o
|
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|
x
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o
|
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Title of each class
|
Name of each exchange on which registered
|
Preferred Shares, without par value
|
New York Stock Exchange*
|
American Depositary Shares (as evidenced by American Depositary Receipts), each representing one share of Preferred Stock
|
New York Stock Exchange
|
*
|
Not for trading purposes, but only in connection with the registration on the New York Stock Exchange of American Depositary Shares representing those Preferred Shares.
|
Title of Class
|
Number of Shares Outstanding
|
Shares of Common Stock
|
381,347,371
|
Shares of Preferred Stock
|
742,537,273
|
Large Accelerated Filer
x
|
Accelerated Filer
o
|
Non-accelerated Filer
o
|
U.S. GAAP
o
|
International Financial Reporting Standards as issued by the
International Accounting Standards Board
x
|
Other
o
|
·
|
“ADRs” are to the American Depositary Receipts evidencing our ADSs;
|
·
|
“ADSs” are to our American Depositary Shares, each representing one share of our nonvoting preferred stock;
|
·
|
“ANATEL” are to
Agência Nacional de Telecomunicações
–
ANATEL
, the Brazilian telecommunication regulatory agency;
|
·
|
“BM&FBOVESPA” are to the
BM&FBOVESPA S.A.
–
Bolsa de Valores, Mercadorias e Futuros
, the São Paulo stock exchange;
|
·
|
“BNDES” are to
Banco Nacional de Desenvolvimento Econômico e Social
, the Brazilian Development Bank;
|
·
|
“Brazil” are to the Federative Republic of Brazil;
|
·
|
“Brazilian Central Bank,” “BACEN,” “Central Bank of Brazil” or “Central Bank” are to the
Banco Central do Brasil
, the Brazilian Central Bank;
|
·
|
“Brazilian Corporate Law” are to Law No. 6,404 of December 15, 1976, as amended;
|
·
|
“CADE” are to
Conselho Administrativo de Defesa Econômica
, the Brazilian competition authority;
|
·
|
“CDI” are to
Certificado de Depósito Interbancário
, the Certificate for Interbank Deposits;
|
·
|
“Ceterp” are to
Centrais Telefônicas de Ribeirão Preto
;
|
·
|
“Celular CRT” are to
Celular CRT Participações
S.A. and its consolidated subsidiary, formerly Vivo subsidiaries before Vivo’s corporate restructuring;
|
·
|
“CMN” are to the
Conselho Monetário Nacional
, the Brazilian Monetary Council;
|
·
|
“Commission” or “SEC” are to the U.S. Securities and Exchange Commission;
|
·
|
“Corporate Law Method” is the accounting practice to be followed in the preparation of our financial statements for regulatory and statutory purposes under Brazilian Corporate Law and accounting standards issued by the CVM;
|
·
|
“CTBC Telecom” are to
Companhia de Telecomunicações do Brasil Central
;
|
·
|
“CTBC Borda” are to
Companhia Brasileira Borda do Campo – CTBC
;
|
·
|
“CVM” are to the
Comissão de Valores Mobiliários
, the Brazilian Securities Commission;
|
·
|
“D.O.U.” are to the
Diário Oficial da União
, the Official Newspaper of the Brazilian Government;
|
·
|
“Federal District” are to
Distrito Federal
, the federal district where Brasilia, the capital of Brazil, is located;
|
·
|
“General Telecommunications Law” are to
Lei Geral de Telecomunicações
, as amended, the law which regulates the telecommunications industry in Brazil;
|
·
|
“Global Telecom” or “GT” are to
Global Telecom S.A.,
formerly a Vivo subsidiary before Vivo’s corporate restructuring;
|
·
|
“IASB” are to International Accounting Standards Board;
|
·
|
“IBGE” are to
Instituto Brasileiro de Geografia e Estatística
, the Brazilian Institute of Geography and Statistics;
|
·
|
“IFRS” are to International Financial Reporting Standards, as issued by the IASB;
|
·
|
“IOF” are to
Imposto sobre Operações de Crédito, Câmbio e Seguros
, or tax on credit, exchange and insurance;
|
·
|
“IPCA” are to
Índice Nacional de Preços ao Consumidor Amplo
, the consumer price index, published by the
Instituto Brasileiro de Geografia e Estatística
;
|
·
|
“IST” are to
Índice Setorial de Telecomunicações
, the inflation index of the telecommunications sector;
|
·
|
“Number Portability” are to
Portabilidade Numérica
, the service mandated by ANATEL that provides customers with the option of keeping the same telephone number when switching telephone service providers;
|
·
|
“NYSE” are to the New York Stock Exchange;
|
·
|
“Oi” are to
Oi S.A.,
the mobile operator branch of Telemar;
|
·
|
“PTAX” or “PTAX rate” are to the weighted average daily buy and sell exchange rates between the
real
and U.S. dollar that is calculated by the Central Bank;
|
·
|
“
Real
,” “
reais
” or R$ are to the Brazilian
real
, the official currency of Brazil;
|
·
|
“Speedy” are to broadband services provided by us through asymmetric digital subscriber lines, or ADSL;
|
·
|
“TCO” are to
Tele Centro Oeste Celular Participações
, which includes TCO’s “B” band subsidiary and NBT, formerly Vivo subsidiaries before Vivo’s corporate restructuring;
|
·
|
“TCP” are to
TELESP Celular Participações S.A.
, Vivo’s predecessor company;
|
·
|
“TLE” are to
Tele Leste Celular Participações S.A.
and its consolidated subsidiaries, formerly Vivo subsidiaries before Vivo’s corporate restructuring;
|
·
|
“TSD” are to
Tele Sudeste Celular Participações S.A.
and its consolidated subsidiaries, formerly Vivo subsidiaries before Vivo’s corporate restructuring;
|
·
|
“Telebrás” are to
Telecomunicações Brasileiras S.A.–Telebrás
;
|
·
|
“Telemar” are to
Telemar Norte Leste S.A.
(controlled by Tele Norte Leste Participações S.A.);
|
·
|
“Telemig” or “Telemig Participações” are to
Telemig Celular Participações S.A.
;
|
·
|
“Telemig Celular” are to
Telemig Celular S.A.
;
|
·
|
“Telenorte” or “Tele Norte” are to
Tele Norte Celular Participações S.A.
;
|
·
|
“TELESP Celular” and “TC” are to
TELESP Celular S.A.,
formerly a Vivo subsidiary before Vivo’s corporate restructuring;
|
·
|
“Telpart” are to
Telpart Participações S.A.
;
|
·
|
“TJLP” are to
Taxa de Juros de Longo Prazo
, or long-term interest rate;
|
·
|
“UMBNDES” are to a monetary unit of the BNDES, consisting of a currency basket of BNDES debt obligations in foreign currencies, which are mostly denominated in U.S. dollars;
|
·
|
“U.S. dollar,” “U.S. dollars” or “US$” are to U.S. dollars, the official currency of the United States;
|
·
|
“Vivo” are to
Vivo S.A.,
a wholly owned subsidiary of Telefônica Brasil, that conducts cellular operations including SMP (as defined in the “Glossary of Telecommunication Terms”), in the following areas:
|
·
|
“Areas 1 and 2,” the state of São Paulo (operations previously provided by TELESP Celular S.A.);
|
·
|
“Area 3,” the states of Rio de Janeiro and Espírito Santo (operations previously provided by Telerj Celular S.A., or Telerj, and Telest Celular S.A., or Telest);
|
·
|
“Area 4,” the state of Minas Gerais;
|
·
|
“Area 5,” the states of Paraná and Santa Catarina (operations previously provided by Global Telecom);
|
·
|
“Area 6,” the state of Rio Grande do Sul (operations previously provided by Celular CRT);
|
·
|
“Areas 7 and 8,” the central western and northern regions, including the states of Goiás, Tocantins, Mato Grosso, Mato Grosso do Sul, Rondônia, Acre, Amapá, Amazonas, Maranhão, Para and Roraima and in the Federal District (operations previously provided by Telegoias Celular S.A., or Telegoias, Telemat Celular S.A., or Telemat, Telems Celular S.A., or Telems, Teleron Celular S.A., or Teleron, Teleacre Celular S.A., or Teleacre, Norte Brasil Telecom S.A., or NBT and TCO);
|
·
|
“Area 9,” the states of Bahia and Sergipe (operations previously provided by Telebahia Celular S.A., or Telebahia, and Telergipe Celular S.A., or Telergipe); and
|
·
|
“Area 10,” the states of Pernambuco, Alagoas, Paraíba, Rio Grande do Norte, Ceará and Piauí.
|
·
|
“Vivo Participações” are to
Vivo Participações S.A.
(formerly TELESP Celular Participações S.A.) and its consolidated subsidiaries (unless the context otherwise requires); and
|
·
|
“Vivo brand” are to the brand used in Brazil in the operations of Vivo;
|
·
|
statements concerning our operations and prospects;
|
·
|
the size of the Brazilian telecommunications market;
|
·
|
estimated demand forecasts;
|
·
|
our capital expenditure plan;
|
·
|
our ability to secure and maintain telecommunications infrastructure licenses, rights-of-way and other regulatory approvals;
|
·
|
our strategic initiatives and plans for business growth;
|
·
|
industry conditions;
|
·
|
our funding needs and financing sources;
|
·
|
network completion and product development schedules;
|
·
|
expected characteristics of competing networks, products and services;
|
·
|
the outcome of certain legal proceedings;
|
·
|
regulatory and legal developments;
|
·
|
quantitative and qualitative disclosures about market risk;
|
·
|
other statements of management’s expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts; and
|
·
|
other factors identified or discussed under “Item 3. Key Information—D. Risk Factors.”
|
·
|
the short history of our operations as an independent, private-sector entity and the ongoing introduction of greater competition to the Brazilian telecommunications sector;
|
·
|
the cost and availability of financing;
|
·
|
uncertainties relating to political and economic conditions in Brazil as well as those of other emerging markets;
|
·
|
inflation, interest rate and exchange rate risks;
|
·
|
the Brazilian government’s telecommunications policy;
|
·
|
the Brazilian government’s tax policy;
|
·
|
the Brazilian government’s political instability; and
|
·
|
the adverse determination of disputes under litigation.
|
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
OFFER STATISTICS AND EXPECTED TIMETABLE
|
KEY INFORMATION
|
A.
|
Selected Financial Data
|
Year ended December 31,
|
||||||||||||
Income Statement Data:
|
2011
|
2010
|
2009
|
|||||||||
IFRS
|
(in millions of
reais
, except for share
and per share data)
|
|||||||||||
Net operating revenue
|
29,129 | 15,798 | 15,852 | |||||||||
Cost of goods and services
|
(14,728 | ) | (8,845 | ) | (9,236 | ) | ||||||
Gross profit
|
14,401 | 6,953 | 6,616 | |||||||||
Operating expenses, net
|
(8,603 | ) | (3,391 | ) | (3,221 | ) | ||||||
Equity in earnings (losses) of associates
|
– | 2.9 | 19.0 | |||||||||
Operating income before financial expense, net
|
5,797 | 3,566 | 3,414 | |||||||||
Financial expense, net
|
(140 | ) | (121 | ) | (189 | ) | ||||||
Income before tax and social contribution
|
5,658 | 3,445 | 3,225 | |||||||||
Income tax and social contribution
|
(1,296 | ) | (1,046 | ) | (1,021 | ) | ||||||
Net Income
|
4,362 | 2,399 | 2,204 | |||||||||
Attributable to:
|
||||||||||||
Controlling shareholders
|
4,355 | 2,398– | 2,204 | |||||||||
Non-controlling shareholders
|
7 | – | – | |||||||||
Basic and diluted earnings per share:
|
||||||||||||
Common Shares
|
4.40 | 4.45 | 4.08 | |||||||||
Preferred Shares
|
4.84 | 4.89 | 4.49 | |||||||||
Cash Dividends per share in
reais
, net of withholding tax:
|
||||||||||||
Common Shares
|
4.78 | 3.62 | 2.56 | |||||||||
Preferred Shares
|
5.26 | 3.98 | 2.81 |
Year ended December 31,
|
||||||||||||
Cash Flow Data:
|
2011
|
2010
|
2009
|
|||||||||
IFRS
|
(in millions of
reais
, except where indicated)
|
|||||||||||
Operating activities:
|
||||||||||||
Net cash provided by operations
|
8,141 | 4,532 | 4,449 | |||||||||
Investing activities:
|
||||||||||||
Net cash used in investing activities
|
(2,029 | ) | (1,659 | ) | (2,296 | ) | ||||||
Financing activities:
|
||||||||||||
Net cash used in financing activities
|
(4,729 | ) | (3,594 | ) | (1,618 | ) | ||||||
Increase (decrease) in cash and cash equivalents
|
1,383 | (720 | ) | 536 | ||||||||
Cash and cash equivalents at beginning of year
|
1,557 | 2,277 | 1,741 | |||||||||
Cash and cash equivalents at end of year
|
2,940 | 1,557 | 2,277 |
Exchange Rate of R$ per US$
|
||||||||||||||||
Year ended December 31,
|
Low
|
High
|
Average(1)
|
Period-End
|
||||||||||||
2007
|
1.732 | 2.156 | 1.929 | 1.771 | ||||||||||||
2008
|
1.559 | 2.500 | 1.833 | 2.337 | ||||||||||||
2009
|
1.741 | 2.378 | 1.990 | 1.741 | ||||||||||||
2010
|
1.655 | 1.880 | 1.759 | 1.665 | ||||||||||||
2011
|
1.535 | 1.902 | 1.671 | 1.876 |
(1)
|
Represents the average of the exchange rates (PTAX) on the last day of each month during the relevant period.
|
Exchange Rate of R$ per US$
|
||||||||||||||||
Month
|
Low
|
High
|
Average(2)
|
Period-End
|
||||||||||||
September 2011
|
1.604 | 1.902 | 1.729 | 1.854 | ||||||||||||
October 2011
|
1.689 | 1.886 | 1.785 | 1.689 | ||||||||||||
November 2011
|
1.727 | 1.894 | 1.781 | 1.811 | ||||||||||||
December 2011
|
1.783 | 1.876 | 1.834 | 1.876 | ||||||||||||
January 2012
|
1.739 | 1.868 | 1.804 | 1.739 | ||||||||||||
February 2012
|
1.702 | 1.738 | 1.720 | 1.709 | ||||||||||||
March 2012
|
1.715 | 1.833 | 1.774 | 1.822 | ||||||||||||
April 2012 (through April 19)
|
1.826 | 1.887 | 1.856 | 1.887 |
(2)
|
Represents the average of the exchange rates (PTAX) of the lowest and highest rates in the month.
|
B.
|
Capitalization and Indebtedness
|
C.
|
Reasons for the Offer and Use of Proceeds
|
D.
|
Risk Factors
|
·
|
currency fluctuations;
|
·
|
exchange control policies;
|
·
|
internal economic growth;
|
·
|
inflation;
|
·
|
energy policy;
|
·
|
interest rates;
|
·
|
liquidity of domestic capital and lending markets;
|
·
|
tax policies; and
|
·
|
other political, diplomatic, social and economic developments in or affecting Brazil.
|
·
|
industry policies and regulations;
|
·
|
licensing;
|
·
|
fees and tariffs;
|
·
|
competition, including, therefore, our ability to grow by acquiring other telecommunications businesses;
|
·
|
telecommunications resource allocation;
|
·
|
service standards;
|
·
|
technical standards;
|
·
|
quality standards;
|
·
|
interconnection and settlement arrangements; and
|
·
|
universal service obligations.
|
·
|
the introduction of new or stricter operational and/or service requirements;
|
·
|
the granting of operating licenses in our areas;
|
·
|
delays in the granting of, or the failure to grant, approvals for rate increases; and
|
·
|
antitrust limitations imposed by ANATEL and the CADE.
|
·
|
In the case of long-distance calls, two SMP providers controlled by the same economic group can receive only one instead of two interconnection charges (VU-M) for calls originated and terminated in their networks ((3) and (6) above).
|
·
|
New negotiation rules for VU-M fees by which ANATEL will have a role in determining reference prices rather than the current free-market negotiation of prices. The reference prices will apply to SMP providers that have
significant market power
, which may be the case of Vivo (according to Resolution No. 549/2010, only the groups that include SMP operators with market share in mobile telephony lower than 20% combined in each one of the regions of the General Plan of Authorizations of SMP are considered groups without
significant market power
in the offer of mobile interconnection, in their respective areas of authorization) ((3) and (7) above (Resolution No. 549/2010 results of Public Consultation No. 5/2010).
|
·
|
The free negotiation of the VU-M fee is the current rule. The reference price will only be used as a base in case of a conflict resolution related to the VU-M fee agreement. In the near future, ANATEL may issue a new regulation that will consider groups with
significant market power
those who have, among others: economies of scale and scope, market share within certain parameters and possibly for the providers that have integrated operation on the SMP and STFC.
|
·
|
Reference prices were cost based commencing in 2008 in compliance with Resolution No. 483/2007. The prices are calculated according to the regulation on Costs Separation and Allocation (Resolution No. 396/2005) ((2) and (3) above).
|
·
|
VU-M fees must follow the discounts granted to fixed telephony customers for out-of-business hours calls ((3) above).
|
·
|
When receiving calls from public telephones, VU-M fees will adopt the same fee rules that apply to public telephones ((3) above).
|
·
|
Creation of VU-M fee unification among SMP providers of the same economic group with significant market power ((3), (6) and (7) above).
|
·
|
The interconnection payments between SMP operators for traffic in the same registration area may occur independently of the traffic balance between the operators (this regime is referred to as “full billing”) ((1) and (3) above). Before the adoption of the above-mentioned regulation, payments between SMP operators for traffic in the same area only occurred when the traffic balance between any two companies was either less than 45% or in excess of 55% (this regime is referred to as “partial bill and keep”).
|
·
|
The Invitation Document 002/2007/SPV-ANATEL relates to the auction organized by ANATEL in December 2007 of new licenses (3G licenses) for the 1900-2100 MHz radio frequency bands denominated the “F,” “G,” “I” and “J” bands, and states that, in the maximum allowed period of eighteen months from the publication of the Terms of Authorization on April 30, 2008, the authorizations resulting from this auction will be combined with the existing SMP authorizations given to the bid winners when pertaining to the same region of the general authorization plan of SMP. Vivo and Vivo Participações acquired spectrum licenses for the “J” band in regions where we hold SMP licenses. In addition, the Invitation Document modifies the rule for the renewal of radio frequency licenses and includes in the calculation of operating profits the compensation received for the use of the SMP network together with the profits earned from the service plans. In accordance with this Invitation Document, in January 2010, ANATEL published an act determining the unification of our SMP authorizations in Regions II (states of Paraná, Santa Catarina, Rio Grande do Sul, Goiás, Tocantins Mato Grosso do Sul, Mato Grosso, Rondônia, Acre and the Federal District) and III (state of São Paulo) of the PGA-SMP, with only one SMP authorization for each one of these Regions (Terms of Authorization Nos. 005/2010 and 006/2010, signed in January 2010, for Region II and III, respectively). Moreover, ANATEL also determined that, from November 1, 2009 (eighteen months from April 30, 2008), in each Region of the PGA-SMP, the VU-M fee must be unified for that Region (two SMP providers controlled by the same economic group can receive only one instead of two interconnection charges (VU-M) for calls originated and terminated in their networks), and freely negotiated. Until such date, the mobile operators charged a VU-M fee for authorization of the SMP. In February 2010, ANATEL
|
·
|
In 2008, ANATEL published the general plan for updating the Brazilian telecommunications regulation (“
Plano Geral de Atualização da Regulamentação das Telecomunicações no Brasil
”–Resolution No. 516/2008, or “PGR”) ((7) above).
|
·
|
In November 2010, ANATEL published Resolution No. 550/2010 for the Regulation on Exploration of Personal Mobile Services by means of a Virtual Network, making possible the creation of the “agent” and the Authorization of Mobile Virtual Network ((7) above). Resolution No. 550/2010 resulted from Public Consultation No. 50/2009. In accordance with this regulation approved by ANATEL, Mobile Virtual Network Operators may operate either as agents or as virtual network licensees. An agent represents the personal mobile service provider through the establishment of a representation agreement, which must be ratified by ANATEL. The agent’s activity is not defined as a “telecommunications service,” so this is of significant interest to companies that operate in other sectors such as large retailers, banks and football teams.
|
·
|
In October 2009, ANATEL published Resolution No. 535/2009 relating to the Methodology of the Calculation of the WACC ((5) above).
|
·
|
In December 2008, Decree 6523/2008 became effective, relating to the general norms of customer interaction service by telephone, with the objective of improving the quality of services ((7) above).
|
·
|
In December 2010, ANATEL organized auctions for the 1900-2100 MHz radio frequency band denominated the “H” band, for extension bands and for available frequencies at “A,” “D,” “E,” “M” and TDD bands, according the Invitation Document No. 002/2010/ANATEL. Vivo was awarded 23 licenses (14 spectrum licenses in 1800 MHz bands (“D,” “E,” “M” and extension bands) and nine spectrum licenses in 900 MHz extension bands). In addition, the Invitation Document modifies the rule for the renewal of radio frequency licenses and includes in the calculation of operating profits the remuneration received for the use of the SMP network together with the profits earned from the service plans ((1) (3) (4) and (7) above); Invitation Document No. 002/2010/ANATEL results of Public Consultation No. 51/2009.
|
·
|
In December 2010, ANATEL published Resolution No. 558/2010 transferring the bands of 451 MHz to 458 MHz and 461 MHz to 468 MHz to the SMP, STFC and SCM. These bands are currently assigned for access to the services of telephony and data in broad band, particularly in rural areas ((7) above); Resolution No. 558/2010 results of Public Consultation No. 24/2009.
|
·
|
In August 2010, ANATEL published Resolution No. 544/2010 for the Regulation on Conditions of Use of Radio Frequencies in the Band of 2500 MHz to 2690 MHz. This band was assigned to the SMP Services and STFC in addition to SCM services and Pay Television by means of Multichannel Multipoint Distribution Service (MMDS) for which it was assigned previously ((7) above); Resolution No. 544/2010 results of Public Consultation No. 31/2009.
|
·
|
In February 2010, ANATEL published Resolution No. 537/2010 relating to amending in the regulation of the 3400 MHz to 3600 MHz band, allowing it to apply additionally to mobile services ((7) above).
|
·
|
In April 2009, ANATEL published Resolution No. 527/2009 relating to the regulation of the Broadband Power Line (BPL), allowing this service to apply to multimedia communication (SCM) ((7) above).
|
·
|
In June 2010, ANATEL published Public Consultation No. 21/2010 with a proposal of altering the Regulation for Inspection (Resolution No. 441/2006) ((7) above).
|
·
|
In June 2010, ANATEL published Public Consultation No. 22/2010 with a proposal of altering the Regulation for Sanctions (Resolution No. 344/2003) ((7) above).
|
·
|
In July of 2010, ANATEL published Public Consultation No. 27/2010 with the revision of the General Plan of Standards of Quality of the SMP (Resolutions 317/2002 and 335/2003) ((7) above).
|
·
|
In November 2010, ANATEL published Resolution No. 548/2010 for the Regulation for Evaluation of the Efficiency of Use of the Radio Frequency Spectrum ((4) and (7) above).
|
·
|
In December 2010, ANATEL published Resolution No. 553/2010 to allow the addition of the ninth digit in the numbers of the mobile telephones of area 11, raising the capacity of numeration in the metropolitan region of São Paulo and eliminating the problem of scarcity of numeration in this area ((7) above).
|
·
|
In December 2010, ANATEL published Public Consultation No. 50/2010 with the Proposal for Revision of the Regulation of Industrial Exploration of Dedicated Lines (Resolution No. 402/2005) ((7) above).
|
·
|
In August 2011, ANATEL published Public Consultation No. 46/2011, regarding compensation for the STFC, changes in the collection rate in the Local Network Usage (TU-RL) as regards reduced hours, changes in the interconnection regime
and alterations in the compensation structure for the Interurban Network Use (TU-RIU).
|
INFORMATION ON THE COMPANY
|
A.
|
History and Development of the Company
|
Year ended December 31,
|
||||||||||||
Telefônica Brasil
|
2011(1)
|
2010
|
2009
|
|||||||||
(in millions of
reais
)
|
||||||||||||
Network
|
3,381.0 | 2,039.7 | 1,779.8 | |||||||||
Technology / Information Systems
|
612.5 | 266.1 | 262.0 | |||||||||
Others(2)
|
1,408.0 | 135.6 | 179.3 | |||||||||
Total capital expenditures
|
5,401.5 | 2,441.4 | 2,221.1 |
(1)
|
The financial information presented for 2011 represents information from Telefônica Brasil’s consolidated financial statements.
|
(2)
|
Consists primarily of free handset rentals, network construction, furniture and fixtures, office equipment and store layouts and a value of R$811.8 million related to the acquisition of licenses.
|
B.
|
Business Overview
|
Blocks
|
Frequency
Range
(MHz)
|
Width
|
Service Areas
|
|||
41
|
1800
|
10 + 10
|
States of Paraná, Santa Catarina, Rio Grande do Sul, Goiás, Tocantins, Mato Grosso, Mato Grosso do Sul, Rondonia, Acre and the Federal District
|
42
|
1800
|
10 + 10
|
State of São Paulo
|
|||
44
|
1800
|
15 + 15
|
Pelotas, Morro Redondo, Capão do Leão and Turuçu municipalities in State of Rio Grande do Sul
|
|||
45
|
1800
|
15 + 15
|
States of Alagoas, Ceará, Paraiba, Piauí and Rio Grande do Norte
|
|||
76
|
900
|
2.5 + 2.5
|
State of Rio de Janeiro
|
|||
77
|
900
|
2.5 + 2.5
|
State of Espírito Santo
|
|||
78
|
900
|
2.5 + 2.5
|
States of Goiás, Tocantins, Mato Grosso do Sul, Mato Grosso, Rondonia, Acre and the Federal District (3)
|
|||
79
|
900
|
2.5 + 2.5
|
State of Rio Grande do Sul except Pelotas, Morro Redondo, Capão do Leão and Turuçu municipalities
|
|||
80
|
900
|
2.5 + 2.5
|
Municipalities of CN 43(2), in the State of Paraná, except Londrina and Tamarana municipalities
|
|||
81
|
900
|
2.5 + 2.5
|
States of Paraná and Santa Catarina, except CN 43(2) and Londrina and Tamarana municipalities, in the State of Paraná
|
|||
82
|
900
|
2.5 + 2.5
|
State of Bahia
|
|||
83
|
900
|
2.5 + 2.5
|
State of Sergipe
|
|||
84
|
900
|
2.5 + 2.5
|
State of Amazonas, Amapá, Maranhão, Pará and Roraima
|
|||
92
|
1800
|
2.5 + 2.5
|
State of São Paulo except the São Paulo Metropolitan Area (
Grande São Paulo
) and nearby area and Sector 33(1) General Plan of Grants in the State of São Paulo
|
|||
101
|
1800
|
2.5 + 2.5
|
State of Amazonas, Amapá, Maranhão, Pará and Roraima
|
|||
105
|
1800
|
2.5 + 2.5
|
Paranaíba municipality, in the State of Mato Grosso do Sul
|
|||
107
|
1800
|
2.5 + 2.5
|
Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and São Simão municipalities, in the State of Goiás
|
|||
115
|
1800
|
2.5 + 2.5
|
Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and São Simão municipalities, in the State of Goiás
|
|||
119
|
1800
|
10 + 10
|
States of Rio de Janeiro, Espírito Santo, Bahia and Sergipe
|
|||
122
|
1800
|
10 + 10
|
State of Amazonas, Amapá, Maranhão, Pará and Roraima
|
|||
124
|
1800
|
10 + 10
|
States of Alagoas, Ceará, Paraíba, Piauí, Pernambuco and Rio Grande do Norte
|
|||
128
|
1800
|
10 + 10
|
Paranaíba municipality, in the State of Mato Grosso do Sul and Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and São Simão municipalities, in the State of Goiás
|
163
|
1800
|
5 + 5
|
Londrina and Tamarana municipalities in the State of Paraná
|
(1)
|
Municipalities: Altinópolis, Aramina, Batatais, Brodowsqui, Buritizal, Cajuru, Cássia dos Coqueiros, Colômbia, Franca, Guaíra, Guará, Ipuã, Ituverava, Jardinópolis, Miguelópolis, Morro Agudo, Nuporanga, Orlândia, Ribeirão Corrente, Sales de Oliveira, Santa Cruz da Esperança, Santo Antônio da Alegria and São Joaquim da Barra, in the State of São Paulo.
|
(2)
|
CN = Municipalities with the National Select Code.
|
(3)
|
Except Paranaíba municipality, in the State of Mato Grosso do Sul, and Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and São Simão municipalities, in the State of Goiás.
|
On December 31, 2011
|
Last available IBGE data from 2009
|
||||||||||||||||||||
Area
|
Frequency Range (MHz)
|
Population (in thousands)(1)
|
Percent of Brazil’s population(1)
|
GDP (in millions of
reais
)(2)
|
Percent of Brazil’s GDP(2)
|
Per capita income (in
reais
)(2)
|
|||||||||||||||
São Paulo State
|
850, 900, 1800, 1900 and 2100
|
41,252 | 21.63 | % | 1,084,353 | 33.47 | % | 26,202 | |||||||||||||
Paraná State
|
850, 900, 1800, 1900 and 2100
|
10,440 | 5.47 | % | 189,992 | 5.87 | % | 17,780 | |||||||||||||
Santa Catarina State
|
850, 900, 1800, 1900 and 2100
|
6,250 | 3.28 | % | 129,806 | 4.01 | % | 21,214 | |||||||||||||
Goiás State
|
850, 900, 1800, 1900 and 2100
|
6,004 | 3.15 | % | 85,615 | 2.64 | % | 14.447 | |||||||||||||
Tocantins State
|
850, 900, 1800, 1900 and 2100
|
1,383 | 0.73 | % | 14,571 | 0.45 | % | 11,278 | |||||||||||||
Mato Grosso State
|
850, 900, 1800, 1900 and 2100
|
3,034 | 1.59 | % | 57,294 | 1.77 | % | 19,085 | |||||||||||||
Mato Grosso do Sul State
|
850, 900, 1800, 1900 and 2100
|
2,449 | 1.28 | % | 36,368 | 1.12 | % | 15,410 | |||||||||||||
Rondônia State
|
850, 900, 1800, 1900 and 2100
|
1,561 | 0.82 | % | 20,236 | 0.62 | % | 13,455 | |||||||||||||
Acre State
|
850, 900, 1800, 1900 and 2100
|
733 | 0.38 | % | 7,386 | 0.23 | % | 10,689 | |||||||||||||
Amapá State
|
850, 900, 1800 and 2100
|
669 | 0.35 | % | 7,404 | 0.23 | % | 11,809 | |||||||||||||
Amazonas State
|
850, 900, 1800 and 2100
|
3,481 | 1.83 | % | 49,614 | 1.53 | % | 14,622 | |||||||||||||
Maranhão State
|
850, 900, 1800 and 2100
|
6,570 | 3.44 | % | 39,855 | 1.23 | % | 6,260 | |||||||||||||
Pará State
|
850, 900, 1800 and 2100
|
7,588 | 3.98 | % | 58,402 | 1.80 | % | 7,859 | |||||||||||||
Roraima State
|
850, 900, 1800 and 2100
|
451 | 0.24 | % | 5,593 | 0.17 | % | 13,285 | |||||||||||||
Federal District
|
850, 900, 1800, 1900 and 2100
|
2,563 | 1.34 | % | 131,487 | 4.06 | % | 50,436 | |||||||||||||
Bahia State
|
850, 900, 1800, 1900 and 2100
|
14,021 | 7.35 | % | 137,075 | 4.23 | % | 9,365 | |||||||||||||
Sergipe State
|
850, 900, 1800, 1900 and 2100
|
2,068 | 1.08 | % | 19,767 | 0.61 | % | 9,786 | |||||||||||||
Rio de Janeiro State
|
850, 900, 1800, 1900 and 2100
|
15,994 | 8.39 | % | 353,878 | 10.92 | % | 22,104 | |||||||||||||
Espírito Santo State
|
850, 900, 1800, 1900 and 2100
|
3,513 | 1.84 | % | 66,763 | 2.06 | % | 19,146 | |||||||||||||
Rio Grande do Sul State
|
850, 900, 1800, 1900 and 2100
|
10,696 | 5.61 | % | 215,864 | 6.66 | % | 19,779 | |||||||||||||
Alagoas State
|
900, 1800, 1900 and 2100
|
3,121 | 1.64 | % | 21,235 | 0.66 | % | 6,728 | |||||||||||||
Ceará State
|
900, 1800, 1900 and 2100
|
8,448 | 4.43 | % | 65,704 | 2.03 | % | 7,686 | |||||||||||||
Pernambuco State
|
900, 1800, 1900 and 2100
|
8,796 | 4.61 | % | 78,428 | 2.42 | % | 8,902 | |||||||||||||
Piauí State
|
900, 1800, 1900 and 2100
|
3,119 | 1.64 | % | 19,033 | 0.59 | % | 6,052 | |||||||||||||
Paraíba State
|
900, 1800, 1900 and 2100
|
3,767 | 1.97 | % | 28,719 | 0.89 | % | 7,618 | |||||||||||||
Rio Grande do Norte State
|
900, 1800, 1900 and 2100
|
3,168 | 1.66 | % | 27,905 | 0.86 | % | 8,893 | |||||||||||||
Minas Gerais State
|
850, 900, 1800 and 2100
|
19,595 | 10.27 | % | 287,055 | 8.86 | % | 14,328 | |||||||||||||
Vivo | 190,733 | 100.00 | % | 3,239,402 | 100.00 | % | 16,984 |
(1)
|
According to the last revision published by IBGE in 2009 (latest data available).
|
(2)
|
According to the most recent IBGE data (2009). Nominal Brazilian GDP was R$3,239,402 million as of December 2009 calculated by IBGE, subject to revision.
|
·
|
voice services, including activation, monthly subscription, measured service and public telephones;
|
·
|
interconnection charges (or network usage charges), which are amounts we charge other cellular and fixed-line service providers for the use of our network;
|
·
|
intraregional, interregional and international long-distance voice services;
|
·
|
data services, (including broadband services) and mobile value added services;
|
·
|
Pay TV services through DTH (direct to home), satellite technology and land based wireless technology MMDS (multichannel multipoint distribution service);
|
·
|
the sale of wireless devices and accessories;
|
·
|
network services, including rental of facilities, as well as other services.
|
·
|
Local services, where rates are established pursuant to a service basket of fees that includes rates for the measured traffic and subscription fees. In the case of a price adjustment, each one of the items within the local fee basket has a different weight and, as long as the total local fee price adjustment does not exceed the rate of increase in the Telecommunication General Price Index, or IST, minus a productivity factor as established in the concession agreements, each individual fee within the basket can exceed the IST variation by up to 5%.
|
·
|
Installation of residential and commercial lines and public telephone services, with adjustments limited to the rate of increase in the IST minus a productivity factor as established in the concession agreements.
|
·
|
Domestic long-distance services, with rate adjustments divided into intraregional and interregional long-distance services, which are calculated based on the weighted average of the traffic, and taking into account time and distance. For these categories, each fee may individually exceed the rate of increase in the IST by up to 5%; however, the total adjustments in the basket of fees cannot exceed the rate of increase in the IST minus a productivity factor as established in the concession agreements. See “—Regulation of the Brazilian Telecommunications Industry.”
|
·
|
Local Basic Plan: for clients that make mostly short-duration calls (up to three minutes), during regular hours; and
|
·
|
Mandatory Alternative Plan (PASOO): for clients that make mostly longer-duration calls (above three minutes), during regular hours and/or that use the line for dial-up service to the Internet.
|
Characteristics of Plan
|
Basic Plan
|
Mandatory
Alternative Plan
|
||
Monthly Basic Assignment
|
||||
Allowance (minutes included in the Residential Assignment)
|
200 minutes
|
400 minutes
|
||
Commercial Assignment Allowance (minutes included in the Commercial Assignment)
|
150 minutes
|
360 minutes
|
||
Local Call Charges
|
||||
Regular Hours
|
||||
Completing the call (minutes deducted from the allotment)
|
–
|
4 minutes
|
||
Completing the call after the terms of the allotment Sector 31
|
–
|
R$0.15980
|
||
Local Minutes–charges in excess use of the allotment Sector 31
|
R$0.10224
|
R$0.03994
|
||
Minimum time billing
|
30 seconds
|
–
|
||
Reduced Hours
|
||||
Charge per answered call (minutes deducted from allotment)
|
2 minutes
|
4 minutes
|
||
Charge per answered call after the allotted duration Sector 31
|
R$0.20448
|
R$0.15980
|
·
|
Residential customers were charged a monthly subscription fee for the provision of service of R$41.38;
|
·
|
Commercial clients and nonresidential customers (PBX) were charged a monthly subscription fee for the provision of service of R$69.67 in Sector 31, R$67.82 in Sector 34 and R$64.72 in Sector 32;
|
·
|
Local minute tariffs were charged at R$0.10423 per minute in Sector 31; and
|
·
|
Activation fees of R$113.81 were charged in Sector 31.
|
·
|
Fee for the use of our local network—we charge long-distance services providers a network usage charge for every minute used in connection with a call that either originates or terminates within our local network. We charge local service providers a fee for traffic that exceeds 55% of the total local traffic between the two service providers.
|
·
|
Fee for the use of our long-distance network—we charge the service providers a network usage charge on a per-minute basis only when the interconnection access to our long-distance network is in use.
|
·
|
Fee for the rental of certain transmission facilities used by another service provider to place a call.
|
·
|
Federal Social Contributions
:
Contribuição para o Programa de Integração Social
or “PIS,” and
Contribuição para o Financiamento da Seguridade Social
or “COFINS,” are imposed on gross operating revenue at a combined rate of 3.65% for telecommunications services (consisting of the COFINS amounts of 3.0% and PIS amount of 0.65%) and 9.25% for other services (consisting of the COFINS amounts of 7.6% and PIS amount of 1.65%). PIS is a tax designed to share business profits with employees through a mandatory national savings program, and is financed by monthly deposits collected as a percentage of gross operating revenue. COFINS is a tax designed to finance special social programs created and administered by the Brazilian government. Revenue related, among other things, to investments, dividends and sales of fixed assets are not subject to PIS and COFINS.
|
·
|
Contribution for the Fund for Universal Access to Telecommunications Services—”FUST.”
