UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August, 2015
Commission File Number: 001-14475
TELEFÔNICA BRASIL S.A.
(Exact name of registrant as specified in its charter)
TELEFONICA BRAZIL S.A.
(Translation of registrant’s name into English)
Av. Eng° Luís Carlos Berrini, 1376 - 28º andar
São Paulo, S.P.
Federative Republic of Brazil
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
|
Form 20-F |
X |
|
Form 40-F |
|
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
|
Yes |
|
|
No |
X |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
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Yes |
|
|
No |
X |
A free translation from Portuguese into English of Independent Auditor’s Report on quarterly financial statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB)
Independent auditor’s report on interim financial statements
The Shareholders, Board of Directors and Officers
Telefônica Brasil S.A.
São Paulo - SP
We have reviewed the individual and consolidated interim financial information of Telefônica Brasil S.A., (“Company”), contained in the Quarterly Information Form (ITR) for the quarter ended June 30, 2015, which comprise the balance sheet as at June 30, 2015 and the related statements of income, of comprehensive income, of changes in equity and of cash flows for the three-month and six-month period then ended, including other explanatory information.
Management is responsible for the preparation of the individual and consolidated interim financial information in accordance with Accounting Pronouncement CPC 21 (R1) and with IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the presentation of this information in conformity with the standards issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of Quarterly Information (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review.
Scope of review
We conducted our review in accordance with Brazilian and International Standards on Review Engagements (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 auditing standards 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
Based on our review, nothing has come to our attention that causes us to believe that the individual and consolidated interim financial information included in the Quarterly Information Form (ITR) referred to above was not prepared, in all material respects, in accordance with CPC 21 (R1) and IAS 34 applicable to the preparation of Quarterly Information (ITR), and presented consistently with the rules issued by the Brazilian Securities and Exchange Commission (CVM).
Other matters
Statements of value added
We have also reviewed the individual and consolidated interim statements of value added (SVA) for the six-month period ended June 30, 2015, prepared under management’s responsibility, whose presentation in the interim financial information is required by rules issued by the Brazilian Securities and Exchange Commission (CVM) applicable to preparation of Quarterly Information (ITR), and as supplementary information under IFRS, which do not require SVA presentation. This statement has been subject to the same review procedures previously described and, based on our review, nothing has come to our attention that causes us to believe that it is not fairly presented fairly, in all material respects, in relation to the overall accompanying interim financial information.
Audit of the balance sheet as of December 31, 2014 and review of the interim statements of income, of comprehensive income, of changes in equity, of cash flows and of value added for the three-month and six-month period ended June 30, 2014
The balance sheet as of December 31, 2014, presented for comparison purposes, was previously audited by other independent auditors, who issued an unmodified report dated February 12, 2015. In addition, the interim statements of income, of comprehensive income, of changes in equity, of cash flows and of value added for the three-month and six-month period ended June 30, 2014, presented for comparison purposes, were reviewed by other independent auditors, who issued an unmodified report dated July 29, 2014.
São Paulo, July 27, 2015.
ERNST & YOUNG
Auditores Independentes S.S.
CRC-2SP015199/O-6
|
Luiz Carlos Passetti Accountant CRC-1SP144343/O-3 |
Héctor Ezequiel Rodríguez Padilla Accountant CRC-1SP299427/O-9 |
|
TELEFÔNICA BRASIL S. A. | ||||||||||||||||||||
|
Balance Sheets | ||||||||||||||||||||
|
At June 30, 2015 and December 31, 2014 | ||||||||||||||||||||
|
(In thousands of reais) | ||||||||||||||||||||
|
Company |
Consolidated |
Company |
Consolidated | |||||||||||||||||
|
ASSETS |
Note |
06.30.15 |
12.31.14 |
06.30.15 |
12.31.14 |
LIABILITIES AND EQUITY |
Note |
06.30.15 |
12.31.14 |
06.30.15 |
12.31.14 | |||||||||
|
Current assets |
17,212,547 |
14,754,381 |
19,479,711 |
15,517,368 |
Current liabilities |
16,342,706 |
16,102,171 |
20,640,418 |
16,011,006 | |||||||||||
|
Cash and cash equivalents |
4 |
6,391,227 |
3,835,304 |
7,094,667 |
4,692,689 |
Personnel, social charges and benefits |
14 |
484,484 |
585,770 |
670,014 |
591,381 | |||||||||
|
Trade accounts receivable, net |
5 |
6,577,250 |
6,470,764 |
8,001,965 |
6,724,061 |
Trade accounts payable |
15 |
7,367,556 |
7,675,632 |
8,033,724 |
7,641,191 | |||||||||
|
Inventories |
6 |
629,958 |
458,488 |
680,396 |
479,801 |
Taxes, charges and contributions |
16 |
1,085,837 |
1,236,330 |
1,508,145 |
1,281,673 | |||||||||
|
Dividends and interest on equity |
17 |
- |
174,726 |
- |
- |
Dividends and interest on equity |
17 |
3,075,238 |
1,495,321 |
3,075,238 |
1,495,321 | |||||||||
|
Prepaid expenses |
9 |
863,390 |
300,567 |
921,899 |
303,551 |
Provisions and contingencies |
18 |
777,623 |
674,276 |
794,018 |
674,276 | |||||||||
|
Taxes recoverable |
7.1 |
1,972,676 |
2,163,404 |
2,171,259 |
2,202,662 |
Deferred income |
19 |
631,101 |
704,589 |
645,720 |
717,019 | |||||||||
|
Judicial deposits and garnishments |
8 |
211,908 |
202,169 |
211,908 |
202,169 |
Loans, financing, finance lease and contingent consideration |
20 |
648,509 |
1,509,471 |
3,775,660 |
1,509,471 | |||||||||
|
Derivative transactions |
33 |
41,398 |
613,939 |
41,398 |
613,939 |
Debentures |
20 |
768,295 |
755,047 |
768,295 |
755,047 | |||||||||
|
Other assets |
10 |
524,740 |
535,020 |
356,219 |
298,496 |
Derivative transactions |
33 |
25,628 |
23,011 |
47,690 |
23,011 | |||||||||
|
Other liabilities |
21 |
1,478,435 |
1,442,724 |
1,321,914 |
1,322,616 | |||||||||||||||
|
Noncurrent assets |
78,575,004 |
58,382,747 |
82,587,446 |
57,547,920 |
||||||||||||||||
|
