Assets held-for-sale
Other assets
Total current assets
Non-current assets
Marketable securities
Financial instruments derivatives
Trade accounts receivable
Related parties
Inventories
Notes receivable
Taxes recoverable
Deferred income tax and social contribution
Judicial deposits and compulsory loans
Prepaid expenses
Other assets
Investments
Property, plant and equipment
Intangible assets
Total non-current assets
Total assets
4
12.1
12.5
5
7.1
6
12.1
12.5
5
7.1
6
8
16
9
10
11
12/31/13
Consolidated
12/31/12
01/01/12
(restated)
(restated)
12/31/13
12/31/12
01/01/12
(restated)
(restated)
793,349
174,240
14,955
2,017,398
2,139,007
1,003,500
161,154
8,964
403,432
26,364
10,361
6,292
91,114
595
29,377
480
1,531,482
185,453
184,898
26,364
8,947
7,448
167
2,323
17,327
509
607,676
76,678
26,532
18,986
5,708
50,188
3,648
12,050
357
209,102
668,286
9,345
2,759,465
54,782
695,879
160,390
2,199
56,434
236,727
241,021
6,901,926
500,652
1,619,938
35,780
671,856
179,277
4,001
46,444
82,909
16,468
160,964
5,457,296
250,008
17,484
519,941
11,787
156,135
21,837
781
6
1,199
4,837,733
91,513
36
5,658,452
12,409
7,459
87,788
525
354
1,199
3,642,865
32,635
20
3,785,254
10,359
679
367,413
368
1,287
1,199
2,466,826
40,380
28
2,888,539
806,225
590,928
903,743
248,196
151,090
87,973
69,062
220,362
24,133
24,626
85,641
1,720,459
772,693
959,901
6,665,032
12,409
681,505
178,085
20,544
6,325
137,990
127,799
11,390
26,277
47,661
1,664,130
540,836
755,635
4,210,586
432,439
301,657
20,256
34,550
81,125
71,777
9,967
17,210
6,796
706,232
364,108
294,467
2,379,861
7,189,934
4,392,930
3,097,641
13,566,958
9,667,882
6,017,217
F-71
1,292,308
30,990
406,713
260,325
735
38,822
45,239
157,274
151,442
3,637,356
39,277
OAS S.A.
Balance Sheets as at December 31, 2013 and 2012 and January 1, 2012 -- Continued
(In thousands of Brazilian Reais)
Company
Note
Liabilities
Current liabilities
Trade accounts payable
Loans and financing
Debentures
Senior Notes
Salaries, provisions and social
contributions
Taxes and contributions payable
Income tax and social contribution
payable
Related parties
Advances from third parties
Deferred revenue
Tax installment program - Law 11,941
Dividends and interest on equity payable
Public services concessions
Provision for tax, civil and labor claims
Obligations due to acquisition of real
estate and developments in progress
Contractual retentions
Other liabilities
Total current liabilities
Non-current liabilities
Trade accounts payable
Loans and financing
Debentures
Senior Notes
Financial instruments derivatives
Taxes and contributions payable
Deferred income tax and social
contribution
Tax installment program - Law 11.941
Related parties
Advances from third parties
Public services concessions
Provision for tax, civil and labor claims
Investment valuation allowance
Deferred revenue
Obligations due to acquisition of real
estate and developments in progress
Other liabilities
Total non-current Liabilities
Equity
Capital
Revaluation reserve
Income reserves
Other reserves
Total equity attributed to controlling
interest
Non-controlling interest
Total equity
Total liabilities and Equity
12.2
12.3
12.4
7.1
14
15
12.2
12.3
12.4
12.5
16
15
7.1
18
9
14
12/31/13
Consolidated
12/31/12
01/01/12
(restated)
(restated)
12/31/13
12/31/12
01/01/12
(restated)
(restated)
90,781
145,139
531,550
-
41,560
226,730
290,644
-
41,606
339,297
37,998
-
911,140
781,318
609,471
53,705
551,808
804,567
444,220
17,093
457,501
651,965
117,682
-
15,643
14,126
16,926
16,089
7,316
7,397
300,019
111,949
251,591
130,774
178,118
79,310
7,136
22,533
21
-
347,050
15,518
21,274
92,533
-
39,810
26,312
19,876
21
-
90,314
260,602
232,962
27,461
21
3,655
3,304
48,919
610
186,382
252,851
25,828
104,587
22,180
5,839
36,096
4,609
201,618
168,550
24,130
2,071
1,513
6,957
4,706
674
832,309
3,738
812
1,072,874
2,028
81
521,742
46,961
49,939
127,221
3,610,042
50,807
30,567
151,962
3,080,585
61,654
24,470
72,680
2,088,924
223,139
2,366,790
531,354
-
386,639
1,072,429
-
244,162
864,775
-
1,430
1,238,233
2,035,895
3,137,588
609,353
108,128
6,257
1,283,170
1,400,966
996,935
26,768
3,089
690,191
1,151,392
23,451
76,649
1,874,241
5,654
176
300,218
407
97,399
86,030
539,129
94
162,645
399
27,110
103,588
671,334
976
415
310,186
124,076
20,743
327,503
47,103
19,492
23,442
426,580
290,886
134,011
28,099
598,937
44,213
16,794
15,336
570,209
208,236
152,108
17,303
600,896
15,734
158,368
15,213
5,393,841
13,093
2,357,857
12,079
1,924,439
19,504
316,572
8,765,828
18,105
57,585
5,488,271
72,427
110,716
3,203,911
500,000
17,253
382,891
63,640
500,000
19,400
334,654
108,145
500,000
22,590
58,478
70,392
500,000
17,253
382,891
63,640
500,000
19,400
334,654
108,145
500,000
22,590
58,478
70,392
963,784
962,199
651,460
963,784
962,199
651,460
963,784
962,199
651,460
227,304
1,191,088
136,827
1,099,026
72,922
724,382
7,189,934
4,392,930
3,097,641
13,566,958
9,667,882
6,017,217
17
F-72
OAS S.A.
Statements of income
For the years ended December 31, 2013 and 2012
(In thousands of Brazilian Reais)
Note
Company
12/31/13
12/31/12
Consolidated
12/31/13
12/31/12
(restated)
Net revenue
Cost of services and sales
Gross profit
General and administrative expenses
Management compensation
Depreciation and amortization
Employee profit-sharing
Other operating income (expenses), net
Operating income (expenses)
20
21
7-21
22
21
23
(restated)
684,331
(539,934)
144,397
537,990
(356,313)
181,677
7,926,831
(6,399,548)
1,527,283
5,825,793
(4,662,242)
1,163,551
(89,304)
(2,217)
(2,630)
(3,347)
(98,685)
(196,183)
(71,861)
(1,935)
(5,078)
(12,917)
298,117
206,326
(828,283)
(27,048)
(18,725)
(134,149)
(9,666)
(1,017,871)
(738,717)
(12,770)
(15,353)
(147,065)
536,503
(377,402)
(51,786)
388,003
509,412
786,149
176,935
249,255
(5,824)
31,404
125,149
637,258
503,588
817,553
855,633
(1,147,601)
(291,968)
45,070
(192,925)
(147,855)
1,410,302
(1,884,289)
(473,987)
184,208
(456,229)
(272,021)
(166,819)
489,403
29,601
545,532
118,528
(48,291)
(478)
(70,177)
418,748
(107,362)
94,951
17,190
(31,323)
(30,956)
483,253
(48,291)
(48,291)
418,748
418,748
(48,291)
65,481
17,190
418,748
64,505
483,253
16
F-73
OAS S.A.
Statements of comprehensive income (loss)
For the years ended December 31, 2013 and 2012
(In thousands of Brazilian Reais)
Company
12/31/12
12/31/13
Consolidated
12/31/13
12/31/12
(restated)
(restated)
(48,291)
418,748
17,190
483,253
(41,479)
15,953
(24,648)
15,353
(1,158)
(90,928)
(10,602)
424,099
(1,158)
(8,616)
(10,602)
488,004
(90,928)
82,312
(8,616)
424,099
63,905
488,004
F-74
OAS S.A.
Statements of changes in equity
For the years ended December 31, 2013 and 2012
(In thousands of Brazilian Reais)
Income reserve
Retained
Legal
earnings
reserve
reserve
Revaluation reserve
Capital
Balances at January 1, 2012 (restated)
Net profit for the year
Currency translation gain (losses) on foreign
subsidiaries financial statements
Loss on the adjustment to the postemployment benefit plan benefits
Total comprehensive income for the year
Other changes in equity :
Realization of revaluation reserves and
deemed cost, net of taxes
Dividends
Constitution of reserves
Other equity changes
F-75
Own assets
500,000
8,801
Subsidiaries
assets
13,789
2,442
Other reserves
56,036
Retained
earnings
Non-controlling
interest
Total Company
Total
consolidated
70,392
651,460
72,922
724,382
418,748
418,748
64,505
483,253
15,953
15,953
(600)
15,353
(10,602)
(10,602)
(10,602)
5,351
418,748
424,099
63,905
488,004
(111)
-
20,937
-
(157,522)
412,585
176
(11,584)
43,986
14,774
(433,522)
-
(157,522)
44,162
(157,522)
44,162
23,379
311,275
108,145
962,199
136,827
1,099,026
(3,079)
-
500,000
8,690
10,710
(48,291)
(48,291)
65,481
17,190
(41,479)
(41,479)
16,831
(24,648)
(1,158)
(1,158)
(1,158)
(42,637)
(48,291)
(90,928)
82,312
(8,616)
(5)
-
(2,142)
-
92,513
(44,276)
(1,868)
-
4,015
44,276
92,513
-
92,513
-
8,165
8,165
500,000
8,685
8,568
23,379
359,512
63,640
963,784
227,304
1,191,088
OAS S.A.
Statements of cash flows
For the years ended December 31, 2013 and 2012
(In thousands of Brazilian Reais)
Note
Company
12/31/13
12/31/12
Consolidated
12/31/13
12/31/12
(restated)
21
22
F-76
(restated)
(166,819)
489,403
29,601
545,532
(176,935)
13,758
8,505
107,872
430,818
(5,043)
3,347
-
(249,255)
18,224
5,824
(4,745)
191,245
(31,404)
(167,128)
104,648
158,261
189,918
1,256
56
12,917
-
238,075
6,120
34,244
(41,684)
225,980
147,065
-
(5,152)
(1)
8,065
682,376
(2,626)
(7,941)
(14,802)
204,777
4,042
134,149
(71,455)
(62,700)
(9,552)
(51,104)
(202,628)
(1,413)
3,036
2,075
77
1,158
184
(542)
(124,707)
10,039
(17,753)
2,257
(335)
(1,741)
(31)
(1,433,199)
(103,925)
(48,113)
(5,517)
(50,606)
(38,839)
(50,572)
27,505
184
(40,453)
(899,376)
(258,997)
(194,150)
(16,665)
3,601
75,716
140,934
49,221
(4,629)
(2,125)
(26,661)
(1,765)
(21,912)
968
2,662
(46)
(3,307)
21,959
9,382
1,647
(20,697)
1,709
135,309
175
590,767
(87,155)
12,619
(52,785)
(255,278)
(78,015)
74,688
(190,124)
(25,714)
(17,056)
18,056
64,140
157,931
(73,701)
159,126
(28,762)
(165,728)
364,753
(24,865)
6,466
40,457
8,057
202,100
(592,608)
(247,080)
OAS S.A.
Statements of cash flows--Continued
For the years ended December 31, 2013 and 2012
(In thousands of Brazilian Reais)
Company
12/31/13
12/31/12
Note
Consolidated
12/31/13
12/31/12
(restated)
12.1
(271,684)
306,510
(123,982)
(74,039)
(25)
5,672
-
(187,503)
(659,222)
161,298
(11,726)
(68,369)
-
(848,680)
(70,966)
(434,829)
(185,091)
73,288
(6,482)
(164)
(210,068)
(209,821)
(285,980)
(443,560)
10,438
-
(157,548)
(765,522)
(1,472,924)
(1,138,991)
87,569
2,390,611
1,572,242
(337,242)
(2,496,257)
(198,605)
(249,718)
-
507,306
2,155,553
453,843
(431,416)
(1,746,932)
(178,078)
(28,560)
(9,009)
-
1,900,087
26,822
882,397
1,080,254
(1,187,396)
(106,747)
(469,558)
(338,725)
22,863
(3,992)
145
2,512,686
244,342
638,123
(524,580)
(92,016)
(282,543)
(100,377)
20,898
(15,000)
-
768,600
722,707
1,806,150
2,401,533
37,998
137,773
82,047
619,109
159,285
(121,609)
1,135,507
174,240
793,349
14,955
174,240
2,139,007
2,017,398
1,003,500
2,139,007
619,109
159,285
(121,609)
1,135,507
10
11
4
4
F-77
(restated)
Convenience translation into English from the financial statements originally issued in Portuguese
OAS S.A.
Notes to the Financial Statements
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
1.
Operations
OAS S.A. (OAS or the Company), is domiciled in Brazil, with registered office at Avenida
Anglica, 2346, Consolao, in the city of So Paulo. The Companys individual and consolidated
financial statements for the years ended December 31, 2013 and 2012 comprise the Company
and its subsidiaries (jointly referred to as OAS Group or Group and individually as Group
entities), as described in Note 2.a.
The Company and its subsidiaries are engaged in the performance of civil engineering and heavy
construction services, management and execution of projects and works, purchase and sale of
properties and intermediation, investment and/or shareholding in other entities, consortiums,
condominiums and/or investment and/or real estate funds, in addition to investments and/or
participation in public utility or public use infrastructures under concessions, permissions or
authorizations, including in the form of direct or indirect exploration, through subsidiaries or
affiliates.
2.
a)
Group companies
Subsidiaries
The following list presents the interest in subsidiaries considered in the consolidated information,
as follows:
Companies
Construction:
Coesa Engenharia Ltda. (Coesa)
Concessionria Vial Vale Central
Consrcio OAS Engevix Ltda.
Construtora OAS Angola Ltda.
Construtora OAS GE S.A.
Construtora OAS Ghana Ltd
Construtora OAS Guine
Construtora OAS Moambique
Construtora OAS S.A. (Construtora OAS)
Construtora OAS S.A. Sucursal Argentina
Construtora OAS S.A. Sucursal Bolivia
Construtora OAS S.A. Sucursal Chile
Construtora OAS S.A. Sucursal Colombia
Construtora OAS S.A. Sucursal Costa Rica
Construtora OAS S.A. Sucursal Equator
Construtora OAS S.A. Sucursal Guatemala
Construtora OAS S.A. Sucursal Haiti
Construtora OAS S.A. Sucursal Honduras
Construtora OAS S.A. Sucursal Panama
Construtora OAS S.A. Sucursal Peru
Construtora OAS S.A. Sucursal Dominican Republic
Construtora OAS S.A. Sucursal Trinidad & Tobago
Construtora OAS S.A. Sucursal Uruguay
Construtora OAS S.A. Sucursal Venezuela
Edificaes Itaigara S.A.
F-78
12/31/13
Direct
Indirect
Interest held %
12/31/12
Direct Indirect
99.90%
99.99%
-
99.99%
99.90%
99.99%
-
100.00%
100.00%
100.00%
0.10%
53.00%
70.00%
100.00%
100.00%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
50.10%
0.01%
100.00%
70.00%
0.10%
65.00%
70.00%
100.00%
100.00%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
50.10%
01/01/12
Direct Indirect
99.99%
99.99%
99.99%
-
0.01%
0.10%
0.65%
100.00%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
99.99%
50.10%
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
12/31/13
Direct Indirect
Companies
Construction:--Continued
Construtora OAS LLC Quatar (Construtora OAS LLC)
OAS Engenharia e Construo S.A.
OAS Nacala Ltda
Rodoanel Sul 5 Engenharia Ltda. (Rodoanel)
Interest held %
12/31/12
Direct Indirect
01/01/12
Direct Indirect
100.00%
-
49.00%
100.00%
42.86%
100.00%
42.86%
42.86%
99.99%
0.01%
99.99%
0.01%
100.00%
100.00%
100.00%
100.00%
Infrastructure:
Arena das Dunas Concesso e Eventos S.A. (Arena das Dunas)
Arena Porto-Alegrense S.A. (Arena Porto-Alegrense)
Atlas Servios de Perfurao Ltda.
BR Investimentos em Energia S.A.
BR Terminais e Logstica S.A.
Cassino Drilling B.V
Comandatuba Drilling B.V
Curumim Drilling B.V
Empresa Peruana de guas EPASA
EPP - Energia Eltrica, Promoes e Participaes Ltda.
Itapema Drilling B.V
OAS Arenas S.A.
OAS Engenharia S.A.
OAS Infraestrutura S.A.
OAS Investimentos S.A.
OAS leo e Gs S.A. (OAS leo e Gs)
OAS Solues Ambientais S.A. (OAS Solues Ambientais)
Oil & Gas GmbH
Salinas Drilling B.V
Samar Solues Ambientais de Araatuba S.A. (Samar)
Sanear - Saneamento de Araatuba S.A.(Sanear)
Seaworthy Investments Gmbh (Seaworthy")
SPE Gesto de Arenas S.A.
100.00%
75.00%
99.99%
100.00%
100.00%
-
100.00%
100.00%
25.00%
25.00%
25.00%
25.00%
25.00%
0.01%
25.00%
100.00%
100.00%
100.00%
100.00%
100.00%
25.00%
100.00%
100.00%
89.00%
100.00%
100.00%
75.00%
99.99%
100.00%
100.00%
-
100.00%
100.00%
25.00%
15.00%
15.00%
15.00%
25.00%
0.01%
15.00%
100.00%
100.00%
100.00%
100.00%
100.00%
15.00%
100.00%
70.00%
100.00%
75.00%
99.99%
100.00%
-
100.00%
100.00%
100.00%
100.00%
25.00%
0.01%
100.00%
100.00%
-
Other investees:
Hidroelectrica Chihuidos
OAS African Investments Limited
OAS Central American Investing
OAS Chile Inversiones
OAS Energia e Minerao S.A.
OAS Energy GMBH
OAS Finance Ltd
OAS Internacional S.A.
OAS International Engineering GMBH
OAS Investments GMBH
OAS Investments Limited
OAS Petroleo e Gas S.A.
OGI Assets Ltd.
V.P.R. Brasil Participaes S.A.
99.99%
100.00%
100.00%
100.00%
100.00%
100.00%
-
1.00%
100.00%
100.00%
0.01%
100.00%
100.00%
100.00%
100.00%
-
100.00%
99.99%
100.00%
100.00%
-
100.00%
0.01%
-
100.00%
99.99%
100.00%
100.00%
F-79
100.00%
-
0.01%
-
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
b)
Interest in the investees listed below was accounted for by the equity method in the individual and
consolidated financial statements.
12/31/13
Direct
Indirect
Companies
Construction:
Ecovap Engenharia e Construes Vale do Paraba Ltda.