FUST was established in 2000 to cover the cost exclusively attributed to fulfilling obligations (including free access to telecommunications services by governmental institutions) of universal access to telecommunications services that cannot be recovered with efficient service exploration or that are not the responsibility of the concessionaire. Contribution to FUST are due at the tax rate of 1% of gross operating telecommunications services revenue (except for interconnection revenue), and it may not be passed on to customers.
|
·
|
Contribution to the Fund of Telecommunications Technological Development—”FUNTTEL.”
FUNTTEL is a federal social contribution and was established in 2000, to stimulate, among others, technological innovation and to enhance human resources development so as to increase the competitiveness of the Brazilian telecommunications industry. Contribution to FUNTTEL is due at the tax rate of 0.5% of gross operating telecommunications services revenue (except interconnection revenue), and it may not be passed on to customers.
|
·
|
Contribution to the Fund for Telecommunications Regulation—”FISTEL.”
FISTEL is a federal tax applicable to telecommunications transmission equipment which serves to provide funds to cover the expenses incurred by the Federal Government in performing inspections of telecommunication services and in developing the means and improving the techniques necessary for carrying out these inspections. The fees owed to FISTEL, known as the FISTEL Taxes, are: (i) an installation inspection fee assessed on telecommunications central offices upon the issuance of their authorization certificates and (ii) an annual operations inspection fee that is based on the number of authorized central offices in operation at the end of the previous calendar year.
|
At and for the year ended December 31,
|
||||||||||||||||||||
Wireline access lines
|
2011
|
2010
|
2009
|
2008
|
2007
|
|||||||||||||||
Installed access lines (millions)
|
14.7 | 14.6 | 14.5 | 14.7 | 14.6 | |||||||||||||||
Access lines in service (millions) (1)
|
11.0 | 11.3 | 11.3 | 11.7 | 12.0 | |||||||||||||||
Average access lines in service (millions)
|
11.1 | 11.3 | 11.5 | 11.8 | 12.0 | |||||||||||||||
Access lines in service per 100 inhabitants
|
26.5 | 27.5 | 27.1 | 28.7 | 29.1 | |||||||||||||||
Percentage of installed access lines connected to digital switches
|
100.0 | 100.0 | 100.0 | 100.0 | 100.0 |
At and for the year ended December 31,
|
||||||||||||||||||||
Wireline access lines
|
2011
|
2010
|
2009
|
2008
|
2007
|
|||||||||||||||
Number of public telephones (thousands)
|
215.8 | 250.7 | 250.5 | 250.3 | 250.3 | |||||||||||||||
Broadband
access lines
(millions)
|
3.6 | 3.3 | 2.6 | 2.5 | 2.0 |
Year ended December 31,
|
||||||||||||||||||||
Mobile access lines
|
2011
|
2010
|
2009
|
2008
|
2007
|
|||||||||||||||
Cellular lines in service at year-end (in millions)
|
71.5 | 60.3 | 51.7 | 44.9 | 37.4 | |||||||||||||||
Contract customers (in millions)
|
16.1 | 12.6 | 9.8 | 8.6 | 7.1 | |||||||||||||||
Prepaid customers (in millions)
|
55.4 | 47.7 | 42.0 | 36.4 | 30.3 | |||||||||||||||
Growth in cellular lines in service during year
|
18.7 | % | 16.5 | % | 15.1 | % | 20.2 | % | 11.6 | % | ||||||||||
Churn(2)
|
34.2 | % | 32.0 | % | 30.5 | % | 31.3 | % | 28.8 | % | ||||||||||
Estimated covered population (in millions)(3)
|
190.7 | 191.5 | 191.5 | 190.4 | 135.3 | |||||||||||||||
Penetration at year-end(4)
|
123.9 | % | 104.6 | % | 90.5 | % | 79.1 | % | 63.5 | % | ||||||||||
Market share(5)
|
29.5 | % | 29.7 | % | 29.78 | % | 29.8 | % | 30.9 | % |
(1)
|
Data includes public telephone lines.
|
(2)
|
Churn is the number of customers that leave us during the year, calculated as a percentage of the simple average
|
(3)
|
Number of people within our region that can access our cellular telecommunications signal.
|
(4)
|
Number of cellular lines in service in our region, including those of our competitors, divided by the population of our Region.
|
(5)
|
Percentage based on all lines in service in our region at year-end.
|
|
·
|
services are to be provided using the 1800 MHz frequency bands (“D” band, “E” band and “M” band), 1900 MHz frequency bands (“L” band), 1900–2100 MHz frequency bands (“F” band, “G” band, “H” band, “I” band and “J” band) and extension bands;
|
|
·
|
each operator may optionally provide domestic and international long-distance services in its licensed area;
|
|
·
|
existing cellular service providers as well as new entrants into the Brazilian telecommunications market can bid for “D” band, “E” band, “M” band, “L” band, “F” band, “G” band, “I” band and “J” band licenses;
|
|
·
|
according to the Invitation Document 002/2010/ANATEL, a single SMP operator in one geographic area will only be authorized to have radio frequency bands up to the total maximum limit of 80 MHz or 85 MHz, depending on the circumstances, while observing the following limits for each band:
|
|
·
|
as a result, Nextel and other new 3G operators were given preferential status in the “H” band ((10 + 10) MHz) segment of the auction. Vivo, TIM and Claro were eligible to enter bids for the remaining SMP frequencies.
Oi acquired the band “H” lot 8 (for the cities in the states of Mato Grosso do Sul and Goiás). CTBC acquired the band “H” lot 5 (for the cities in the state of Minas Gerais) and Nextel acquired the other band “H” lots; and
|
|
·
|
a cellular operator, or its respective controlling shareholders, may not have geographical overlap between licenses.
|
|
·
|
“M” band (1800 MHz) of the Federal District and the states of Paraná, Santa Catarina, Rio Grande do Sul, Goiás, Tocantins, Mato Grosso do Sul, Mato Grosso, Rondônia and Acre;
|
|
·
|
1800 MHz extension band of the state of São Paulo;
|
|
·
|
“D” band (1800 MHz) of the cities of Pelotas, Morro Redondo, Capão do Leão and Turuçu in the state of Rio Grande do Sul;
|
|
·
|
“E” band (1800 MHz) of the states of Alagoas, Ceará, Paraíba, Piauí, Pernambuco and Rio Grande do Norte;
|
|
·
|
900 MHz extension band of the state of Rio de Janeiro;
|
|
·
|
900 MHz extension band of the state of Espírito Santo;
|
|
·
|
900 MHz extension band of the states of Goiás, Tocantins, Mato Grosso do Sul, Mato Grosso, Rondônia, Acre and the Federal District, with the exception of the cities of Paranaíba, in the state of Mato Grosso do Sul, and the cities of Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and São Simão, in the state of Goiás;
|
|
·
|
900 MHz extension band of the state of Rio Grande do Sul, with the exception of the cities of Pelotas, Morro Redondo, Capão do Leão and Turuçu;
|
|
·
|
900 MHz extension band of the cities of the registration area number 43 of the state of Paraná, with exception of the cities of Londrina and Tamarana;
|
|
·
|
900 MHz extension band of the states of Paraná and Santa Catarina, with exception of the cities of the registration area number 43 of the state of Paraná and the cities of Londrina and Tamarana;
|
|
·
|
900 MHz extension band of the state of Bahia;
|
|
·
|
900 MHz extension band of the state of Sergipe;
|
|
·
|
900 MHz extension band of the states of Amazonas, Amapá, Maranhão, Pará and Roraima;
|
|
·
|
1800 MHz extension band of the state of São Paulo, with exception of the cities of the metropolitan region of São Paulo and the cities where CTBC Telecom operates in the state of São Paulo;
|
|
·
|
1800 MHz extension band of the states of Amazonas, Amapá, Maranhão, Pará and Roraima;
|
|
·
|
1800 MHz extension band of the city of Paranaíba, in the state of Mato Grosso do Sul;
|
|
·
|
1800 MHz extension band of the cities of Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and São Simão, in the state of Goiás;
|
|
·
|
other 1800 MHz extension band of the cities of Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and São Simão, in the state of Goiás;
|
|
·
|
1800 MHz extension band of the states of Rio de Janeiro, Espírito Santo, Bahia and Sergipe;
|
|
·
|
1800 MHz extension band of the states of Amazonas, Amapá, Maranhão, Pará and Roraima;
|
|
·
|
1800 MHz extension band of the states of Alagoas, Ceará, Paraíba, Piauí, Pernambuco and Rio Grande do Norte;
|
|
·
|
1800 MHz extension band of the city of Paranaíba, in the state of Mato Grosso do Sul, and the cities of Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and São Simão, in the state of Goiás;
|
|
·
|
1800 MHz extension band of the cities of Londrina and Tamarana, in the state of Paraná; and
|
|
·
|
800 MHz (Band A in the North), 1800 MHz (extension subbands in Region II, within the states of São Paulo and Espírito Santo, Ceará and Pernambuco) and TDD (National coverage).
|
|
·
|
a prohibition on holding more than 20% of the voting shares in any other public regime company, unless previously approved by ANATEL, according to ANATEL’s Resolution No. 101/99; and
|
|
·
|
a prohibition on public regime companies to provide similar services through related companies.
|
|
·
|
STFC Local Areas Rules: On February 9, Resolution No. 560/2011 was published approving the STFC Local Area Rules. This regulation establishes guidelines and criteria for setting Local Areas for Fixed STFC for the use of the general public.
|
|
·
|
Resolution No. 573/2011: On October 10, ANATEL authorized the free establishment of prices for Long-distance International calls (LDI). The resolution sets out the implementation of the new regime from January 1, 2016 and before that, providers must demonstrate compliance with standards set forth in the resolution.
|
|
·
|
Prior Consent for transfer of STFC licenses outside the State of São Paulo for Vivo: ANATEL granted on August 18 prior consent to the transfer from the Company to Vivo of the concessions for the provision of local STFC services, domestic long-distance and international long-distance services in Regions I and II of the General Plan of Grants (outside São Paulo). On September 8, 2011, the extract of the authorization term was published on the D.O.U. for the transfer of STFC licenses in Regions I and II to Vivo. As a result, Vivo began to offer the STFC through the GSM technology across its area, except for the State of São Paulo.
|
|
·
|
Regulation of the Special Class Individual Access (AICE): Public Consultation No. 11/2011 is related to the proposal for AICE, which regulates the provision of compulsory service plans for low-income families. The consultation seeks to amend Resolution No. 427/2005 by modifying the offer of phones with a monthly fee for about R$9.50 (without tax) for low-income clients registered in the social program “
Bolsa Família
.” The main purpose of the consultation is the progressive universalization of access to the STFC through individualized specific conditions for use, special rates and methods of payment.
|
|
·
|
Standard Calculation for the Transfer Factor X: ANATEL, as provided in the General Telecommunications Law and in specific legislation, proposed through Public Consultation No. 39 the review of the STFC productivity factor, known as Factor X, which acts as a mechanism to encourage greater production efficiency by transferring to the client part of the economic gains resulting from the modernization, expansion or rationalization of services, as well as new alternative revenues to STFC providers. The main proposed changes are: (i) the Factor X calculation method by type of service and company; (ii) the Recomposition Factor (
Fator de Recomposição
) of the margin applied to local mode considers the net additions of AICE and other plans related to regulatory requirements, and the concept of Economic Value Added (EVA) that considers the cost of capital of the company in calculating the Factor X, and a model based on future projections (forward looking).
|
|
·
|
General Plan of Competition (PGMC): another important action of ANATEL to maintain competition in the telecommunications industry, and in line with the framework of the “General Plan for the Update of Telecommunications Regulation in Brazil” (PGR), consisted of publication of a public consultation with the aim of establishing a General Plan of Competition (PGMC). Responses to this consultation were originally accepted until October 8, 2011 and extended until October 23, 2011. The PGMC was proposed by ANATEL to organize a control scheme for the actions of economic agents in the telecommunications industry, imposing, removing or altering obligations on providers, according to their market power, with a view to increasing competition. The consultation highlighted the reservation of network capacity for sharing and provided criteria for determination of
significant market power
in the provision of interconnection services on mobile networks.
|
|
·
|
Review of Regulation of Multimedia Communication Service (SCM): A revision of the SCM was discussed by Public Consultation No. 45/2011. The proposal deals with the supply of the SCM and issues related to network neutrality, storage of subscriber data and other obligations for the provision of service.
|
|
·
|
Public Consultation No. 11: Regulation of the Special Class of Individual Access (AICE), which regulates the provision of compulsory service plan for low-income families. The deadline for submissions was April 30, 2011.
|
|
·
|
Public Consultation No. 16: Proposal for a regulation aimed at managing the quality of fixed-line service (RGQ STFC). The deadline for submissions was May 6, 2011.
|
|
·
|
Public Consultation No. 23: Proposal for Public Bidding for the Issuance of Authorizations for the Use of Radio in Sub-band segments of 3,400 MHz to 3,600 MHz for the SCM, the STFC for the General Public and SMP. The deadline for submissions was July 27, 2011.
|
|
·
|
Public Consultation No. 26: Proposal for the new General Plan of Quality for Subscription Television Services, to be called the Quality Management Regulation for Providers of Subscription Television Services. The deadline for submissions was July 7, 2011.
|
|
·
|
Public Consultation No. 31: Regulation of Cable TV Service. The deadline for submissions was July 26, 2011.
|
|
·
|
Public Consultation No. 32: Proposal for a term of authorization to operate the cable TV service (current concessions). The deadline for submissions was July 26, 2011.
|
|
·
|
Public Consultation No. 33: Proposal for a term of authorization to operate the service Cable TV (new grants). The deadline for submissions was July 26, 2011.
|
|
·
|
Public Consultation No. 39: Standard methodology for the calculation of transfer factor “X,” applied tariff adjustments in the STFC. The deadline for submissions was September 2, 2011.
|
|
·
|
Public Consultation No. 41: Proposed General Plan of Competition (PGMC). The deadline for submissions was October 23, 2011.
|
|
·
|
Public Consultation No. 45: Proposed Amendment to Regulation of the Communication Services and Annexes I and III of the Rules of Price Collection for the Right of Public Telecommunications Services Exploration and Exploitation of the Satellite Rights. The deadline for submissions was September 16, 2011.
|
|
·
|
Public Consultation No. 23: Proposal for Bidding for Shipment Authorization for Use of Radio in Sub-band segments of 3,400 MHz to 3,600 MHz for the SCM, the STFC and SMP. This Public Consultation’s period was extended until July 25, 2011. The corresponding rule was not yet published by ANATEL.
|
|
·
|
Public Consultation No. 39: Standard methodology for the calculation of transfer factor “X,” applied tariff adjustments in the STFC. This Public Consultation’s period ended February 9, 2011. The corresponding rule was not yet published by ANATEL.
|
|
·
|
Public Consultation No. 45: Proposal to Amend the Regulation of Communication Services and Annexes I and III of the Rules of Price Collection of the Right to Public Telecommunications Services Exploration and Exploitation of the Right to Satellite. This Public Consultation’s period ended September 16, 2011. The corresponding rule was not yet published by ANATEL.
|
|
·
|
the new General Regulation of Interconnection (“
Regulamento Geral de Interconexão
”–Resolution No. 410/2005, or “RGI”);
|
|
·
|
the Regulation of Separation and Allocation of Costs (Resolution No. 396/2005);
|
|
·
|
the Regulation of Industrial Exploration of Dedicated Lines (“
Exploração Industrial de Linha Dedicada
”–Resolution No. 402/2005, or “EILD”). In December 2010, ANATEL published Public Consultation No. 50/2010, with the Proposal for Revision of the Resolution No. 402/2005;
|
|
·
|
the Regulation of Remuneration of Use of SMP Providers Networks (Resolution No. 438/2006). In November 2010, ANATEL published Resolution No. 549/2010 modifying Resolution No. 438/2006 and providing that the groups that include SMP operators with participation rates lower than 20% in the market of mobile telephony combined in each one of the regions of the General Plan of Authorizations of SMP (PGA-SMP), are considered groups who lack significant market power in the offer of mobile interconnection, in their respective areas of authorization;
|
|
·
|
the Regulation of Fixed and Wireless Number Portability (Resolution No. 460/2007, effective March 2009);
|
|
·
|
the new Regulation of SMP (Resolution No. 477/2007, effective February 13, 2008);
|
|
·
|
the Regulation of Terms of Separation and Allocation of Costs (Resolutions No. 480/2007, 483/2007 and 503/2008);
|
|
·
|
the general plan of update of the regulation of the telecommunications in Brazil (“
Plano Geral de Atualização da Regulamentação das Telecomunicações do Brasil
” – Resolution No. 516/2008, or “PGR”);
|
|
·
|
the general norms of customer interaction service by telephone, with the objective of improving the quality of services (Decree No. 6523/2008);
|
|
·
|
the Methodology of the Calculation of the WACC (Resolution No. 535/2009);
|
|
·
|
amendment of the regulation of the 3400 MHz to 3600 MHz band, allowing it to apply additionally to mobile services (Resolution No. 537/2010);
|
|
·
|
the regulation of the Broadband Power Line (BPL), allowing this service to apply to multimedia communication (SCM) (Resolution No. 527/2009);
|
|
·
|
related Invitation Document No. 002/2007/SPV-ANATEL regarding the auction organized in December 2007 of new licenses for the 1900-2100 MHz radio frequency bands (3G licenses), denominated bands “F,” “G,” “I” and “J,” which stated that, within a maximum allowed period of eighteen months from the publication of the Terms of Authorization (it occurred on April 30, 2008), the authorizations resulting from this auction would be combined with the existing SMP authorizations of the bid winners when pertaining to the same region of the general authorization plan of SMP. In accordance with this Invitation Document, in January 2010, ANATEL published an act determining the unification of our SMP authorizations in Regions II (states of Paraná, Santa Catarina, Rio Grande do Sul, Goiás, Tocantins, Mato Grosso do Sul, Mato Grosso, Rondônia, Acre and the Federal District) and III (state of São Paulo) of the PGA-SMP, with only one SMP authorization for each of these Regions (Terms of Authorization No. 005/2010 and 006/2010, signed in January 2010, for Region II and III, respectively). Vivo acquired spectrum licenses in band “J” in regions where it possesses SMP licenses. Moreover, the Invitation Document modified the rule for the renewal of radio frequency licenses and requires the inclusion in the calculation of the operating profits both the profits arising from remuneration for the use of the SMP network and the profits of the service plans;
|
|
·
|
related Invitation Document No. 002/2010/ANATEL, regarding the auction organized in December 2010 of new licenses for the 1900-2100 MHz radio frequency band denominated the “H” band, for extension bands and for available frequencies at “A,” “D,” “E,” “M” and TDD bands, which modified the rule for the renewal of radio frequency licenses and requires the inclusion in the calculation of the operating profits both the profits arising from remuneration for the use of the SMP network and the profits of the service plans;
|
|
·
|
the regulation for the exploration of SMP by means of Virtual Network, which makes possible the creation of the “agent” and the Authorized of Mobile Virtual Network (Resolution No. 550/2010). In accordance with this regulation approved by ANATEL, Mobile Virtual Network Operators may operate either as agents or as virtual network licensees. An agent represents the personal mobile service provider through the establishment of a representation agreement, which must be ratified by ANATEL. The agent’s activity is not defined as a “telecommunications service” so this is of significant interest to companies that operate in other sectors such as large retailers, banks and football teams. However, the activity of the virtual network licensee does fall within the definition of “telecommunications service” and is thus subject to all applicable rules;
|
|
·
|
the assignment of the bands of 451 MHz to 458 MHz and 461 MHz to 468 MHz to the Personal Mobile Service, Fixed Switched Telephone Service and to the Multimedia Communication Service, for access to the services of telephony and data in broadband, particularly in rural areas (Resolution No. 558/2010);
|
|
·
|
the assignment of the bands of 2500 MHz to 2690 MHz to the Personal Mobile Service and Fixed Switched Telephone beyond Multimedia Communication Service and Pay Television by means of Multichannel Multipoint Distribution Service (MMDS) for which it was previously assigned (Resolution No. 544/2010);
|
|
·
|
the regulation for evaluation of the efficiency of use of the radio frequency spectrum (Resolution No. 548/2010); and
|
|
·
|
the addition of a ninth digit in the numbers of the mobile telephones of area 11, raising the capacity of numeration in the metropolitan region of São Paulo and eliminating definitively the problem of scarcity of numeration in this area (Resolution No. 553/2010).
|
·
|
with an aim to restructure the process of assessing the quality of mobile service, with the inclusion of new processes and measurement of new indicators to verify the quality of mobile broadband and the quality perceived by the user, and the modernization of existing indicators, ANATEL issued on October 28, 2011 (published in the D.O.U. on October 31, 2011), Resolution No. 575/2011, which approved the Regulation for the Management of Quality of Provision of Personal Mobile Service (SMP-RGQ). The new Regulation innovates by providing assessments of the network connection and their respective data transmission rate, especially aspects of availability, stability and connection speed data network. In addition, the resolution established the formation of “GIPAQ” (Group Deployment Process Quality Measurement), which will be responsible for implementing the processes on the quality indicators for the “Guaranteed Instant Transmission Rate” and “Guaranteed Average Transmission Rate.” The methodology and procedures regarding the collection of indicator data for data connections will be defined by this group, composed of providers, ANATEL and a “Quality Measurement Authority” (EAq), which shall be responsible for implementing these processes and will be hired by the service providers until February 29, 2012. All costs associated with implementing the new procedures for measuring quality will be paid by providers of the SMP and the impacts of the Regulations are still being evaluated, mainly its financial aspect. Also, through the issuance of Resolution No. 574/2011, which approved the Rules of Quality Management (SCM-SCM RGQ) on October 28, 2011 (published in the D.O.U. on October 31, 2011), ANATEL set targets for service quality, as well as updated definitions for indicators and their calculation methods.
|
·
|
the Regulation on criteria for adjustment of tariffs for calls from the STFC involving access the SMP or SME, approved by Resolution No. 576/2011, dated October 28, 2011, establishes criteria for the gradual readjustment of VCs until 2014. With respect to VU-M fees, for the period before the effectiveness of the cost model established by this Resolution, ANATEL defined transition rules if no pact is reached regarding the VU-M fees. A reduction factor (R) to be applied in the formula for readjustment of the calls involving the PSTN access the Personal Mobile Service.
|
|
·
|
VCt ≤VCt0 x (1-R-FA) x (ISTt / ISTt0), where R corresponds to the “Reduction Factor” (
Fator de Redução
) and FA to the “Damping Factor” (
Fator de Amortecimento
), the percentage of which depends on inflation in the corresponding period.
|
|
·
|
for the first readjustment, ANATEL will apply a Reduction Factor of 18%;
|
|
·
|
for readjustments to follow, ANATEL will apply a Reduction Factor of 12%; and
|
|
·
|
if the cost model has not yet produced results, the third readjustment will be subject to a Reduction Factor of 10%.
|
|
·
|
Vivo Own Stores: focused on individual clients and located on strategic points, our own stores provide a highly trained team built up to guarantee the best sales experience for the customer. The main drive of this channel is innovation. As a result, most stores have available self assistance services for value added services and recharges. We also offer special treatment for Premium clients with scheduled appointments via the Internet to assure “no waiting in line.”
|
|
·
|
Indirect channels: are divided in two types: resale and retail. The resale channel is composed by certified companies in the telecommunications segments providing our full portfolio and an adequately sized network for our services to attend the geographic dimensions of the market. Our presence is also established in the retail channel especially for prepaid, recharges and data services.
|
|
·
|
Recharge channels: are represented by small companies in various market sectors throughout the country. They became the largest channel for prepaid users and provide new means of virtual recharge for customers.
|
|
·
|
Telesales: sales through active and passive telemarketing call centers, employing highly trained sales associates, focused on fixed and data services.
|
|
·
|
Internet: “Portal Telefônica,” with online information on our products and services specifically targeted toward our corporate clients; we also offer the option of selling services via online chat through highly trained partners and appropriate tools.
|
|
·
|
Online Store: currently offers mobile services to clients with home delivery, payment in installments and different prices of handsets. In 2012, we will launch a new online store covering all the services portfolio of fixed and mobile, and offering improvements in navigation, quality purchase, reduction in SLA, etc. supported by a communications marketing strategy.
|
|
·
|
Door-to-door sales: aiming to approach corporate and individual clients, we dispose physical channels of assistance, such as door-to-door sales of services by outsourced small companies and own team consultants. Main focus in fixed and data services.
|
|
·
|
Person-to-person sales: our business management team offers customized sales services, ensuring high customer loyalty and a strong customer relationship resulting from customized consulting telecommunication and IT services and technical and commercial support.
|
|
·
|
Areas 1 & 2
: 9 areas in the state of São Paulo;
|
|
·
|
Area 3
: 5 areas, comprising 1 area in the metropolitan area of Rio de Janeiro, two areas in upstate Rio de Janeiro and two areas in the state of Espírito Santo;
|
|
·
|
Area 4
: 7 areas in the state of Minas Gerais;
|
|
·
|
Area 5
: 9 areas, comprising 6 areas in the state of Paraná and 3 areas in the state of Santa Catarina;
|
|
·
|
Area 6
: 4 areas in the state of Rio Grande do Sul;
|
|
·
|
Areas 7 & 8
: 18 areas, comprising 9 areas in Brasilia and the states of Goiás, Mato Grosso do Sul, Mato Grosso, Rondônia, Acre and Tocantins and 9 areas in the states of Amapá, Amazonas, Maranhão, Pará and Roraima;
|
|
·
|
Area 9
: 6 areas, comprised of 5 areas in the state of Bahia and 1 area in the state of Sergipe; and
|
|
·
|
Area 10
: 9 areas in the states of Pernambuco, Alagoas, Paraíba, Rio Grande do Norte, Ceará and Piauí.
|
|
·
|
Subscription fraud: type of fraud that occurs when the emission of one or more qualifications without the consent of the real “owner” of documents with the main objective of not paying the phone bill. Fraud can occur through subscription data and information from individuals or companies obtained illegally. In our mobile operation, subscription fraud showed a reduction in expenses of 14.9% as compared to the end of 2010. As for cases in our fixed operations, several actions were implemented to protect us from possible increases in litigation, by working on the analysis of cases classified in our accounts receivable with evidence of fraud. With this new guideline, we had a 51.5% increase in fraud costs compared to what was achieved in 2010.
|
|
·
|
Identity Fraud: also known as “social engineering,” the term
identity fraud
characterizes in the mobile operation the use the service provider phone channels (Call Center) with the use of real data from clients for false identification, allowing undue changes to be made in the customer’s line. We had a 78.2% reduction in financial expenses with this type of fraud compared to that achieved in the previous year.
|
C.
|
Organizational Structure
|
D.
|
Property, Plants and Equipment
|
UNRESOLVED STAFF COMMENTS
|
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|
A.
|
Operating Results
|
Inflation Rate (%) as Measured by IGP-DI(1)
|
Inflation Rate (%) as Measured by IPCA(2)
|
Inflation Rate (%) as Measured by IST(3)
|
||||||||||
December 31, 2011
|
5.0 | 6.5 | 4.9 | |||||||||
December 31, 2010
|
11.3 | 5.9 | 5.6 | |||||||||
December 31, 2009
|
(1.4 | ) | 4.3 | 2.1 | ||||||||
December 31, 2008
|
9.1 | 5.9 | 6.6 | |||||||||
December 31, 2007
|
7.9 | 4.5 | 3.2 |
(1)
|
Source: IGP-DI, as published by the
Fundação Getúlio Vargas
.
|
(2)
|
Source: IPCA, as published by the
Instituto Brasileiro de Geografia e Estatística
.
|
(3)
|
Source: IST, as published by the
Agência Nacional de Telecomunicações
.
|
|
·
|
delays in the granting, or the failure to grant, approvals for rate adjustment;
|
|
·
|
the granting of licenses to new competitors in our region; and
|
|
·
|
the introduction of new or stricter requirements for our operating concession.
|
|
·
|
regulation of quality management of SMP and SCM;
|
|
·
|
regulation of the criteria for readjustment of fees involving STFC calls involving access from the SMP or SME;
|
|
·
|
local area regulation of the STFC; and
|
|
·
|
free determination of rates for international long distance (LDI).
|
|
·
|
development of a General Competition Plan that would regulate standards for service providers with significant market power;
|
|
·
|
change in the STFC regulation;
|
|
·
|
draft regulation on the provision of STFC out of the Basic Fee Area (
Área de Tarifação Básica
), or ATB;
|
|
·
|
proposed revision of the rules of usage remuneration of providers of STFC networks;
|
|
·
|
invitation for bids for 3.5 GHz frequencies;
|
|
·
|
proposed amendment of the Regulation of Multimedia Communication Services (SCM);
|
|
·
|
proposed rules for industrial exploration of dedicated lines – EILD;
|
|
·
|
proposed regulations for the Certification of External Telecommunications Networks in regard to power protection;
|
|
·
|
review of the General Plan on Quality Targets to the STFC (PGMQ-STFC);
|
|
·
|
creation of a General Plan on Quality Targets of Television Subscription Services (PGMQ-TV);
|
|
·
|
proposal for regulation the monitoring and control of goods, rights and services linked to existing concessions;
|
|
·
|
proposed amendment of the Regulation of Inspection Powers;
|
|
·
|
proposal to amend the rules of implementation of administrative sanctions; and
|
|
·
|
calculation rules for productivity factor (Transfer Factor X).
|
|
·
|
Brazil’s economic growth and its impact on the greater demand for services;
|
|
·
|
the costs and availability of financing; and
|
|
·
|
the exchange rate between the
real
and other currencies.
|
|
·
|
Telephony services
|
|
·
|
Local: includes the sum of revenues from monthly subscription fees, installation fees, local services, public telephony and fixed-to-mobile revenues (VC1);
|
|
·
|
Domestic long-distance: includes the sum of fixed-to-mobile revenues (VC2 and VC3), public long-distance telephony and domestic long-distance;
|
|
·
|
International long-distance: includes the sum of revenues from international public telephony and international long-distance; and
|
|
·
|
Usage charges: which include measured service charges for calls, monthly fee and other similar charges;
|
|
·
|
Data Transmission and value added services
|
|
·
|
Data Transmission: includes the sum of infrastructure rental revenues and data transmission; and
|
|
·
|
Charges for call forwarding, call waiting, text messaging (SMS), call blocking and Data Services, such as WAP and ZAP, downloads and MMS services, which are charged only when the customer’s plan excludes these services.
|
|
·
|
Interconnection charges
|
|
·
|
Interconnection charges (or network usage charges) are amounts we charge other cellular and fixed-line service providers for the use of our network;
|
|
·
|
Pay TV
|
|
·
|
Includes cable TV services, through satellite, cable or MMDS technology (multichannel multipoint distribution service);
|
|
·
|
Sale of goods and equipment
|
|
·
|
The sale of wireless devices and accessories;
|
|
·
|
Other Services
|
|
·
|
Other services include integrated solution services offered to residential and corporate clients, such as Internet access, private network connectivity and leasing of computer equipment, and
|
|
·
|
Other telecommunications services such as extended service, detects, voice mail, cellular blocker, among others.