Short-term investments pledged as collateral |
88,642 |
125,343 |
97,721 |
125,353 |
Noncurrent liabilities |
12,326,618 |
12,084,862 |
14,308,512 |
12,104,187 | |||||||||||
|
Trade accounts receivable, net |
5 |
204,525 |
190,288 |
313,012 |
299,405 |
Personnel, social charges and benefits |
14 |
78,553 |
118,829 |
78,565 |
118,829 | |||||||||
|
Taxes recoverable |
7.1 |
346,841 |
340,205 |
410,624 |
340,205 |
Taxes, charges and contributions |
16 |
57,681 |
41,379 |
85,681 |
67,126 | |||||||||
|
Deferred taxes |
7.2 |
92,258 |
40,704 |
505,486 |
144,817 |
Provisions and contingencies |
18 |
4,799,534 |
4,440,756 |
5,436,888 |
4,461,654 | |||||||||
|
Prepaid expenses |
9 |
17,280 |
24,346 |
18,950 |
26,223 |
Deferred income |
19 |
495,624 |
480,957 |
496,620 |
482,782 | |||||||||
|
Judicial deposits and garnishments |
8 |
4,754,642 |
4,514,783 |
5,344,200 |
4,543,056 |
Loans, financing, finance lease and contingent consideration |
20 |
2,308,442 |
2,123,126 |
3,572,134 |
2,123,126 | |||||||||
|
Derivative transactions |
33 |
222,042 |
152,843 |
222,042 |
152,843 |
Debentures |
20 |
3,418,440 |
3,411,616 |
3,418,440 |
3,411,616 | |||||||||
|
Other assets |
10 |
60,500 |
94,703 |
67,835 |
94,925 |
Derivative transactions |
33 |
12,218 |
24,133 |
12,218 |
24,133 | |||||||||
|
Investments |
11 |
21,366,942 |
1,445,014 |
84,904 |
79,805 |
Post-retirement benefit plan |
32 |
478,530 |
456,129 |
478,530 |
456,129 | |||||||||
|
Property and equipment, net |
12 |
20,941,202 |
20,381,731 |
30,073,795 |
20,453,864 |
Other liabilities |
21 |
677,596 |
987,937 |
729,436 |
958,792 | |||||||||
|
Intangible assets, net |
13 |
30,480,130 |
31,072,787 |
45,448,877 |
31,287,424 |
|||||||||||||||
|
Equity |
67,118,227 |
44,950,095 |
67,118,227 |
44,950,095 | ||||||||||||||||
|
Capital |
22 |
63,571,416 |
37,798,110 |
63,571,416 |
37,798,110 | |||||||||||||||
|
Premium on acquisition of noncontrolling interest |
22 |
(70,448) |
(70,448) |
(70,448) |
(70,448) | |||||||||||||||
|
Capital reserves |
22 |
1,345,579 |
2,686,897 |
1,345,579 |
2,686,897 | |||||||||||||||
|
Income reserve |
22 |
1,535,699 |
1,534,479 |
1,535,699 |
1,534,479 | |||||||||||||||
|
Retained earnings |
22 |
721,938 |
- |
721,938 |
- | |||||||||||||||
|
Additional dividend proposed |
22 |
- |
2,768,592 |
- |
2,768,592 | |||||||||||||||
|
Other comprehensive income |
22 |
14,043 |
232,465 |
14,043 |
232,465 | |||||||||||||||
|
TOTAL ASSETS |
95,787,551 |
73,137,128 |
102,067,157 |
73,065,288 |
TOTAL LIABILITIES AND EQUITY |
95,787,551 |
73,137,128 |
102,067,157 |
73,065,288 | |||||||||||
|
TELEFÔNICA BRASIL S. A. | |||||||||||||||||
|
Income Statements | |||||||||||||||||
|
For the three- and six-month periods ended June 30, 2015 and 2014 | |||||||||||||||||
|
(In thousands of reais) | |||||||||||||||||
|
Company |
Consolidated | ||||||||||||||||
|
Three-month periods ended |
Six-month periods ended |
Three-month periods ended |
Six-month periods ended | ||||||||||||||
|
Note |
06.30.15 |
06.30.14 |
06.30.15 |
06.30.14 |
06.30.15 |
06.30.14 |
06.30.15 |
06.30.14 | |||||||||
|
Operating revenue, net |
23 |
8,414,876 |
8,124,243 |
16,836,157 |
16,318,292 |
9,962,125 |
8,616,594 |
18,945,203 |
17,228,524 | ||||||||
|
Cost of sales and services |
24 |
(4,303,895) |
(3,886,561) |
(8,592,857) |
(8,081,761) |
(5,068,448) |
(4,116,069) |
(9,605,288) |
(8,512,413) | ||||||||
|
|
|
|
|
|
|
|
| ||||||||||
|
Gross profit |
4,110,981 |
4,237,682 |
8,243,300 |
8,236,531 |
4,893,677 |
4,500,525 |
9,339,915 |
8,716,111 | |||||||||
|
Operating income (expenses) |
(3,269,175) |
(3,125,574) |
(6,517,559) |
(6,207,291) |
(3,639,509) |
(3,143,905) |
(6,922,113) |
(6,240,202) | |||||||||
|
Selling expenses |
24 |
(2,686,978) |
(2,554,420) |
(5,369,141) |
(5,037,917) |
(2,973,591) |
(2,566,999) |
(5,682,237) |
(5,077,012) | ||||||||
|
General and administrative expenses |
24 |
(456,692) |
(441,710) |
(877,733) |
(929,161) |
(531,434) |
(455,553) |
(961,254) |
(943,522) | ||||||||
|
Other operating income |
25 |
130,938 |
110,656 |
243,712 |
224,832 |
146,631 |
118,566 |
260,457 |
247,862 | ||||||||
|
Other operating expenses |
25 |
(256,443) |
(240,100) |
(514,397) |
(465,045) |
(281,115) |
(239,919) |
(539,079) |
(467,530) | ||||||||
|
|
|
|
|
|
|
|
| ||||||||||
|
Operating income |
841,806 |
1,112,108 |
1,725,741 |
2,029,240 |
1,254,168 |
1,356,620 |
2,417,802 |
2,475,909 | |||||||||
|
Financial income |
26 |
431,809 |
173,706 |
678,143 |
402,543 |
456,011 |
193,062 |
711,145 |
432,700 | ||||||||
|
Financial expenses |
26 |
(376,404) |
(310,005) |
(870,694) |
(643,774) |
(627,538) |
(305,110) |
(1,100,524) |
(633,078) | ||||||||
|
Equity pickup |
11 |
123,002 |
177,918 |
327,452 |
323,353 |
440 |
454 |
672 |
1,459 | ||||||||
|
|
|
|
|
|
|
|
| ||||||||||
|
Income before taxes |
1,020,213 |
1,153,727 |
1,860,642 |
2,111,362 |
1,083,081 |
1,245,026 |
2,029,095 |
2,276,990 | |||||||||
|
Income and social contribution taxes |
27 |
(150,397) |
838,926 |
(411,107) |
542,061 |
(213,265) |
747,627 |
(579,560) |
376,433 | ||||||||
|
Net income for the period |
869,816 |
1,992,653 |
1,449,535 |
2,653,423 |
869,816 |
1,992,653 |
1,449,535 |
2,653,423 | |||||||||
|
Basic and diluted earnings per share (in R$) |
|||||||||||||||||
|
Common shares |
28 |
0.56 |
1.66 |
1.05 |
2.22 |
||||||||||||
|
Preferred shares |
28 |
0.62 |
1.83 |
1.16 |
2.44 |
||||||||||||
|
TELEFÔNICA BRASIL S.A. | |||||||||||||||||||||
|
Statements of Changes in Equity | |||||||||||||||||||||
|
For the six-month periods ended June 30, 2015 and 2014 | |||||||||||||||||||||
|
(In thousands of reais) | |||||||||||||||||||||
|
Capital reserves |
Income reserve |
||||||||||||||||||||
|
Capital |
Premium on acquisition of noncontrolling interest |
Special goodwill reserve |
Other capital reserves |
Treasury stock |
Legal reserve |
Tax incentive reserve |
Retained earnings |
Additional |
Other comprehensive income |
Company’s | |||||||||||
|
Balances at December 31, 2013 |
37,798,110 |
(70,448) |
63,074 |
2,735,930 |
(112,107) |
1,285,797 |
1,699 |
- |
1,175,538 |
16,849 |
42,894,442 | ||||||||||
|
Additional dividend proposed for year 2013 |
- |
- |
- |
- |
- |
- |
- |
- |
(1,175,538) |
- |
(1,175,538) | ||||||||||
|
Unclaimed dividends and interest on equity |
- |
- |
- |
- |
- |
- |
- |
109,518 |
- |
- |
109,518 | ||||||||||
|
Other comprehensive income |
- |
- |
- |
- |
- |
- |
- |
- |
- |
(7,094) |
(7,094) | ||||||||||
|
Net income for the period |
- |
- |
- |
- |
- |
- |
- |
2,653,423 |
- |
- |
2,653,423 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