OAS Emirates LLC
Interest held %
12/31/12
Direct
Indirect
01/01/12
Direct
Indirect
22.00%
48.00%
22.00%
-
22.00%
-
8.89%
-
90.00%
24.44%
24.44%
12.22%
11.22%
22.36%
37.50%
6.09%
12.22%
8.15%
5.97%
33.33%
100.00%
25.00%
70.00%
50.00%
15.55%
24.44%
12.18%
-
22.00%
24.44%
24.44%
12.22%
11.22%
22.36%
37.50%
6.09%
12.22%
8.15%
33.33%
17.50%
25.00%
17.50%
50.00%
12.26%
24.44%
17.67%
17.67%
8.84%
16.77%
37.50%
4.40%
8.84%
25.00%
50.00%
17.67%
-
24.44%
24.44%
24.44%
24.44%
24.44%
24.44%
24.44%
24.44%
17.67%
-
20.0%
20.0%
20.0%
Infrastructure:
Aeroporto de Guarulhos Participaes S.A,
Concesso Metroviria do Rio de Janeiro S.A, (Metr Rio)
Concessionria Auto Raposo Tavares S.A. CART S.A. (CART)
Concessionria Bahia Norte S.A. CBN (CBN)
Concessionria do Aeroporto Internacional de Guarulhos S.A (GRU)
Concessionria Litoral Norte S.A. CLN (CLN)
Concessionria Porto Novo S.A. (Porto Novo)
Concessionria Rio Terespolis S.A. CRT (CRT)
Concessionria Rota Atlntico S.A. CRA (CRA)
Concessionria Transolmpica S.A. CTO (CTO)
Concessionrio do VLT Carioca S.A. (VLT Carioca)
Consrcio Hospital de Rancagua S.A.
EEP Oveseas Ltd.
Estaleiro EEP Participaes S.A.
Estaleiro Enseada Paraguau S.A.
Fonte Nova Negcios e Participaes S.A.
Investimentos e Participaes em Infraestrutura S.A. INVEPAR
Linea Amarilla Brasil Participaes S.A. (LAMBRA)
Linea Amarilla S.A.C. (LAMSAC)
3.
F-80
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
The consolidated financial statements prepared in accordance with accounting policies
adopted in Brazil that include Pronouncements, Guidance and Interpretations issued by CPC
and with International Financial Report Standards (IFRS) applicable to real estate, concession
and development entities in Brazil, including Guidance OCPC 04 Application of Accounting
Interpretation ICPC 02 for Brazilian Real Estate Development Entities relating to the
recognition of revenue and related costs and expenses from real estate operations during the
progress of work (Percentage of Completion Method - POC) from indirect subsidiary OAS
Empreendimentos S.A. Certain issues related to the meaning and application of the continued
transfer concept of risks, benefits and control in the sale of real estate units have been
analyzed by the International Financial Reporting Interpretation Committee (IFRIC), in view of
few countries requests, including Brazil. However, in view of a project to edit a revised
standard for revenue recognition, IFRIC has been discussing this topic in its agenda, as it
understands that the concept to recognize revenue is contained in the standard under
discussion. Thus, we expect the issue to be concluded only after the edition of a revised
standard on revenue recognition.
In the individual financial statements, investments in subsidiaries are recorded under the equity
method, however under IFRS issued by the IASB these should be valued at cost or fair value.
Therefore, the individual and consolidated financial statements are not considered as in
compliance with the IFRS issued by the International Accounting Standards Board (IASB).
The individual and consolidated financial statements report comparative information relating to
the previous year. In addition, the balance sheets as of December 31, 2012 and January 1, 2012
are restated in these financial statements due to the retroactive application of certain accounting
policies (Note 3.d.).
Provided that there is no difference between the consolidated equity and the consolidated net
income attributable to the shareholders of the Company, presented in the consolidated financial
statements prepared in accordance with IFRSs and the accounting practices adopted in Brazil,
the equity and the net income of the Company, presented in the individual financial statements
prepared in accordance with the accounting practices adopted in Brazil, the Company has
chosen to present these individual and consolidated financial statements in a sole set, side by
side.
a)
Bases of measurement
The individual and consolidated financial statements were prepared considering the
historical cost, except for valuation of certain assets and liabilities such as financial
instruments, measured at fair value.
F-81
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
b)
c)
F-82
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
d)
The Company adopted for the first time the amendments required by CPC 33 (R2)
Employee Benefits (IAS 19). The retroactive application removed the corridor approach,
thus, actuarial losses now are recognized as other comprehensive income (previously
recognized in P&L for the year).
Before adopting other standards and pronouncements mentioned above, the following
investees were classified as joint ventures and proportionally consolidated in the
Companys consolidated financial statements: Ecovap, Fonte Nova, Invepar, Porto Novo,
Construtora OAS LLC (Qatar) and OAS Emirates LLC.
With the adoption of these standards and pronouncements, these investees were classified
as investments in joint ventures under non-current assets and as equity pick-up under the
statements of income and cash flows.
The Company is restating its financial statements for the year ended December 31, 2012
and January 1, 2012, according to the IAS 8 guidance Accounting Policies, Changes in
Accounting Estimates and Error (corresponding to CPC 23), in view of requirements and
disclosures required in the first-time adoption of new pronouncements.
Except for the adjustments due to the adoption of CPC 33 (R1) under other reserves and
equity pick-up in the amount of R$10,602, other adjustments reported below refer to the
adoption of CPC 19 (R2) and CPC 36 (R3).
The transitions were applied retroactively in the individual and consolidated financial
statements, with the restatement of comparative information for previous years. The
impacts are shown below:
F-83
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Impacts over the statements of income (Company and consolidated):
December 31, 2012
Company
Original
Net revenues
Cost of services and sales
Gross profit
Operating income (expenses)
Profit before equity pick-up, financial
income (expenses) and income taxes
Equity pick-up
Profit before financial income
(expenses) and taxes
Financial income (expenses), net
Income tax and social contribution
Net profit (loss) for the year
Net profit for the year attributable to:
Controlling interest
Non-controlling interest
Total
Consolidated
Adjustments
Restated
Original
Adjustments
Restated
537,990
(356,313)
537,990
(356,313)
7,030,435
(5,661,280)
(1,204,642)
999,038
5,825,793
(4,662,242)
181,677
206,326
181,677
206,326
1,369,155
(490,528)
(205,604)
113,126
1,163,551
(377,402)
388,003
238,653
10,602
388,003
249,255
878,627
(5,089)
(92,478)
36,493
786,149
31,404
626,656
(118,592)
(80,604)
427,460
10,602
(29,263)
9,949
(8,712)
637,258
(147,855)
(70,655)
418,748
873,538
(325,065)
(83,962)
464,511
(55,985)
53,044
21,683
18,742
817,553
(272,021)
(62,279)
483,253
427,460
427,460
(8,712)
(8,712)
418,748
418,748
427,460
37,051
464,511
(8,712)
27,454
18,742
418,748
64,505
483,253
Adjustments
January 1, 2012
Restated
Original
Adjustments
Restated
Assets
Current assets
607,676
607,676
209,102
209,102
Non-current assets
Other non-current assets
Investments
Property, plant and equipment
Intangible assets
Subtotal
201,274
3,564,834
32,635
107,314
3,906,057
(91,540)
78,031
(107,294)
(120,803)
109,734
3,642,865
32,635
20
3,785,254
381,350
2,427,900
40,380
38,954
2,888,584
(45)
38,926
(38,926)
(45)
381,305
2,466,826
40,380
28
2,888,539
Total assets
4,513,733
(120,803)
4,392,930
3,097,686
(45)
3,097,641
Current liabilities
1,072,874
1,072,874
521,742
521,742
Non-current liabilities
2,459,346
(101,489)
2,357,857
1,924,484
(45)
1,924,439
500,000
19,400
343,366
118,747
981,513
(8,712)
(10,602)
(19,314)
500,000
19,400
334,654
108,145
962,199
500,000
22,590
58,478
70,392
651,460
500,000
22,590
58,478
70,392
651,460
4,513,733
(120,803)
4,392,930
3,097,686
(45)
3,097,641
Liabilities
Shareholders equity
Capital
Revaluation reserve
Income reserves
Other reserves
Total equity
Total liabilities and equity
F-84
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Impact on the balance sheet (Consolidated):
December 31, 2012
Original
Adjustments
January 1, 2012
Restated
Original
Adjustments
Restated
Assets
Current assets
Cash and cash equivalents
2,507,024
(368,017)
2,139,007
1,119,032
(115,532)
1,003,500
592,288
1,944,295
35,780
674,324
217,662
167
46,279
122,720
16,468
175,471
(91,636)
(324,357)
(2,468)
(38,385)
3,834
165
(39,811)
(14,507)
500,652
1,619,938
35,780
671,856
179,277
4,001
46,444
82,909
16,468
160,964
299,011
1,439,297
31,753
519,891
297,524
39,035
62,987
92,102
154,206
(49,003)
(146,989)
(763)
(113,178)
(37,199)
735
(213)
(17,748)
65,172
(2,764)
250,008
1,292,308
30,990
406,713
260,325
735
38,822
45,239
157,274
151,442
6,332,478
(875,182)
5,457,296
4,054,838
(417,482)
3,637,356
79,656
1,033,080
124,689
42,997
6,325
170,699
366,551
23,421
26,277
169,211
37,493
627,379
5,661,176
(67,247)
(351,575)
53,396
(22,453)
(32,709)
(238,752)
(12,031)
(121,550)
1,626,637
(86,543)
(4,905,541)
12,409
681,505
178,085
20,544
6,325
137,990
127,799
11,390
26,277
47,661
1,664,130
540,836
755,635
46,952
573,869
269,612
20,256
34,550
94,492
99,228
16,570
17,171
162,159
205,483
402,000
1,109,734
(7,675)
(141,430)
32,045
(13,367)
(27,451)
(6,603)
39
(155,363)
500,749
(37,892)
(815,267)
39,277
432,439
301,657
20,256
34,550
81,125
71,777
9,967
17,210
6,796
706,232
364,108
294,467
8,368,954
(4,158,368)
4,210,586
3,052,076
(672,215)
2,379,861
14,701,432
(5,033,550)
9,667,882
7,106,914
(1,089,697)
6,017,217
Subtotal
Non-current
Marketable securities
Trade accounts receivable
Related parties
Inventories
Notes receivable
Taxes recoverable
Deferred income tax and social contribution
Judicial deposits
Prepaid expenses
Other assets
Investments
Property, plant and equipment
Intangible assets
Subtotal
Total assets
F-85
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
January 1, 2012
Adjustments
Restated
Original
Adjustments
Restated
619,677
965,517
450,662
17,093
(67,869)
(160,950)
(6,442)
-
551,808
804,567
444,220
17,093
470,800
796,936
138,910
-
(13,299)
(144,971)
(21,228)
-
457,501
651,965
117,682
-
263,462
136,419
(11,871)
(5,645)
251,591
130,774
187,438
101,489
(9,320)
(22,179)
178,118
79,310
62,360
2,847
176,642
252,851
25,828
109,862
318,024
18,461
(13,441)
(2,237)
9,740
(5,275)
(295,844)
5,839
(18,461)
48,919
610
186,382
252,851
25,828
104,587
22,180
5,839
-
42,397
6,819
205,423
168,550
24,130
3,419
63,088
7,285
9,897
(6,301)
(2,210)
(3,805)
(1,348)
(61,575)
(328)
(9,897)
36,096
4,609
201,618
168,550
24,130
2,071
1,513
6,957
-
48,361
31,350
161,254
2,446
(783)
(9,292)
50,807
30,567
151,962
60,300
24,470
67,683
1,354
4,997
61,654
24,470
72,680
3,660,670
(580,085)
3,080,585
2,379,034
(290,110)
2,088,924
2,385,987
1,737,935
996,935
115,081
6,257
(1,102,817)
(336,969)
(88,313)
6,257
1,283,170
1,400,966
996,935
26,768
1,303,889
1,300,740
61,372
3,089
(613,698)
(149,348)
(37,921)
3,089
690,191
1,151,392
23,451
517,372
134,011
32,094
122,561
582,201
2,717,756
16,098
451,759
(226,468)
(3,995)
(122,561)
16,736
(2,673,543)
696
15,336
118,450
290,886
134,011
28,099
598,937
44,213
16,794
15,336
570,209
202,464
152,108
18,082
85,359
645,969
10,305
19,209
158,368
5,772
(779)
(85,359)
(45,073)
(10,305)
(3,475)
-
208,236
152,108
17,303
600,896
15,734
158,368
27,122
117,021
(9,017)
(59,436)
18,105
57,585
24,795
53,959
47,632
56,757
72,427
110,716
9,953,933
(4,465,662)
5,488,271
4,036,619
(832,708)
3,203,911
Equity
Capital
Revaluation reserve
Income reserves
Other reserves
500,000
19,400
343,366
118,747
(8,712)
(10,602)
500,000
19,400
334,654
108,145
500,000
22,590
58,478
70,392
500,000
22,590
58,478
70,392
981,513
(19,314)
962,199
651,460
651,460
Subtotal
Non-controlling interest
Total equity
Total liabilities and equity
105,316
31,511
136,827
39,801
33,121
72,922
1,086,829
12,197
1,099,026
691,261
33,121
724,382
14,701,432
(5,033,550)
9,667,882
7,106,914
(1,089,697)
6,017,217
F-86
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Impacts on the consolidated statement of cash flows:
December 31, 2012
Original
Cash used in operating activities
Cash used in investing activities
Cash generated in financing activities
Net effect due to incorporation and changes on percentage of shares owned
Foreign exchange variation effect on cash
Adjustments
Restated
(156,713)
(1,538,541
2,990,122
11,073
82,051
1,387,992
(90,367)
399,550
(588,589)
26,925
(4)
(252,485)
(247,080)
(1,138,991)
2,401,533
37,998
82,047
1,135,507
1,119,032
2,507,024
(115,532)
(368,017)
1,003,500
2,139,007
1,387,992
(252,485)
1,135,507
Other amendments are applicable for the first time in 2013. However, they did not cause
relevant impacts on the individual and consolidated financial statements of the Company.
e)
F-87
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
IFRIC 21 Taxes
The IFRIC 21 clarifies when an entity shall recognize a liability for a tax when the event
causing the payment occurs. For a tax requiring that its payment originates from the
achievement of certain metrics, the interpretation indicates that no liability shall be
recognized until these metrics are achieved. The IFRIC 21 takes effects for the fiscal
years ended on or after January 1, 2014. The Group does not expect the IFRIC 21 to
have relevant impacts on its financial statements.
F-88
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
b)
Financial Instruments
The Companys financial assets are mainly represented by cash and cash equivalents,
financial investments and credits receivable and the financial liabilities by trade accounts
payable, debentures, loans, financing and senior notes, besides derivative financial
instruments that may be registered as financial assets or liabilities.
Initial recognition and measurement
The financial assets and liabilities are firstly recognized by their fair value plus costs
directly attributable to their acquisition or issue, except for the financial instruments
classified under the financial instruments category at fair value through profit or loss, to
which costs are recorded directly in the P&L for the year.
Subsequent measurement
The subsequent measurement of financial assets and liabilities depends on its
classification, which may occur as follows:
F-89
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Loans and receivables are represented by trade accounts receivable deriving from
construction services measured to be billed, relating to the construction agreements
recognized by the level of progress of works. For credits deriving from sales agreements of
unfinished units (under construction) in the real estate development activity, the accounting
criteria described in the guidance OCPC-01 RI Real Estate Development Entities shall
apply, which refers to real estate development entities and described in the topic Result
from development and sale of properties and others. The amounts referring to the
monetary restatement of receivables are recorded in the profit and loss for the year, under
revenue from the sale of real properties until the delivery of keys and as financial
income (interest receivable) after the delivery of keys.
The impairment losses are recognized as financial expenses in the statements of income,
when incurred.
Held-to-maturity investments
The non-derivative financial assets with fixed or determinable payments and fixed
maturities are classified as held to maturity when the Group expressed its intention and
financial capacity to hold them to maturity. After the initial valuation, the investments held to
maturity are valued at the amortized cost applying the effective interest rate method - TJE,
less impairment loss. The amortized cost is calculated taking into account any discount or
premium over the acquisition and rates or costs incurred. The TJE amortization is included
in financial income, under the statements of income. The impairment losses are recognized
as financial expense in the statements of income.
Available-for-sale financial assets
The available-for-sale financial assets are those non-derivative financial assets which are
not classified as (a) loans and receivables, (b) investments held to maturity or (c) financial
assets at fair value through profit or loss. These financial assets include the equity
instruments and bonds. Bonds in this category are those intended to be held for an
indefinite term and which may be sold in order to meet the liquidity needs or in reply to
changes in the market conditions.
After initial measurement, available-for-sale financial assets are measured at fair value,
with unrealized gains and losses recognized in other comprehensive income until the
investment is written off, except for impairment losses, interest rates calculated applying
the effective interest rate method, gains or losses with exchange variation over monetary
assets which are directly recognized in the profit and loss for the year.
When the investment is derecognized or when impairment loss is verified, the cumulative
gains or losses previously recognized in other comprehensive income shall be recognized
in the statements of income.
F-90
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Dividends over available-for-sale equity instruments are recognized in the statements of
income when the Groups right to receive is established.
The fair value of monetary assets available for sale denominated in foreign currency is
measured in such foreign currency and converted applying the exchange rate effective at
the end of the reporting period of the financial statements. Changes in fair value
attributable to conversion differences resulting from a change in the amortized cost are
recognized in the statements of income and other changes are directly recognized in
equity.
Derecognition (write-off)
A financial asset (or, where applicable, part of a financial asset or part of a group of similar
financial assets) is written-off when:
the rights to receive the assets cash flows expire; and
the Group has transferred its rights to receive the asset's cash flows or assumed an
obligation to fully pay the cash flows received, without significant delay, to a third party
by force of an onlending agreement; and (a) the Group substantially transferred all the
assets risks and benefits, or (b) the Group has neither transferred nor substantially
retained all the risks and benefits related to the asset, but transferred the asset's control.
When the Group has transferred its rights to receive cash flows from an asset or has
executed an onlending agreement, and has neither transferred nor substantially retained all
the risks and benefits of an asset, the asset is recognized to the extent of the Group's
continued involvement with the asset.
In this case, the Group also recognizes a related liability. The transferred assets and the
related liability are measured based on the rights and obligations the Group maintains.
The continued involvement as a guarantee over transferred asset is measured by the
assets original carrying amount or by the maximum consideration which can be required
by the Group, whichever is the smallest.
b.2) Impairment of financial assets
At the end of the reporting period, the Group evaluates if there is any objective evidence of
impairment of a financial asset, or group of financial assets. A financial asset, or group of
financial assets, is considered impaired, if, and only if, there is an objective evidence of
lack of recoverability as a result of one or more events which have occurred after the
asset's initial recognition (a loss event incurred) and this loss event has an impact on the
financial assets estimated future cash flows, or group of financial assets, which can be
reasonably estimated.
F-91
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Financial assets at the amortized cost
Referring to the financial assets stated at the amortized cost, the Group firstly individually
evaluates if there is a clear evidence of impairment loss of each financial asset which is
individually relevant, or jointly for financial assets which are not individually relevant. If the
Group concludes there is no evidence of impairment loss of a financial asset individually
valued, whether or not relevant, the asset is included in a group of financial assets with
characteristics of similar credit risk and is valued jointly in relation to the impairment loss.
The assets which are individually valued for the purposes of impairment losses and to
which an impairment loss is or is still recognized are not included in a joint valuation of
impairment losses.
When there is a clear evidence of impairment, the loss is measured as the difference
between the assets carrying amount and the present value of estimated future cash flows
(excluding expected future credit losses not yet incurred). The present value of estimated
future cash flows is discounted by the original effective interest rate to the financial asset.
When the loan shows variable interest rates, the discount rate to measure any impairment
loss will be the current effective interest rate.
