The accompanying notes are an integral part of these consolidated financial statements.
VIVO PARTICIPAÇÕES S.A.
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007, AND 2006
(In thousands of Brazilian reais)
|
|
|
|
|
Retained
|
|
|
Capital
|
Share
premium
|
Special
goodwill
reserve
|
Tax
incentive
reserve
|
Legal
reserve
|
Reserve for
contingencies
|
Reserve for
expansion
|
Treasury
shares
|
earnings
(accumulated
losses)
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES AT DECEMBER 31, 2005.
|
6,670,152
|
99,718
|
693,678
|
-
|
-
|
-
|
-
|
-
|
(3,448,359)
|
4,015,189
|
|
|
|
|
|
|
|
|
|
|
|
Capital reduction.
|
(3,147,782)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
3,147,782
|
-
|
Merger of TSD, TLE, CRT and TCO.
|
2,631,137
|
415,371
|
347,331
|
3,589
|
97,421
|
11,070
|
602,612
|
(11,070)
|
490,188
|
4,587,649
|
Minority interest incorporation.
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,681)
|
(2,681)
|
Reversal of goodwill reserve.
|
-
|
-
|
(52,412)
|
-
|
-
|
-
|
-
|
-
|
-
|
(52,412)
|
Unclaimed dividends and interest on shareholders’ equity.
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
11,718
|
11,718
|
Capital increase - Special Shareholders’ Meeting of June 8, 2006.
|
194,277
|
-
|
(194,277)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Decrease of goodwill reserve.
|
-
|
-
|
(241,682)
|
-
|
-
|
-
|
-
|
-
|
-
|
(241,682)
|
Net income for the year.
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
70,773
|
70,773
|
Proposed allocation of income:
|
|
|
|
|
|
|
|
|
|
|
Legal reserve.
|
-
|
-
|
-
|
-
|
3,539
|
-
|
-
|
-
|
(3,539)
|
-
|
Dividends.
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(16,808)
|
(16,808)
|
Reserve for expansion and modernization.
|
-
|
-
|
-
|
-
|
-
|
-
|
50,426
|
-
|
(50,426)
|
-
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES AT DECEMBER 31, 2006.
|
6,347,784
|
515,089
|
552,638
|
3,589
|
100,960
|
11,070
|
653,038
|
(11,070)
|
198,648
|
8,371,746
|
|
|
|
|
|
|
|
|
|
|
|
Unclaimed dividends and interest on shareholders’ equity.
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
4,766
|
4,766
|
Net loss for the year.
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(78,935)
|
(78,935)
|
Transfer to reserve for expansion and modernization.
|
-
|
-
|
-
|
-
|
-
|
-
|
124,479
|
-
|
(124,479)
|
-
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES AT DECEMBER 31, 2007.
|
6,347,784
|
515,089
|
552,638
|
3,589
|
100,960
|
11,070
|
777,517
|
(11,070)
|
-
|
8,297,577
|
The accompanying notes are an integral part of these consolidated financial statements.
VIVO PARTICIPAÇÕES S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 2007, AND 2006
(In thousands of Brazilian reais)
|
Company
|
|
Consolidated
|
|
12.31.07
|
12.31.06
|
|
12.31.07
|
12.31.06
|
SOURCES OF FUNDS
|
|
|
|
|
|
From operations(sew below)
|
-
|
-
|
|
2,418,111
|
2,020,747
|
|
|
|
|
|
|
From third parties:
|
|
|
|
|
|
Loans , financing and debentures.
|
-
|
67,686
|
|
1,231,217
|
1,217,420
|
Unclaimed dividends and interest on shareholders' equity.
|
4,766
|
11,718
|
|
11,936
|
22,728
|
Interest on shareholders' equity and dividends received.
|
1,683,461
|
1,968,398
|
|
-
|
-
|
Increase in noncurrent liabilities.
|
-
|
-
|
|
115,766
|
166,478
|
Decrease of investment.
|
36,500
|
631,800
|
|
-
|
-
|
Tax incentive.
|
-
|
-
|
|
-
|
24,162
|
Transfer from noncurrent to current assets.
|
598
|
2,755
|
|
470,084
|
283,936
|
Transfer of derivatives from noncurrent to current assets.
|
-
|
-
|
|
17,538
|
10,180
|
Total sources.
|
1,725,325
|
2,682,357
|
|
4,264,652
|
3,745,651
|
|
|
|
|
|
|
USES OF FUNDS
|
|
|
|
|
|
From operations (see below)
|
249,250
|
290,056
|
|
-
|
-
|
|
|
|
|
|
|
Additions to property, plant and equipment and intangible.
|
-
|
-
|
|
1,903,667
|
2,102,422
|
Additions to deferred assets.
|
-
|
-
|
|
2,067
|
1,510
|
Additions to investment.
|
-
|
318,570
|
|
-
|
3
|
Provision of special premium reserve.
|
-
|
52,412
|
|
-
|
52,412
|
Minority interest acquisition.
|
-
|
2,681
|
|
-
|
2,681
|
Increase in noncurrent assets.
|
37,050
|
1,893
|
|
320,090
|
27,886
|
Transfer from noncurrent to current liabilities.
|
-
|
254
|
|
92,496
|
306,477
|
Transfer from loans and financing and contract noncurrent
to current liabilities.
|
583,792
|
724,790
|
|
1,967,043
|
2,590,561
|
Transfer from current to noncurrent assets.
|
672
|
-
|
|
7,715
|
-
|
Interest on shareholders' equity and dividends.
|
-
|
16,808
|
|
-
|
16,808
|
Total uses.
|
870,764
|
1,407,464
|
|
4,293,078
|
5,100,760
|
|
|
|
|
|
|
EFFECT ON WORKING CAPITAL
ARISING FROM MERGER.
|
-
|
60,945
|
|
-
|
1,050,802
|
|
|
|
|
|
|
INCREASE (DECREASE) IN WORKING CAPITAL.
|
854,561
|
1,335,838
|
|
(28,426)
|
(304,307)
|
|
|
|
|
|
|
REPRESENTED BY
|
|
|
|
|
|
Current assets:
|
1,453,659
|
118,848
|
|
1,148,849
|
1,070,700
|
At the beginning of the year.
|
215,012
|
96,164
|
|
5,672,494
|
4,601,794
|
At the end of the year.
|
1,668,671
|
215,012
|
|
6,821,343
|
5,672,494
|
|
|
|
|
|
|
Current liabilities
|
599,098
|
(1,216,990)
|
|
1,177,275
|
1,375,007
|
At the beginning of the year.
|
183,893
|
1,400,883
|
|
5,699,957
|
4,324,950
|
At the end of the year.
|
782,991
|
183,893
|
|
6,877,232
|
5,699,957
|
|
|
|
|
|
|
INCREASE (DECREASE) IN WORKING CAPITAL.
|
854,561
|
1,335,838
|
|
(28,426)
|
(304,307)
|
The accompanying notes are an integral part of these consolidated financial statements.
VIVO PARTICIPAÇÕES S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 2007, and 2006 (Continuation)
(In thousands of Brazilian reais)
|
Company
|
|
Consolidated
|
|
12.31.07
|
12.31.06
|
|
12.31.07
|
12.31.06
|
SUMMARY OF SOURCES (USES) OF FUNDS
FROM OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for the year
|
(78,935)
|
70,773
|
|
(99,391)
|
16,347
|
|
|
|
|
|
|
Items not affecting working capital:
|
|
|
|
|
|
Equity pick-up
|
(453,274)
|
(795,372)
|
|
-
|
-
|
Depreciation and amortization
|
311,729
|
310,817
|
|
2,376,172
|
2,394,385
|
Minority interest
|
-
|
-
|
|
-
|
7,968
|
Interest, monetary and exchange variations
|
(37,820)
|
(17,690)
|
|
(100,438)
|
(123,721)
|
Net book value of property, plant and equipment
|
34
|
19
|
|
25,792
|
48,828
|
Provision for loss on assets
|
-
|
-
|
|
-
|
277,987
|
Reserve for contingencies
|
124
|
112
|
|
80,692
|
50,344
|
Reserve for pension and other post-retirement benefit
|
-
|
-
|
|
1,361
|
824
|
Decrease of advances for future capital increase
|
-
|
118,575
|
|
-
|
-
|
Taxes
|
-
|
-
|
|
(39,140)
|
(4,403)
|
Loss in change of participation in subsidiaries
|
-
|
-
|
|
-
|
671
|
Recoverable and deferred tax
|
-
|
(34,605)
|
|
-
|
(929,699)
|
Gain on derivative contracts
|
8,871
|
57,315
|
|
172,916
|
280,203
|
Others
|
21
|
-
|
|
147
|
1,013
|
Items not affecting working capital
|
(170,315)
|
(360,829)
|
|
2,517,502
|
2,004,400
|
|
|
|
|
|
|
Total
|
(249,250)
|
(290,056)
|
|
2,418,111
|
2,020,747
|
The accompanying notes are an integral part of these consolidated financial statements.
VIVO PARTICIPAÇÕES S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(In thousands of Brazilian reais)
|
12.31.07
|
|
12.31.06
|
OPERATING ACTIVITIES
|
|
|
|
Net income (loss).
|
(99,391)
|
|
16,347
|
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
|
|
|
|
Minority interest.
|
-
|
|
7,968
|
Depreciation and amortization.
|
2,376,172
|
|
2,394,385
|
Depreciation of shared systems.
|
-
|
|
277,987
|
(Gain) loss on property, plant and equipment disposals.
|
20,528
|
|
(1,220)
|
Loss in forward, swap and option contracts.
|
509,415
|
|
764,264
|
Monetary and exchange variation.
|
(296,138)
|
|
(334,978)
|
Allowance for doubtful accounts receivable.
|
365,740
|
|
720,496
|
Reserve for pension and other post-retirement
benefit plans.
|
5,542
|
|
824
|
Provision for loss on investment.
|
-
|
|
671
|
|
|
|
|
(Increase) decrease in operational assets:.
|
|
|
|
Trade accounts receivable.
|
(583,239)
|
|
102,074
|
Inventories.
|
(94,604)
|
|
80,292
|
Deferred and recoverable taxes.
|
239,384
|
|
(907,635)
|
Other current and noncurrent assets.
|
(167,051)
|
|
389,092
|
|
|
|
|
(Increase) decrease in operational liabilities: .
|
|
|
|
Payroll and related accruals.
|
16,847
|
|
6,785
|
Trade accounts payable.
|
442,295
|
|
153,870
|
Interest payable.
|
(6,362)
|
|
(56,064)
|
Taxes payable.
|
86,152
|
|
(219,211)
|
Reserve for contingencies.
|
52,781
|
|
(211,366)
|
Other current and noncurrent liabilities.
|
216,930
|
|
50,333
|
Net cash provided by operating activities
|
3,085,001
|
|
3,234,914
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
Additions to property, plant and equipment and intangible.
|
(1,903,667)
|
|
(2,102,422)
|
Additions to deferred assets.
|
(2,067)
|
|
(1,510)
|
Minority interest acquisition.
|
-
|
|
(2,681)
|
Other investments.
|
-
|
|
(3)
|
Cash received on sale of property, plant and equipment
|
5,264
|
|
50,048
|
Net cash provided by investing activities
|
(1,900,470)
|
|
(2,056,568)
|
The accompanying notes are an integral part of these consolidated financial statements.
VIVO PARTICIPAÇÕES S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (Continuation)
(In thousands of Brazilian reais)
|
12.31.07
|
|
12.31.06
|
FINANCING ACTIVITIES
|
|
|
|
New loans and debentures obtained.
|
2,094,965
|
|
2,200,702
|
Loans paid.
|
(1,911,418)
|
|
(2,962,043)
|
Net settlement on derivative contracts.
|
(561,537)
|
|
(640,470)
|
Interest on shareholders’ equity and dividends paid
to minorities.
|
(17,547)
|
|
(63,167)
|
Cash received relating to reverse stock split.
|
-
|
|
6,580
|
Cash and banks effect - merger subsidiaries.
|
-
|
|
826,297
|
Net cash from (used in) financing activities.
|
(395,537)
|
|
(632,101)
|
|
|
|
|
INCREASE IN CASH AND CASH EQUIVALENTS.
|
788,994
|
|
546,245
|
|
|
|
|
CASH AND CASH EQUIVALENTS
|
|
|
|
At the beginning of the year.
|
1,401,996
|
|
855,751
|
At the end of the year.
|
2,190,990
|
|
1,401,996
|
|
|
|
|
INCREASE IN CASH AND CASH EQUIVALENTS.
|
788,994
|
|
546,245
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
Income and social contribution taxes paid.
|
14,685
|
|
154,509
|
Interest paid.
|
311,771
|
|
453,229
|
|
|
|
|
NONCASH TRANSACTION
|
|
|
|
Donation.
|
13,286
|
|
19,254
|
Provision of special premium reserve.
|
-
|
|
52,412
|
Unclaimed dividends and interest on shareholders' equity.
|
11,936
|
|
22,728
|
Write-off reserves.
|
-
|
|
241,682
|
Proposed dividends.
|
-
|
|
16,808
|
Tax incentive.
|
-
|
|
24,162
|
Transfer goodwill.
|
-
|
|
259,069
|
Merged net assets, net of cash.
|
-
|
|
3,761,352
|
The accompanying notes are an integral part of these consolidated financial statements.
(Convenience Translation into English from the Original Previously Issued in Portuguese)
VIVO PARTICIPAÇÕES S.A. AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Amounts expressed in thousands of Brazilian reais - R$, unless otherwise indicated)
1.OPERATIONS
Vivo Participações S/A (“Company”) - formerly Telesp Celular Participações S/A - is a publicly traded corporation which at December 31, 2007 has as controlling shareholders Brasilcel N.V. and its subsidiaries Portelcom Participações S/A, Sudestecel Participações Ltda., Avista Participações Ltda., TBS Celular Participações Ltda. and Tagilo Participações Ltda. that jointly hold (treasury shares excluded) 62.95% of the Company’s total capital.
Brasilcel N.V. is jointly controlled by Telefonica S/A (50% of total capital), PT Móveis Serviços de Telecomunicações SGPS S/A (49.999% of total capital) and Portugal Telecom SGPS S/A (0.001% of total capital).
The wholly-owned subsidiary Vivo S/A is a provider of mobile telephone services, including activities necessary or useful for the performance of such services, in accordance with authorizations granted for the areas of service described below:
Operation area
|
|
Authorization Valid Until
|
|
|
|
Areas 1 and 2:
|
|
|
São Paulo
|
|
August 05, 2008
|
São Paulo (Ribeirão Preto, Guatapará and Bonfim Paulista)
|
|
January 20, 2009
|
|
|
|
Area 3:
|
|
|
Rio de Janeiro
|
|
November 29, 2020
|
Espírito Santo
|
|
November 30, 2008
|
|
|
|
Area 5:
|
|
|
Paraná e Santa Catarina
|
|
April 08, 2013
|
|
|
|
Area 6:
|
|
|
Rio Grande do Sul
|
|
December 17, 2022
|
|
|
|
Areas 7 and 8:
|
|
|
Distrito Federal
|
|
July 24, 2021
|
Góias e Tocantins
|
|
October 29, 2008
|
Mato Grosso
|
|
March 30, 2009
|
Mato Grosso do Sul
|
|
September 28, 2009
|
Rondônia
|
|
July 21, 2009
|
Acre
|
|
July 15, 2009
|
Amazonas, Roraima, Amapá, Pará and Maranhão
|
|
November 29, 2013
|
|
|
|
Area 9:
|
|
|
Bahia
|
|
June 29, 2008
|
Sergipe
|
|
December 15, 2008
|
The authorizations granted may be renewed just once, for a 15-year period, against a payment every two years of rates equivalent to 2% (two percent) of revenues for the year prior to that of the payment, net of taxes and mandatory social contributions related to the application of the Basic and Alternative Plans of Service. Vivo, in the states of
Rio de Janeiro, Rio Grande do Sul
and
Distrito Federal
had their authorizations extended by Act No. 54,324 of November 28, 2005; No. 59,121 of June 20, 2006; and No. 59,120 of June 20, 2006, respectively.
The authorizations that need to be obtained in 2008, are already in the process of renewal by the regulatory agency.
The subsidiary's business and the services it may provide are regulated by the National Telecommunications Agency (ANATEL), the regulator for telecommunications services in Brazil, in accordance with Law No. 9,472 of July 16, 1997 and respective regulations, decrees, decisions and complementary plans.
On February 22, 2006, the General Shareholders’ Meeting approved the merger of shares of Tele Centro Oeste Celular Participações S/A (“TCO”) to be converted into a wholly-owned subsidiary of Vivo Participações S/A and the merger of Tele Sudeste Celular Participações S/A (“TSD”),Tele Leste Celular Participações S/A (“TLE”) and Celular CRT Participações S/A (“CRTPart”) into the Company, as described in the Notice of a Material Fact dated December 4, 2005.
The results of the merged companies from January 1 to February 22, 2006 were consolidated in the Company’s statement of operations for the year ended December 31, 2006, as agreed in the merger protocol.