|
Year ended December 31,
|
Percent change
|
|||||||||||
2011
|
2010
|
2011-2010 | ||||||||||
(in millions of
reais
)
|
||||||||||||
Net operating revenue
|
29,128.7 | 15,798.2 | 84.4 | % | ||||||||
Cost of services and goods
|
(14,728.2 | ) | (8,844.8 | ) | 66.5 | % | ||||||
Gross profit
|
14,400.5 | 6,953.4 | 107.1 | % | ||||||||
Operating expenses:
|
||||||||||||
Selling
|
(7,259.7 | ) | (2,964.6 | ) | 144.9 | % | ||||||
General and administrative
|
(1,785.7 | ) | (738.8 | ) | 141.7 | % | ||||||
Other operating revenues, net
|
442.2 | 312.4 | 41.5 | % | ||||||||
Total operating expenses, net
|
(8,603.2 | ) | (3,391.0 | ) | 153.7 | % | ||||||
Equity in earnings (losses) of associates
|
– | 2.9 | (100.0 | )% | ||||||||
Operating income before financial expense, net
|
5,797.4 | 3,565.3 | 62.6 | % | ||||||||
Net financial expenses
|
(139.7 | ) | (120.7 | ) | 15.7 | % | ||||||
Net income before income and social contribution taxes
|
5,657.7 | 3,444.6 | 64.2 | % | ||||||||
Income and social contribution taxes
|
(1,295.5 | ) | (1,045.8 | ) | 23.9 | % | ||||||
Net income
|
4,362.2 | 2,398.8 | 81.8 | % | ||||||||
Net income attributable to:
|
||||||||||||
Shareholders of company
|
4,355.3 | 2,398.8 | 81.6 | % | ||||||||
Noncontrolling interests
|
6.9 | – | 100.0 | % | ||||||||
Net income for year
|
4,362.2 | 2,398.8 | 81.8 | % |
Year ended December 31,
|
Percent change
|
|||||||||||
2011
|
2010
|
2011-2010 | ||||||||||
(in millions of
reais
)
|
||||||||||||
Telephony services
|
24,331.3 | 15,366.0 | 58.3 | |||||||||
Data transmission and value added services
|
10,929.3 | 5,028.4 | 117.4 | |||||||||
Interconnection charges
|
3,785.0 | 523.8 | 622.6 | |||||||||
Pay TV
|
865.4 | 587.4 | 47.3 | |||||||||
Sale of goods and equipment
|
2,135.2 | 166.5 | 1,182.4 | |||||||||
Other services
|
1,026.9 | 936.9 | 9.6 | |||||||||
Gross operating revenue
|
43,073.1 | 22,609.0 | 90.5 | |||||||||
Value-added and other indirect taxes
|
(13,944.4 | ) | (6,810.8 | ) | 104.7 | |||||||
Net operating revenues
|
29,128.7 | 15,798.2 | 84.4 |
Year ended December 31,
|
Percent change
|
|||||||||||
2011
|
2010
|
2011-2010 | ||||||||||
(in millions of
reais
)
|
||||||||||||
Cost of goods sold
|
(1,343.1 | ) | (155.7 | ) | 762.6 | % | ||||||
Depreciation and amortization
|
(3,582.6 | ) | (1,687.4 | ) | 112.3 | % | ||||||
Outside services, concession renewal fee and other
|
(2,616.0 | ) | (1,963.0 | ) | 33.3 | % | ||||||
Interconnection charges
|
(4,537.1 | ) | (4,176.7 | ) | 8.6 | % | ||||||
Rent, insurance, condominium fees, and leased lines
|
(910.5 | ) | (364.3 | ) | 149.9 | % | ||||||
Personnel
|
(380.1 | ) | (257.4 | ) | 47.7 | % | ||||||
Taxes
|
(1,358.8 | ) | (240.3 | ) | 465.5 | % | ||||||
Cost of services and goods
|
(14,728.2 | ) | (8,844.8 | ) | 66.5 | % |
Year ended December 31,
|
Percent change
|
|||||||||||
2011
|
2010
|
2011-2010 | ||||||||||
(in millions of
reais
)
|
||||||||||||
Selling expenses
|
(7,259.7 | ) | (2,964.6 | ) | 144.9 | |||||||
General and administrative expenses
|
(1,785.7 | ) | (738.8 | ) | 141.7 | |||||||
Other net operating income
|
442.2 | 312.4 | 41.5 | |||||||||
Total
|
(8,603.2 | ) | (3,391.0 | ) | 153.7 |
Year ended December 31,
|
Percent Change
|
|||||||||||
2010
|
2009
|
2010-2009
|
||||||||||
(in millions of
reais
, except percentages)
|
||||||||||||
Gross Operating Revenue
|
22,609.0 | 23,212.5 | (2.6 | ) | ||||||||
Fixed Telephony
|
15,366.0 | 16,234.0 | (5.3 | ) | ||||||||
Local
|
10,356.8 | 11,129.0 | (6.9 | ) | ||||||||
Domestic long-distance
|
4,912.7 | 4,990.9 | (1.6 | ) | ||||||||
International Long-distance
|
96.5 | 114.1 | (15.4 | ) | ||||||||
Data Transmission
|
5,028.4 | 4,685.4 | 7.3 | |||||||||
Interconnection
|
523.8 | 487.8 | 7.4 | |||||||||
Pay TV
|
587.4 | 600.3 | (2.2 | ) | ||||||||
Others
|
1,103.4 | 1,205.0 | (8.4 | ) |
(1)
|
Gross operating revenue, but net of discounts granted.
|
Year ended December 31,
|
Pecent change
|
|||||||||||
2010
|
2009
|
2010 - 2009
|
||||||||||
(in millions of
reais
, except percentages)
|
||||||||||||
Operating Expenses
|
(12,235.9 | ) | (12,457.4 | ) | (1.8 | ) | ||||||
Interconnection expenses
|
(4,519.0 | ) | (4,236.0 | ) | 6.7 | |||||||
Personnel expenses
|
(988.6 | ) | (793.9 | ) | 24.5 | |||||||
Outsourcing expenses
|
(4,096.9 | ) | (3,657.9 | ) | 12.0 | |||||||
Bad debt provision
|
(386.3 | ) | (564.6 | ) | (31.6 | ) | ||||||
Taxes
|
(342.9 | ) | (343.2 | ) | (0.1 | ) | ||||||
Other operating revenue (expenses)
|
11.3 | (356.3 | ) | (103.2 | ) | |||||||
Depreciation and amortization
|
(1,913.5 | ) | (2,505.5 | ) | (23.6 | ) |
B.
|
Liquidity and Capital Resources
|
·
|
the servicing of our indebtedness;
|
·
|
capital expenditures; and
|
·
|
the payment of dividends.
|
Debt
|
Currency
|
Annual interest rate payable
|
Maturity
|
Principal amount outstanding (in thousands of
reais
)
|
||||
Loan and Financing BNDES
|
R$
|
TJLP + 1.48% to TJLP + 9.0%
|
2019
|
3,063.2
|
||||
Loan and Financing BNDES
|
R$
|
4.5% to 5.5%
|
2020
|
155.0
|
||||
Loan and Financing BNDES
|
UMBNDES
|
5.97%
|
2019
|
194.3
|
||||
Loan and Financing BNB
|
R$
|
10.0%
|
2016
|
438.3
|
||||
Working Capital Loan
|
R$
|
108.90% of the CDI
|
2012
|
91.6
|
||||
Mediocredito
|
US$
|
1.75%
|
2014
|
14.0
|
||||
EIB
|
US$
|
4.18% to 4.47%
|
2015
|
708.0
|
||||
Resolução 4131
|
US$
|
4.10%
|
2013
|
282.2
|
||||
Debentures
|
R$
|
106% to 112% of the CDI
|
2013
|
1,101.1
|
||||
Debentures
|
R$
|
IPCA+ 0.5% to IPCA+7.0%
|
2021
|
155.3
|
||||
Others
|
R$
|
2014
|
0.9
|
Debt
|
Currency
|
Annual interest rate payable
|
Maturity
|
Principal amount outstanding (in thousands of
reais
)
|
Total debt
|
6,204.0
|
|||||||
Current
|
1,457.0
|
|||||||
Long term
|
4,746.9
|
Standards and Amendments to Standards
|
Application required: fiscal years beginning from
|
||
Amendments to IAS 1
|
Presentation of items of other comprehensive income
|
July 1, 2012
|
|
Amendments to IAS 12
|
Deferred tax: Recovery of underlying assets
|
January 1, 2012
|
|
IFRS 9
|
Financial instruments
|
January 1, 2015
|
|
IFRS 10
|
Consolidated Financial Statements
|
January 1, 2013
|
|
IFRS 11
|
Joint Arrangements
|
January 1, 2013
|
|
IFRS 12
|
Disclosure of Interests in Other Entities
|
January 1, 2013
|
|
IFRS 13
|
Fair Value Measurement
|
January 1, 2013
|
|
IAS 19 revised
|
Employee Benefits
|
January 1, 2013
|
|
IAS 27 revised
|
Consolidated and Separate Financial Statements
|
January 1, 2013
|
|
IAS 28 revised
|
Investments in Associates and jointly controlled companies
|
January 1, 2013
|
|
Amendments to IFRS 7
|
Disclosure–transfers of financial assets
|
July 1, 2011
|
|
Amendments to IFRS 7
|
Disclosure–offsetting of financial assets and financial liabilities
|
January 1, 2013
|
|
Amendments to IAS 32
|
Offsetting Financial Assets and Financial Liabilities
|
January 1, 2014
|
R&D investments
|
2011
|
2010
|
2009
|
|||||||||
(in millions of
reais
)
|
||||||||||||
Development
|
44.6 | 12.5 | 11.0 | |||||||||
Innovation (business incubator and tests)
|
1.3 | 6.8 | 4.1 | |||||||||
Total
|
45.9 | 19.3 | 15.1 |
·
|
permission to use the trademark name “Telefônica” and all names derived from “Telefônica”;
|
·
|
our name “Telefônica Brasil S.A.”;
|
·
|
our commercial brands, “Super 15” for long-distance services and “Speedy” for broadband products, “Telefónica TV Digital” for pay television service, “DUO” for telephone and broadband service and “TRIO” for telephone, broadband and Digital TV service, and
|
·
|
our commercial brands for mobile services rendered by Vivo, such as, “Vivo,” “ Meu Vivo,” “Vivo Empresas,” “Vivo Celular,” among others.
|
D.
|
Trend Information
|
E.
|
Off-balance-Sheet Arrangements
|
F.
|
Tabular Disclosure of Contractual Obligations
|
Total
|
Less than 1 year
|
1-3 years
|
4-5 years
|
After 5 years
|
||||||||||||||||
(In thousands of
reais
, as of December 31, 2011)
|
||||||||||||||||||||
Contractual obligations
|
||||||||||||||||||||
Long-term debt (1)
|
6,203,959 | 1,457,037 | 2,894,298 | 1,189,987 | 662,637 | |||||||||||||||
Pension and other post retirement benefits
|
308,893 | 5,406 | 48,743 | 48,743 | 206,001 | |||||||||||||||
Other long-term obligations including leases
|
8,749,794 | 1,227,224 | 2,495,447 | 2,959,148 | 2,067,975 |
Total
|
Less than 1 year
|
1-3 years
|
4-5 years
|
After 5 years
|
||||||||||||||||
(In thousands of
reais
, as of December 31, 2011)
|
||||||||||||||||||||
Total contractual cash obligations
|
15,262,646 | 2,689,667 | 5,438,488 | 4,197,878 | 2,936,613 | |||||||||||||||
Commercial commitments
|
||||||||||||||||||||
Suppliers
|
6,081,611 | 6,081,611 | – | – | – | |||||||||||||||
Other commercial commitments
|
– | – | – | – | – | |||||||||||||||
Total commercial commitments
|
6,081,611 | 6,081,611 | – | – | – |
|
(1)
|
Includes interest payments.
|
Amount
|
||||
Year ending December 31,
|
(in thousands of
reais
, as of December 31, 2011)
|
|||
2013
|
1,798,058 | |||
2014
|
1,096,240 | |||
2015
|
916,949 | |||
2016
|
273,038 | |||
2017
|
220,109 | |||
2018 and forward
|
442,528 | |||
Total
|
4,746,922 |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
A.
|
Directors and Senior Management
|
Name
|
Position
|
Date of Appointment
|
Antonio Carlos Valente da Silva
|
Chairman
|
April 07, 2010
|
Santiago Fernández Valbuena
|
Vice-Chairman
|
November 7, 2011(**)
|
Antonio Gonçalves Oliveira
|
Director
|
November 7, 2011(**)
|
Eduardo Navarro de Carvalho
|
Director
|
November 7, 2011 (**)
|
Fernando Abril-Martorell Hernández
|
Director
|
April 7, 2010
|
Fernando Xavier Ferreira
|
Director
|
April 7, 2010
|
Francisco Javier de Paz Mancho
|
Director
|
April 7, 2010
|
Iñaki Urdangarin
|
Director
|
April 7, 2010
|
José Fernando de Almansa Moreno-Barreda
|
Director
|
April 7, 2010
|
José Manuel Fernandez Norniella
|
Director
|
May 19, 2010 (*)
|
Luciano Carvalho Ventura
|
Director
|
April 7, 2010
|
Luis Bastida Ibarguen
|
Director
|
April 7, 2010
|
Luis Fernando Furlan
|
Director
|
April 7, 2010
|
Narcís Serra Serra
|
Director
|
April 7, 2010
|
Paulo César Pereira Teixeira
|
Director
|
November 7, 2011 (**)
|
Roberto Oliveira de Lima
|
Director
|
November 7, 2011 (**)
|
(*)
|
The members of the Board of Directors have the mandate until the ordinary general meeting of 2013.
|
(*)
|
The Board member José Manuel Fernandez Norniella was appointed by the Board of Directors in May 19, 2010, as provided by Article 150 of Law 6,404/76, replacing Mr. Juan Carlos Ros Brugueras. His election was ratified at the General Shareholders’ Meeting of August 12, 2010.
|
(**)
|
The Board members Santiago Fernández Valbuena, Antonio Gonçalves Oliveira, Eduardo Navarro de Carvalho, Paulo César Pereira Teixeira and Roberto Oliveira de Lima were appointed by the Board of Directors at a meeting dated November 07, 2011, as provided by Article 150 of Law 6,404/76.
|
Name
|
Position
|
Date of Appointment
|
Antonio Carlos Valente da Silva
|
Chief Executive Officer
|
May 19, 2010
|
Gilmar Roberto Pereira Camurra
|
Chief Financial Officer and Investor Relations Officer
|
May 19, 2010
|
Paulo César Pereira Teixeira
|
General and Executive Officer
|
September 13, 2011
|
Breno Rodrigo Pacheco de Oliveira
|
General Secretary and Legal Officer
|
June 14, 2011
|
Cristiane Barretto Sales
|
Comptroller
|
June 14,2011
|
B.
|
Compensation
|
C.
|
Board Practices
|
·
|
establishing our general business policies;
|
·
|
electing and removing the members of our executive committee, and establishing their responsibilities with due regard for legal and statutory provisions;
|
·
|
supervising our management and examining our corporate records;
|
·
|
calling General Shareholders Meetings;
|
·
|
approving the financial statements, management reports, proposals for allocation of the company’s results and the submission of such documents to the General Shareholders Meeting;
|
·
|
appointing and deposing external auditors;
|
·
|
determining the distribution of interim dividends;
|
·
|
determining the payment of interest on equity “ad referendum” of the General Shareholders Meeting;
|
·
|
authorizing the purchase of our shares to be cancelled or kept in treasury;
|
·
|
appointing and removing the person responsible for internal auditing;
|
·
|
approving the budget and annual business plan;
|
·
|
deliberating on the issuance of new shares by increasing the corporate capital within the limits authorized by the bylaws;
|
·
|
approving the issuance of commercial paper and depositary receipts;
|
·
|
authorizing the sale of fixed and concession-related assets;
|
·
|
approving agreements, investments and obligations in an amount greater than R$250 million that have not been approved in the budget;
|
·
|
approving employment and compensation plans, incentive policies and professional development, regulation and staffing of the Company, and the terms and conditions of collective bargaining agreements to be executed with unions representing various categories of the Company’s employees and adhesion or disassociation from pension plans, all with respect to employees of the Company; the Board of Directors can, at its own discretion, assign to the Company’s officers limits to deliberate on these matters;
|
·
|
authorizing the acquisition of interest in other companies on a definitive basis and the encumbrance and creation of lien on or sale of an equity interest;
|
·
|
authorizing the offering of ordinary nonconvertible unsecured debentures;
|
·
|
approving the organizational structure of the Company; the Board of Directors can assign to the officers limits to the exercise of such powers, subject to legal and bylaws provisions;
|
·
|
approving and modifying the internal regulations of the Board of Directors;
|
·
|
deliberating as to the issuance of warrants;
|
·
|
deliberating, by delegation of the General Shareholders Meeting, about the following aspects related to company debentures: (i) opportunity to issue, (ii) time and conditions of expiration, amortization or redemption, (iii) time and conditions of the payment of interest, of the participation in the profits and of the premium of repayment, if any, (iv) method of subscription or placement, and (v) the type of debentures;
|
·
|
approving the establishment of technical and advisory committees for advice on matters of interest to them, to elect members of such committees and approve the committees, internal regulations, which shall contain specific rules concerning their organization, functions, powers, and compensation of members;
|
·
|
authorizing the sale of property, the creation of in rem guarantees and the provision of guarantees on behalf of third parties, and setting limits on the practice of such acts by the officers;
|
·
|
establishing, as an internal regulation, the limits for the officers to authorize the disposition or encumbrance of permanent assets, including those related to public telecommunications services which are disabled or inoperable;
|
·
|
approving the Company’s participation in consortia in general, and the terms of such participation; the Board of Directors may delegate such powers to the officers and establish limits, as it seeks to develop activities in line with the Company’s purpose;
|
·
|
setting the limits for the officers to authorize the practice of reasonable gratuitous acts for the benefit of employees or the community of which the Company is a part of, including the donation of unserviceable assets to the Company; and
|
·
|
approving the creation and closure of subsidiaries of the Company, in Brazil or abroad.
|
Members
|
Alternates
|
Date Appointed
|
Flavio Stamm
|
Gilberto Lerio
|
April 11, 2012
|
Cremênio Medola Neto
|
Oswaldo Vieira da Luz
|
April 11, 2012
|
Stael Prata Silva Filho
|
Charles Edwards Allen
|
April 11, 2012
|
·
|
Control and Audit Committee;
|
·
|
Nominations, Compensation and Corporate Governance Committee; and
|
·
|
Service Quality and Marketing Committee.
|
·
|
the appointment, termination and renewal of the independent auditors, as well as the terms and conditions of the contract with the independent auditors;
|
·
|
the analysis of the company’s accounts, compliance with certain legal requirements and the adoption of generally accepted accounting principles;
|
·
|
the results of each internal and independent audit and management’s response to the auditor’s recommendations;
|
·
|
the quality and integrity of the company’s internal control systems;
|
·
|
the performance of the independent auditors, requesting opinions on the annual reports and that the main audit reports be clear and precise; and
|
·
|
any communications with the internal auditors about any significant deficiencies in our control systems and identified financial conditions.
|
Members
|
Date Appointed
|
Luis Bastida Ibarguen
|
May 19, 2010
|
Antonio Gonçalves de Oliveira
|
November 07, 2011
|
Fernando Xavier Ferreira
|
February 15, 2012
|
·
|
the appointment of executive officers for our company and our subsidiaries;
|
·
|
the parameters on compensation for our executive officers and administrators;
|
·
|
the terms and conditions of executive officers, employment agreements;
|
·
|
the review of the Board’s compensation plan and any amendments;
|
·
|
the incentive plans related to compensation;
|
·
|
the compensation policy for directors and executive officers of the company; and
|
·
|
the annual corporate governance report.
|
Members
|
Date Appointed
|
José Fernando de Almansa Moreno-Barreda
|
May 19, 2010
|
Antonio Carlos Valente da Silva
|
May 19, 2010
|
Iñaki Urdangarín
|
May 19, 2010
|
José Manuel Fernandez Norniella
|
May 19, 2010
|
Members
|
Date Appointed
|
Luciano Carvalho Ventura
|
May 19, 2010
|
Roberto Oliveira de Lima
|
November 07, 2011
|
Eduardo Navarro de Carvalho
|
February 15, 2012
|
D.
|
Employees
|
E.
|
Share Ownership
|
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
A.
|
Major Shareholders
|
Shareholder’s Name
|
Number of common shares owned
|
Percentage of outstanding common shares
|
||||||
SP Telecomunicações
|
192,595,149 | 50.47 | % | |||||
Telefónica S.A.
|
97,976,194 | 25.68 | % | |||||
Telefónica Internacional
|
58,859,918 | 15.43 | % | |||||
All directors and executive officers as a group
|
1,548 | – |
Shareholder’s Name
|
Number of preferred shares owned
|
Percentage of outstanding preferred shares
|
||||||
SP Telecomunicações
|
29,042,853 | 3.90 | % | |||||
Telefónica S.A.
|
179,862,845 | 24.17 | % | |||||
Telefónica Internacional
|
271,707,098 | 36.52 | % | |||||
All directors and executive officers as a group
|
1 | – |
B.
|
Related Party Transactions
|
C.
|
Interests of Experts and Counsel
|
FINANCIAL INFORMATION
|
A.
|
Consolidated Statements and Other Financial Information
|
·
|
administrative and judicial litigation with
Instituto Nacional da Seguridade Social
, the National Institute of Social Security, or INSS;
|
·
|
administrative and judicial proceedings relating to tax payments;
|
·
|
lawsuits brought by employees, former employees and trade unions relating to alleged infringements of labor rights; and
|
·
|
other civil suits.
|
·
|
Expansion Plan–PEX
. We are defendants in proceedings related to the possible right of individuals who purchased our shares in connection with our network expansion plan after 1996, to receive additional shares from us. These claims are in various levels of the court system. The chance of loss in such proceedings is classified on a case-by-case basis according to the facts presented in each proceeding. For the proceedings in which the chance of loss was classified as “probable,” we recorded a provision of R$26.2 million.
|
·
|
Service Complaints
. We and our subsidiaries are defendants in certain civil actions, in various court levels, regarding claims related to our services and our ordinary course of business initiated by individual customers, civil associations on behalf of customers or by the PROCON foundation, as well as by the Federal and State Public Prosecutor’s Offices. We recorded a provision of R$315.1 million for these claims. We are also defendants to civil actions in which the risk of loss is classified as “possible” in the amount of R$920.5 million.
|
·
|
Consumer Relations Claims
. We are defendants in several civil actions initiated by individual customers in which the claims are the same or very similar from to other and, when considered individually, are not material, to which we recorded a provision of R$81.5 million, calculated on the basis of on the statiscal analysis of our historical losses in such proceedings.
|
·
|
Pension Benefit Plan Spin-Off
. Sistel Participants Association in São Paulo (ASTEL) filed a public civil action against the Company, Sistel Foundation and others, claiming the annulment of the spin-off of the PBS pension benefit plan that occurred in 2000 which caused the creation of the specific TELESP–PBS pension benefit plan, and corresponding allocation of resources resulted from the technical
superavit
and fiscal contingencies existing at that time. The chance of loss is possible based on the opinion of our legal advisors. The amount involved in this public civil action cannot yet be determined until an expert appraisal report is conducted since it includes the spun-off portion of Sistel related to the telecommunication operators from the former “Telebrás System.”
|
·
|
Community Telephone Plan–PCT
. We are subject to civil public action proposals claiming the possible right for indemnity of associates and entities hired for the construction of community networks connected to the network of fixed telephony operators and have not received shares for their financial investment in the municipality of Mogi das Cruzes, involving a total amount of approximately R$197.8 million. Based on the opinion of our legal advisors, the chance of loss is possible. The appellate court has ruled in our favor and changed the lower court decision. The plaintiff filed an appeal to the Supreme Court which is awaiting resolution.
|
·
|
Services Quality Class Action
. The Public Prosecutor Office of the State of São Paulo commenced a class action suit claiming moral and property damages suffered by all consumers of telecommunication services from 2004 to 2009 due to the bad quality of service and failures of the communications system. The Public Prosecutors Office suggested a total award against the Company of R$1 billion. A judgment was rendered on April 20, 2010 imposing the payment of damages to all consumers who proved to be eligible for the award. Alternatively, if clients do not prove themselves eligible in a number compatible with the severity of the damage after a period of one year, the judgment establishes that R$60 million should be deposited in a special fund for protection of diffuse customer interests (
Fundo Especial de Defesa de Reparação de Interesses Difusos Lesados
). It is not possible to estimate how many consumers may present themselves in this procedure nor the values to be claimed by them. The parties filled an appeal and the effects of the sentence were suspended. Despite the possible degree of risk, no value amount was attributed to this action because currently we are unable to calculate the total amount to be paid by us in the event we lose and, as a result, we have not recorded any provisions.
|
·
|
Ownership of Caller ID
. Lune Projetos Especiais Telecomunicação Comércio e Ind. Ltda., a Brazilian company, filed on November 20, 2001 lawsuits against 23 wireless telecommunications operators, including TELESP Celular Participações and its subsidiaries. The lawsuits allege that those operators violated patent No. 9202624-9, related to
Equipamento Controlador de Chamadas Entrantes e do Terminal do Usuário
, or Caller ID, granted to Lune by the Brazilian Intellectual Property Agency–INPI, on September 30, 1997. Lune called on the operators to cease to provide Caller ID services and sought payment from them for the unauthorized use of the Caller ID system in an amount equivalent to the payment of fees received by such operators for use of the Caller ID system. On October 5, 2011, the law suit was judged groundless against the Phone Companies. Vivo will file an appeal due to this decision. This decision is not final, and will be tried
|
·
|
Validity of Prepaid Plan Minutes
. We and our subsidiaries, together with other Brazilian wireless telecommunications operators, are defendants in various lawsuits brought by the public prosecutor’s office and consumer protection associations challenging the imposition of a deadline for the use of purchased prepaid minutes. The plaintiffs allege that purchased prepaid minutes should not expire after any specified deadline. Conflicting decisions have been issued by the courts reviewing this matter. Although we believe that our criteria for imposing the deadline is in compliance with ANATEL’s rules, we believe, based on the opinion of outside counsel, that the likelihood of an unfavorable outcome with respect to this claim is possible
.
|
·
|
VU-M
. Global Village Telecom (GVT), a Brazilian telecommunications operator, filed a lawsuit against ANATEL and wireless telecommunications operators, including Vivo and Telemig Celular, claiming that the VU-Ms are fixed at an abusive rate and that these operators employ anticompetitive practices which are causing financial damages to the plaintiff. GVT requested a preliminary injunction to reduce the VU-Ms and a determination by a judicially appointed expert of the proper value of the VU-Ms on a “cost-based model.” GVT also seeks compensation from the wireless operators in the amount of the difference between the value currently charged by the wireless operators and the value to be declared at the final judgment. The preliminary order was initially denied, but after a renewal requested by the plaintiff, a preliminary order was granted to GVT to allow judicial deposits of the difference between R$0.2899, which must be paid to wireless operators, and the values currently charged. ANATEL and some wireless operators, including Vivo, appealed from the preliminary order to the Federal Court and the preliminary order was sustained by the Federal Court. After this last decision, ANATEL and certain wireless operators, including us, appealed to the supreme court and a final decision is still pending. Based on the opinion of our counsel, we believe that the likelihood of an unfavorable outcome with respect to this claim is possible.
|
·
|
management and the fiscal board report to the shareholders meeting that the distribution would be incompatible with the financial circumstances of the company; and
|
·
|
the shareholders ratify this decision at the shareholder’s meeting. In this case:
|
·
|
management must forward to the CVM within five days of the shareholders meeting an explanation justifying the decision at the shareholders meeting; and
|
·
|
the profits that were not distributed are to be recorded as a special reserve and, if not absorbed by losses in subsequent fiscal years, are to be paid as dividends as soon as the company’s financial situation permits.
|
·
|
reversed in the fiscal year in which the loss was anticipated, if the loss does not in fact occur; or
|
·
|
written-off if the anticipated loss occurs.
|
·
|
the positive net result of equity adjustment; and
|
·
|
earnings net from transactions or the accounting of assets and liabilities at market value which must be realized after the end of the subsequent fiscal year.
|
·
|
50% of net income (before deducting income taxes and the interest on shareholders’ equity) for the period in respect of which the payment is made, or
|
·
|
50% of the sum of retained earnings and profit reserves.
|
Year
|
Description (Dividends or Interest on Shareholders’ Equity)(1)
|
Common Shares
|
Preferred Shares
|
|||||||
(per share/in R$)
|
||||||||||
2011
|
Div/Int
|
4.783035 | 5.261339 | |||||||
2010
|
Div/Int
|
3.616248 | 3.977873 | |||||||
2009
|
Div/Int
|
2.556431 | 2.812074 | |||||||
2008
|
Div/Int
|
4.539838 | 4.993823 | |||||||
2007
|
Div/Int
|
5.247437 | 5.772180 |
(1)
|
Interest on shareholders’ equity is net of withholding taxes.
|
·
|
an initial installment of R$800 million, with payment due June 30, 2010. The actual payment occurred on April 26, 2010; and
|
·
|
the remaining portion of R$451.6 million, with payment due December 21, 2010. The actual payment occurred on December 13, 2010.
|
|
·
|
an initial installment of R$1,429 million, which payment occurred on May 20, 2011; and
|
|
·
|
the remaining portion of R$264.7 million, which payment occurred on November 3, 2011.
|
B.
|
Significant Changes
|
THE OFFER AND LISTING
|
A.
|
Offer and Listing Details
|
NYSE
|
BM&FBOVESPA
|
BM&FBOVESPA
|
||||||||||||||||||||||
HIGH
|
LOW
|
HIGH
|
LOW
|
HIGH
|
LOW
|
|||||||||||||||||||
(in US$ per ADS)
|
(in
reais
per preferred share)
|
(in
reais
per common share)
|
||||||||||||||||||||||
Year ended
|
||||||||||||||||||||||||
December 31, 2007
|
28.85 | 25.45 | 50.98 | 45.20 | 47.40 | 44.00 | ||||||||||||||||||
December 31, 2008
|
21.72 | 18.62 | 52.12 | 44.94 | 39.95 | 33.84 | ||||||||||||||||||
December 31, 2009
|
25.53 | 23.74 | 43.54 | 42.12 | 39.29 | 36.00 | ||||||||||||||||||
December 31, 2010
|
24.53 | 22.70 | 42.03 | 38.60 | 39.30 | 36.22 | ||||||||||||||||||
December 31, 2011
|
28.33 | 25.74 | 52.97 | 47.47 | 48.00 | 43.50 | ||||||||||||||||||
Year ended December 31, 2010
|
||||||||||||||||||||||||
First quarter
|
25.42 | 21.02 | 43.29 | 37.84 | 37.78 | 32.57 | ||||||||||||||||||
Second quarter
|
22.18 | 18.01 | 39.37 | 33.08 | 33.59 | 29.00 |
NYSE
|
BM&FBOVESPA
|
BM&FBOVESPA
|
||||||||||||||||||||||
HIGH
|
LOW
|
HIGH
|
LOW
|
HIGH
|
LOW
|
|||||||||||||||||||
(in US$ per ADS)
|
(in
reais
per preferred share)
|
(in
reais
per common share)
|
||||||||||||||||||||||
Third quarter
|
24.58 | 20.84 | 41.80 | 36.12 | 39.00 | 33.20 | ||||||||||||||||||
Fourth quarter
|
25.35 | 22.70 | 41.98 | 38.60 | 39.50 | 36.22 | ||||||||||||||||||
Year ended December 31, 2011
|
||||||||||||||||||||||||
First quarter
|
25.34 | 23.07 | 42.60 | 37.80 | 42.30 | 36.24 | ||||||||||||||||||
Second quarter
|
30.40 | 25.00 | 46.99 | 39.48 | 43.90 | 37.02 | ||||||||||||||||||
Third quarter
|
31.77 | 25.84 | 52.50 | 43.06 | 46.88 | 37.30 | ||||||||||||||||||
Fourth quarter
|
29.34 | 25.39 | 52.97 | 46.55 | 48.00 | 40.50 | ||||||||||||||||||
Month ended
|
||||||||||||||||||||||||
September 30, 2011
|
30.50 | 25.84 | 52.50 | 48.00 | 46.88 | 42.00 | ||||||||||||||||||
October 31, 2011
|
29.34 | 25.39 | 50.80 | 46.55 | 46.49 | 40.50 | ||||||||||||||||||
November 30, 2011
|
28.25 | 25.66 | 49.70 | 47.35 | 45.99 | 44.10 | ||||||||||||||||||
December 31, 2011
|
28.33 | 25.74 | 52.97 | 47.47 | 48.00 | 43.50 | ||||||||||||||||||
January 31, 2012
|
29.65 | 27.02 | 52.30 | 48.35 | 47.46 | 43.35 | ||||||||||||||||||
February 29, 2012
|
30.27 | 27.42 | 51.77 | 47.50 | 47.45 | 42.77 | ||||||||||||||||||
March 31, 2012
|
31.02 | 29.22 | 56.59 | 50.81 | 50.98 | 46.36 | ||||||||||||||||||
April 2012 (through April 17)
|
31.22 | 28.84 | 56.92 | 53.25 | 51.69 | 48.89 |
B.
|
Plan of Distribution
|
C.
|
Markets
|
·
|
created a disclosure policy for material facts and corporate actions;
|
·
|
created a policy for internal controls related to financial information;
|
·
|
created a Service Quality and Marketing committee;
|
·
|
created a Control and Audit committee;
|
·
|
created a Nominations, Compensation and Corporate Governance committee;
|
·
|
developed and published a company Corporate Governance Report (
Informe de Governança Corporativa
) with information regarding the corporate governance principles we follow, our shareholder structure and characteristics, the composition and competence of administrative entities, the obligations and responsibilities of administrators and equity interests held by corporate officers and administrators;
|
·
|
created a policy to denounce fraud within the Company (
Canal de Denúncias
);
|
·
|
created a policy for prior approval of contracting audit services;
|
·
|
created an internal rule of conduct relating to the securities market;
|
·
|
created an Ethics Code in respect of handling financial information; and
|
·
|
created a policy regarding communication of information to the securities market.
|
D.
|
Selling Shareholders
|
E.
|
Dilution
|
F.
|
Expenses of the Issue
|
ADDITIONAL INFORMATION
|
A.
|
Share Capital
|
B.
|
Memorandum and Articles of Association
|
·
|
an officer’s power to vote on proposals in which the officer has a personal interest;
|
·
|
an officer’s power to vote on his own compensation, even in the absence of an independent quorum;
|
·
|
age limits for retirement of officers;
|
·
|
required shareholding to qualify as a manager (officer); or
|
·
|
anti-takeover mechanisms or other procedures designed to delay, defer or prevent changes in our control.
|
·
|
preferred shares representing 10% of our total number of outstanding shares would be entitled to appoint a representative to our Board of Directors;
|
·
|
disputes among our shareholders would be subject to arbitration, if provided for in our bylaws;
|
·
|
a tender offer at a purchase price equal to fair value for all outstanding shares would be required upon a delisting or a substantial reduction in liquidity of our shares as a result of purchases by the controlling shareholders;
|
·
|
any sale of control would require the shareholders to tender for the minority shareholders’ common shares and, if provided for in our charter, for the minority shareholders’ preferred shares, at a purchase price at least equal to 80% of the price per share with voting rights paid to the controlling shareholder;
|
·
|
shareholders would be entitled to withdraw from us upon a spin-off only if it entailed a change in the corporate purpose, a reduction in mandatory dividends or the participation in a centralized group of companies;
|
·
|
the controlling shareholders, the shareholders that elect members to our Board of Directors and Fiscal Board, the members of our Board of Directors and Fiscal Board and our Executive Officers would be required to disclose any purchase or sale of our shares to the CVM and BM&FBOVESPA; and
|
·
|
we would be permitted to satisfy our information disclosure requirements through the Internet.
|
·
|
the election of one member to the Board of Directors and Fiscal Board in a straight vote;
|
·
|
bylaw modifications that seek to limit preferred shareholders’ voting rights in respect of selecting new Board members in a straight vote;
|
·
|
any agreements for the rendering of management services (including technical assistance services) between us and any foreign affiliate of our controlling shareholder;
|
·
|
resolutions amending certain provisions of our bylaws; and
|
·
|
any resolution submitted to the general shareholders meeting during our liquidation process.
|
·
|
upon sale on a stock exchange or public subscription;
|
·
|
through an exchange of shares in a public offering, with the purpose of acquiring control of another company; or
|
·
|
for the use of certain tax incentives.
|
C.
|
Material Contracts
|
D.
|
Exchange Controls
|
E.
|
Taxation
|
·
|
Gains on the disposition of preferred shares obtained upon cancellation of ADSs are not taxed in Brazil if the proceeds are remitted abroad within five business days of cancellation, unless the investor is a resident of a jurisdiction that, under Brazilian law, is deemed to be a tax haven.
|
·
|
Gains realized on the disposition of preferred shares through transactions with Brazilian residents or through transactions in Brazil off the Brazilian stock exchanges are generally subject to tax at a rate of 15%, or 25% in the case of a non-Brazilian holder residing in a tax haven jurisdiction.
|
·
|
Gains realized on preferred shares through transactions on Brazilian stock exchanges (including the organized over-the-counter market) are generally subject to tax at a rate of 15%, as of January 2005, unless the investor is entitled to tax-free treatment for the transaction under Resolution No. 2,689 of the National Monetary Council Regulations, as described immediately below. Non-Brazilian holders residing in a tax haven jurisdiction may be subject to tax at a rate of up to 25%.
|
·
|
certain financial institutions;
|
·
|
dealers or traders in securities who use a mark-to-market method of tax accounting;
|
·
|
persons holding preferred shares or ADSs as part of a hedge, “straddle,” integrated transaction or similar transaction;
|
·
|
persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
|
·
|
entities classified as partnerships for U.S. federal income tax purposes;
|
·
|
persons liable for the alternative minimum tax;
|
·
|
tax-exempt organizations;
|
·
|
persons that own or are deemed to own 10% or more of our voting stock;
|
·
|
persons who acquired our ADSs or preferred shares pursuant to the exercise of any employee stock option or otherwise as compensation; or
|
·
|
persons holding preferred shares or ADSs in connection with a trade or business conducted outside of the United States.
