management report - queiroz galvão · bartolomeu charles lima brederodes director accountant...

Queiroz Galvão Financial Statements 2015 1

To the Stockholders,

In accordance with the by-laws, we are submitting for your consideration the annual report of the management, and the related financial statements for the year ended December 31, 2015, of Queiroz Galvão S.A. The Management is grateful to all those who contributed toward the results achieved, especially our team of collaborators for their hard work and dedication, to suppliers and service providers for their good quality and punctuality and to clients for their faith in our work.

Rio de Janeiro, March 22th, 2016.

ADMINISTRATIVE CONCIL

Marcos de Queiroz GalvãoPresident

Antônio Augusto de QueirozFernando de Queiroz GalvãoMaurício José de Queiroz GalvãoRicardo de Queiroz GalvãoRoberto de Queiroz GalvãoCounselors

EXECUTIVE BOARD

Amilcar Bastos FalcãoBartolomeu Charles Lima BrederodesDirector

ACCOUNTANT

Flávio de Castro e Souza - CRC-RJ 60.913

Management ReportQueiroz Galvão S.A.


Independent

auditors’report

To the Shareholders,Queiroz Galvão S.A.Rio de Janeiro – RJ

We have audited the accompanying individual and consolidated financial statements of Queiroz Galvão S.A., identified as Holding Company and Consolidated, respectively, comprising the balance sheets as of December 31, 2015 and the related statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the year then ended, as well as the summary of significant accounting policies and other information contained in the notes to the financial statements.

Management’s Responsibility for the Financial Statements

The Company’s Management is responsible for the preparation and fair presentation of the individual financial statements in accordance with accounting practices adopted in Brazil, and of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board – IASB, and with accounting practices adopted in Brazil, and for such internal control as Management determines is necessary to enable preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Independent Auditors’ Responsibilities

Our responsibility is to express an opinion on the financial statements based on our audit conducted 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 the 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 auditors’ 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 auditors consider internal control relevant to the Company’s preparation and fair presentation of the 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 appropriate-ness of accounting policies used and reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the financial statements taken as a whole.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.


Opinion on the Financial Statements

In our opinion, the individual and consolidated financial statements referred to above present fairly, in all material respects, the financial position of Queiroz Galvão S/A as of December 31, 2015, the performance of its operations and its cash flows for the year then ended, in conformity with accounting practices adopted in Brazil and with the international financial reporting standards (IFRS) issued by the International Accounting Standards Board – IASB.

Emphases of Matters

Operation “Lava Jato”

As mentioned in Note 1 to the financial statements, investigations are underway relating to the operation called “Lava Jato” involving the Company’s subsidiary Construtora Queiroz Galvão S.A. In this context, up to the date of this report, the Company’s subsidiary Construtora Queiroz Galvão S.A. is not aware of the filing of any criminal proceedings against it or its legal representatives because of the investigations. The financial statements of Construtora Queiroz Galvão S.A., used by the Company for consolidation purposes, do not include any effects that in the future may result from such investigations and our opinion is not modified in relation to this issue.

Operational continuity of subsidiary as a going concern

As detailed in Note 11 to the financial statements, the Company’s subsidiary Queiroz Galvão Naval S.A. constituted an expense for an onerous contract involving investee CQG Oil & Gas Contractors Inc., in conformity with Brazilian Accounting Pronouncements Nos. CPC 17 and CPC 25, when the costs that inevitably will be incurred to fulfill the contractual obligations exceed the economic benefits expected to be received over the course of such contract.

Accordingly, subsidiary Queiroz Galvão Naval S.A. has a significant indebtedness ratio, resulting in negative shareholders’ equity (uncovered liabilities). To fulfill its commitments and maintain operations, based on the supposition that the subsidiary will continue operating normally as a going concern, its Management is counting on the support of the controlling shareholder. Such support could come in the form of an intercompany loan or injection of capital, though non-confirmation thereof would indicate the existence of uncertainty that may raise doubts regarding the subsidiary’s ability to continue operating as a going concern. Our opinion is not modified in relation to this matter.

March 22th, 2016

Mário Vieira Lopes José Carlos de Almeida MartinsContador-CRC-RJ 60.611/O Contador - CRC-RJ-036.737-0

(A translation of the original report in Portuguesecontaining financial statements prepared in accordance with accounting practices generally accepted in Brazil)


Financial StatementsQUEIROZ GALVÃO S.A.

See notes to financial statements.

CONSOLIDATED AND HOLDING COMpANy BALANCE SHEETSAs of December 31, 2015 and 2014 (In thousand of US dollars)

ASSETS

Current assets:

Cash and Marketable securities (note 3a, b)

Trade accounts receivable

Inventories (note 5)

Taxes recoverable

Prepaid expenses

Other receivables (note 6)

Non current assets:

Long-term assets:

Marketable securities

Judicial deposits

Deferred income tax and

Social contribution

Other receivables (note 6)

Related parties

Investments in subsidiaries (note 7)

Other investments

Fixed assets (note 8)

Intangible assets (note 8)