Auction of share fractions
On April 19 and 24, 2006 auctions were held on the Sao Paulo Stock Exchange – BOVESPA to place 641,766 shares (310,366 common shares under code VIVO3 and 331,400 preferred shares under code VIVO4) on the “Free Float” market, corresponding to the fractions determined in the exchange of shares of Tele Sudeste Celular Participações S/A, Tele Centro Oeste Celular Participações S/A, Tele Leste Celular Participações S/A and Celular CRT Participações S/A for shares of Vivo Participações S/A resulting from the Corporate Restructuring approved by the Special Shareholders’ Meeting of February 22, 2006. The amounts determined on the sale are at the disposal of the holders of these share fractions at any branch of Banco ABN Amro Real S/A, the depositary entity of the book-entry shares of Vivo Participações S/A.
Corporate Restructuring
At the Special Shareholders’ Meeting held on October 31, 2006, the merger by the wholly-owned subsidiary Global Telecom S/A of the other wholly-owned subsidiaries of Vivo Participações S/A, namely Telergipe Celular S/A, Telebahia Celular S/A, Telerj Celular S/A, Telest Celular S/A, Celular "CRT" S/A, Telesp Celular S/A and Tele Centro Oeste Celular Participações S/A, as well as of the latter’s subsidiaries Telegoias Celular S/A, Telemat Celular S/A, Telems Celular S/A, Teleron Celular S/A, Teleacre Celular S/A and Norte Brasil Telecom S/A was approved.
The execution of the Corporate Restructuring was intended to simplify the corporate and operational structure, by unifying the general business management of the operating companies, which were concentrated in a single operating company controlled by the Company. Additionally, it was planned to optimize synergies between the companies involved, following the process which began with the Corporate Restructuring approved at the special shareholders’ meetings held on February 22, 2006. Similarly and simultaneously with the Corporate Restructuring accomplishment, the name of Global Telecom S/A was changed into Vivo S/A (“Vivo”).
The merger of the subsidiaries was previously approved by ANATEL on July 25, 2006 by the Act No. 59,867, published in the Federal Official Gazette (DOU) on July 27, 2006.
By the fact that the Corporate Restructuring did not directly involve Vivo Participações S/A, and was restricted to its subsidiaries, the Company’s capital and shareholders' equity as well as its shareholding structure and the rights derived from the shares it issued did not undergo any change.
Acquisitions - Telemig Participações S.A. and Tele Norte Participações S.A.
On August 02, 2007, in accordance with the terms of the Instruction CVM no. 358, of January 03, 2002, the Company announced a stock purchase agreement with Telpart Participações S.A. (Telpart ") to acquire (i) 72,581,089,368 (seventy-two billion, five hundred eighty-one million, eighty-nine thousand, three hundred sixty-eight) common shares and 9,699,320,342 (nine billion, six hundred ninety-nine million, three hundred twenty thousand and three hundred and forty-two) preferred shares of Telemig Celular Participações S.A. ("Telemig Participações"), corresponding to 53.90% of voting capital, 4.27% of non-voting capital and 22.72% of total capital; and (ii) 64,633,961,594 (Sixty-four billion, six hundred thirty-three million, nine hundred sixty-one thousand, five hundred ninety-four) common shares and 185,778,351 (one hundred eighty-five million, seven hundred seventy-eight thousand, three hundred fifty-one) preferred shares of Tele Norte Celular Participações S.A. ("Tele Norte Participações"), corresponding to 51.86% of voting capital, 0.09% of non-voting capital and 19.34% of total capital (the Acquisition").
Telemig Participações
is the controlling shareholder of
Telemig Celular S.A
. ("Telemig Celular”), which is the SMP - Personal Mobile Service provider in Area 4 of Region 1 of the General Plan of Authorizations of SMP, that covers the State of
Minas Gerais
. Tele Norte Participações is the controlling shareholder of the
Amazônia Celular S.A
. (" Amazônia Celular "), which is the mobile service provider of SMP in Area 8 of Region 1 of the General Plan of Authorizations of SMP, that embraces the States of
Amazonas, Roraima, Amapá, Pará
and
Maranhão
.
The permission of the sale and purchase agreement was approved by the general meetings of shareholders of the Company and of Telpart held on August 21, 2007. The conclusion of the Acquisition (“Closing ") is subjected to certain conditions precedent set forth in the stock purchase agreement, including, without limitation, the approval by
ANATEL
.
The agreement, in its clause 7. 1 letter (g), establishes that the sale can be cancelled, amongst other situations: for any one of the parties if the Closing does not take place up to March 31, 2008 (“Date of Rescission”), being established that (I) Telpart will have the right to prorogue the cited Date of Rescission up to June 30, 2008, only if, up to March 31, 2008, the only other condition for the Closing is the consent of ANATEL to the transfer of control of any companies involved in the operation; e (II) the Company will have the right to prorogue the Date of Rescission up to September 30, 2008, only if, up to March 31, 2008, the only other condition for the Closing is any of the following events: (i) neither definitive restraining order or another order, decree or rule issued by a Governmental Authority, nor any Law promulgated or approved for any Governmental Authority, will have to be valid to forbid, to restrict or to hinder the conclusion of the closing, and (ii) all the corporate authorizations included in the contract will have also to be valid and should not have to be suspended for any judicial lawsuit court. Telpart and the Company, as the case, will have to notify in writing to another party concerning its intention to previously prorogue the Date of the Rescission in or as of March 31, 2008.
The price agreed in the stock purchase agreement is of R$1,213,100,000.00 (the " purchase price "), that corresponds to: (i) R$1,093,090,107.00 for the shares held by Telemig Participações in Telpart, represented by R$14.21 per lot of 1,000 common shares of Telemig Participações and R$6.39 per lot of 1,000 preferred shares of Telemig Participações and, (ii) R$120,009,893.00 for the shares held by Tele Norte Participações owned by Telpart, represented by R$1.85 per lot of 1,000 common shares of Tele Norte Participações and R$0.66 per lot of 1,000 preferred shares of Tele Norte Participações. The Purchase Price to be paid by Vivo Participações implies R$2,488.29 for common shares of Telemig Celular and of R$56.72 for lot of 1,000 common shares of the Amazônia Celular. The references to the Purchase Price regarding each type of shares relate to the prices for lots of 1,000 shares, in order to be consistent with the form that such shares are trade in the market (except with respect to Telemig Celular shares, which are traded on a per share basis).
From the execution of the stock purchase agreement until the date of the Closing, the Purchase Price will be updated by the Brazilian daily – CDI rate and will be subject to certain adjustments as contemplated in the stock purchase agreement. Moreover, the prices for share mentioned before will be further adjusted to reflect the result of ongoing reverse split processes approved at shareholders’ meeting of Telemig Participações, Tele Norte Participações and Amazônia Celular all held on July 12, 2007.
At October 23, 2007, in the meeting of the ANATEL’s Board of Directors the acquisition of Telemig Participações S.A. for the Company was approved unanimously by votes (5 to 0). This approval was published on November 06, 2007, by the Act nº 68,401, in this still pending the approval of the acquisition of Tele Norte Participações S.A. shares. The acquisition still depends of approval by the Administrative Council of Economic Defense - CADE. As a reminder the the financial closing of the acquisition will only take place when ANATEL also approves Tele Norte Participações S.A.
Preferred shares of not conforming shareholders
On November 21, 2007, the Ordinary Meeting of the Board of Directors approved the replacement in the "Free Float" of 7 (seven) preferred shares held in treasury by the Company and previously withheld by the shareholders who had relatively exercised the right to withdraw due to the acquisition of control of Telemig Participações and Tele Norte Participações and, indirectly, of its respective controlled companies, Telemig Celular and Amazônia Celular.
Selling - Tele Norte Participações SA
On December 20, 2007 in accordance with the terms of Instruction CVM 358 of 01/03/02, the Company, announced that a stock purchase agreement was signed with Telemar Norte Participações, in order to sell the shares of Tele Norte Participações, which Telpart Participações S.A. (“Telpart”) had previously undertook to sell and transfer to the Company under the terms of the stock purchase agreement dated as of August 02, 2007.
Therefore, with the sale of shares of Tele Norte Participações, the Company believes that any eventual regulatory issues will be resolved, which may be impacting the deliberation by ANATEL of the acquisition of shares of Tele Norte Participações, and makes possible the closing of the transaction agreed with Telpart.
The sale agreement with Telemar Norte Leste S.A. was settled to be made by the amount of R$120.009.893,00 (one hundred, twenty million, nine thousand, eight hundred ninety-three Reais) and is subject to the monetary update set forth in the Stock Purchase Agreement and that is equivalent to the price paid by Vivo Participações for the same shares under the terms of the Original Agreement signed on August 02, 2007.The sale shall be concluded as soon as certain conditions precedent set forth in the Stock Purchase Agreement are implemented, including the approval of the transaction by ANATEL.
Auction of the Frequencies 1,9 Mhz
On September 25, 2007, the Company, through its subsidiary VIVO S.A. (Vivo) was the winning bidder of the Band L lots, except for lot 16 (area of Londrina- state of Paraná) and of lot 20 (North of Brazil), after opening the proposals carried through in that date in the headquarters of ANATEL. Band L comprises lots in the frequency range from 1895 to 1900 Mhz and from 1975 to 1980 Mhz, with 5 + 5 Mhz width, in all the regions served by the SMP. Accordingly, Vivo managed to complete its last coverage gap and will be soon operating in the whole Brazilian territory.
In order to achieve this benchmark, Vivo offered 50.60% average premium over the minimum price set in the auction call notice. Vivo’s offer was approximately R$169.7 million for all Band L lots acquired. However, pursuant to the rules provided for in the auction call notice, the price to be paid refers to the remaining term of the pre-existing authorizations for each lot acquired, which term is always counted as from the date of execution of the Term of Authorization referring to this bidding process. The resultant amount of the governmental bidding totalized for Vivo the amount of R$50.3 millions, without including the lots of state of Minas Gerais.
Auction of the Frequencies of 2,1 Mhz (3 G)
On December 20, 2007, the Company, through its subsidiary, announces that it was the winning bidder in the Band J lots, with 10 + 10 MHz width, with exception of the areas VII and X. In order to achieve this benchmark, Vivo has paid 92.5% average premium over the minimum price set in the auction call notice. For all Band J lots acquired, Vivo offer was approximately R$1.1 billion for a period of 15 years postponed for 15 more years. The total amount or 10% should be paid at the time of the execution of the Terms of Authorization. The remaining 90% may be paid in 6 equal and annual installments, with a grace period of 3 years, adjusted to the Telecommunications Ratio Sector - IST variation, plus 1% monthly.
Agreement between Telefonica s.and Telecom Italy
In October of 2007, TELCO S.p.A. (in which Telefonica S.A withholds a participation of 42.3%), completed the acquisition of 23.6% of Telecom Italy. Telefonica S.A. has joint control of Vivo, through its joint venture with Portugal Telecom. Telecom Italy has controlling interest in TIM Participações S.A (TIM), which is a mobile operator in Brazil. As result of the acquisition of its interest in Telecom Italy, Telefonica S.A. has no direct involvement in the operations of TIM. Additionally, any transactions between the Company and TIM are transactions in the normal course of business for inter-operator transactions which are regulated by the ANATEL.
2. PRESENTATION OF FINANCIAL STATEMENTS
The individual (Company) and consolidated financial statements are presented in thousands of Brazilian reais (except where otherwise mentioned) and have been prepared in accordance with accounting practices adopted in Brazil, which include the accounting practices derived from Brazilian corporate law, standards applicable to concessionaries of public telecommunications services and the standards and accounting procedures established by the Brazilian Securities Commission (CVM).
The authorization for conclusion of the local financial statements occurred in the Board meeting carried through at January 21, 2008.
Intercompany asset and liability, revenue and expense balances were eliminated on consolidation.
Some headings of the consolidated income statement for the exercise ended on December 31, 2006 were reclassified to allow the comparison, as follows:
-
Reclassification of depreciation of handsets available to corporate customers free of charge (
“comodato”
agreement): from general and administrative expenses to selling expenses;
-
Reclassification of revenues related to commercial incentives (cash rebates): from other operating income to selling expenses.
Accounts
|
2006
Statement of
Operations
|
|
Reclassification
|
|
2007
Statement of Operations
|
|
|
|
|
|
|
Selling expenses
|
(3,787,500)
|
|
36,430
|
|
(3,751,070)
|
General and administrative expenses
|
(1,112,184)
|
|
12,436
|
|
(1,099,748)
|
Other operating income
|
541,928
|
|
(48,866)
|
|
493,062
|
The reconciliation between Company's and consolidated loss for the twelve-month periods ended December 31, 2007 and 2006 is as follows:
|
12.31.07
|
|
12.31.06
|
Company loss (Net Income)
|
(78.935)
|
|
70.773
|
Subsidiaries Fiscal Incentives
|
-
|
|
(24.162)
|
Subsidiaries Donations
|
(13.286)
|
|
(19.254)
|
Dividends and interest on shareholders' equity
in subsidiaries
|
(7.170)
|
|
(11.010)
|
Consolidated Loss (Net Income)
|
(99.391)
|
|
16.347
|
Additionally, pursuant to CVM Resolution No. 489/05, as from 2006, the amounts of escrow deposits linked to the reserve for contingencies are shown as deductions from the related liabilities.
3. SUMMARY OF THE PRINCIPAL ACCOUNTING PRACTICES
a) Cash and cash equivalents
Cash and cash equivalents represent all available balances in cash and banks and highly liquid temporary cash investments, stated at cost, plus accrued interest to the balance sheet date, with original maturity dates of three months or less.
b) Trade accounts receivable
The amounts billed are calculated at the tariff rate on the date the services were rendered. Trade accounts receivable also include services provided to customers up to the balance sheet date, but not yet invoiced, as well as accounts receivable from the sale of handsets and accessories.
c) Allowance for doubtful accounts receivable
The allowance for doubtful accounts is provided for trade accounts receivable when collection is considered remote.
d) Translation of foreign currency transactions
Foreign currency transactions are recorded at the exchange rate at transaction date and the related balances are updated through the balance sheet date. The exchange variation is recognized in the statements of operations. Exchange variation and premiums related to derivative contracts are calculated and recorded monthly, regardless of the settlement dates.
e) Inventories
Consist of handsets and accessories stated at the average acquisition cost. A provision is recognized to adjust the cost of handsets and accessories to net realizable value for inventory considered obsolete or slow moving.
f) Prepaid expenses
Stated at amounts disbursed for expenses which have not yet been incurred.
g) Other assets
Include subsidies on sales of handsets to the accredited agents, which are deferred and recognized in results as these handsets are activated. They also include the balances to be received from commercial agreements that are proceeding from current transactions between the Company and its suppliers, having as main references the volume of purchases and shared campaigns of marketing.
h) Investments
The permanent investment in the subsidiary is recorded by the equity method. The accounting practices of the subsidiary are consistent with those used by the Company. Other investments are recorded at historical cost.
i) Property, plant and equipment and intangible
It is stated at acquisition or construction cost, less accumulated depreciation calculated by the straight-line method based on the estimated useful lives of these assets (Notes 11 and 12). The costs incurred for repairs and maintenance that represent improvements and increases in capacity or useful life are capitalized, while other routine costs are charged to results of operations. The estimated costs to be incurred for asset retirement obligation of towers and equipment on leased property are capitalized (Note 18) and depreciated over the useful life of the equipment, not exceeding the term of lease agreements. The leasehold improvements are depreciated by the lesser period between the estimated useful life of the related asset and rental contract term.
The interests and other financial charges over loans obtained from third parties, which are directly attributable to the acquisition and construction of the Company’s network assets, are being capitalized during the construction-in-progress, in compliance with Deliberation CVM nº193. The allocation of these financial charges to the results of operations is effected in accordance with the useful lives of related assets.
j) Deferred charges
It represents pre-operating expenses recorded during the start-up phase and are amortized using the straight-line method, over a ten-year period.
Goodwill recognized on the acquisition of Ceterp Celular S.A. by Telesp Celular S.A. on November 27, 2000 is being amortized using the straight-line method over a period of ten years.
The goodwill paid on own location of owned stores was recorded as deferred assets and is amortized over the term of the related agreements.
k) Taxes, Rates and Contributions
The service revenues are subject to the taxation of VAT state tax (“ICMS”), municipal tax over services provided (“ISS”) with applicable rates for each region, VAT federal taxes (PIS and COFINS) in the cumulative method of taxation for revenue services of telecommunications, by the tax rate of 0.65% and 3.00%, respectively. For other revenues earned by the Company, including revenues related to the resale of merchandise, in the non- cumulative method of taxation, by the tax rate of 1.65% and 7.60% for PIS and COFINS, respectively.
The credits generated by the non-cumulative method of taxation for PIS and COFINS are disclosed in the statement of operation as a deduction of costs of merchandise sold.
The advanced amounts or available for future tax offset are demonstrated as current assets and non current, in accordance with estimated period of realization.
The taxation on profits consists of income tax and social contribution calculated based on the taxable income (adjusted), to the applicable tax rate in accordance with enacted law: 15%, plus an additional rate of 10% when the taxable income exceeds R$240 annually and 9% for the social contribution.