|
·
|
a citizen or resident of the United States;
|
·
|
a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or
|
·
|
an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
|
F.
|
Dividends and Paying Agents
|
G.
|
Statement of Experts
|
H.
|
Documents on Display
|
I.
|
Subsidiary Information
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|
Persons depositing or withdrawing shares must pay:
|
For:
|
|
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
|
·
Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property
·
Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
|
|
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs
|
·
Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders
|
|
Registration or transfer fees
|
·
Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares
|
|
Expenses of the depositary
|
·
Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)
·
Converting foreign currency to U.S. dollars
|
|
Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes
|
·
As necessary
|
|
Any charges incurred by the depositary or its agents for servicing the deposited securities
|
·
As necessary
|
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS A
ND USE OF PROCEEDS
|
CONTROLS AND PROCEDURES
|
[RESERVED]
|
AUDIT COMMITTEE FINANCIAL EXPERT
|
CODE OF ETHICS
|
·
|
transparency;
|
·
|
honesty and integrity;
|
·
|
compliance with laws and regulations, including, but not limited to, the securities markets rules and regulations and the rules and regulations related to insider trading and market manipulation;
|
·
|
protection of confidential information and property, except when disclosure thereof is authorized or legally required; and
|
·
|
reporting of suspected illegal or unethical behavior.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
2011
|
2010
|
2009
|
||||||||||
(in thousands of
reais
)
|
||||||||||||
Audit Fees
|
7,002 | 4,474 | 4,591 |
Audit-Related Fees
|
1,305 | 755 | – | |||||||||
Tax Fees
|
58 | 17 | 17 | |||||||||
All Other Services
|
– | – | – | |||||||||
Total
|
8,365 | 5,246 | 4,608 |
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES PROCEDURES
|
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
|
CORPORATE GOVERNANCE
|
MINE SAFETY DISCLOSURE
|
FINANCIAL STATEMENTS
|
FINANCIAL STATEMENTS
|
EXHIBITS
|
Exhibit Number
|
Description
|
1.1
|
Bylaws of Telefônica Brasil S.A., as amended (unofficial English translation).
|
2(a)
|
Deposit Agreement dated as of October 12, 2011, among Telefônica Brasil S.A., The Bank of New York, as Depositary, and Owners and Beneficial Owners of American Depositary Receipts issued thereunder.(1)
|
4(a).1
|
Contract and Justification of the Merger of Telefónica Data Brasil Holding S.A. into Telecomunicações De São Paulo S.A. – TELESP and Partial Spin-Off of Telefónica Empresas S.A. dated March 9, 2006.(2)
|
4(a).2
|
Credit facility with BNDES dated October 14, 2011 (unofficial English translation).
|
4(b).1
|
Grant Contract for Fixed Commuted Telephone Service in Local Modality (Sector 31) between Agência Nacional De Telecomunicações and Telecomunicações De São Paulo S.A. – TELESP dated June 30, 2011 (unofficial English translation).
|
4(b).2
|
Grant Contract for Fixed Commuted Telephone Service in Long-Distance Modality (Sector 31) between Agência Nacional De Telecomunicações and Telecomunicações De São Paulo S.A. – TELESP dated June 30, 2011 (unofficial English translation).
|
4(b).3
|
Certificate of Authorization to Provide Multimedia Communication Service, for the Collective Interest, by and between “Agência Nacional de Telecomunicações - ANATEL” and “Telecomunicações de São Paulo S.A. – TELESP” (unofficial English translation).(3)
|
4(b).4 | Authorization Term of the Personal Mobile Service entered by ANATEL and Telesp Celular Participações S.A. (unofficial English translation). |
4(b).5 | Authorization Term of the Personal Mobile Service entered by ANATEL and Global Telecom S.A. (unofficial English translation). |
4(b).6 | Authorization Term of the Personal Mobile Service entered by ANATEL and Tele Centro Oeste Celular Participações S.A . (unofficial English translation). |
Exhibit Number
|
Description
|
4(b).7 | Authorization Term of the Personal Mobile Service entered by ANATEL and Telebahia Celular S.A. (unofficial English translation). |
4(b).8 | Authorization Term of the Personal Mobile Service entered by ANATEL and Telergipe Celular S.A. (unofficial English translation). |
4(b).9 | Authorization Term of the Personal Mobile Service entered by ANATEL and Telerj Celular S.A. (unofficial English translation). |
4(b).10 | Authorization Term of the Personal Mobile Service entered by ANATEL and Telest Celular S.A. (unofficial English translation). |
8.1
|
List of Subsidiaries.
|
11.1
|
Code of Ethics of Telefônica Brasil S.A. (3)
|
12.1
|
Section 302 Certification of the Chief Executive Officer.
|
12.2
|
Section 302 Certification of the Chief Financial Officer.
|
13.1
|
Section 906 Certification of the Chief Executive Officer.
|
13.2
|
Section 906 Certification of the Chief Financial Officer.
|
(1)
|
Incorporated by reference to our Registration Statement of American Depositary Receipt shares on Form F-6POS (No. 333-146901) filed with the Commission on July 30, 2010.
|
(2)
|
Incorporated by reference to our form CB filed with the Commission on March 14, 2006.
|
(3)
|
Incorporated by reference to our annual report on Form 20-F (No. 001-14475) filed with the Commission on April 16, 2007.
|
TELEFÔNICA BRASIL S.A.
|
||
By:
|
/s/ Antonio Carlos Valente da Silva
|
|
Name:
|
Antonio Carlos Valente da Silva
|
|
Title:
|
Chief Executive Officer
|
By:
|
/s/ Gilmar Roberto Pereira Camurra
|
|
Name:
|
Gilmar Roberto Pereira Camurra
|
|
Title:
|
Chief Financial Officer and Investor Relations Officer
|
F-2
|
|
F-4
|
|
F-6
|
|
F-7
|
|
F-8
|
|
F-10
|
|
F-12
|
|
As of December 31,
|
|||||||||||
Assets
|
2011
|
2010
|
||||||||||
Current assets
|
Note
|
11,810,118 | 5,147,449 | |||||||||
Cash and cash equivalents
|
5 and 36
|
2,940,342 | 1,556,715 | |||||||||
Trade accounts receivable, net
|
6 | 5,105,860 | 2,546,225 | |||||||||
Inventories
|
7 | 471,721 | 77,499 | |||||||||
Recoverable taxes
|
8.1 | 2,495,066 | 659,357 | |||||||||
Escrow deposits
|
9 | 116,421 | - | |||||||||
Derivatives
|
36 | 1,840 | 166 | |||||||||
Prepaid expenses
|
10 | 255,056 | 41,372 | |||||||||
Other
|
11 | 423,812 | 266,115 | |||||||||
Noncurrent assets
|
53,679,855 | 14,818,845 | ||||||||||
Long-term portion of investments pledged as collateral
|
99,114 | - | ||||||||||
Trade accounts receivable, net
|
6 | 84,855 | 67,343 | |||||||||
Recoverable taxes
|
8.1 | 1,014,959 | 326,677 | |||||||||
Deferred taxes
|
8.2 | 1,428,878 | 503,679 | |||||||||
Escrow deposits
|
9 | 3,400,244 | 1,710,683 | |||||||||
Derivatives
|
36 | 225,935 | - | |||||||||
Prepaid expenses
|
10 | 32,138 | 24,647 | |||||||||
Other
|
11 | 148,293 | 153,808 | |||||||||
Investments
|
12 | 37,835 | 100,837 | |||||||||
Property, plant and equipment, net
|
13 | 17,153,920 | 10,200,697 | |||||||||
Intangible assets, net
|
14 | 30,053,684 | 1,730,474 | |||||||||
|
||||||||||||
|
||||||||||||
Total Assets
|
65,489,973 | 19,966,294 |
|
As of December 31,
|
|||||||||||
Liabilities and Shareholders’ Equity
|
2011
|
2010
|
||||||||||
Current Liabilities
|
12,740,263 | 5,615,310 | ||||||||||
|
Note
|
|||||||||||
Payroll and related accruals
|
15 | 495,624 | 307,245 | |||||||||
Trade accounts payable
|
16 | 6,081,611 | 2,832,157 | |||||||||
Taxes payable
|
17 | 1,691,991 | 754,993 | |||||||||
Loans and financing
|
18.1 | 988,413 | 420,412 | |||||||||
Debentures
|
18.2 | 468,624 | - | |||||||||
Dividends and interest on shareholders’ equity payable
|
19 | 972,986 | 450,897 | |||||||||
Provisions
|
20 | 416,313 | 240,213 | |||||||||
Derivatives
|
36 | 51,162 | 9,502 | |||||||||
Deferred revenue
|
21 | 761,268 | 103,339 | |||||||||
Share fractions
|
389,953 | 112,594 | ||||||||||
Other
|
22 | 422,318 | 383,958 | |||||||||
Noncurrent Liabilities
|
9,418,925 | 2,683,870 | ||||||||||
Taxes payable
|
17 | 459,358 | 38,707 | |||||||||
Deferred taxes
|
8.2 | 788,954 | - | |||||||||
Loans and financing
|
18.1 | 3,959,115 | 1,405,314 | |||||||||
Debentures
|
18.2 | 787,807 | - | |||||||||
Provisions
|
20 | 3,120,798 | 1,118,698 | |||||||||
Derivatives
|
36 | 78,369 | 18,542 | |||||||||
Deferred revenue
|
21 | 156,266 | 38,400 | |||||||||
Other
|
22 | 68,258 | 64,209 | |||||||||
Shareholders’ equity
|
23 | 43,330,785 | 11,667,114 | |||||||||
Capital
|
37,798,110 | 6,575,480 | ||||||||||
Capital reserves
|
2,719,665 | 2,733,562 | ||||||||||
Legal reserve
|
877,322 | 659,556 | ||||||||||
Non-controlling interest acquisition premium
|
(29,929 | ) | - | |||||||||
Other comprehensive Income
|
7,520 | 4,417 | ||||||||||
Additional proposed dividends
|
1,953,029 | 1,694,099 | ||||||||||
Non-controlling shareholders
|
5,068 | - | ||||||||||
Total Liabilities
|
65,489,973 | 19,966,294 |
Note
|
2011
|
2010
|
2009
|
|||||||||||||
Net operating revenue
|
24 | 29,128,740 | 15,798,251 | 15,852,533 | ||||||||||||
Cost of goods and services
|
25 | (14,728,171 | ) | (8,844,805 | ) | (9,236,386 | ) | |||||||||
Gross profit
|
14,400,569 | 6,953,446 | 6,616,147 | |||||||||||||
Operating (expenses) income
|
(8,603,203 | ) | (3,388,110 | ) | (3,202,254 | ) | ||||||||||
Selling
|
26 | (7,259,703 | ) | (2,964,632 | ) | (2,528,485 | ) | |||||||||
General and administrative
|
27 | (1,785,658 | ) | (738,846 | ) | (805,353 | ) | |||||||||
Equity in earnings (losses) of associates
|
12 | - | 2,889 | 18,787 | ||||||||||||
Other operating income, net
|
28 | 442,158 | 312,479 | 112,797 | ||||||||||||
Operating income before financial expenses, net
|
5,797,366 | 3,565,336 | 3,413,893 | |||||||||||||
Financial expense, net
|
29 | (139,692 | ) | (120,738 | ) | (188,792 | ) | |||||||||
Income before income tax and social contribution
|
5,657,674 | 3,444,598 | (3,225,101 | ) | ||||||||||||
Income tax and social contribution
|
30 | (1,295,475 | ) | (1,045,762 | ) | (1,021,012 | ) | |||||||||
Net income for the year
|
4,362,199 | 2,398,836 | 2,204,089 | |||||||||||||
Attributed to:
|
||||||||||||||||
Interest of non-controlling shareholders
|
6,881 | - | - | |||||||||||||
Equity holders of the parent company
|
4,355,318 | 2,398,836 | 2,204,089 | |||||||||||||
Basic and diluted earnings per share – common
|
4.40 | 4.45 | 4.08 | |||||||||||||
Basic and diluted earnings per share – preferred
|
4.84 | 4.89 | 4.49 |
2011
|
2010
|
2009
|
||||||||||
Net income for the year
|
4,362,199 | 2,398,836 | 2,204,089 | |||||||||
Gains (Losses) on available for sale securities
|
(5,170 | ) | (117,609 | ) | 22,251 | |||||||
Taxes on earnings (losses) on available for sale securities
|
1,758 | 39,987 | (7,565 | ) | ||||||||
Unrealized actuarial gains (losses) and effect of the limitation of surplus plan assets
|
(62,581 | ) | (60,585 | ) | 25,526 | |||||||
Taxes on unrealized actuarial gains (losses) and effect of the limitation of surplus plan assets
|
19,584 | 18,522 | (6,830 | ) | ||||||||
Gains (losses) on cash flow hedge
|
3,022 | - | - | |||||||||
Taxes on gains (losses) on cash flow hedge
|
(1,027 | ) | - | - | ||||||||
Cumulative translation adjustments of foreign currency transactions
|
4,520 | (6,778 | ) | (2,963 | ) | |||||||
Net gains (losses) recognized in equity
|
(39,894 | ) | (126,463 | ) | 30,419 | |||||||
Comprehensive income for the year
|
4,322,305 | 2,272,373 | 2,234,508 | |||||||||
Attributable to:
|
||||||||||||
Interest of non-controlling shareholders
|
6,881 | - | - | |||||||||
Equity holders of the parent company
|
4,315,424 | 2,272,373 | 2,234,508 |
Capital
|
Premium paid on acquisition of non-controlling interest
|
Special Goodwill reserve
|
Capital reserves
|
Treasury shares
|
Legal Reserve
|
Retained Earnings
|
Additional proposed dividend
|
Unrealized gains on available for sale securities, net of tax
|
Cash flow hedge
|
Cumulative translation adjustments
|
Shareholders’ equity of company
|
Participation of non-controlling shareholders
|
Total shareholders' equity
|
|||||||||||||||||||||||||||||||||||||||||||
Balances on December 31, 2008
|
6,575,480 | - | 63,074 | 2,688,207 | (17,719 | ) | 659,556 | (58,571 | ) | 395,109 | 76,232 | - | 862 | 11,300,302 | - | 10,382,230 | ||||||||||||||||||||||||||||||||||||||||
Unclaimed dividends and interest on shareholders’ equity, net of taxes
|
153,673 | 153,673 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income for the year
|
2,204,089 | 2,204,089 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income
|
18,696 | 14,686 | (2,963 | ) | 30,419 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Appropriations:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends
|
(470,000 | ) | (395,109 | ) | (865,109 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Interest on shareholders’ equity
|
(514,250 | ) | (514,250 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Withholding tax on
interest on shareholders’ equity
|
(90,750 | ) | (90,750 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Additional proposed dividend
|
(1,251,646 | ) | 1,251,646 | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances as of December 31, 2009
|
6,575,480 | - | 63,074 | 2,688,207 | (17,719 | ) | 659,556 | (8,759 | ) | 1,251,646 | 90,918 | - | (2,101 | ) | 11,300,302 | - | 11,300,302 | |||||||||||||||||||||||||||||||||||||||
Unclaimed dividends and interest on shareholders’ equity, net of taxes
|
- | - | - | - | - | 134,440 | - | - | - | - | 134,440 | - | 134,440 | |||||||||||||||||||||||||||||||||||||||||||
Net income for the year
|
- | - | - | - | - | - | 2,398,836 | - | - | - | - | 2,398,836 | - | 2,398,836 | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income
|
- | - | - | - | - | - | (42,063 | ) | - | (77,622 | ) | - | (6,778 | ) | (126,463 | ) | - | (126,463 | ) | |||||||||||||||||||||||||||||||||||||
Appropriations:
|
- | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends
|
- | - | - | - | - | (196,355 | ) | (1,251,646 | ) | - | - | - | (1,448,001 | ) | - | (1,448,001 | ) | |||||||||||||||||||||||||||||||||||||||
Interest on shareholders’ equity
|
- | - | - | - | - | - | (503,200 | ) | - | - | - | - | (503,200 | ) | - | (503,200 | ) | |||||||||||||||||||||||||||||||||||||||
Withholding tax on interest on shareholders’ equity
|
- | - | - | - | - | - | (88,800 | ) | - | - | - | - | (88,800 | ) | - | (88,800 | ) | |||||||||||||||||||||||||||||||||||||||
Additional proposed dividend
|
- | (1,694,099 | ) | 1,694,099 | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
Balances as of December 31, 2010
|
6,575,480 | 63,074 | 2,688,207 | (17,719 | ) | 659,556 | - | 1,694,099 | 13,296 | - | (8,879 | ) | 11,667,114 | - | 11,667,114 | |||||||||||||||||||||||||||||||||||||||||
Unclaimed dividends and interest on shareholders’ equity, net of taxes
|
- | - | - | - | - | 107,874 | - | - | - | - | 107,874 | - | 107,874 | |||||||||||||||||||||||||||||||||||||||||||
Capital increase due to the acquisition of Vivo Part. on 04/27/2011
|
31,222,630 | - | - | 47,723 | - | - | - | - | - | - | - | 31,270,353 | - | 31,270,353 | ||||||||||||||||||||||||||||||||||||||||||
Withdrawal rights paid to shareholders due to the acquisition of Vivo Part.
|
- | - | - | - | (3 | ) | - | - | - | - | - | - | (3 | ) | - | (3 | ) | |||||||||||||||||||||||||||||||||||||||
Repurchase of shares
|
- | - | - | - | (61,617 | ) | - | - | - | - | - | - | (61,617 | ) | - | (61,617 | ) | |||||||||||||||||||||||||||||||||||||||
Acquisition of non-controlling shareholders
|
- | (29,929 | ) | - | - | - | - | - | - | - | - | (29,929 | ) | (1,813 | ) | (31,742 | ) | |||||||||||||||||||||||||||||||||||||||
Net income for the year
|
- | - | - | - | - | - | 4,355,318 | - | - | - | - | 4,355,318 | 6,881 | 4,362,199 | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income
|
- | - | - | - | - | - | (42,997 | ) | (3,412 | ) | 1,995 | 4,520 | (39,894 | ) | - | (39,894 | ) |
Appropriations
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
Dividends
|
- | - | - | - | - | (382,400 | ) | (1,694,099 | ) | - | - | - | (2,076,499 | ) | - | (2,076,499 | ) | |||||||||||||||||||||||||||||||||||||||
Interest on shareholders’equity
|
- | - | - | - | - | - | (1,586,950 | ) | - | - | - | - | (1,586,950 | ) | - | (1,586,950 | ) | |||||||||||||||||||||||||||||||||||||||
Withholding tax on interest on shareholders’equity
|
- | - | - | - | - | - | (280,050 | ) | - | - | - | - | (280,050 | ) | - | (280,050 | ) | |||||||||||||||||||||||||||||||||||||||
Legal Reserve
|
- | - | - | - | - | 217,766 | (217,766 | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
Additional proposed dividend
|
- | - | - | - | - | - | (1,953,029 | ) | 1,953,029 | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
- | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances as of December 31, 2011
|
37,798,110 | (29,929 | ) | 63,074 | 2,735,930 | (79,339 | ) | 877,322 | - | 1,953,029 | 9,884 | 1,995 | (4,359 | ) | 43,325,717 | 5,068 | 43,330,785 | |||||||||||||||||||||||||||||||||||||||
Outstanding shares (thousand)
|
1,123,885 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Book value per share
|
38.55 |
2011
|
2010
|
2009
|
||||||||||
Cash flows from operations
|
||||||||||||
Income before income tax and social contribution
|
5,657,674 | 3,444,598 | 3,225,101 | |||||||||
Items that do not affect cash
|
||||||||||||
Expenses (revenues) not affecting cash
|
5,326,120 | 2,270,478 | 3,215,771 | |||||||||
Depreciation and amortization
|
4,585,994 | 1,913,494 | 2,505,475 | |||||||||
Exchange variations from loans
|
89,549 | (638 | ) | (49,847 | ) | |||||||
Monetary variations
|
(30,323 | ) | 34,580 | 33,245 | ||||||||
(Gain)/ Loss from equity in earnings of associates
|
- | (2,889 | ) | (18,788 | ) | |||||||
Gain on permanent asset disposals
|
(482,115 | ) | (317,486 | ) | 14,374 | |||||||
Allowance for doubtful accounts
|
506,581 | 386,340 | 564,580 | |||||||||
Pension and other post-retirement benefits plans
|
(1,163 | ) | 4,504 | 6,433 | ||||||||
Tax, civil and labor provisions
|
255,420 | 25,578 | (146,052 | ) | ||||||||
Interest expense
|
416,426 | 240,367 | 317,008 | |||||||||
Provision for dismantling costs
|
(33,138 | ) | 4,332 | 714 | ||||||||
Provision for loyalty program
|
9,861 | - | - | |||||||||
Others
|
9,028 | (17,704 | ) | (11,371 | ) | |||||||
(Increase) decrease in operating assets
|
(488,210 | ) | (208,514 | ) | (771,024 | ) | ||||||
Trade accounts receivable, net
|
(933,558 | ) | 87,501 | (395,235 | ) | |||||||
Inventories
|
(55,669 | ) | 70,937 | (2,939 | ) | |||||||
Other current assets
|
601,573 | (61,161 | ) | (185,918 | ) | |||||||
Other noncurrent assets
|
(100,556 | ) | (305,791 | ) | (186,932 | ) | ||||||
Increase (decrease) in operating liabilities
|
(2,354,209 | ) | (974,304 | ) | (1,220,375 | ) | ||||||
Payroll and related accruals
|
(56,908 | ) | 166,994 | (9,584 | ) | |||||||
Accounts payable and accrued expenses
|
85,694 | (26,355 | ) | 177,103 | ||||||||
Taxes other than income taxes
|
130,058 | (8,043 | ) | (110,144 | ) | |||||||
Other current liabilities
|
(521,056 | ) | 43,621 | (272,808 | ) | |||||||
Other noncurrent liabilities
|
(97,655 | ) | (3,031 | ) | 88,003 | |||||||
Interest paid
|
(496,103 | ) | (265,792 | ) | (328,370 | ) | ||||||
Income and social contribution taxes paid
|
(1,398,239 | ) | (881,698 | ) | (764,575 | ) | ||||||
Cash provided by operations
|
8,141,375 | 4,532,258 | 4,449,473 |
2011
|
2010
|
2009
|
||||||||||
Cash flows generated from (used in) investing activities
|
||||||||||||
Capital increase in subsidiaries and associates
|
- | (3,557 | ) | - | ||||||||
Acquisition of fixed and intangible assets, net of grants
|
(4,653,708 | ) | (2,126,465 | ) | (2,324,141 | ) | ||||||
Cash from sales of fixed assets
|
610,880 | 292,858 | 28,240 | |||||||||
Cash from sales of investment
|
- | 178,453 | - | |||||||||
Cash and cash equivalents from consolidation of companies
|
31,095 | - | - | |||||||||
Cash and cash equivalents from business combination
|
1,982,898 | - | - | |||||||||
Cash used in investing activities
|
(2,028,835 | ) | (1,658,711 | ) | (2,295,901 | ) | ||||||
Cash flows generated from (used in) financing activities
|
||||||||||||
Loans paid
|
(1,426,334 | ) | (1,742,818 | ) | (432,924 | ) | ||||||
New loans obtained
|
2,123,727 | 74,275 | 272,600 | |||||||||
Net payment on derivatives contracts
|
56,765 | (5,399 | ) | 31,467 | ||||||||
Dividends and interest on shareholders’ equity paid
|
(5,387,601 | ) | (1,919,906 | ) | (1,488,705 | ) | ||||||
Acquisition of non-controlling interest
|
(33,850 | ) | - | - | ||||||||
Repurchase of shares
|
(61,620 | ) | - | - | ||||||||
Cash used in financing activities
|
(4,728,913 | ) | (3,593,848 | ) | (1,617,562 | ) | ||||||
Increase (decrease) in cash and cash equivalents
|
1,383,627 | (720,301 | ) | 536,010 | ||||||||
Cash and cash equivalents at beginning of year
|
1,556,715 | 2,277,016 | 1,741,006 | |||||||||
Cash and cash equivalents at end of year
|
2,940,342 | 1,556,715 | 2,277,016 | |||||||||
Changes in cash during the year
|
1,383,627 | (720,301 | ) | 536,010 |
1.
|
Operations and background
|
a)
|
Controlling shareholders
|
b)
|
Operations
|
|
b.1.
|
Fixed Switch Telephone Service Concession Agreement (STFC)
|
|
b.2.
|
Commitments and relatives frequencies for mobile services
|
c)
|
Subsidiaries
|
|
(i)
|
Maintenance of customer internal telephony network, i.e. installation, maintenance, exchange and extension of new points of internal telephony wire in companies and houses;
|
|
(ii)
|
iTelefônica, provider of free internet access;
|
|
(iii)
|
Speedy Wi-Fi, broadband service for wireless internet access;
|
|
(iv)
|
Speedy Corp, broadband provider developed especially for the corporate market;
|
|
(v)
|
Integrated IT solution named “Posto Informático” allowing access to Internet, connection of private networks and rental of IT equipment. Since August 2010 the service of internet access has been provided by Telefônica Brasil;
|
|
(vi)
|
Product At-home solutions, home automation that is among the consulting services and development of automation design and installation and configuration of the solution;
|
|
(vii)
|
Satellite TV services (Direct to Home – DTH) throughout the country and by optical fiber – IPTV (Internal Protocol Television). The DTH is a special type of subscription TV service, which uses satellites for direct distribution of TV and audio signals to subscribers.
|
Subsidiaries
|
Dec/2011
|
Dec/2010
|
Vivo S.A. (1)
|
100%
|
-
|
Telefônica Data S.A.
|
100%
|
100%
|
A.Telecom S.A.
|
100%
|
100%
|
Telefônica Sistema de Televisão S.A.
|
100%
|
100%
|
Ajato Telecomunicações Ltda.
|
100%
|
100%
|
GTR Participações e Empreend. S.A. (2)
|
66.67%
|
66.67%
|
TVA Sul Paraná S.A. (2)
|
91.50%
|
91.50%
|
Lemontree Participações S.A. (2)
|
83.00%
|
66.67%
|
Comercial Cabo TV São Paulo S.A. (2)
|
93.19%
|
86.65%
|
Aliança Atlântica Holding B.V.(3)
|
50%
|
50%
|
Companhia AIX de Participações (3)
|
50%
|
50%
|
Companhia ACT de Participações (3)
|
50%
|
50%
|
d)
|
Share Trading in Stock Exchanges
|
d.1.
|
Shares traded in the São Paulo Stock Exchange (BM&FBovespa)
|
d.2.
|
Shares traded in the New York Stock Exchange (NYSE)
|
|
·
|
Type of share: preferred.
|
|
·
|
Each ADR represents 1 (one) preferred share.
|
|
·
|
The shares are traded in the form of ADRs through code “VIV” on the New York Stock Exchange.
|
|
·
|
Foreign depositary bank: The Bank of New York.
|
|
·
|
Custodian bank in Brazil: Banco Itaú S.A.
|
e)
|
Corporate events in 2011
|
f)
|
Agreement between Telefónica S.A. and Telecom Italia (Act No. 3,804 as of July 07, 2009 and Act No. 68,276 as of October 31, 2007, both from ANATEL’s Board
|
2.
|
Basis of presentation of the consolidated financial statements
|
Standards and Amendments to Standards
|
Application required: fiscal years beginning:
|
|
Amendments to IAS 1
|
Presentation of items of other comprehensive income
|
July 1, 2012
|
Amendments to IAS 12
|
Deferred tax: Recovery of underlying assets
|
January 1, 2012
|
IFRS 9
|
Financial instruments
|
January 1, 2015
|
IFRS 10
|
Consolidated Financial Statements
|
January 1, 2013
|
IFRS 11
|
Joint Arrangements
|
January 1, 2013
|
IFRS 12
|
Disclosure of Interests in Other Entities
|
January 1, 2013
|
IFRS 13
|
Fair Value Measurement
|
January 1, 2013
|
IAS 19 revised
|
Employee Benefits
|
January 1, 2013
|
IAS 27 revised
|
Consolidated and Separate Financial Statements
|
January 1, 2013
|
IAS 28 revised
|
Investments in Associates and jointly controlled companies
|
January 1, 2013
|
Amendments to IFRS 7
|
Disclosure – transfers of financial assets
|
July 1 , 2011
|
Amendments to IFRS 7
|
Disclosure – offsetting of financial assets and financial liabilities
|
January 1, 2013
|
Amendments to IAS 32
|
Offsetting Financial Assets and Financial Liabilities
|
January 1, 2014
|
2.1
|
Basis of consolidation and main changes in the consolidation environment
|
a)
|
Acquisition of Vivo Participações S.A. by the Company
|
b)
|
Consolidation of TVA companies
|
c)
|
Acquisition of Lemontree Participações S.A. shares
|
3.
|
Summary of principal accounting practices
|
a)
|
Trade accounts receivable, net
: are stated at the rendered service value according to the contracted conditions adjusted by the estimated amount of eventual losses. This caption also includes accounts receivable from services rendered but not yet billed at the balance sheet date, as well as the accounts receivable related to the sales of handsets, simcards and accessories. Allowance for doubtful account is recorded in order to cover eventual losses and mainly considers expected losses.
|
b)
|
Inventories
: are stated at average acquisition cost, net of allowance for reduction to net realizable value. This corresponds to items for use, maintenance or resale.
|
c)
|
Prepaid expenses
: are measured at the amounts effectively disbursed related to services paid for but not yet incurred. The prepaid expenses are recognized in the income statement when the related services and the economic benefits are obtained.
|
d)
|
Investments
: Equity interests in subsidiaries and jointly controlled companies are stated by the equity method in the individual financial statements. In the consolidated financial statements, investments in
|
e)
|
Property, plant and equipment
: This item is measured at acquisition and/or construction cost, less accumulated depreciation and any impairment losses, if applicable. Such cost includes the borrowing costs for long-term construction projects if the recognition criteria are met. Asset costs are capitalized until the asset becomes operational.
|
f)
|
Intangible assets (including goodwill)
: These are stated at acquisition and/or construction cost, less accumulated amortization and any impairment losses, if applicable.
|
g)
|
Leases
: Agreements providing for use of specific assets and the right to use an asset are subject to analysis so as to identify the accounting treatment applicable to lease arrangements. Agreements in which the lessor substantially transfers the underlying risks and benefits to the lessee are classified as finance leases.
|
h)
|
Asset recoverability analysis
: In compliance with IAS 36, the Company and its subsidiaries review the net book value of assets, when circumstances indicate it is necessary, in order to assess if there are events or changes in the economic, operating or technological circumstances which may indicate asset impairment or loss in its carrying amount.
|
h.1)
|
Goodwill
|
h.2)
|
Intangible assets
|
h.3)
|
Value in use
|
|
·
|
Revenue: The revenues are estimated considering the growth of the customer base, the evolution of the market income vis-à-vis the GDP – Gross Domestic Product and the Company and its subsidiary’s share in this market;
|
|
·
|
Operating costs and expenses: The variable costs and expenses were estimated according to the dynamic of the customer base, and the fixed costs and expenses were projected in line with the historical performance of the Company and its subsidiaries, as well as with the historical growth of the revenue; and
|
|
·
|
Capex: Capital expenditures are estimated based on the technological infrastructure required to make feasible the offering of services.
|
i)
|
Business combinations and goodwill
|
j)
|
Financial instruments, cash and cash equivalents
|
|
(i)
|
Cash and cash equivalent
|
|
(ii)
|
Financial Assets
|
•
|
The rights to receive cash flows from the asset have expired;
|
•
|
The Company transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the cash flows received in full, without significant delay to a third party under a pass-through agreement, and (a) the Company has transferred substantially all risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all risks and rewards related to the asset, but has transferred control of the asset.
|
(iii)
|
Impairment of financial assets
|
|
(iv)
|
Financial liabilities
|
|
(v)
|
Offsetting of Financial instruments
|
|
(vi)
|
Fair value of financial instruments
|
k)
|
Derivative financial instruments and hedge accounting:
|
•
|
When the Company maintains a derivative as an economic hedge (and does not apply hedge accounting) for a period exceeding 12 months after the balance sheet date, the derivative is classified as non-current (or segregated into current or non-current portions), consistently with the classification of the corresponding item.
|
•
|
Derivative instruments that are designated as, and are effective hedging instruments are classified consistently with the classification of the corresponding hedged item.
|
l)
|
Borrowing costs
|
m)
|
Interest on shareholders’ equity
|
n)
|
Provisions
|
n.1)
|
General
|
n.2)
|
Provision for judicial, civil, labor, tax and regulatory claims
|
n.3)
|
Provision for dismantling of assets
|
n.4)
|
Contingent liabilities recognized in a business combination
|
-
|
the amount that would be recognized in accordance with the general requirements for provisions above; or
|
-
|
the amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with the requirements for revenue recognition.
|
o)
|
Post-retirement benefit plans
|
p)
|
Profit sharing
|
q)
|
Share-based payment transactions
|
r)
|
Other assets and liabilities
|
s)
|
Governmental grant and assistance
|
t)
|
Adjustment to present value of assets and liabilities
|
u)
|
Treasury shares
|
v)
|
Revenue recognition
|
w)
|
Foreign-currency-denominated balances and transactions
|
x)
|
Taxes and contributions
|
|
·
|
CIDE – Contribution for Intervention in the Economic Domain – federal tax;
|
|
·
|
COFINS – Contribution for Social Security Financing - federal tax;
|
|
·
|
CSLL – Social Contribution on Net Income – federal tax;
|
|
·
|
FISTEL –Telecommunications Inspection Fund;
|
|
·
|
FUNTTEL – Fund for Telecommunications Technological Development;
|
|
·
|
FUST – Telecommunications Universal Service Fund;
|
|
·
|
ICMS – Tax on the Circulation of Goods and on Services – state tax;
|
|
·
|
IOF – Tax on Financial Transactions – federal tax;
|
|
·
|
IRPJ – Corporate Income Tax – federal tax;
|
|
·
|
IRRF – Withholding Income Tax – federal tax;
|
|
·
|
ISS – Tax on Services – municipal tax;
|
|
·
|
PIS – Social Integration Program – federal tax;
|
|
·
|
TFF – Operation Inspection Fee; and
|
|
·
|
TFI – Installation and Inspection Fee.
|
y)
|
Concession agreement’s renewal fees
|
z)
|
Accounting estimates
|
aa)
|
Non-controlling shareholders interests
|
bb)
|
Financial income and expenses
|
cc)
|
Statements of cash flows
|
|
·
|
Operating activities: refer to the main transactions performed by the Company activities other than investment and financing;
|
|
·
|
Investing activities: refer to additions and dispositions of noncurrent assets and other investments not included in cash and cash equivalents;
|
|
·
|
Financing activities: refer to activities resulting in changes in equity and loans.
|
dd)
|
Segment reporting
|
4.
|
Acquisition of Vivo Participações S.A. (Vivo Part.)
|
a)
|
Objectives of the transaction: The acquisition of control of Vivo Part. by Telefónica had as its main objective the integration of fixed and mobile telecommunications services in Brazil as the telecommunication segment is already moving in this direction. Therefore, Telefónica must necessarily integrate its fixed and mobile operations in Brazil, so as to operate more efficiently and with the possibility of competing with the other companies in the telecom segment.
|
b)
|
Involvement of third parties in the transaction, such as non-controlling shareholders: Vivo Part. had a significant number of non-controlling shareholders, representing 40.4% of its capital stock, which voted and approved the merger of shares in Telefônica Brasil, with abstention of only one shareholder who held 103 shares, which is not significant considering the Company’s capital. Telefônica Brasil, which had around 12% of non-controlling shareholders, had its operation approved by unanimous votes of the present shareholders.