The assets carrying amount is reduced by means of a provision, and the loss amount is
recognized in the statements of income. The interest income is still calculated over the
reduced carrying amount based on the assets original effective interest rate. Loans, jointly
with related provision, are written-off when there is no realistic outlook for its recovery in
the future and all the guarantees have been realized or transferred to the Group. If, in the
following year, the estimated impairment loss increases or decreases due to an event
occurred after the recognition of impairment loss, the loss previously recognized is
increased or decreased adjusting the provision. In the event of any future recovery of a
derecognized asset, such recovery is recognized in the statements of income.
b.3) Financial liabilities
Collateral agency agreements
The collateral agency agreements issued by the Group are agreements which require
payment for the purposes of reimbursement for the holder of losses incurred thereby when
specific debtor fails to make due payment according to the terms of the corresponding debt
instrument. Collateral agency agreements are firstly recognized as a liability at fair value,
adjusted by transaction costs directly related to the issue of collateral. Subsequently, the
liability is measured based on the best expense estimate required to settle the obligation at
the end of the reporting period or in the recognized amount less amortization, whichever is
the highest.
F-92
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Derecognition (write-off)
A financial liability is written-off when the obligation is revoked, canceled or expires. When
a financial liability is replaced by another one of same lender with terms substantially
different, or the terms of current liability are significantly altered, this replacement or
alteration is treated as derecognition of original liabilities and recognition of a new liability,
and the difference in related carrying amounts is recognized in the statements of income.
Other financial liabilities
After initial recognition, other financial liabilities subject to interest rates are subsequently
measured at the amortized cost, applying the effective interest rate method - TJE. Gains
and losses are recognized in the statements of income upon the write-off of liabilities, as
well as during the amortization process by TJE.
b.4) Financial instruments net reporting
Financial assets and liabilities are stated net in the balance sheet if, and only if, there is a
current and enforceable legal right to offset the amounts recognized and if there is any
intention of offsetting, or to realize the asset and settle the liability simultaneously.
b.5) Financial instruments fair value
The fair value of financial instruments actively traded in the organized financial markets is
determined based on the buy closing prices quoted on the market at the end of the
reporting period, without deducting the transaction costs.
The fair value of financial instruments to which there is no an active market is calculated by
applying valuation techniques. These techniques may include the adoption of recent
market transactions, reference to current fair value of another similar instrument, analysis
of discounted cash flows or other valuation models.
An analysis of fair value of financial instruments and further details about how they are
calculated are in Note 12.5.
c)
F-93
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
The concessionaire recognizes a financial asset resulting from a concession agreement
when it has an unconditional contractual right to receive cash or another financial asset,
under the management of the granting authority for construction services or improvement
services rendered. These financial assets are measured at fair value by means of initial
recognition. After initial recognition, the financial assets are measured at the amortized
cost.
If the Company is paid for the construction services partially through a financial asset and
partially through an intangible asset, then each component of remuneration received or
receivable is recorded individually and is initially recognized by fair value of remuneration
received or receivable.
d)
Inventories (consolidated)
These include the properties under construction by the cost incurred during the
construction phase of projects, completed units and lands. The outstanding balances at the
end of each reporting period do not exceed related net realization amounts.
The Company and its subsidiaries partially acquire the lands through operations, in which,
in exchange of lands acquired, undertake to:
i) deliver the project's real estate units under construction; or
ii) deliver the percentage of accounts receivable deriving from the sale of projects real
estate units.
Under the guidance OCPC-01 R1, if there is a barter of real estate units without same
nature and value, this is considered as a transaction with commercial relevance, therefore,
it results in gain or loss. The Company and its subsidiaries account for the barter at fair
value, as a component of land inventory tradable, against liabilities due to the acquisition of
properties under liabilities, upon the signature of a private instrument or agreement related
to referred transaction.
e)
F-94
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
The residual value and the useful life of assets and the depreciation methods are reviewed
at the end of each fiscal year, and adjusted on a retroactive basis, where applicable.
The assets held by means of finance lease are depreciated by the expected useful life,
likewise own assets or for a shorter period, where applicable, according to the terms of the
lease agreement under consideration.
f)
Intangible assets
The intangible assets, stated in the consolidated financial statements, mainly refer to (i) the
exploration rights of Arena Porto Alegrense, SAMAR and SANEAR, (ii) goodwill due to the
expectation of future profitability, divided into the acquisition of shares from subsidiary
INVEPAR and (iii) software rights of use, recorded at the acquisition cost.
The intangible assets acquired separately are measured upon initial recognition at the
acquisition cost and subsequently deducted from accumulated amortization and
impairment losses, where applicable.
The intangible assets with identifiable useful life are amortized according to their estimated
economic useful life and when impairment losses signs are identified, these are submitted
to impairment loss testing.
The intangible assets with indefinite useful life are not amortized, but they are yearly tested
for impairment losses, individually or at the level of the cash generating unit. The valuation
of indefinite useful live is yearly reviewed in order to determine if this valuation is still
justifiable, otherwise, the change in the useful life, from indefinite to identifiable, occurs
prospectively.
Gains and losses resulting from the write-off of an intangible asset are measured as the
difference between the sale net value and the assets carrying amount, and recognized in
the statements of income upon the assets write-off.
The goodwill which has been allocated to the concession rights, as well as those related,
but not directly allocated to the concession or other assets and liabilities with restricted
economic benefit in time (defined term) due to the concession right with identifiable useful
life compose the balance of intangible assets and are amortized by the same criteria
described in the previous paragraph.
F-95
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
g)
h)
F-96
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
h.3) Investments in associated companies
The associated companies are those in which the Company poses a significant influence.
Investments in associated companies are recognized in non-current assets and as equity
pickup in the statements of income and cash flows.
h.4) Consortia
The parent company and the subsidiaries Construtora OAS S.A. and Coesa Engenharia
Ltda. also take part in the consortia of several projects and consolidate them according to
related interest percentage.
h.5) Loss of control
When the Company loses the control of a subsidiary, the gain or loss over sale is
calculated by the difference between: (i) the sum of fair value of considerations received
and the fair value of residual interest, and (ii) the previous balance of assets (including
goodwill) and the subsidiarys liabilities, and non-controlling interest, if any.
The fair value of any investment held in previous subsidiary on the date of loss of control is
considered as the fair value upon initial recognition for subsequent accounting by CPC 38
Financial Instruments: Recognition and Measurement (corresponding to IAS 39) or,
where applicable, the cost upon the initial recognition of an investment in associated
company or joint venture.
i)
Held-for-sale assets
The assets are classified as held for sale if their carrying amounts are mainly recovered by
means of a sale transaction and not through the continued use. This condition is only met
when sale is highly probable and the non-current asset (or group of assets) is available for
immediate sale in its current condition. The Management is committed to the sale, which
upon recognition is expected to be considered as a completed sale within one year, as of
the date of classification.
When the Company is committed to a sale plan which involves losing control of a
subsidiary, when the criteria mentioned in previous paragraph are met, all the assets and
liabilities of this subsidiary are classified as held for sale in the consolidated financial
statements, even if after the sale, the Group still holds interest in the Company.
These assets are classified as available for sale are measured by the smallest amount
between the carrying amount previously recorded and the fair value less cost of sale.
F-97
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
j)
Borrowing costs
Borrowing costs directly related to the acquisition, construction or production of an asset
which require a significant time to be concluded for use purposes are capitalized as part of
cost of corresponding asset. All other borrowing costs are recorded under expenses in the
period these are incurred. These costs comprise interests and other costs incurred by an
entity related to the loan.
k)
Business combination
Business combinations are accounted for applying the acquisition method. The cost of an
acquisition is measured by the sum of consideration transferred, measured based on the
fair value on the date of acquisition and any non-controlling interest in the acquired
company. For each business combination, the buyer shall measure the non-controlling
interest in the acquired company by fair value or based on its interest in net assets
identified in the acquired company. The costs directly attributable to the acquisition must be
accounted for as expense when incurred.
When acquiring a business, the Company carries out the valuation of the financial assets
and liabilities assumed aiming at classifying and allocating them according to the
contractual terms, the economic circumstances and related conditions on the date of
acquisition, which includes, the separation by acquired company of embedded derivatives
existing in host agreements in the acquired company.
If business combination occurs in stages, the fair value on the date of acquisition of equity
interest previously held in the acquired companys capital is re-measured at fair value on
the date of acquisition, and the impacts are recognized in the statements of income.
Any contingent consideration to be transferred by the acquirer will be recognized at fair
value on the date of acquisition. Subsequent changes in fair value of contingent
consideration deemed as an asset or a liability shall be recognized under the CPC 38 in
the statement of income or in other comprehensive income. If contingent consideration is
classified as equity, it shall not be re-measured until is finally settled in equity.
Firstly, the goodwill is measured as the surplus of consideration transferred in relation to
the net assets acquired (net identifiable assets acquired and the liabilities assumed). If the
consideration is smaller than the fair value of net assets acquired, the difference shall be
recognized as gain in the statement of income.
After the initial recognition, the goodwill is measured at cost, less any recoverable values
accumulated losses. For the purposes of impairment testing, the goodwill acquired in a
business combination, as of the date of acquisition, is allocated to each cash generating
unit which is expected to benefit from the business combination synergies, regardless of
other assets or liabilities of the acquired company to be attributed to these units.
F-98
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
When the goodwill composes a cash generating unit and an amount of this unit is sold, the
goodwill related to the sold amount shall be included in the cost of operation when gain or
loss over sale is verified.
The goodwill sold in these circumstances is verified based on the proportional amounts of
the sold amount in relation to the cash generating unit maintained.
l)
Taxation
l.1)
l.2)
F-99
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
The deferred tax assets and liabilities are measured by rates applicable in the period in
which the liability is expected to be settled or the asset to be realized, based on the tax
rates provided for in tax legislation in force at the end of each fiscal year, or when a new
legislation has been substantially approved.
The deferred tax assets and liabilities are offset, considering the entitys analysis, only
when there is the legal right of offsetting current legislation asset with current tax liability
and when these are related to the taxes administered by the same tax authority and the
Group plans to settle the net amount of its current tax assets and liabilities.
l.3)
Other taxes
Revenues of few subsidiaries are subject to the Services Tax - ISS, cumulative Social
Integration Program - PIS and Contribution to the Social Security Financing - COFINS.
These are stated as deduction of gross revenue in the statements of income.
m)
n)
n.1) Judgments
The preparation of the individual and consolidated financial statements of the Company
requires that Management makes judgments, estimates and adopts assumptions affecting
the reported amounts of revenues, expenses, assets and liabilities, as well as the
disclosure of contingent liabilities, on the base date of the financial statements. However,
the uncertainty related to these assumptions and estimates may lead results to require a
significant adjustment to the carrying amount of asset or liability affected in future periods.
n.2) Estimates and assumptions
Main assumptions relating to the sources of uncertainty in future estimates and other
relevant sources of uncertainty in estimates at the end of the reporting period, involving a
relevant risk of causing a significant adjustment to the carrying amount of assets and
liabilities in the next financial year, are discussed below.
F-100
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Revenue recognition and margin of construction contracts and provisions for contracts
The estimated result of contracts is monthly reviewed during the execution of contracts
and represents the best estimate of contracts future economic benefits, as well as the
risks and obligations associated therewith.
When the review of contracts estimated result indicates that total costs of contract exceed
contracts total revenue, the expected loss is immediately recognized as expense in the
profit and loss for the year.
Taxes
There are uncertainties in relation to the interpretation of complex tax rules and the value
and time of future taxable results. Given the broad aspect of international business
relationships, as well as the long-term nature and the complexity of current contractual
instruments, differences between actual results and the assumptions adopted, or future
changes in these assumptions, could require future adjustments to tax revenue and
expenses already recorded. The Company sets up provisions, based on reasonable
estimates, for any resulting audits by tax authorities of corresponding jurisdictions where it
operates. The amount of these provisions is based on several factors, such as the
experience of previous tax audits and interpretations diverging from tax rules by taxable
entity and by tax authority in charge. These interpretation differences may arise among a
series of issues, depending on the conditions prevailing in the Company.
The Managements relevant judgment is required to calculate the deferred tax asset that
can be recognized, based on a reasonable term and level of future taxable income,
together with future tax planning strategies.
o)
F-101
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
p)
q)
Distribution of dividends
The distribution of dividends for the Companys shareholders, where applicable, is
recognized as a liability in the financial statements at the years end, based on the
minimum dividend defined in the Companys Bylaws. Any amount above the minimum
mandatory dividend is only accrued on the date dividends are approved at the
Shareholders Meeting.
r)
s)
Revenue recognition
F-102
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
The stage of completion is evaluated by physical or financial reference of works carried
out. The criterion to be adopted depends on the terms of each contract and all the related
facts and circumstances. When the result of a construction contract cannot be reliably
measured, the contracts revenue is recognized until the limit of recognized costs under
the condition that the cost incurred may be recovered. Contractual losses are immediately
recognized in the statements of income.
s.2) Sales deriving from real estate development activity
Revenues and costs of property sales observe the procedures and standards of OCPC 04
and are recorded as follows:
Sales of finished units sales revenues and the costs incurred are appropriated to profit
or loss upon signature of the public or private instrument of purchase and sale),
regardless of receiving the contracted amount.
Sales of properties under construction sales revenues are appropriated to profit or loss,
as follows:
(i)
(ii) sales revenues calculated as per item (i), including the monetary restatement, net of
amounts already received, are accounted for as accounts receivable, or as advance from
customers, in view of the recorded revenue/amounts received ratio; and
(iii) costs of land and construction inherent to related developments are appropriated to profit
or loss applying the percentage-of-sale method of each project, and this percentage is
measured in view of the number of units sold in relation to the total units of respective
projects.
s.3) Revenues deriving from concession rights
Revenue is measured at fair value of consideration received or receivable, less any
estimates of refunds and other similar deductions. Revenue is recognized in the accrual
basis period, i.e., upon the utilization of public and private assets, purpose of concessions
by users.
F-103
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
s.4)
Profit sharing
The Company recognizes a liability and an expense referring to provision for profit sharing
in the year. The Management adopts as basis of calculation of such provision, the result
combined with the metrics to achieve the targets and specific objectives, which are
established and approved early each year.
u)
Actuarial gains and losses of health insurance plan and other employee benefit plan costs
The Company also grants certain extended health insurance benefits to retired employees
who are eligible to the benefit. The costs related to the contributions made by the Company
and its subsidiaries to the plans are recognized by the accrual basis of accounting as other
comprehensive income. The cost of benefits granted by defined benefit plans is established
separately.
v)
F-104
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
4.
1,195
375,109
417,045
793,349
Company
12/31/12
01/01/12
(restated)
(restated)
743
172,082
1,415
174,240
2,340
12,615
14,955
12/31/13
445,337
831,219
719,310
21,532
2,017,398
Consolidated
12/31/12
01/01/12
(restated)
(restated)
488,166
650,959
312,812
687,070
2,139,007
224,534
520,385
223,309
35,272
1,003,500
CDBs are remunerated at rates ranging from 99.7% to 105% of the CDI (on December 31,
2012, 96% to 104,5% of the CDI and on January 1, 2012, 80% and 100% of CDI).
Investments deemed cash equivalent have the immediate liquidity and are maintained to meet
the short-term cash commitments other than the investment and other purposes.
5.
Company
12/31/12
01/01/12
(restated)
(restated)
12/31/13
Consolidated
12/31/12
01/01/12
(restated)
(restated)
Construction services
Government
Private sector
Receivables from real state sales
Receivables from concession contracts
Related parties (Note 7.2)
(-) Allowance for doubtful accounts
(-) Present value adjustment
8,654
406,621
(56)
-
20,547
171,866
(56)
-
66,416
10,941
-
1,574,478
682,769
549,056
692,010
395,647
(221,773)
(8,979)
1,047,892
344,826
585,928
338,529
200,206
(202,918)
(13,020)
1,148,396
235,852
319,885
83,602
3,703
(53,546)
(13,145)
Subtotal
415,219
192,357
77,357
3,663,208
2,301,443
1,724,747
Current assets
Non-current assets
403,432
11,787
184,898
7,459
76,678
679
2,759,465
903,743
1,619,938
681,505
1,292,308
432,439
Total
415,219
192,357
77,357
3,663,208
2,301,443
1,724,747
Amounts relating to trade accounts receivable from real estate sales, arising from indirect
subsidiary OAS Empreendimentos S.A. transactions, are guaranteed by the property itself. In
accordance with contractual conditions, the receivables from finished units are monetarily
adjusted by the General Market Price Index (IGP-M), plus interest of 12% per year.
The present value adjustment related to accounts receivable from properties was calculated
according to CPC 12 and OCPC 01 as of December 31, 2013 and 2012 and January 1, 2012, at
the interest rate for government securities, NTN B - National Treasury Notes, indexed to the
IPCA.
F-105
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
As of December 31, 2013, the balance of trade accounts receivable recorded in consolidated
non-current assets includes the amount of R$140,807 of subsidiary Construtora OAS
(December 31, 2012 R$100,830 and R$95,370 and on December 1, 2012, R$101,231 and
R$92,714 of subsidiaries Construtora OAS and Coesa, respectively), arising from rights
receivable in Brazil from the federal, state and municipal governments. The credits mainly refer
to services rendered, measured, approved and outstanding invoices, to which collection
administrative and judicial measures have been taken. The Companys Management does not
expect any losses other than the amounts provisioned.
12/31/13
Aging list
Trade accounts receivable falling due
Overdue by 30 days
Overdue from 31 to 60 days
Overdue from 61 to 90 days
Overdue from 91 to 180 days
Overdue from 181 to 360 days
Over 360 days
Subtotal
(-) Allowance for doubtful accounts
(-) Present value adjustment
Total
Company
12/31/12
01/01/12
12/31/13
Consolidated
12/31/12
01/01/12
(restated)
(restated)
306,512
10
337
21,816
74,757
11,843
415,275
141,065
1,348
6,322
9,102
4,741
22,320
7,515
192,413
64,116
3,154
1,685
3,744
2,217
1,761
680
77,357
2,711,963
260,046
86,483
35,058
65,257
209,116
526,037
3,893,960
1,854,178
129,170
30,612
16,018
14,969
34,512
437,922
2,517,381
1,263,430
174,005
9,044
9,243
19,447
9,099
307,170
1,791,438
(56)
-
(56)
-
(221,773)
(8,979)
(202,918)
(13,020)
(53,546)
(13,145)
415,219
192,357
77,357
3,663,208
2,301,443
1,724,747
The allowance for doubtful accounts was set up based on analysis of each clients financial
status and, in the event of any judicial collection proceeding is in place, the opinion of legal
counsels is deemed sufficient by the Management to cover any credit risk.
For accounts receivable related to property sale, the Management deems it is unnecessary to
set up a provision by virtue of the possibility to terminate an agreement referring to property
under construction or to repossess the properties in the case of real estate developments
already concluded.
Changes in allowance for doubtful accounts:
Company
12/31/13
12/31/12
Consolidated
12/31/13
12/31/12
(restated)
(restated)
(56)
-
(56)
-
(202,918)
(5,610)
1,073
6,352
(20,670)
(53,546)
(150,269)
(31)
928
-
(56)
(56)
(221,773)
(202,918)
F-106
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
5.1. Construction contracts
12/31/13
Company
12/31/12
01/01/12
(restated)
(restated)
12/31/13
Consolidated
12/31/12
(restated)
01/01/12
(restated)
292,828
149,208
67,556
1,438,026
1,252,231
986,739
292,828
149,208
67,556
1,438,026
1,252,231
986,739
(407)
(4,706)
(5,654)
(399)
(3,738)
(15,518)
(415)
(2,028)
(26,312)
(659,542)
(49,939)
(588,105)
(704,610)
(30,567)
(785,319)
(326,918)
(24,470)
(802,514)
(10,767)
(19,655)
(28,755)
(1,297,586)
(1,520,496)
(1,153,902)
282,061
129,553
38,801
140,440
(268,265)
(167,163)
Gross revenue accrued in the year ended December 31, 2013, referring to such agreements
amounted to R$562,230 and R$8,393,772 (2012, R$495,129 and R$ 5,300,757), Company
and consolidated, respectively.