The deferred income tax and social contribution assets are comprised of carryforward income tax and social contribution losses and temporary differences, based on the enacted rates of the mentioned taxes. This is in accordance with the provisions of
Deliberação CVM No. 273
, as of August 20, 1998 and
Instrução CVM No. 371
as of June 27, 2002, and take in consideration the future taxable income to be generated in the future based on the business plan approved by Board of Directors.
l) Loans and financing
Loans and financing are updated by monetary and/or exchange variations and accrued interests to the balance sheet date.
m) FISTEL fees
The Telecommunications Inspection Fund (FISTEL) fees, which are paid on activation of new subscribers generated monthly throughout the year, are deferred and amortized over the customers’ estimated loyalty period of 24 months.
n) Provision for contingencies
The reserve for contingencies is recorded based on management and legal counsel evaluation in respect of the probable outcome of pending cases and is adjusted to the balance sheet date based on the probable amount of the loss, in accordance with the nature of each contingency.
o) Pension and post-retirement benefit plans
Actuarial liabilities are calculated by projected unit credit method and plan assets are stated at fair market value. Actuarial gains and losses are recorded immediately in income (loss) for the year. Deficits (actuarial obligations in excess of the plan’s assets) are recognized at the end of each year. In the absence of prospects of a reduction of future contributions, surpluses are not recognized (Note 29).
p) Revenue recognition
Revenues from services are recognized when services are provided and are billed on a monthly basis. Unbilled revenues are estimated and recognized as revenues when the services are provided. Revenues from sales of prepaid cellular minutes are deferred and recognized in income as they are used. Revenue from the sale of handsets and accessories, effected in owned stores, is recorded at the time of the sale to the final customer. Sales made through dealers are recorded as revenue when the handsets are activated.
q) Net financial expense
It represents interest, monetary and exchange variation resulting from temporary cash investments, loans and financing obtained and granted.
r) Derivatives
The Company and its subsidiary maintain certain foreign currency derivative contracts to manage their exposure to exchange rate fluctuations in relation to their foreign currency cash flow. These derivative contracts are recorded at the exchange rates in effect at the balance sheet date, and premiums paid or received in advance are deferred and amortized over the effective period of the contracts. Gains and losses, realized or unrealized, based exclusively on contractual terms, are recorded as financial results.
s) Employees’ profit sharing
Provisions are recorded for the expense of employees’ profit sharing.
t) Net income (loss) per thousand shares
Calculated based on the number of shares outstanding at balance sheet date.
u) Use of estimates
The preparation of the financial statements requires management to make estimates and assumptions relating to the reported amount of assets and liabilities and of revenues, costs and expenses. Actual results could differ from these estimates.
v) Statement of cash flow
The Company is presenting, as suplemental information, the statements of cash flow, prepared in accordance with the NPC20 - Statement of Cash Flow, emitted for the Brazilian Institute of Accountants - IBRACON.
4. SHORT-TERM INVESTMENTS
Short-term investments refer mainly to fixed interest rates, which are indexed by the interbank deposit rates (CDI), with immediate liquidity.
As December 31, 2007, the subsidiary had financial investments pledged in guarantee of lawsuits and of loans and financing (Note 16.e), amounting to R$32,359 (R$38,601 in 2006) and R$27,108 (R$7,043 in 2006), respectively.
5. TRADE ACCOUNTS RECEIVABLE, NET
|
Consolidated
|
|
12.31.07
|
|
12.31.06
|
Receivables from unbilled services
|
414,192
|
|
320,281
|
Receivables from billed services
|
1,032,439
|
|
1,038,397
|
Receivables from interconnection fees
|
630,679
|
|
674,311
|
Receivables from goods sold
|
446,136
|
|
281,563
|
(-) Allowance for doubtful accounts
|
(344,701)
|
|
(353,306)
|
Total
|
2,178,745
|
|
1,961,246
|
The Company has no client balances that represent more than 10% of net trade accounts receivable as of December 31, 2007 and 2006.
At December 31, 2007 the balance of accounts receivable includes R$269,026 (R$545,864 in 2006) related to co-billing with other operating companies, which amounts were determined on the basis of statements of commitment, since contracts have not yet been signed by the parties. Pending matters related to the definition of responsibility for losses resulting from fraud have not yet been resolved, and depend upon decision by the regulating agency and agreement between the parties.
The changes in the allowance for doubtful accounts are as follows:
|
Consolidated
|
|
2007
|
|
2006
|
Balance at beginning of year
|
353,306
|
|
249,399
|
Additional allowance (Note 22)
|
365,740
|
|
720,496
|
Write-offs and recoveries
|
(374,345)
|
|
(723,931)
|
Merged assets
|
-
|
|
107,342
|
Balance at year end
|
344,701
|
|
353,306
|
6. INVENTORIES
|
Consolidated
|
|
12.31.07
|
|
12.31.06
|
Handsets
|
382,410
|
|
320,162
|
Accessories and other
|
7,330
|
|
6,002
|
Simcard
|
24,700
|
|
-
|
(-) Allowance for obsolescence
|
(37,816)
|
|
(44,144)
|
Total
|
376,624
|
|
282,020
|
7. DEFERRED AND RECOVERABLE TAXES
7.1 Breakdown
|
Company
|
|
Consolidated
|
|
12.31.07
|
|
12.31.06
|
|
12.31.07
|
|
12.31.06
|
Prepaid income and social contribution taxes
|
480,544
|
|
445,926
|
|
573,705
|
|
602,503
|
Withheld income tax
|
37,214
|
|
2,017
|
|
81,368
|
|
28,145
|
State VAT (ICMS) recoverable
|
-
|
|
-
|
|
463,573
|
|
431,436
|
PIS and COFINS recoverable
|
28,529
|
|
28,529
|
|
241,516
|
|
307,580
|
Other recoverable taxes
|
270
|
|
242
|
|
34,870
|
|
59,928
|
Total recoverable taxes
|
546,557
|
|
476,714
|
|
1,395,032
|
|
1,429,592
|
|
|
|
|
|
|
|
|
Deferred income and social contribution taxes
|
1,143
|
|
1,143
|
|
2,570,938
|
|
2,809,815
|
ICMS to be allocated
|
-
|
|
-
|
|
82,323
|
|
48,270
|
|
|
|
|
|
|
|
|
Total
|
547,700
|
|
477,857
|
|
4,048,293
|
|
4,287,677
|
|
|
|
|
|
|
|
|
Current
|
4,696
|
|
6,520
|
|
1,614,377
|
|
1,662,739
|
Noncurrent
|
543,004
|
|
471,337
|
|
2,433,916
|
|
2,624,938
|
The breakdown of deferred income and social contribution taxes are as follows:
|
Consolidated
|
|
12.31.07
|
|
12.31.06
|
Absorbed fiscal credit - restructuring
|
634,405
|
|
922,140
|
Tax credits on allowances for:
|
|
|
|
Obsolescence
|
12,857
|
|
15,009
|
Contingencies
|
120,374
|
|
117,478
|
Doubtful debt
|
117,198
|
|
120,124
|
Customer fidelity program
|
25,954
|
|
22,102
|
Employee profit sharing
|
33,989
|
|
26,186
|
Suppliers
|
125,801
|
|
125,799
|
Derivative contracts
|
107,254
|
|
70,029
|
Accelerated depreciation
|
134,067
|
|
99,998
|
Valuation allowance
|
102,047
|
|
119,487
|
Other amounts
|
40,740
|
|
50,588
|
Income and social contribution tax loss carryforwards
|
1,116,252
|
|
1,120,875
|
Total deferred taxes
|
2,570,938
|
|
2,809,815
|
|
|
|
|
Current
|
906,906
|
|
878,397
|
Noncurrent
|
1,664,032
|
|
1,931,418
|
The portion classified in the current assets refers to the reversion of temporary differences and amortization of goodwill foreseen for 2008.
The deferred taxes were set up assuming its future realization as follows:
a) Income and social contribution tax loss carryforwards: To be offset up to 30% of the tax bases in subsequent years.
b) Merged tax credit: Represented by the net balance of goodwill and the provision for maintaining the integrity of equity (Note 7.2). Its conversion occurs proportionately to the amortization of the goodwill in its subsidiary, over a period of 5 to 10 years. Studies by outside consultants used in the Corporate Restructuring process support the recoverability of this amount within this period.
c) Temporary differences: Realization will occur upon payment of the provisions, actual loss on doubtful accounts or sale of inventories, as well as for the reversion of other provisions.
The Company prepared technical feasibility studies, approved by its Board, which indicated the full recovery of recognized deferred tax amounts, as defined by CVM instruction N°371.
On December 31, 2007 the schedule for realization of the deferred taxes is as follows:
Year:
|
|
Consolidated
|
2008
|
|
906,906
|
2009
|
|
468,404
|
2010
|
|
308,311
|
2011
|
|
355,926
|
2012
|
|
329,859
|
2013 and after
|
|
201,532
|
Total
|
|
2,570,938
|
7.2 Tax benefits – Corporate Restructuring
The goodwill paid when Company went private and when its subsidiaries were acquired was transferred by the acquiring to the acquired companies, as Instructions CVM 319 as of December 03, 1999 and 349 as of March 6, 2001.
Prior to these transfers, provisions were recorded for the maintenance of the subsidiary's net equity and, consequently, the net assets merged to represent essentially the tax advantage resulting from the deduction of the goodwill merged.
Company’s and its subsidiary’s accounting records for corporate and tax purposes include specific accounts related to merged goodwill and provision and respective amortization, reversal and tax credit, the balances of which are as follows:
|
Consolidated
|
|
12.31.07
|
|
12.31.06
|
Restructuring
|
Goodwill
|
|
Provision
|
|
Net
|
|
Net
|
TCO – 1 st acquisition
|
425,883
|
|
(281,083)
|
|
144,800
|
|
247,012
|
TCO – 2 nd acquisition
|
206,106
|
|
(136,029)
|
|
70,077
|
|
97,202
|
TC - Privatization
|
611,941
|
|
(403,881)
|
|
208,060
|
|
316,613
|
TLE – Privatization
|
91,025
|
|
(60,077)
|
|
30,948
|
|
41,885
|
GT – Acquisition
|
530,939
|
|
(350,419)
|
|
180,520
|
|
219,428
|
Total
|
1,865,894
|
|
(1,231,489)
|
|
634,405
|
|
922,140
|
The changes during the year ended December 31 are as follows:
|
Consolidated
|
|
2007
|
|
2006
|
Results:
|
|
|
|
Amortization of goodwill
|
(881,048)
|
|
(881,048)
|
Reversal of Provision
|
593,313
|
|
590,820
|
Tax credit
|
287,735
|
|
290,228
|
Effect on results
|
-
|
|
-
|
Proportionately to the effective realization of tax benefits, relevant amount will be absorbed by capital in favor of controlling shareholders, while the other shareholders will be assured of the right of first refusal. The resources originating from the exercise of this right will be paid to controlling shareholders.
As of December 31, 2006, the amount of R$305,531 was capitalized in respect of benefits recorded up to December 31, 2005. Of this amount, R$194,277 corresponds to a share issue by Vivo Participações S.A., and R$111,254 corresponds to
Tele Centro Oeste Celular Participações S.A
., without a share issue.
The tax benefits during the exercises of 2006 and 2007 will be capitalized in elapsing of the 2008 exercise, respecting the preemptive right in the capital increase in accordance with the article nº 171 of Law 6.404/76.
8. PREPAID EXPENSES
|
Company
|
|
Consolidated
|
|
12.31.07
|
|
12.31.06
|
|
12.31.07
|
|
12.31.06
|
FISTEL fee
|
-
|
|
-
|
|
110,304
|
|
47,277
|
Rent
|
-
|
|
-
|
|
16,459
|
|
17,007
|
Advertising to be distributed
|
-
|
|
-
|
|
133,324
|
|
114,927
|
Financial charges
|
2,529
|
|
3,337
|
|
2,816
|
|
3,847
|
Other
|
-
|
|
-
|
|
25,889
|
|
20,128
|
Total
|
2,529
|
|
3,337
|
|
288,792
|
|
203,186
|
|
|
|
|
|
|
|
|
Current
|
598
|
|
807
|
|
228,922
|
|
181,872
|
Noncurrent
|
1,931
|
|
2,530
|
|
59,870
|
|
21,314
|
9. OTHER ASSETS
|
Company
|
|
Consolidated.
|
|
12.31.07
|
|
12.31.06
|
|
12.31.07
|
|
12.31.06
|
Judicial deposits
|
245
|
|
62
|
|
101,036
|
|
85,716
|
Advances to employees
|
-
|
|
80
|
|
5,973
|
|
7,483
|
Credits with suppliers
|
-
|
|
-
|
|
52,232
|
|
3,338
|
Intercompany credits
|
1,863
|
|
2,102
|
|
10,661
|
|
4,167
|
Subsidies on terminal sales
|
-
|
|
-
|
|
45,982
|
|
37,335
|
Other assets
|
3,421
|
|
785
|
|
8,204
|
|
6,117
|
Total
|
5,529
|
|
3,029
|
|
224,088
|
|
144,156
|
|
|
|
|
|
|
|
|
Current
|
3,137
|
|
590
|
|
197,578
|
|
122,537
|
Noncurrent
|
2,392
|
|
2,439
|
|
26,510
|
|
21,619
|
10. INVESTMENTS
a)
Investments in subsidiary
As of December 31, 2007 and 2006, Vivo S.A. is a wholly-owned subsidiary of the Company, withholding 3,810,478 common shares.
The main information of the subsidiary are as follows:
|
|
Shareholder’s equity
|
|
Net income(loss)
|
Investees
|
|
12.31.07
|
|
12.31.06
|
|
2007
|
|
2006
|
Vivo S.A.
|
|
7,197,499
|
|
8,464,186
|
|
432,818
|
|
863,602
|
b)
Breakdown and changes
The balance of Company's investments includes interest in subsidiaries' equity, goodwill, advances for future capital increase and valuation allowance, as well as other investments, as shown below:
|
Company
|
|
Consolidated
|
|
12.31.07
|
|
12.31.06
|
|
12.31.07
|
|
12.31.06
|
Investment in subsidiaries
|
6,091,680
|
|
7,358,367
|
|
-
|
|
-
|
Goodwill on the acquisition of investments, net
|
909,766
|
|
1,290,512
|
|
909,766
|
|
1,290,512
|
Advance for future capital increase
|
1,105,818
|
|
1,105,818
|
|
-
|
|
-
|
Valuation allowance (a)
|
(242,397)
|
|
(311,467)
|
|
(242,397)
|
|
(311,467)
|
Other investments
|
106
|
|
105
|
|
113
|
|
113
|
Investment balance
|
7,864,973
|
|
9,443,335
|
|
667,482
|
|
979,158
|
(a) Allowance set up at December 31, 2001 and 2002 to recognize permanent losses on goodwill, as a consequence of losses accumulated at those dates by subsidiary Global Telecom.
The movement of the investments in subsidiaries for the exercise ended in December 31, as follow as:
b.1)
Investments in subsidiaries
|
12.31.07
|
|
12.31.06
|
Balance at beginning of year
|
7,358,367
|
|
4,371,626
|
Donations and subsidies
|
13,286
|
|
19,254
|
Equity pick-up (a)
|
432,818
|
|
765,108
|
Unclaimed dividends and interest on shareholders' equity in subsidiaries
|
7,170
|
|
11,010
|
Merger of companies
|
-
|
|
4,167,466
|
Capital increase
|
-
|
|
318,570
|
Capital increase with reserves
|
-
|
|
305,531
|
Capital reduction
|
(36,500)
|
|
(631,800)
|
Interim dividend
|
-
|
|
(1,763,293)
|
Dividends and interest on shareholders’ equity
|
(1,683,461)
|
|
(205,105)
|
Balance at year end
|
6,091,680
|
|
7,358,367
|
(a) The equity pick-up result is composed of:In 2007, R$453,274 (i) net income by Company R$432,818; (ii) R$13,286 donations and (iii) unclaimed dividends and interest on shareholders’ equity R$7,170. In 2006 R$795,372 (i) net income by Company R$765,108, (ii)R$19,254 donations and (iii) unclaimed dividends and interest on shareholders’ equity R$11,010
b.2)
Goodwill on the acquisition of investments, net
|
12.31.07
|
|
12.31.06
|
Balance at beginning of year
|
1,290,512
|
|
1,869,387
|
Transfer to advance for future capital increase
|
-
|
|
(199,087)
|
Amortization of goodwill (Note 24)
|
(380,746)
|
|
(379,788)
|
Balance at year end
|
909,766
|
|
1,290,512
|
b.3)
Advance for future capital increase
|
12.31.07
|
|
12.31.06
|
Balance at beginning of year
|
1,105,818
|
|
1,279,500
|
Merged assets
|
-
|
|
293,020
|
Realization of reserves
|
-
|
|
(305,532)
|
Write-off of reserves
|
-
|
|
(360,257)
|
Goodwill transfer (a)
|
-
|
|
199,087
|
Balance at year end
|
1,105,818
|
|
1,105,818
|
(a)In 2006, this amount was transferred from goodwill to advance for future capital increase, after conclusion of the Corporate Restructuring (Note 1).
b.4)
Provision for losses on investments
|
12.31.07
|
|
12.31.06
|
Balance at the beginning of the year
|
(311,467)
|
|
(380,541)
|
Amortization of loss (proportional goodwill) (Nota 24)
|
69,070
|
|
69,074
|
Balance at year end
|
(242,397)
|
|
(311,467)
|
11. PROPERTY, PLANT AND EQUIPMENT, NET
|
Consolidated
|
|
12.31.07
|
|
12.31.06
|
|
Cost
|
|
Accumulated depreciation
|
|
Property, plant and equipment, net
|
|
Property, plant and equipment, net
|
Transmission equipment
|
7,515,674
|
|
(5,316,853)
|
|
2,198,821
|
|
2,002,026
|
Switching equipment
|
3,473,847
|
|
(2,105,727)
|
|
1,368,120
|
|
1,431,518
|
Infrastructure
|
2,507,440
|
|
(1,341,281)
|
|
1,166,159
|
|
1,161,294
|
Land
|
59,785
|
|
-
|
|
59,785
|
|
59,929
|
Buildings
|
282,869
|
|
(72,891)
|
|
209,978
|
|
214,900
|
Terminals
|
1,893,738
|
|
(1,603,340)
|
|
290,398
|
|
292,944
|
Other assets
|
1,419,770
|
|
(910,599)
|
|
509,171
|
|
545,710
|
Construction in progress
|
498,957
|
|
-
|
|
498,957
|
|
737,158
|
Total
|
17,652,080
|
|
(11,350,691)
|
|
6,301,389
|
|
6,445,479
|
Practised annual taxes of depreciation are as follows:
|
Yearly depreciation rates %
|
Transmission equipment
|
10.00 a 20.00
|
Switching equipment
|
10.00 a 20.00
|
Infrastructure
|
2.87 a 20.00
|
Buildings
|
2.86 a 4.00
|
Terminals
|
66.67
|
Other assets
|
6.67 a 20.00
|
As of December 31, 2007, the subsidiary capitalized interests incurred on loans that were financing the work in process amounting R$11,175 (R$1,604 as of December 31,2006).