|
c)
|
If the transaction was conducted or not at fair value: The exchange ratio of shares was determined based on the recommendations of independent special committees and in their economic values, based on the discounted cash flow method, calculated by the financial advisors of Vivo Part.’s committee, Signatura Lazard Financial Advisory Services Ltda. ("Signatura Lazard"), and Telefônica Brasil’s committee, Banco Santander S.A. ("Santander").
|
d)
|
Existing activities in the companies involved in the transaction: The exchange of shares between Vivo Part. (mobile operator) and Telefônica Brasil (fixed line operator) is part of the strategy of integrating both activities, considering that the acquirer (Telefônica Brasil) did not have mobile operations. Telecom companies in Brazil are working towards obtaining integrated business so as to maintain competitiveness. Therefore, the activities of Vivo Part. and Telefônica Brasil are complementary in the current telecom business scenario and must be managed jointly for their development.
|
e)
|
If the transaction conducts entities jointly to a ‘reporting entity’ which did not exist previously: The group’s strategy is to integrate its fixed line and mobile services in one 'reporting entity' which did not previously exist, aiming at sharing the synergy gains in the telecom segment in Brazil between shareholders.
|
f)
|
The transaction altered the control of Vivo Part.: As a consequence of the exchange of shares process and in order to have only one reporting entity, Vivo Part. became a full subsidiary of Telefônica Brasil and was merged in the final stage of the corporate restructuring.
|
a)
|
In a business combination based on exchange of shares, the acquirer is normally the entity which issues the equity instruments: Telefônica Brasil issued the shares in exchange of shares owned by Vivo Part.’s shareholders, turning Vivo Part. a fully-owned subsidiary of Telefônica Brasil. Additionally, the final stage of such corporate restructuring was to merge Vivo Part. into Telefônica Brasil, and therefore Vivo Part. will no longer exist. Telefônica Brasil issued shares held by it in exchange for interest in Vivo Part., increasing
its capital stock by R$31,222,630.
|
b)
|
The composition of the Senior Management of the combined entity. The acquirer is normally the company whose former Senior Management is prevailing in the combined entity: The CEO and CFO of Telefônica Brasil, among other key–functions, remained in these positions until the merger of shares. The equivalent positions in Vivo Part. were extinguished.
|
c)
|
The composition of Board of Directors (or equivalent body) of the combined entity. Usually the acquirer is the entity whose shareholders have the ability to elect, appoint or remove most members of the board of directors of the combined entity: The Board of Directors of Telefônica Brasil remains and the Board of Vivo Part. no longer exists after the merger by Telefônica Brasil.
|
d)
|
Additionally, the guidance to identify the acquirer also considers that it is normally the entity whose relative size (measured, for instance, in assets, revenues and profit) is significantly larger than the acquired entity: Both companies have similar sizes, which, however must not be a determining fact to be considered in the identification of the acquirer. The most important fact to be considered is actually the essence of this acquisition, which is the acquisition of Vivo Part. from Portugal Telecom by Telefónica in Spain. As a result, shares were exchanged upon this restructuring process so Telefônica Brasil and Vivo Part. could have their businesses integrated, generating the synergies expected by the management and by the market. Therefore, independent of the size of the companies, it is important to consider the essence of the transaction which is the acquisition of Vivo Part by Telefônica Brasil to make the previously mentioned synergies possible.
|
In R$ thousands
|
Vivo Participações S.A.
|
(provisional data)
|
|
Fair value
|
|
Current assets
|
7,244,124
|
Non-current assets
|
28,134,683
|
Deferred tax asset, net
(2)
|
417,883
|
Other non-current assets
|
2,385,177
|
Property, plant and equipment
|
6,198,358
|
Intangible assets
(1)
|
19,133,265
|
Current liabilities
|
(7,964,209)
|
Non-current liabilities
|
(5,352,456)
|
Other non-current liabilities
(3)
|
(5,352,456)
|
Net asset amount
|
22,062,142
|
Cost of shareholdings
|
31,222,630
|
Goodwill of the transaction
|
9,160,488
|
|
(1)
|
Includes the allocation of fair value attributed to licenses (R$12,876,000), trademark (R$1,642,000) and customer base (R$2,042,000). The Company does not consider trademark and customer base as deductible items for tax purposes.
|
|
(2)
|
Includes the recognition of deferred income tax over (1) and (3).
|
|
(3)
|
Includes allocation of fair value attributed to contingent liabilities of R$283,000.
|
Analysis of cash flow on acquisition
|
R$ thousand
|
|
Transaction costs (included in cash flows from operating activities)
|
(9,066)
|
|
Cash and cash equivalents of the company acquired (included in cash flows from investing activities)
|
1,982,898
|
|
Net of cash outflow and cash equivalents from the acquisition
|
1,973,832
|
Telefônica Brasil
Consolidated for
the fiscal year ended
December 31, 2011
|
Vivo
Consolidated
for the three
months period
ended
March 31, 2011
|
Elimination
(b)
|
Telefônica Brasil
|
|||||||||||||
Net operating revenue
|
29,128,740 | 4,812,330 | (802,456 | ) | 33,138,614 | |||||||||||
Costs of goods and services (a)
|
(14,728,171 | ) | (2,217,733 | ) | 773,395 | (16,172,509 | ) | |||||||||
Gross profit
|
14,400,569 | 2,594,597 | (29,061 | ) | 16,966,105 | |||||||||||
Operating (expenses) income
|
(8,603,203 | ) | (1,489,121 | ) | 29,061 | (10,063,263 | ) | |||||||||
Selling (a)
|
(7,259,703 | ) | (1,180,178 | ) | 36,545 | (8,403,336 | ) | |||||||||
General and administrative (a)
|
(1,785,658 | ) | (310,416 | ) | - | (2,096,074 | ) | |||||||||
Other operating income (expenses), net
|
442,158 | 1,473 | (7,484 | ) | 436,147 | |||||||||||
Operating income before financial expense, net
|
5,797,366 | 1,105,476 | - | 6,902,842 | ||||||||||||
Financial expense, net
|
(139,692 | ) | (39,794 | ) | - | (179,486 | ) | |||||||||
Income before income tax and social contribution
|
5,657,674 | 1,065,682 | - | 6,723,356 | ||||||||||||
Income tax and social contribution
|
(1,295,475 | ) | (355,476 | ) | - | (1,650,951 | ) | |||||||||
Net income for the period (c)
|
4,362,199 | 710,206 | - | 5,072,405 | ||||||||||||
Attributed to equity holders of the parent company
|
4,355,318 | - | - | 5,065,524 | ||||||||||||
Attributed to participation of non-controlling shareholders
|
6,881 | - | - | 6,881 |
(a)
|
Includes depreciation and amortization expenses amounting to R$5,131,853.
|
(b)
|
Includes mainly revenues and interconnection costs.
|
(c)
|
Net income would be R$4,940,938 in 2011, should the effects of the amortization of intangible assets of the first 3 months of 2011 (R$199,193), net of deferred income taxes amounting to R$67,726, have been included.
|
5.
|
Cash and cash equivalents
|
2011
|
2010
|
|||||||
Bank accounts
|
77,404 | 8,930 | ||||||
Short-term investments
|
2,862,938 | 1,547,785 | ||||||
Total
|
2,940,342 | 1,556,715 |
6.
|
Trade accounts receivable, net
|
2011
|
2010
|
|||||||
Billed amounts
|
3,461,465 | 1,854,151 | ||||||
Interconnection receivable
|
1,855,801 | 188,609 | ||||||
Accrued unbilled amounts
|
930,178 | 1,336,441 | ||||||
Gross accounts receivable
|
6,247,444 | 3,379,201 | ||||||
Allowance for doubtful accounts
|
(1,056,729 | ) | (765,633 | ) | ||||
Total
|
5,190,715 | 2,613,568 | ||||||
Current
|
4,103,377 | 2,008,325 | ||||||
Past-due – 1 to 30 days
|
631,923 | 394,371 | ||||||
Past-due – 31 to 60 days
|
204,775 | 95,206 | ||||||
Past-due – 61 to 90 days
|
115,125 | 41,096 | ||||||
Past-due – 91 to 120 days
|
49,815 | 19,088 | ||||||
Past-due – more than 120 days
|
85,700 | 55,482 | ||||||
Total
|
5,190,715 | 2,613,568 | ||||||
Current
|
5,105,860 | 2,546,225 | ||||||
Non-current
|
84,855 | 67,343 |
2011
|
2010
|
|||||||
Opening balance
|
(765,633 | ) | (833,639 | ) | ||||
Provision charged to selling expenses (Note 26)
|
(506,581 | ) | (386,340 | ) | ||||
Business combination
|
(218,171 | ) | - | |||||
Consolidation of TVA
|
(3,659 | ) | - | |||||
Write-offs
|
437,315 | 454,346 | ||||||
Ending balance
|
(1,056,729 | ) | (765,633 | ) |
2011
|
2010
|
|||||||
Present value of minimum payments receivable
|
261,933 | 112,352 | ||||||
Unrealized financial income
|
8,941 | 23,213 | ||||||
Gross investment in finance lease receivables
|
270,874 | 135,565 | ||||||
Allowance for doubtful accounts
|
(69,375 | ) | (18,102 | ) | ||||
Financial Leases receivable, net
|
201,499 | 117,463 | ||||||
Current
|
177,078 | 45,009 | ||||||
Non-current
|
84,855 | 67,343 |
Year
|
Gross
Investment
|
Present
Value
|
||||||
Falling due within one year
|
177,078 | 177,078 | ||||||
Falling due within five years
|
93,796 | 84,855 | ||||||
Total
|
270,874 | 261,933 |
7.
|
Inventories
|
2011
|
2010
|
|||||||
Consumption materials
|
94,547 | 100,579 | ||||||
Resale items (*)
|
435,032 | 66,564 | ||||||
Other inventories
|
6,468 | 10,052 | ||||||
Allowance for reduction to net recoverable value and obsolescence
|
(64,326 | ) | (99,696 | ) | ||||
Total current
|
471,721 | 77,499 | ||||||
(*)
Includes, among others, cell phones and IT equipments.
|
2011
|
2010
|
|||||||
Opening balance
|
(99,696 | ) | (75,928 | ) | ||||
Additions
|
(37,462 | ) | (31,568 | ) | ||||
Write-offs
|
95,149 | 7,800 | ||||||
Business combination
|
(18,852 | ) | - | |||||
Consolidation of TVA
|
(3,465 | ) | - | |||||
Ending balance
|
(64,326 | ) | (99,696 | ) |
8.
|
Deferred and recoverable taxes
|
8.1
|
Recoverable taxes
|
2011
|
2010
|
|||||||
Withholding taxes
|
152,919 | 91,185 | ||||||
Recoverable income tax and social contribution
|
1,143,988 | 27,088 | ||||||
ICMS (state VAT) (*)
|
1,665,896 | 534,323 | ||||||
ICMS (state VAT)-Convênio 39/Portaria CAT 06
|
307,832 | 313,177 | ||||||
PIS and COFINS
|
210,950 | 17,726 | ||||||
Other
|
28,440 | 2,535 | ||||||
Total
|
3,510,025 | 986,034 | ||||||
Current
|
2,495,066 | 659,357 | ||||||
Non-current
|
1,014,959 | 326,677 |
|
(*)
|
The amount recorded as of December 31, 2011 refers mainly to credits on the acquisition of property, plant and equipment items, available for offset against VAT obligations in 48 months.
|
8.2
|
Deferred taxes
|
2011
|
2010
|
|||||||
Deferred Assets
|
||||||||
Tax loss carry-forwards – Income tax and social contribution (a)
|
348,576 | 2,325 | ||||||
Provisions for tax, labor and civil claims
|
736,312 | 302,607 | ||||||
Post-retirement benefit plans
|
98,833 | 74,460 | ||||||
Allowance for doubtful accounts
|
178,433 | 100,194 | ||||||
Fust Provision
|
151,985 | 73,251 | ||||||
Allowance for obsolescence of modems and others
|
8,745 | 18,713 | ||||||
Employee Profit sharing
|
82,564 | 38,730 |
Accelerated depreciation
|
433,512 | 46,318 | ||||||
Allowance for reduction of inventory to recoverable value
|
17,542 | 31,593 | ||||||
Provision for loyalty program
|
23,399 | - | ||||||
Derivatives
|
69,387 | 33,188 | ||||||
Merged tax credits – DABR (b)
|
46,962 | 34,691 | ||||||
Provisions
|
354,916 | 129,798 | ||||||
Income tax and social contribution on other temporary differences
|
308,462 | 128,144 | ||||||
2,859,628 | 1,014,012 | |||||||
Deferred liabilities
|
||||||||
Technological innovation Law
|
(333,156 | ) | (238,957 | ) | ||||
Exchange rate variation
|
(14,742 | ) | (25,811 | ) | ||||
Merged tax credits (b)
|
(207,668 | ) | (136,015 | ) | ||||
Client portfolio
|
(630,896 | ) | - | |||||
Trademarks and patents
|
(536,808 | ) | - | |||||
License
|
(79,976 | ) | - | |||||
Effect of goodwill generated by the merger of Telemig and Telemig Participações into TCO IP S.A. | (258,695 | ) | ||||||
Effect of goodwill generated on the acquisition of Vivo Part.
|
(53,374 | ) | - | |||||
Income tax and Social contribution on other temporary differences
|
(104,389 | ) | (109,550 | ) | ||||
(2,219,704 | ) | (510,333 | ) | |||||
Total non-current asset (liability), net
|
639,924 | 503,679 |
a)
|
Tax loss carryforward and negative tax base:
These represent the amount recorded by the Company’s subsidiaries which, pursuant to the Brazilian legislation, may be offset up to the limit of 30% of the taxable income computed in the coming fiscal years and subject to no statute of limitations. The subsidiaries Telefônica Data S.A. and Telefônica Sistema de Televisão S.A. did not record the potential deferred income and social contribution taxes credit that would arise from the use of the tax loss carryforwards and negative tax bases in the amount of R$54,139 at December 31, 2011, given the uncertainty, at this time, as to these subsidiaries ability to generate sufficient future taxable results to ensure the realization of these deferred taxes.
|
Income
Tax
|
Social
Contribution
|
Total
|
||||||||||
Tax-loss carry-forward and negative base at 12/31/2011
|
1,195,277 | 1,154,399 | 2,349,677 | |||||||||
Tax credit (25% + 9%)
|
298,819 | 103,896 | 402,715 | |||||||||
Tax credit recognized
|
259,011 | 89,565 | 348,576 | |||||||||
Tax credit not recognized
|
39,808 | 14,331 | 54,139 |
Income
Tax
|
Social
Contribution
|
Total
|
||||||||||
Tax-loss carry-forward and negative base at 12/31/2010
|
130,435 | 130,435 | 260,870 | |||||||||
Tax credit (25% + 9%)
|
32,609 | 11,739 | 44,348 | |||||||||
Tax credit recognized
|
1,710 | 615 | 2,325 | |||||||||
Tax credit not recognized
|
30,899 | 11,124 | 42,023 |
b)
|
Merged tax credit
: Relates to tax benefits arising from corporate reorganizations represented by goodwill amounts based on future expected profitability to be used in compliance with the limits established by tax legislation.
|
Deferred Tax Assets
|
December 31, 2010
|
Additions
|
Write-offs/realization
|
Business
Combination
|
December 31, 2011
|
|||||||||||||||
Tax losses
|
2,325 | - | (393,067 | ) | 739,318 | 348,576 | ||||||||||||||
Other deferred assets
|
1,011,687 | 252,826 | (108,222 | ) | 1,354,761 | 2,511,052 | ||||||||||||||
Total
|
1,014,012 | 252,826 | (501,289 | ) | 2,094,079 | 2,859,628 |
Deferred Tax Assets
|
December 31, 2009
|
Additions
|
Write-offs
|
December 31, 2010
|
||||||||||||
Tax losses
|
1,716 | 609 | - | 2,325 | ||||||||||||
Other deferred assets
|
926,990 | 111,175 | (26,478 | ) | 1,011,687 | |||||||||||
Total
|
928,706 | 111,784 | (26,478 | ) | 1,014,012 |
Deferred Tax Liabilities
|
December 31, 2010
|
Additions
|
Write-offs
|
Business
Combination
|
Other comprehensive income
|
December 31, 2011
|
||||||||||||||||||
Deferred liabilities
|
510,333 | 274,332 | (155,452 | ) | 1,611,833 | (21,342 | ) | 2,219,704 | ||||||||||||||||
Total
|
510,333 | 274,332 | (155,452 | ) | 1,611,833 | (21,342 | ) | 2,219,704 |
Deferred Tax Liabilities
|
December 31, 2009
|
Additions
|
Write-offs/realization
|
Other comprehensive income
|
December 31, 2010
|
|||||||||||||||
Deferred liabilities
|
364,642 | 207,869 | (3,669 | ) | (58,509 | ) | 510,333 | |||||||||||||
Total
|
364,642 | 207,869 | (3,669 | ) | (58,509 | ) | 510,333 |
Year
|
||||
2012
|
1,337,875 | |||
2013
|
93,927 | |||
2014
|
1,758 | |||
2015
|
(31,700 | ) | ||
2016
|
(35,603 | ) | ||
From 2017
|
(726,333 | ) | ||
Total
|
639,924 | |||
9.
|
Escrow deposits
|
Nature
|
||||||||||||||||||||
Labor claims
|
Tax litigation
|
Civil litigation
|
Freeze of assets
by court order
|
Total
|
||||||||||||||||
Non-current as of 12/31/2010
|
555,322 | 546,387 | 528,887 | 80,087 | 1,710,683 | |||||||||||||||
Business combination
|
54,939 | 1,146,771 | 77,336 | 58,113 | 1,337,159 | |||||||||||||||
Consolidation of TVA
|
2,488 | 24,128 | 6,542 | 1,743 | 34,901 | |||||||||||||||
Additions
|
139,123 | 72,745 | 141,146 | 314,373 | 667,387 | |||||||||||||||
Write-offs / reversal
|
(42,796 | ) | (5,605 | ) | (76,361 | ) | (340,605 | ) | (465,367 | ) | ||||||||||
Monetary restatement
|
39,847 | 133,211 | 39,177 | - | 212,235 | |||||||||||||||
Transfers
|
40,782 | 1,166 | (1,442 | ) | (40,506 | ) | - | |||||||||||||
Merger of Ptelecom
|
- | 19,667 | - | - | 19,667 | |||||||||||||||
Non-current as of 12/31/2011
|
789,705 | 1,938,470 | 715,285 | 73,205 | 3,516,665 | |||||||||||||||
Current
|
18,501 | 15,207 | 61,687 | 21,026 | 116,421 | |||||||||||||||
Non-current
|
771,204 | 1,923,263 | 653,598 | 52,179 | 3,400,244 |
Nature
|
||||||||||||||||||||
Labor claims
|
Tax litigation
|
Civil litigation
|
Freeze of assets
by court order
|
Total
|
||||||||||||||||
Non-current as of 12/31/2009
|
436,153 | 481,664 | 377,301 | 40,222 | 1,335,340 | |||||||||||||||
Additions
|
104,480 | 33,840 | 117,414 | 75,441 | 331,175 | |||||||||||||||
Write-offs / reversal
|
(11,980 | ) | - | (17,839 | ) | - | (29,819 | ) | ||||||||||||
Monetary restatement
|
14,355 | 30,920 | 28,712 | - | 73,987 | |||||||||||||||
Transfers
|
12,314 | (37 | ) | 23,299 | (35,576 | ) | - | |||||||||||||
Non-current as of 12/31/2010
|
555,322 | 546,387 | 528,887 | 80,087 | 1,710,683 |
10.
|
Prepaid expenses
|
2011
|
2010
|
|||||||
Advertising and publicity
|
171,566 | 817 | ||||||
Rents
|
20,992 | 4,901 | ||||||
Insurance
|
10,289 | 8,714 | ||||||
Software maintenance
|
14,503 | 14,889 | ||||||
Financial charges
|
3,426 | - | ||||||
Other assets
|
34,280 | 12,051 | ||||||
Total current
|
255,056 | 41,372 | ||||||
Advertising and publicity
|
835 | - | ||||||
Rents
|
11,912 | 9,226 | ||||||
Insurance
|
1,695 | 4,511 | ||||||
Financial charges
|
5,317 | - | ||||||
Other assets
|
12,379 | 10,910 | ||||||
Total non-current
|
32,138 | 24,647 |
11.
|
Other assets
|
2011
|
2010
|
|||||||
Advances
|
62,123 | 53,704 | ||||||
Related parties receivables (Note 32)
|
40,285 | 95,452 | ||||||
Subsidy on the sale of handsets
|
53,408 | - | ||||||
Suppliers receivables
|
184,748 | 59,769 |
Other assets
|
83,248 | 57,190 | ||||||
Total current
|
423,812 | 266,115 | ||||||
Receivables from Barramar S.A. (a)
|
52,248 | 56,700 | ||||||
Amounts linked to National Treasury securities
|
13,819 | 12,884 | ||||||
Pension assets surplus (note 35)
|
31,210 | 27,171 | ||||||
Related parties receivables (Note 32)
|
20,214 | 16,943 | ||||||
Other assets
|
30,802 | 40,110 | ||||||
Total non-current
|
148,293 | 153,808 |
(a)
|
Refers to receivables from Barramar S.A., registered in Companhia AIX de Participações, net of allowance for losses.
|
12.
|
Investments
|
2010
|
Additions
|
Result of Equity Method
|
Dividends
received
|
Other Comprehensive Income
|
Consolidation of TVA
|
2011
|
||||||||||||||||||||||
Investments in subsidiaries
|
57,990 | - | - | - | - | (57,990 | ) | - | ||||||||||||||||||||
GTR Participações e Empreendimentos S.A (b)
|
2,055 | - | - | - | - | (2,055 | ) | - | ||||||||||||||||||||
Lemontree Participações S.A. (b)
|
17,047 | - | - | - | - | (17,047 | ) | - | ||||||||||||||||||||
Comercial Cabo TV São Paulo S.A. (b)
|
32,392 | - | - | - | - | (32,392 | ) | - | ||||||||||||||||||||
TVA Sul Paraná S.A. (b)
|
6,496 | - | - | - | - | (6,496 | ) | - | ||||||||||||||||||||
Other investments (*) (a)
|
42,847 | - | - | - | (5,012 | ) | - | 37,835 | ||||||||||||||||||||
Zon Multimédia – direct interest
|
9,036 | - | - | - | (2,299 | ) | - | 6,737 | ||||||||||||||||||||
Zon Multimédia – indirect interest
|
3,189 | - | - | - | (810 | ) | - | 2,379 | ||||||||||||||||||||
Other investiments
|
30,622 | - | - | - | (1,903 | ) | - | 28,719 | ||||||||||||||||||||
Total consolidated investments
|
100,837 | - | - | - | (5,012 | ) | (57,990 | ) | 37,835 |
|
(a)
|
Other
investments
are
measured
at fair value.
|
|
(b)
|
Consolidated
from January 1, 2011 as mentioned in Note 3.d.
|
2009
|
Result of equity method
|
Future capital contribution
|
Dividends received
|
Other comprehensive income
|
Write-off (residual value)
|
2010
|
||||||||||||||||||||||
Associates (I) (II)
|
55,101 | 2,889 | 3,557 | (3,557 | ) | - | - | 57,990 | ||||||||||||||||||||
GTR Participações e Empreendimentos S.A
|
2,121 | (66 | ) | 60 | (60 | ) | - | - | 2,055 | |||||||||||||||||||
Lemontree Participações S.A.
|
14,292 | 2,755 | 1,029 | (1,029 | ) | - | - | 17,047 | ||||||||||||||||||||
Comercial Cabo TV São Paulo S.A.
|
31,844 | 548 | 2,336 | (2,336 | ) | - | - | 32,392 | ||||||||||||||||||||
TVA Sul Paraná S.A.
|
6,844 | (348 | ) | 132 | (132 | ) | - | - | 6,496 | |||||||||||||||||||
Other investments (*) (I) (II)
|
285,198 | - | - | - | (124,353 | ) | (117,998 | ) | 42,847 | |||||||||||||||||||
Portugal Telecom – direct interest
|
170,777 | - | - | - | (95,415 | ) | (75,362 | ) | - | |||||||||||||||||||
Zon Multimédia – direct interest
|
13,049 | - | - | - | (4,013 | ) | - | 9,036 | ||||||||||||||||||||
Portugal Telecom – indirect interest
|
56,925 | - | - | - | (14,289 | ) | (42,636 | ) | - | |||||||||||||||||||
Zon Multimédia – indirect interest
|
4,605 | - | - | - | (1,416 | ) | - | 3,189 | ||||||||||||||||||||
Other investments
|
39,842 | - | - | - | (9,220 | ) | - | 30,622 | ||||||||||||||||||||
Total consolidated investments (II)
|
340,299 | 2,889 | 3,557 | (3,557 | ) | (124,353 | ) | (117,998 | ) | 100,837 | ||||||||||||||||||
Consolidated
|
||||
Sale amount
|
205,149 | |||
Acquisition cost
|
(117,998 | ) | ||
Net gain from the sale
|
87,151 |
2011
|
2010
|
|||||||||||||||||||||||
Cia ACT
|
Cia AIX
|
Aliança Atlântica
|
Cia ACT
|
Cia AIX
|
Aliança Atlântica
|
|||||||||||||||||||
Current assets
|
4 | 3,501 | 49,655 | 7 | 4,820 | 57,456 | ||||||||||||||||||
Noncurrent assets
|
- | 65,461 | 2,378 | - | 72,146 | 3,189 | ||||||||||||||||||
Current liabilities
|
1 | 2,338 | 9 | 1 | 5,727 | 397 | ||||||||||||||||||
Noncurrent liabilities
|
- | 1,849 | - | - | 2,339 | - | ||||||||||||||||||
Shareholders’ Equity
|
3 | 64,775 | 52,024 | 6 | 68,900 | 60,248 |
2011
|
2010
|
2009
|
||||||||||||||||||||||||||||||||||
Cia ACT
|
Cia AIX
|
Aliança Atlântica
|
Cia ACT
|
Cia AIX
|
Aliança Atlântica
|
Cia ACT
|
Cia AIX
|
Aliança Atlântica
|
||||||||||||||||||||||||||||
Revenues
|
25 | 27,491 | 1,139 | 27 | 31,254 | 13,200 | 30 | 30,144 | 3,994 | |||||||||||||||||||||||||||
Expenses
|
(28 | ) | (24,240 | ) | (82 | ) | (24 | ) | (21,985 | ) | (99 | ) | (27 | ) | (12,207 | ) | (185 | ) | ||||||||||||||||||
Net income for the year
|
(3 | ) | 3,251 | 1,057 | 3 | 9,269 | 13,101 | 3 | 17,937 | 3,809 |
Annual depreciation
rate %
|
Net book value as of 12/31/2010
|
Additions
|
Disposals,
net
|
Transfers,
net (b)
|
Depreciation
|
Business
combination
|
Consolidation of TVA
|
Net book value as of 12/31/2011
|
||||||||||||||||||||||||||||
Switching equipment
|
10.00 | 1,234,081 | 60,166 | (5,087 | ) | 390,972 | (346,804 | ) | 617,757 | - | 1,951,085 | |||||||||||||||||||||||||
Transmission equipment
|
5.00 to 10.00
|
3,709,166 | 377,411 | (49,123 | ) | 1,106,119 | (847,229 | ) | 2,441,209 | 25,282 | 6,762,835 | |||||||||||||||||||||||||
Terminal equipment and modems
|
10.00 to 66.67
|
1,274,037 | 991,417 | (4,819 | ) | 1,081 | (1,002,764 | ) | 258,714 | 29,387 | 1,547,053 | |||||||||||||||||||||||||
Infrastructure
|
4.00 to 12.50
|
2,811,505 | 228,124 | (61,059 | ) | 492,876 | (703,375 | ) | 1,851,056 | 845 | 4,619,972 | |||||||||||||||||||||||||
TV equipment and materials
|
8.00 to 20.00
|
187,343 | 125,865 | - | (53,488 | ) | (109,607 | ) | - | 29,056 | 179,169 | |||||||||||||||||||||||||
Other
|
10.00 to 20.00
|
218,469 | 160,948 | (4,879 | ) | 48,747 | (193,108 | ) | 556,973 | 1,232 | 788,382 | |||||||||||||||||||||||||
Provision for losses (a)
|
(41,373 | ) | - | 8,985 | 8,953 | - | - | - | (23,435 | ) | ||||||||||||||||||||||||||
Property, plant and equipment in progress
|
807,469 | 2,068,327 | (12,609 | ) | (2,009,147 | ) | - | 472,649 | 2,170 | 1,328,859 | ||||||||||||||||||||||||||
Total
|
10,200,697 | 4,012,258 | (128,591 | ) | (13,887 | ) | (3,202,887 | ) | 6,198,358 | 87,972 | 17,153,920 |
13.
|
Property, plant and equipment, net
|
Annual depreciation
rate %
|
Net book value as of 12/31/2009
|
Additions
|
Disposals, net
|
Transfers, net (b)
|
Depreciation
|
Net book value as of 12/31/2010
|
||||||||||||||||||||||
Switching equipment
|
10.00 | 1,038,595 | 115,444 | 91 | 295,996 | (216,045 | ) | 1,234,081 | ||||||||||||||||||||
Transmission equipment
|
5.00 to 10.00
|
3,354,458 | 339,740 | (4,188 | ) | 391,947 | (372,791 | ) | 3,709,166 | |||||||||||||||||||
Terminal equipment and modems
|
10.00 to 66.67
|
1,183,554 | 575,672 | (4,121 | ) | 79,378 | (560,446 | ) | 1,274,037 | |||||||||||||||||||
Infrastructure
|
4.00 to 12.50
|
2,990,801 | 71,235 | (40,405 | ) | 96,139 | (306,265 | ) | 2,811,505 | |||||||||||||||||||
TV equipment and materials
|
8.00 to 20.00
|
327,898 | 17,066 | (261 | ) | (82,586 | ) | (74,774 | ) | 187,343 | ||||||||||||||||||
Other
|
10.00 to 20.00
|
225,996 | 64,325 | (1,299 | ) | 5,729 | (76,282 | ) | 218,469 | |||||||||||||||||||
Provision for losses (a)
|
(15,985 | ) | 7 | - | (25,395 | ) | - | (41,373 | ) | |||||||||||||||||||
Property, plant and equipment in progress
|
566,820 | 1,013,334 | (12,170 | ) | (760,515 | ) | - | 807,469 | ||||||||||||||||||||
Total
|
9,672,137 | 2,196,823 | (62,353 | ) | 693 | (1,606,603 | ) | 10,200,697 |
(a)
|
The Company and its subsidiaries recognized a provision for possible obsolescence of materials used for assets maintenance based on historical and expected future use.
|
(b)
|
See transfers made on Intangible assets.
|
2011
|
Cost
|
Accumulated
depreciation
|
Net book
value
|
|||||||||
Switching equipment
|
15,084,380 | (13,133,295 | ) | 1,951,085 | ||||||||
Transmission equipment
|
30,051,932 | (23,289,097 | ) | 6,762,835 | ||||||||
Terminal equipment and modems
|
8,830,900 | (7,283,847 | ) | 1,547,053 | ||||||||
Infrastructure
|
13,124,946 | (8,504,974 | ) | 4,619,972 | ||||||||
TV materials and equipment
|
907,865 | (728,696 | ) | 179,169 | ||||||||
Other
|
3,546,825 | (2,758,443 | ) | 788,382 | ||||||||
Provision for losses
|
(23,435 | ) | - | (23,435 | ) | |||||||
Property, plant and equipment in progress
|
1,328,859 | - | 1,328,859 | |||||||||
Total
|
72,852,272 | (55,698,352 | ) | 17,153,920 |
2010
|
Cost
|
Accumulated
depreciation
|
Net book
value
|
|||||||||
Switching equipment
|
11,795,681 | (10,561,600 | ) | 1,234,081 | ||||||||
Transmission equipment
|
19,122,768 | (15,413,602 | ) | 3,709,166 | ||||||||
Terminal equipment and modems
|
4,777,349 | (3,503,312 | ) | 1,274,037 | ||||||||
Infrastructure
|
8,477,774 | (5,666,269 | ) | 2,811,505 | ||||||||
TV materials and equipment
|
614,921 | (427,578 | ) | 187,343 | ||||||||
Other
|
1,429,962 | (1,211,493 | ) | 218,469 | ||||||||
Provision for losses
|
(41,373 | ) | - | (41,373 | ) | |||||||
Property, plant and equipment in progress
|
807,469 | - | 807,469 | |||||||||
Total
|
46,984,551 | (36,783,854 | ) | 10,200,697 |
14.
|
Intangible assets, net
|
2011
|
2010
|
|||||||
Goodwill
|
10,225,280 | 1,064,792 | ||||||
Other intangibles assets
|
19,828,404 | 665,682 | ||||||
Total
|
30,053,684 | 1,730,474 |
Goodwill
|
2010
|
Business
Combination
|
2011
|
|||||||||
Ajato Telecomunicações Ltda.
|
149 | - | 149 | |||||||||
Goodwill Spanish and Figueira (merged in TDBH) (a)
|
212,058 | - | 212,058 | |||||||||
Santo Genovese Participações Ltda. (b)
|
71,892 | - | 71,892 | |||||||||
Telefônica Televisão Participações S.A. (c)
|
780,693 | - | 780,693 | |||||||||
Vivo Participações S.A. (d)
|
- | 7,169,577 | 7,169,577 | |||||||||
Telemig Celular S.A.
|
- | 133,896 | 133,896 | |||||||||
Telemig Celular Participações S.A.
|
- | 1,485,172 | 1,485,172 | |||||||||
Global Telecom S.A.
|
- | 204,762 | 204,762 | |||||||||
Tele Centro Oeste Celular Participações S. A.
|
- | 150,930 | 150,930 | |||||||||
Ceterp Celular S. A.
|
- | 16,151 | 16,151 | |||||||||
Total
|
1,064,792 | 9,160,488 | 10,225,280 |
|
(a)
|
Goodwill arising from the spin-off of Figueira, which was merged into the Company as a result of the merger of Telefônica Data Brasil Holding S.A. (TDBH) in 2006.
|
|
(b)
|
Goodwill arising from the acquisition of control over Santo Genovese Participações Ltda. (controlling shareholder of Atrium Telecomunicações Ltda.) in 2004.
|
|
(c)
|
Goodwill arising from the acquisition of TTP (formerly Navytree), incorporated in 2008 which is based on a future profitability analysis.