Balances at June 30, 2014 |
37,798,110 |
(70,448) |
63,074 |
2,735,930 |
(112,107) |
1,285,797 |
1,699 |
2,762,941 |
- |
9,755 |
44,474,751 | ||||||||||
|
Dividendo adicional proposto do exercício de 2013 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- | ||||||||||
|
Unclaimed dividends and interest on equity |
- |
- |
- |
- |
- |
- |
- |
97,924 |
- |
- |
97,924 | ||||||||||
|
Corporate Income Tax Return (DIPJ) adjustments – Tax incentives |
- |
- |
- |
- |
- |
- |
150 |
(150) |
- |
- |
- | ||||||||||
|
Other comprehensive income |
- |
- |
- |
- |
- |
- |
- |
(36,526) |
- |
222,710 |
186,184 | ||||||||||
|
Net income for the period |
- |
- |
- |
- |
- |
- |
- |
2,283,236 |
- |
- |
2,283,236 | ||||||||||
|
Allocation of income: |
|||||||||||||||||||||
|
Legal reserve |
- |
- |
- |
- |
- |
246,833 |
- |
(246,833) |
- |
- |
- | ||||||||||
|
Interim interest on equity |
- |
- |
- |
- |
- |
- |
- |
(2,092,000) |
- |
- |
(2,092,000) | ||||||||||
|
Additional dividend proposed |
- |
- |
- |
- |
- |
- |
- |
(2,768,592) |
2,768,592 |
- |
- | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
Balances at December 31, 2014 |
37,798,110 |
(70,448) |
63,074 |
2,735,930 |
(112,107) |
1,532,630 |
1,849 |
- |
2,768,592 |
232,465 |
44,950,095 | ||||||||||
|
Additional dividend proposed for year 2014 |
- |
- |
- |
- |
- |
- |
- |
- |
(2,768,592) |
- |
(2,768,592) | ||||||||||
|
Unclaimed dividends and interest on equity |
- |
- |
- |
- |
- |
- |
- |
58,623 |
- |
- |
58,623 | ||||||||||
|
Corporate Income Tax Return (DIPJ) adjustments – Tax incentives |
- |
- |
- |
- |
- |
- |
1,220 |
(1,220) |
- |
- |
- | ||||||||||
|
Cancellation of treasury stock, according to the Special Shareholders' Meeting of 03/12/15 |
- |
- |
- |
(112,107) |
112,107 |
- |
- |
- |
- |
- |
- | ||||||||||
|
Capital increase – Special Shareholders’ Meeting of 04/28/15 |
15,812,000 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
15,812,000 | ||||||||||
|
Direct costs on capital increase (net of taxes) according to the Special Shareholders Meeting of 04/28/2015 |
- |
- |
- |
(62,812) |
- |
- |
- |
- |
- |
- |
(62,812) | ||||||||||
|
Capital increase – Special Shareholders’ Meeting of 04/30/15 |
295,285 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
295,285 | ||||||||||
|
Direct costs on capital increase (net of taxes) according to the Special Shareholders Meeting of 04/30/2015 |
- |
- |
- |
(3,776) |
- |
- |
- |
- |
- |
- |
(3,776) | ||||||||||
|
Capital increase – Merger of GVTPart shares – Special Shareholders’ Meeting of 05/28/15 |
9,666,021 |
- |
- |
(1,188,707) |
- |
- |
- |
- |
- |
- |
8,477,314 | ||||||||||
|
Dissenters' right – Acquisition of GVTPart. |
- |
- |
- |
- |
(86,023) |
- |
- |
- |
- |
- |
(86,023) | ||||||||||
|
Other comprehensive income |
- |
- |
- |
- |
- |
- |
- |
- |
- |
(218,422) |
(218,422) | ||||||||||
|
Net income for the period |
- |
- |
- |
- |
- |
- |
- |
1,449,535 |
- |
- |
1,449,535 | ||||||||||
|
Interim interest on equity |
- |
- |
- |
- |
- |
- |
- |
(515,000) |
- |
- |
(515,000) | ||||||||||
|
Interim dividends |
- |
- |
- |
- |
- |
- |
- |
(270,000) |
- |
- |
(270,000) | ||||||||||
|
Balances at June 30, 2015 |
63,571,416 |
(70,448) |
63,074 |
1,368,528 |
(86,023) |
1,532,630 |
3,069 |
721,938 |
- |
14,043 |
67,118,227 | ||||||||||
|
Outstanding shares (in thousands) |
1,688,694 | ||||||||||||||||||||
|
VPA – Equity value of Company’s shares (in R$) |
39.75 | ||||||||||||||||||||
|
TELEFÔNICA BRASIL S. A. | |||||||||||||||
|
Statements of Comprehensive Income | |||||||||||||||
|
For the three- and six-month periods ended June 30, 2015 and 2014 | |||||||||||||||
|
(In thousands of reais) | |||||||||||||||
|
Company |
Consolidated | ||||||||||||||
|
Three-month periods ended |
Six-month periods ended |
Three-month periods ended |
Six-month periods ended | ||||||||||||
|
06.30.15 |
06.30.14 |
06.30.15 |
06.30.14 |
06.30.15 |
06.30.14 |
06.30.15 |
06.30.14 | ||||||||
|
Net income for the year |
869,816 |
1,992,653 |
1,449,535 |
2,653,423 |
869,816 |
1,992,653 |
1,449,535 |
2,653,423 | |||||||
|
Unrealized losses on investments available for sale |
206 |
(3,276) |
(783) |
(4,571) |
206 |
(3,276) |
(783) |
(4,571) | |||||||
|
Taxes |
(70) |
1,114 |
266 |
1,554 |
(70) |
1,114 |
266 |
1,554 | |||||||
|
136 |
(2,162) |
(517) |
(3,017) |
136 |
(2,162) |
(517) |
(3,017) | ||||||||
|
Gains from derivative transactions |
(942,708) |
(438) |
(337,175) |
1,594 |
(942,593) |
(438) |
(337,060) |
1,594 | |||||||
|
Taxes |
320,521 |
149 |
114,640 |
(542) |
320,521 |
149 |
114,640 |
(542) | |||||||
|
(622,187) |
(289) |
(222,535) |
1,052 |
(622,072) |
(289) |
(222,420) |
1,052 | ||||||||
|
Cumulative translation adjustments – transactions in foreign currency |
423 |
(2,366) |
5,210 |
(5,129) |
423 |
(2,366) |
5,210 |
(5,129) | |||||||
|
Other net comprehensive income to be reclassified into income in subsequent periods |
(621,628) |
(4,817) |
(217,842) |
(7,094) |
(621,513) |
(4,817) |
(217,727) |
(7,094) | |||||||
|
Losses on other comprehensive income (loss) |
- |
- |
- |
- |
(695) |
- |
(695) |
- | |||||||
|
Interest in comprehensive income of subsidiaries |
(580) |
- |
(580) |
- |
- |
- |
- |
- | |||||||
|
|
|
|
|
|
|
|
| ||||||||
|
Other net comprehensive income to be reclassified into income in subsequent periods |
(580) |
- |
(580) |
- |
(695) |
- |
(695) |
- | |||||||
|
Comprehensive income for the period, net of taxes |
247,608 |
1,987,836 |
1,231,113 |
2,646,329 |
247,608 |
1,987,836 |
1,231,113 |
2,646,329 | |||||||
|
TELEFÔNICA BRASIL S. A. | |||||||
|
Cash Flow Statements | |||||||
|
For the six-month periods ended June 30, 2015 and 2014 | |||||||
|
(In thousands of reais) | |||||||
|
Company |
Consolidated | ||||||
|
Six-month periods ended | |||||||
|
06.30.15 |
06.30.14 |
06.30.15 |
06.30.14 | ||||
|
Net cash from operating activities |
2,721,001 |
3,023,664 |
3,323,699 |
3,780,607 | |||
|
Expenses (revenue) not representing changes in cash |
6,117,360 |
5,665,939 |
7,297,753 |
6,187,418 | |||
|
Income before taxes |
1,860,642 |
2,111,362 |
2,029,095 |
2,276,990 | |||
|
Depreciation and amortization |
2,810,898 |
2,622,196 |
3,099,990 |
2,632,390 | |||
|
Exchange gains (losses) on loans |
(141,854) |
40,752 |
81,307 |
40,752 | |||
|
Monetary gains (losses) |
163,103 |
37,539 |
171,137 |
24,393 | |||
|
Equity pickup |
(327,452) |
(323,353) |
(672) |
(1,459) | |||
|
Gain (loss) on assets write-off/disposal |
21,415 |
25,958 |
27,987 |
25,734 | |||
|
Estimated impairment losses of accounts receivable |
543,545 |