At December 31, 2007, the subsidiary had property and equipment offered as guarantee in lawsuits in the amount of R$ 109,158 (R$108,118 as of December 31, 2006), as shown below:
|
12.31.07
|
|
12.31. 06
|
Tax
|
98,614
|
|
97,034
|
Labor and civil
|
10,544
|
|
11,084
|
Total
|
109,158
|
|
108,118
|
As of December, 2006, the subsidiary started offering services to the customers based on the Global System for Mobile Communications (GSM) technology. Management understands that the adoption of GSM will have no impact on amounts previously invested in the other technologies of its network.
12. INTANGIBLE ASSESTS, NET
|
Consolidated
|
|
12.31.07
|
|
12.31.06
|
|
Cost
|
|
Accumulated amortization
|
|
Intangible net
|
|
Intangible net
|
Software user rights
|
3,203,376
|
|
(2,078,269)
|
|
1,125,107
|
|
1,135,026
|
Concession licenses
|
1,026,891
|
|
(627,864)
|
|
399,027
|
|
414,694
|
Other assets
|
35,511
|
|
(28,849)
|
|
6,662
|
|
12,359
|
Construction in progress
|
129,503
|
|
-
|
|
129,503
|
|
80,604
|
Total
|
4,395,281
|
|
(2,734,982)
|
|
1,660,299
|
|
1,642,683
|
Practised annual taxes of amortization are as follows:
|
Yearly amortization rates %
|
Software user rights
|
20.00
|
Concession licenses
|
6.67 a 20.00
|
Other assets
|
6.67 a 20.00
|
13. DEFERRED ASSETS, NET
|
Consolidated
|
|
Annual amortization rate %
|
|
12.31.07
|
|
12.31.06
|
Pre-operating expenses
|
|
|
|
|
|
Amortization of license
|
10
|
|
80,496
|
|
80,496
|
Financial expenses
|
10
|
|
201,131
|
|
201,131
|
General & administrative expenses
|
10
|
|
69,960
|
|
69,960
|
|
|
|
351,587
|
|
351,587
|
|
|
|
|
|
|
Goodwill - Ceterp Celular S/A
|
10
|
|
84,265
|
|
84,265
|
Goodwill
|
(a)
|
|
26,861
|
|
24,794
|
|
|
|
|
|
|
Total Cost
|
|
|
462,713
|
|
460,646
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
Pre-operating expenses
|
|
|
(292,754)
|
|
(256,883)
|
Goodwill - Ceterp Celular S/A
|
|
|
(59,687)
|
|
(51,261)
|
Goodwill
|
|
|
(20,808)
|
|
(18,245)
|
Total of the amortizations
|
|
|
(373,249)
|
|
(326,389)
|
|
|
|
|
|
|
Total, net
|
|
|
89,464
|
|
134,257
|
(a) As per contractual periods.
14. TRADE ACCOUNTS PAYABLE
|
Company
|
|
Consolidated
|
|
12.31.07
|
|
12.31.06
|
|
12.31.07
|
|
12.31.06
|
Suppliers
|
3,337
|
|
1,659
|
|
2,290,721
|
|
1,936,194
|
Interconnection / linking
|
-
|
|
-
|
|
193,093
|
|
176,938
|
Amounts to be transferred LD (a)
|
-
|
|
-
|
|
314,573
|
|
389,471
|
Technical assistance
|
-
|
|
-
|
|
189,696
|
|
84,252
|
Other
|
143
|
|
111
|
|
81,225
|
|
40,158
|
Total
|
3,480
|
|
1,770
|
|
3,069,308
|
|
2,627,013
|
(a) Amounts to be transferred refer to VC2, VC3 and roaming charges, invoiced to our clients and passed on to the long distance operating companies.
15. TAXES PAYABLE
|
Company
|
|
Consolidated
|
|
12.31.07
|
|
12.31.06
|
|
12.31.07
|
|
12.31.06
|
Current taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ICMS
|
-
|
|
-
|
|
514,688
|
|
493,796
|
Income and social contribution taxes
|
-
|
|
-
|
|
20,493
|
|
2,319
|
PIS and COFINS
|
22,945
|
|
12
|
|
122,048
|
|
71,133
|
FISTEL
|
-
|
|
-
|
|
25,689
|
|
3,420
|
FUST and FUNTTEL
|
-
|
|
-
|
|
9,008
|
|
7,496
|
Other taxes, fees and mandatory contributions
|
1,381
|
|
1,282
|
|
23,592
|
|
11,252
|
Total
|
24,326
|
|
1,294
|
|
715,518
|
|
589,416
|
|
|
|
|
|
|
|
|
Legal liabilities (CVM 489/05):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PIS and COFINS
|
-
|
|
-
|
|
7,566
|
|
56,108
|
CIDE
|
-
|
|
8
|
|
25,997
|
|
17,600
|
Other taxes, fees and mandatory contributions
|
-
|
|
-
|
|
3,250
|
|
3,055
|
Total
|
-
|
|
8
|
|
36,813
|
|
76,763
|
|
|
|
|
|
|
|
|
Total
|
24,326
|
|
1,302
|
|
752,331
|
|
666,179
|
|
|
|
|
|
|
|
|
Current
|
24,326
|
|
1,302
|
|
570,972
|
|
453,710
|
Noncurrent
|
-
|
|
-
|
|
181,359
|
|
212,469
|
Current Taxes
At December 31, 2007, the noncurrent amount of R$168,850 (R$151,131 in 2006) of the long term liability refers to
ICMS
-
Programa Paraná Mais Emprego
(a program to increase the number of jobs) resulting from an agreement with the state of Paraná involving the postponement of the ICMS payment. This agreement establishes that ICMS payment falls due always in the forty-ninth month after that on which ICMS was determined.
Legal Liabilities - CVM Resolution 489/05
This includes the taxes that fall within the scope of Resolution No. 489 as of October 3, 2005, issued by the Brazilian Securities Commission (CVM), approved by IBRACON (Brazilian Institute of Independent Auditors) rule called NPC (Rules and Accounting Pronouncements) No. 22.
For financial statement purposes the amounts of judicial deposits of said taxes, if applicable, were offset against taxes, fees and mandatory contributions payable.
a)
PIS and COFINS
Vivo S.A. in the state of São Paulo was assessed (lawsuit No. 19515,000,700/2003-97) for having offset COFINS, in January and February 2000, against credits derived from the excess of 1/3 of COFINS paid in 1999, after being offset against CSLL. Conservatively, management maintained the amount of R$24,671 on the accounts as of December 31, 2007 and 2006, having made an escrow deposit for the same amount.
Law N°9,718/98
On November 27, 1998, calculation of PIS and COFINS was amended by Law No. 9,718, which: (i) increased the COFINS rate from 2% to 3%; (ii) authorized deduction of up to 1/3 of the COFINS amount from the amount of CSLL and (iii) indirectly increased the COFINS and PIS due by the subsidiary, by ordering the inclusion of revenue in excess of billing in the calculation bases.
On November 9, 2005, the Plenary Session of the Federal Supreme Court took a position in respect of the unconstitutionality of the changes in the calculation bases of contributions to PIS and COFINS introduced by Law No. 9,718/98, which had been the object of innumerous lawsuits brought by taxpayers in general and by the parent company and its subsidiary.
In evaluating Extraordinary Appeals No. 357,950, No. 390,840, No. 358,273 and No. 346,084, it declared the unconstitutionality of paragraph 1, article 3 of the above-mentioned Law, which ruled that these contributions would be due not only on billing, but on “all income received by the corporate entity, irrespective of the type of activity exercised and the accounting classification used for the income”.
Due to the changes introduced by Laws No. 10,637/02 and No. 10,833/03, the subsidiary started to include income in excess of billing in the PIS and COFINS calculation bases.
Thus, the Company maintains accrued the relative values to exceeding income to the invoicing, argued judicially. On November 30, 2007, a final decision was issued related to one of the cases in discussion (Recurso Extraordinário No. 567,584 – Vivo in the state of Rio de Janeiro), resulting the reversion of the provision totaling R$52,109. At December 31, 2007 an amount of R$9,969 (R$58,511 in 2006) was still recorded on the Company’s books, having made escrow deposits of R$2,403.
b)
CIDE
It refers to administrative and judicial discussion in order to avoid the taxation of CIDE on remittances of funds abroad, related to the technology transfer agreements, licensing of trademarks and software, etc. Conservatively, management maintained the amount of R$70,342 (R$55,466 in 2006) recorded as of December 31, 2007, having made escrow deposits amounting to R$44,345 (R$37,866 in 2006).
c)
Other taxes, rates and contributions
On December 31, 2007, the subsidiary maintained the amount of R$3,250 (R$3,055 as of December 31, 2006) recorded, relative the files of legal documents of infraction of (i) ISS on movable asset rental services, support activities and additional services.; (ii) IRPJ on operations with derivatives and (iii) INSS.
Below are the changes in the legal obligations arising from compliance with CVM Resolution N°489/05:
|
Legal Obligations
|
|
(-) Judiciary deposits
|
|
Total
|
Balance as of December 31, 2005
|
180,773
|
|
(49,150)
|
|
131,623
|
Additions, net of reversal
|
(129,779)
|
|
(5,397)
|
|
(135,176)
|
Monetary restatement
|
14,760
|
|
-
|
|
14,760
|
Merger of companies
|
75,949
|
|
(10,393)
|
|
65,556
|
Balance as of December 31, 2006
|
141,703
|
|
(64,940)
|
|
76,763
|
Additions, net of reversals
|
(35,578)
|
|
(6,479)
|
|
(42,057)
|
Monetary restatement
|
3,402
|
|
-
|
|
3,402
|
Payments
|
(1,295)
|
|
-
|
|
(1,295)
|
Balance as of December 31, 2007
|
108,232
|
|
(71,419)
|
|
36,813
|
16. LOANS, FINANCING AND DEBENTURES
a)
Breakdown of debt
a.1)
Loans and Financing
|
|
|
|
Company
|
|
Consolidated
|
Description
|
Currency
|
Interest
|
Maturity
|
12.31.07
|
|
12.31.06
|
|
12.31.07
|
|
12.31.06
|
|
|
|
|
|
|
|
|
|
|
|
Resolution 2770
|
US$
|
1.00% p.a. to 6.24% p.a.
|
01/16//08 to 10/10/08
|
69,835
|
|
77,553
|
|
406,651
|
|
928,388
|
|
|
|
|
|
|
|
|
|
|
|
Resolution 2770
|
¥
|
0% to 4.38% p.a.
|
02/01/08 to 12/04//08
|
-
|
|
-
|
|
555,639
|
|
771,695
|
|
|
|
|
|
|
|
|
|
|
|
Resolution2770
|
R$
|
IGP-M + 9.45% p.a.
|
02/09//10
|
-
|
|
-
|
|
118,618
|
|
111,666
|
|
|
|
|
|
|
|
|
|
|
|
Banco Europeu de Investimento–BEI
|
US$
|
1.4% p.a. + Libor
to 4.47% p.a.
|
01/14/08 to 12/19/14
|
-
|
|
-
|
|
270,087
|
|
240,482
|
|
|
|
|
|
|
|
|
|
|
|
Compror
|
US$
|
19.45% p.a.
|
01/02/08
|
-
|
|
-
|
|
13,623
|
|
33,456
|
|
|
|
|
|
|
|
|
|
|
|
Compror
|
¥
|
1.00% p.a. to 27.5% p.a.
|
01/07/08 to 08/19/09
|
-
|
|
-
|
|
490,769
|
|
131,133
|
|
|
|
|
|
|
|
|
|
|
|
Compror
|
EUR
|
5.15% p.a.
|
01/21/08
|
-
|
|
-
|
|
39,724
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
BNDES
|
URTJLP
|
TJLP + 3.5% p.a.
to 4.6% p.a.
|
01/15/08 to 08/15/14
|
-
|
|
-
|
|
675,192
|
|
163,795
|
|
|
|
|
|
|
|
|
|
|
|
BNDES
|
UMBNDES
|
3.5% p.a. to 4.6% p.a.
|
01/15/08 to 07/15/11
|
-
|
|
-
|
|
9,994
|
|
28,075
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Paper
|
US$
|
|
|
-
|
|
-
|
|
-
|
|
448,980
|
|
|
|
|
|
|
|
|
|
|
|
Banco do Nordeste do Brasil - BNB
|
R$
|
11.5% p.a.
|
01/29/08 to 01/29/15
|
-
|
|
-
|
|
164,810
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Others
|
R$
|
Coluna 27 FGV
|
10/25/08
|
-
|
|
-
|
|
426
|
|
851
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of investment "TCO"
|
R$
|
100% CDI + 1% p.a.
|
04/25/08
|
10,697
|
|
10,697
|
|
10,697
|
|
10,697
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
17,097
|
|
10,835
|
|
85,298
|
|
82,219
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
97,629
|
|
99,085
|
|
2,841,528
|
|
2,951,437
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
97,629
|
|
22,833
|
|
1,444,124
|
|
1,541,389
|
Noncurrent
|
|
|
|
-
|
|
76,252
|
|
1,397,404
|
|
1,410,048
|
a.2)
Debentures
|
|
|
|
Company
|
|
Consolidated
|
Description
|
Currency
|
Interest
|
Maturity
|
12.31.07
|
|
12.31.06
|
|
12.31.07
|
|
12.31.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debentures
|
R$
|
103.0% CDI a 104.2% CDI
|
02/01/08 a 05/01/15
|
1,500,000
|
|
1,500,000
|
|
1,500,000
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
|
Juros
|
|
|
|
39,912
|
|
48,956
|
|
39,912
|
|
48,956
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
1,539,912
|
|
1,548,956
|
|
1,539,912
|
|
1,548,956
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
539,912
|
|
48,956
|
|
539,912
|
|
48,956
|
Noncurrent
|
|
|
|
1,000,000
|
|
1,500,000
|
|
1,000,000
|
|
1,500,000
|
b)
Payment timetable
On December 31, 2007, the maturities of the long-term portion of loans and financing are as follows:
Year
|
|
Company
|
|
Consolidated
|
2009
|
|
-
|
|
360,170
|
2010
|
|
-
|
|
301,423
|
2011
|
|
-
|
|
157,578
|
2012
|
|
-
|
|
146,452
|
After 2013
|
|
1,000,000
|
|
1,431,781
|
Total
|
|
1,000,000
|
|
2,397,404
|
c)
Restrictive clauses
The subsidiary has financing agreements with the
Banco Nacional de Desenvolvimento Econômico e Social - BNDES
(National Bank for Social and Economic Development), which balance as of December 31, 2007 was R$685,186 (R$191,870 in 2006). In accordance with the contract, there are several economic and financial indexes that must be determined on a six-month and annual basis. At year end the financial indexes established in the contract were met by the subsidiary.
As of December 31, 2007 the subsidiary has loans agreement with European Investment Bank, which balance amounted to R$270,087 (R$240,482 in 2006). At year end, the economic and financial indexes established in the contract were met by the subsidiary.
d)
Coverage
As of December 31, 2007, the Company and its subsidiary had exchange derivative contracts in the amount of US$413,420 thousand, ¥66,997,370 thousand and €15,265 thousand (US$837,703thousand, ¥50,892,759 thousand and €1,871 thousand as of December 31, 2006), to protect against foreign currency exchange rate variation on all their foreign exchange liabilities.