|
|
(d)
|
Goodwill arising from the acquisition of Vivo Part. in April 2011. |
Annual depreciation
rate %
|
Net book value as of 12/31/2010
|
Additions
|
Disposals, net
|
Transfers, net
|
Depreciation
|
Business
combination
|
Consolidation of TVA
|
Net book value as of 12/31/2011
|
||||||||||||||||||||||||||||
Software
|
20.00 to 33.33
|
638,975 | 380,942 | (64 | ) | 161,984 | (632,725 | ) | 1,312,044 | - | 1,861,156 | |||||||||||||||||||||||||
Customer Portfolio (Network IP)
|
9.00 to 15.00
|
14,512 | - | - | - | (193,681 | ) | 2,042,000 | - | 1,862,831 | ||||||||||||||||||||||||||
Trademarks and patents
|
5.00 | - | - | - | - | (63,154 | ) | 1,642,000 | - | 1,578,846 | ||||||||||||||||||||||||||
License
|
3.60 to 20.00
|
- | 811,754 | - | - | (483,743 | ) | 14,031,970 | - | 14,359,981 | ||||||||||||||||||||||||||
Goodwill
|
According to contractual terms
|
- | 2,976 | - | - | (1,962 | ) | 6,670 | - | 7,684 | ||||||||||||||||||||||||||
Other
|
10.00 to 20.00
|
12,195 | 10,436 | (314 | ) | (1,263 | ) | (7,842 | ) | 1,487 | 9,768 | 24,467 | ||||||||||||||||||||||||
Software in progress
|
- | 183,179 | - | (146,834 | ) | - | 97,094 | - | 133,439 | |||||||||||||||||||||||||||
Total
|
665,682 | 1,389,287 | (378 | ) | 13,887 | (1,383,107 | ) | 19,133,265 | 9,768 | 19,828,404 |
Annual depreciation
rate %
|
Net book value as of 12/31/2009
|
Additions
|
Disposals, net
|
Transfers, net
|
Depreciation
|
Net book value as of 12/31/2010
|
||||||||||||||||||||||
Software
|
20.00 | 682,776 | 239,986 | - | (159 | ) | (283,628 | ) | 638,975 | |||||||||||||||||||
Customer Portfolio (Network IP)
|
10.00 | 21,768 | - | - | - | (7,256 | ) | 14,512 | ||||||||||||||||||||
Other
|
10.00 to 20.00
|
24,132 | 4,604 | - | (534 | ) | (16,007 | ) | 12,195 | |||||||||||||||||||
Total
|
728,676 | 244,590 | - | (693 | ) | (306,891 | ) | 665,682 |
2011
|
Cost
|
Accumulated
depreciation
|
Net book
value
|
|||||||||
Software
|
8,744,914 | (6,883,758 | ) | 1,861,156 | ||||||||
Customer Portfolio (Network IP)
|
2,114,561 | (251,730 | ) | 1,862,831 | ||||||||
Trademarks and patents
|
1,643,511 | (64,665 | ) | 1,578,846 | ||||||||
License
|
15,937,373 | (1,577,392 | ) | 14,359,981 | ||||||||
Goodwill
|
38,800 | (31,116 | ) | 7,684 | ||||||||
Other
|
683,021 | (658,554 | ) | 24,467 | ||||||||
Software in progress
|
133,439 | - | 133,439 | |||||||||
Total
|
29,295,619 | (9,467,215 | ) | 19,828,404 |
2010
|
Cost
|
Accumulated
depreciation
|
Net book
value
|
|||||||||
Software
|
2,953,275 | (2,314,300 | ) | 638,975 | ||||||||
Customer Portfolio (Network IP)
|
72,561 | (58,049 | ) | 14,512 | ||||||||
Other
|
201,621 | (189,426 | ) | 12,195 | ||||||||
Total
|
3,227,457 | (2,561,775 | ) | 665,682 |
15.
|
Payroll and related accruals
|
2011
|
2010
|
|||||||
Salaries and fees
|
40,651 | 25,583 | ||||||
Payroll charges
|
223,359 | 101,021 | ||||||
Employee profit sharing
|
214,983 | 105,841 | ||||||
Other indemnities
|
16,631 | 74,800 | ||||||
Total
|
495,624 | 307,245 |
16.
|
Trade accounts payable
|
2011
|
2010
|
|||||||
Various suppliers
|
5,384,243 | 2,270,444 | ||||||
Values to pass
|
146,437 | 51,485 | ||||||
Interconnection
|
521,901 | 510,228 | ||||||
Technical assistance
|
29,030 | - | ||||||
Total
|
6,081,611 | 2,832,157 |
17.
|
Taxes payable
|
2011
|
2010
|
|||||||
Direct taxes
|
||||||||
Income tax and social contribution (a)
|
129,610 | 1,329 | ||||||
Indirect taxes
|
2,021,739 | 792,371 | ||||||
ICMS (state VAT) (b)
|
1,610,598 | 635,358 | ||||||
PIS and COFINS (taxes on revenue) (c)
|
319,981 | 120,430 | ||||||
Fust and Funtel (d)
|
39,879 | 20,661 | ||||||
CIDE
|
3,359 | 7,301 | ||||||
Others
|
47,922 | 8,621 | ||||||
Total
|
2,151,349 | 793,700 | ||||||
Current
|
1,691,991 | 754,993 | ||||||
Non-current
|
459,358 | 38,707 |
|
(a)
|
Income and social contribution taxes payable are presented net of payments on an estimated basis.
|
|
(b)
|
The non-current portion includes an amount of R$380,271 at December 31, 2011, which refers to
ICMS – Programa Paraná Mais Emprego
, resulting from an agreement with the Paraná State Government involving the deferral of ICMS tax payment. This agreement indicates that the ICMS becomes due in the 49
th
month following the month in which ICMS tax is calculated. This amount is adjusted to the variation of the Annual Indexation Factor (FCA).
|
|
(c)
|
Includes the amounts for which the Company received a tax infraction notice for having carried out the COFINS compensation, in January and February 2000, with credits arising from the overpayment of 1/3 of the COFINS paid in 1999, after compensation with CSLL. The litigation awaits special administrative judgment. The Management had recorded the amount of R$47,541 at December 31, 2011, and had an escrow deposit for the same amount. Due to the Tax Recovery Program - REFIS (Law no. 11,941/09), the company requested the waiver of suits and the conversion in income of amounts payable with the resulting raising of the surplus amount.
|
|
(d)
|
The amounts related to Fust and Funtel in connection with proceedings held with ANATEL were reclassified to Provisions (see note 20.2).
|
18.
|
Loans, Financing and Debentures
|
18.1
|
Loans and Financing
|
Currency
|
Annual interest rate
|
Maturity
|
2011 (*)
|
2010 (*)
|
|||||
Loans and financing - BNDES (a)
|
URTJLP
|
TJLP+3.73%
|
Until 2015
|
1,327,147
|
1,715,580
|
||||
Loans and financing - BNDES (a)
|
URTJLP
|
TJLP+1.73%
|
Until 2015
|
71,821
|
92,842
|
||||
Loans and financing - BNDES
|
BRL
|
5.50%
|
Until 2021
|
1,912
|
-
|
||||
Loans and financing – Mediocrédito
|
US$
|
1.75%
|
Until 2014
|
14,027
|
17,304
|
||||
Loan – working capital
|
BRL
|
108.90% of CDI
|
Until 2012
|
91,570
|
-
|
||||
Loan – Resolution 4131
|
US$
|
4.10%
|
Until 2013
|
282,205
|
-
|
||||
Loans and financing - BNDES (b)
|
URTJLP
|
TJLP+1.48% to 4.30%
|
Until 2019
|
1,659,858
|
-
|
||||
Loans and financing - BNDES
|
UMBND
|
5.97%
|
Until 2019
|
194,276
|
-
|
||||
Loans and financing - BNDES (c)
|
R$
|
4.50% to 5.50%
|
Until 2020
|
135,471
|
-
|
||||
Loans - European Bank of Investments – BEI
|
US$
|
4.18% to 4.47%
|
Until 2015
|
707,975
|
-
|
||||
Loans and financing - Banco do Nordeste do Brasil – BNB
|
R$
|
10.00%
|
Until 2016
|
438,279
|
-
|
||||
BBVA Comission
|
-
|
0.43%
|
Until 2015
|
221
|
-
|
||||
Loans and financing – BNDES (d)
|
URTJLP
|
TJLP+5.70%
|
Until 2016
|
2,071
|
-
|
||||
Loans and financing – BNDES (d)
|
URTJLP
|
TJLP+9.00%
|
Until 2016
|
2,341
|
-
|
||||
Loans and financing - BNDES PSI (c)
|
R$
|
5.50%
|
Until 2016
|
17,628
|
-
|
||||
Loans and financing - Leasing
|
R$
|
14.70%
|
2013
|
726
|
-
|
||||
Total consolidated
|
4,947,528
|
1,825,726
|
|||||||
Current
|
988,413
|
420,412
|
|||||||
Non-Current
|
3,959,115
|
1,405,314
|
a)
|
In October 2007, a credit facility for the Company was approved to finance investments in services and products produced domestically. All of these resources have been drawn and their investments are proven and accepted by BNDES.
|
b)
|
In August 2007 Vivo S.A. entered into a credit facility with BNDES in the amount of R$1,530,459. The funds borrowed were used to finance investment projects in order to expand coverage and increase network capacity throughout the country. Vivo S.A. received the funding gradually and there was no remaining amount available under this credit facility on December 31, 2011. This agreement has a term of seven years, with repayment of principal in 60 consecutive monthly installments commencing September 15, 2009, after a grace period of two years.
|
c)
|
On January 2010, a financing line with the BNDES in the amount up to R$319.927 was approved through the Investment Maintenance Program (BNDES-PSI). The funds borrowed are being used to improve the network capacity through the acquisition of domestic equipment under previously signed equipment financing with BNDES (Finame), and released as investments are made. Until December 31, 2011 R$184,489 were granted (R$171,673 until December 31, 2010).
|
d)
|
In November 2010 and March 2011 BNDES approved credit facilities for Comercial Cabo TV São Paulo S.A. in the amount of R$40,163. Until December 31, 2011 R$24,237 were released. This operation also falls under the scope of IAS 20, due to the fact that interest rates are lower than market rates (5.5% pa pre-fixed), and the subsidy granted by BNDES, adjusted to present value, resulted in
the amount of R$2,401 as of December 31, 2011.
|
18.2
|
Debentures
|
Currency
|
Annual interest rate
|
Maturity
|
2011
|
||||
Debentures (2nd issuance) – Series 2
|
R$
|
106.00% of CDI
|
Until 2012
|
346,470
|
|||
Debentures (4th issuance) – Series 1 and 2
|
R$
|
108.00% to 112.00% of CDI
|
Until 2013
|
756,617
|
|||
Debentures (4th issuance) – Series 3
|
R$
|
IPCA+7.00%
|
Until 2014
|
87,390
|
|||
Debentures (1st issuance) – Telemig
|
R$
|
IPCA+0.50%
|
Until 2021
|
67,935
|
|||
Issuance costs
|
R$
|
(1,981)
|
|||||
Total
|
1,256,431
|
||||||
Current
|
468,624
|
||||||
Non-current
|
787,807
|
18.3
|
Payment Schedule
|
Year
|
||||
2013
|
1,798,058 | |||
2014
|
1,096,240 | |||
2015
|
916,949 | |||
2016
|
273,038 | |||
2017
|
220,109 | |||
From 2018
|
442,528 | |||
Total
|
4,746,922 |
18.4
|
Restrictive Clauses
|
18.5
|
Guarantees
|
Banks
|
Amount of loan/financing
|
Guarantees
|
||
BNDES
|
R$1,659,858 (URTJLP)
R$194,276 (UMBND)
R$135,471 (PSI Contract)
|
·
Contract (2007) R$823,562: Guarantee in receivables referring to 15% of the higher between the debt balance or 4 (four) times the highest installment.
·
Contract (PSI) R$135,471: Sale of financed assets.
·
Contract (2011) R$1,030,572: Guarantee in receivables referring to 15% of the higher between the debt balance or 4 (four) times the highest installment.
·
Telefônica Brasil is the intervening guarantor
|
||
European Bank of Investment – BEI
|
R$707,975
|
·
Commercial risk guaranteed by Banco BBVA Espanha.
|
||
BNB
|
R$438,279
|
·
Bank guarantee granted by Banco Bradesco S.A. in an amount equivalent to 100% of the debit balance of the financing obtained.
·
Establishing a liquidity fund comprised of short-term investments at an amount equivalent to 3 (three) amortization installments by reference to the average post-grace period installment. Investments amount: R$55,679.
·
Telefônica Brasil is the intervening guarantor.
|
19.
|
Dividends and interest on shareholders’ equity payable
|
2011
|
2010
|
|||||||
Telefónica International S.A.
|
156,589 | 113,839 | ||||||
SP Telecomunicações Participações Ltda.
|
126,283 | 37,407 | ||||||
Telefónica S.A.
|
129,489 | - | ||||||
Compañia de Telecomunicaciones de Chile S.A.
|
310 | - | ||||||
Minority shareholders
|
560,315 | 299,651 | ||||||
Total
|
972,986 | 450,897 |
20.
|
Provisions
|
2011
|
2010
|
|||||||
Provisions for claims and litigations
|
||||||||
Labor
|
526,210 | 366,391 | ||||||
Tax
|
1,580,448 | 310,649 | ||||||
Civil and regulatory
|
664,703 | 446,159 | ||||||
Subtotal
|
2,771,361 | 1,123,199 | ||||||
Provision for post-employed benefits (note 35)
|
308,893 | 219,000 | ||||||
Contingent liabilities (a)
|
256,044 | - | ||||||
Provision for dismantling
|
200,813 | 16,712 | ||||||
Total
|
3,537,111 | 1,358,911 | ||||||
Current
|
416,313 | 240,213 | ||||||
Non-current
|
3,120,798 | 1,118,698 |
Nature
|
||||||||||||||||
Labor
|
Tax
|
Civil
|
Total
|
|||||||||||||
Balance as of 12/31/2009
|
404,106 | 262,527 | 443,810 | 1,110,443 | ||||||||||||
Additions
|
15,772 | 26,929 | 60,799 | 103,500 | ||||||||||||
Payments - reversal
|
(69,684 | ) | (276 | ) | (129,351 | ) | (199,311 | ) | ||||||||
Monetary restatement
|
16,197 | 21,469 | 70,901 | 108,567 | ||||||||||||
Balances as of 12/31/2010
|
366,391 | 310,649 | 446,159 | 1,123,199 | ||||||||||||
Business combination
|
93,739 | 1,110,515 | 162,266 | 1,366,520 | ||||||||||||
Consolidation of TVA
|
646 | - | 10,291 | 10,937 | ||||||||||||
Additions
|
112,300 | 66,569 | 172,518 | 351,387 | ||||||||||||
Payments
|
(26,696 | ) | (11,143 | ) | (117,734 | ) | (155,573 | ) | ||||||||
Reversal
|
(32,088 | ) | (6,760 | ) | (57,144 | ) | (95,992 | ) | ||||||||
Monetary restatement
|
11,918 | 110,618 | 48,347 | 170,883 | ||||||||||||
Balance as of 12/31/2011
|
526,210 | 1,580,448 | 664,703 | 2,771,361 | ||||||||||||
Current
|
74,430 | 23,302 | 318,581 | 416,313 | ||||||||||||
Non-current
|
451,780 | 1,557,146 | 346,122 | 2,355,048 |
20.1
|
Labor contingencies and provisions
|
20.2
|
Tax contingencies and provisions
|
20.3
|
Civil contingencies and provisions
|
a)
|
Suits for additional shares. These refer to suits involving the Company and addressing the right to receive additional shares calculated with regard to network expansion plans after 1996. These suits are at various stages: first stage, Supreme Court and Federal Superior Court of Appeals, Considering the risk of a probable loss, provision was recorded in the amount of R$26,182.
|
b)
|
The Company and its subsidiaries are defendants in several civil claims, at several levels, related to service rendering. Such claims have been filed by individual consumers, civil associations representing consumer rights or by the Bureau of Consumer Protection (PROCON), as well as by the Federal and State Public Ministry. They are also defendants in other claims of several types, related to the normal course of business. Total provision recorded for such issues amounts to R$315,169 (consolidated).
|
c)
|
The Company is also involved in several lawsuits filed by individual consumers, with similar characteristics, which individually are not considered to be material. A provision in the amount of R$81,539 was recorded, based on statistical analysis of the average historical losses for such claims.
|
|
d)
|
At December 31, 2011, the Company and its subsidiaries were involved in several administrative proceedings against ANATEL, which were filed based on alleged non-compliance with the obligations established in industry regulations, as well as in legal claims discussing sanctions by ANATEL at administrative level, whose likelihood of an unfavorable outcome was assessed as probable, and a provision was recorded in the amount of R$241,813.
|
|
a)
|
Community Telephone Plan – PCT. Refers to a Public Civil Action to which the Company is party related to the PCT, a plan that claims the possible indemnity rights to purchasers of telephone line expansion plans who did not receive shares for their financial investment in the municipality of Mogi das Cruzes. The total amount involved is approximately R$197,863. Legal counsel assessed chances of loss as possible;
São Paulo Court of Justice (TJSP) has amended the decision, judging the action as inadmissible. The telephony association of Mogi das Cruzes (plaintiff) filed a special appeal to alter this judgment, which is currently awaiting a decision.
|
|
b)
|
Class actions filed by SISTEL Participants Association in the State of São Paulo, in which participants question the changes made to the health care plan for retired employees (PAMA), claiming the re-establishment of previous ´status quo’. The claim is still in process as there is no judicial decision in any instance. The risk of loss attributed to this lawsuit by the Company’s legal counsels is possible. The amount is inestimable and the requests illiquid due to its unenforceability, since they involve the return of the conditions regarding the former plan.
|
|
c)
|
Public civil actions filed by the i) ASTEL-SISTEL Members Association in the State of Sao Paulo and by ii) FENAPAS - National Federation of Associations of Pensioners, Pensioners and Pension Funds Participants in the Telecommunication Sector, both against SISTEL, the Company and other operators, aiming the annulment of PBS pension plan split, claiming “the dismantling of SISTEL Foundation pension system, which originated several specific plans PBS-mirrors, and corresponding allocation of resources deriving from technical surplus and tax contingencies existing at the time of the split. The risk attributed to this lawsuit by the Company’s legal counsels is possible. The amount is inestimable and the requests illiquid due to its unenforceability, since it involves the assets spun-off from SISTEL referring to the telecommunication operators of the former Telebrás System.
|
|
d)
|
The Public Prosecutor Office of the State of São Paulo commenced a class action claiming moral and property damages suffered by all consumers of telecommunications services from 2004 to 2009 due to the bad quality of services and failures of the communications system. The public Prosecutor Office suggested that the indemnification to be paid should be R$1 billion. The decision handed down on April 20, 2010 imposes the payment of indemnification for damages caused to all consumers who have filed a suit for such damages. Conversely, in the event that the number of consumers claiming should the award is not in line with the gravity of their damages, after the lapsing of one year, the judge determined that the amount of R$60 million should be deposited in the Special Expenses Fund to Recover Natural Rights Damages (
Fundo Especial de Despesa de Reparação de Interesses Difusos Lesados
). It is not possible to estimate the number of consumers who will individually file suits nor the amounts claimed thereby. The Company filed an appeal on the merits of the case. The judgment effects are in abeyance. No amount has been assigned to the possible likelihood of an unfavorable outcome in connection with this action, since in the case of loss, estimating the corresponding amount payable by the Company is not practicable at this time. Likewise, establishing a provision for contingency equivalent to the amount sought is not possible.
|
|
e)
|
The Company and its subsidiaries are involved in other civil claims, at several levels, related to service rendering. Such claims have been filed by individual consumers, civil associations representing consumer rights or by the Bureau of Consumer Protection (PROCON), as well as by the Federal and State Public Ministry. They are also involved in other claims of several types, related to the normal course of business. Total contingency amounts to R$920,509, whose likelihood of an unfavorable outcome has been assessed by their legal advisors as possible.
|
|
f)
|
Ownership of Caller ID. Lune Projetos Especiais Telecomunicação Comércio e Ind. Ltda., a Brazilian company, filed on November 20, 2001 lawsuits against 23 wireless telecommunications operators, including TELESP Celular Participações and its subsidiaries. The lawsuits allege that those operators violated patent No. 9202624-9, related to Equipamento Controlador de Chamadas Entrantes e do Terminal do Usuário, or Caller ID, granted to Lune by the Brazilian Intellectual Property Agency–INPI, on September 30, 1997. Lune called on the operators to cease to provide Caller ID services and sought payment from them for the unauthorized use of the Caller ID system in an amount equivalent to the payment of fees received by such operators for use of the Caller ID system. On October 5, 2011, the law suit was judged groundless against the Phone Companies. Vivo will file an appeal due to this decision. This decision is not final, and will be tried before the Court and Superior Court of Justice. However, Lune’s right to use patent No. 9202624-9 was suspended by a federal judge in response to a lawsuit filed against Lune and INPI by Ericsson Telecomunicações S.A., TC and Telerj Celular (formerly Vivo subsidiaries before our corporate restructuring) filed identical lawsuits against Lune and INPI and those lawsuits are still pending before the courts. In connection with this proceeding, a third company, Sonintel, and its two partners also brought an Ação de Oposição, whereby they reinvoked their rights to a previous patent related to Caller ID, and to which the above mentioned patent (No. 9202624-9) was linked. The Company believes that based on the opinion of outside counsel that the likelihood of an unfavorable outcome with respect to Lune’s claim against it is possible and is unable to determine at this time the extent of any potential liabilities with respect to this claim.
|
|
g)
|
At December 31, 2011, the Company and its subsidiaries are involved in administrative proceedings filed based on alleged non-compliance with the obligations established in industry regulations, as well as legal claims which discuss the sanctions by ANATEL at administrative level, rating the risk of loss as possible for R$860,601.
We point out an increase in the amount assessed as possible risk of the company due to the revaluation of proceedings completed in March, in light of the significant change in methodologies for application of sanctions by ANATEL to sanction the utility companies.
|
|
a)
|
Administrative proceedings discussing payment of 2% charge on revenue from interconnection services due to the extension of right of use of SMP related radio frequencies:
Under clause 1.7 of the Authorization Terms that grant right of use of SMP related radio frequencies, the extension of right of use of such frequencies entails payment every two years, during the extension period (15 years), of a 2% charge calculated on net revenue from the basic and alternative service plans of the service company, determined in the year before that of payment.
However, ANATEL determined that the 2% charge should be calculated on revenue from service plans as well as revenue from interconnection services, which is not provided for by clause 1.7 of the referred to Authorization Terms.
|
b)
|
Administrative Proceeding No. 08012.008501/2007-91
|
20.4
|
Guarantees
|
Property and equipment
|
Escrow deposits
|
Letter bond
|
||||||||||
Civil, labor and tax
|
70,317 | 3,443,460 | 1,494,011 | |||||||||
Total
|
70,317 | 3,443,460 | 1,494,011 |
21.
|
Deferred revenues
|
2011
|
2010
|
|||||||
Activation revenue
|
67,672 | 72,671 | ||||||
Payphone cards
|
15,783 | 20,847 | ||||||
Services and goods (a)
|
583,751 | - | ||||||
Government grants (c)
|
8,322 | - | ||||||
Loyalty program (d)
|
68,821 | - | ||||||
Other
|
16,919 | 9,821 | ||||||
Total current
|
761,268 | 103,339 | ||||||
Activation revenue
|
30,792 | 28,383 | ||||||
Services and goods (a)
|
48,095 | - | ||||||
Equipment donations (b)
|
22,638 | - | ||||||
Government grants (c)
|
44,880 | - | ||||||
Other
|
9,861 | 10,017 | ||||||
Total non-current
|
156,266 | 38,400 |
|
a)
|
Refers to the balances of agreements of prepaid services revenue and multi-element operations, which are recognized income to the extent that services are provided to clients.
|
|
b)
|
Refers to the balances of network equipment donations from suppliers, which are amortized by the useful life of this equipment.
|
|
c)
|
Refers to government grant obtained by subsidiary Vivo S.A. deriving from funds raised with BNDES in a specific credit line (PSI Program), used in the acquisition of domestic equipment and registered at BNDES (Finame) and applied in projects to expand the network capacity, which have been amortized by the useful life of equipment.
|
|
d)
|
Refers to the fidelity points program that the wholly-owned subsidiary Vivo S.A. maintains, which allows customers to accumulate points when paying their bills referring to use of services offered by such subsidiaries. The accumulated points may be exchange for telephone sets or services, conditional upon obtaining a minimum balance of points by customer. The consideration received is allocated to the cost of sets or services at fair value. The fair value of points is determined dividing the amount of discount granted by the number of points necessary for the redemption based on the points program. The fair value of the accumulated balance of points generated is deferred and recognized as revenue upon redemption of points.
|
22.
|
Other Liabilities
|
2011
|
2010
|
|||||||
Consignments on behalf of third parties
|
252,807 | 88,238 | ||||||
Amounts to be refunded to subscribers
|
59,265 | 54,666 | ||||||
Concession renewal fee (note 1.b.1)
|
- | 102,568 | ||||||
Finance Lease (a)
|
11,669 | 11,507 | ||||||
Liabilities to related parties (note 32)
|
66,490 | 120,981 | ||||||
Other
|
32,087 | 5,998 | ||||||
Current
|
422,318 | 383,958 | ||||||
Finance Lease (a)
|
9,398 | 23,346 | ||||||
Liabilities to related parties (note 32)
|
4,976 | 10,738 | ||||||
Other
|
53,884 | 30,125 | ||||||
Non current
|
68,258 | 64,209 |
(a)
|
The Company has finance lease contracts for the use of IT equipment.
|
2011
|
2010
|
|||||||
Future payments of the gross finance lease
|
23,920 | 42,194 | ||||||
Unrealized financial expense
|
(2,853 | ) | (7,341 | ) | ||||
Present value of minimum payments due
|
21,067 | 34,853 | ||||||
Current
|
11,669 | 11,507 | ||||||
Noncurrent
|
9,398 | 23,346 |
Maturity schedule:
|
||||||||
Year
|
Gross investment
|
Present value
|
||||||
Maturing within one year
|
11,669 | 11,669 | ||||||
Maturing more than one year but within five years
|
12,251 | 9,398 | ||||||
Total
|
23,920 | 21,067 |
Year
|
Value
|
|||
Up to one year
|
1,227,224 | |||
One to five years
|
5,454,595 | |||
More than five years
|
2,067,975 | |||
Total
|
8,749,794 |
23.
|
Shareholders’ equity
|
a)
|
Capital
|
b)
|
Capital reserves
|
c)
|
Treasury shares
|
d)
|
Revenue reserves
|
e)
|
Goodwill reserve
|
f)
|
Dividends – Remaining balance – retained earnings as of December 31, 2010
|
g)
|
Interim dividends – fiscal year 2011
|
h)
|
Interest on shareholders’ equity – fiscal year 2011
|
Minimum mandatory dividends calculated based on adjusted net income
|
2011
|
2010
|
||||||
Net Income for the year
|
4,355,318 | 2,398,836 | ||||||
Appropriation to legal reserve
|
(217,766 | ) | - | |||||
Adjusted net income for the year
|
4,137,552 | 2,398,836 | ||||||
Minimum mandatory dividends - 25% of adjusted net income
|
1,034,388 | 599,709 | ||||||
Dividends and interest on shareholders’ equity distributed:
|
||||||||
Interest on Shareholders’ Equity (Gross)
|
1,867,000 | 592,000 | ||||||
Interim Dividends
|
382,400 | 196,355 | ||||||
Profit available for distribution
|
1,888,152 | 1,610,481 | ||||||
(+) Interest on Shareholders’ Equity / Prescribed Dividends
|
107,874 | 134,440 | ||||||
(-) Actuarial (Gains) / losses recognized and effect of the limitation of the surplus plan assets, net of tax
|
(42,997 | ) | (42,063 | ) | ||||
(-) Total effects of IFRS on 2009 equity
|
- | (8,759 | ) | |||||
Additional proposed dividend
|
1,953,029 | 1,694,099 |
2011
|
2010
|
|||||||||||||||
Amounts in R$ per share (a)
|
Gross
|
Net
|
Gross
|
Net
|
||||||||||||
Interest on shareholders’ equity - common
|
1.557913 | 1.324226 | 1.097180 | 0.932603 | ||||||||||||
Interest on shareholders’ equity - preferred
|
1.713705 | 1.456649 | 1.206898 | 1.025863 |
2011
|
||||||||
Amounts in R$ per share (a)
|
Common
|
Preferred
|
||||||
Interim dividends declared in March 2011
|
3.139752 | 3.453727 | ||||||
Interim dividends declared in September 2011
|
0.319058 | 0.350964 | ||||||
Interest on shareholders’ equity - net of withholding tax
|
0.886505 | 0.975156 | ||||||
Interest on shareholders’ equity - net of withholding tax
|
0.437720 | 0.481492 | ||||||
4.783035 | 5.261339 |
2010
|
||||||||
Amounts in R$ per share (a)
|
Common
|
Preferred
|
||||||
Interim dividends declared in April 2010
|
2.319731 | 2.551704 | ||||||
Interim dividends declared in September 2010
|
0.363913 | 0.400305 | ||||||
Interest on equity - net income tax
|
0.614384 | 0.675822 | ||||||
Interest on equity - net income tax
|
0.318219 | 0.350041 | ||||||
3.616247 | 3.977872 |
(a)
|
Do not include the amount of proposed dividends.
|
Total proposed for approval
|
1,953,029 |
Value per share
|
Common
|
Preferred
1
|
||||||
Total proposed for approval – amount per share
|
1.630092 | 1.793102 |
i)
|
Interest on shareholders’ equity
|
2011
|
2010
|
|||||||
Gross interest on shareholders’ equity
|
1,867,000 | 592,000 | ||||||
Common shares
|
594,113 | 184,995 | ||||||
Preferred shares
|
1,272,887 | 407,005 | ||||||
Withholding income tax
|
(280,050 | ) | (88,800 | ) | ||||
Interest on shareholders’ equity, net of withholding tax
|
1,586,950 | 503,200 |
j)
|
Prescribed dividends
|
24.
|
Net operating revenue
|
2011
|
2010
|
2009
|
||||||||||
Telephony services
|
24,331,263 | 15,366,014 | 16,234,008 | |||||||||
Network usage
|
3,785,017 | 523,787 | 487,803 | |||||||||
Data Transmission and value added services
|
10,929,344 | 5,028,441 | 4,685,432 | |||||||||
Pay TV
|
865,376 | 587,374 | 600,270 | |||||||||
Sale of goods and equipment
|
2,135,165 | 166,464 | 207,860 | |||||||||
Other services
|
1,026,986 | 936,970 | 997,147 | |||||||||
Gross operating revenue
|
43,073,151 | 22,609,050 | 23,212,520 | |||||||||
ICMS
|
(8,800,749 | ) | (4,702,669 | ) | 4,808,841 | |||||||
PIS and COFINS
|
(1,780,503 | ) | (864,994 | ) | 927,637 | |||||||
ISS
|
(45,576 | ) | (39,441 | ) | 41,930 | |||||||
Deductions
|
(3,317,583 | ) | (1,203,695 | ) | 1,581,579 | |||||||
Net operating revenue
|
29,128,740 | 15,798,251 | 15,852,533 |
25.
|
Costs of goods and services
|
2011
|
2010
|
2009
|
||||||||||
Depreciation and amortization
|
(3,582,633 | ) | (1,687,449 | ) | (2,255,338 | ) | ||||||
Personnel
|
(380,067 | ) | (257,385 | ) | (210,473 | ) | ||||||
Means of connections
|
(536,495 | ) | (342,257 | ) | (302,970 | ) | ||||||
Interconnection
|
(4,537,124 | ) | (4,176,714 | ) | (3,933,125 | ) | ||||||
Outside services
|
(2,463,516 | ) | (1,841,072 | ) | (1,853,136 | ) | ||||||
Rental / insurance / condominium
|
(374,008 | ) | (22,046 | ) | (40,996 | ) | ||||||
Taxes
|
(1,358,835 | ) | (240,346 | ) | (343,191 | ) | ||||||
Concession fee (note 1.b.1)
|
(84,284 | ) | (102,568 | ) | - | |||||||
Other
|
(68,098 | ) | (19,318 | ) | (13,649 | ) | ||||||
Total of service costs
|
(13,385,060 | ) | (8,689,155 | ) | (8,952,878 | ) | ||||||
Costs of goods
|
(1,343,111 | ) | (155,650 | ) | (283,508 | ) | ||||||
Total
|
(14,728,171 | ) | (8,844,805 | ) | (9,236,386 | ) |
26.
|
Selling expenses
|
2011
|
2010
|
2009
|
||||||||||
Depreciation and amortization
|
(684,891 | ) | (123,043 | ) | (143,091 | ) | ||||||
Personnel
|
(1,049,978 | ) | (443,386 | ) | (395,606 | ) | ||||||
Outside services
|
(3,853,450 | ) | (1,730,908 | ) | (1,204,566 | ) | ||||||
Allowance for doubtful accounts
|
(506,581 | ) | (386,340 | ) | (564,580 | ) | ||||||
Rental / insurance / condominium
|
(79,239 | ) | (9,434 | ) | (13,451 | ) | ||||||
Publicity
|
(735,622 | ) | (224,796 | ) | (183,377 | ) | ||||||
Others
|
(251,597 | ) | - | - | ||||||||
Donation and sponsorships
|
(98,345 | ) | (46,725 | ) | (23,814 | ) | ||||||
Total
|
(7,259,703 | ) | (2,964,632 | ) | (2,528,485 | ) |
27.
|
General and administrative expenses
|
2011
|
2010
|
2009
|
||||||||||
Depreciation and amortization
|
(318,470 | ) | (103,002 | ) | (107,046 | ) | ||||||
Personnel
|
(557,355 | ) | (287,866 | ) | (187,797 | ) | ||||||
Outside services
|
(693,260 | ) | (300,101 | ) | (416,802 | ) | ||||||
Rental / insurance / condominium
|
(105,985 | ) | (32,922 | ) | (34,506 | ) | ||||||
Others
|
(110,588 | ) | (14,955 | ) | (59,202 | ) | ||||||
Total
|
(1,785,658 | ) | (738,846 | ) | (805,353 | ) |
28.
|
Other operating income (expenses), net
|
2011
|
2010
|
2009
|
||||||||||
Fines and expenses recovered
|
366,124 | 195,066 | 274,277 | |||||||||
Donation and sponsorships
|
(8,612 | ) | (19,117 | ) | (14,684 | ) | ||||||
Provision for civil, labor and tax contingencies, net
|
(367,554 | ) | (116,996 | ) | (42,487 | ) | ||||||
Profit on disposal of assets (a)
|
482,115 | 230,335 | (14,374 | ) | ||||||||
Profit on sales of investments
|
- | 87,151 | - | |||||||||
Administrative technical services
|
32,652 | 36,537 | 36,417 | |||||||||
Other expenses
|
(62,567 | ) | (100,497 | ) | (126,352 | ) | ||||||
Total
|
442,158 | 312,479 | 112,797 | |||||||||
Other operating income
|
1,229,862 | 796,285 | 573,792 | |||||||||
Other operating expenses
|
(787,704 | ) | (483,806 | ) | (460,995 | ) | ||||||
Total
|
442,158 | 312,479 | 112,797 |
(a)
|
In 2011, subsidiary Vivo S.A. carried out the disposal of 1,358 of non-strategic towers, transferring their management and maintenance to a third-party company specialized in providing these services for the amount of R$476,038 (R$419,527 net of book value).