396,685 |
609,212 |
428,270 | |||
|
Provision for (reversal of) trade accounts payable |
321,637 |
152,807 |
370,073 |
157,752 | |||
|
Estimates impairment losses (write-offs and reversals) of inventories |
(15,061) |
(11,391) |
(16,034) |
(10,795) | |||
|
Pension plans and other post-employment benefits |
21,594 |
15,762 |
21,586 |
15,755 | |||
|
Provisions for tax, labor, civil and regulatory contingencies |
413,793 |
240,591 |
427,796 |
240,605 | |||
|
Interest expenses |
415,468 |
342,533 |
446,644 |
342,533 | |||
|
Other |
29,632 |
14,498 |
29,632 |
14,498 | |||
|
Changes in operating assets and liabilities: |
(3,396,359) |
(2,642,275) |
(3,974,054) |
(2,406,811) | |||
|
Trade accounts receivable |
(664,268) |
(836,955) |
(757,292) |
(824,255) | |||
|
Inventories |
(156,409) |
(9,069) |
(179,920) |
6,076 | |||
|
Taxes recoverable |
(100,492) |
41,344 |
(104,794) |
32,772 | |||
|
Prepaid expenses |
(446,092) |
(412,834) |
(441,228) |
(414,016) | |||
|
Other current assets |
6,998 |
(243,376) |
(47,732) |
54,898 | |||
|
Other noncurrent assets |
(131,989) |
9,966 |
(131,961) |
(27) | |||
|
Personnel, social charges and benefits |
(141,562) |
10,155 |
(133,789) |
10,251 | |||
|
Trade accounts payable |
(277,052) |
(250,889) |
(398,411) |
(158,907) | |||
|
Taxes, charges and contributions |
(186,651) |
98,570 |
(187,484) |
98,582 | |||
|
Interest paid |
(402,210) |
(378,298) |
(441,248) |
(378,298) | |||
|
Income and social contribution taxes paid |
- |
(415,724) |
(186,372) |
(544,113) | |||
|
Other current liabilities |
(655,362) |
(191,195) |
(711,380) |
(210,135) | |||
|
Other noncurrent liabilities |
(241,270) |
(63,970) |
(252,443) |
(79,639) | |||
|
Net cash from investing activities |
(13,433,265) |
(2,712,345) |
(11,329,302) |
(2,713,943) | |||
|
Acquisition of property and equipment and intangible assets (net of donations) |
(3,083,486) |
(2,638,508) |
(3,274,268) |
(2,654,154) | |||
|
Cash from sale of property and equipment |
6,224 |
5,887 |
6,438 |
7,034 | |||
|
Acquisition of company, net of cash and cash equivalents acquired of R$399,241 |
(8,903,954) |
- |
(8,504,713) |
- | |||
|
Capital increase in subsidiary |
(2,766,694) |
- |
- |
- | |||
|
Others |
- |
- |
(172,010) |
- | |||
|
Redemption (investment) of judicial deposits |
(66,953) |
(80,864) |
(67,444) |
(67,963) | |||
|
Dividends and interest on equity received |
698,903 |
1,140 |
- |
1,140 | |||
|
Net payment of derivative contracts on acquisition of company |
682,695 |
- |
682,695 |
- | |||
|
Net cash from financing activities |
13,268,187 |
(2,123,879) |
10,407,581 |
(2,123,879) | |||
|
Repayment of loans, financing and debentures |
(1,266,125) |
(433,825) |
(4,120,130) |
(433,825) | |||
|
Raising of loans and debentures |
12,580 |
93,884 |
12,580 |
93,884 | |||
|
Net payment of derivative contracts |
337,002 |
(31,710) |
330,401 |
(31,710) | |||
|
Payments referring to grouping of shares |
(103) |
(145) |
(103) |
(145) | |||
|
Capital increase |
16,107,285 |
- |
16,107,285 |
- | |||
|
Direct costs of capital increase |
(80,835) |
- |
(80,835) |
- | |||
|
Dividends and interest on equity paid |
(1,841,617) |
(1,752,083) |
(1,841,617) |
(1,752,083) | |||
|
Total cash used in (from) financing activities |
13,268,187 |
(2,123,879) |
10,407,581 |
(2,123,879) | |||
|
Increase (decrease) in cash and cash equivalents |
2,555,923 |
(1,812,560) |
2,401,978 |
(1,057,215) | |||
|
Cash and cash equivalents at beginning of period |
3,835,304 |
6,311,299 |
4,692,689 |
6,543,936 | |||
|
Cash and cash equivalents at end of period |
6,391,227 |
4,498,739 |
7,094,667 |
5,486,721 | |||
|
Cash and cash equivalents changes in the period |
2,555,923 |
(1,812,560) |
2,401,978 |
(1,057,215) | |||
|
TELEFÔNICA BRASIL S. A. | |||||||
|
Statements of Value Added | |||||||
|
For the six-month periods ended June 30, 2015 and 2014 | |||||||
|
(In thousands of reais) | |||||||
|
Company |
Consolidated | ||||||
|
Six-month periods ended | |||||||
|
06.30.15 |
06.30.14 |
06.30.15 |
06.30.14 | ||||
|
Revenues |
22,895,400 |
22,161,113 |
25,570,351 |
23,282,986 | |||
|
Sale of goods and services |
23,113,873 |
22,242,223 |
25,717,327 |
23,372,651 | |||
|
Other revenues |
325,072 |
315,575 |
462,236 |
338,605 | |||
|
Provision for impairment of trade accounts receivable |
(543,545) |
(396,685) |
(609,212) |
(428,270) | |||
|
Inputs acquired from third parties |
(8,942,918) |
(8,634,019) |
(9,941,188) |
(9,140,593) | |||
|
Cost of products, goods and services sold |
(4,782,952) |
(4,642,720) |
(5,585,999) |
(5,131,097) | |||
|
Materials, electric power, third-party services and other |
(4,142,841) |
(3,974,252) |
(4,337,047) |
(3,991,573) | |||
|
Loss/recovery of assets |
(17,125) |
(17,047) |
(18,142) |
(17,923) | |||
|
|
|
|
| ||||
|
Gross value added |
13,952,482 |
13,527,094 |
15,629,163 |
14,142,393 | |||
|
Withholdings |
(2,810,898) |
(2,622,196) |
(3,099,990) |
(2,632,390) | |||
|
Depreciation and amortization |
(2,810,898) |
(2,622,196) |
(3,099,990) |
(2,632,390) | |||
|
|
|
|
| ||||
|
Net value added produced |
11,141,584 |
10,904,898 |
12,529,173 |
11,510,003 | |||
|
Value added received in transfer |
1,005,595 |
725,896 |
711,817 |
434,159 | |||
|
Equity pickup |
327,452 |
323,353 |
672 |
1,459 | |||
|
Financial income |
678,143 |
402,543 |
711,145 |
432,700 | |||
|
|
|
|
| ||||
|
Total undistributed value added |
12,147,179 |
11,630,794 |
13,240,990 |
11,944,162 | |||
|
Distribution of value added |
(12,147,179) |
(11,630,794) |
(13,240,990) |
(11,944,162) | |||
|
Personnel, social charges and benefits |
(1,381,041) |
(1,285,333) |
(1,584,065) |
(1,297,013) | |||
|
Direct compensation |
(988,852) |
(898,317) |
(1,139,503) |
(906,448) | |||
|
Benefits |
(327,772) |
(328,675) |
(371,755) |
(331,555) | |||
|
Unemployment Compensation Fund (FGTS) |
(64,417) |
(58,341) |
(72,807) |
(59,010) | |||
|
Taxes, charges and contributions |
(7,480,692) |
(6,186,819) |
(8,075,850) |
(6,496,543) | |||
|
Federal |
(2,467,159) |
(1,310,642) |
(2,784,088) |
(1,568,168) | |||
|
State |
(4,981,565) |
(4,845,527) |
(5,201,917) |
(4,849,947) | |||
|
Local |
(31,968) |
(30,650) |
(89,845) |
(78,428) | |||
|
Debt remuneration |
(1,835,911) |
(1,505,219) |
(2,131,540) |
(1,497,183) | |||
|
Interest |
(836,319) |
(643,774) |
(1,066,340) |
(633,078) | |||
|
Rental |
(999,592) |
(861,445) |
(1,065,200) |
(864,105) | |||
|
Equity remuneration |
(1,449,535) |
(2,653,423) |
(1,449,535) |
(2,653,423) | |||
|
Retained profit |
(1,449,535) |
(2,653,423) |
(1,449,535) |
(2,653,423) | |||
Telefônica Brasil S. A.