Furthermore, the company had swap transactions (CDI x Pre), to partially cover fluctuations in domestic interest rates. The operations that are covered mature in January 2008 and 2009, and amount to R$ 1,214 thousand.
At December 31, 2007, the Company and its subsidiary recorded an accumulated loss of R$448,392 (R$500,514 as of December 31, 2006) from these currency hedge and CDI x Pre swap transactions.
The table below shows the net position of these transactions, recorded in the Company's balance sheet:
|
|
Consolidated
|
Description
|
|
12.31.07
|
|
12.31.06
|
Current assets
|
|
916
|
|
1,298
|
Noncurrent assets
|
|
3,835
|
|
135
|
Total assets
|
|
4,751
|
|
1,433
|
|
|
|
|
|
Current Liabilities
|
|
(429,661)
|
|
(372,229)
|
Noncurrent liabilities
|
|
(23,482)
|
|
(129,718)
|
Total Liabilities
|
|
(453,143)
|
|
(501,947)
|
|
|
|
|
|
Accumulated loss
|
|
(448,392)
|
|
(500,514)
|
e)
Guarantees
On December 31, 2007, to the subsidiary's loans and financing, denominated in local currency, amounting R$849,996, being R$164,810 from
Banco do Nordeste do Brasil – BNB
, R$675,192 from
BNDES (
indexed by
URTJLP)
and R$9,994 at
BNDES (
indexed by
UMBNDES)
, the following to guarantees were provided:
Banks
|
|
Guarantees
|
BNDES
|
|
-
Contract (VIVO-2007) R$612,946: Referring guarantee in receivables 15% of the debt balance or 4 (four) times the major value of installment, of the highest value.
-
Contract (VIVO-"NBT/TCO") R$3,195: 100% of the receivables and more CDB are pledged to an amount equivalent to the two due installments .
-
Contract (VIVO-"GT") R$76,826: 45% of the receivables are pledged referring to revenue of services
-
Vivo Participações is intervening guarantor in these contracts with the BNDES.
|
Banco Europeu de Investimento – BEI
|
|
-
Commercial risk guaranteed by Banco Espirito Santo, BBV, Rabobank and BBVA Portugal
-
Vivo Participações is intervening guarantor in these contracts with the Banco Espírito Santo.
|
Banco do Nordeste do Brasil S.A.
|
|
-
Bank guarantee granted by Banco Bradesco S.A an amount equivalent to 100% of the debit balance of the financing obtained.
-
Establishing a liquidity fund comprising financial investments at an amount equivalent to three amortization installments by reference to the average post-grace period installment
-
Vivo Participações is intervening guarantor
|
f)
Debentures
On August 1, 2007 took place the second renegotiation of the first public issue of debentures, consisting of 5,000 (five thousand) simple, non-convertible and non-guaranteed debentures, with a par value of R$100 (one hundred thousand Reais) each, maturing on August 1, 2008. The renegotiation involving the total volume of the original issue occurred on August 1, 2003, at the rate of 104.6% of CDI, and a reduction in the rate to 103% of CDI also took place.
Within the scope of the First Security Distribution Program announced on August 20, 2004, in the amount of R$2,000,000 (two billion Reais) , the Company issued debentures on May 1, 2005 in the amount of R$1,000,000 (one billion Reais) with a 10 years-term as from the date of issuance.
The Offering was comprised by the issuance of 100,000 simple, non-convertible, unsecured debentures with a par value of R$10 (ten thousand Reais), totaling R$1,000,000 (one billion Reais), in two series, being R$200,000 (two hundred million Reais) in first series and R$800,000 (eight hundred million Reais) in the second series, with final maturity on May 1, 2015. The debentures are subject to interest, payable on a six-month period basis, corresponding to 103.3% (first series) and 104.2% (second series) of the accumulated daily average rates for DI (one-day Interbank, extra group deposits) (DI rates), as calculated and published by the Center for Custody and Financial Settlement of Certificates and Bonds (CETIP).
Remuneration of Debentures is due to be renegotiated on May 1, 2009 (first series) and May 1, 2010 (second series).
On July 11, 2007, the Board of Directors approved the following conditions for renegotiation of the a) Maturity Term of Remuneration: the new maturity term of the remuneration (being this the "Third Maturity Term of the Remuneration ") will be of 12 months, as from August 01, 2007 to August 01, 2008. During this time, the remuneration conditions defined herein will remain unchanged;
b) Remuneration: during the Third Maturity Term of the Remuneration, the debentures will be entitled to a remuneration of 103% (one hundred three percent) of the average rate of interbank deposits for one day, denominated “Extra Group Overnigth Interbank Deposit”, calculated according to the rule established in the clause 4.8.1 of the legal document of first Issuance of the Debentures;
c) Payment Period of the Remuneration: during the Third Maturity Term of the Remuneration, the payment of the remuneration will be made on February 01, 2008 and August 01, 2008, until the date of closing of the Third Maturity Term of the Remuneration, the first payment to be made on February 01, 2008 and;
d) Guarantee: the guarantee represented by the collateral granted by Vivo S.A. (Guarantor) will remain unaffected for the new remuneration period.
17. PROVISION FOR CONTINGENCIES
The Company and its subsidiary are parties to judicial proceedings that originated administrative and judicial contingencies related to labor, tax and civil claims. Relevant accounting provisions have been set up concerning such proceedings considered as probable losses.
Components of the reserve are as follows:
|
Consolidated
|
|
12.31.07
|
|
12.31.06
|
|
Provisions
|
|
(-) Judicial deposits
|
|
Net
|
|
Net
|
Tax
|
6,752
|
|
-
|
|
6,752
|
|
2,942
|
Civil
|
190,714
|
|
(39,971)
|
|
150,743
|
|
102,541
|
Labor
|
62,275
|
|
(20,366)
|
|
41,909
|
|
41,140
|
Total
|
259,741
|
|
(60,337)
|
|
199,404
|
|
146,623
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
81,395
|
|
61,911
|
Noncurrent
|
|
|
|
|
118,009
|
|
84,712
|
The changes in the reserve for contingencies are as follows:
|
2007
|
|
2006
|
Balance at beginning of year
|
146,623
|
|
212,784
|
Provisions recorded, net of reversals (Note 24)
|
184,594
|
|
109,550
|
Monetary variation
|
1,468
|
|
8,837
|
Payments
|
(128,400)
|
|
(220,434)
|
Merged assets
|
-
|
|
78,064
|
Increase in judicial deposits
|
(4,881)
|
|
(42,178)
|
Balance at year end
|
199,404
|
|
146,623
|
17.1.
Tax proceedings
17.1.1.
Probable losses
a)
ICMS
Based on the opinion of its external legal counsel, Vivo S.A. in the state of Espírito Santo recorded a provision of R$2,606 as of December 31, 2007 (R$587 in 2006), referring to tax suits, currently under dispute in the administrative court.
b)
Other
On December 31, 2007, a provision of R$4,146 (R$2,355 in 2006) was recorded for various tax suits, based on the opinion of its external legal counsel.
17.1.2.
Possible losses
Based on the opinion of its legal counsel and tax advisers, management believes that settling the matters listed below will not have a materially adverse effect on its financial position.
a)
ICMS
Vivo S.A. in the states of Distrito Federal, Acre, Mato Grosso do Sul, Mato Grosso, Goiás, Roraima and Amazonas received tax assessments totaling R$67,489 as of December 31, 2007 (R$77,186 in 2006), mainly in respect of: i) ICMS on occasional or complementary services that do not constitute telecommunications services; ii) ICMS on international calls made from Brazil; iii) failure to reverse proportionally an ICMS tax credit on the acquisition of fixed assets used in providing communications services and/or exempt or untaxed outgoing goods; iv) ICMS on nonremunerated provision of telecommunications services, consisting of the donation of credits to be used in the prepaid service plan; v) failure to include in the ICMS calculation base fines and arrears interest charged to defaulting clients; vi) alleged failure to comply with supplementary obligations and vii) others relating to the sale of goods.
Vivo S.A. in the state of Paraná received tax assessments totaling R$3,981, as of December 31, 2007 (R$1,336 in 2006) in respect of late payment of ICMS.
Vivo S.A. in the state of Bahia received tax assessments totaling R$43,686, as of December 31, 2007 (R$35,953 in 2006), mainly in respect of: i) failure to reverse proportionally an ICMS tax credit on the acquisition of fixed assets, electric power and switching services arising from providing untaxed communications services; ii) failure to reverse ICMS credits relative to handsets provided for rental and “free lease”; iii) late payment of ICMS in the period February to March 1998; iv) ICMS due on complementary communications services; v) failure to reverse ICMS credit in relation to long distance and call center and vi) ICMS on sign-up fees.
Vivo S.A. in the state of Sergipe received tax assessments totaling R$17,523, as of December 31,2007 (R$18,628 in 2006), mainly in respect of: i) failure to reverse proportionally an ICMS tax credit on the acquisition of fixed assets, electric power and switching services arising from providing untaxed communications services; ii) failure to reverse ICMS credits in relation to handsets provided for rental and “free lease”; iii) ICMS on provision of handsets on consignment and iv) ICMS due on complementary communications services.
Vivo S.A. in the state of Espírito Santo received tax assessments totaling R$6,900, as of December 31, 2007 (R$7,926 in 2006), mainly in respect of: i) incorrect ICMS credits and ii) failure to write up trade notes.
Vivo S.A. in the state of Rio de Janeiro received tax assessments totaling R$148,484, as of December 31, 2007 (R$77,615 in 2006), mainly in respect of: i) ICMS due on complementary communications services; ii) ICMS on sign-up fees; iii) ICMS on calls originating from administrative and test terminals; iv) ICMS due on services provided to other telecommunications operators to clients not eligible for exemption; v) ICMS on international calls; vi) failure to reverse proportionally ICMS tax credit on the acquisition of fixed assets; and vii) ICMS on provision of unpaid telecommunications services and viii) ICMS on electric power.
Vivo S.A. in the state of Rio Grande do Sul received tax assessments totaling R$25,877, as of December 31, 2007 (R$86,421 in 2006), mainly in respect of: (i) ICMS on international calls; (ii) late payment of ICMS and (iii) ICMS on electric power.
Vivo S.A. in the state of São Paulo received tax assessments totaling R$99,965,as of December 31, 2007 (R$65,874 in 2006), mainly in respect of: (i) incorrect ICMS credits and (ii) undue credit referring to posting values as extemporary credits.
Some of the discussions above are in the administrative sphere and others in judicial court.
b)
PIS and COFINS
b.1)
Increase in the Calculation Base
Vivo S.A. in the state of São Paulo received assessments (lawsuits No. 19515,000701/2003-28 and No. 19515,000699/2003-97) amounting to R$2,652, as of December 31, 2007 (R$2,526 in 2006), as a result of the increase in PIS and COFINS calculation bases. The assessments related to administrative court are awaiting the decision of Special Appeal.
b.2)
Derivative Operations
Vivo S.A. in the state of Bahia received a COFINS assessment of R$9,068, as of December 31, 2007 (R$8,416 in 2006), relating to losses incurred on derivative operations in determining the calculation base for this contribution. The assessment is awaiting judgment in the second administrative instance.
c)
ISS
c.1)
ISS on Tariff for Use of the Mobile Network
On the understanding that assignment of the use of the telecommunications networks constitutes a communications service subject to ICMS, and not rental of movable assets, Vivo S.A. in the state of Bahia and Vivo S.A. in the state of Rio Grande do Sul were assessed by their respective municipalities, which are demanding payment of ISS on the tariff for use of the mobile network (TUM). On December 31, 2007, the amount involved is R$109,561 (R$102,614 in 2006).
c.2)
ISS on Supplemental Service.
As of December 31, 2007, Vivo S.A. in the states of Amazonas, Mato Grosso, Mato Grosso do Sul, Paraná, Rio de Janeiro, Rio Grande do Sul, Roraima, Espírito Santo and São Paulo maintains discussions related to the ISS, amounting to R$34,386 (R$18,048 as of December 31, 2006), whose main object are: i) ISS on supplemental services of telecommunications, value added to the telecommunications, advertising, qualification, identification of calls and signature in telecommunications; ii) no retention of the ISS on consultant services provided by Telefónica International (TISA) to the Company .
The proceedings referred to c.1 and c.2, above, are being discussed in both some administrative and others in the judicial court.
d)
IRPJ, IRRF and CSLL
Vivo S.A. in the state of Rio de Janeiro received tax assessments amounting to R$154,474, as of December 31, 2007 (R$210,449 in 2006), in respect of: i) the use of part of the negative CSLL (federal social contribution on income) calculation base determined by the Company in 1997, originated from a partial spin-off; ii) alleged underpayment of IRPJ (income tax) and CSLL, due to the fact that the inspectors did not accept the deductibility of certain expenses; iii) alleged underpayment of IRRF (withholding tax) on overseas remittances and iv) changes to the IRPJ and CSLL calculation bases resulting from the reduction in the Company’s declared tax loss. The discussions above are in the administrative court.
e)
IRRF, IOF and PIS
In May of 2007, the Company was mentioned in tax foreclosures totaling R$22,364, as of December 31, 2007, since tax authorities have not homologated (approved) the compensation of the negative balance of IRPJ (income tax) for the fiscal year 2000. The
DRF – Delegacia da Receita Federal
(Regional Brazilian Internal Revenue Service) did not approve some expenditures included in the Company’s income tax return, therefore, cancelled the credit balance of IRPJ used for offset and still caused the accumulation of debt balance. Decision of first judicial instance is pending.
f) IRPJ
The Company assumed the assessments received by its subsidiary “TLE” amounting R$5,908 as of December 31, 2007 (R$5,438 in 2006) charged on underpayment, arising from the excess paid to FINOR, FINAN or FUNRES (tax incentives in Brazil), as calculated during the review of the Company’s income tax return - excess of investment in tax incentives. Decision of second judicial instance is pending.
g)
PIS, IRPJ and CSLL
In September of 2007, Vivo S.A. in the state of Pará filed a lawsuit aiming to cancel the several federal taxes payable on behalf of one of the merged companies called
Norte Brasil Telecom S.A.
These taxes were activated in the SIEF system (one of the Brazilian Internal Revenue Service systems) due to information provided in specific compensation tax returns (
DCOMP – Declaração de Compensação
and
PER/DCOMP – Declaração de Compensação, which is
sent electronically), which were not homologated by
Secretaria da Receita Federal do Brasil
(Brazilian Internal Revenue Service), totalizing R$14,607, as of December 31, 2007. The discussion is pending for conclusion in the second judicial instance.
h)
FUST
Through Precedent No. 7, of December 15, 2005, ANATEL expressed its understanding that: (i) revenues to be passed on to telecommunications service providers as remuneration for connection and for the use of network resources, among others, may not be excluded from the FUST calculation base; and (ii) revenues received from telecommunications service providers as remuneration for connection and for the use of network resources, among others, may not be excluded from the calculation base for contributions to FUST.
Since the second part of the Precedent is not in accordance with the provisions of Law No. 9,998, of August 17, 2000, article 6, sole paragraph, the subsidiary filed a writ of mandamus challenging the legality of this requirement, and obtained a favorable judgement in the first instance.
At December 31, 2007 the amount notified by ANATEL is of R$131,953 (R$64,772 as of December 31, 2006).
i)
FUNTTEL
The subsidiary petitioned mandamus directly to the Managing Chairman of the board of the FUNTTEL and the Temporary Secretary of the Ministry of Communications in order to assure its right to calculate and to pay the contributions to FUNTTEL, in the terms of Law No. 10,052, as of November 28, 2000, without the inclusion of amounts received as transfers, entitled as interconnection and use of the integrant resources of its network, as expressed in article 6, paragraph 4 of Decree n. 3,737, as of January 30, 2001. The Company obtained favorable judicial decision related to this issue. On December 31, 2007 the amount involved is R$68,249.
j)
FISTEL
Vivo S.A. in the state of Rio de Janeiro and Vivo S.A. in the state of Distrito Federal hold two authorizations granted by the Brazilian Government through SMP (Personal Mobile Service), through the Authorization Document No. 013/2002: one to operate the Personal Mobile Service for an indeterminate period, and the other to use the radio frequency on a primary basis for the remaining term of the first license, renewable for a further 15 years.
In the case of Vivo S.A. in the states of Rio de Janeiro and Distrito Federal, the licenses for the remaining period (15 years) for use of the radio frequencies required to provide the Personal Mobile Service (SMP) have expired and procedures to extend them have been put in activity. However, in order to obtain the license documents with an appropriate validity date for the extension (a right already recognized and granted by Act No. 54,324, of November 28, 2005), the Companies were faced with the requirement, in their view uncalled for, to pay a further Installation Inspection Fee (TFI) for all their mobile and fixed stations and radio links.