Advances received from clients in connection with contracts related to construction work in
progress refer to amounts received in a proportion higher than the services already performed.
6.
Inventories
12/31/13
Consolidated
12/31/12
01/01/12
(restated)
(restated)
Land
Real state units under construction
Finished real state units
Advances to suppliers
Imports in transit
Materials
Other
191,972
218,823
122,137
14,687
7,571
233,361
58,418
146,469
248,204
20,680
17,526
6,417
229,056
24,048
130,987
157,336
5,825
13,332
4,353
108,466
6,670
Total
846,969
692,400
426,969
Current assets
Non-current assets
695,879
151,090
671,856
20,544
406,713
20,256
Total
846,969
692,400
426,969
The amounts recorded under real state units under construction and finished real state units
refer to costs incurred, including land, on the construction of unsold real estate units by the
indirect subsidiary OAS Empreendimentos.
On December 31, 2013, capitalized financial charges from transactions carried out by the
subsidiary OAS Empreendimentos amounted to R$46,086 (December 31, 2012, R$26,130 and
on January 1, 2012, R$28,953).
F-107
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
7.
The Company and its subsidiaries maintain transactions within the Groups companies.
The operations between any related party of the Company, its subsidiaries and joint ventures,
whether managers and employees, shareholders, subsidiaries or associated companies are
carried out under the conditions agreed upon the parties, approved by the appropriate
Management's bodies and disclosed in the financial statements.
7.1. Subsidiaries and associated companies: loans and purchase and sale
operations of assets
Intercompany loans and purchase and sale of assets between the Groups companies are
shown below:
12/31/2013
Company
12/31/2012
01/01/2012
(restated)
(restated)
12/31/2013
Consolidated
12/31/2012
01/01/2012
(restated)
(restated)
Assets
CMP Participaes (a)
LP Participaes (a)
OAS Empreendimentos (b)
Odebrecht Realizaes e participaes
Hospital Rancgua
Manhattan square
Construtora OAS S.A.
Fonte Nova
Other
Total
104,000
11,555
63,488
3,456
182,499
87,047
9,672
16,513
920
114,152
237,280
26,363
16,538
113,596
168
393,945
107,550
11,555
34,784
21,959
62,499
64,631
302,978
90,598
9,672
17,133
96,462
213,865
240,831
26,363
442
65,011
332,647
Current assets
Non-current assets
Total
26,364
156,135
182,499
26,364
87,788
114,152
26,532
367,413
393,945
54,782
248,196
302,978
35,780
178,085
213,865
30,990
301,657
332,647
Liabilities
Coesa (c)
Construtora OAS (d)
OAS Empreendimentos S.A. (b)
OAS Investimentos S.A. (e)
Construtora OAS S.A. - T & T (f)
Construtora OAS S.A. - Haiti
EPP - Energia Eltrica Promoes
Other
Total
109,194
631,611
94,964
1,026,059
10,076
5,472
4,001
1,881,377
129,772
340,799
158,614
113,991
128,741
8,790
5,472
886,179
136,465
271,474
178,441
2,613
109,109
7,570
5,472
711,144
20,743
20,743
28,709
28,709
21,912
21,912
Current liabilities
Non-current liabilities
7,136
1,874,241
347,050
539,129
39,810
671,334
20,743
610
28,099
4,609
17,303
Total
1,881,377
886,179
711,144
20,743
28,709
21,912
F-108
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
a) It basically refers to credits assigned to the Companys shareholders, 90% for CMP Participaes Ltda (CMP Participaes),
which corresponds to the amount of R$237,280 and 10% for LP Participaes Ltda (LP Participaes), corresponding to
R$26,364. The agreement for the assignment of these credits foresees 10-year maturity; In 2013, this item also records
advances wich will be offset with dividends in the following years;
b) On September 30, 2013, OAS S.A. offset the balance receivable from OAS Empreendimentos, in the amount of R$16,513,
remaining a balance payable of R$132,101 on that date, which was settled on October 31, 2013, through the offset of credits
deriving from remittances made in 2013. The positive balance with OAS Empreendimentos, on December 31, 2013, refers to
advance for future capital increase, to which there is no formal payment commitment;
c) It basically refers to (i) credits assigned by Coesa in the amount of R$55,140, with 10-year maturity as of December 2010, and
this balance on December 31, 2013, totals R$38,598; and (ii) related parties current account balance in the amount of
R$61,201;
d) It refers to related parties current account balance;
e) It refers to the assignment of Construtora OAS credits to OAS Investimentos, with maturity in 8 annual installments, starting in
February 2012;
f)
Loan between Construtora OAS S.A. Sucursal Trinidad & Tobago referring to the inflow of funds raised in the reopening of
senior notes in October 2013 (Note 12.4).
Company
12/31/12
01/01/12
(restated)
(restated)
12/31/13
Consolidated
12/31/12
(restated)
01/01/12
(restated)
Total
6,903
2,969
30,855
12,105
4,336
33,348
290,929
20,043
5,133
406,621
19,891
564
3,231
919
133,358
13,903
171,866
5,762
1,879
1,017
1,057
1,226
10,941
290,929
94,936
9,782
395,647
58
133,358
64,097
2,693
200,206
3,703
3,703
Current assets
Non-current assets
395,316
11,305
171,866
-
10,941
-
395,498
149
200,206
-
3,703
-
Total (Note 5)
406,621
171,866
10,941
395,647
200,206
3,703
F-109
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Company
12/31/12
12/31/13
(restated))
Lease income
Construtora OAS Equatorial Guinea
Construtora OAS S.A. Bolivia
Construtora OAS S.A. Peru
Construtora OAS S.A. Equator
Construtora OAS S.A. Nacala
Construtora OAS S.A. Republic of Guinea
Construtora OAS S.A. Ghana
Construtora OAS S.A. Trinidad & Tobago
Construtora OAS
Subtotal
3,240
2,551
10,153
2,293
8,379
1,391
5,855
31,586
65,448
13,260
13,260
29,565
127
11,665
1,440
6,250
3
43
398,059
447,152
13,850
32,423
11,698
3,120
222,283
283,374
Total
512,600
296,634
Accounts receivable represents balances of commercial transactions carried out with the
Companys related parties. In Brazil, revenues and receivables are mainly related to the
rendering of construction services, while abroad, these balances are mostly related to royalties.
Consolidated
12/31/13
12/31/12
(restated)
2,217
F-110
1,935
(restated)
27,048
12,770
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
8.
Taxes recoverable
12/31/13
Company
12/31/12
01/01/12
(restated)
(restated)
12/31/13
Consolidated
12/31/12
(restated)
01/01/12
(restated)
Total
5,327
24,050
29,377
17,305
22
17,327
12,050
12,050
62,522
15,440
64,089
54,030
80,242
29,466
305,789
33,558
4,725
60,331
38,366
77,374
6,545
220,899
5,369
18,091
8,502
74,188
20,214
126,364
Current assets
Non-current assets
29,377
-
17,327
-
12,050
-
236,727
69,062
82,909
137,990
45,239
81,125
Total
29,377
17,327
12,050
305,789
220,899
126,364
(a) PIS and COFINS recoverable relate to credits mainly arising from acquisition of inputs and services contracted from legal
entities. They are recovered to the extent trade accounts receivable are realized.
(b) The deferred PIS and COFINS amounts refer to taxes levied on construction revenue of Arena Porto Alegrense.
(c) Refers to the tax balance at aggregated amount from operations of subsidiaries abroad, which the Management expects
to recover within less than 12 months.
(d) In 1993, the subsidiary Construtora OAS filed a Declaratory Judgment Action against the Federal Finance Office (Federal
Government) to ensure its right to a credit of approximately R$105,973, referring to increasing the FINSOCIAL rates, from
0.6% to 1%, from 1% to 1.2% and from 1.2% to 2%, in the period between September 1989 and March 1992, declared
unconstitutional by Federal Senate Resolution, RSF n 49/95.
th
On November 20, 2013, the Judge of the 6 Federal Court of the Federal District sentenced the Federal Revenue Office to
authorize the amount of R$114,951, monetarily restated until October 2012, for offset purposes on behalf of Construtora OAS
S.A. On December 19, 2013 a request for authorization of credit was filed with the Federal Revenue Office, which was granted
on February 17, 2014, and Construtora OAS has already started the appropriate compensation.
F-111
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
9.
Investments
Interest (%)
2013
2012
01/01/12
2013
2012
Total liabilities
01/01/12
2013
(restated)
F-112
Subsidiaries
BR Terminais
Coesa Engenharia
Construtora OAS
Construtora OAS Angola
EPP Energia
EPASA
FIP OASE
OAS African
OAS Chile Inversiones
OAS Defesa
OAS Empreendimentos
OAS Investments Ltd
OAS Invest. GmbH
OAS Investimentos
Joint ventures
Invepar (a)
Karagounis
Associated companies
Mac corporation
Ecovap
2012
Equity
01/01/12
2013
(restated)
2012
2013
(restated)
2012
(restated)
100.0%
99.99%
99.90%
99.99%
75.00%
99.99%
99.99%
100.0%
100.0%
100.0%
100.0%
99.99%
99.99%
99.90%
99.99%
75.00%
100.0%
99.99%
99.99%
100.0%
100.0%
100.0%
100.0%
99.99%
99.99%
99.90%
99.99%
75.00%
100.0%
99.99%
100.0%
100.0%
100.0%
1
8,292,607
37,165
5,703
18,370
644
11,425
3,588,671
2,085,939
4,467,617
1
290,639
4,433,319
3,209
5,698
16,012
275,806
614
10,572
1,585,435
1,330,351
1,039,427
4,824,849
305,205
4,155,168
213
5,698
33,060
2,094
508
1,323,690
363,927
1,210,001
5,875,262
32,124
2,694
2,756
1,968
3,888,889
2,084,400
2,733,128
116,706
3,277,115
6,815
2,696
2,562
323,626
371
1,237,638
1,441,574
1,039,265
3,730,107
121,293
2,964,381
1,190
2,692
23,197
881
1,057,534
325,743
588,040
1
2,417,345
5,041
3,009
15,614
644
9,457
(300,218)
1,539
1,734,489
1
173,933
1,156,204
(3,606)
3,002
13,450
(47,820)
614
10,201
347,797
(111,223)
162
1,094,742
183,912
1,190,787
(977)
3,006
9,863
1,213
508
266,156
38,184
621,961
(8,360)
427,543
8,453
7
1,110
(13,876)
140,959
4
(744)
(84,370)
(159,294)
1,248
(226,638)
(9,978)
113,368
(2,292)
(4)
542
(50,573)
(23)
1
(56,490)
(112,149)
70
71,142
8.89%
20.0%
12.18%
20.0%
20.0%
3,932,038
300,373
2,490,185
304,670
306,976
19,472
1,265
2,023,797
3,180
3,505
3,912,566
301,490
466,388
299,108
303,471
69,242
(2,162)
3,403
(1,981)
22.00%
22.00%
22.00%
22.00%
22.00%
15,245
1,384
15,529
1,387
27,093
17,801
17,601
27,093
(2,556)
1,384
(2,072)
1,387
-
(485)
(2)
(2,072)
(a) Invepars financial statements are available to the market at the Brazilian Securities and Exchange Commissions website (www.cvm.gov.br).
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Information about investees changes for the period (Company)
Changes for the period
Balances at 12/31/12
(restated)
Provision
for losses
Investments
Paid in
capital
Equity
pick-up
Dividends
and interest
on equity
Equity
valuation
adjustment
Balances at 12/31/13
Write-offs
Other
transactions
Investments
Provision
for losses
F-1133
Interest in Brazil
Coesa Engenharia Ltda
Construtora OAS Ltda
OAS Empreendimentos
OAS Investimentos
FIP OAS Empreendimentos
Invepar
Invepar (goodwill)
Qualifying assets (a)
Other
173,934
1,115,767
319,395
1,094,741
466,387
370,544
78,031
13,203
950,001
53,117
846,719
316,895
47,515
-
(8,360)
409,429
(84,370)
(225,595)
(13,876)
9,507
(9,415)
(737)
(6,000)
(97,239)
(2,216)
-
(408)
(1,049)
19,666
1,491
-
(163,343)
(316,544)
(302,924)
(126,821)
(112,723)
-
4,177
28,402
(28,402)
(95)
-
2,376,909
1,707,129
348,348
257,821
116,131
12,466
Subtotal
3,632,002
2,214,247
76,583
(105,455)
19,700
(1,022,355)
4,082
4,818,804
Interest overseas
OAS African
OAS Investments Limited
Construtora OAS Angola
EPASA
Other
10,087
776
(47,821)
(111,222)
(3,602)
-
93,140
4,850
1,110
1,252
4,416
(29,701)
186
514
155
(97,556)
-
47,821
(159,295)
3,601
-
5,035
11,711
2,183
(300,218)
-
Subtotal
10,863
(162,645)
100,352
(24,430)
(97,556)
(107,873)
18,929
(300,218)
3,642,865
(162,645)
2,214,247
176,935
(105,455)
(4,730)
(1,119,911)
(103,791)
4,837,733
(300,218)
Total
(a) Capitalization of interest over concession assets, which will be amortized until the end of operations.
Changes for the period
Balances at 12/01/12
(restated)
Investments
Dividends
Equity
Provision
Paid in
Equity
and interest
valuation
for losses
capital
pick-up
on equity
adjustment
Balances at 12/31/12
(restated)
Other
Write-offs
transactions
Provision
Investments
for losses
Interest in Brazil
Interest overseas
2,419,525
47,301
(976)
1,883,199
130,822
255,292
(6,037)
(100,090)
-
73,697
(3,333)
(849,012)
(161,298)
(50,609)
(158,261)
3,632,002
10,863
(162,645)
Total
2,466,826
(976)
2,014,021
249,255
(100,090)
70,364
(1,010,310)
(208,870)
3,642,865
(162,645)
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Information about investees changes for the period (consolidated)
Changes for the period
Balances at 12/31/12
Investments
F-114
Interest in Brazil
Inambari G. Energia
Fonte Nova
Invepar
Invepar (goodwill)
Porto Novo
Karagounis Participaes
Manhattan Res. 1 SPE
IOTA Empr. Imobilirios
Estaleiro EEP Participaes
Consrcio Hosp. Rancagua
Qualifying assets (a)
Other
Provision
for losses
Paid in
capital
Equity
pick-up
Balances at 12/31/13
Dividends
Adjustment
for
and interest
on equity
equity
appraisal
(restated)
4,117
47,493
935,456
484,112
31,711
60,291
2,702
9,851
20,342
44,237
(14,880)
(456)
1,459
8,670
126,821
100,047
4,183
20,628
5,929
1,358
(21,573)
3,688
23,282
1,734
(432)
(794)
1,929
(5,929)
(4,210)
(3,315)
(875)
(3,673)
(17,664)
-
6,248
-
(749)
1,640,312
(15,336)
269,095
(5,620)
Interest overseas
Oil & Gas Austria
MAC Corporation Ltda
23,486
332
28,739
-
Subtotal
23,818
1,664,130
(15,336)
Subtotal
Total
Write-offs
Other
transactions
Investments
Provision
for losses
763
(12)
-
(126,821)
(120,847)
101
717
(4,605)
16,467
(3,920)
(452)
2
(7,552)
29,492
852
(536)
(13,621)
470
58,976
957,393
462,860
15,781
59,861
36,300
34,023
16,132
23,412
(22,331)
(548)
(563)
(22,961)
6,999
(251,455)
20,732
1,665,208
(23,442)
(202)
(2)
(5,027)
28
(358)
8,255
-
55,251
-
28,739
(204)
(4,999)
(358)
8,255
55,521
297,834
(5,824)
(22,961)
2,000
(251,813)
28,987
1,720,459
(23,442)
(a) Capitalization of interest over concession assets, which will be amortized until the end of operations.
Changes for the period
Balances at 12/01/12
Investments
Provision
for losses
Paid in
capital
Equity
pick-up
Balances at 12/31/12
Dividends
Adjustment
for
Provision/
and interest
on equity
equity
appraisal
reversal for
losses
(restated)
(restated)
Other
transactions
Investments
Provision
for losses
Interest in Brazil
Interest overseas
705,927
305
1,010,314
23,486
31,404
-
(6,141)
-
54,786
27
(15,336)
-
(155,978)
-
1,640,312
23,818
(15,336)
-
Total
706,232
1,033,800
31,404
(6,141)
54,813
(15,336)
(155,978)
1,664,130
(15,336)
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Invepar
On March 21, 2012, the Shareholders Meeting approved a capital increase in Invepar under
which 17,429,354 common shares were issued (14.94% of total shares in that class) as well as
34,858,708 preferred shares (14.94% of total shares in that class) and fully subscribed and
paid by the Company. The payment was made on the basis of shares representing equity of
V.P.R.Participaes S.A. (VPR) held by the Company. At that time, VPR had equity of
R$396,663. The number of shares to be issued by Invepar was based on the fair value of VPR
amounting to R$829,201, which was determined by an appraisal report and agreed between
the parties, and the amount of R$432,539 equivalent to the difference between the fair value
and book value was recorded as a capital reserve under Invepars equity and as the
Companys other income.
On the same date, the Shareholders Meeting approved a second Invepars capital increase by
issuing twenty-six million, three hundred, ninety-eight thousand, four and sixty-seven
(26,398,467) common shares and fifty-two million, four hundred, ninety-six thousand, nine
hundred and thirty-four (52,496,934) preferred shares, totaling R$1,255,860 fully subscribed
and paid in cash by PETROS and FUNCEF, in the following amounts: (i) 10,956,955 common
shares and 21,913,910 preferred shares by PETROS, totaling R$521,258 and (ii) 15,441,512
common shares and 30,883,024 preferred shares by FUNCEF, totaling R$734,602.
As a result of the contributions mentioned above, there was a dilution in the remaining equity
interest of OAS Investments which decreased from 14.72% to 10.21% and Construtora OAS
S.A. from 2.95% to 2.05%. This dilution generated a gain in the equity interest of OAS
Investments and Construtora OAS of R$92,895 and R$18,730 respectively, totaling R$111,625
recognized in the profit or loss of these entities. Accordingly, OAS S.A. recognized goodwill of
R$370,544.
In addition, the Company recorded a gain on its investments in OAS Investimentos and
Construtora OAS related to the unrealized income generated from the internal sale of Linea
Amarilla Brasil Participaes S.A. (LAMBRA) to OAS S.A. in the amounts of R$155,055 and
R$12,073 from Construtora OAS and OAS Investimentos, respectively. This gain of R$167,128
was recorded in 2012 profit or loss.
On December 21, 2012, the subsidiary OAS Investments acquired 2.05% of subsidiary
Construtora OAS in the investee Invepar, which was classified as asset held for this sale at fair
value. This transaction took place in line with the policy of the Groups corporate restructuring.
OAS Investimentos generated a goodwill of R$61,461(supported by a report prepared by an
independent appraiser to justify future profitability) which was eliminated for consolidation
purposes in OAS SA, with the gain realized in Construtora OAS.
The residual interest of 01 (one) share remained with the subsidiary Construtora OAS, as
provided for in the contract.
F-115
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
At all stages of this operation, the OAS Group maintained the joint control of the entity through
its rights under the shareholders' agreement.