Deferred assets

2015

965,115

1,046,258

300,763

198,262

10,248

51,084

2,571,730

177,571

7,424

17,120

150,565

59,296

307,004

22,334

1,113,977

242,074

6,812

2,104,177

4,675,907

2014

1,246,918

1,143,517

409,531

184,611

14,789

54,914

3,054,280

52,827

8,401

7,301

391,590

-

331,996

11,612

1,609,897

269,230

10,346

2,693,201

5,747,481

CONSOLIDATED

2015

1,813

-

-

1,009

-

2

2,824

-

-

-

-

55,163

1,198,554

18,684

-

-

-

1,272,401

1,275,225

2014

4,447

-

-

1,922

-

-

6,370

-

-

-

-

9,642

1,789,564

6,849

-

-

-

1,806,055

1,812,424

HOLDING COMpANy




CONSOLIDATED AND HOLDING COMpANy BALANCE SHEETSAs of December 31, 2015 and 2014 (In thousand of US dollars)

LIABILITIES

Current liabilities:

Trade accounts payable

Loans (note 11)

Income tax and social contribution and

payroll and social security

Interest on shareholders’ equity

Other accounts payable (note 9)

Non current liabilities:

Loans (note 11)

Taxes and social contributions payable

Deferred income tax and social contribution

Concession creditors

Contingency allowance (note 10)

Other accounts payable (note 9)

Deferred income

Discount

Shareholders´ equity: (note 12)

Capital stock

Capital reserve

Revaluation reserve

Earning reserve

Treasury shares

Equity valuation adjustment

Participation of controlling shareholders

Participation of non controlling shareholders

2015

174,885

890,858

169,897

35,471

161,075

1,432,186

1,117,178

16,584

57,316

1,113

-

176,406

406,802

9,741

1,785,140

316,277

211,900

196

458,643

(36,066)

72,665

1,023,615

434,966

1,458,581

4,675,907

2014

162,127

804,033

220,751

62,431

213,669

1,463,011

1,543,729

37,514

75,179

1,637

-

224,906

234,745

7,649

2,125,360

464,950

310,022

289

729,086

(53,019)

156,774

1,608,102

551,008

2,159,110

5,747,481

CONSOLIDATED

2015

62

24,108

1,495

33,933

4,669

64,267

24,240

-

-

-

163,103

-

-

-

187,343

316,277

211,900

196

458,643

(36,066)

72,665

1,023,615

-

1,023,615

1,275,225

2014

91

-

516

53,938

6,848

61,394

-

-

-

-

142,928

-

-

-

142,928

464,950

310,022

289

729,086

(53,019)

156,774

1,608,102

-

1,608,102

1,812,424

HOLDING COMpANy




ConsolIdated and HoldIng CoMpany stateMents oF InCoMeYears Ended December 31, 2015 and 2014 (In thousands of US dollars, except share data)

Service income

Equity in earnings of subsidiaries and affiliates (Note 7a)

Cost of services

Gross profit (loss)

Operating income (expenses):

Administrative

Depreciation

Tax expenses

Other

Financial income

Financial expenses

Profit (loss) before social contribution and income tax

Social contribution

Income tax

Reversal of deferred social contribution and income tax

Net income (loss) for the year


Participation of controlling shareholders

Earning (loss) per share

Number of shares of capital stock

20112015

2,553,609

(1,993)

(2,138,524)

413,092

(205,611)

(28,070)

(2,296)

(69,842)

(305,819)

326,767

(434,142)

(107,375)

(102)

(9,739)

(19,877)

19,766

(9,952)

(17,398)

(27,350)

2014

3,731,816

40,760

(3,181,453)

591,123

(335,458)

(23,626)

(8,352)

(3,895)

(371,331)

249,763

(342,063)

(92,300)

127,492

(13,901)

(33,800)

(913)

78,877

(46,624)

32,254

CONSOLIDATED

2015

-

(31,820)

-

(31,820)

(6,332)

-

(152)

16,964

10,480

1,615

(6,244)

(4,629)

(25,969)

(369)

(1,012)

-

(27,350)

-

(27,350)

(0.03)

1,056,291,386

2014

-

43,914

-

43,914

(5,684)

-

(1,128)

1,312

(5,501)

376

(6,536)

(6,160)

32,254

-

-

-

32,254

-

32,254

0.03

1,056,291,386

HOLDING COMpANy



stateMents oF CoMpReHensIve InCoMeYears Ended December 31, 2015 and 2014 (In thousands of US dollars)


Net Income (loss) for the Year

Other Comprehensive Income: Items to be subsequently reclassified to income (loss): Translation adjustments on investments abroad

Total Comprehensive Income (loss)

2015

(27,350)

6,314

(21,036)

2014

32,254

3,970

36,224

8 Queiroz Galvão Financial Statements 2015

QUEIROZ GALVÃO S.A.

See notes to financial statements.stateMents oF CHanges In sHaReHoldeRs’ equItyYears Ended December 31, 2015 and 2014 (In thousand of US dollars)

Balances at January 1, 2014


Loss on translation

Equity Valuation Adjustment

Net income for the year

Treasury shares - investees

Stock option plan - investees

Dividends paid

Conversion of foreign investments - refex

Appropriation of net income: Legal reserve

Constituition of Realizable Profits reserve Financial expenses- interest on shareholders’ equity

Balances at December 31, 2014


Loss on translation

Equity Valuation Adjustment

Net loss for the year

Stock option plan - investees

Dividends paid

Conversion of foreign investments - refex

Appropriation of net income: Constituition of Realizable Profits reserve

Balances at December 31, 2015

Capital stock

527,192

-

(62,242)

-

-

-

-

-

-

-

-

464,950

-

(148,673)