NOTES TO QUARTERLY INFORMATION
Six-month period ended June 30, 2015
(In thousands of reais, unless otherwise stated)
1) OPERATIONS
a) Background information
Telefônica Brasil S.A. (“Company” or “Telefônica Brasil”) is a publicly-traded corporation operating in telecommunication services and in the performance of activities that are necessary or useful in the rendering of such services, in conformity with the concessions and authorizations it has been or granted. The Company, headquartered at Avenida Engenheiro Luiz Carlos Berrini, No. 1376, in the city and State of São Paulo, Brazil, is a member of Telefónica Group (“Group”), the telecommunications industry leader in Spain, also present in various European and Latin American countries.
At June 30, 2015 and December 31, 2014, Telefónica S.A. (“Telefónica”), holding company of the Group located in Spain, held a direct and indirect interest in the Company (Note 22).
The Company is listed in the Brazilian Securities and Exchange Commission (CVM) as a publicly-held company under Category A (issuers authorized to trade any marketable securities) and has shares traded on the São Paulo Stock Exchange (“BM&FBovespa”). The Company is also listed in the Securities and Exchange Commission (“SEC”), of the United States of America, and its American Depositary Shares (“ADSs”) are classified under level II, backed only by preferred shares and traded in the New York Stock Exchange (“NYSE”).
b) Operations
The Company is primarily engaged in rendering land-line telephone and data services in the state of São Paulo, under Fixed Switched Telephone Service Concession Arrangement (“STFC”) and Multimedia Communication Service (“SCM”) authorization, respectively. Also, the Company is authorized to render STFC services in Regions I and II of the General Service Concession Plan (“PGO”) and other telecommunications services, such as SCM (data communication, including broadband internet), SMP (Personal Communication Services) and SEAC (Conditional Access Audiovisual Services) (especially by means of DTH and cable technologies).
Service concessions and authorizations are granted by Brazil’s Telecommunications Regulatory Agency (“ANATEL”), under the terms of Law No. 9472 of July 16, 1997 - General Telecommunications Law (“Lei Geral das Telecomunicações” - LGT), amended by Laws No. 9986 of July 18, 2000 and No. 12485 of September 12, 2011. Operation of such concessions and authorizations is subject to supplementary regulations and plans issued.
b.1) STFC service concession arrangement
The Company is the grantee on an STFC concession to render land-line services in the local network and national long distance calls originated in sector 31 of Region III, which comprises the state of São Paulo (except for cities within sector 33), as established in the General Service Concession Plan (PGO).
In accordance with the service concession arrangement, every two years, during the arrangement’s 20-year term, the Company shall pay a fee equivalent to 2% of its prior-year STFC revenue, net of applicable taxes and social contribution taxes (Note 21).
The Company’s current STFC service concession arrangement is effective until December 31, 2025, and may be subject to reviews on December 31, 2015 and December 31, 2020.
Global Village Telecom S.A. (“GVT”), a wholly-owned subsidiary of GVT Participações S.A. (“GVTPart”), is engaged in the provision of STFC, SCM and pay-TV (SEAC) services throughout Brazil. ANATEL granted GVT the right to operate STFC in Region II of the PGO and a license to operate local and long-distance services in the Brazilian territory. In November 2006, GVT received the remaining licenses of STFC services for all of the Brazilian regions (the company was authorized to provide such services only in part of these regions). This granted the company the STFC license for the whole territory. GVT also has licenses to provide SCM and SEAC services in the entire Brazilian territory.
Telefônica Brasil S. A.
NOTES TO QUARTERLY INFORMATION
Six-month period ended June 30, 2015
(In thousands of reais, unless otherwise stated)
GVT is the controlling shareholder of POP Internet Ltda. (“POP”) and of Innoweb Ltda. (“Innoweb”), Brazil-based entities operating in the telecommunications industry.
b.2) SMP authorization arrangement
The Company operates SMP services, in accordance with the authorizations it has been given. Frequency authorizations granted by ANATEL may be renewed only once, over a 15-year period, through payment, every two years after the first renewal, of fees equivalent to 2% of the Company’s prior-year revenue, net of taxes and social contribution taxes, related to the application of the Basic and Alternative Service Plans (Note 21).
The information on the areas of operation (regions) and due dates of the radiofrequency authorizations is the same of Note 1b2 – “SMP Authorization Arrangements”, as disclosed in the financial statements at December 31, 2014.
c) Agreement between Telefónica S.A. and Telecom Italia, S.p.A.
TELCO S.p.A. (“TELCO”) has a 22.4% interest with voting rights in Telecom Italia, S.p.A. (“Telecom Italia”), and is the majority shareholder of this company.
Telefónica S.A holds an indirect control in Telefonica Brasil, and Telecom Italia holds an indirect interest in TIM S.A. (“TIM”), a Brazilian telecommunications company. Neither Telefónica, nor Telefônica Brasil or any other affiliate of Telefónica interfere in, are involved with or have decision-making powers over TIM operations in Brazil, also being lawfully and contractually forbidden to exercise any type of political power derived from indirect interest in relation to TIM operations in Brazil. TIM (Brazil) and Telefônica Brasil compete in all markets in which they operate in Brazil under permanent competitive stress and, in this context, as well as in relation to the other economic players in the telecommunications industry, maintain usual and customary contractual relations with one another (many of which are regulated and inspected by ANATEL) and/or which, as applicable, are informed to ANATEL and CADE, concerning the commitments assumed before these agencies so as to ensure total independence of their operations.
On September 24, 2013, Telefónica S.A entered into an agreement with the other shareholders of TELCO, whereby Telefónica subscribed and paid up capital in TELCO through a contribution of 324 million euros, receiving shares without voting rights of TELCO as consideration. As a result of this capital increase, the share capital of Telefónica with voting rights in TELCO remained unchanged, although their economic participation rose to 66%. Thus, the governance of TELCO, as well as the obligations of Telefónica S.A to abstain from participating in or influencing the decisions that impact the industries where they both operate, remained unchanged.
