vivoitr2q15_6k.htm - Generated by SEC Publisher for SEC Filing

 

 

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

 

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):

Yes

 

 

No

 

 

 

 

 
 

 

 

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
Dividend
Proposed

 

Other comprehensive income

 

Company’s
Equity

                                           

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