-

-

-

-

-

-

316,277

Capitalreserve

354,080

-

(41,805)

-

-

(4,389)

2,136

-

-

-

-

310,022

-

(99,133)

-

-

1,011

-

-

-

211,900

Revaluationreserve

327

-

(38)

-

-

-

-

-

-

-

-

289

-

(93)

-

-

-

-

-

-

196

Earning reserve

Legalreserve

68,632

-

(8,103)

-

-

-

-

-

-

1,613

-

62,142

-

(19,870)

-

-

-

-

-

-

42,272

Realizableprofits

769,622

-

(90,865)

-

-

-

-

(42,454)

-

-

30,641

666,944

-

(213,262)

-

-

-

(9,961)

-

(27,350)

416,371

Retainedearnings

-

-

0

-

32,254

-

-

-

-

(1,613)

(30,641)

-

-

-

-

(27,350)

-

-

-

27,350

-

TreasuryShares

(60,117)

-

7,098

-

-

-

-

-

-

-

-

(53,019)

-

16,953

-

-

-

-

-

-

(36,066)

Equity Valuation

Adjustment

198,750

-

(23,466)

(22,480)

-

-

-

-

3,970

-

-

156,774

-

(50,131)

(40,292)

-

-

-

6,314

-

72,665

participation of controlling shareholders

-

1,858,486

-

(219,421)

(22,480)

32,254

(4,389)

2,136

(42,454)

3,970

-

-

1,608,102

-

(514,209)

(40,292)

(27,350)

1,011

(9,961)

6,314

-

1,023,615

participation of non controlling

shareholders

591,443

29,392

(69,827)

-

-

-

-

-

-

-

-

551,008

60,149

(176,191)

-

-

-

-

-

-

434,966

Total-

2,449,929

29,392

(289,248)

(22,480)

32,254

(4,389)

2,136

(42,454)

3,970

-

-

2,159,110

60,149

(690,400)

(40,292)

(27,350)

1,011

(9,961)

6,314

-

1,458,581


Financial Statements

2011

QUEIROZ GALVÃO S.A.

stateMent oF CasH FlowYears Ended December 31, 2015 and 2014 (In thousands of US dollars)


Cash flows from operating activities:

Net Income (loss) for the YearAdjustments for: Depreciation Equity in earnings of subsidiaries and affiliates Net value of fixed assets written off Interest expenses (revenues) - net

Decrease in accounts receivable Decrease (increase) in inventories Decrease (increase) in recoverable taxes Decrease (increase) in other accounts receivable Increase (decrease) in related parties Increase (decrease) in suppliers Increase (decrease) in salaries, charges and tax obligations to pay Increase in contingency allowance Increase (decrease) in other trade accounts payable Cash Flows from Operating Activities ( - ) interests paidNet Cash provided by (used in) Operating Activities

Cash flows from investing activities

( - ) Additions in fixed assets ( - ) Additions in invest.in affiliates and subsidiariesInterest on shareholders’ equity and dividends payableEquity valuation adjustmentTreasury shares - investeesStock option plan - investeesParticipation of non controlling shareholdersConversion of foreign investments - refexInterests receivedNet Cash Used in (provided by) Investing Activities

Cash flows from financing activities

FinancingNet Provided by (used in) Financing Activities

Increase in cash and cash equivalents

Cash and cash equivalents, beginning of the yearCash and cash equivalents, end of the yearGain on translation

Increase in cash and cash equivalents

2015

(27,350)

151,679 1,993

93,910 107,375 327,607

97,259 108,768 (13,651) 115,810 (59,296)

12,758 (50,854)

- 6,777

545,178 (434,142)

111,036

281,021 12,278 (9,961)

(40,292) -

1,011 60,149 6,314

326,767 637,287

(339,726) (339,726)

408,597

1,246,918 965,115 690,400

408,597

2014

32,254

190,101 (40,760) 34,442 92,300

308,337

76,608 (44,528) (48,657) (33,263)

- (276,129)

(1,666) -

(398) (19,696)

(342,063) (361,759)

(25,860) 56,132

(42,454) (22,480) (4,389)

2,136 29,392 3,970

249,763 246,210

370,453 370,453

254,904

1,281,262 1,246,918

289,248

254,904

CONSOLIDATED

2015

(27,350)

- 31,820

- 4,629 9,099

- -

913 (2)

(45,521) (29) 979

20,175 (22,185) (36,571) (6,244)

(42,815)

- 547,355 (9,961)

(40,292) -

1,011 -

6,314 1,615

506,042

48,348 48,348

511,575

4,447 1,813

514,209

511,575

2014

32,254

- (43,914)

- 6,160

(5,501)

- -

1,485 5

16,829 (77)

(1,664) 7,585

(5,036) 13,627 (6,536)

7,091

- 279,256 (42,454) (22,480)

(4,389) 2,136

- 3,970

376 216,415

- -

223,506

362 4,447

219,421

223,506

HOLDING COMpANy


1 - Operations

Queiroz Galvão S.A. is a closely-held holding company, incorporated at February 01, 1998 as part of an ample restructuration process of the Queiroz Galvão group, including new strategic plans and the realignment of operations by business areas. In this context the company has as its main activity investment in the capital of other companies and consulting and management as well.

A shareholders’ extraordinary general meeting held as of August 31, 1998, approved the conversion of the following existing group companies into whole owned subsidiaries of the holding company: Construtora Queiroz Galvão S.A.