In the same document, the Italian shareholders of TELCO granted to Telefónica the option to acquire all TELCO’s shares, and such option is conditioned on prior competition defense and telecommunications approvals that are required (including in Brazil and Argentina).
On June 16, 2014, the Italian shareholders of TELCO decided to exercise their rights to request spin-off ensured by the Shareholders' Agreement of the company. This spin-off was approved by the Annual Shareholders’ Meeting of TELCO held on July 9, 2014, and was subject to prior authorization by relevant authorities, including CADE and ANATEL in Brazil.
Telefônica Brasil S. A.
NOTES TO QUARTERLY INFORMATION
Six-month period ended June 30, 2015
(In thousands of reais, unless otherwise stated)
On December 22, 2014 and March 12, 2015, ANATEL authorized TELCO’s spin-off, in a transaction impacting the swap transaction conducted with Vivendi S.A. (“Vivendi”), based on Rulings No. 429/2014-CD and No. 87/2015-CD, respectively. The swap transaction agreed by and between Telefónica and Vivendi, Vivendi would exchange all its voting shares and part of its non-voting shares held in the Company for an indirect interest held by Telefónica in Telecom Itália (Note 3), subject to certain conditions, such as prohibiting Vivendi to increase its interest in the Company.
The 61st ordinary session of CADE’s Trial Court, held on March 25, 2015, approved TELCO’s spin-off and the swap transaction agreed upon between Telefónica and Vivendi, subject to the execution of three concentration control agreements.
2) BASIS OF PREPARATION AND PRESENTATION OF QUARTERLY INFORMATION
2.1) Statement of Compliance
The individual quarterly information (Company) was prepared and is presented in accordance with accounting practices adopted in Brazil, which comprise the rules issued by CVM, and with CPC 21 - Interim Financial Reporting, issued by the Brazilian FASB (CPC), which are in accordance with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB).
The consolidated quarterly information (Consolidated) was prepared and is presented in accordance with CPC 21 and IAS 34 – Interim Financial Reporting, issued by IASB, and CVM rules.
At a meeting held on July 15, 2015, the Executive Board authorized the issue of this quarterly information, which was ratified by the Board of Directors at a meeting held on July 27, 2015.
2.2) Basis of preparation and presentation
The Company’s quarterly information for the six-month period ended June 30, 2015 is presented in thousands of reais (unless otherwise stated) and was prepared under a going concern assumption.
This quarterly information compares the quarters ended June 30, 2015 and 2014, except the balance sheets, in which the positions at June 30, 2015 and December 31, 2014 are compared.
As a result of the consolidation of GVTPart (Note 3) as of May 1, 2015, the financial information as at June 30, 2015 is not comparable to the information as at December 31 and June 30, 2014.
This quarterly information was prepared pursuant to the accounting principles, practices and criteria consistent with those adopted in preparing the financial statements for the year ended December 31, 2014 (Note 3 – “Summary of Significant Accounting Practices”) and must be analyzed jointly with the referred to financial statements.
Certain accounts in the tables of these notes to quarterly information and the Statement of Value-Added were reclassified so as to allow comparison of information for the six-month periods ended June 30, 2015 and 2014, as applicable.
On the date of preparation of this quarterly information, the following IFRS amendments had been published; however, their application was not compulsory:
IFRS 9 Financial Instruments, issue of final version: This standard encompasses all phases of the financial instruments project and replaces IAS 39 – Financial Instruments: Recognition and Measurement and all prior versions of IFRS 9. It introduces new requirements for classification and measurement, impairment loss and hedge accounting. This standard is applicable as from the year beginning on January 1, 2018, and its early adoption is not permitted. Its retrospective application is required; however, the presentation of comparative information is not mandatory. Early adoption of previous versions of IFRS 9 (2009, 2010 and 2013) is permitted if the initial application date falls before February 1, 2015. The adoption of IFRS 9 will impact the classification and measurement of the Company’s financial assets, but it will not impact the classification and measurement of its financial liabilities.
Telefônica Brasil S. A.
NOTES TO QUARTERLY INFORMATION
Six-month period ended June 30, 2015
(In thousands of reais, unless otherwise stated)
IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture, revision: This standard determines the accounting treatment for transactions involving assets between an investor and its associates or joint ventures. This standard is applicable as from the year beginning on January 1, 2016. The Company does not expect any significant impacts on its financial position.
IFRS 10, 12 and IAS 28 Investment Entities: Applying the Consolidation Exception, revision: This standard addresses the requirements for financial statements disclosure for an investment entity. This standard is applicable for annual periods beginning on or after January 1, 2017. The Company does not expect any significant impacts on its financial position.
IFRS 11 Accounting for Acquisitions of Interests in Joint Operations, revision: The amendments to this standard require that a joint investor, which records the acquisition of interest in a joint operation that is a business, apply the relevant IFRS 3 principles applicable to business combination. The amendments further clarify that the interest previously held in a joint operation is not remeasured upon acquisition of additional interest in the same joint operation, while the joint control is held. In addition, a scope exclusion was added to IFRS 11 in order to specify that the amendments are not applicable when the parties sharing joint control, including the reporting entity, are under the common control of the main controlling party. The amendments apply both to the acquisition of final interest in a joint operation and the acquisition of any additional interest in the same joint operation, and are effective prospectively as from the year beginning on January 1, 2016. The Company does not expect significant impacts on its financial position.
IFRS 14 Regulatory Deferral Accounts, issue: This standard is optional and allows a company that conducts rate-regulated activities to continue applying most of its accounting policies on regulatory deferral account balances, upon first-time adoption of IFRS. The companies that adopt IFRS 14 must present regulatory deferral account balances as separate accounts in the balance sheets and in other comprehensive income. This standard requires disclosures on the nature and risks associated with company’s regulated rates and the effects of such regulation on the financial statements. This standard is applicable as from the year beginning on January 1, 2016. The Company does not expect any significant impacts on its financial position, since it has already been preparing its financial statements based on the effective IFRS.
IFRS 15 Revenue from Contracts with Customers, issue: This standard requires that an entity recognize revenue, reflecting the consideration expected to be received in exchange of the control over goods or services. When adopted, this standard will replace most part of the current guidance on revenue recognition (standards IAS 11, IAS 18, IFRIC 13, IFRC 15 and IFRIC 18). This standard is applicable as from the year beginning on January 1, 2017, and it may be adopted retrospectively, or using a cumulative effect approach. The Company is evaluating the impacts on its quarterly information and disclosures, and has neither defined the transition method nor determined the potential impacts on its financial reports yet.
IAS 1 Disclosure Initiative, review: This standard addresses changes in the overall financial statements of a company. This standard is applicable for annual periods beginning on or after January 1, 2016. The Company does not expect any significant impacts on its financial position.
IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortization, revision: The amendments clarify the depreciation and amortization methods, subject to the alignment to the concept of future economic benefits expected from the use of assets over its economic useful life. This standard is applicable for annual periods beginning on or after January 1, 2016. The Company does not expect any significant impacts on its financial position.
Telefônica Brasil S. A.
NOTES TO QUARTERLY INFORMATION
Six-month period ended June 30, 2015
(In thousands of reais, unless otherwise stated)
The Company does not early adopt any pronouncement, interpretation or amendment which has been issued but whose application is not mandatory.