The demand for the TFI, totaling R$148,888 for Vivo S.A. in the state of Rio de Janeiro and R$37,133 for Vivo S.A. in the state of Distrito Federal (R$134,924 and R$33,144 as of December 31, 2006, respectively), is due to ANATEL’s interpretation that article 9, item III, of Resolution No. 255 applies in this case, so that the extension would constitute a taxable event for TFI. We do not, however, consider this interpretation of the law correct, and have, therefore, filed an administrative challenge. A new requirement appeared on December 20, 2007 against Vivo S.A. in the state of Rio Grande do Sul, had, equally, to the renewal of its license of use of stations. For Vivo S.A. (RS) the value of the TFI requirement is R$95,957, on December 31, 2007, which was object of administrative impugnation.
k)
IRPJ and CSLL
Vivo S.A. in the state of Rio Grande do Sul was subject to a tax assessment relating to the collection of alleged IRPJ and CSLL debts of R$283,911, of December 31, 2007 (R$270,080 in 2006), for the allegedly undue amortization of the goodwill on acquisition of the interests of
Companhia Riograndense de Telecomunicações (CRT)
in fiscal years 1997 and 1998. Such requirement is pending of judgment in the administrative court.
17.2.
Civil Claims
Several civil claims are included, and respective reserves were recorded as shown before, which were considered sufficient to meet probable losses on these cases.
a)
Consumers
The Company is a party to several lawsuits initiated by individual consumers or civil associations representing the right of consumers against non-performance of services and/or products sold by the Company. Individually, none of these lawsuits is considered significant.
At December 31, 2007, based on the opinion of our outside counsel, we recorded the amount of R$135,072 (R$123,156 in 2006), which is considered sufficient to meet potential losses on these proceedings.
On the same date, the amount involved in these lawsuits classified as "possible loss" is R$346,136 (R$263,964 in 2006).
b)
ANATEL
The Company is a party to several legal and administrative proceedings initiated by ANATEL referring to non-compliance with regulations concerning the Personal Mobile Service (SMP). On December 31, 2007 an amount of R$18,614 (R$12,693 in 2006) was recorded, which is considered sufficient for probable losses on these cases.
On the same date, the amount involved in these lawsuits classified as "possible loss" is R$18,356.
c)
Others
These refer to lawsuits of other nature, all related to the normal course of business, including contractual discussions with supplier. At December 31, 2007, based on the opinion of its outside lawyers, we had been recorded R$ 37,028 (R$7,738 in 2006), amount considered sufficient to meet probable losses on these cases.
At the same date, the amount involved in these lawsuits classified as "possible loss" were R$ 79,251(R$35,183 in 2006).
17.3.
Labor Claims
Several labor claims are included, and respective provision was recorded as shown before, which is considered sufficient to meet probable losses on these cases.
During the year ended December 31, 2007 no significant labor claims classified as "probable loss" were initiated. No significant changes have occurred in the proceedings reported since last fiscal year.
With respect to proceedings in which the possibility of loss is classified as "possible", the amount involved is R$133,040 (R$93,053 in 2006).
17.4.
Guarantees
The taxes, civil and labor processes are subject to guarantees provided by the Company as part of the judicial discussion, as follows:
Process
|
Property and Equipment
|
|
Judicial Deposits and On-Line Pledge
|
|
Letter Guarantee
|
|
Total
|
Tax
|
98,614
|
|
142,448
|
|
169,725
|
|
410,787
|
Civil and labors
|
10,544
|
|
99,688
|
|
7,072
|
|
117,304
|
|
|
|
|
|
|
|
|
Total
|
109,158
|
|
242,136
|
|
176,797
|
|
528,091
|
17.5.
Fiscal Audits
In accordance with the current legislation in Brazil, state and municipal taxes and social contribution are subject to examination by respective authorities, for periods that vary from 5 to 30 years.
18. OTHER LIABILITIES
|
Company
|
|
Consolidated
|
|
12.31.07
|
|
12.31.06
|
|
12.31.07
|
|
12.31.06
|
Prepaid services to be rendered
|
-
|
|
-
|
|
336,320
|
|
177,917
|
Provision fidelity program (a)
|
-
|
|
-
|
|
76,337
|
|
65,004
|
Payables to related parties
|
168
|
|
619
|
|
847
|
|
2,099
|
Provision for Pension Fund
|
-
|
|
-
|
|
3,960
|
|
17,447
|
Reverse stock split(b)
|
74,978
|
|
76,071
|
|
116,807
|
|
117,945
|
Provision for disposal
of assets(c)
|
-
|
|
-
|
|
145,947
|
|
129,907
|
Other
|
14,998
|
|
320
|
|
62,104
|
|
9,530
|
|
|
|
|
|
|
|
|
Total
|
90,144
|
|
77,010
|
|
742,322
|
|
519,849
|
|
|
|
|
|
|
|
|
Current
|
89,824
|
|
76,690
|
|
546,169
|
|
386,422
|
Noncurrent
|
320
|
|
320
|
|
196,153
|
|
133,427
|
(a) The subsidiary has implemented customer loyalty programs, under which usage of wireless services by customers are transferred into points that entitle the user for future exchange of their handsets. A provision is recorded for accumulated points, net of redemptions, considering the past history of redemptions, points generated and average cost per point.
(b) Refers to the credit made available to the holders of remaining shares, resulting from the reverse stock split of the Company’s capital stock and its subsidiary.
(c) Refers to the costs to be incurred into the eventual obligation on returning leased “sites” to the lessor (sites used to installations of towers - subsidiary’s ERBs) in the same conditions as they were found when the signature of the initial contract of their location.
19. SHAREHOLDERS’ EQUITY
a)
Capital
An Ordinary and Extraordinary General Shareholders’ Meeting held on February 22, 2006 approved the reduction of the Company’s capital through the absorption of accumulated losses of R$3,147,782. The same Meeting approved the capital increase of R$1,068,839, due to the merger of TCO shares, and of R$1,562,298, due to the merger of TSD, TLE and CRT Participações (Note 1). The capital increased from R$6,670,152 to R$6,153,507 and comprises 1,426,412,217 shares, of which 509,226,137 are common shares and 917,186,080 are preferred shares, all book-entry shares without par value, and including 4,494,900 preferred shares held in treasury.
An Extraordinary Shareholders’ Meeting of the Board of Directors held on June 8, 2006 approved a capital increase of R$194,277, of which R$193,837 is from capitalization of the part of the special goodwill reserve corresponding to the fiscal benefit generated in 2005, as a result of the processes of corporate restructuring involving the Company and its merged, subsidiaries and parent companies, and R$440 corresponding to balances remaining from previous years. The Company’s capital stock increased from R$6,153,507 to R$6,347,784 consisting of 1,442,117,745 shares of which 524,931,665 are common shares and 917,186,080 are preferred shares, all book-entry nominal shares without par value.
The capital as of December 31, 2007 and 2006 comprises shares without par value, as follows:
|
Thousands of shares
|
Common shares
|
524,932
|
Preferred shares
|
917,186
|
|
|
Total
|
1,442,118
|
b)
Dividends and interest on shareholders’ equity
The preferred shares do not have voting rights, except in the cases stipulated in articles 9 and 10 of the bylaws. They are assured of priority in the reimbursement of capital, without premium, the right to participate in the dividend to be distributed, corresponding to a minimum of 25% of net income for the fiscal year, calculated in accordance with article 202 of corporate law, and priority in receiving minimum noncumulative dividends equivalent to the higher of the following amounts:
b.1) 6% per year on the amount resulting from dividing the subscribed capital by the total number of Company’s shares.
b.2) 3% per year on the amount resulting from division of the shareholders’ equity by the total number of Company’s shares, and also the right to participate in distributed income under equal conditions to the common shares, after the common shares have been assured of a dividend equal to the minimum priority dividend established for the preferred shares.
As from the General Shareholders’ Meeting held on March 27, 2004, the preferred shares are entitled to full voting rights, in accordance with article 111, paragraph 1, of Law No. 6,404/76, since the minimum dividends were not paid on the preferred shares for three consecutive years.
In the Ordinary General meeting, carried through as of March 15, 2007, the payment of shares on the year-end results of 2006 to the holders of preferred stocks was approved. However the approved value was inferior to the minimum value statutory, necessary to remove the right to vote of the preferred stocks.
b.3) Dividends and interest on shareholders’ equity, not claimed by the shareholders, are prescribed in 3 (three) years, counted from the date of the beginning of payment, as art. 287, subparagraph II, item a), of Law 6.404/76.
c)
Capital Reserves
c.1)
Share Premium
This reserve represents the excess of amount paid in the issuance or capitalization of shares, in relation to the basic value of the shares at issuance date.
c.2)
Special goodwill reserve
This reserve was set up as a result of the corporate restructuring process as described in the note 30.1, due to the net carrying amount merged and represents the future tax benefit to be obtained through the amortization of the goodwill incorporated. The portion of the special reserve corresponding to the tax benefit obtained may be capitalized at the end of each fiscal year for the benefit of the controlling shareholder, with new issuance of shares. The respective capital increase will be subject to preemptive rights of the minority shareholders, in proportion to their participation, by type and class, at the time of new issuance, and the amounts payable during the year in connection with this right must be paid directly to the controlling shareholder, in accordance with Instruction No. 319/99 of the Brazilian Securities Commission (CVM).
c.3)
Tax incentives
It represents the amount invested in tax incentives as allowed by Brazilian Tax Legislation.
d)
Income Reserves
d.1)
Legal Reserve
In accordance with provisions of article 193 of Corporate Law 6.404/76, Brazilian companies are required to appropriate 5% of their annual net income to a legal reserve until that reserve equals 20% of paid-up share capital. Additionally, the Company is not required to make an appropriation to the legal reserve if the aggregate of the legal reserve and the capital reserves exceeds 30% of the paid-up capital. This reserve can only be used to increase capital or offset accumulated losses.
d.2)
Reserve for Expansion
The reserve for expansion is intended to fund investment and network expansion projects, through destination up to 100% of the remaining net profits, after the legal determination and the retained earnings balance for the year ended December 31, 2007. This reserve is supported by capital budget, which is approved in Shareholders’ Meeting.
d.3)
Reserve for Contingencies and Treasury Shares
The amounts recorded as of December 31, 2007 are related to the split process of
Companhia Riograndense de Telecomunicações - CRT
, which purpose is to preserve the Company against eventual judicial decision on lawsuits related to capitalizations of capital occurred in the Company during years of 1996 and 1997.
20. NET OPERATING REVENUE
|
Consolidated
|
|
2007
|
|
2006
|
Subscription and use
|
7,863,652
|
|
7,190,811
|
Interconnection
|
5,109,277
|
|
4,338,094
|
Data and value-added services
|
1,330,552
|
|
970,352
|
Other services
|
235,110
|
|
212,771
|
Gross revenue from service
|
14,538,591
|
|
12,712,028
|
|
|
|
|
Value-added tax on services (ICMS)
|
(2,447,298)
|
|
(2,240,008)
|
PIS and COFINS
|
(521,963)
|
|
(457,026)
|
Service tax (ISS)
|
(5,893)
|
|
(3,124)
|
Discounts granted
|
(474,139)
|
|
(451,657)
|
|
|
|
|
Net operating income from services
|
11,089,298
|
|
9,560,213
|
|
|
|
|
Gross income from handsets and accessories
|
3,105,703
|
|
2,742,645
|
|
|
|
|
Value-added tax on services (ICMS)
|
(242,994)
|
|
(230,197)
|
PIS and COFINS
|
(167,791)
|
|
(163,769)
|
Discounts granted
|
(1,144,698)
|
|
(832,193)
|
Returns of goods
|
(147,024)
|
|
(139,985)
|
|
|
|
|
Net operating income from sale of handsets and accessories
|
1,403,196
|
|
1,376,501
|
|
|
|
|
Total net operating income
|
12,492,494
|
|
10,936,714
|
There are no client accounts more than 10% of gross operating income during the years ended December 31, 2007, 2006 and 2005, with the exception of
Telecomunicações de São Paulo S.A.
- TELESP, a fixed telephone operating company in the state of
São Paulo
that accounted for approximately 10.5% and 15% during years ended December31, 2006 and 2005, and Brasil Telecom S.A. - BrT, a fixed line service provider, which contributed approximately of 10% during 2005. The said amounts refer mainly to interconnection.
21. COST OF SERVICES AND GOODS SOLD
|
Consolidated
|
|
2007
|
|
2006
|
Personnel
|
(102,941)
|
|
(88,709)
|
Materials
|
(5,227)
|
|
(11,592)
|
Outside services
|
(425,753)
|
|
(369,953)
|
Leased lines
|
(226,190)
|
|
(222,542)
|
Rent, insurance and condominium fees
|
(209,923)
|
|
(206,788)
|
Interconnection
|
(1,618,216)
|
|
(784,992)
|
Taxes and contributions
|
(498,801)
|
|
(517,490)
|
Depreciation and amortization
|
(1,378,923)
|
|
(1,327,454)
|
Other consumables
|
(60,482)
|
|
(136,338)
|
Cost of services rendered
|
(4,526,456)
|
|
(3,665,858)
|
|
|
|
|
Cost of goods sold
|
(2,096,834)
|
|
(1,898,310)
|
|
|
|
|
Total
|
(6,623,290)
|
|
(5,564,168)
|
22. SELLING EXPENSES
|
Consolidated
|
|
2007
|
|
2006
|
Personnel
|
(302,310)
|
|
(302,229)
|
Materials
|
(43,743)
|
|
(39,200)
|
Outsourced services
|
(1,635,977)
|
|
(1,614,256)
|
Advertising
|
(323,660)
|
|
(320,186)
|
Costumer loyalty
|
(310,856)
|
|
(220,360)
|
Rent, insurance and condominium expenses
|
(66,439)
|
|
(60,772)
|
Taxes, fees and mandatory contributions
|
(2,320)
|
|
(2,669)
|
Depreciation and amortization
|
(457,166)
|
|
(410,314)
|
Allowance for doubtful accounts
|
(365,740)
|
|
(720,496)
|
Other supplies
|
(24,572)
|
|
(60,588)
|
Total
|
(3,532,783)
|
|
(3,751,070)
|
23. GENERAL AND ADMINISTRATIVE EXPENSES
|
Company
|
|
Consolidated
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
Personnel
|
(2,185)
|
|
(4,117)
|
|
(266,462)
|
|
(255,719)
|
Materials
|
-
|
|
-
|
|
(6,377)
|
|
(13,769)
|
Outsourced services
|
(13,485)
|
|
(14,248)
|
|
(529,091)
|
|
(425,211)
|
Rent, insurance and condominium
|
(1)
|
|
(65)
|
|
(79,510)
|
|
(92,195)
|
Taxes
|
(29)
|
|
(51)
|
|
(3,519)
|
|
(4,627)
|
Depreciation and amortization
|
(53)
|
|
(103)
|
|
(291,328)
|
|
(297,011)
|
Other supplies
|
(8)
|
|
(143)
|
|
(13,704)
|
|
(11,216)
|
Total
|
(15,761)
|
|
(18,727)
|
|
(1,189,991)
|
|
(1,099,748)
|
24. OTHER OPERATING INCOME (EXPENSES)
|
Company
|
|
Consolidated
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
Income:
|
|
|
|
|
|
|
|
Fines
|
-
|
|
-
|
|
67,559
|
|
88,842
|
Recovered expenses
|
724
|
|
67,492
|
|
180,682
|
|
293,206
|
Reversal of provisions
|
243
|
|
300
|
|
12,211
|
|
29,065
|
Shared infrastructure - EILD
|
-
|
|
-
|
|
52,764
|
|
58,119
|
Others
|
-
|
|
208
|
|
10,804
|
|
23,830
|
Total
|
967
|
|
68,000
|
|
324,020
|
|
493,062
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
FUST
|
-
|
|
-
|
|
(60,682)
|
|
(53,549)
|
FUNTTEL
|
-
|
|
-
|
|
(30,376)
|
|
(26,818)
|
ICMS on other expenses
|
-
|
|
-
|
|
(60,387)
|
|
(71,820)
|
CIDE
|
-
|
|
-
|
|
(17,025)
|
|
(8,689)
|
PIS and COFINS
|
(95)
|
|
(4,488)
|
|
(51,979)
|
|
(43,947)
|
Other taxes, fees and mandatory contributions
|
(278)
|
|
(165)
|
|
(15,945)
|
|
(14,924)
|
Provision for contingencies
|
(961)
|
|
(377)
|
|
(196,805)
|
|
(138,615)
|
Amortization of deferred charges
|
-
|
|
-
|
|
(46,860)
|
|
(47,619)
|
Amortization of goodwill
|
(380,746)
|
|
(379,788)
|
|
(380,746)
|
|
(381,061)
|
Realization of provision for valuation allowance
|
69,070
|
|
69,074
|
|
69,070
|
|
69,074
|
Others
|
(9,802)
|
|
(227)
|
|
(31,906)
|
|
(94,564)
|
Total
|
(322,812)
|
|
(315,971)
|
|
(823,641)
|
|
(812,532)
|
25. FINANCIAL INCOME (EXPENSES) AND MONETARY AND EXCHANGE VARIATIONS
|
Company
|
|
Consolidated
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
Financial income:
|
|
|
|
|
|
|
|
Income from financial transactions
|
34,101
|
|
42,602
|
|
208,670
|
|
286,805
|
PIS and COFINS on financial income(a)
|
(22,848)
|
|
-
|
|
(22,848)
|
|
(51)
|
Total
|
11,253
|
|
42,602
|
|
185,822
|
|
286,754
|
|
|
|
|
|
|
|
|
Financial expenses:
|
|
|
|
|
|
|
|
Derivative transactions
|
(6,569)
|
|
(110,076)
|
|
(222,437)
|
|
(427,385)
|
Loans
|
(185,886)
|
|
(260,289)
|
|
(305,407)
|
|
(397,164)
|
Other financial transactions
|
(13,387)
|
|
(10,439)
|
|
(136,852)
|
|
(196,306)
|
Total
|
(205,842)
|
|
(380,804)
|
|
(664,696)
|
|
(1,020,855)
|
|
|
|
|
|
|
|
|
Monetary and exchange variations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In assets
|
|
|
|
|
|
|
|
Derivative transactions
|
-
|
|
(11,141)
|
|
11,626
|
|
(49,640)
|
|
|
|
|
|
|
|
|
In liabilities
|
|
|
|
|
|
|
|
Derivative transactions
|
(13,393)
|
|
(113,416)
|
|
(298,604)
|
|
(287,239)
|
Loans
|
13,352
|
|
130,349
|
|
296,138
|
|
334,978
|
Other transactions
|
11
|
|
664
|
|
1,375
|
|
(11,983)
|
Total
|
(30)
|
|
6,456
|
|
10,535
|
|
(13,884)
|
(a) The amount 2007 is related to PIS and COFINS charged on interest on shareholders’ equity of R$247,000 received from the subsidiary (Vivo S.A.).