Operations: The company is primarily engaged in the engineering and construction field, including construction of bridges, tunnels, barriers, roads, buildings, airports and other related works. With regard to reports in various media, about ongoing investigations concerning the operation called “Lava Jato”, relating to contracts executed with Petrobras, the Management of Construtora Queiroz Galvao S.A. clarifies that, according to the internal investigation carried out so far, have not been identified any evidence of non-compliance with legal regulations, especially in relation to the applicable legislations to public tenders (see note 16) Queiroz Galvão Desenvolvimento de Negócios S.A. (QGDN)

Operations: Holding equity interests in the capital of companies, mainly in the industrial and farming fields, and consulting and management services as well.

BS-3 S.A.

Operations: The BS-3 S.A. with the objectives of investment for exploration, development and production of oil and natural gas, studies and engineering works, and participation in consortia.

ENGETEC Participações em Engenharia e Construções S.A.

Operations: Encourage participation in companies in Brazil and abroad, aimed at the general engineering works.

Vital Engenharia Ambiental S.A.

Operations: Responding to the demands of Brazilian cities that are outsourcing cleaning services through service contracts or concessions of public services;Building sanitary landfills at its own initiative, in order to serve several neighbor cities at the same time;

notes to Individual and Consolidated Financial StatementsDecember 31, 2015 and 2014 (In thousand of US dollars)


Recovery of degraded and waste dumping areas; andMaintenance of green areas, parks and gardens, as well as conservation of monuments and public areas.

Queiroz Galvão Desenvolvimento Imobiliário S.A.

Operations: Increase the Queiroz Galvão group activities in the areas of real state purchase and sale and construction of buildings for sale.

QGEP Participações S.A.

Operations: The objectives of this subsidiary is to hold equity interests in companies primarily engaged in the exploration, production and sale of oil, natural gas and their byproducts.

Queiroz Galvão Naval S.A.

Operations: Participation in companies engaged substantially in engineering, construction, assembly and repair services for ships and other products in the naval area.

QGMI Construção S.A.

Operations: Participation in companies, in Brazil or abroad, whose corporate purpose involves: a) the operation of the construction industry, including public works; b) the import and export of goods and services related to engineering and construction works; c) development of projects related to the oil industry; d) the provision of public cleaning service ; e) the provision of industrial erection services in general and related activities.

2 - presentation of Financial Statements

The financial statements have been prepared and are presented in accordance with accounting practices adopted in Brazil, which include the provisions of the Corporations Law, and the accounting standards and procedures issued by the Securities and Exchange Commission - CVM and Accounting Pronouncements Committee - CPC, resolutions approved by the Federal Accounting Council - CFC.

The preparation of financial statements according to IFRS standards and the CPC require management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates.

Estimates and assumptions are reviewed on a continuous basis. Revisions to the accounting estimates are recognized in the fiscal year in which the estimates are revised and in any future periods affected.

The financial statements were authorized for issue by the Board of Directors on March 22, 2016.



3 - Summary of Significant Accounting policies

a. Cash and cash equivalent

They represent the company’s resources without restrictions for immediate use, in moving the company’s operations, they include cash balances, bank deposits and investments of immediate liquidity. They are classified as financial assets at fair value through income available for trading and are recorded at the original value plus accrued interest until the closing dates of the statements made by the pro-rata criterion which is equivalent to their market values.

b. Marketable securities

The company’s financial assets are classified as financial assets at fair value through income and are presented in the balance sheet at fair value with corresponding gains or losses recognized in the income statement.

The company’s financial assets include cash and cash equivalents, accounts receivable and marketable securities.

c. Financial assets (including receivables)

A financial asset not measured by fair value through profit or loss is assessed to each filing date to determine whether there is objective evidence that there has been loss of its recoverable amount. An asset is lost in its recoverable amount if objective evidence indicates that a loss event occurred after the initial recognition of assets, and that loss event had a negative effect on projected future cash flows that can be estimated in a reliable manner.

d. Inventories

Inventories are measured at the lower value between the cost and net realizable value. The cost of inventories is based on the principle of the Average Cost of Acquisition and includes expenditure incurred for the purchase of inventory, production and processing costs and other costs incurred in bringing them to their locations and existing conditions.

e. Fixed assets

The fixed asset items are measured at historical cost of acquisition or construction, including revaluations in prior years and the asset valuation adjustments attributable to the cost, less accumulated depreciation and losses on accumulated impairment. Cost includes expenditures that are directly attributable to the acquisition of an asset.

Where parts of an item of fixed assets have different useful lives, they are recorded as separate items (major components) of fixed asset. Gains and losses on disposal of an item of fixed assets (calculated as the difference



between the proceeds of the sale and the book value of fixed assets) are recognized in other income / expenses in the result.

The items of equipment are depreciated by straight-line method on the result of the year based on the useful lives of each component. Items of fixed assets are depreciated from the date they are installed and available for use, or in case of internally constructed assets, from the day on which construction is completed and the asset is available for use.

Depreciation methods, useful lives and residual values are reviewed every year and any closing adjustments are recognized as a change in accounting estimates.

f. Intangible assets

It is represented by expenditures on software acquisition and registration of trademark, registered earlier in the group fixed assets.

g. Investments

Investments in subsidiaries and affiliates, evaluated by the equity method, based on consolidated financial statements of the investee companies. The results obtained are shown as operating result in account equity income.