2.3) Basis of consolidation
At June 30, 2015 and December 31, 2014, the Company held interests in the following companies:
|
Investees |
|
Type of investment |
|
At 06.30.15 |
|
At 12.31.14 |
|
Country (Head Office) |
|
Core business |
|
Telefônica Data S.A. ("TData") |
|
Wholly-owned subsidiary |
|
100.00% |
|
100.00% |
|
Brazil |
|
Telecommunications |
|
|
|
|
|
|
|
|
|
|
|
|
|
GVT Participações S.A. ("GVTPart.") (Note 3) |
|
Wholly-owned subsidiary |
|
100.00% |
|
- |
|
Brazil |
|
Telecommunications |
|
|
|
|
|
|
|
|
|
|
|
|
|
Aliança Atlântica Holging B.V. ("Aliança") |
|
Jointly-controlled subsidiary |
|
50.00% |
|
50.00% |
|
Holland |
|
Holding operating in the telecommunications industry |
|
|
|
|
|
|
|
|
|
|
|
|
|
Companhia AIX de Participações ("AIX") |
|
Jointly-controlled subsidiary |
|
50.00% |
|
50.00% |
|
Brazil |
|
Underground telecommunications network |
|
|
|
|
|
|
|
|
|
|
|
|
|
Companhia ACT de Participações ("ACT") |
|
Jointly-controlled subsidiary |
|
50.00% |
|
50.00% |
|
Brazil |
|
Technical assistance in telecommunications network |
Interests held in subsidiaries or jointly-controlled entities are measured under the equity method in the individual quarterly information. In the consolidated quarterly information, investments and all asset and liability balances, revenues and expenses arising from transactions and interest held in subsidiary are fully eliminated. Investments in jointly-controlled entities are measured under the equity method in the consolidated quarterly information.
3) ACQUISITION OF GVT PARTICIPAÇÕES S.A. (“GVTPart.”)
Pursuant to and for the purposes of CVM Rule No. 358/02, the Company informed the market that its Special Shareholders’ Meeting (“AGE”) held on May 28, 2015 approved the ratification of the Stock Purchase Agreement and Other Covenants executed by the Company, in the capacity of “Buyer”, and Vivendi and its subsidiaries (Société d’Investissements et de Gestion 108 SAS - “FrHolding108” and Société d’Investissements et de Gestion 72 S.A.), in the capacity of “Sellers”, whereby all the shares issued by GVTPart were acquired by the Company.
Payment for acquisition of GVTPart shares was made as follows:
· €4,663,000,000.00 paid in cash after contractual adjustments on the execution date; and
· Company-issued shares delivered to FRHolding108 as a result of the merger of GVTPart shares by the Company, representing 12% of the Company’s capital stock after the merger of shares.
As a result of the merger of GVTPart shares, the Company’s capital increased by R$9,666,021, with the issuance of 68,597,306 common shares and 134,320,885 preferred shares, all registered, no-par value shares, based on the economic value of merged shares calculated using the discounted cash flow method and on the appraisal report on GVTPart’s economic value prepared by an expert firm, in conformity with article 252, paragraph 1, together with article 8, of Law No. 6404/76. The difference between the economic value of merged shares and the market value of shares issued on the transaction closing date was recognized in “Other Capital Reserves”, in the amount of R$1,188,707.
This transaction was subject to obtaining the applicable corporate and regulatory authorizations, including Brazil’s Administrative Council for Economic Defense (“CADE”) and ANATEL, in addition to other conditions among those usually applicable to this kind of transaction. The transaction was approved by ANATEL under Act No. 448 of January 22, 2015 and published in the Federal Register (“DOU”) on January 26, 2015, and by CADE at the 61st ordinary session of its Trial Court, held on March 25, 2015, and published in the Federal Register (“DOU”) on March 31, 2015.
Telefônica Brasil S. A.
NOTES TO QUARTERLY INFORMATION
Six-month period ended June 30, 2015
(In thousands of reais, unless otherwise stated)
Once the acquisition transaction was completed on May 28, 2015, the Company has held direct interests in GVTPart and indirect interests in GVT. The business purpose of Brazil-based GVTPart is to hold interests in other domestic or foreign companies as a partner, shareholder or member. Its direct subsidiary (GVT) provides land-line telephone, data, multimedia communication and pay-TV services throughout the Brazilian territory.
According to IFRS 3 (R)/CPC 15 (R1) - Business Combinations, business combinations are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the fair value of assets transferred, the liabilities assumed at acquisition date from the former acquiree’s shareholders and equity interests issued in exchange for control over the acquire.
The acquisition price, as yet calculated on a preliminary basis, is shown below:
|
Gross consideration in cash (Euros 4,663 billion) |
15,964,853 |
|
(-) Contract adjustments (Net debt) (*) |
(7,060,899) |
|
Net consideration in cash |
8,903,954 |
|
(+) Contingent Consideration |
344,217 |
|
(+) Consideration in shares at fair value |
8,477,314 |
|
(-) Gains from Cash Flow Hedge on transaction |
(377,373) |
|
Total consideration, net of cash flow hedge |
17,348,112 |
(*) Reviewed by an expert independent firm, as contractually defined.
Please find below a breakdown of the fair value of assets acquired for R$5,314,249, as well as goodwill recorded on the acquisition date:
|
Current assets |
1,772,074 |
|
Current liabilities |
5,283,280 |
|
Cash and cash equivalents |
399,241 |
|
Personnel, social charges and benefits |
172,158 |
|
Trade accounts receivable, net |
1,143,431 |
|
Trade accounts payable |
591,809 |
|
Inventories |
4,641 |
|
Taxes, charges and contributions |
347,615 |
|
Taxes recoverable |
151,306 |
|
Loans and financing |
3,969,634 |
|
Prepaid expenses |
60,182 |
|
Provisions |
17,866 |
|
Other assets |
13,273 |
|
Other liabilities |
184,198 |
|
|
|
|
|
|
|
Noncurrent assets |
12,598,975 |
|
Noncurrent liabilities |
3,773,520 |
|
Taxes recoverable |
70,182 |
|
Taxes, charges and contributions |
1,342 |
|
Deferred taxes (4) |
257,420 |
|
Loans and financing |
3,088,414 |
|
Judicial deposits and garnishments |
551,275 |
|
Provisions (3) |
595,724 |
|
Other assets |
16,018 |
|
Other liabilities |
88,040 |
|
Property and equipment, net (1) |
8,904,052 |
|
|
|
|
Intangible assets, net (2) |
2,800,028 |
|
Fair value of liabilities assumed |
9,056,800 |
|
|
|
|
|
|
|
|
|
|
Fair value of net assets acquired |
5,314,249 |
|
|
|
|
|
|
|
|
|
|
Goodwill (5) |
12,033,863 |
|
|
|
|
|
|
|
Fair value of assets acquired |
14,371,049 |
|
Total considered, net of cash flow hedge |
17,348,112 |
(1) This includes the allocation of appreciation of property, plant and equipment items (R$368,622).
(2) This includes the allocation of fair value assigned to the brand (R$37,000), customer portfolio (R$2,414,000), appreciation and other intangible assets (R$148,169).
(3) This includes the allocation of fair value assigned to contingent liabilities (R$429,078).
(4) This includes the allocation of deferred taxes on contingent liabilities (R$145,886).
Telefônica Brasil S. A.
NOTES TO QUARTERLY INFORMATION
Six-month period ended June 30, 2015
(In thousands of reais, unless otherwise stated)
(5) This refers to goodwill recorded on the acquisition of GVTPart based on expected synergies resulting from the business combination, which may be used for tax purposes, as a nondeductible portion currently estimated at R$577,827, which is under review and adjustments to determine the fair value of identifiable assets acquired and liabilities assumed from GVTPart. This review is expected to be completed shortly, as soon as management has all significant information about the facts, limited to a period not exceeding 12 months after the date of acquisition.
The main purpose of the Company’s acquisition of control over GVTPart was to enable the integration of land-line, mobile, data and TV telecommunication services in Brazil, with a view to operating more effectively. The acquisition of GVTPart allows the Company to obtain significant synergies in revenues and costs, generating cross-selling opportunities both personally and in the corporate market, and also allows the optimization of investments, improve service quality, reduce content costs, acquisition platform and in business cable TV, due to economies with increased scale and, finally, the reduction of general and administrative expenses, not affecting the potential growth of the Company.