Fonte Nova Negcios e Participaes S.A. (Fonte Nova), Arenas das Dunas Concesso e
Eventos S.A. (Arena das Dunas) and Concessionria Porto Novo S.A. (Porto Novo)
On December 28, 2012, the subsidiary OAS Investimentos acquired 99,99% of interest of
subsidiary Construtora OAS in the investee Porto Novo for the book value of R$31,711. The
residual interest of 01 (one) share in the investee Porto Novo remained under the possession
of the subsidiary Construtora OAS, as provided for in the purchase and sale agreement.
On the same date, the subsidiary OAS Arenas S.A. (OAS Arenas) (direct and wholly-owned
subsidiary of OAS Investimentos and indirect subsidiary of the Company) acquired 100%
interest in Construtora OAS S.A. held in the investees, Fonte Nova and Arena das Dunas for
the amounts of R$47,493 and R$44,257, respectively. The transactions in those investees
occurred due to the corporate restructuring of the Group and was made based on the recorded
carrying amounts and did not include gains or losses in investees individually or in the Group.
Lnea Amarilla Brasil Participaes (LAMBRA) e V.P.R. Participaes S.A. (VPR)
On December 28, 2010, through a purchase and sale instrument, the Company acquired with
Construtora OAS and OAS Investimentos the interests held in LAMBRA, holder of 75% of the
shares representing the capital of Lnea Amarilla S.A.C. (LAMSAC) and the remaining 25%
held by Construtora OAS for R$362,380, under the following conditions: payment in cash of
R$174,061, payment of R$152,081, though loan offset, on February 11, 2011; and R$36,238,
due on February 11, 2012.
On March 1, 2012, the spin-off of Construtora OAS S.A. was approved with incorporation of the
spun-off portion into LAMBRA, which now holds 100% of shares in LAMSAC.
On March 2, 2012, the capital contribution for VPR was approved (entity in which the Company
is the sole holder of shares representing equity) 100% of the shares held in LAMBRA at its
carrying amount of R$396,633. Consequently, the company VPR, now holds 100% of the
shares in this entity. The Company subsequently used its interest in VPR, to acquire shares in
INVEPAR, a joint venture.
Construtora OAS
In order to implement a corporate restructuring to segregate certain assets and asset rights,
along with certain obligations, the Management believed that the partial spin-off transaction is
the best means to achieve the proposed objectives, answering the interests of the parties, as
well as members without any interruption to their corporate purposes.
F-116
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
On March 1, 2012, the Extraordinary Shareholders Meeting approved the partial spin-off of the
subsidiary Construtora OAS, in relation to its 25% interest in LAMSAC to LAMBRA, whereby
the spun-off assets of R$34,146 comprised investment held for sale, R$34,145 in advance for
future capital increase and R$1 of capital, totaling R$34,146. It is worth mentioning that this
investment was classified as held-for-sale asset.
On June 29, 2012, the Extraordinary Shareholders Meeting approved the partial spin-off of the
subsidiary Construtora OAS whereby the spun-off assets (consisting of trade accounts
receivable of R$27,543 e R$40,017, current and non-current, income tax and social
contribution on income and deferred liabilities - R$11,813 and income reserves of R$55,747),
was incorporated into BR Infrastructure S.A. (BR Infrastrutura).
On December 31, 2013, the Extraordinary Shareholders Meeting approved to increase capital
of the subsidiary Construtora OAS in the amount of R$950,001, from R$584,999 to
R$1,535,000 by means of the issue of 950,001,000 new non-par registered common shares,
identical to those already existing by the issue price of one real (R$1.00) each. The new shares
were fully subscribed and paid as follows:
i)
ii) by granting to the subsidiary Construtora OAS, 50,000 quotas representing 100% of
subsidiary OAS African Investments capital, corresponding to R$97,644;
iii) by means of capitalization of advance for future capital increase recorded in the
Company, on December 31, 2013, in the amount of R$689,015.
BR Infraestrutura
On June 15, 2012, OAS Investimentos sold its 100% equity interest in BR Infraestrutura by
the carrying amount of R$1 to the Company. On June 29, 2012, there was a capital
increase in BR Infraestrutura of R$55,747 through the merger of the spun-off portion by
Construtora OAS. On that date, the shares in BR Infrastructure S.A. (for the total value)
were transferred to CMP Participaes and LP Participaes, in accordance with the
minutes on the distribution of the Companys dividends and settlement of outstanding
payables on that date.
Sanear
On September 27, 2013, the indirect subsidiary OAS Solues Ambientais, acquired 9,050
shares of Sanear, representing 100% of this subsidiarys capital for the total amount of
R$25,821.
F-117
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
On the business combination date, CPC 15 establishes that recognition in its financial
statements of investees identifiable assets acquired and liabilities assumed, as well as the
goodwill due to the expectation of future profitability of business combination or gain deriving
from bargain purchase.
The table below summarizes the consideration and the amounts of assets acquired and liabilities
assumed:
Consideration (*)
24,387
44
15,326
26,592
1,865
(14,695)
29,132
4,745
The Management of OAS Solues prepared a study to allocate the acquisition price. The
acquisition price was defined considering the profitability of future cash flows and the cost
savings in order to comply with concession agreement requirements, making it, therefore, more
efficient. Within this context, the valuation of the intangible asset resulted in R$26,592. After
analysis of other assets and liabilities, OAS Solues recorded the amount of R$4,745 as gain
on bargain purchase, under Other operating income (expenses) in the profit and loss for the
year.
FIP OAS Empreendimentos
On September 30, 2013, 100% of FIP quotas held by the Company was transferred to OAS
Investimentos, represented by 316,800 quotas, by the carrying amount of R$302,924, related
to the capital increase of the subsidiary OAS Investimentos.
FIP refers to a private equity created in a closed-end fund, regulated by CVM Rule n 391/03,
managed by Federal Savings Bank (CEF), which holds 100% interest in OAS
Empreendimentos capital.
Samar
On November 5, 2013, the subsidiary OAS Solues Ambientais acquired from Construtora
OAS, 15,457,000 shares representing 100% of Samars capital for R$20,884, corresponding to
the investees carrying amount. The amount payable is still outstanding and is recorded under
Related Parties under current liabilities.
F-118
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
On December 31, 2013 the Shareholders Extraordinary Meeting approved the capital increase
of Samar at R$3,100, by means of the issue of 3,100,000 non-par registered common shares.
The increase was made through the payment of credits held by OAS Solues with the
subsidiary.
Subsidiaries with relevant non-controlling interest
Information for the subsidiaries for which relevant non-controlling interest is included in the
consolidated financial statements is included below:
12/31/13
Construtora OAS GE
Construtora OAS Ghana
Construtora OAS LLC
OAS Empreendimentos
Other
47.00%
30.00%
51.00%
20.00%
Interest (%)
12/31/12
47.00%
30.00%
51.00%
20.00%
01/01/12
12/31/13
Equity
12/31/12
01/01/12
20.00%
58,451
8,564
2,274
82,082
75,933
4,414
45
81,667
50,701
36,986
35,936
47,312
8,983
(932)
(7,657)
17,775
4,080
(35)
26,590
33,870
227,304
136,827
72,922
65,481
64,505
Total
Net income
12/31/13
12/31/12
Cost
Accumulated
depreciation
Net
balance
12/31/12
12/01/12
% p.a.
Net
balance
Net
balance
Depreciation
rates
(restated)
(restated)
18,531
751,473
34,255
62,100
199,751
7,410
110,740
(239,207)
(21,940)
(19,244)
(105,520)
(2,623)
(23,033)
18,531
512,266
12,315
42,856
94,231
4,787
87,707
18,379
366,205
11,461
25,432
56,187
3,999
59,173
17,115
239,556
9,510
13,183
55,158
1,307
28,279
1,184,260
(411,567)
772,693
540,836
364,108
10
20
10
20
10
10
In 2013, the Company carried out finance lease operations for the acquisition of property, plant
and equipment, in the amount of R$38,155. On December 31, 2013, the balance payable of
these operations, classified into loans and financing (Note 12.2), totals R$61,790.
F-119
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Changes in property, plant and equipment (consolidated) were as follows:
Consolidated
12/31/13
12/31/12
(restated)
540,836
434,823
(90,744)
25,852
9,040
(147,114)
364,108
285,980
(34,303)
20,578
(95,527)
772,693
540,836
The Company did not identify indicators that could reduce the realization value of its assets on
December 31, 2013 and 2012.
Cost
Accumulated
amortization
Net balance
12/31/12
12/01/12
Net balance
Net balance
(restated)
(restated)
19,998
4,886
850,321
140,627
(11,444)
(488)
(38,781)
(5,218)
8,554
4,398
811,540
135,409
8,066
5,069
677,848
64,652
6,764
269,119
18,584
1,015,832
(55,931)
959,901
755,635
294,467
12/31/13
(restated)
755,635
246,395
(12,444)
(647)
15,090
(44,128)
294,467
463,656
(148)
69
(2,409)
959,901
755,635
F-120
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Company
12/31/12
(restated)
01/01/12
12/31/13
(restated)
Consolidated
12/31/12
(restated)
01/01/12
(restated)
161,154
185,453
303,151
381,385
115,467
17,484
178,638
12,409
197,862
10,359
10,359
1,892,078
17,484
27,664
2,240,377
113,752
12,409
5,515
513,061
128,198
45,545
75
289,285
(765,866)
Total
178,638
197,862
10,359
1,474,511
513,061
289,285
Current assets
Non-current assets
161,154
17,484
178,638
185,453
12,409
197,862
10,359
10,359
668,286
806,225
1,474,511
500,652
12,409
513,061
250,008
39,277
289,285
Total
F-121
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
12.2.
Maturity
R$
USD
CDI+2.00% to CDI+3.00%
Fixed: 2.00%
2013 to 2015
2014
142,636
9,391
453,832
8,030
436,004
7,644
R$
R$
R$
R$
CDI+2.00% to CDI+4.01%
Fixed: 3.50% to 8.00%
IGP-M +4.82%
Long-term interest rate + 1.60% to 7.00%
Fixed: 3.04% to 12.39%
2013 to 2018
2018 to 2023
2019
2013 to 2018
2015 to 2017
11,299
118,844
28,060
55,492
2,556
298
107,984
26,569
16,570
86
1,213
96,615
24,841
17,142
-
Total
368,278
613,369
583,459
Current liabilities
Non-current liabilities
145,139
223,139
226,730
386,639
339,297
244,162
Total
368,278
613,369
583,459
Loans
Working capital
Working capital
F-122
Financing
Finance lease
Study and Project Financing - FINEP
Assets Sanitation Special Program - PESA
Financing of property and equipment FINAME
Other fixed assets financing
12/31/13
12/31/12
01/01/12
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Consolidated
Currency
Maturity
12/31/13
Loans
R$, USD, UYU
and MZN
12/31/12
01/01/12
(restated)
(restated)
856,011
1,018,246
1,296,555
3,582
10,533
IGP-M + 4.82%
TR+9.25% to 11.50%, TJLP+5.10%
2012 to 2018
2019
2019
2018
61,790
118,844
28,060
734,373
20,755
107,984
26,569
340,467
6,410
-
2012 to 2019
216,891
563,183
39,191
Total
2,019,551
2,087,737
1,342,156
Current liabilities
Non-current liabilities
781,318
1,238,233
804,567
1,283,170
651,965
690,191
Total
2,019,551
2,087,737
1,342,156
Working capital
Current account overdrafts
R$ and COP
2012 to 2015
2014
Financing
F-123
Finance lease
Study and Project Financing - FINEP
Assets Sanitation Special Program - PESA
Financing to support production
Other fixed assets financing
R$ and USD
R$
R$
R$, USD, TT
and MZN
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Current and non-current amounts, by year of maturity are included below:
Balance at 12/31/13
Company
Consolidated
2014
2015
2016
2017
2018 onwards
Total
Current liabilities
Non-current liabilities
Total
145,139
86,538
38,209
35,986
62,406
368,278
781,318
345,497
224,604
192,835
475,297
2,019,551
145,139
223,139
368,278
781,318
1,238,233
2,019,551
Guarantees
The Companys subsidiaries have various loans whereby actual assets guarantee the related
creditors. These loans refer to Structured Projects or SPEs that develop real estate transaction
at OAS Empreendimentos S.A.. These assets aim at individually separating the credit risk from
Structured Projects or real estate SPEs, enabling segregated allocation of risks assumed by
the Company at the corporate level vs. project level, as explained in Note 13. These assets are
substantially represented by pledge of shares, assignment in trust of the flow of receivables
and chattel mortgage of land.
Contractual covenants
The deed for issuance of debentures contains covenants determining the maximum debt to
equity ratio, as well as the minimum debt coverage ratio for the installments due and costs to be
incurred. Further to these financial obligations, other commitments have been assumed such
as:
On December 31, 2013 and 2012 and on January 1, 2012 there have not been identified any
events that may result in a fail to comply with the aforementioned restrictive covenants.
F-124
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
12.3.
Debentures
12/31/13
Companies
OAS S.A.
Principal
2,798,480
Costs to
amortized
Charges
121,350
Total
(21,490)
Current liabilities
Non-current liabilities
Total
Subsidiaries
OAS Empreendimentos
Arena das Dunas
Samar Solues Ambientais
SPE Gesto Arenas
OAS Investimentos
12/31/12
01/01/12
(restated)
(restated)
2,898,340
1,363,073
902,773
531,550
2,366,790
2,898,340
290,644
1,072,429
1,363,073
37,998
864,775
902,773
304,756
79,280
35,560
65,000
-
10,822
7,000
125
13,389
-
(2,017)
(334)
(529)
(160)
-
313,561
85,946
35,156
78,229
-
292,069
83,733
39,493
66,818
366,301
-
(765,866)
(765,866)
Total consolidated
2,517,210
152,686
(24,530)
2,645,366
1,845,186
1,269,074
609,471
2,035,895
2,645,366
444,220
1,400,966
1,845,186
117,682
1,151,392
1,269,074
Current liabilities
Non-current liabilities
Total
2015
2016
2017
2018
After
2018
Company
OAS S.A.
537,350
263,952
305,897
85,897
858,957
867,777
2,919,830
Subsidiaries
OAS Empreendimentos
Arena das Dunas Concesses e Eventos
Samar Solues Ambientais de Araatuba
SPE Gesto Arenas
Subtotal
94,822
7,003
9,000
648,175
100,302
8,918
8,880
2,744
384,796
120,454
10,296
8,880
5,487
451,014
11,887
8,925
9,407
116,116
13,722
13,718
886,397
34,454
47,033
949,264
315,578
86,280
35,685
78,389
3,435,762
(7,089)
(31,615)
(5,658)
-
(4,580)
-
(3,986)
-
(1,648)
-
(1,569)
(734,251)
(24,530)
(765,866)
Total consolidated
609,471
379,138
446,434
112,126
884,749
213,448
2,645,366
F-125
Total
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
The Company and its subsidiaries approved the issue of the following consolidated debentures:
F-126
Issue
Company
1st Issue (i)
2nd Issue (ii)
3rd Issue (iii)
4th Issue (iv)
5th Issue (i)
6th Issue (i)
7th Issue (i)
8th Issue (i)
9th Issue (i)
Issuer
OAS S.A.
OAS S.A.
OAS S.A.
OAS S.A.
OAS S.A.
OAS S.A.
OAS S.A.
OAS S.A.
OAS S.A.
Guarantor
Maturity
date
Issue
amount
10/29/2010
6/25/2011
12/12/2011
1/13/2012
5/15/2012
3/8/2013
3/11/2013
7/11/2013
8/27/2016
10/29/2018
6/25/2013
12/12/2016
1/13/2027
5/15/2015
3/8/2014
3/16/2018
7/21/2024
4/11/2016
400,000
200,000
300,000
250,000
209,000
150,000
644,424
694,700
100,000
Financial charges
Balances at
12/31/2012
Balances at
12/01/2012
(restated)
(restated)
Total Company
401,901
171,098
299,884
281,198
208,992
1,363,073
403.638
198.770
300.365
902,773
Current liabilities
Non-current liabilities
531,550
2,366,790
290,644
1,072,429
37,998
864,775
182,371
25,186
106,004
85,946
35,155
78,230
(765,866)
242,114
49,955
83,733
39,493
66,818
-
302,735
63,566
-
Total Consolidated
2,645,366
1,845,186
1,269,074
Current liabilities
Non-current liabilities
609,471
2,035,895
444,220
1,400,966
117,682
1,151,392
(i)
(ii)
(iii)
(iv)
(v)
(vi)
OAS S.A.
OAS S.A.
OAS S.A.
Construtora OAS
-
11/3/2009
6/14/2010
(vi)
5/8/2012
12/20/2012
12/8/2012
12/8/2012
11/3/2016
7/15/2014
4/11/2016
5/30/2020
12/20/2017
5/30/2020
5/30/2020
300,000
60,000
100,000
79,280
40,000
65,000
65,000
Balances at
12/31/2013
336,418
300,604
297,716
196,961
161,558
775,972
725,947
103,164
2.898.340
Subsidiaries
1st Issue (iii)
OAS Empreend.
2nd Issue (v)
OAS Empreend.
3rd Issue (vi)
OAS Empreend.
1st Issue (vii)
Arena das Dunas
1st Issue (viii)
Samar
1st Issue (ix)
OASI
1st Issue (ix)
SPE Gesto
(-) Short-term investments (Note 12.1)
Construtora OAS
Construtora OAS
Construtora OAS
Construtora OAS/OAS Inv.
Construtora OAS
Construtora OAS
Construtora OAS
Construtora OAS
Construtora OAS
Date of
issue
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Guarantees and securities
The subsidiary Construtora OAS is the guarantor for the operation, whereas the subsidiary OAS
Investimentos provides guarantee by means of: a) 8,531,973 common shares and 17,063,946
preferred shares it holds and issued by INVEPAR ("Pledged Shares"); b) any dividends,
profits, net earnings, bonus, rights, interest on equity, distribution and other amounts received or
to be received or otherwise distributed or to be distributed to OAS Investimentos, as well as any
other amounts paid or to be paid from, or in connection with, said Pledged Shares; and c)
shares derived from the Pledged Shares through the split, reverse split or bonus, including
through barter, sale or any other form of disposal of the Pledged Shares and any assets or
bonds to which the Pledged Shares are converted (including any deposits, bonds or securities).
Covenants
Certains debentures issued have covenants related to the maintenance of financial ratios,
besides other commitments. Until December 31, 2013 and 2012, and January 1, 2012, these
covenants were fully complied with.
12.4.
Senior Notes
On October 19, 2012, OAS Investments GmbH, a wholly-owned subsidiary of the Company
with head office in Austria, issued US$ 500 million (corresponding to R$1,013,600) in Senior
Notes with fixed, non-convertible interest of 8.25% p.a. (Senior Notes), and interest payable
semi-annually at April 19 and October 19 each year, with repayment of principal on maturity,
October 19, 2019 (Senior Notes).
On October 17, 2013, OAS Investments GmbH reopened the Senior Notes and issued another
US$375 million (corresponding to R$825,113), under same conditions as Senior Notes
(Retap). The Senior Notes hold a corporate warranty from the companies, Construtora OAS
S.A. and OAS Investimentos S.A.
Approximately 90% to 95% of the proceeds from the Senior Notes were used primarily for
repayment of short and long-term debt maturing in 2012 and 2013, and for refinancing of
portions of long-term debt maturing in the first half of 2014. Net proceeds from the Retap will be
allocated to refinance the short-term debt to mature in 2014, and refinance long-term debt to
mature in 2014 and 2015.
Prior to October 19, 2016, OAS Investments GmbH may redeem the Senior Notes at 100% of
the outstanding balance, with accumulated interest plus the make-whole bonus to be calculated
under the subscription terms. After October 19, 2016, OAS Investments GmbH may redeem
the Senior Notes at 100% of the outstanding balance, with accumulated interest rates.