Investments in controlled entities and associates

Controlled entities are those that directly or indirectly, the controller has the power to regulate financial and operating policies, to obtain benefits from its activities usually accompanied by a participation of more than half of the voting rights (voting capital.)

Associates are investments where the company has the power to exercise significant influence, but that does not have control or joint control through participation in the financial and operational decisions of the Company.

The use of the equity method is suspended from the date on which the Company fails to have significant influence over the associate

h. Income tax and social contribution

The company adopts the taxable income as tax regime for calculation of income tax and social contribution.

Income tax and social contribution for the year and deferred charges are calculated based on the rates of 15%, plus




a surcharge of 10% on taxable income exceeding two hundred and forty thousand reais for annual income tax and 9% on taxable income for social contribution on net income.

i. Deferred revenues

In compliance with Law 11.638/07, the result of the works of short-term (previously classified as Deferred Income) is recorded in Deferred Revenue. The recognition in the income statement is made at the close of the work.

j. Provisions

A provision is recognized on the basis of a past event, the Company has a legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are cleared thru the expected discounting in the future cash flows at a pre-tax rate that reflects current market assessments of the value of money over time and risks specific to the liability. The financial costs incurred are recorded in the result.

k. Construction contracts

Contract revenue comprises the initial value agreed in the contract plus variations due to additional requests, claims and incentive payment contract, provided that it is probable that they result in revenue and can be measured reliably. As soon as the result of a construction contract can be estimated reliably, contract revenue is recognized in the result as far as the stage of completion of the contract. Contract expenses are recognized when incurred, unless they create an asset related to the activity of the future contract.

The stage of completion is assessed by reference to the measurement of the work performed.

When the result of a construction contract can not be measured reliably, contract revenue is recognized to the extent of the costs recognized on condition that the costs incurred can be recovered. Losses on contracts are recognized immediately in the result.

l. Results of operations

Revenues from services, associated costs and other income and expenses are recognized on the accrual for the year.

m. Translation into United States dollars

The United States dollar amounts result from translation of the financial statements at the year-end rate of exchange as follows:


2015 R$ 3,9048 to US$1.00 2014 R$ 2,6562 to US$1.00

The translation should not be construed as representation that the real (R$) amounts actually represent or have been, or could be converted into United States dollars.

4 - Consolidated of the Financial Statements

The consolidated financial statements at December 31, 2015 and 2014 cover the parent Queiroz Galvão S.A. and subsidiaries in which it holds the participation as detailed in note 8;

The financial statements were prepared and are presented in accordance with accounting practices adopted in Brazil, which include the provisions of the Law of Corporations, and the accounting standards and procedures issued by the Brazilian Securities Commission - CVM and the Accounting Pronouncements Committee - CPC, approved by resolutions of the Federal Accounting Council - CFC.

From 2014, the accounting practices adopted in Brazil applicable to the individual financial statements do not differ from IFRS applicable to separated financial statements, since the Accounting Pronouncements Committee (“CPC”) now allow the application of the equity method in subsidiaries in separate financial statements (pursuant to CVM Resolution No. 733/14). Thus, they are also in accordance with international financial reporting standards (International Financial Reporting Standards - IFRS) issued by the International Accounting Standards Board (IASB). These individual statements are disclosed together with the consolidated financial statements.

The process of consolidating the balance sheet and income is the sum of balances of assets, liabilities, revenues and expenses according to their nature, supplemented with the following eliminations:

Of profit sharing, reserves and accumulated results held between them;

The balance of current accounts and other asset and / or liability held between the companies whose balance sheets were consolidated;

Effects arising from transactions between these companies;

Negative goodwill and goodwill on investments were based on the expectation of future results and in line with the referred CVM and CPC instruction, and were classified as deferred income; and

The rights of non-controlling are shown in liabilities and in results under Non-Controlling Investments or Interests.




5 - Inventories

Warehouse

Finished goods

Herd of Cattle and Other

Raw materials

Goods in process

Goods for resale

Material for industrialization

Marketable properties

2015

54.668

29.138

1.136

-

6.618

4.748

1.242

203.213

300.763

2014

74,965

49,326

1,867

393

13,465

2,829

3,691

262,995

409,531

6 - Other Receivables (Short and Long Term)

Advances to suppliers

Financing of real estate sales

Properties for sale

Advance to employees

Judicial deposits

Accounts receivable - works

Prepaid expenses

Allocation of resources to the concession contract (b)

Accounts receivable - other

Taxes recoverable

Dividens receivable

Credits with partners (a)

Other receivables

2015

-

-

-

2,473

1,676

2,864

554

18,436

5,088

-

2,939

6,132

10,922

51,084

2014

588

-

-

6,095

8,851

1,260

1,028

-

7,077

53

7,283

6,216

16,463

54,914

SHORT TERM

2015

-

124,904

14,623

-

106

125

1,895

-

94

1,362

-

-

7,456

150,565

2014

-

198,721

179,086

-

283

3,478

977

-

-

-

-

-

9,045

391,590

LONG TERM



a) Credits with partners (QGEpp)

Refer to the expenses incurred on E&P activities that are billed (cash calls) or will be billed to non-operator partners in the related consortiums,

or allocated by the operator partners to the Company in the blocks not operated by QGEPP.