26. OTHER NONOPERATING INCOME (EXPENSE)
|
Company
|
|
Consolidated
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
Income:
|
|
|
|
|
|
|
|
Disposal of property, plant and equipment
|
53
|
|
12
|
|
5,264
|
|
50,048
|
Other
|
-
|
|
16
|
|
43
|
|
259
|
Total
|
53
|
|
28
|
|
5,307
|
|
50,307
|
|
|
|
|
|
|
|
|
Expense:
|
|
|
|
|
|
|
|
Disposal of property, plant and equipment
|
(34)
|
|
(19)
|
|
(25,792)
|
|
(326,815)
|
Provision for losses on investments
|
-
|
|
-
|
|
-
|
|
(671)
|
Other
|
(3)
|
|
(125,411)
|
|
(325)
|
|
(11,791)
|
Total
|
(37)
|
|
(125,430)
|
|
(26,117)
|
|
(339,277)
|
27. INCOME AND SOCIAL CONTRIBUTION TAXES
The Company and its subsidiary record provisions for income and social contribution taxes monthly on the accrual basis, paying the taxes based on the monthly estimate. Deferred taxes are recognized on temporary differences, as mentioned in Note 7. The composition of expenses on income and social contribution taxes is shown below:
|
Consolidated
|
|
2007
|
|
2006
|
Income tax
|
(224,929)
|
|
(373,873)
|
Social contribution tax
|
(80,983)
|
|
(134,593)
|
Deferred income tax
|
35,927
|
|
1,005,183
|
Deferred social contribution tax
|
12,934
|
|
362,295
|
Total
|
(257,051)
|
|
859,012
|
Please find below a reconciliation of the expense with income taxes disclosed, by eliminating the effects of the goodwill tax benefit, and the amounts calculated by applying combined statutory rates at 34%:
|
Company
|
|
Consolidated
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
Pre-tax loss
|
(78,935)
|
|
71,526
|
|
157,660
|
|
(834,697)
|
|
|
|
|
|
|
|
|
Tax credit at combined statutory rate (34%)
|
26,838
|
|
(24,319)
|
|
(53,604)
|
|
283,797
|
|
|
|
|
|
|
|
|
Permanent additions:
|
|
|
|
|
|
|
|
Nondeductible expenses - goodwill amortization
|
(105,970)
|
|
(105,643)
|
|
(105,970)
|
|
(106,076)
|
Other nondeductible expenses
|
-
|
|
(40,328)
|
|
(104,575)
|
|
(174,403)
|
Other additions
|
-
|
|
(3,984)
|
|
(1,870)
|
|
(144,284)
|
Permanent exclusions:
|
|
|
|
|
|
|
|
Equity pick-up
|
70,133
|
|
270,427
|
|
-
|
|
-
|
Other exclusions
|
11,819
|
|
11,706
|
|
11,843
|
|
34,604
|
Unrecognized tax loss and temporary differences
|
(2,820)
|
|
(108,612)
|
|
(2,875)
|
|
(108,612)
|
Tax loss and temporary differences not recognized in prior years
|
-
|
|
-
|
|
-
|
|
1,073,986
|
Tax income (expense)
|
-
|
|
(753)
|
|
(257,051)
|
|
859,012
|
28. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONSOLIDATED)
a) Considerations on Risks
The main market risks that the Company and its subsidiary are exposed to:
Credit Risk
: Deriving from possible difficulties in collecting the amounts related to telecommunications services rendered to the Company’s clients and to sales of handsets to dealers, as well as the risk related to short-term investments and amounts receivable from swap transactions.
Interest Rate Risk
: Deriving from a portion of the debt and from liability positions in derivatives contracted at floating rates, and involving the risk of an increase in financial expenses due to an unfavorable change in interest rates (mainly LIBOR, TJLP and CDI).
Exchange Rate Risk
: The likelihood that Company and its subsidiary incur losses as a result of exchange rate variations that may increase the liability balances of foreign currency loans and financing.
The Company and its subsidiary adopt an active position concerning the managing of the various risks to which they are exposed, by means of a set of comprehensive initiatives, procedures and operating policies, thus mitigating the risks inherent to their activities.
Credit Risk
The credit risk involved in the rendering of telecommunications services is minimized by a strict control of the client base and active administration of customers’ default, through clear policies regarding the sale of post-paid telephones. The subsidiary customer base has predominantly a prepaid system, which requires the prior loading and consequently entails no credit risk.
The credit risk in the sale of handsets is managed by a conservative credit policy, by means of modern management methods, including the application of "credit scoring" techniques, analysis of financial statements and information, and consultation to commercial data bases, as well as the automatic control of sales release integrated with the distribution module of SAP's ERP software.
The company and its subsidiary are also subject to credit risk originating from its financial investments and amounts receivable from swap transactions. The Company and its subsidiary act in a manner so as to diversify this exposure among various world-class financial institutions.
Interest Rate Risk
The Company and its subsidiary are exposed to the risk of increased interest rates, especially those associated with the cost of the Interbank deposit certificates (CDI), in connection with payables related to derivative transactions (currency hedge) and by loans denominated in Reais. As a way to minimize this exposure, the Company contracted swap transactions in Reais, from CDI to fixed-interest rates, in a total reference amount of R$1,214 million. The balance of financial investments, indexed to the CDI, also neutralizes this effect partially.
Furthermore, the Company and its subsidiary are also exposed to the risk of fluctuation of the long-term interest rate (TJLP), in connection with the loans obtained from BNDES. These transactions amounted R$675,192 as of December 31, 2007. The Company and its subsidiary have no transactions with derivatives contracted to cover the TJLP risk.
On December 31, 2007, the subsidiary had US$52,480 referring to the loans and financings involving floating foreign interest rates (LIBOR), that are protected against fluctuation in interest rates (LIBOR) by means of derivatives (interest rate swap).
Exchange Rate Risk
The Company and its subsidiary contracted financial transactions with derivatives so as to protect themselves against exchange rate fluctuations affecting their loans and other liabilities in foreign currencies. The instruments generally used are swap and forward contracts.
The Company’s net exposure to currency risk as of December 31, 2007 and 2006 are shown in the table below:
|
In thousands of
|
|
US$
|
|
€
|
|
¥
|
Loans and financing
|
(408,540)
|
|
(15,265)
|
|
(66,997,370)
|
Loans and financing - UMBNDES (a)
|
(5,666)
|
|
-
|
|
-
|
Derivative instruments
|
413,420
|
|
15,265
|
|
66,997,370
|
Other liabilities
|
(43,404)
|
|
(35,502)
|
|
-
|
Total (insufficient coverage)
|
(44,190)
|
|
(35,502)
|
|
-
|
(a) UMBNDES is a monetary unit conceived by BNDES, composed of a basket of foreign currencies, being the main currency the US dollar, and for this reason the Company and its subsidiary consider it in their analysis of the risk coverage against exchange rate fluctuations.
Transactions with Derivatives
The Company and its subsidiary record gains and losses on derivative contracts as financial income or expenses, net.
The table below shows an estimate of the book value and the market value of the loans and financing, as well as of the transactions with derivatives, as of December 31, 2007:
|
Book value
|
|
Market
value
|
|
Unrealized gain
|
Loans and financing
|
(4,381,440)
|
|
(4,366,396)
|
|
15,044
|
Derivative instruments
|
(448,392)
|
|
(436,283)
|
|
12,109
|
Other liabilities
|
(78,906)
|
|
(78,906)
|
|
-
|
Total
|
(4,908,738)
|
|
(4,881,585)
|
|
27,153
|
b)
Market Value of Financial Instruments
The market value of loans, financing and debentures, as well as of swap contracts, was set up on the basis of discounted cash flow, by using projections of interest rates available.
Market values are calculated at a specific time based on available information and own evaluation methodology. Consequently, the indicated estimates do not necessarily represent market realizable values. Use of different assumptions may significantly affect estimates.
29. POST-EMPLOYMENT BENEFIT PLANS
The Company and its subsidiary, together with other companies belonging to the former Telebras System, sponsor private pension plans and medical assistance plans for retired employees, administered by the Sistel Social Security Foundation - SISTEL, as follows:
a)
PBS-A
: Multi-sponsored defined benefit plan, designed for participants already assisted as of January 31, 2000.
b)
PBS-Telesp Celular, PBS-TCO, PBS Tele Sudeste and PBS Tele Leste Celular
: defined retirement benefit plans sponsored individually by the Company.
The contributions to the PBS plans are determined on the basis of actuarial studies prepared by independent actuaries, in accordance with standards in force in Brazil. The costing determination system is that capitalization and contribution due by sponsors is 13.5% on their participating employees' salaries, of which 12% are designed for the costing of the PBS plans and 1.5% to the PAMA plan. In the year ended December 31, 2007, contributions to these plans amounted to R$10(R$24 in 2006).
c)
PAMA
: Multi-sponsored medical assistance plan for retired employees and their dependents, at shared cost.
d)
TCP Prev and TCO Prev Plans: Individual plans
- defined contribution and variable contribution - instituted by SISTEL in August 2000. In both plan types the Company supports participants' death or disability risk amounts, while in the TCO Prev plan some participants originally enrolled with the PBS-TCO plan are entitled to lifelong retirement benefits (paid-up benefit), besides the benefits of defined contribution. The contributions of the Company to the TCP Prev and TCO Prev plans are equal to those of participants, ranging between 1% and 8% of the contribution salary, according to percentage chosen by participant. In the year ended December 31, 2007, contributions to these plans amounted to R$1,540 (R$1,446 in 2006).
In civil suit No. 04/081.668-0, brought by ASTEL against the SISTEL Social Security Foundation, in which besides SISTEL also Telefonica and Telesp Celular are summoned, various claims are made, which we summarize as follows: i) that Sistel be prohibited from charging retired employees and other participants any contributions to PAMA - Medical Assistance Plan for Retirees, the same being subject only to a "small participation in actual use"; such participation is limited to 1% of the assisted person's monthly income; ii) that SISTEL enroll again with PAMA, without any restrictions, the retirees and assisted persons who had their enrollment suspended due to non-payment, as well as those who did not stand the pressure and requested cancellation of their enrolment with PAMA or enrolled with the PCE (Special Coverage Plan), as they wish, also without any restriction; iii) that SISTEL reassess the economic needs of PAMA, including the amounts of sponsors Telefonica's and Telesp Celular's monthly contributions; iv) that sponsors' contributions be calculated on the basis of the payroll of all their employees, as per previous by-laws provision, and not on the basis of the percentage on the payroll of active participants in PBS; v) that Sistel re-establishes the accreditation of all hospitals, clinics and laboratories that were canceled; vi) that a review be carried out of the accounting distribution of equity, so as to attribute to PAMA the amounts corresponding to the reducing factor of the supplementary contributions, as described above, while Sistel is prohibited, as long as this review is not carried out, to perform any splitting of the net equity of PBS-A plan or any other plan administered by the entity; vii) that Sistel and sponsors refund the "transfer of equity of the main substrate designed for guaranteeing PBS-2 and PAMA, illegally transferred to Visão Telesp and Visão Prev Plans of Telesp Celular"; viii) granting of advance relief in relation to items "i", "ii" and "v".
The subsidiary by means of its actuarial consultant made a study of the impacts described above, and concluded that the change in costing, as claimed by ASTEL, would represent an increase in subsidiary's provisions in the amount of R$1,301, on December 30, 2007 (R$1,234 in 2006).
Based on their legal advisors' and tax consultants' opinions, management believes that, at this moment, there is no risk to be paid, and as of December 31, 2007 and the likelihood of loss is classified as "possible".
e)
Benefit Plans Visão Celular- Celular CRT, Telerj Celular, Telest Celular, Telebahia Celular and Telergipe Celular
: Defined contribution individual plans, established by Sistel in August, 2000. Company's contributions to Visão Celular plans are equal to those of participants, ranging between 0% and 9% of contribution salary, according to participant's choice. In the year ended December 31, 2007, contributions to these plans amounted to R$659 (R$790 in 2006).
f)
Defined Benefit Plan
: CRT – Companhia Rio Grandense de Telecomunicações sponsored defined benefit pension plans (founding member benefit plan and alternative benefit plan), which were managed by
Fundação dos Empregados da Companhia Riograndense de Telecomunicações – FCRT
(pension plan of
CRT
).
On December 21, 2001,
CRT
and
Brasil Telecom S.A.
, sponsors of
FCRT
, signed a statement of commitment with a view to completely cancelling any link between the sponsors, by the withdrawal of "CRT" as a sponsor, with the guarantee that this withdrawal be made strictly in accordance with applicable legislation and respecting participants' rights, which was approved by the Supplementary Pension Department at December 30, 2003.
In spite of that existing legislation allows the contributions of sponsors and participants be discontinued, "
CRT
" continued paying its contributions from January 2002 to December 2003 in order to safeguard and preserve participants' rights, until CRT’s actual withdrawal from FCRT.
For the actuarial evaluation of the plans, the methodology for withdrawal of sponsor was used, established by Resolution MPAS CPC No. 06/88.
Reserves were individually evaluated on the basis of the methodology determined by said Resolution for each category (assisted persons and retirees, imminent active risks and non-imminent active risks).
As of October 2004, "CRT" has been passing on to Sistel, as agreed with FCRT. On July 31, 2007, "CRT" repassed R$20,001 to the FCRT, finishing its participation to this plan of benefits, disentailing thus of any obligations and future contingencies.
On February 02, 2007, the process of transferring the administration of
SISTEL – Fundação de Seguridade Social
plans to
Visão Prev - Sociedade de Previdência Complementar
pension plan was approved, as follows: PBS Telesp Celular, TCPPrev, PBS Tele Centro Oeste Celular, TCOPrev, PBS Telesudeste Celular, Visão Telerj Celular, Visão Telest Celular, PBS Teleleste Celular, Visão Telebahia Celular, Visão Telergipe Celular and Visão Celular CRT.
The eleven plans sponsored by the subsidiary were steadily transferred to
Visão Prev
up to December 31, 2007, taking in consideration that the transfer plan assets occurred on May 2, 2007.
On August 21, 2007,
Vivo Prev
bylaws’ plan was approved, being an individual plan of defined contribution, which has already been managed by
Visão Prev Sociedade de Previdência
Complementar pension plan
. The contributions of the Company to
Vivo Prev
plan are equal to the ones of the participants, varying from 0% to 8% of the participation wage, based of the percentage chosen by the participant.
We showed below the balances for the defined-benefit retirement plans and healthcare plan for retired employees as of December 31, 2007 and 2006, as well as the additional information required by
Deliberação CVM No. 371/02
on these plans:
Plan
|
|
2007
|
|
2006
|
PAMA
|
|
3,308
|
|
2,509
|
Vivo Prev
|
|
652
|
|
-
|
Total
|
|
3,960
|
|
2,509
|
1) Reconciliation of assets and liabilities
|
2007
|
|
Vivo Prev
|
|
PAMA (i)
|
|
PBS (ii)
|
|
PBS-A (i) (ii)
|
|
TCP Prev (ii)
|
|
TCO Prev (ii)
|
|
Visão (ii)
|
Total actuarial liabilities
|
652
|
|
6,100
|
|
23,778
|
|
25,780
|
|
3,220
|
|
42,599
|
|
5,139
|
Fair value of plan assets
|
-
|
|
(2,792)
|
|
(33,648)
|
|
(41,812)
|
|
(7,847)
|
|
(59,623)
|
|
(24,073)
|
Net liabilities (assets)
|
652
|
|
3,308
|
|
(9,870)
|
|
(16,032)
|
|
(4,627)
|
|
(17,024)
|
|
(18,934)
|
|
2006
|
|
PAMA (i)
|
|
PBS (ii)
|
|
PBS-A (i) (ii)
|
|
TCP Prev (ii)
|
|
TCO Prev (ii)
|
|
Visão (ii)
|
Total actuarial liabilities
|
5,401
|
|
22,545
|
|
24,915
|
|
3,632
|
|
43,006
|
|
5,912
|
Fair value of plan assets
|
(2,892)
|
|
(30,304)
|
|
(36,858)
|
|
(9,094)
|
|
(60,095)
|
|
(23,128)
|
Net liabilities (assets)
|
2,509
|
|
(7,759)
|
|
(11,943)
|
|
(5,462)
|
|
(17,089)
|
|
(17,216)
|
(i) Refers to the proportional interest of the Company in the assets and liabilities of the multi-sponsored plans - PAMA and PBS-A.