The methods and assumptions used to determine the fair values were:
Customer portfolio
The customer portfolio was valued using the MEEM method (“Multi-period Excess Earnings Method”), which is based on a discounted cash flow calculation of future economic benefits attributable to the customer base, net of eliminated liabilities for contributions involving its generation. In order to estimate the remaining useful life of the customer portfolio, an analysis of the average length of customer relationships was conducted using a churn method.
The purpose of the useful life analysis is to estimate a survival curve that anticipates future churn rates in relation to the existing customer base. The so-called Iowa curves were used as an approximation to the customer survival curve. The fair value allocated to the customer portfolio on the acquisition date was R$2,414,000, which will be amortized over 7.77 years on average.
Brand
The fair value of “GVT” brand was determined through the "relief-from-royalty” method. This method measures the value of the asset by capitalizing the royalties saved by owning intellectual property. In other words, the owner of the brand profits from owning the intangible asset, rather than having to pay royalties for its use. The royalties saved were determined by applying a market royalty rate (expressed as a percentage of revenue) to the future expected revenues from the sale of the product or service associated with the intangible asset. The market royalty rate, normally expressed as a percentage of net revenue, is the rate a knowledgeable willing owner would charge a knowledgeable willing user for use of an asset it owns in an arm’s length transaction. The fair value allocated to the brand on the acquisition date was R$37,000, which will be amortized over 1.5 year.
Contingent Consideration
As part of the Stock Purchase Agreement and Other Covenants executed by the Company and Vivendi for the acquisition of all GVTPart-issued shares, a contingent consideration was defined for the court deposits made by GVT for the monthly installments of deferred income and social contribution taxes on the amortization of goodwill arising from the corporate restructuring process completed by GVT in 2013. In September 2014, GVT filed for a cancellation of the judicial review and the return of amounts deposited with the courts.
If GVT succeeds in receiving (being reimbursed, refunded of or netting) these funds, they will be returned to Vivendi, as long as they are obtained in a final unappealable decision. The period for returning such amount is 15 years.
Telefônica Brasil S. A.
NOTES TO QUARTERLY INFORMATION
Six-month period ended June 30, 2015
(In thousands of reais, unless otherwise stated)
The fair value of the contingent consideration on the acquisition date is R$344,217, recorded in the Company’s noncurrent liabilities as “Loans, financing, lease and contingent consideration” (Note 20), which is subject to monthly monetary adjustments based on the Selic rate.
Fair value of Contingent Liabilities
According to IFRS 3(R) Business Combinations, the acquirer must recognize, on the acquisition date, contingent liabilities assumed in a business combination, even if it is not probable that cash outflows will be required to settle the obligation, as long as it is a present obligation arising from past events and its fair value can be measured reliably. In compliance with these requirements, contingent liabilities were recognized in this acquisition at a fair value of R$429,078, which were determined considering the expected cash outflow required to settle the obligation on the acquisition date (Note 18).
Other Information
|
Analysis of cash flow upon acquisition |
R$ thousand |
|
|
|
|
Transaction costs on acquisition (included in cash from operating activities) |
(8,638) |
|
Cash and cash equivalents in the acquired company (included in cash from investing activities) |
399,241 |
|
Net balance of cash and cash equivalents on acquisition |
390,603 |
Transaction costs incurred to date, amounting to R$8,638, were recorded in the Company’s income statement as operating expenses.
The fair value of accounts receivable for service rendering totals R$1,143,431, which does not differ from the book value comprising the gross amount of R$1,467,367, net of estimated impairment losses totaling R$323,936.
From the date of acquisition to the completion of this quarterly information, GVTPart contributed R$977,418 in combined net operating revenue and (R$50.834) in combined net income (loss) to the Company.
Upon completion of this consolidated quarterly information, the Company was performing a review of and adjustments to the determination of the fair value of identifiable assets acquired and liabilities assumed by GVTPart. This review is expected to be completed shortly, as soon as management has all significant information about the facts, limited to a period not exceeding 12 months after the date of acquisition.
In compliance with CVM Instruction No. 565, of June 15, 2015, the Company reports, in Note 35, the pro forma consolidated income statement (unaudited) for 2014 and for the six month periods ended June 30, 2015 and 2014.
4) CASH AND CASH EQUIVALENTS
|
Company |
Consolidated | ||||||
|
06.30.15 |
12.31.14 |
06.30.15 |
12.31.14 | ||||
|
Cash and banks |
104,094 |
63,136 |
117,402 |
64,010 | |||
|
Short-term investments |
6,287,133 |
3,772,168 |
6,977,265 |
4,628,679 | |||
|
Total |
6,391,227 |
3,835,304 |
7,094,667 |
4,692,689 | |||
Highly liquid short-term investments basically correspond to Bank Deposit Certificates (CDB), pegged to the Interbank Deposit Certificate (CDI) rate variation, and are kept at first-tier financial institutions.
Telefônica Brasil S. A.
NOTES TO QUARTERLY INFORMATION
Six-month period ended June 30, 2015
(In thousands of reais, unless otherwise stated)
5) TRADE ACCOUNTS RECEIVABLE, NET
|
|
Company |
|
Consolidated | ||||
|
|
06.30.15 |
|
12.31.14 |
|
06.30.15 |
|
12.31.14 |
|
Billed amounts |
5,233,692 |
|
4,957,574 |
|
6,757,027 |
|
5,538,184 |
|
Unbilled amounts |
1,322,871 |
|
1,280,851 |
|
2,018,470 |
|
1,410,273 |
|
Interconnection amounts |
1,564,848 |
|
1,579,277 |
|
1,591,374 |
|
1,579,277 |
|
Receivables from related parties (Note 29) |
220,168 |
|
157,306 |
|
174,879 |
|
115,048 |
|
Gross accounts receivable |
8,341,579 |
|
7,975,008 |
|
10,541,750 |
|
8,642,782 |
|
Estimated impairment losses |
(1,559,804) |
|
(1,313,956) |
|
(2,226,773) |
|
(1,619,316) |
|
Total |
6,781,775 |
|
6,661,052 |
|
8,314,977 |
|
7,023,466 |
|
|
|
|
|
|
|
|
|
|
Current |
6,577,250 |
|
6,470,764 |
|
8,001,965 |
|
6,724,061 |
|
Noncurrent |
204,525 |
|
190,288 |
|
313,012 |
|
299,405 |
Consolidated balances of noncurrent trade accounts receivable include:
· At June 30, 2015, R$204,525 (R$190,288 at December 31, 2014) referring to the business model of resale of goods to legal entities, receivable within 24 months. At June 30, 2015, the impact of the present-value adjustment was R$48,472 (R$29,872 at December 31, 2014).
· At June 30, 2015, R$108,487 (R$109,117 at December 31, 2014) referring to "Soluciona TI", traded by TData, which consists in lease of IT equipment to small and medium enterprises and receipt of fixed installments over the contractual term. Considering the contractual terms, this product was classified as finance lease. At June 30, 2015, the impact of the present-value adjustment was R$5,430 (R$7,522 at December 31, 2014).
The aging list of trade accounts receivable, net of estimated impairment losses, is as follows:
|
|
Company |
|
Consolidated | ||||
|
|
06.30.15 |
|
12.31.14 |
|
06.30.15 |
|
12.31.14 |
|
Falling due |
4,705,555 |
|
4,853,376 |
|
5,949,288 |
|
5,107,714 |
|
Overdue – 1 to 30 days |
955,593 |
|
914,709 |
|
1,094,762 |
|
970,086 |
|
Overdue – 31 to 60 days |
411,473 |
|
318,552 |
|
453,750 |
|
328,367 |
|
Overdue – 61 to 90 days |
|||||||