Out of the USD6,131 recognized as at December 31, 2015, USD3,123 refers to the share of consortium member OGX and the remaining

amount refers to other consortium members (USD3,008).The outstanding amounts are not overdue.

Considering the current situation of OGX, which is under judicial recovery, QGEPP is monitoring the judicial recovery proceeding to mitigate

possible risks related to OGX’s ability to discharge its payment obligations and its investment commitments.

b) Allocation of resources to the concession contract (QGDN)

Public input

31/12/2014

-

Addition

27,956

Receipt

9,520

31/12/2015

18,436

These financial assets refer to the unconditional right to receive cash from the concession-granting authority for implementation of

infrastructure. Receipt of this injection follows what is described in the disbursement flow for the portions of the Outlay of Funds established in

the Sponsored Concession Agreement, as provided in the “Events for Disbursement of the Injection” of the Concession Contract.

The financial assets are shown as recognition of the contribution received by the concession-grantor for the projects for construction of the

new track for duplication of the Mountain Section of São Paulo State Highway SP 099 (“Main Expansion”), which, as provided by the Sponsored

Concession Agreement, will be made over a period of 60 months.

As per International Financial Reporting Interpretations Committee (IFRIC) interpretation No. IFRIC 12, during the construction phase of the

agreement, the active operator (representing its cumulative right to be paid for the supply/performance of construction services) is to be

classified as a financial asset when it represents cash or another financial asset owed by the grantor or at its instruction.



7 - Related parts

COMPANIES:

QGDI – (S P E’s)

QGDN – (Cimar)

QGDN – (QGER)

QGDN – (CPP)

CQG – (Quip)

CQG – (Timbaúba International Ltd)

QGNaval S/A - (Estaleiro Atlântico Sul S/A)

QGEPP – (Accounts receivables – AFBV)

Other

2015

(10,697)

(11,204)

(3,509)

(832)

(11,667)

32,135

(49,372)

(1,619)

(2,531)

(59,296)

8 - participation in Whole Owned Subsidiaries

INVESTORS

Construtora Queiroz Galvão S.A.

Queiroz Galvão Des. de Negócios S.A. (b)

Vital Engenharia Ambiental S.A. (a)

Queiroz Galvão Des. Imobiliário S.A.

QGEP Participações S.A.

Engetec Part. Eng. e Construções S.A.

QGMI Construção S/A

BS-3 S.A.

Queiroz Galvão Logística S.A.

Queiroz Galvão Saneamento S.A.

Queiroz Galvão Energia S.A.

Queiroz Galvão Naval S.A. (note 10)

Investments

- US$

462,349

110,875

31,094

153,811

433,870

4,728

1,827

-

-

-

-

1,198,554

Equity in

earning - US$

18,655

(50,119)

15,221

(1,192)

24,974

1,165

(732)

(1,463)

-

-

-

(38,329)

(31,820)

2015% of

shares

100

100

30,65

100

63

100

100

100

100

100

100

100

Investments

- US$

523,571

297,341

129,993

231,535

599,790

5,237

-

2,097

-

-

-

-

1,789,564

Equity in

earning - US$

(26,856)

10,703

27,449

50,355

39,385

2,098

-

(749)

253

1,480

1,999

(62,207)

43,914

2014



a) Reduction of equity interest in Vital Engenharia Ambiental S/A

Under the Agreement for Purchase and Sale of Debentures and Other Covenants signed on December 15, 2015 between Queiroz Galvão S/A

and Gamma Private Equity Investment Fund, as well as on the EGM of December 22,2015, the Company’s equity stake in the capital of Vital

Engenharia Ambiental S/A was reduced and is now broken down as follows:

Shareholders

Queiroz Galvão

Gama Fundo

Shares

3.380.338

3.349.180

6.729.518

Equity

50,23%

49,77%

100,00%

Common Shares

Shares

3.380.338

7.646.722

11.027.060

Equity

30,65%

69,35%

100,00%

Total

Shares

-

4.297.542

4.297.542

Equity

-

100,00%

100,00%

preferred Shares

b) Negative results at QGDN

In 2015, the Company’s business development subsidiary Queiroz Galvão Desenvolvimento de Negócios S.A. (QGDN) posted a loss in Brazilian

Reais of R$ 195,703, mainly due to depreciation of the Real against the US$ (47.0%) and the Euro (31.7%). Such variations generated exchange

losses on debts denominated in such currencies in QGDN’s steel and food subsidiaries. The exchange losses on debt have no direct impact on

the cash situation of such companies, since they are exporting concerns and their billings are substantially denominated in such foreign curren-

cies as well.

Although the immediate short-term effect of such devaluation is negative for the companies in question, over the medium- and long-term they

will accrue positive effects due to the rise in billings and resulting improvement in results.

c) The balance of USD307,004 in 2015 and USD 331,996 in 2014, in the investment account of the Consolidated Information as per

CPC 19 is composed of unconsolidated investments in the following sub-holding companies where management is shared:

QUEIROZ GALVÃO S/A

CONSTRUTORA QUEIROZ GALVÃO S/A

VITAL ENGENHARIA AMBIENTAL S/A

QUEIROZ GALVÃO DESENVOLVIMENTO DE NEGÓCIOS S/A

QGEPP S/A

QUEIROZ GALVÃO DESENVOLVIMENTO IMOBILIARIO S/A

QUEIROZ GALVÃO NAVAL S/A

2015

53,385

13,453

135,317

32,042

68,940

3,867

307,004

2014

130,046

14,106

109,926

5,425

69,966

2,527

331,996



9 - Fixed Assets

9.1 FIXED ASSETS

Field EquipmentCivil ConstructionMachines and EquipmentVehiclesPermanent plantation and forestsWork utensils and otherInstallationsBuildingsAirplanesConstruction in progressDevelopmentExplorationLandsOther fixed assets