In the fourth quarter of 2010, Telefônica Brasil assigned the right to commercially explore spaces existing in approximately 1,085 transmission towers it owns, and transferred the activity of managing and maintaining the telecommunication tower to a third-party company that specializes in providing such services for the amount of R$233,421 (net amount of the monthly rent of land deferred). Considering that significant risks and benefits were transferred, for purposes of the conditions of the concession, such operation was assessed under IAS 17 – Leases perspective, and classified as a financial lease. Net effect on 2010 income statement is recorded as
“
Other Operating Income (Expenses)
”
.
|
29.
|
Financial expenses, net
|
2011
|
2010
|
2009
|
||||||||||
Financial income
|
1,103,359 | 344,354 | 455,888 | |||||||||
Income from short-term investments
|
337,179 | 181,717 | 172,164 | |||||||||
Gains on derivative transactions
|
251,758 | 18,567 | 65,877 | |||||||||
Interest receivable
|
131,521 | 33,834 | 45,545 | |||||||||
Monetary/exchange variations receivable
|
267,665 | 86,950 | 147,471 | |||||||||
Other financial income
|
115,236 | 23,286 | 24,831 | |||||||||
Financial expenses
|
(1,243,051 | ) | (465,092 | ) | (644,680 | ) | ||||||
Interest payable
|
(484,663 | ) | (355,971 | ) | (421,599 | ) | ||||||
Losses on derivative transactions
|
(140,725 | ) | (20,746 | ) | (123,912 | ) | ||||||
Monetary/exchange variations payable
|
(308,966 | ) | (14,499 | ) | (35,640 | ) | ||||||
Others financial expenses
|
(308,697 | ) | (73,876 | ) | (63,529 | ) | ||||||
Net
|
(139,692 | ) | (120,738 | ) | (188,792 | ) |
30.
|
Income and social contribution taxes
|
2011
|
2010
|
2009
|
||||||||||
Income before taxes
|
5,650,794 | 3,444,598 | 3,225,101 | |||||||||
Income and social contribution taxes
|
||||||||||||
Income and social contribution taxes expenses – at 34% rate
|
(1,921,270 | ) | (1,171,163 | ) | (1,096,534 | ) | ||||||
Permanent differences
|
||||||||||||
Equity pickup
|
- | 982 | 6,387 | |||||||||
Interest expense on shareholder’s equity
|
634,780 | 201,280 | 205,700 | |||||||||
Prescribed dividends
|
(5,613 | ) | (7,483 | ) | (14,407 | ) | ||||||
Unrecognized deferred tax assets of subsidiaries
|
(55,671 | ) | (60,726 | ) | (109,670 | ) | ||||||
Non-deductible expenses, gifts, incentives and dividends received
|
(47,576 | ) | (24,532 | ) | (23,237 | ) | ||||||
Other additions (exclusions)
|
96,405 | - | - | |||||||||
Other items
|
||||||||||||
Incentives (cultural, food and transportation)
|
(3,470 | ) | 15,880 | 10,749 | ||||||||
Total general (IRPJ + CSLL)
|
(1,295,475 | ) | (1,045,762 | ) | (1,021,012 | ) | ||||||
Effective rate
|
22.9 | % | 30.4 | % | 31.7 | % | ||||||
Current income and social contribution taxes
|
928,132 | 926,868 | 745,257 | |||||||||
Deferred income and social contribution taxes
|
367,343 | 118,894 | 275,755 | |||||||||
31.
|
Earnings per share
|
2011
|
2010
|
2009
|
||||||||||
Net income attributable to the shareholders:
|
4,355,318 | 2,398,836 | 2,204,089 | |||||||||
Common shares
|
1,381,068 | 749,615 | 688,759 | |||||||||
Preferred shares
|
2,974,250 | 1,649,221 | 1,515,330 | |||||||||
Numbers of shares:
|
928,005 | 505,841 | 505,841 | |||||||||
Weighted average common shares outstanding during the year
|
313,748 | 168,609 | 168,609 | |||||||||
Weighted average preferred shares outstanding during the year
|
614,257 | 337,232 | 337,232 | |||||||||
Basic and diluted earnings per share:
|
||||||||||||
Common shares
|
4.40 | 4.45 | 4.08 | |||||||||
Preferred shares
|
4.84 | 4.89 | 4.49 |
32.
|
Transactions with related parties
|
12/31/2011
|
|||||||||||||||||||||||||||
Company
|
Nature of the transaction
|
Current assets
|
Non-current assets
|
Current liabilities
|
Non-current liabilities
|
Revenues
|
Costs and expenses
|
||||||||||||||||||||
Atento Brasil S.A.
|
a) / c) / e) / f)
|
14,720 | - | 186,692 | 338 | 51,148 | 1,041,829 | ||||||||||||||||||||
SP Telecomunicações Participações Ltda.
|
d) / f) | 4 | - | 126,283 | - | 4 | 357,805 | ||||||||||||||||||||
Telefonica de Espana S.A.
|
a) / e) | 5,320 | - | 3,997 | - | 6,266 | 5,643 | ||||||||||||||||||||
Telefónica del Peru
|
b) | 10,663 | - | 61 | 700 | 3,788 | - | ||||||||||||||||||||
Telefónica Internacional S.A.
|
b) / d) / f)
|
221 | 17,022 | 201,856 | - | 1 | 603,066 | ||||||||||||||||||||
Telefónica International Wholesale Services Brasil Ltda.
|
a) / c) / f)
|
2,131 | 22 | 29,080 | 505 | 5,741 | 88,642 | ||||||||||||||||||||
Telefónica International Wholesale Services Espanha
|
a) / e) / f)
|
6,057 | - | 3,402 | - | 11,918 | 14,625 | ||||||||||||||||||||
Telefónica Móviles Espanha S.A.
|
a) / c) / e) / f)
|
5,424 | - | 5,984 | - | 9,190 | 7,985 | ||||||||||||||||||||
Telefónica S.A.
|
d) / f) | 482 | 1,591 | 172,229 | - | - | 578,363 | ||||||||||||||||||||
Telefônica Serviços Empresariais do Brasil Ltda.
|
b) / c) / e) / f)
|
16,690 | 932 | 10,715 | 2,976 | 6,553 | 94,644 | ||||||||||||||||||||
Telefónica Transportes e Logistica Ltda.
|
c) / f) | 163 | - | 36,610 | 144 | 67 | 80,887 | ||||||||||||||||||||
Terra Networks S.A.
|
a) / b) / e)
|
9,505 | 16 | 1,100 | - | 8,461 | 5,604 | ||||||||||||||||||||
Others
|
a) / c) / e) / f)
|
26,805 | 631 | 32,206 | 313 | 15,263 | 38,377 | ||||||||||||||||||||
Total
|
98,185 | 20,214 | 810,215 | 4,976 | 118,400 | 2,917,470 |
12/31/2010
|
|||||||||||||||||||||||||||
Company
|
Nature of the transaction
|
Current assets
|
Non-current assets
|
Current liabilities
|
Non-current liabilities
|
Revenues
|
Costs and expenses
|
||||||||||||||||||||
Atento Brasil S.A.
|
a) / c)/ e) / f)
|
8,250 | - | 104,330 | 338 | 30,356 | 704,683 | ||||||||||||||||||||
Telefónica International Wholesale Services Brasil Ltda.
|
a) / c) / f)
|
1,752 | 134 | 24,072 | 259 | 3,837 | 80,560 | ||||||||||||||||||||
Grupo Vivo
|
312,910 | 427 | 343,365 | - | 419,445 | 1,816,903 | |||||||||||||||||||||
Telefônica Serviços Empresariais do Brasil Ltda.
|
b) / c) / e) / f)
|
13,167 | 1,943 | 20,200 | 2,324 | 2,261 | 89,118 | ||||||||||||||||||||
Telefónica S.A.
|
d) / f) | 51 | 92 | 35,543 | - | 1,553 | 89,365 | ||||||||||||||||||||
Others
|
a) / c) / e) / f)
|
103,537 | 14,347 | 182,020 | 7,817 | 49,332 | 51,922 | ||||||||||||||||||||
Total
|
439,667 | 16,943 | 709,530 | 10,738 | 506,784 | 2,832,551 |
Antonio Carlos Valente da Silva
|
President of Board of Directors and Chief Executive Officer
|
Santiago Fernández Valbuena
|
Vice-President of Board of Directors
|
Paulo César Pereira Teixeira
|
General and Executive Director
|
Gilmar Roberto Pereira Camurra
|
Chief Financial Officer and Investor Relations Officer
|
Breno Rodrigo Pacheco de Oliveira
|
General Secretary and Executive Legal Officer
|
Cristiane Barretto Sales
|
Controller
|
Antonio Gonçalves Oliveira
|
Member of the Board of Directors
|
Fernando Abril-Martorell Hernandez
|
Member of the Board of Directors
|
Fernando Xavier Ferreira
|
Member of the Board of Directors
|
Francisco Javier de Paz Mancho
|
Member of the Board of Directors
|
Eduardo Navarro de Carvalho
|
Member of the Board of Directors
|
Iñaki Urdangarin
|
Member of the Board of Directors
|
José Fernando de Almansa Moreno-Barreda
|
Member of the Board of Directors
|
Luciano Carvalho Ventura
|
Member of the Board of Directors
|
José Manuel Fernandez Norniella
|
Member of the Board of Directors
|
Luis Javier Bastida Ibarguen
|
Member of the Board of Directors
|
Luiz Fernando Furlan
|
Member of the Board of Directors
|
Paulo César Pereira Teixeira
|
Member of the Board of Directors
|
Roberto de Oliveira Lima
|
Member of the Board of Directors
|
Narcís Serra Serra
|
Member of the Board of Directors
|
33.
|
Insurance
|
Type
|
Insurance coverage
|
|
Operational risks (with loss of profits)
|
R$1,659,430
|
|
Optional civil responsibility - general
|
R$31,740
|
|
ANATEL guarantee insurance
|
R$24,655
|
34.
|
Stock options
|
a)
|
“Performance Share Plan” or “PSP”:
|
|
-
|
The beneficiary must continue to work for the Company throughout the three years of each cycle, subject to certain special conditions relating to departures from the Company.
|
|
-
|
The actual number of shares to be granted at the end of each cycle will depend on the level of success achieved and the maximum number of shares granted to each executive. Success levels are based on the comparison between the evolution of the shareholder’s remuneration taking into consideration share price quote and dividends (“Total Shareholder Return” - TSR) of Telefónica shares, and the evolution of TSRs corresponding to a group of companies quoted in the telecommunications segment, which constitutes the Comparison Group. At the beginning of each cycle, each employee participating in the plan is granted a maximum number of shares, and the actual number of shares to be granted at the end of the cycle is calculated by multiplying this maximum number for the success level achieved at that date. This will be 100%, should the evolution of Telefónica TSR be equal to or above the third quartile of the Comparison Group, and 30% should this evolution be equal to average. In case the evolution is between these amounts, a linear interpolation will be calculated and, in case it is below average, no shares will be granted.
|
Cycle
|
Nº of shares
|
Unit value in euros
|
Date of completion
|
|||
2
nd
cycle July 1, 2007
|
175,534
|
7.70
|
June 30, 2010
|
|||
3
rd
cycle July 1, 2008
|
186,186
|
8.39
|
June 30, 2011
|
Cycle
|
Nº of shares
|
Unit value in euros
|
Date of completion
|
|||
4
th
cycle July 1, 2009
|
245,240
|
8.41
|
June 30, 2012
|
|||
5
th
cycle July, 1, 2010
|
260,611
|
9.08
|
June 30, 2013
|
b)
|
“Performance & Investment Plan” or “PIP”
|
|
-
|
having an active work relation in the Telefónica Group at cycle consolidation date;
|
|
-
|
that Telefónica achieves results that represent compliance with the objectives established for the plan: success level is based on comparison of the evolution of the shareholder’s remuneration, obtained through the (“Total Shareholder Return” - TSR), in relation to the evolution of the TSRs of the companies belonging to the pre-defined Comparison Group.
|
|
-
|
100% shares will be granted if the TSR of Telefónica S.A is above the TSR of the Companies that represent 75% of the stock exchange capitalization of the Comparison Group.
|
|
-
|
30% shares will be granted if the TSR of Telefónica S.A. is on the same level or above the TSR of the Companies that represent 50% of the stock exchange capitalization of the Comparison Group.
|
|
-
|
determined by linear interpolation if the TSR of Telefónica S.A is between 50% and 75% of the stock exchange capitalization of the Comparison Group.
|
|
-
|
will not be granted if the TSR of Telefónica S.A is below the TSR of the Companies that represent 50% of the stock exchange capitalization of the Comparison Group.
|
Cycle
|
Nº of shares
|
Unit value in euros
|
Date of completion
|
|||
1st cycle July 1 2011
|
570,493
|
8.28
|
June 30, 2014
|
c)
|
Global Employee Share Plan” or “GESP”.
|
-
|
The beneficiary must continue to work for the Company throughout the two years of effectiveness of the plan (vesting period), subject to certain special conditions relating to departures from the Company.
|
-
|
The actual number of shares to be granted at the end of the vesting period will depend on the number of shares purchased and maintained by the employees. As such, the employees participating in the Plan who remain in the Group and, who maintained the purchased shares for an additional period of other twelve months after the purchase period, will be entitled to receive one share free-of-charge for each share which they acquired and maintained at the end of the vesting period.
|
Plans
|
2011
|
2010
|
2009
|
|||||||||
PSP
|
R$ | 10,101 | R$ | 9,516 | R$ | 6,422 | ||||||
PIP
|
R$ | 4,509 | - | - | ||||||||
GESP
|
R$ | 2,298 | R$ | 840 | - | |||||||
Total
|
R$ | 16,908 | R$ | 10,356 | R$ | 6,422 |
35.
|
Post-retirement benefit plans
|
Plan
|
%
|
|
PBS Telesp
|
13.96
|
|
PBS Telesp Celular
|
10.78
|
|
PBS Tele Sudeste Celular
|
16.67
|
|
PBS Telemig Celular
|
10.36
|
|
PAMA
|
1.50
|
Plan
|
2011
|
2010
|
||||||
CTB
|
34,615 | 20,818 | ||||||
PAMA
|
273,373 | 198,182 | ||||||
PBS
|
905 | - | ||||||
Total - consolidated
|
308,893 | 219,000 |
a)
|
Reconciliation of assets and liabilities
|
2011
|
|||||||||||||||||||||||||||||
PBS-A (i)
|
CTB
|
PAMA (i)
|
PBS
|
Visão
|
PREV
|
Total
|
|||||||||||||||||||||||
Total actuarial liabilities
|
1,214,453 | 34,615 | 366,660 | 242,227 | 33,986 | 46,251 | 1,938,192 | ||||||||||||||||||||||
Fair value of assets
|
1,882,195 | - | 93,287 | 294,602 | 108,793 | 73,689 | 2,452,566 | ||||||||||||||||||||||
Liabilities (assets), net
|
(667,742 | ) | 34,615 | 273,373 | (52,375 | ) | (74,807 | ) | (27,438 | ) | (514,374 | ) | |||||||||||||||||
Assets limitation
|
667,742 | - | - | 53,195 | 44,375 | 26,745 | 792,057 | ||||||||||||||||||||||
Net liability recognized in the balance sheet
|
- | 34,615 | 273,373 | 905 | - | - | 308,893 | ||||||||||||||||||||||
Net asset recognized in the balance sheet
|
- | - | - | (85 | ) | (30,432 | ) | (693 | ) | (31,210 | ) |
2010 | ||||||||||||||||||||||||
PBS-A (i)
|
CTB
|
PAMA (i)
|
PBS
|
Visão
|
Total
|
|||||||||||||||||||
Total actuarial liabilities
|
1,138,330 | 20,818 | 272,141 | 94,177 | 31,914 | 1,557,380 | ||||||||||||||||||
Fair value of assets
|
1,717,746 | - | 73,959 | 111,613 | 121,377 | 2,024,695 | ||||||||||||||||||
Liabilities (assets), net
|
(579,416 | ) | 20,818 | 198,182 | (17,436 | ) | (89,463 | ) | (467,315 | ) | ||||||||||||||
Assets limitation
|
579,416 | - | - | 17,436 | 62,292 | 659,144 | ||||||||||||||||||
Net liability recognized in the balance
|
- | 20,818 | 198,182 | - | - | 219,000 | ||||||||||||||||||
Net asset recognized in the balance
|
- | - | - | - | (27,171 | ) | (27,171 | ) |
i)
|
Refers to the proportional share of the Company and its subsidiaries in the assets and liabilities of the PAMA and PBS-A multiemployer plans.
|
b)
|
Total expenses recognized in the income statement
|
2011
|
||||||||||||||||||||||||
CTB
|
PAMA
|
PBS
|
Visão
|
PREV
|
Total
|
|||||||||||||||||||
Current service cost
|
- | 252 | 821 | 3,971 | 2,482 | 7,526 | ||||||||||||||||||
Interest cost
|
1,978 | 29,173 | 17,838 | 3,062 | 3,487 | 55,538 | ||||||||||||||||||
Expected return on plan assets
|
- | (8,163 | ) | (25,654 | ) | (6,940 | ) | (5,795 | ) | (46,552 | ) | |||||||||||||
1,978 | 21,262 | (6,995 | ) | 93 | 174 | 16,512 |
2010
|
||||||||||||||||||||
CTB
|
PAMA
|
PBS
|
Visão
|
Total
|
||||||||||||||||
Current service cost
|
- | 159 | 78 | 3,663 | 3,900 | |||||||||||||||
Interest cost
|
2,148 | 23,038 | 8,803 | 2,865 | 36,854 | |||||||||||||||
Expected return on plan assets
|
- | (6,489 | ) | (11,334 | ) | (11,970 | ) | (29,793 | ) | |||||||||||
2,148 | 16,708 | (2,453 | ) | (5,442 | ) | 10,961 |
2009
|
||||||||||||||||||||
CTB
|
PAMA
|
PBS
|
Visão
|
Total
|
||||||||||||||||
Current service cost
|
- | 157 | 135 | 3,368 | 3,660 | |||||||||||||||
Interest cost
|
2,503 | 18,973 | 8,935 | 2,736 | 33,147 | |||||||||||||||
Expected return on plan assets
|
- | (7,064 | ) | (9,976 | ) | (10,381 | ) | (27,421 | ) | |||||||||||
2,503 | 12,066 | (906 | ) | (4,277 | ) | 9,386 |
c)
|
Amounts recognized in other comprehensive income
|
2011
|
||||||||||||||||||||||||
CTB
|
PAMA
|
PBS
|
Visão
|
PREV
|
Total
|
|||||||||||||||||||
Actuarial (gains) losses recognized immediately | 15,398 | 36,581 | 22,643 | 30,628 | (6,552 | ) | 98,698 | |||||||||||||||||
Limitation effect
|
- | - | 35,760 | (17,918 | ) | 26,746 | 44,588 | |||||||||||||||||
Total cost recognized in other comprehensive income | 15,398 | 36,581 | 58,403 | 12,710 | 20,194 | 143,286 |
2010
|
||||||||||||||||||||
CTB
|
PAMA
|
PBS
|
Visão
|
Total
|
||||||||||||||||
Actuarial (gains) losses recognized immediately | (1,809 | ) | 13,069 | (7 | ) | (1,138 | ) | 10,115 | ||||||||||||
Limitation effect
|
- | - | 2,472 | 47,998 | 50,470 | |||||||||||||||
Total cost recognized in other comprehensive income | (1,809 | ) | 13,069 | 2,465 | 46,860 | 60,585 |
2009
|
||||||||||||||||||||
CTB
|
PAMA
|
PBS
|
Visão
|
Total
|
||||||||||||||||
Actuarial (gains) losses recognized immediately | (2,344 | ) | 34,080 | (13,453 | ) | (8,066 | ) | 10,217 | ||||||||||||
Limitation effect
|
- | - | 14,379 | (47,168 | ) | (32,789 | ) | |||||||||||||
Total cost recognized in other comprehensive income | (2,344 | ) | 34,080 | 926 | (55,234 | ) | (22,572 | ) |
d)
|
Changes in net actuarial (assets) liabilities
|
PBS-A
|
CTB
|
PAMA
|
PBS
|
Visão
|
PREV
|
Total
|
||||||||||||||||||||||
Plan liabilities (assets) as of 01/01/2010
|
- | 23,508 | 168,419 | - | (65,185 | ) | - | 126,742 | ||||||||||||||||||||
Expenses in 2010
|
- | 2,148 | 16,708 | (2,453 | ) | (5,442 | ) | - | 10,961 | |||||||||||||||||||
Contributions of the companies to plans in 2010
|
- | (3,029 | ) | (14 | ) | (12 | ) | (3,404 | ) | - | (6,459 | ) | ||||||||||||||||
Amounts recognized in other comprehensive income | - | (1,809 | ) | 13,069 | 2,465 | 46,860 | - | 60,585 | ||||||||||||||||||||
Liabilities (assets) as of 12/31/2010
|
- | 20,818 | 198,182 | - | (27,171 | ) | - | 191,829 | ||||||||||||||||||||
Business combination
|
(17,809 | ) | - | 17,431 | (50,294 | ) | (11,048 | ) | (19,961 | ) | (81,681 | ) | ||||||||||||||||
Expenses in 2011
|
(92,030 | ) | 1,978 | 21,262 | (6,995 | ) | 93 | 174 | (75,518 | ) | ||||||||||||||||||
Contributions of the companies to plans in 2011
|
- | (3,579 | ) | (83 | ) | (294 | ) | (5,016 | ) | (1,100 | ) | (10,072 | ) | |||||||||||||||
Amounts recognized in other comprehensive income | 109,839 | 15,398 | 36,581 | 58,403 | 12,710 | 20,194 | 253,125 | |||||||||||||||||||||
Liabilities (assets) as of 12/31/2011
|
- | 34,615 | 273,373 | 820 | (30,432 | ) | (693 | ) | 277,683 | |||||||||||||||||||
Actuarial asset recognized in the balance sheet
|
- | - | - | (85 | ) | (30,432 | ) | (693 | ) | (31,210 | ) | |||||||||||||||||
Actuarial liability recognized in the balance sheet
|
- | 34,615 | 273,373 | 905 | - | - | 308,893 |
e)
|
Changes in actuarial liabilities
|
PBS-A
|
CTB
|
PAMA
|
PBS
|
Visão
|
PREV
|
Total
|
||||||||||||||||||||||
Actuarial liabilities as of January 1, 2010
|
1,082,459 | 23,508 | 238,767 | 93,098 | 31,348 | - | 1,469,180 | |||||||||||||||||||||
Cost of current service
|
- | - | 159 | 78 | 3,663 | - | 3,900 | |||||||||||||||||||||
Interest on actuarial liabilities
|
102,289 | 2,148 | 23,038 | 8,803 | 2,865 | - | 139,143 | |||||||||||||||||||||
Benefits paid in the year
|
- | (3,029 | ) | (9,916 | ) | (6,665 | ) | (585 | ) | - | (20,195 | ) | ||||||||||||||||
Contributions of participants in the year
|
(93,289 | ) | - | - | 1 | 302 | - | (92,986 | ) | |||||||||||||||||||
Actuarial (gains) losses in the year
|
46,871 | (1,809 | ) | 20,092 | (1,138 | ) | (5,678 | ) | - | 58,338 | ||||||||||||||||||
Actuarial liabilities as of December 31, 2010
|
1,138,330 | 20,818 | 272,140 | 94,177 | 31,915 | - | 1,557,380 | |||||||||||||||||||||
Business combination
|
35,091 | - | 23,936 | 117,481 | 161 | 49,656 | 226,325 | |||||||||||||||||||||
Cost of current service
|
- | - | 251 | 821 | 3,970 | 2,482 | 7,524 | |||||||||||||||||||||
Interest on actuarial liabilities
|
114,725 | 1,978 | 29,173 | 17,838 | 3,062 | 3,487 | 170,263 | |||||||||||||||||||||
Benefits paid in the year
|
(97,917 | ) | (3,579 | ) | (13,390 | ) | (13,385 | ) | (5,900 | ) | (1,113 | ) | (135,284 | ) | ||||||||||||||
Contributions of participants in the year
|
- | - | 345 | - | - | 345 | ||||||||||||||||||||||
Actuarial (gains) losses in the year
|
24,224 | 15,398 | 54,550 | 24,950 | 778 | (8,261 | ) | 111,639 | ||||||||||||||||||||
Actuarial liabilities as of December 31, 2011
|
1,214,453 | 34,615 | 366,660 | 242,227 | 33,986 | 46,251 | 1,938,192 |
f)
|
Changes in plan assets
|
PBS-A
|
CTB
|
PAMA
|
PBS
|
Visão
|
PREV
|
Total
|
||||||||||||||||||||||
Fair value of plan assets as of January 1, 2010
|
1,479,620 | - | 70,348 | 108,062 | 110,828 | - | 1,768,858 | |||||||||||||||||||||
Benefits paid in the year
|
(93,290 | ) | (3,029 | ) | (9,916 | ) | (6,665 | ) | (585 | ) | - | (113,485 | ) | |||||||||||||||
Total contributions in the year
|
- | 3,029 | 14 | 12 | 3,704 | - | 6,759 | |||||||||||||||||||||
Expected return on plan assets in the year
|
141,762 | - | 6,490 | 11,334 | 11,970 | - | 171,556 | |||||||||||||||||||||
Gains / (losses) on assets
|
189,654 | 7,023 | (1,131 | ) | (4,539 | ) | - | 191,007 | ||||||||||||||||||||
Fair value of plan assets as of December 31, 2010
|
1,717,746 | - | 73,959 | 111,612 | 121,378 | - | 2,024,695 | |||||||||||||||||||||
Business combination
|
52,900 | - | 6,505 | 167,775 | 11,209 | 69,617 | 308,006 | |||||||||||||||||||||
Benefits paid in the year
|
(97,917 | ) | (3,579 | ) | (13,390 | ) | (13,385 | ) | (5,900 | ) | (1,113 | ) | (135,284 | ) | ||||||||||||||
Total contributions in the year
|
- | 3,579 | 81 | 640 | 5,017 | 1,099 | 10,416 | |||||||||||||||||||||
Expected return on plan assets in the year
|
206,757 | - | 8,163 | 25,654 | 6,940 | 5,795 | 253,309 | |||||||||||||||||||||
Gains / (losses) on assets
|
2,709 | - | 17,969 | 2,306 | (29,851 | ) | (1,709 | ) | (8,576 | ) | ||||||||||||||||||
Fair value of plan assets as of December 31, 2011
|
1,882,195 | - | 93,287 | 294,602 | 108,793 | 73,689 | 2,452,566 |
g)
|
Expenses estimated for 2012
|
CTB
|
PAMA
|
PBS
|
Visão
|
PREV
|
Total
|
|||||||||||||||||||
Cost of current service
|
- | 165 | 853 | 4,596 | 3,872 | 9,486 | ||||||||||||||||||
Interest cost
|
3,164 | 35,026 | 22,780 | 3,083 | 4,260 | 68,313 | ||||||||||||||||||
Expected return on plan assets
|
- | (10,847 | ) | (35,943 | ) | (13,392 | ) | (9,001 | ) | (69,183 | ) | |||||||||||||
Total expenses (reversions) for 2012
|
3,164 | 24,344 | (12,310 | ) | (5,713 | ) | (869 | ) | 8,616 |
h)
|
Actuarial assumptions
|
2011
|
Expected return rate on plan assets
|
Future salary growth rate
|
Medical care cost growth rate
|
Annual nominal index of private pension benefit restatement
|
Increase in medical services use according to age
|
Expected age to qualify for the use of medical services
|
Expected retirement age
|
|||||||
PBS/Visão
|
11.60%
|
PBS: 6.54%
Visão: 7.20%
|
N/A
|
4.5%
|
N/A
|
N/A
|
Eligibility for regular retirement
|
|||||||
PBS Telemig
|
12.08%
|
N/A
|
N/A
|
4.5%
|
N/A
|
N/A
|
Eligibility for regular retirement
|
|||||||
Celprev
/PREV
|
Celprev: 11.10%
PREV: 11.60%
|
Celprev: 7.19%
PREV: 7.20%
|
N/A
|
4.5%
|
N/A
|
N/A
|
Eligibility for regular retirement
Eligibility for regular retirement
|
|||||||
CTB
|
N/A
|
N/A
|
N/A
|
4.5%
|
N/A
|
N/A
|
N/A
|
|||||||
PAMA
|
11.07%
|
N/A
|
7.64%
|
N/A
|
4.00%
|
5% upon reaching 52 years old and 10 years participating; 3% for each subsequent year; 100% in eligibility for regular retirement
|
N/A
|
|||||||
PBS-A
|
12.08%
|
N/A
|
N/A
|
4.5%
|
N/A
|
N/A
|
N/A
|
|
·
|
Actuarial liability discount-to-present-value rate: 9.73%;
|
|
·
|
Inflation rate: 4.5%;
|
|
·
|
Capacity factor for salaries and benefits: 98%;
|
|
·
|
Turnover: 0.15 (years of service +1), zero from age 50;
|
|
·
|
Disability entry table: Mercer Disability;
|
|
·
|
Actuarial Table: AT2000 segregated by sex; and
|
|
·
|
Disability mortality table: IAPB-57.
|
2010
|
Expected return rate on plan assets
|
Future salary growth rate
|
Medical care cost growth rate
|
Annual nominal index of private pension benefit restatement
|
Increase in medical services use according to age
|
Expected age to qualify for the use of medical services
|
Expected retirement age
|
|||||||
PBS/Visão
|
11.60%
|
PBS: 6.54%
Visão: 7.20%
|
N/A
|
5.00%
|
N/A
|
N/A
|
First age entitled to one of the benefits
|
|||||||
CTB
|
N/A
|
N/A
|
N/A
|
5.00%
|
N/A
|
N/A
|
First date on which it becomes eligible for Social Security benefit
|
|||||||
PAMA
|
11.07%
|
N/A
|
8.15%
|
N/A
|
4.00%
|
5% upon reaching 52 years old and 10 years participating; 3% for each subsequent year; 100% in eligibility for regular retirement
|
N/A
|
|||||||
PBS-A
|
12.08%
|
N/A
|
N/A
|
5.00%
|
N/A
|
N/A
|
N/A
|
|
·
|
Actuarial liability discount-to-present-value rate: 10.25%;
|
|
·
|
Inflation rate: 5.0%;
|
|
·
|
Capacity factor for salaries and benefits: 98%;
|
|
·
|
Turnover: 0.15 (years of service +1), zero from age 50;
|
|
·
|
Disability entry table: Mercer Disability;
|
|
·
|
Actuarial Table: AT2000 segregated by sex; and
|
|
·
|
Disability mortality table: IAPB-57.
|
i)
|
Expected long-term investment return
|
2011
|
2010
|
|||||||
Percentage of allocation of plan assets
|
||||||||
Capital instruments
|
5.87 | % | 14.28 | % | ||||
Debt instruments
|
92.87 | % | 85.09 | % | ||||
Other
|
1.26 | % | 0.63 | % | ||||
100.00 | % | 100.00 | % | |||||
Expected return from plan assets
|
||||||||
Capital instruments
|
16.36 | % | 15.61 | % | ||||
Debt instruments
|
12.46 | % | 10.82 | % | ||||
Other
|
11.67 | % | 10.25 | % | ||||
Total
|
13.06 | % | 11.50 | % |
|
·
|
Variable income assets: historic risk premium estimated by the actuarial advisor;
|
|
·
|
Fixed income securities: weighted average rate based on National Treasury Bills (LTN) available and National Treasury Notes – F Series (NTN-F) market portfolio;
|
|
·
|
Assets linked to inflation: weighted average rate based on NTN-B and NTN-C portfolio available in the market;
|
|
·
|
Foreign exchange securities: average SELIC rate weighted by the foreign exchange variation rate projected for the following ten years;
|
|
·
|
Fixed income assets: average internal nominal interest rate variation, projected for the following 10 years;
|
|
·
|
Loans to participants: the higher rate between CDI and the plan actuarial goal is considered;
|
|
·
|
Properties: the plan actuarial goal used was that of its administrator.
|
j)
|
History of assets and obligations observed
|
2011
|
2010
|
2009
|
2008
|
2007
|
||||||||||||||||
Liabilities present value
|
723,739 | 419,050 | 386,722 | 337,480 | 257,787 | |||||||||||||||
Fair value of assets
|
570,371 | 306,949 | 289,239 | 253,695 | 232,378 | |||||||||||||||
Deficit
|
153,368 | 112,101 | 97,483 | 83,785 | 25,409 | |||||||||||||||
Adjustment for liabilities experience (%)
|
12.08 | % | 1.29 | % | 7.77 | % | 11.83 | % | 6.87 | % | ||||||||||
Adjustment for liabilities experience (amounts)
|
87,413 | 5,397 | 30,043 | 39,929 | 17,709 | |||||||||||||||
Adjustment for assets experience (%)
|
(1.98 | %) | (0.44 | %) | (6.85 | %) | (3.39 | %) | (9.65 | %) | ||||||||||
Adjustment for assets experience (amounts)
|
(11,284 | ) | (1,352 | ) | (19,826 | ) | (8,598 | ) | (22,428 | ) |
k)
|
Estimates of benefits payable within the following years
|
2012
|
2013
|
2014
|
2015
|
2016
|
2017 thereof
|
|||||||||||||||||||
Defined pension plan
|
142,033 | 148,084 | 154,407 | 160,707 | 167,679 | 8,041,003 |
l)
|
Significant considerations on PAMA Plan
|
a)
|
+1% in nominal growth rate of medical costs
|
Effect on current service cost and on interest on actuarial
liabilities
|
5,639
|
Effect on liabilities present value
|
57,677
|
b)
|
-1% in nominal growth rate of medical costs
|
Effect on current service cost and on interest on actuarial
liabilities
|
(4,653)
|
Effect on liabilities present value
|
(47,581)
|
36.
|
Financial instruments
|
Fair value
|
Amortized cost
|
|||||||||||||||||||||||||||||||||||
Measured at fair value through profit or loss
|
Hedge
|
Available for sale
|
Loans and receivables
|
Investments held to maturity
|
Level 1. Market price
|
Level 2. Estimated based on other market data
|
Total book value
|
Total
fair value
|
||||||||||||||||||||||||||||
Financial assets
|
||||||||||||||||||||||||||||||||||||
Current assets
|
||||||||||||||||||||||||||||||||||||
Cash and cash equivalents (note 5)
|
- | - | 2,940,342 | - | - | - | 2,940,342 | 2,940,342 | ||||||||||||||||||||||||||||
Derivatives
|
730 | 1,110 | - | - | - | - | 1,840 | 1,840 | 1,840 | |||||||||||||||||||||||||||
Noncurrent assets
|
||||||||||||||||||||||||||||||||||||
Interests in other companies
|
- | - | 37,696 | - | - | 37,696 | - | 37,696 | 37,696 | |||||||||||||||||||||||||||
Derivatives
|
- | 225,935 | - | - | - | - | 225,935 | 225,935 | 225,935 | |||||||||||||||||||||||||||
Amounts linked to the National Treasury Securities (note 11)
|
- | - | - | - | 13,819 | - | - | 13,819 | 13,819 | |||||||||||||||||||||||||||
Total financial assets
|
730 | 227,045 | 37,696 | 2,940,342 | 13,819 | 37,696 | 227,775 | 3,219,632 | 3,219,632 |
Measured at fair value through profit or loss
|
Amortized cost
|
Hedge
|
Level 1. Market price
|
Level 2. Estimated based on other market data
|
Total book value
|
Total
fair value
|
||||||||||||||||||||||
Financial liabilities
|
||||||||||||||||||||||||||||
Current liabilities
|
||||||||||||||||||||||||||||
Loans and financing (note 18)
|
34,802 | 953,611 | - | - | 34,802 | 988,413 | 988,413 | |||||||||||||||||||||
Debentures
|
5,537 | 463,087 | - | - | 5,537 | 468,624 | 468,624 | |||||||||||||||||||||
Derivatives
|
1,327 | - | 49,835 | 51,162 | 51,162 | 51,162 | ||||||||||||||||||||||
Noncurrent liabilities
|
||||||||||||||||||||||||||||
Loans and financing (note 18)
|
969,977 | 2,989,138 | - | - | 969,977 | 3,959,115 | 3,959,115 | |||||||||||||||||||||
Debentures
|
81,853 | 705,954 | - | - | 81,853 | 787,807 | 787,807 | |||||||||||||||||||||
Derivatives
|
- | - | 78,369 | - | 78,369 | 78,369 | 78,369 | |||||||||||||||||||||
Total financial liabilities
|
1,093,496 | 5,111,790 | 128,204 | - | 1,221,700 | 6,333,490 | 6,333,490 |
% of Interest
|
2011
|
2010
|
||||||||||
Zon Multimédia
|
0.52 | 9,116 | 12,226 | |||||||||
Other investments
|
28,580 | 30,483 | ||||||||||
Total
|
37,696 | 42,709 |
a)
|
Exchange rate risk
|
b)
|
Interest rate and inflation risk
|
c)
|
Liquidity risk
|
d)
|
Credit risk
|
Notional value
|
Fair value
|
Accumulated effect in
2011
|
||||||||||||||||||||||||
Description
|
Index
|
2011
|
2010
|
2011
|
2010
|
Amount receivable
|
Amount payable
|
|||||||||||||||||||
Swap Contracts
|
||||||||||||||||||||||||||
Assets
|
||||||||||||||||||||||||||
Foreign currency (a)
|
1,106,438 | 19,608 | 1,248,514 | 17,306 | 212,262 | - | ||||||||||||||||||||
BES
|
USD
|
- | 3,155 | - | 2,654 | - | - | |||||||||||||||||||
Citibank
|
USD
|
187,845 | - | 199,872 | - | 32,219 | - | |||||||||||||||||||
Votorantim
|
USD
|
13,434 | 16,453 | 14,028 | 14,652 | - | ||||||||||||||||||||
Banco do Brasil
|
USD
|
258,900 | - | 282,205 | - | 19,629 | - | |||||||||||||||||||
Bradesco
|
USD
|
196,728 | - | 231,391 | - | 43,137 | - | |||||||||||||||||||
Itaú
|
USD
|
6,324 | - | 6,371 | - | 57 | - | |||||||||||||||||||
JP Morgan
|
USD
|
443,207 | - | 514,647 | - | 117,220 | - | |||||||||||||||||||
Foreign currency (b)
|
44,098 | - | 43,059 | - | - | - | ||||||||||||||||||||
Bradesco
|
EUR
|
13,828 | - | 13,773 | - | - | - | |||||||||||||||||||
Itaú
|
EUR
|
30,270 | - | 29,286 | - | - | - | |||||||||||||||||||
Inflation rates
|
72,000 | - | 87,390 | - | 15,513 | - | ||||||||||||||||||||
Bradesco
|
IPCA
|
72,000 | - | 87,390 | - | 15,513 | - | |||||||||||||||||||
Variable rate (a)
|
4,644 | 86,954 | 4,638 | 86,537 | - | - | ||||||||||||||||||||
Bradesco
|
CDI
|
896 | - | 899 | - | - | - | |||||||||||||||||||
Banco do Brasil
|
CDI
|
- | 51,025 | - | 50,647 | - | - | |||||||||||||||||||
Citibank
|
CDI
|
- | 22,047 | - | 22,048 | - | - | |||||||||||||||||||
Citibank
|
CDI
|
- | 10,012 | - | 9,980 | - | - | |||||||||||||||||||
HSBC
|
CDI
|
3,870 | - | 3,862 | - | - | ||||||||||||||||||||
Itaú
|
CDI
|
3,748 | - | 3,739 | - | - | - |
|
a)
|
Swaps of foreign currency (USD) x CDI (R$1,217,652) – swap operations in American dollars and basket of currencies used by BNDES (with several maturities until 2019, with the objective of hedging foreign exchange variation for loans and UMBNDES (debt fair value of R$1,198,483).