F-127
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
The Senior Notes were registered for trading on the Irish Stock Exchange and is ruled by the
legislation of the State of New York (USA). The Senior Notes may only be traded by qualified
institutional investors (QIBs) pursuant to Regulation S and the Rule 144 of the U.S. Securities
Act.
The Senior Notes bears financial and non-financial covenants as described under the
indenture.
The financial restrictive covenant consists of the division of (a) the sum of the adjusted EBITDA
of the guarantor entities (b) by the net financial income/expenses of these entities. The breach
of this covenant does feature the breach of contractual obligation of the Senior Notes, but only
restrict the capacity of incremental net indebtedness, investments, and incremental
transactions with related parties of guarantor, not affecting the existing transactions or future
non incremental ones.
Until December 2014, the financial covenant must be equal to or greater than 2.0x, and from
January 1, 2015, it shall be equal to or greater than 2.25x. Until December 31, 2013 and 2012
the Company is in compliance with the covenants.
Perpetual Notes
On April 18, 2013, OAS Finance Limited, a wholly-owned subsidiary of the Company with head
office in the British Virgin Islands issued US$500 million (corresponding to R$1,007,300) in
Perpetual Senior Notes, with fixed, non-convertible, interests at the rate of 8.875% p.a., with
quarterly payment of interest rates on April 25, July 25, October 25 and January 25 of each
year, and Perpetual Senior Notes. The first payment of interest rates is to be made on July 25,
2013 and each 5-year period following the issue, shall entail the re-pricing of the new interest
rate for the issue, by applying a premium of 8.186% p.a. on the yield of the U.S. Treasury
Bonds for a 5-year term, verified on the re-pricing date. The Perpetual Senior Notes relies on
the Companys corporate guarantee, of Construtora OAS S.A, and of OAS Investments S.A.
The net proceeds from the Perpetual Senior Notes were allocated (i) approximately US$300
million to finance a capital investment in infrastructure projects to be carried out over the next
years, and (ii) the remainder in the refinancing of short and long-term debts of OAS S.A. with
the Federal Savings Bank and to refinance the short and long-term debts of OAS
Empreendimentos S.A.
As of April 25, 2018, OAS Finance Limited may redeem the Perpetual Senior Notes for 100% of
the outstanding balance, with accrued interests to be calculated according to the indenture. The
Perpetual Senior Notes were registered for trading on the Irish Stock Exchange and is
governed by the legislation of the State of New York (USA). The Senior Notes may only be
traded by qualified institutional investors (QIBs) pursuant to Regulation S and the Rule 144 of
the U.S. Securities Act.
F-128
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Changes in the Senior Notes, Retap (both dated) and Perpetual Notes, are described
below:
Consolidated
Perpetual
Dated
Total
1,013,600
17,093
1,030,693
(25,544)
730
8,149
1,014,028
1,013,600
17,093
1,030,693
(25,544)
730
8,149
1,014,028
Funding
Interest rates
Payment of Interest rates
Subtotal
Transaction cost
Amortization of transaction cost
Foreign exchange variation
Balance at December 31, 2013
825,113
111,396
(96,632)
1,853,905
(27,957)
5,901
201,782
2,033,631
1,007,300
71,323
(51,976)
1,026,647
(38,092)
5,107
164,001
1,157,663
1,832,413
182,719
(148,608)
2,880,552
(66,049)
11,008
365,782
3,191,293
Current liabilities
Non-current liabilities
34,358
1,999,273
19,347
1,138,316
53,705
3,137,588
Total
2,033,631
1,157,663
3,191,293
Pursuant to the indenture of the Perpetual Senior Notes, there are nonfinancial covenants. Until
December 31, 2013, these covenants were fully complied with.
12.5.
On December 31, 2013, the Company and its subsidiaries have derivative transactions totaling
R$3,543,105 (US$1,512,467), contracted with the purpose of reducing the Groups currency
exposures. These derivatives were not designated as hedge instruments according to the
hedge accounting rules. The table below shows the transactions with derivatives of the
Company and its subsidiaries as at December 31, 2013. The "Fair value change" column shows
the changes in fair value of derivatives in the period ended December 31, 2013, whereas the
column "Settlement in 2013" shows the effect recognized in financial income or expense
associated with the settlement of derivatives in the fiscal year ended December 31, 2013. The
column "Total effects on 2013 profit and loss" represents the effects of change in value of
derivatives (change in fair value and settlements) in the Companys profit and loss:
Description
Currency
Face
value
Maturity
Company
Coupon Swaps US Dollar - CDI
Coupon Swaps US Dollar - CDI
R$
R$
707,340
1,091,350
03/16/18
04/25/18
F-129
Fair Value
on 12/31/13
(150,878)
(137,571)
Settlement
in the year
(8,418)
41
Effect on
2013
profit and
loss
(38,521)
(16,015)
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Option BRL - US Dollar
Option BRL - US Dollar
Swaps US Dollar/Libor - CDI
Swaps US Dollar - CDI
Swaps US Dollar - CDI
Swaps US Dollar - CDI
R$
R$
R$
R$
R$
R$
707,340
865,350
26,200
19,920
7,939
13,018
03/16/18
04/18/18
09/02/14
03/27/15
09/01/14
05/01/14
137,700
125,461
8,795
2,494
168
381
2,584
-
Subtotal
21,015
6,234
5,182
492
168
381
(21,064)
Investees
Coupon Swaps US Dollar - CDI
Option BRL - US Dollar
US$
US$
470,000
170,000
04/19/18
04/19/18
(48,383)
30,303
(2,235)
-
(11,638)
1,199
Subtotal
(10,439)
Total - Consolidated
(31,503)
12.6.
Fair value
A comparison by class of carrying amount and the fair value of the Group's financial instruments
reported in the financial statements is included below:
Fair value
hierarchy
Balances at 12/31/13
Company
Consolidated
Carrying
Market
Carrying
Market
amount
value
amount
value
Financial assets
Cash and cash equivalents
Short-term investments and marketable securities
Trade accounts receivable
Derivatives
2
2
2
2
793,349
178,638
415,219
528,905
793,349
178,638
415,219
528,905
2,017,398
1,474,511
3,663,208
600,273
2,017,398
1,453,790
3,663,208
600,273
Financial liabilities
Trade accounts payable
Loans and financing
Senior Notes
Debentures (a)
Derivatives
Other liabilities
2
2
1
2
2
2
90,781
368,278
2,898,340
531,354
15,887
90,781
372,144
2,898,340
531,354
15,887
912,570
2,019,551
3,191,293
2,645,366
609,353
443,793
912,570
2,016,926
3,047,356
3,411,232
609,353
443,793
(a)
The fair value of financial assets and liabilities is included in the amount by which the instrument
could be swapped in current transaction between the parties willing to negotiate, and not in sale
or forced settlement. The following methods and assumptions were applied in order to estimate
the fair value.
Cash and cash equivalents, trade accounts receivable, trade accounts payable and other
short-term liabilities approximate to their market value.
Long-term receivables at fixed and floating rates are measured by the Group based on
parameters, such as interest rates, specific risk factors of each country, clients individual
credibility and the financed projects risk characteristics. Based on this valuation, provisions
are recorded in order to deal with expected losses in these receivables. As at December 31,
F-130
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
2013 and 2012, the carrying amount of these receivables, net of provisions, approximates its
fair value.
The fair values of financial liabilities quoted on the secondary market are based on the prices
at the end of the reporting period. If the market of a financial liability has not been listed, the
Company establishes the fair value by means of valuation techniques. These techniques
include the use of recent operations contracted with third parties, benchmark to other
instruments which are substantially similar or the analysis of discounted cash flows. This
calculation is made based on the BM&FBOVESPAs quotes.
The Group contracts derivative financial instruments with financial institutions taking into
account credit ratings of investment grade, aiming at hedging against foreign currency risks.
Derivative instruments are firstly recognized by their fair value. For swap agreements, both
present values of assets and liabilities positions are estimated by the discount of cash flows
projected by the markets interest rates of currency in which swap is denominated. The fair
value of agreement is the difference between assets and liabilities positions. The Black
model was applied in order to calculate the call spread. The volatility information was
obtained via Bloomberg and the interest rates were obtained from BM&F BOVESPA in order
to calculate the fair values.
Fair value hierarchy
The Group applies the following hierarchy to determine and disclose the fair value of financial
instruments according to the valuation technique:
Level 1: quoted prices (without adjustments) in active markets for identical assets or liabilities;
Level 2: other techniques to which all the data have relevant effect on the fair value recorded
are directly or indirectly observable;
Level 3: techniques which apply data with relevant effect on the fair value recorded which are
not based on the markets observable data.
During the year ended December 31, 2013, there were neither transfers between fair value
valuations of Level 1 and Level 2 nor transfers between fair value valuations of Level 3 and
Level 2.
F-131
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
13.
The Structured Project debts of the OAS Group are characterized by Financing to Special
Purpose Entities (SPEs) under the "Structured Project" type which are granted primarily based
on the SPEs cash generation capacity. Such financing arrangements enable individual
segregation of a credit risk, as they are structured without right of recourse against the SPEs
shareholders.
This SPEs financing structuring strategy adopted by the Company (OAS SA) enables
segregated allocation of risks assumed by the Company at the corporate level in relation to the
project level.
Upon the Company granting guarantees to the SPE, these operations are mainly formalized by
means of supporting agreements for contingent capital contribution, with specific coverage
conditions and values threshold. Negotiations are also conducted with lenders, so that such
guarantees are released automatically as the risk inherent to the SPE reduces with time and
with the advance of the project, aiming at their full release when the SPE becomes operational.
The SPEs directly or indirectly controlled by the Company that fall under the Structured Project
concept are as follows: Arena das Dunas, Arena Porto-Alegrense S.A., Samar and Sanear, and
few SPEs of OAS Empreendimentos. On December 31, 2013, the total amount of Loans and
financing (R$2,019,551) and Debentures (R$2,645,917), R$588,768 (29%) and R$199,332
(8%), respectively, correspond to Structured Project debts.
Balance on
12/31/13
387,302
198,947
2,519
588,768
85,946
35,156
78,230
199,332
788,100
Total
Consolidated
Structured
Projects
Interest %
2,019,551
2,645,366
588,768
199,332
29%
8%
Gross debt
4,664,917
788,100
15%
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
12/31/13
Company
12/31/12
(restated)
01/01/12
12/31/13
Consolidated
12/31/12
(restated)
(restated)
01/01/12
(restated)
61
346
407
399
399
415
415
578,320
24,633
20
134
56,435
659,542
763,640
2,159
57,261
823,060
301,819
25,099
326,918
Current liabilities
Non-current liabilities
407
399
415
232,962
426,580
252,851
570,209
168,550
158,368
Total
407
399
415
659,542
823,060
326,918
Deferred revenue refers to advanced billings on ongoing construction contracts, which are
settled based on the progress of the projects, measured based on the costs incurred in relation
to the respective budgeted costs.
Consolidated
193,623
25,260
(57,068)
-
39,385
(65,178)
(7,991)
107,304
159,839
21,274
86,030
25,828
134,011
Total
107,304
159,839
13,789
(21,911)
105
18,194
(26,601)
99,182
151,537
Current liabilities
Non-current liabilities
Total
22,533
76,649
99,182
27,461
124,076
151,537
Current liabilities
Non-current liabilities
The short and long-term amounts by year of maturity are included below:
F-133
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Company
Consolidated
2014
2015
2016
2017 onwards
22,533
22,533
22,533
31,583
27,461
27,356
27,356
69,364
Total
99,182
151,537
Consolidated
12/31/13
12/31/12
(166,819)
34%
489,403
34%
29,601
34%
545,532
34%
56,718
(166,397)
(10,064)
(185,481)
(66)
(43,1734)
(20,910)
(692)
(2,343)
(22,100)
(670)
(11,677)
(984)
(237)
(84,324)
(30,727)
(22,490)
(1,983)
(1,148)
(10,677)
(54,601)
-
Permanent exclusions:
Gains from equity interests
Equity pickup
Foreign exchange variation with investee transaction abroad
Reversal of effect of foreign investees profit
Taxation of investees opting for profit as a percentage of gross sales
Taxation of investees abroad
Unrecognized tax losses
Other
106,532
20,119
84,747
13,622
22,486
4,320
164,081
(7,022)
(23,018)
(70,867)
58,108
95,962
21,888
86,157
(6,662)
31,924
(47,565)
32,397
118,528
(70,655)
(12,411)
(62,279)
118,528
(478)
(70,177)
(107,362)
94,951
(31,323)
(30,956)
Total
118,528
(70,655)
(12,411)
(62,279)
Based on the budget plan, the Management expects that deferred income and social
F-134
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
contribution tax assets and liabilities on December 31, 2013 shall be realized by 2018.
Estimates on the recovery of tax credits were based on projections of taxable income taking into
consideration various financial and business assumptions at the end of the reporting period.
These assumptions are regularly revised by Management, as follows:
12/31/13
Non-currente assets
Provision for investment losses
Allowance for doubtful accounts
Goodwill adjustment gain on VPR
contribution to Invepar
Differences between taxation lucro real/lucro
presumido (taxable income/ tax calculated on
profit as a percentage of gross sales)
Other temporary differences
Tax losses
Subtotal
(-) Offset with liabilities
Total
Non-current liabilities
Deferred income from public works
Deferred income on investment sale (a)
Negative goodwill write-off
Qualifying assets
Differences between taxation lucro real/lucro
presumido (taxable income/ tax calculated on
profit as a percentage of gross sales
Other temporary differences
Subtotal
Deferred income from public works
(-) Offset with assets
Total
Company
12/31/12
01/01/12
(restated)
(restated)
12/31/13
Consolidated
12/31/12
(restated)
01/01/12
(restated)
90,817
368
54,140
368
136,153
52,076
95,324
52,401
48,749
21,078
21,078
10,431
51,112
152,728
(130,891)
21,837
3,470
12,484
91,540
(91,540)
-
45
45
(45)
-
8,728
53,990
210,278
461,225
(240,863)
220,362
27,055
88,763
284,621
(156,822)
127,799
8,322
27,585
28,628
113,284
(41,507)
71,777
3,663
39,484
26,531
12,756
13,235
169,487
28,925
3,663
39,484
166,654
8,610
26,531
185,992
7,988
12,756
13,235
87,659
85
130,891
(130,891)
-
147,063
15,345
188,939
(91,540)
97,399
1,164
27,155
(45)
27,110
36,914
87,659
184,917
551,049
(240,863)
310,186
41,814
147,063
57,036
447,708
(156,822)
290,186
8,532
21,240
249,703
(41,507)
208,236
(a) It refers to gain from capital increase by VPR in Invepar amounting to R$432,539 (Note 9).
For balance sheet reporting purposes, the deferred assets and liabilities of same nature are
reported by their net value, considering the legal entitys calculation.
F-135
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Provisional Measure 627/ (MP 627)
On November 11, 2013, the MP 627 was enacted, significantly changing the tax rules related to
federal taxes, amongst them, we point out the following: (i) revocation of the Transition Tax
Regime; (ii) amendments to the decree-law 1598/1977; (iii) inclusion of provisions on the taxation
of profits and dividends; (iv) inclusion of provisions on the calculation of interest on equity; (v)
inclusion of provisions on investments measured by the equity method; (vi) changes in taxation of
legal entity domiciled in Brazil, referring to equity addition due to profit sharing earned by
subsidiaries and associated companies abroad.
Although the MP 627 shall be effective as of the 2015 calendar year, taxpayers have the option to
anticipate its effects for the 2014 calendar year as condition to eliminate any tax effects related to:
dividends paid until the date of their publication; calculation of interest on equity; and the
measurement of relevant investments in subsidiaries and associated companies by the equity
method.
Notwithstanding the Company is willing to anticipate the effects of MP 627 if this is maintained
under the terms of current wording - the final decision on this option only will be made when this
MP becomes a law. The Company prepared studies on the possible effects that may arise from
the application of MP provisions and concluded there are no relevant effects on its financial
statements as at December 31, 2013.
17. Equity
Capital
On December 31, 2013 and 2012 and on January 1, 2012, the subscribed and paid in capital is
represented by 500 million common shares with par value of R$1.00 each, totaling R$500,000.
Legal Reserve
The Brazilian corporate law requires that corporation allocate 5% of annual net income to the
income reserve, before profit sharing and such reserve is limited to 20% of total capital. The
reserve aims at ensuring the corporate capital integrity and should be used only to offset the
losses and increase the capital.
Revaluation reserve and deemed cost of the Company and subsidiaries
These represent the unrealized portion of the revaluation and the deemed cost of land, civil
works, machinery and equipment and vehicles, net of tax effects.
The realized portion based on the depreciation and disposal of revalued assets is transferred to
the accumulated losses, together with respective deferred taxes recorded by the Company.
F-136
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Income Reserve
The balance of retained earnings to be allocated according to Managements decision was
transferred to the income reserve account.
Other reserves
This refers substantially to currency translation differences on subsidiaries transactions abroad.
Dividends
The Companys Bylaws determines the payment of minimum mandatory annual dividends
equivalent to 25% of the profit and loss for the year, as set forth by Article 202 of Law No.
6404/76.According to the Minutes of the Extraordinary and Annual Shareholders Meeting of April
30, 2013, the dividends proposed in 2012 fiscal year were retained and allocated to the income
reserve.
Consolidated
12/31/12
01/01/12
(restated)
(restated)
Tax proceedings
Civil proceedings
Labor proceedings
Other
Subtotal
(-) Judicial deposits
1,950
919
11,322
8,605
22,796
(1,787)
2,271
5,503
3,910
10,949
22,633
(5,034)
3,579
3,435
3,619
12,058
22,691
(3,690)
Total
21,009
17,599
19,001
Current liabilities
Non-current liabilities
3,304
19,492
5,839
16,794
6,957
15,734
Total
22,796
22,633
22,691
F-137
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Changes in provisions for tax, civil and labor claims:
Consolidated
Balance on
12/31/12
Provisions
set up
Payments
Reversals
Change on
shareholding
interest
Balance on
12/31/13
(restated)
Tax
Civil
Labor
Other
Subtotal
(-) Judicial deposits
2,271
5,503
3,910
10,949
22,633
(5,034)
62
10,080
2,005
12,147
-
(2,405)
(1,031)
(3,436)
(82)
(321)
(2,241)
(3,141)
(10,949)
(16,652)
3,329
473
7,631
8,104
-
1,950
919
11,322
8,605
22,796
(1,787)
Total
17,599
12,147
(3,518)
(13,323)
8,104
21,009
61,714
147,209
10,158
219,081
Total
Consolidated
12/31/12
01/01/12
(restated)
(restated)
96,974
120,021
6,139
223,134
97,919
36,634
1,974
136,527
The Company is party to legal proceedings involving tax, civil and labor claims in the amount of
R$1,573 as of December 31, 2013 (R$870 as of December 31, 2012 and R$3,977 on January 1,
2012).
F-138
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
During 2013, the effects of this plan on profit and loss refer to the cost of service in the amount
of R$1,739 and R$4,112 in the Company and consolidated, respectively; and in the cost of
interest, in the amounts of R$15 and R$1,664 in the Company and consolidated, respectively.
The actuarial liability reported was calculated by an independent actuary, taking into account
certain assumptions applicable to this obligations reality.