Less: Accumulated depreciation

2015

253,987150,846232,736217,652

326,99527,26493,922

1,76014,60912,690

365,21138,335

166,074128,994

2,031,075

(917,098)1,113,977

2014

371,178232,429296,786314,066321,078

49,614113,024

8,54822,60330,063

478,508153,733225,276144,268

2,761,175

(1,151,278)1,609,897

CONSOLIDATED

years taxes

Depreciation

20%4% and 8%

10% and 20%20% and 40%6,6% and 10%

10%10%

4%, 4,26% and 4,33%20%

----

Many

9.2 INTANGIBLE

SoftwareAward rights of concessionTrademarks and TechnologyDevelopment and research

2015

5,252218,095

8,33910,388

242,074

2014

6,999238,831

12,37111,029

269,230



10 - Accounts payable

Sundry creditors

Burden of the concession

Contractual withholdings

Notes payable

Insurance premium

Services payable

Liabilities for incorporation (ii)

Provision for abandonment (i)

Other liabilities

Bonds as collateral

Accrual for contingencies

2015

29,846

1,743

8,769

5,899

3,100

14

90,973

-

15,174

264

5,293

161,075

2014

22,431

-

21,052

-

2,358

2,940

140,474

-

5,318

18,744

352

213,669

SHORT TERM

2015

52,748

20,216

561

4,573

459

4,592

12,313

57,867

1,322

-

21,755

176,406

2014

89,794

-

387

6,797

-

-

10,786

105,827

7,135

-

4,180

224,906

LONG TERM

i) provision for asset retirement obligation (ARO) - QGEpp

The estimated costs for ARO, as reported by the operator, were revised for the year ended December 31, 2015. As of such date, this provision

reflects the revision of the estimates of costs to be incurred, including, but not limited to: (i) plugging of wells; and (ii) removing pipelines and

production equipment, and (iii) other costs inherent in meeting such obligation.

The ARO costs have been projected based on the average industry inflation rate of 2.8% p.a. (in US$), through the date for expected asset

retirement or decommissioning, and have been updated to present value at the risk-free rate in US$ for Brazilian assets, which is 5.4% p.a.

Management identified that changes in the exchange rate must be treated as changes in the face value of the estimates of the ARO provision.

Accordingly, the adjustments arising from exchange variation result in an increase or decrease in liabilities (accounting policy already adopted),

and the compensation for this must be an equal increase or decrease in the corresponding fixed assets.

Changes in the provision for ARO in the year ended December 31, 2015 were as follows:

Balance as of December 31, 2014 (USD 105,827)Reversal of ARO provision (a)Net exchange and other variationsBalance as of December 31, 2015 (USD 57,867)

CONSOLIDATED

R$ 281.099R$ (137.358)

R$ 82.219R$ 225.960



(a) Together with its business partners, the Company re-measured the ARO provision for the Camarão Norte, Atlanta and Manati fields and reversed it in the year ended December 31, 2015. The reversal reflects the prospective revision of ARO expenditures in light of the new technologies existing and the new costing threshold for O&G industry service providers.

ii) Liabilities for incorporation (QGDI)

Land acquisition in barterLand acquisition - Purchase

2015

80,28810,68590,973

11 - Contingency Allowance

The provision for contingency is due to the constitution of onerous contract expense in the investee CQG Oil & Gas Contractors INC., which in accordance with CPC 17 (item 36), CPC 25 (items 66-69) and CVM 489 (9 items -52), the Company recorded Onerous Contract expense from 2013 to 2015. The pronouncements define Onerous Contract as a contract in which the unavoidable costs of meeting the contractual obligations exceed the economic benefits expected to be received during the same contract. Thus, after an assessment of the current economic situation of the company linked to negative expectation in the projection of the P-58 project budget reports, single company´s construction contract since 2013, it became evident the need for the onerous expense record, so the accounting result can mirror faithfully and realistically the economic / financial scenario of the Company.

As per CPC 17 (item 36), the amount of the expected loss is recognized, regardless of having been started the work on the contract, and of its implementation phase.

The Company maintains claims against his client to meet costs incurred during final phases of work. Negotiations are still in progress and is currently not possible to measure the success in receiving the claims.



Financial Agent

Banco do Brasil

Banco do Nordeste do Brasil SA

BNDES

Banco Alfa S/A

Santander do Brasil S/A

BPN – Brasil Banco Múltiplo SA

C.E.F.

Itau-BBA

Bradesco

ABC-Brasil

Industrial e Comal S/A

Banco Itaú S/A

HSBC

SAFRA S.A.