|
|
b)
|
Swap of foreign currency (Euro and Dollar) and (CDI x EUR) (R$69,237 - swap contracts entered into with maturities until February 28, 2012 with the objective of hedging foreign exchange variation for amounts payable in Euro and Dollar (book value of R$26,106 in dollars and R$43,246 in Euro).
|
|
c)
|
Swap IPCA x CDI percentage (R$87,390) – swap transactions contracted with maturities dates until 2014 with the purpose of protecting the cash flow identical to the debentures (4th issuance – 3rd series) indexed to the IPCA (market value R$87,390).
|
Swap contracts
|
||||||||||||||||||||
Maturity
|
Amount payable/ receivable at 12/31/2011
|
|||||||||||||||||||
2012
|
2013
|
2014
|
2015 thereafter
|
|||||||||||||||||
Foreign Currency x CDI
|
(47,139 | ) | (22,330 | ) | 2,259 | 154,037 | 86,827 | |||||||||||||
VOTORANTIM
|
(8,642 | ) | (7,876 | ) | (3,593 | ) | - | (20,111 | ) | |||||||||||
BRADESCO
|
(8,101 | ) | (8,663 | ) | (5,790 | ) | 36,817 | 14,263 | ||||||||||||
JP MORGAN
|
(21,499 | ) | (17,849 | ) | (17,277 | ) | 117,220 | 60,595 | ||||||||||||
BANCO DO BRASIL
|
- | 19,629 | - | - | 19,629 | |||||||||||||||
CITIBANK
|
(7,801 | ) | (7,571 | ) | 28,919 | - | 13,547 | |||||||||||||
ITAÚ
|
(1,096 | ) | - | - | - | (1,096 | ) | |||||||||||||
CDI X Foreign Currency
|
(47 | ) | - | - | - | (47 | ) | |||||||||||||
BRADESCO
|
(38 | ) | - | - | - | (38 | ) | |||||||||||||
ITAÚ
|
(9 | ) | - | - | - | (9 | ) | |||||||||||||
IPCA x CDI
|
(2,136 | ) | (1,913 | ) | 15,513 | - | 11,464 | |||||||||||||
ITAÚ
|
(2,136 | ) | (1,913 | ) | 15,513 | - | 11,464 |
Operation
|
Risk
|
Probable
|
25% decrease
|
50% decrease
|
||||||||||
Hedge (Assets)
|
Derivatives (Risk of USD decrease)
|
1,004,209 | 1,280,687 | 1,568,402 | ||||||||||
USD-denominated debt
|
Debts (Risk of USD increase)
|
(1,004,428 | ) | (1,280,962 | ) | (1,568,732 | ) | |||||||
Net exposure
|
(219 | ) | (275 | ) | (330 | ) | ||||||||
Hedge (Liabilities)
|
Derivatives (Risk of EUR decrease)
|
43,059 | 53,870 | 64,676 | ||||||||||
Accounts payable in EUR
|
Asset (Risk of EUR increase)
|
(42,841 | ) | (53,551 | ) | (64,261 | ) | |||||||
Net exposure
|
218 | 319 | 415 | |||||||||||
Hedge (Assets)
|
Derivatives (Risk of USD decrease)
|
30,863 | 32,745 | 39,326 | ||||||||||
Accounts payable in USD
|
Asset (Risk of USD increase)
|
(30,790 | ) | (32,631 | ) | (39,157 | ) | |||||||
Net exposure
|
73 | 114 | 169 | |||||||||||
Hedge (Assets)
|
Derivatives (Risk of USD decrease)
|
213,443 | 278,135 | 348,222 | ||||||||||
UMBNDES-denominated debt
|
Debts (Risk of UMBNDES increase)
|
(213,769 | ) | (278,066 | ) | (348,194 | ) | |||||||
Net exposure
|
(326 | ) | 69 | 28 | ||||||||||
Hedge (Assets)
|
Derivatives (Risk of IPCA decrease)
|
87,390 | 90,181 | 94,951 | ||||||||||
IPCA-denominated debt
|
Debts (Risk of IPCA increase)
|
(87,390 | ) | (90,181 | ) | (94,951 | ) | |||||||
Net exposure
|
- | - | - | |||||||||||
Net exposure
|
(1,289,269 | ) | (1,388,752 | ) | (1,467,465 | ) | ||||||||
Total net exposure in each scenario
|
(1,289,523 | ) | (1,388,525 | ) | (1,467,183 | ) | ||||||||
Effect on changes in fair value, net
|
- | (99,002 | ) | (177,660 | ) |
Risk variable
|
Probable
|
25% decrease
|
50% decrease
|
|||||||||
USD
|
1.8758 | 2.3180 | 2.7816 | |||||||||
EUR
|
2.4271 | 3.1300 | 3.7560 | |||||||||
UMBNDES
|
0.0369 | 0.0462 | 0.0554 | |||||||||
CDI
|
10.87% | 13.59% | 16.31% |
37.
|
Subsequent events
|
Parties
:
|
Vivo S.A., as borrower, and Banco Nacional de Desenvolvimento Econômico e Social – BNDES (“BNDES”), as financing party.
|
|
Intervening Party
|
Telefônica Brasil S.A.
|
|
Date
:
|
October 14, 2011
|
|
Purpose
:
|
Opening of a credit line, through the lending of funds from the Workers Assistance Fund (
Fundo de Amparo ao Trabalho – FAT
), Special Deposits Fund (
FAT – Depósitos Especiais
) and the Social Participation Fund (
Fundo de Participação – PIS/PASEP
), in addition to other sources, for (i) investments in research and development, expansion and improvement of telecommunications infrastructure, (ii) acquisition of equipment and machinery required for the purposes listed in (i) above, and (iii) social projects to be carried out by Fundação Telefônica (collectively, the “Project”).
|
|
Amount
:
|
The credit line is for a total aggregate amount of R$3,031,110,000, divided in five tranches: (i) sub-tranche “A”: R$1,360,455,000, (ii) sub-tranche “B” R$544,182,000, (iii) sub-tranche “C” R$858,770,000, (iv) sub-tranche “D” R$245,363,000 and (v) sub-tranche “E” R$22,340,000.
|
|
Payment
:
|
Principal
. For sub-tranches “A,” “C,” “D” and “E” the amount of the credit line shall be paid in 60 monthly installments, with the first payment due on August 15, 2014 and thereafter on the 15
th
day of each month until July 15, 2019. For sub-tranche “B,” the amount of the credit line shall be paid in 60 monthly installments, with the first payment due on August 15, 2014 and thereafter on the 15
th
day of each month until July 15, 2019.
|
|
Interest
. For sub-tranche “A,” the interest on the principal will be of 2.38% per year and for sub-tranche “D” the interest on the principal will be of 3.08% per year, in each case above the Long-Term Interest Rate (
Taxa de Juros de Longo Prazo – TJLP
) released by the Central Bank of Brazil (
Banco Central do Brasil
), plus one percent (1%) per year. The interest rates mentioned above vary based on the TJLP.
For sub-tranche “B,” the interest on the principal will be of 2.38% per year above the variable interest rate readjusted quarterly on the 16
th
day of January, April, July and October, which will be based on the average weighted cost of all the fees and expenses incurred by BNDES in raising funds in foreign currency, in the calendar quarter immediately prior to the adjustment of such interest rate, calculated over the outstanding balance with monetary correction to account for foreign exchange rates.
For sub-tranche “C,” the interest on the principal will be of 1.48% per year above the Long-Term Interest Rate (
Taxa de Juros de Longo Prazo – TJLP
) released by the Central Bank of Brazil (
Banco Central do Brasil
). The interest rate varies based on the TJLP.
|
For sub-tranche “E,” the interest on the principal varies based on to the Long-Term Interest Rate (
Taxa de Juros de Longo Prazo – TJLP
) released by the Central Bank of Brazil (
Banco Central do Brasil
).
|
||
Monetary Correction
|
The portion of sub-tranche “B” not drawn by the borrower will be corrected, from August 15, 2011, up to the date on which it will be drawn by the weighted average of the exchange corrections over the amounts borrowed by BNDES in foreign currency, subject to certain conditions.
|
|
Guarantee
s:
|
Surety
. Telefônica Brasil S.A. has executed the agreement as Vivo S.A.’s guarantor and principal payer of the amounts due under the Agreement, assuming joint and several liability for all obligations assumed by Vivo S.A.
|
|
Telefonica Brasil’s Obligations
:
|
Telefônica Brasil S.A. agrees to: (i) follow the standard covenants applicable to BNDES agreements (
Disposições Aplicáveis aos Contratos do BNDES
); (ii) submit to BNDES’ prior consent any matters or proposals concerning the encumbrance of any title or shares of Vivo, or the sale, acquisition, merger, consolidation, division of assets or any other act that could materially change Vivo’s current structure, or change the status of Telefonica Brazil S.A. as Vivo’s controlling shareholder, except in cases where Telefonica S.A. remains as direct or indirect majority shareholder of Vivo; (iii) not promote Vivo’s inclusion in corporate agreements, articles of incorporation or organization, of instruments which result in: (a) restrictions on the growth capacity of Vivo or its technological development, (b) restrict Vivo’s access to new markets, or (c) restrictions on the ability to pay the financial obligations related to BNDES transactions; (iv) not promote actions or measures which may cause losses or change the economic-financial balance of Vivo; (v) adopt all measures necessary to ensure that the credit will be allocated as proposed in this agreement; (vi) contribute all resources necessary to the implementation of Vivo’s investment plan as presented to BNDES, (vii) immediately report to BNDES any act or fact that could adversely affect the accomplishment of the objectives set forth under the Agreement; (viii) exercise its controlling power on Vivo, directly or indirectly, to maintain the authorization term signed with ANATEL, (ix) ensure, as controlling shareholder, compliance with all obligations set forth under the Agreement, (x) keep during the term of the Agreement, until its final maturity date, the following financial ratios at the values below, to be verified each calendar semester, in June and December, based on its consolidated financial statements as calculated by external auditors registered with the Securities and Exchange Commission of Brazil (Comissão de Valores Mobiliários – CVM):
a. Capitalization Index (PL/AT): equal or higher than 0.35,
b. Net Financial Debt / EBITDA: equal or lower than 2.50,
d. Short-term Net Financial Debt /EBITDA: equal or lower than 0.20,
c. EBITDA / Net Financial Charges: equal or higher than 3.00.
In the event of noncompliance with any of the indices provided in (x) above, BNDES will be authorized, in each assessment period, in its sole discretion, within 30 days after the presentation to BNDES of the report of verification of the financial ratios referred above, to cause either
|
the acceleration payment of all amounts due under the Agreement or the blocking of funds to the borrower amounting to 3 (three) times the value of the next installment of interest and principal due under the Agreement for Assignment and Income Pledge entered into on August 9, 2007, as amended.
|
||
Material
covenants
:
|
The borrower (i) commits to use all the credit lines in 33 months from the execution of the Agreement; (ii) has a duty to obtain environmental licenses for the project and adopt measures to avoid and correct damage to the environment, (iii) in case of reduce staffing due to the project has a duty to offer training and/or assist with recruiting of workers , (iv) agrees to not create any new liens or obligations without BNDES’ authorization (except for judicial deposits and financings less than 18 months);
|
|
Acceleration
:
|
Any breach of the Agreement by the borrower can result in all amounts due under the Agreement becoming immediately due. Other material acceleration events are listed and include: (i) the borrower terminating workers without complying with the obligations to offer training and assistance in recruiting under the Agreement; (ii) the borrower including in any corporate agreement, bylaws or charter of Vivo or its controlling companies any provision restricting the payment of financial obligations arising under the Agreement; (iii) noncompliance with certain provisions of the Agreement by Telefônica Brasil S.A.
|
|
Ft
=
|
IST
t
IST
to
|
a)
|
the difference between the stage of implementation verified and the goal defined in the Contract;
|
|
b)
|
the possibility of recovery of the implementation schedule at the expenses of the
|
|
Concessionaire;
|
|
c)
|
the loss to the policy reflected in the General Plan of Goals for Universalization;
|
|
d)
|
the damages brought to the direct beneficiaries of the goals that have not been serviced, and
|
|
e)
|
eventual circumstances of technical or economic order that may mitigate the responsibility of the Concessionary, without suppressing it.
|
a)
|
offer of obstacle or difficulty to the option by another provider of the service granted or of the national and international long distance service;
|
|
b)
|
refusal in providing interconnection to telecommunication service provider;
|
|
c)
|
offer of obstacles or difficulties to the activity of added value service providers;
|
|
d)
|
refusal or procrastination in extending, in isonomic conditions, the co-billing to other providers of collective interest service, thus characterized by its non implementation in up to 30 (thirty) days, counted from the request;
|
|
e)
|
the refusal or procrastination in providing and updating, in real time or not, the information of its registry bases on its subscribers, required to the activities of the other providers of collective interest service, thus characterized by its non implementation in up to 30 (thirty) days, counted as of the request;
|
|
f)
|
refusal or procrastination in providing, in isonomic conditions, resources necessary to the implementation of telecommunication networks, including the network of access, of collective interest service providers in the form of industrial exploration, thus characterized by its non implementation in up to 60 (sixty) days, counted as of the request;
|
|
g)
|
conditioning of the provision of the service granted or offered by advantages as a result of acquisition, by the user, of service alien to the present Contract;
|
|
h)
|
execution of any telecommunication service that is not the object of a grant approved by Anatel on its behalf;
|
|
i)
|
the non preservation of the levels of quality practiced in the own network, as to the interconnection;
|
|
j)
|
procrastination in the delivery or inadequate supply of information essential to the activity of the other providers, especially as it regards the registry bases, and
|
|
k)
|
unjustified non payment of values due to another telecommunication service provider.
|
a)
|
the non allocation in the operation and maintenance of the service of the human resources and materials necessary to the preservation of the minimum quality standards;
|
|
b)
|
the negligence in the modernization of the network that affects the quality of the service;
|
|
c)
|
the collection and remittance of indicators to Anatel out of compliance with the regulation,
|
|
d)
|
the refusal, omission or procrastination in the rendering of information on quality; and
|
|
e)
|
non compliance with the continuity or regularity obligations, except under the circumstances set forth under the sole paragraph of Clause 7.1.
|
a)
|
retention of the credits resulting from the Contract, even with the appropriation of revenue resulting from payments made by the users of the service;
|
b)
|
responsibility for damages caused to the Union and to the users;
|
c)
|
application of fines as per terms of the present Contract and effective legislation, and
|
d)
|
loss of guarantee-insurance foreseen in clause 24.1.
|
By Anatel:
|
|
By the Concessionaire:
|
[illegible signature]
|
|
[illegible signature]
|
RONALDO MOTA SARDENBERG
|
|
ANTONIO CARLOS VALENTE DA SILVA
|
President
|
|
President
|
[illegible signature]
|
|
[illegible signature]
|
JOÃO BATISTA DE REZENDE
|
LEILA ABRAHAM LORIA
|
|
Director
|
|
Executive Officer of Institutional Relations
|
|
and Regulation
|
|
Witnesses:
|
|
|
[illegible signature]
|
|
[illegible signature]
|
CRISTIAN CHARLES MARLOW
|
|
JOSÉ ROBERTO PEREIRA NEDER
|
CI: 7054254128 SSP-RS
|
|
CI: 75124245 SSP-SP
|
CPF: 724.270.860-53
|
|
CPF: 148.812.506-63
|
Former Sector 31 Class of Subscribers
|
|
R$
|
Residential
|
|
28.97 (twenty eight Reais and ninety seven cents)
|
Non-Residential
|
|
49.71 (forty nine Reais and seventy one cents)
|
Trunk
|
|
49.71 (forty nine Reais and seventy one cents)
|
Special
|
|
17.38 (seventeen Reais and thirty eight cents)
|
Former Sector 32
Class of Subscribers
|
|
R$
|
Residential
|
|
28.97 (twenty eight reais and ninety seven cents)
|
Non-Residential
|
|
46.18 (forty six Reais, eighteen cents)
|
Trunk
|
|
46.18 (forty six Reais, eighteen cents)
|
Special
|
|
17.38 (seventeen Reais, thirty-eight cents)
|
Former Sector 34
Class of Subscribers
|
|
R$
|
Residential
|
|
28.97 (twenty-eight Reais, ninety cents)
|
Non-Residential
|
|
48.39 (forty eight Reais, thirty nine cents)
|
Trunk
|
|
48.39 (forty eight Reais, thirty nine cents)
|
Special
|
|
17.38 (seventeen Reais, thirty-eight cents)
|
Days
|
|
Period
|
|
Measurement System
|
Monday to Friday, from 6:00 AM to 12:00 AM
|
|
Normal
|
|
Per time of use
|
Monday to Friday, from 12:00 AM to 6:00 AM
|
|
Reduced
|
|
Per Call
|
Saturdays, from 6:00 AM to 2:00 PM
|
|
Normal
|
|
Per time of use
|
Saturdays, from 12:00 AM to 6:00 AM and from 2:00 PM to 12:00 AM
|
|
Reduced
|
|
Per Call
|
Sundays and national holidays, 24 hours
|
|
Reduced
|
|
Per Call
|
Former Sector 31
|
||||
SMP Provider – destination
|
|
Normal fare
|
|
Reduced fare
|
Claro S.A. – Capital
|
|
0.56331
|
|
0.39431
|
Claro S.A. – Countryside
|
|
0.50374
|
|
0.35261
|
CTBC Celular S.A.
|
|
0.55787
|
|
0.39050
|
Tim Celular S.A.
|
|
0.53848
|
0.37693
|
|
TNL PCS S.A.
|
0.52873
|
|
0.37011
|
|
Vivo S.A. – Sectors 31 and 34
|
|
0.51715
|
|
0.36200
|
Vivo S.A. – Sector 32
|
0.51353
|
0.35947
|
||
Unicel do Brasil Tel. Ltda.
|
0.54434
|
0.38103
|
Former Sector 32
|
||||
SMP Provider – destination
|
|
Normal fare
|
|
Reduced fare
|
Claro S.A. – Countryside
|
|
0.51342
|
|
0.35939
|
CTBC Celular S.A.
|
|
0.55787
|
|
0.39050
|
Tim Celular S.A.
|
|
0.54818
|
|
0.38372
|
TNL PCS S.A.
|
|
0.52873
|
|
0.37011
|
Vivo S.A. – Sectors 31 and 34
|
|
0.52669
|
|
0.36868
|
Vivo S.A. – Sector 32
|
|
0.52309
|
|
0.36616
|
Former Sector 34
|
||||
SMP Provider – destination
|
|
Normal fare
|
|
Reduced fare
|
Claro S.A. – Capital
|
|
0.56331
|
|
0.39431
|
Tim Celular S.A.
|
0.54818
|
|
0.38372
|
|
TNL PCS S.A.
|
|
0.52873
|
|
0.37011
|
Vivo S.A. – Sectors 31 and 34
|
|
0.52669
|
|
0.36868
|
T
ij1
|
= fees proposed for the Basic Plan for National Long Distance for j time, on the distance fee degree i, net of taxes.
|
T
ij10
|
= current fee for the Basic Plan for National Long Distance for j time, on the distance fee degree i, net of taxes.
|
M
ijto
|
= minutes on the Basic National Long Distance, subject to the Basic Plan of National Long Distance on j time, and on distance degree i, since last fee readjustment.
|
MT
|
=
total minutes of the National Long Distance Service, subject to the Basic Plan for National Long Distance, since the last fee readjustment.
|
I
|
=
distance fee degree for the National Long Distance Service according to the Service Fee Structure
|
j
|
= fee time of the National Long Distance Service according to the Service Fee Structure
|
t
|
=
proposed date for the readjustment
|
to
|
= date of last readjustment; and
|
IST
|
= index for fee readjustment composed of existing price indexes, as per regulation.
|
k
|
= X + FA
|
X
|
= transference factor
|
FA
|
= damping factor
|
a)
|
the difference between the stage of implementation verified and the goal defined in the Contract;
|
|
b)
|
the possibility of recovery of the implementation schedule at the expenses of the Concessionaire;
|
|
c)
|
the loss to the policy reflected in the General Plan of Goals for Universalization;
|
|
d)
|
the damages brought to the direct beneficiaries of the goals that have not been serviced, and
|
|
e)
|
eventual circumstances of technical or economic order that may mitigate the responsibility of the Concessionary, without suppressing it.
|
a)
|
offer of obstacle or difficulty to the option by another provider of the service granted or of the national and international long distance service;
|
|
b)
|
refusal in providing interconnection to telecommunication service provider;
|
|
c)
|
offer of obstacles or difficulties to the activity of added value service providers;
|
|
d)
|
refusal or procrastination in extending, in isonomic conditions, the co-billing to other providers of collective interest service, thus characterized by its non implementation in up to 30 (thirty) days, counted from the request;
|
|
e)
|
the refusal or procrastination in providing and updating, in real time or not, the information of its registry bases on its subscribers, required to the activities of the other providers of collective interest service, thus characterized by its non implementation in up to 30 (thirty) days, counted as of the request;
|
|
f)
|
refusal or procrastination in providing, in isonomic conditions, resources necessary to the implementation of telecommunication networks, including the network of access, of collective interest service providers in the form of industrial exploration, thus characterized by its non implementation in up to 60 (sixty) days, counted as of the request;
|
|
g)
|
conditioning of the provision of the service granted or offered by advantages as a result of acquisition, by the user, of service alien to the present Contract;
|
|
h)
|
execution of any telecommunication service that is not the object of a grant approved by Anatel on its behalf;
|
|
i)
|
the non preservation of the levels of quality practiced in the own network, as to the interconnection;
|
|
j)
|
procrastination in the delivery or inadequate supply of information essential to the activity of the other providers, especially as it regards the registry bases, and
|
|
k)
|
unjustified non payment of values due to another telecommunication service provider.
|
a)
|
the non allocation in the operation and maintenance of the service of the human resources and materials necessary to the preservation of the minimum quality standards;
|
b)
|
the negligence in the modernization of the network that affects the quality of the service;
|
|
c)
|
the collection and remittance of indicators to Anatel out of compliance with the regulation,
|
|
d)
|
the refusal, omission or procrastination in the rendering of information on quality; and
|
|
e)
|
non compliance with the continuity or regularity obligations, except under the circumstances set forth under the sole paragraph of Clause 7.1.
|
a)
|
retention of the credits resulting from the Contract, even with the appropriation of revenue resulting from payments made by the users of the service;
|
b)
|
responsibility for damages caused to the Union and to the users;
|
c)
|
application of fines as per terms of the present Contract and effective legislation, and
|
d)
|
loss of guarantee-insurance foreseen in clause 24.1.
|
By Anatel:
|
|
By the Concessionaire:
|
[illegible signature]
|
|
[illegible signature]
|
RONALDO MOTA SARDENBERG
|
|
ANTONIO CARLOS VALENTE DA SILVA
|
President
|
|
President
|
[illegible signature]
|
|
[illegible signature]
|
JOÃO BATISTA DE REZENDE
|
LEILA ABRAHAM LORIA
|
|
Director
|
|
Executive Officer of Institutional Relations
|
|
and Regulation
|
|
Witnesses:
|
|
|
[illegible signature]
|
|
[illegible signature]
|
CRISTIAN CHARLES MARLOW
|
|
JOSÉ ROBERTO PEREIRA NEDER
|
CI: 7054254128 SSP-RS
|
|
CI: 75124245 SSP-SP
|
CPF: 724.270.860-53
|
|
CPF: 148.812.506-63
|
Sector 31
|
||||||||||
Degree
|
|
Geodetic
Distance
|
|
Value in R$, free of taxes
|
||||||
|
|
Differentiated
|
|
Normal
|
|
Reduced
|
|
Super
Reduced
|
||
D1
|
|
until 50 km
|
|
0.22656
|
|
0.10459
|
|
0.04313
|
|
0.01255
|
D2
|
|
>50 to 100 km
|
|
0.38621
|
|
0.16341
|
|
0.08889
|
|
0.02515
|
D3
|
|
> 100 to 300 km
|
|
0.45240
|
|
0.24394
|
|
0.12733
|
|
0.05468
|
D4
|
|
> 300 km
|
|
0.52925
|
|
0.31401
|
|
0.19024
|
|
0.09598
|
Sector 32
|
||||||||||
Degree
|
|
Geodetic
Distance
|
|
Value in R$, free of taxes
|
||||||
|
|
Differentiated
|
|
Normal
|
|
Reduced
|
|
Super
Reduced
|
||
D1
|
|
until 50 km
|
|
0.22244
|
|
0.10170
|
|
0.4300
|
|
0.01250
|
D2
|
|
>50 to 100 km
|
|
0.38377
|
|
0.16111
|
|
0.08608
|
|
0.2608
|
D3
|
|
> 100 to 300 km
|
|
0.46994
|
|
0.24873
|
|
0.12463
|
|
0.05441
|
D4
|
|
> 300 km
|
|
0.56695
|
|
0.33009
|
|
0.19301
|
|
0.093.70
|
Sector 34
|
||||||||||
Degree
|
|
Geodetic
Distance
|
|
Value in R$, free of taxes
|
||||||
|
|
Differentiated
|
|
Normal
|
|
Reduced
|
|
Super
Reduced
|
||
D1
|
|
until 50 km
|
|
0.22003
|
|
0.09892
|
|
0.04067
|
|
0.01065
|
D2
|
|
>50 to 100 km
|
|
0.33520
|
|
0.13515
|
|
0.07294
|
|
0.02254
|
D3
|
|
> 100 to 300 km
|
|
0.50035
|
|
0.20835
|
|
0.10846
|
|
0.04834
|
D4
|
|
> 300 km
|
|
0.63036
|
|
0.34513
|
|
0.17696
|
|
0.08589
|
Timetable
|
|
Monday to
Friday
|
|
Saturdays
|
|
Sundays and
National Holidays
|
From 12 am to 6 am
|
|
Super reduced
|
|
Super reduced
|
|
Super reduced
|
From 6 am to 7 am
|
|
Reduced
|
|
Reduced
|
|
Reduced
|
From 7 am to 9 am
|
|
Normal
|
|
Normal
|
|
Reduced
|
From 9 am to 12 pm
|
|
Differentiated
|
|
Normal
|
|
Reduced
|
From 12 pm to 2 pm
|
|
Normal
|
|
Normal
|
|
Reduced
|
From 2 pm to 6 pm
|
|
Differentiated
|
|
Reduced
|
|
Reduced
|
From 6 pm to 9 pm
|
|
Normal
|
|
Reduced
|
|
Reduced
|
From 9 pm to 12 am
|
|
Reduced
|
|
Reduced
|
|
Reduced
|
Normal Tariff
|
|
Reduced Tariff
|
||||
VC-2
|
|
VC-3
|
|
VC-2
|
|
VC-3
|
1.12059
|
|
1.27502
|
|
0.78441
|
|
0.89251
|
Normal Tariff
|
|
Reduced Tariff
|
||||
VC-2
|
|
VC-3
|
|
VC-2
|
|
VC-3
|
0.90465
|
|
1.02931
|
|
0.63325
|
|
0.72051
|
|
|
|||
LUIZ GUILHERME SCHYMURA DE OLIVEIRA
|
||||
President of the Board
|
|
|
|
|||
ANTÔNIO CARLOS VALENTE DA SILVA
|
||||
Counselor
|
|
|
|
|||
GILSON RONDINELLI FILHO
|
||||
President
|
|
|
|
|||
MARIA PAULA DE ALMEIDA MARTINS CANAIS
|
||||
Executive Vice-President
|
|
|
|
|||
JARBAS JOSÉ VALENTE
|
||||
4.346/D CREA-DF
|
|
|
|
|||
BRUNO DE CARVALHO RAMOS
|
||||
5.060.107.391/D CREA-SP
|
|
|
|
|||
GILSON RONDINELLI FILHO
|
||||
President
|
|
|
|
LUIZ GUILHERME SCHYMURA DE OLIVEIRA
|
|
President of the Board
|
|
|
LUIZ TITO CERASOLI
|
|
Counselor
|
|
|
GILSON RONDINELLI FILHO
|
|
President
|
|
|
MARIA PAULA DE ALMEIDA MARTINS CANAIS
|
|
Executive Vice-President
|
|
|
JARBAS JOSÉ VALENTE
|
|
4.346/D CREA-DF
|
|
|
BRUNO DE CARVALHO RAMOS
|
|
5.060.107.391/D CREA-SP
|
GILSON RONDINELLI FILHO
|
|
President
|
LUIZ GUILHERME SCHYMURA DE OLIVEIRA
|
|
President of the Board
|
LUIZ TITO CERASOLI
|
|
Counselor
|
GILSON RONDINELLI FILHO
|
|
President
|
MARIA PAULA DE ALMEIDA MARTINS CANAIS
|
|
Executive Vice-President
|
JARBAS JOSÉ VALENTE
|
|
4.346/D CREA-DF
|
BRUNO DE CARVALHO RAMOS
|
|
5.060.107.391/D CREA-SP
|
GILSON RONDINELLI FILHO
|
|
President
|
On behalf of ANATEL:
|
|
LUIZ GUILHERME SCHYMURA DE OLIVEIRA
|
President of the Board
|
LUIZ TITO CERASOLI
|
Counselor
|
On behalf of the AUTHORIZED :
|
|
PAULO CESAR PEREIRA TEIXEIRA
|
Executive Vice-President
|
|
JOSE CARLOS DE LA ROSA GUARDIOLA
|
Vice-President for Planning and Cordination
|
Witnesses:
|
JARBAS JOSE VALENTE
|
4.346/D CREA-DF
|
BRUNO DE CARVALHO RAMOS
|
5.060.107.391/D CREA-SP
|
Brasília, the 10th of December of 2002.
|
|
PAULO CESAR PEREIRA TEIXEIRA
|
Executive Vice-President
|
On behalf of ANATEL:
|
_________________
|
LUIZ GUILHERME SCHYMURA DE OLIVEIRA
|
President of the board
|
|
LUIZ TITO CERASOLI
|
Counselor
|
On behalf of the AUTHORIZED :
|
|
PAULO CESAR PEREIRA TEIXEIRA
|
Executive Vice-President
|
|
JOSÉ CARLOS DE LA ROSA GUARDIOLA
|
Vice-President for Planning and Cordination
|
Witnesses:
|
|
JARBAS JOSÉ VALENTE
|
4.346/D CREA-DF
|
|
BRUNO DE CARVALHO RAMOS
|
5.060107.391/D CREA-SP
|
Brasília, the 10th of December of 2002.
|
|
PAULO CESAR PEREIRA TEIXEIRA
|
Executive Vice-President
|
On behalf of ANATEL:
|
LUIZ GUILHERME SCHYMURA DE OLIVEIRA
|
President of the Board
|
ANTÔNIO CARLOS VALENTE DA SILVA
|
Counselor
|
On behalf of the AUTHORIZED :
|
|
PAULO CESAR PEREIRA TEIXEIRA
|
Executive Vice-President
|
|
JOSÉ CARLOS DE LA ROSA GUARDIOLA
|
Vice-President for Planning and Cordination
|
Witnesses:
|
|
JARBAS JOSÉ VALENTE
|
4.346/D CREA-DF
|
|
BRUNO DE CARVALHO RAMOS
|
5.060.107.391/D CREA-SP
|
Brasília, the 10th of December of 2002.
|
PAULO CESAR PEREIRA TEIXEIRA
Executive Vice-President
|
On behalf of ANATEL:
|
LUIZ GUILHERME SCHYMURA DE OLIVEIRA
|
President of the Board
|
ANTÔNIO CARLOS VALENTE DA SILVA
|
Counselor
|
On behalf of the AUTHORIZED :
|
PAULO CESAR PEREIRA TEIXEIRA
|
Executive Vice-President
|
JOSÉ CARLOS DE LA ROSA GUARDIOLA
|
Vice-President for Planning and Cordination
|
Witnesses:
|
JARBAS JOSÉ VALENTE
|
4.346/D CREA-DF
|
BRUNO DE CARVALHO RAMOS
|
5.060.107.391/D CREA-SP
|
Brasília, the 10th of December of 2002.
|
PAULO CESAR PEREIRA TEIXEIRA
|
Executive Vice-President
|
Subsidiaries
|
2011
|
||
Vivo S.A (1)
|
100%
|
||
Telefônica Data S.A.
|
100%
|
||
A.Telecom S.A.
|
100%
|
||
Telefônica Sistema de Televisão S.A.
|
100%
|
||
Ajato Telecomunicações Ltda.
|
100%
|
||
GTR Participações e Empreend. S.A. (2)
|
66.67%
|
||
TVA Sul Paraná S.A. (2)
|
91.50%
|
||
Lemontree Participações S.A. (2)
|
83.00%
|
||
Comercial Cabo TV São Paulo S.A. (2)
|
93.19%
|
||
Aliança Atlântica Holding B.V.(3)
|
50%
|
||
Companhia AIX de Participações (3)
|
50%
|
||
Companhia ACT de Participações (3)
|
50%
|
Date: April 20, 2012
|
||
By
|
/s/ Antonio Carlos Valente da Silva
|
|
Name:
|
Antonio Carlos Valente da Silva
|
|
Title:
|
Chief Executive Officer
|
Date: April 20, 2012
|
||
By:
|
/s/ Gilmar Roberto Pereira Camurra
|
|
Name:
|
Gilmar Roberto Pereira Camurra
|
|
Title:
|
Chief Financial Officer and Investor Relations Officer
|
|
(i)
|
the Report fully complies with the requirements of Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and
|
|
(ii)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: April 20, 2012
|
||
By:
|
/s/ Antonio Carlos Valente da Silva
|
|
Name:
|
Antonio Carlos Valente da Silva
|
|
Title:
|
Chief Executive Officer
|
Date: April 20, 2012
|
||
By:
|
/s/ Gilmar Roberto Pereira Camurra
|
|
Name:
|
Gilmar Roberto Pereira Camurra
|
|
Title:
|
Chief Financial Officer and Investor Relations Officer
|