The changes in the actuarial liability for the fiscal year ended December 31, 2013 is thus
represented:
Company
12/31/13
12/31/12
Consolidated
12/31/13
12/31/12
(restated)
Previous balance
Companys current cost of service
Cost of interest
Recognition of actuarial gains/losses
1,739
15
1,754
Comprehensive income
(restated)
10,602
4,112
1,664
(4,276)
12,102
10,602
10,602
Consolidated
12/31/13
12/31/12
(restated)
(restated)
Gross revenue:
Domestic market
Foreign market
594,870
114,702
508,389
61,091
6,686,218
2,190,863
5,304,613
1,106,974
Total
Returns and cancellations
Taxes on sales
709,572
(1,550)
(23,691)
569,480
(227)
(31,263)
8,877,081
(306,406)
(643,844)
6,411,587
(99,937)
(485,857)
Net revenue
684,331
537,990
7,926,831
5,825,793
Investments in
infrastructure
projects
Consolidated
Gross revenue:
Domestic market
Foreign market
6,161,294
1,361,380
524,924
829,483
6,686,218
2,190,863
Total
7,522,674
1,354,407
8,877,081
F-139
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Consolidated
12/31/13
12/31/12
(restated)
(restated)
(366,808)
(62,346)
(259,462)
(51,553)
(3,857,014)
(370,169)
(2,920,008)
(318,997)
(67,971)
(2,651)
(2,217)
(106,925)
(2,421)
(13,758)
(8,471)
(6,716)
(95,833)
(31,553)
(2,304)
(1,935)
(36,086)
(24,359)
(18,224)
(5,840)
(16,824)
298,153
(534,715)
(281,842)
(27,048)
(1,035,261)
(879,019)
(191,245)
(105,094)
(52,135)
(83,877)
(372,714)
(83,879)
(12,770)
(597,916)
(557,520)
(104,648)
(77,855)
(27,928)
34,591
Total
(736,117)
(149,987)
(7,417,419)
(5,039,644)
(539,934)
(196,183)
(736,117)
(356,313)
206,326
(149,987)
Total
(6,399,548)
(1,017,871)
(7,417,419)
(4,662,242)
(377,402)
(5,039,644)
Consolidated
12/31/13
12/31/12
(restated)
F-140
(restated)
5,043
(107,872)
4,144
432,539
926
(158,261)
22,913
(8,366)
2,627
(7,393)
3,466
(225,980)
167,128
111,625
432,539
(6,120)
(3,222)
60,533
(98,685)
298,117
(9,666)
536,503
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Consolidated
12/31/13
12/31/12
(restated)
(restated)
Financial income
Interests from:
Short-term investments
Notes receivable
Taxes recoverable
Judicial deposits
Consortia
Foreign exchange gains
Discounts obtained
Hedge operations/swap (Note 24)
Other financial income
54,227
734
1,284
5
89,118
1,756
643,654
64,855
25,788
49
793
5
8,264
606
8,581
984
130,959
208,859
6,583
383
4,967
242,512
6,311
683,509
126,219
50,941
12,403
6,692
342
14,730
27,835
15,503
8,581
47,181
Subtotal
855,633
45,070
1,410,302
184,208
(2,807)
(13,798)
(22,147)
(202,068)
(190,977)
(3,888)
(111)
(638,509)
(5,171)
(68,125)
(1,254)
(4,545)
(19,068)
(139,520)
(6,970)
(2,161)
(165)
(5,217)
(14,025)
(4,562)
(20,312)
(322,369)
(412,149)
(304,385)
(1,588)
(12,993)
(22,791)
(682,426)
(7,380)
(6,126)
(87,208)
(3,410)
(4,982)
(110,329)
(170,375)
(40,393)
(818)
(65,681)
(17,049)
(6,253)
(1,426)
(51)
(35,462)
(1,147,601)
(192,925)
(1,884,289)
(456,229)
(291,968)
(147,855)
(473,987)
(272,021)
Financial expenses
Interests payable:
Trade accounts payable
Tax and social obligations
Loans and financing
Debentures
Foreign exchange losses
Discounts granted
Bank commissions and charges
Bank guarantees
Hedge operations/swap (Note 24)
Present value adjustment
Tax on financial transactions (IOF)
Other financial expenses
Subtotal
Total
F-141
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
F-142
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Sensitivity analysis of interest rates variation - Consolidated
The Company and its subsidiaries have substantial cash equivalents indexed to the CDI. The
expectation of the market, according to data from the report of the Central Bank of Brazil (Focus
Report), as of August 23, 2013, indicated an average effective Selic interest rate (Top 5)
estimated at 8.27%, a likely scenario for 2013, compared to the current rate of 9.00%. Besides
the likely scenario, the Federal Accounting Council (CFC), through Resolution No. 1.198/09,
determined to report another two scenarios with deterioration of 25% (Possible) and 50%
(Remote) of the risk variable considered.
Operation
Risk
Rate
Liabilities:
Loans TJLP
Loans CDI
Loans TR
TJLP
CDI
TR
5.00%
8.06%
0.19%
Total
Assets:
Short-term investments
CDI
8.06%
Total
Derivatives:
Hedge operations
CDI
8.06%
Total
Equity effects considering the scenarios
Likely
Scenario
Possible
Scenario
Remote
Scenario
616,558
542,348
244,518
623,899
552,466
244,635
631,239
562,583
244,751
1,403,424
1,421,000
1,438,573
2,072,389
2,111,050
2,149,711
2,072,389
2,111,050
2,149,711
(192,342)
(366,668)
(626,874)
(192,342)
(366,668)
(626,874)
(118,089)
(322,061)
In order to determine the estimated fair value of financial instruments, available market
information and appropriate valuation methodologies were applied. The estimates do not
necessarily indicate that such instruments cannot be operated in the market as distinct from the
rates used. The use of different market information and/ or valuation methodologies may have a
material effect on the markets estimated value.
The Company's practice is not to be exposed to market risks, monitoring them continuously and
only operating instruments that allow the control and the mitigation of these risks.
F-143
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Currency risk
This risk arises from the possibility that Company may incur losses due to foreign exchange
fluctuations that increase financial expenses on loans and financing contracted in foreign
currencies. The profit and loss of subsidiary Construtora OAS S.A. are not subject to significant
variations, resulting from volatility in the exchange rate of the U.S. Dollar, as the portion relating
to its foreign currency loans is hedged by swap operations and/ or assets linked to the same
currency.
Sensitivity analysis for foreign currency - Consolidated
The possible and remote scenarios consider, respectively, an appreciation of Real at 25% and
50% against other currencies, with exchange rates on December 31, 2013.
Assets
Risk
Rate
Original
Currency
Likely
scenario
Possible
Scenario
Remote
scenario
R$/USD
R$/UYU
R$/USD
R$/PEN
R$/ARS
R$/USD
R$/COP
R$/CRC
R$/USD
R$/USD
R$/USD
R$/USD
R$/USD
R$/USD
R$/PEN
R$/USD
2.3426
0.1110
2.3426
0.8375
0.3594
2.3426
0.0012
0.0047
2.3426
2.3426
2.3426
2.3426
2.3426
2.3426
0.8375
2.3426
59,974
850,755
15,798
150,756
101,004
19,659
4,710,526
8,309,750
50,391
14,795
21,514
41,251
32,077
42,859
6,463
4,837
140,495
94,434
37,008
126,258
36,301
46,053
5,714
39,313
118,046
34,659
50,399
96,635
75,144
100,401
5,413
11,331
1,017,604
175,619
118,042
46,260
157,823
45,376
57,566
7,142
49,142
147,557
43,323
62,998
120,793
93,929
125,502
6,766
14,164
1,272,002
210,743
141,651
55,513
189,387
54,451
69,080
8,571
58,970
177,069
51,988
75,598
144,952
112,715
150,602
8,119
16,997
1,526,406
Accounts receivable:
Construtora OAS S.A. Sucursal Bolivia
Construtora OAS S.A. Sucursal Uruguay
Construtora OAS S.A. Sucursal Equator
Construtora OAS S.A. Sucursal Peru
Construtora OAS S.A. Sucursal Argentina
Construtora OAS S.A. Sucursal Haiti
Construtora OAS S.A. Sucursal Colombia
Construtora OAS S.A. Sucursal Costa Rica
OAS Central American Investing
OAS African Investments Limited
Construtora OAS Guine
Construtora OAS Equatorial Guinea
OAS Nacala Ltda
OGI Assets Ltda.
Empresa Peruana de guas EPASA
Construtora OAS Angola Ltda.
F-144
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Original
Currency
Likely
scenario
Possible
Scenario
Remote
scenario
Risk
Rate
R$/USD
R$/LPS
R$/UYU
R$/USD
R$/CLP
R$/PEN
R$/ARS
R$/USD
R$/COP
2.3426
0.1156
0.1110
2.3426
0.0045
0.8375
0.3594
2.3426
0.0012
6,318
483
42,075
4,479
25,699
196,989
157,766
67
226,769
14,801
56
4,670
10,493
115
164,978
56,701
157
275
18,501
70
5,838
13,116
143
206,223
70,876
196
344
22,201
84
7,005
15,739
172
247,467
85,052
235
413
R$/DOP
R$/CRC
R$/USD
0.0549
0.0047
2.3426
350
6,644,743
2
19
31,436
5
24
39,295
6
29
47,154
7
R$/T&T
R$/VEF
R$/USD
R$/USD
R$/Rande
R$/USD
R$/USD
R$/USD
R$/USD
R$/USD
R$/USD
R$/USD
R$/PEN
R$/USD
0.3672
0.3728
2.3426
2.3426
0.2231
2.3426
2.3426
2.3426
2.3426
2.3426
2.3426
2.3426
0.8375
2.3426
165,948
3
8
4
22
5,780
108
7,671
57,891
19,466
13,770
43,958
1,585
3,121
60,936
1
19
9
5
13,540
253
17,970
135,615
45,601
32,258
102,976
1,327
7,311
701,527
76,170
1
23
12
6
16,925
316
22,463
169,519
57,001
40,322
128,720
1,659
9,139
876,908
91,404
2
28
14
7
20,310
380
26,955
203,423
68,402
48,386
154,464
1,991
10,967
1,052,291
Loans
R$/USD
2.3426
881,661
2,065,380
2,581,725
3,098,070
Hedge operations
R$/USD
2.3426
256,242
600,273
750,341
900,410
(287,258)
(574,515)
Liabilities
Trade accounts payable
Construtora OAS S.A. Sucursal Bolivia
Construtora OAS S.A. Sucursal Honduras
Construtora OAS S.A. Sucursal Uruguay
Construtora OAS S.A. Sucursal Equator
Construtora OAS S.A. Sucursal Chile
Construtora OAS S.A. Sucursal Peru
Construtora OAS S.A. Sucursal Argentina
Construtora OAS S.A. Sucursal Haiti
Construtora OAS S.A. Sucursal Colombia
Construtora OAS S.A. Sucursal Dominican
Republic
Construtora OAS S.A. Sucursal Costa Rica
Construtora OAS S.A. Sucursal Panama
Construtora OAS S.A. Sucursal Trinidad &
Tobago
Construtora OAS S.A. Sucursal Venezuela
OAS Energy GMBH
Construtora OAS S.A. Sucursal Guatemala
Construtora OAS South Africa Ltd
OAS Central American Investing
OAS African Investments Limited
Construtora OAS Guine
Construtora OAS Equatorial Guinea
OAS Nacala Ltda
Construtora OAS Ghana Ltd
OGI Assets Ltd
Empresa Peruana de guas EPASA
Construtora OAS S.A. Sucursal Bolivia
Credit Risk
Accounts receivable
This risk arises from the possibility that the Company and its subsidiaries may incur losses from
difficulty in receiving amounts invoiced to clients.
Cash and cash equivalents, short-term investments and marketable securities
These financial instruments potentially subject the Company and its subsidiaries to credit risks
and primarily comprise cash, banks and short-term investments. These transactions are
performed with first-tier banks, therefore, mitigating risks.
F-145
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
Liquidity risk
Main financial liabilities of the Company and its subsidiaries include trade accounts payable,
debentures, loans and financing. The maturity profiles of loans, financing and debentures as
of December 31, 2013 are described in Notes 12.2 and 12.3, respectively. Trade accounts
payable have less than one year maturity profile.
Capital risk management
The Company manages its capital to ensure that its investees may continue as going concerns
through maximization of cost of capital, return on investments and optimization of equity. The
Companys overall strategy does not include the assumption of financial risks other than those
strictly related to the financing of its core business activities.
The Companys capital structure is composed of net debt (loans detailed in Note 12, less cash
and bank balances) and equity (including capital, reserves, income reserves and non-controlling
interests, as shown in Note 17). The Company is not subject to any external requirement on
capital.
The Company's Financial Risk Management Committee periodically reviews risks related to (i) the
financial institutions in which the Company makes its cash investments and (ii) the currency risk
associated to its transactions. As part of this review, the Committee considers the rating of these
financial institutions as well as the behavior of the currencies to which the Company is or will be
exposed. The Company's contractual obligation, according to the debentures description in Note
12, is restrict (i) its net indebtedness to 60% of its total assets and (ii) net indebtedness on
EBITDA of Construtora OAS S.A. to 3.0.
Debt ratio
12/31/13
Company
12/31/12
12/01/12
(restated)
(restated)
12/31/13
Consolidated
12/31/12
(restated)
12/01/12
(restated)
Financial liabilities
Loans and financing
Debentures and Senior Notes
Financial instruments derivatives
368,278
2,898,340
531,354
613,369
1,363,073
-
583,459
902,773
-
2,019,551
5,836,659
609,353
2,087,737
2,859,214
-
1,342,156
1,269,074
-
Total
3,797,972
1,976,442
1,486,232
8,465,563
4,946,951
2,611,230
793,349
174,240
14,955
2,017,398
2,139,007
1,003,500
178,638
528,905
197,862
-
10,359
-
1,474,511
600,273
513,061
-
289,285
-
Total
1,500,892
372,102
25,314
4,092,182
2,652,068
1,292,785
Net debt
Equity
2,297,080
963,784
1,604,340
962,199
1,460,918
651,460
4,373,381
1,191,088
2,294,883
1,099,026
1,318,445
724,382
2.3834
1.6674
2.2425
3.6718
2.0881
1.8201
Financial assets
Cash and cash equivalents
Short-term investments and marktable
securities
Financial instruments derivatives
Debt ratio
F-146
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
25.
Insurance
F-147
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
concessionaire will financially operate the Estdio das Dunas - "Arena das Dunas" and the
property and assets it comprises.
The pecuniary consideration to be paid to the concessionaire corresponds to a monthly value of
eighty-five percent (85%) of the fixed consideration, also called the fixed portion, and a monthly
fee of fifteen percent (15%) of the variable consideration also called as the variable portion. The
fixed portion will suffer reductions over the length of the contract, but there shall be no reduction
and/ or increase in the variable portion. After delivery of the work, from the 1st to 8th year, there
shall be no reduction of the fixed consideration. From 9th to 12th year of operation there will be
a reduction of 30% of the fixed consideration. From the 13th year of operation to the end of the
contract there will be a reduction of 100% of the fixed consideration, with only variable
consideration maintained. The estimated value of the contract, considering the nominal sum of
all considerations is R$1,284,435.
b) SAMAR Solues Ambientais Araatuba
The subsidiary is concessionaire for public drinking water supply services and sanitation in the
city of Araatuba, So Paulo, comprising the construction, operation and maintenance of
physical, operational and management units for production and distribution of drinking water,
including connections and related measurement instruments, as well as the collection, removal,
treatment and disposal of sewage, management of organizational systems, the sale of products
and services involved and customer service as stated in regulations over granting approval for
public concessions under Article 5 of Federal Law No. 8987 of 2/13/95 and Public Bid Notice
006/2011. The validity of that concession is projected to last up to November 2042. The value
paid by the subsidiary to the Araatuba Department of Water and Sewerage under concession
agreement No. 160/2012 dated September 12, 2012 provides for the payment of a fixed and a
variable fee. The fixed fee shall be paid monthly throughout the concession period (30 years)
and amounts to R$ 262. In December of each year the equivalent of 2 installments shall be
paid, to total 13 payments a year, while the variable fee shall be paid in seven installments the
first of R$11,250 and the other in equal installments of R$4,695 totaling R$39,420.
The tariff adjustment shall occur every 12 months through a publicized decision made on
January 25th or one business day before, both in print and on the official site on the internet.
That decision takes effect immediately, but will produce effects as from the March 1st each
year, taking into account the price change between January and December of the previous
year, according to the IPCA, published by the IBGE Brazilian Geography and Statistic
institute.
At the end of the concession, all public property and facilities used by the Samar, as well as all
works and facilities performed by it, will revert automatically to the Araatuba Department of
Water and Sewerage (DAEA) with no financial return to the subsidiary.
F-148
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
c) SANEAR Saneamento de Araatuba S.A.
Sanear is a municipal public utility concessionaire for removal, treatment and exploration of
sewage treatment services of Bacias Machado de Melo and Baguau, in the city of Araatuba,
comprising the construction, operation, conservation, maintenance, renovation, expansion and
exploration of structures related to the purpose of concession as regulated by public as stated in
regulations over granting approval for public concessions under Article 5 of Federal Law No.
8987 of 2/13/95 and Public Bid Notice No. 005/95. The validity of that concession is projected to
last up to May 2015.
The tariff revision (adjustment) shall be always requested upon the perception that the
economic and financial breakeven of involved parties shall be compromised. On September 12,
2012, the municipal government of Araatuba (Grantor) and Samar entered into a "concession
agreement for the rendering of public utility services of drinkable water supply and sewage in
the municipality of Araatuba, which formalizes the selection of this company to operate in the
entire water and sewage treatment system of this municipality, pursuant to the Public Notice
006/2011.
The right granted to Samar is valid for 30 years and shall take effect only upon the expiration of
the concession contracts now in progress, which will have their terms and conditions complied
with until the dates estimated for their expiration. In case of Sanear, Serpa, on May 15, 2015.
At the end of the concession, all the public assets and facilities used by Sanear, as well as all
the works and installations carried out by subsidiary will automatically revert to the Water and
Sewage Department of Araatuba (DAEA) without any financial return for the subsidiary.
27. Commitments
Operating lease obligations
The Company and its subsidiaries are subject to commitments arising from operating lease
agreements referring to properties where some subsidiaries in foreign countries are located, as
well as its administrative headquarters in Brazil, and properties where its subsidiaries in Brazil
are located.
The lease amount to be paid by the Company until the agreements expiration is R$34,463. As
of December 31, 2013, these agreements have a 61-month residual lease term (expiring on
December 31, 2017) and without purchase option clause at the end of this period, but suitable
renewals are allowed according to the market conditions wherein these lease agreements were
entered into.
F-149
OAS S.A.
Notes to the Financial Statements--Continued
December 31, 2013
(In thousands of Brazilian Reais, except when otherwise indicated)
* * * * *
F-150
A-1
OAS
Investimentos
S.A.
Financial Information
Net revenue of Restricted
1,619.7
39.7
1,195.4
384.6
Group ....................
Net revenue of Restricted
Group/Consolidated net revenue (1) ...........
91%
Total assets of Restricted Group = (a) - (b)......
14,354.3
7,847.7
2,198.9
3,835.2
(a) Total assets combined (2) ..........................
20,070.5
7,847.7
4,676.0
4,346.5
(b) Net equity of OAS Investimentos S.A.,
Construtora OAS International Branches
and Construtora OAS S.A. ...........................
5,716.3
2,477.1
511.4
Total assets of Restricted Group Combined
/Total assets combined..................................
72%
Net tangible assets of Restricted Group (3) =
(c) - (b)
10,892.6
4,736.8
2,060.8
3,622.5
16,608.8
4,736.8
4,537.9
4,133.8
(c) Total net tangible assets (4) ........................