CITIBANK

Banco Daimler Chrysler S.A

Banco Credit Suisse

Banco Guanabara

Banco Pine SA

Banco Votorantim

Caterpillar financial

Banco ING

Debentures

Banco Volkswagen

C.N.H. Capital

Banco Safra

Sahara Bank

UPS

Landes Bank wutemberg

Total

Short Term

65.673

2.523

7.939

1.121

119.511

1.114

37.173

3.143

196.646

9.964

78

221.609

-

654

29.127

2.880

66.129

10

1

381

1.975

3.166

80.223

327

71

30.230

6.698

418

2.074

890.858

Long Term

72.176

58.476

60.470

1.681

61.110

3.936

119.982

5.514

353.253

5.498

352

140.656

25.238

924

-

6.534

69.441

-

243

1.355

5.195

61.293

61.022

5

46

-

-

694

2.085

1.117.178

Total

137.849

60.999

68.409

2.802

180.621

5.049

157.154

8.657

549.899

15.462

430

362.265

25.238

1.578

29.127

9.414

135.570

10

243

1.736

7.170

64.459

141.245

332

117

30.230

6.698

1.112

4.159

2.008.036

12 - Loans

Balance as of December 31, 2015:



13 - Shareholders’ Equity

The capital stock, subscribed and fully paid in December 31, 2015 is in thousand dollars of USD316,277, split into 1.020.291.386 ordinary nominative shares and 36.000.000 preferred shares each without par value. On December 31, 2015 and 2014 the book value of the share was US$ 969,07 and US$ 1,613.43 respectively.

The shareholders have the right to a minimum dividend of 3% of the net income for the year, according to the company’s by-law. Also, 5% of the net income for the year is appropriated to legal reserve in accordance with the Article 193 of the Law nº 6404/76.

14 - perpetual Debentures

On May 25, 2011, the Company issued 250 debentures convertible in shares with Brazil XXI Equity Investment Fund (PIF BRAZIL). The Debentures are in registered and book-entry form and will be convertible at any time from the date of issuance to preferred shares without voting rights, issued by the Issuer (“Preferred Shares”). The Debentures are unsecured and have indeterminate maturity.

Under the terms of CPCs 38, 39 and 40 converged to IAS 39, IAS 32 and IFRS 7, the Administration classified the Perpetual Hybrid as an equity instrument.

Management believes, based also on the position issued by the International Financial Reporting Interpretations Committee (IFRIC) and approved by the International Financial Reporting Standards Board (IASB) that an incentive or management’s intent to pay does not create a present obligation for the entity and for it cannot generate a financial instrument classified as financial liabilities. The Company’s management also noted the international practice in relation to the registration of perpetual instruments of similar nature, noting that several companies in several countries that adopt the international accounting standards IFRS as issued by IASB, have such instruments as equity. Additionally, the Administration estimated that the Company, pursuant to Law 6.404/76. Includes its shareholders as part of its corporate structure, retains the right to allocate the balance of revenue reserves that may exceed the limits legal / statutory for capital increase, subject to the minimum mandatory dividend.

Depending on the put option granted by Queiroz Galvão SA (consenting intervening party) the holder of the debentures, in the consolidated statements of Queiroz Galvão S/A, the debentures are recorded in liabilities.

15 - Financial Instruments

The financial instruments of the subsidiaries, are recorded in balance sheets at December 31, 2015 and 2014 with values compatible with those practiced by the market on that date. The management of these instruments is done through operational strategies aimed at liquidity, profitability and security.



The control policy is to ensure continuous monitoring of contracted rates versus current market. The company does not have the practice to operate with derivatives or other risky assets.

The company has exposure to the following risks arising from financial instruments: credit risk, liquidity risk and market risk.

The risk management policies of the Company have been established to identify and analyze risks, set risk limits and appropriate controls and to monitor risks and adherence the established limits. Risk policies and systems are reviewed regularly to reflect changes in market conditions and activities of the group.

16 - News published – “Lava Jato” operation – Construtora Queiroz Galvão S/A

As mentioned in Note 1, regarding the news published in the media, concerning the ongoing investigations related to the operation called “Lava Jato”, regarding contracts concluded with Petrobras, according to internal investigations carried out until now, no evidence of non-compliance with legal regulations have been identified, especially with regards to provisions of the legislation applicable to public tenders.

As a result of such press reports, some administrative processes were initiated, in order to investigate any possible irregularities, however there are no current deadlines for such processes, nor any conclusive decisions.

It is important to notice, especially, that the administrative proceedings initiated by Petrobras, which led to suspend preventively more than twenty companies in its register, among them the Company, preventing them from participating in new contracting processes, were filed by the Comptroller General of the Union, having no decision related to the Company.

As an exceptional measure, a relative to the writs of payment enforceable to the Government of the State of Alagoas owed by the Company, in the amount close to R$ 163 million, was provisionally suspended by the Federal Court, even before those values were made available to the company. Given the disagreement as to the regularity of judicial measures applied, a legal proceeding was initiated that still remains pending.

Finally, it is worth mentioning that Construtora Queiroz Galvão SA has no knowledge of any criminal action that has been proposed against the Company or its legal representatives, due to the mentioned investigations.



17 - Integrity program

During the year 2015, the Company considerably enhanced its Integrity Program, creating an Ethics Committee linked to its Top-Echelon Management, with such committee being further empowered with the attributions of appraising risks and internal controls.

Several relevant policies have been published and are already included in the Integrity Program, with training sessions being developed aimed at all levels of the Company’s leadership.

The Ethics Committee, which likewise reports to Top-Echelon Management, has been playing a diligent role in such process, both with respect to implementation of the Integrity Program’s ongoing enhancements and as regards striving for its effectiveness.

management report - queiroz galvão · bartolomeu charles lima brederodes director accountant...

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