Total debt of Restricted Group(5) + (e) ...........
6,916.3
3,110.9
132.2
208.4
(e) Total debt with guarantee of the
3,464.8
Restricted Group ...........................................
Cash and cash equivalents, short-term
investments and marketable securities ........
2,310.7
450.6
789.8
1,070.1
Other Financial Information and Selected
Ratios
1,276.5
(5.6)
110.2
21.6
EBITDA of Restricted Group(6) (*) ................
EBITDA margin of Restricted Group(7) .........
79%
Net debt of Restricted Group(8) .......................
1,140.9
2,660.4
(657.5)
(861.7)
Coverage Ratio of Restricted Group(9) ...........
13.0
_____________________________________
(1) Net revenue of Restricted Group/Consolidated net revenue means the total net revenue of the Restricted Group divided by our consolidated net
revenue.
(2) Total assets combined represent the combination of the total assets of the Restricted Group without elimination of intercompany balances and
investments between the Company and the Restricted Subsidiaries.
(3) Net tangible assets of Restricted Group means the total net tangible assets deducted by the net equity of OAS Investimentos S.A., Construtora OAS
International Branches and Construtora OAS S.A.
(4) Total net tangible assets means the total assets, deducted by the total debt of the Restricted Group, and the total intangible assets of the Restricted
Group.
(5) Total debt of the Restricted Group means the total of current and noncurrent loans and financing and debentures of the Restricted Group.
(6) EBITDA of Restricted Group means the net income (loss) of the Restricted Group plus the total financial income (expenses) net of the Restricted
Group, plus the total income tax and social contribution of the Restricted Group, plus the total depreciation and amortization included in cost of
service and sales and in general and administrative expenses, if any, excluding the effect of any equity pick-up plus dividends received, provision for
loss in investments, provision for losses in receivables, less dividends paid. EBITDA is not an IFRS or Brazilian GAAP measure, does not represent
cash flow for the years indicated and should not be considered an alternative to net income (loss), as an indicator of our performance or as an
alternative to cash flow as a source of liquidity. Our definition of EBITDA may not be comparable with EBITDA as defined by other companies.
Our management considers EBITDA, notwithstanding the limitations previously mentioned, and in conjunction with other accounting and financial
information available, a reasonable indicator for comparisons between us and our principal competitors in the market.
(7) EBITDA margin of the Restricted Group means the total EBITDA of Restricted Group divided by the total net revenues of the Restricted Group,
expressed as a percentage.
(8) Net debt of the Restricted Group means the total short term debt plus total long term debt of the Restricted Group less the total cash and cash and
equivalents plus total financial investments and marketable securities of the Restricted Group.
(9) Coverage ratio of the Restricted Group means the ratio of (a) the total EBITDA of Restricted Group for the two immediately prior fiscal semesters to
(b) the total consolidated interest expense (as defined in the Description of the Notes) of the Restricted Group.
(*) On January 2, 2014 we sold 39% interest in OAS leo e Gs to Fundo de Investimento do Fundo de Garantia do Tempo de Servio FIFGTS, or
FIFGTS, a Brazilian fund that invests workers unemployment benefits. This transaction impacted our results of operations as a result of our no longer
consolidating our equity interest in OAS leo e Gs and the re-calculation of our investment in this company at its fair value (totaling R$1,160.0 million)
under the concept of shared control in accordance with CPC 36 (R3) Consolidated Financial Statements. (See Note 9 to our interim condensed
financial statements as of March 31, 2014 and for the three-months March 31, 2014 and 2013.)
A-2
472.5
3,200.3
2,727.8
472.5
3,200.3
-
0.2
1,150.3
(0.3)
87.4
-
11.6
-
(0.5)
-
(5.6)
110.2
21.6
1,150.3
47.8
107.9
(31.8)
(29.3)
1.0
(17.4)
33.0
11.1
16.5
33.0
0.1
(14.5)
6.3
(19.4)
3.7
1.0
76.9
42.7
26.5
7.7
98.0
58.3
(23.6)
(13.6)
13.0
Coverage Ratio of the Restricted Group: (a)/(b)....
_____________________________________
(1) Foreign exchange variation in Financial Income (expenses), net are the sum of (i) foreign exchange gains (financial income Note 23 of the financial
statements); (ii) hedge operations/swap (financial income Note 23 of the financial statements); (iii) foreign exchange losses (financial expenses
Note 23 of the financial statements); (iv) hedge operation/swap (financial expenses Note 23 of the financial statements); (v) settlement in the year
(Note 12.5 of the financial statements).
(*) On January 2, 2014 we sold 39% interest in OAS leo e Gs to Fundo de Investimento do Fundo de Garantia do Tempo de Servio FIFGTS, or
FIFGTS, a Brazilian fund that invests workers unemployment benefits. This transaction impacted our results of operations as a result of our no longer
consolidating our equity interest in OAS leo e Gs and the re-calculation of our investment in this company at its fair value (totaling R$1,160.0 million)
under the concept of shared control in accordance with CPC 36 (R3) Consolidated Financial Statements. (See Note 9 to our interim condensed financial
statements as of March 31, 2014 and for the three-months March 31, 2014 and 2013.)
A-3
OAS
Investimentos
S.A.
Financial Information
Net revenue of Restricted Group ..........................
6,671.3
684.3
4,790.0
1,197.0
Net revenue of Restricted Group/Consolidated
net revenue (1) ..................................................
84%
Total assets of Restricted Group = (a) - (b) ..........
13,668.4
(a) Total assets combined (2) ...............................
18,408.4
7,190.0
4,776.1
4,513.7
1,928.6
(b) Net equity of OAS Investimentos S.A.,
Construtora OAS International Branches and
Construtora OAS S.A........................................
4,740.0
2,417.3
587.2
1,735.5
Total assets of Restricted Group Combined
/Total assets combined ......................................
74%
Net tangible assets of Restricted Group (3) = (c)
- (b) ....................................................................
10,075.5
(c) Total net tangible assets (4) .............................
14,815.5
3,923.4
4,630.8
4,332.8
1,928.6
Total debt of Restricted Group(5) + (e) ................
7,092.3
3,266.6
142.7
175.5
(e) Total debt with guarantee of the Restricted
Group.................................................................
3,507.5
Cash and cash equivalents, short-term
investments and marketable securities .............
3,275.9
972.0
1,095.9
1,207.7
0.3
Other Financial Information and Selected
Ratios
EBITDA of Restricted Group(6) ..........................
553.9
70.2
377.9
111.3
(5.5)
EBITDA margin of Restricted Group(7) ..............
8%
Net debt of Restricted Group(8) ...........................
308.9
Coverage Ratio of Restricted Group(9) ................
2.3
_____________________________________
(1) Net revenue of Restricted Group/Consolidated net revenue means the total net revenue of the Restricted Group divided by our consolidated net
revenue.
(2) Total assets combined represent the combination of the total assets of the Restricted Group without elimination of intercompany balances and
investments between the Company and the Restricted Subsidiaries.
(3) Net tangible assets of Restricted Group means the total net tangible assets deducted by the net equity of OAS Investimentos S.A., Construtora OAS
International Branches and Construtora OAS S.A.
(4) Total net tangible assets mean the total assets, deducted by the total debt of the Restricted Group, and the total intangible assets of the Restricted
Group.
(5) Total debt of the Restricted Group means the total current and noncurrent loans and financing and debentures of the Restricted Group.
(6) EBITDA of Restricted Group means the net income (loss) of the Restricted Group plus the total financial income (expenses) net of the Restricted
Group, plus the total income and social contribution tax of the Restricted Group, plus the total depreciation and amortization included in cost of
service and sales and in general and administrative expenses, if any, excluding the effect of any equity pick-up plus dividends received, provision for
loss in investments, provision for losses in receivables, less dividends paid. EBITDA is not an IFRS or Brazilian GAAP measure, does not represent
cash flow for the years indicated and should not be considered an alternative to net income (loss), as an indicator of our performance or as an
alternative to cash flow as a source of liquidity. Our definition of EBITDA may not be comparable with EBITDA as defined by other companies.
Our management considers EBITDA, notwithstanding the limitations previously mentioned, and in conjunction with other accounting and financial
information available, a reasonable indicator for comparisons between us and our principal competitors in the market.
(7) EBITDA margin of the Restricted Group means the total EBITDA of Restricted Group divided by the total net revenues of the Restricted Group,
expressed as a percentage.
(8) Net debt of the Restricted Group means the total short term debt plus total long term debt of the Restricted Group less the total cash and cash and
equivalents plus total financial investments and marketable securities of the Restricted Group.
(9) Coverage ratio of the Restricted Group means the ratio of (a) the total EBITDA of Restricted Group for the two immediately prior fiscal semesters to
(b) the total consolidated interest expense (as defined in the Description of the Notes) of the Restricted Group.
A-4
Total Restricted
Group
OAS
Investimentos
S.A.
272.3
206.1
(21.5)
108.9
(165.6)
127.1
(0.8)
27.4
-
(225.6)
6.9
8.1
181.9
23.2
-
553.9
70.2
377.9
111.3
(5.5)
206.1
292.0
(28.0)
(64.8)
6.9
51.5
81.7
96.7
81.7
(11.6)
-
(33.6)
-
34.1
4.0
23.1
7.0
109.6
(39.5)
(38.2)
6.9
201.8
65.8
102.7
33.3
240.6
A-5
Total Restricted
Group
OAS
Investimentos
S.A.
Financial Information
1,236.5
121.5
963.6
151.4
Net revenue of Restricted Group ........................
Net revenue of Restricted
Group/Consolidated net revenue (1) ..............
85%
Total assets of Restricted Group = (a) - (b) ........
8,619.7
11,066.5
5,205.8
3,149.7
1,332.1
1,378.9
(a) Total assets combined (2) .............................
(b) Net equity of OAS Investimentos S.A.,
Construtora OAS International Branches
and Construtora OAS S.A. ..............................
2,446.8
1,169.8
182.8
1,094.2
Total assets of Restricted Group combined
78%
/Total assets combined ....................................
Net tangible assets of Restricted Group (3) =
(c) - (b) ............................................................
5,654.5
(c) Total net tangible assets (4) ...........................
8,101.3
2,626.1
2,966.4
1,199.8
1,309.0
Total debt of Restricted Group(5) + (e) ..............
4,273.1
2,579.7
180.1
126.6
69.9
(e) Total debt with guarantee of the
Restricted Group .............................................
1,316.8
Cash and cash equivalents, short-term
investments and marketable securities ...........
1,558.9
935.4
429.0
194.4
0.1
Other Financial Information and Selected
Ratios
EBITDA of Restricted Group(6) ........................
84.1
51.4
81.5
(45.3)
(3.5)
EBITDA margin of Restricted Group(7) ............
7%
Net debt of Restricted Group(8) .........................
2,714.2
1.8
Coverage Ratio of Restricted Group(9) ..............
_____________________________________
(1) Net revenue of Restricted Group/Consolidated net revenue means the total net revenue of the Restricted Group divided by our consolidated net
revenue.
(2) Total assets combined represent the combination of the total assets of the Restricted Group without elimination of intercompany balances and
investments between the Company and the Restricted Subsidiaries.
(3) Net tangible assets of Restricted Group means the total net tangible assets deducted by the net equity of OAS Investimentos S.A., Construtora OAS
International Branches and Construtora OAS S.A.
(4) Total net tangible assets mean the total assets, deducted by the total debt of the Restricted Group, and the total intangible assets of the Restricted
Group.
(5) Total debt of the Restricted Group means the total of short-term and long-term loans and financing and debentures of the Restricted Group.
(6) EBITDA of Restricted Group means the net income (loss) of the Restricted Group plus the total financial income (expenses) net of the Restricted
Group, plus the total income and social contribution tax of the Restricted Group, plus the total depreciation and amortization included in cost of
service and sales and in general and administrative expenses, if any, excluding the effect of any equity pick-up plus dividends received, provision for
loss in investments, provision for losses in receivables, less dividends paid. EBITDA is not an IFRS or Brazilian GAAP measure, does not represent
cash flow for the years indicated and should not be considered an alternative to net income (loss), as an indicator of our performance or as an
alternative to cash flow as a source of liquidity. Our definition of EBITDA may not be comparable with EBITDA as defined by other companies.
Our management considers EBITDA, notwithstanding the limitations previously mentioned, and in conjunction with other accounting and financial
information available, a reasonable indicator for comparisons between us and our principal competitors in the market.
(7) EBITDA margin of the Restricted Group means the total EBITDA of Restricted Group divided by the total net revenues of the Restricted Group,
expressed as a percentage.
(8) Net debt of the Restricted Group means the total short term debt plus total long term debt of the Restricted Group less the total cash and cash and
equivalents plus total financial investments and marketable securities of the Restricted Group.
(9) Coverage ratio of the Restricted Group means the ratio of (a) the total EBITDA of Restricted Group for the two immediately prior fiscal semesters to
(b) the total consolidated interest expense (as defined in the Description of the Notes) of the Restricted Group.
A-6
Total Restricted
Group
(21.5)
15.0
(1.4)
26.8
3.7
57.5
4.0
84.1
OAS
Investimentos
S.A.
(0.4)
3.0
1.5
(7.6)
(3.5)
15.0
27.8
(7.8)
(8.0)
3.0
10.2
3.3
5.6
21.0
3.3
0.1
(5.8)
4.7
(5.0)
0.8
50.7
19.9
24.0
6.8
46.6
3.4
(6.7)
(3.8)
3.0
1.8
Coverage Ratio of the Restricted Group: (a)/(b)......
_____________________________________
(1) Foreign exchange variation in Financial Income (expenses), net are the sum of (i) foreign exchange gains (financial income); (ii) hedge
operations/swap (financial income); (iii) foreign exchange losses; and (iv) hedge operation/swap (financial expenses).
A-7
Total Restricted
Group
OAS
Investimentos
S.A.
Financial Information
Net revenue of Restricted Group ........................
5,186.6
538.0
3,699.6
949.0
Net revenue of Restricted
Group/Consolidated net revenue (1) ..............
89%
Total assets of Restricted Group = (a) - (b) ........
8,105.1
(a) Total assets combined (2) .............................
10,568.9
4,392.9
3,355.9
1,526.4
1,293.7
(b) Net equity of OAS Investimentos S.A.,
Construtora OAS International Branches
and Construtora OAS S.A. ..............................
2,463.8
1,156.2
212.9
1,094.7
Total assets of Restricted Group combined
77%
/Total assets combined ....................................
Net tangible assets of Restricted Group (3) =
(c) - (b) ............................................................
5,697.9
(c) Total net tangible assets (4) ...........................
8,161.7
2,416.5
3,174.5
1,343.8
1,226.9
Total debt of Restricted Group(5) + (e) ..............
3,742.6
1,976.4
177.8
177.0
66.8
(e) Total debt with guarantee of the
Restricted Group .............................................
1,344.6
Cash and cash equivalents, short-term
1,581.5
372.1
791.1
418.2
0.1
investments and marketable securities ...........
Other Financial Information and Selected
Ratios
EBITDA of Restricted Group(6) ........................
885.0
690.9
181.0
(29.6)
42.7
EBITDA margin of Restricted Group(7) ............
17%
Net debt of Restricted Group(8) .........................
816.5
Coverage Ratio of Restricted Group(9) ..............
5.2
_____________________________________
(1) Net revenue of Restricted Group/Consolidated net revenue means the total net revenue of the Restricted Group divided by our consolidated net
revenue.
(2) Total assets combined represent the combination of the total assets of the Restricted Group without elimination of intercompany balances and
investments between the Company and the Restricted Subsidiaries.
(3) Net tangible assets of Restricted Group means the total net tangible assets deducted by the net equity of OAS Investimentos S.A., Construtora OAS
International Branches and Construtora OAS S.A.
(4) Total net tangible assets mean the total assets, deducted by the total debt of the Restricted Group, and the total intangible assets of the Restricted
Group.
(5) Total debt of the Restricted Group means the total of short-term and long-term loans and financing and debentures of the Restricted Group.
(6) EBITDA of Restricted Group means the net income (loss) of the Restricted Group plus the total financial income (expenses) net of the Restricted
Group, plus the total income and social contribution tax of the Restricted Group, plus the total depreciation and amortization included in cost of
service and sales and in general and administrative expenses, if any, excluding the effect of any equity pick-up plus dividends received, provision for
loss in investments, provision for losses in receivables, less dividends paid. EBITDA is not an IFRS or Brazilian GAAP measure, does not represent
cash flow for the years indicated and should not be considered an alternative to net income (loss), as an indicator of our performance or as an
alternative to cash flow as a source of liquidity. Our definition of EBITDA may not be comparable with EBITDA as defined by other companies.
Our management considers EBITDA, notwithstanding the limitations previously mentioned, and in conjunction with other accounting and financial
information available, a reasonable indicator for comparisons between us and our principal competitors in the market.
(7) EBITDA margin of the Restricted Group means the total EBITDA of Restricted Group divided by the total net revenues of the Restricted Group,
expressed as a percentage.
(8) Net debt of the Restricted Group means the total short term debt plus total long term debt of the Restricted Group less the total cash and cash and
equivalents plus total financial investments and marketable securities of the Restricted Group.
(9) Coverage ratio of the Restricted Group means the ratio of (a) the total EBITDA of Restricted Group for the two immediately prior fiscal semesters to
(b) the total consolidated interest expense (as defined in the Description of the Notes) of the Restricted Group.
A-8
OAS
Investimentos
S.A.
71.1
1.6
(2.4)
3.7
3.8
(35.1)
42.7
192.5
147.9
(13.9)
56.9
1.6
1.9
78.2
(4.7)
2.3
3.3
17.8
3.3
58.1
(4.5)
1.6
57.6
17.2
40.4
170.0
150.3
(35.0)
5.2
Coverage Ratio of the Restricted Group: (a)/(b)......
_____________________________________
(1) Foreign exchange variation in Financial Income (expenses), net are the sum of (i) foreign exchange gains (financial income); (ii) hedge
operations/swap (financial income); (iii) foreign exchange losses; and (iv) hedge operation/swap (financial expenses).
A-9
ISSUER
OAS Finance Limited
C/O Trident Trust Company (B.V.I.) Limited
Trident Chambers, P.O. Box 146
Road Town, Tortola
British Virgin Islands
GUARANTORS
OAS S.A.
Av. Anglica, 2330,2346,2364 9th Floor, Suite 904
01228-200 So Paulo, SP
Brazil
Construtora OAS S.A.
OAS Investimentos S.A.
Av. Anglica, 2330, 2346, 2364 7th Floor, Suite 720
Av. Anglica, 2330, 2346, 2364 9th Floor, Suite 901
01228-200 So Paulo, SP
01228-200 So Paulo, SP
Brazil
Brazil
LEGAL ADVISERS
To the Issuer:
As to New York law:
White & Case LLP
Av. Brigadeiro Faria Lima, 2277 4th Floor
01452-000 So Paulo, SP
Brazil
As to Brazilian law:
Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados
Av. Joaquim Eugnio de Lima, 447
01403-001 So Paulo, SP
Brazil
As to BVI law:
As to Brazilian law:
Machado, Meyer, Sendacz e Opice Advogados
Av. Brigadeiro Faria Lima, 3144 11th Floor
01451-000 So Paulo, SP
Brazil
AUDITORS
For the years ended December 31, 2013 and 2012 and for the
three-month period ended March 31, 2013
Ernst & Young Auditores Independentes S.S.
Av. Pres. Juscelino Kubitschek, 1830 8th Floor
04543-900 So Paulo, SP
Brazil