(ii) Although PBS, PBS-A, TCP Prev, TCO Prev and Visão report surpluses as of December 31, 2007, no assets have been recognized by the sponsor, due to the absence of prospects for taking advantage of the surplus.
2)
Changes in net actuarial liabilities (assets)
|
Vivo Prev
|
|
PAMA
|
|
PBS
|
|
PBS-A (i)
|
|
TCP Prev
|
|
TCO Prev
|
|
Visão
|
Net (asset) liability as of December 31, 2006
|
-
|
|
2,509
|
|
(7,759)
|
|
(11,943)
|
|
(5,462)
|
|
(17,089)
|
|
(17,216)
|
Cost of current service
|
-
|
|
263
|
|
(1,447)
|
|
(2,280)
|
|
(248)
|
|
(1,601)
|
|
(1,511)
|
Sponsor’s contribution
|
-
|
|
(2)
|
|
(10)
|
|
-
|
|
-
|
|
(1,540)
|
|
(659)
|
Actuarial (gains) losses for the year
|
652
|
|
538
|
|
(654)
|
|
(1,809)
|
|
1,083
|
|
3,206
|
|
452
|
Net (asset) liability as of December 31, 2007
|
652
|
|
3,308
|
|
(9,870)
|
|
(16,032)
|
|
(4,627)
|
|
(17,024)
|
|
(18,934)
|
3)
Changes in actuarial liabilities
|
Vivo Prev
|
|
PAMA
|
|
PBS
|
|
PBS-A
|
|
TCP Prev
|
|
TCO Prev
|
|
Visão
|
Actuarial liabilities as of December 31, 2006
|
-
|
|
5,401
|
|
22,545
|
|
24,915
|
|
3,632
|
|
43,006
|
|
5,912
|
Cost of current service
|
-
|
|
18
|
|
25
|
|
-
|
|
501
|
|
836
|
|
941
|
Interest on actuarial liabilities
|
-
|
|
542
|
|
2,222
|
|
2,455
|
|
345
|
|
4,338
|
|
567
|
Benefits paid
|
-
|
|
(311)
|
|
(2,317)
|
|
(1,945)
|
|
-
|
|
(1,008)
|
|
(240)
|
Actuarial (gains) losses
|
652
|
|
450
|
|
1,303
|
|
355
|
|
(1,258)
|
|
(4,573)
|
|
(2,041)
|
Actuarial liabilities as of December 31, 2007
|
652
|
|
6,100
|
|
23,778
|
|
25,780
|
|
3,220
|
|
42,599
|
|
5,139
|
4)
Changes in plan assets
|
PAMA
|
|
PBS
|
|
PBS-A
|
|
TCP Prev
|
|
TCO Prev
|
|
Visão
|
Fair value of plan assets as of December 31, 2006
|
(2,892)
|
|
(30,304)
|
|
(36,858)
|
|
(9,094)
|
|
(60,095)
|
|
(23,128)
|
Benefits paid
|
311
|
|
2,317
|
|
1,945
|
|
-
|
|
1,008
|
|
240
|
Sponsor’s and employees’ contributions
|
(2)
|
|
(231)
|
|
(7)
|
|
-
|
|
(1,572)
|
|
(679)
|
Return on plan assets
|
(297)
|
|
(3,685)
|
|
(4.735)
|
|
(1,094)
|
|
(6.775)
|
|
(2,897)
|
Gains (losses) on assets
|
88
|
|
(1,745)
|
|
(2.157)
|
|
2,341
|
|
7.811
|
|
2,391
|
Fair value of plan assets as of December 31, 2007
|
(2,792)
|
|
(33,648)
|
|
(41,812)
|
|
(7,847)
|
|
(59,623)
|
|
(24,073)
|
5)
Expenses (income) for 2007
|
PAMA
|
|
PBS
|
|
PBS-A
|
|
TCP Prev
|
|
TCO Prev
|
|
Visão
|
Cost of service
|
18
|
|
25
|
|
-
|
|
501
|
|
836
|
|
941
|
Cost of interest on actuarial obligations
|
542
|
|
2,222
|
|
2,455
|
|
345
|
|
4,338
|
|
567
|
Expected return on assets
|
(297)
|
|
(3,685)
|
|
(4,735)
|
|
(1,094)
|
|
(6,775)
|
|
(2,897)
|
Employees’ contributions
|
-
|
|
(9)
|
|
-
|
|
-
|
|
-
|
|
(122)
|
Total
|
263
|
|
(1,447)
|
|
(2,280)
|
|
(248)
|
|
(1,601)
|
|
(1,511)
|
6)
Estimated expenses (income) for 2008
|
Vivo Prev
|
|
PAMA
|
|
PBS
|
|
PBS-A
|
|
TCP Prev
|
|
TCO Prev
|
|
Visão
|
Cost of service
|
135
|
|
20
|
|
24
|
|
-
|
|
425
|
|
692
|
|
684
|
Cost of interest on actuarial obligations
|
65
|
|
644
|
|
2.467
|
|
2.672
|
|
322
|
|
4.510
|
|
519
|
Expected return on assets
|
-
|
|
(257)
|
|
(3.602)
|
|
(4.460)
|
|
(859)
|
|
(6.529)
|
|
(2.646)
|
Employees’ contributions
|
-
|
|
-
|
|
(9)
|
|
-
|
|
-
|
|
(28)
|
|
(15)
|
Total
|
200
|
|
407
|
|
(1.120)
|
|
(1.788)
|
|
(112)
|
|
(1.355)
|
|
(1.458)
|
7)
Actuarial assumptions
|
Vivo Prev
|
|
PAMA
|
|
PBS
|
|
PBS-A
|
|
TCP Prev
|
|
TCO Prev
|
|
Visão
|
Discount rate used at current value of actuarial liabilities
|
10.77%
|
|
10.77%
|
|
10.77%
|
|
10.77%
|
|
10.77%
|
|
10.77%
|
|
10.77%
|
Estimate return rate on plan assets
|
11.00%
|
|
9.61%
|
|
10.99% e
11.00 %
|
|
10.92%
|
|
11.00%
|
|
11.00%
|
|
10.99% e
11.00 %
|
Future salary growth rate
|
6.59%
|
|
N/A
|
|
6.59%
|
|
N/A
|
|
6.59%
|
|
6.59%
|
|
6.59%
|
Medical costs growth rate
|
N/A
|
|
7.64%
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Benefits growth rate
|
4.5%
|
|
N/A
|
|
4.5%
|
|
4.5%
|
|
4.5%
|
|
4.5%
|
|
4.5%
|
Mortality table
|
AT83
segregated
by sex
|
|
AT83
segregated
by sex
|
|
AT83
segregated
by sex
|
|
AT83
segregated
by sex
|
|
AT83
segregated
by sex
|
|
AT83
segregated
by sex
|
|
AT83
segregated
by sex
|
Disability table
|
Mercer
Disability
|
|
Mercer
Disability
|
|
Mercer
Disability
|
|
N/A
|
|
Mercer
Disability
|
|
Mercer
Disability
|
|
Mercer
Disability
|
30. TRANSACTIONS WITH RELATED PARTIES
The main transactions with related, non-consolidated parties are:
a)
Communication via local cellular phone and long distance and use of network
: These transactions involve companies belonging to the same controlling group:
Telecomunicações de São Paulo S/A - TELESP
and subsidiaries. A portion of these transactions was established on the basis of contracts signed by
TELEBRAS
with the operators who had concessions, prior to the privatization, under conditions regulated by
ANATEL
. This includes customer service to
Telecomunicações Móveis Nacionais -TMN
in roaming on the Company's network.
b)
Technical Assistance
: This refers to business consultant services provided by PT SGPS and technical assistance by Telefonica S/A and Telefonica International S/A, calculated on formula set up in the contracts, which include the variation of the
LAIR – Lucro Antes do Imposto de Renda
(Pretax income) and the market fluctuation of the preferred and common shares. The coefficient resulting of said assumptions is multiplied by service revenues. For the branch in the state of Rio Grande Do Sul, the contract set up only 1% over service revenues.
c)
Corporate services
: These were passed on to subsidiary at cost effectively incurred.
d)
Telephone customer service
: Provided by Atento Brasil S.A, and Mobitel S.A-Dedic to the Company’s customers, which were contracted by 12 months, and subject to renewal for an equal period.
e)
System development and maintenance services
: Rendered by
Portugal Telecom Inovação Brasil S.A
. and
Telefonica Pesquisa e Desenvolvimento do Brasil Ltda
.
f) Service of operating
logistic and financial and accounting services
: Rendered by
Telefonica Serviços Empresariais do Brasil Ltda
.
g)
Voice portal services
: Rendered by
Terra Networks Brasil S.A.
h) International
Roaming services
: Provided by
Telefonica Móviles Espanã S.A
. and
Telecomunicações Móveis Nacionais – TMN.
We summarize below balances and transactions with related, non-consolidated parties:
|
Consolidated
|
|
12.31.07
|
|
12.31.06
|
Assets
|
|
|
|
Accounts receivable, net
|
189,011
|
|
180,228
|
Intercompany credits
|
10,661
|
|
4,167
|
|
|
|
|
Liabilities:
|
|
|
|
Suppliers and accounts payable
|
263,860
|
|
215,737
|
Technical assistance
|
189,696
|
|
84,252
|
Payables to related parties
|
847
|
|
2,099
|
Statement of operations
|
Consolidated
|
|
2007
|
|
2006
|
Revenue from telecommunications services
|
|
|
|
Telecomunicações de São Paulo S.A. - Telesp
|
1,684,492
|
|
1,610,763
|
Telefonica S.A
|
1,424
|
|
-
|
Telecomunicações Móveis Nacionais – TMN
|
225
|
|
-
|
Balance as of December 31
|
1,686,141
|
|
1,610,763
|
Expenses:
|
|
|
|
Cost of services:
|
|
|
|
Telecomunicações de São Paulo S.A. – Telesp
|
(121,930)
|
|
(134,154)
|
Telefonica Empresas Brasil S.A.
|
(5,361)
|
|
(3,863)
|
Telefonica Moviles Espana S.A.
|
(1,558)
|
|
(36)
|
Portugal Telecom Inovação Brasil Ltda
|
(982)
|
|
(1,995)
|
Primesys Soluções Empresariais S.A.
|
(188)
|
|
(397)
|
Balance as of December 31
|
(130,019)
|
|
(140,445)
|
Statement of operations
|
Consolidated
|
|
2007
|
|
2006
|
Other operating expenses
|
|
|
|
Atento Brasil S.A.
|
(242,767)
|
|
(253,563)
|
Mobitel S.A. – Dedic
|
(221,298)
|
|
(249,566)
|
Telefonica Serviços Empresariais do Brasil Ltda
|
(48,798)
|
|
(25,601)
|
Terra Networks Brasil S.A.
|
(1,957)
|
|
(597)
|
Portugal Telecom Inovação Brasil Ltda
|
(4,931)
|
|
(4,272)
|
T International Wholesale S.A.
|
(290)
|
|
(382)
|
Telecomunicações Móveis Nacionais – TMN
|
(40)
|
|
(70)
|
Telefonica Empresas S.A.
|
(4,479)
|
|
(9,671)
|
Telecomunicações de São Paulo S.A. – Telesp
|
(68,660)
|
|
(51,613)
|
Portugal Telecom SGPS S.A.
|
(71,647)
|
|
(21,085)
|
Telefonica S.A.
|
(59,912)
|
|
(24,611)
|
TBS Celular Participações Ltda
|
(11,644)
|
|
(10,141)
|
Telefonica Pesquisa e Desenvolvimento do Brasil Ltda
|
(935)
|
|
(772)
|
Primesys Soluções Empresariais S.A.
|
(110)
|
|
(1,039)
|
Telefonica Comunicaciones Personales S.A. - UNIFON
|
-
|
|
(168)
|
Telefonica Engenharia de Segurança do Brasil Ltda
|
-
|
|
(2)
|
Balance as of December 31
|
(737,468)
|
|
(653,153)
|
Other operating income
|
|
|
|
Portugal Telecom SGPS S.A.
|
9,457
|
|
11,879
|
Telecomunicações de São Paulo S.A. – Telesp
|
6,964
|
|
7,540
|
Telefonica Empresas S.A.
|
5,081
|
|
4,752
|
Telefonica S.A.
|
3,133
|
|
35,417
|
Telefonica Serviços Empresariais do Brasil Ltda
|
691
|
|
30
|
Primesys Soluções Empresariais S.A.
|
-
|
|
2,280
|
Telefonica Móviles Chile S.A.
|
-
|
|
23
|
Balance as of December 31
|
25,326
|
|
61,921
|
Net financial income (expenses)
|
|
|
|
Telefonica S.A.
|
5,745
|
|
1,198
|
Telefonica International S.A.
|
2,837
|
|
1,804
|
Portugal Telecom SGPS S.A.
|
1,460
|
|
396
|
Primesys Soluções Empresariais S.A.
|
169
|
|
-
|
Telecomunicações Móveis Nacionais – TMN
|
-
|
|
47
|
Balance as of December 31
|
10,211
|
|
3,445
|
Nonoperating income
|
|
|
|
Telefonica Serviços Empresariais do Brasil Ltda
|
50
|
|
29
|
Primesys Soluções Empresariais S.A.
|
-
|
|
33
|
Balance as of December 31
|
50
|
|
62
|
31. DIRECTORS’ FEES
In 2007 and 2006, directors’ fees totaled R$6,173 and R$8,557 in consolidated and R$1,623 and R$3,255 in the Company, respectively, and were allocated as expense.
32. INSURANCE (CONSOLIDATED) (NOT REVIEWED BY AN OUTSIDE AUDITOR)
The Company and its subsidiary maintain a policy of monitoring risks inherent to their activities. On account of this, as of December 31, 2007, the Company and its subsidiary had insurance contracts in force to cover operating risks, civil liability, health risks, etc. The Managements of the Company and of its subsidiary understand that insured amounts are sufficient to cover potential losses. The main assets, responsibilities or interests covered by insurance and respective amounts are shown below:
Type of Insurance
|
|
Insured amounts
|
Operating risks
|
|
R$ 14,087,406
|
General Civil Liability
|
|
R$ 5,564
|
Automobile (fleet of executive vehicles)
|
|
100% da Tabela Fipe, R$220 for Corporal and Material Damages
|
33. AMERICAN DEPOSITARY RECEIPTS (ADR) PROGRAM
On November 16, 1998, the company started trading ADRs on the New York Stock Exchange (NYSE) under code "TCP" and since March 31, 2006 under code "VIV" (in accordance with the decision by the Special Shareholders’ Meeting of February 22, 2006), with the following main characteristics:
-
Type of shares: preferred
-
Each ADR represents 1 (one) preferred share
-
The shares are traded in the form of ADRs on the New York Stock Exchange under code "VIV"
-
Foreign depositary bank: The Bank of New York
-
Custodian bank in Brazil: Banco Itaú S/A
34. ENCUMBRANCE, EVENTUAL RESPONSIBILITIES AND COMMITMENTS
The subsidiary has commitments assumed with leaseholders of several stores and “sites' where they have radio base stations installed(ERB' s) already contracted on December 31, 2007, in the amount of R$3,343,111, as demonstrated to follow:
Year
|
Amount
|
2008
|
381,158
|
2009
|
363,679
|
2010
|
363,679
|
2011
|
339,893
|
2012 em diante
|
1,894,702
|
|
|
Total
|
3,343,111
|
35. ALTERATION IN THE PREPARATION AND SPREADING OF THE FINANCIAL STATEMENTS
On December 28, 2007 Law N°11,638, was approved by the President of the Republic of Brazil that modifies and revokes devices of the Law N°6,404, as of December 15, 1976 and of the Law N°6,385 as of December 7, 1976.
The petitions of this Law are applied to the financial statements referring to the ended social exercises from January 1º 2008, contemplating the following applicable modifications to the public company, such as: (i) in the preparation of the financial statements the launchings of countable adjustments effected exclusively to encompass the countable norms, are not taxable or deductible; (II) in some business combinations the assets and liabilities will be recorded by the value of market; (III) periodic evaluation of the recovery of values registered in the fixed assets and intangible; (IV) goods of leasing must be registered in the fixed assets; (v) some financial assets must be evaluated by the value of market; (vi) some assets and liabilities must be adjusted to its present value, especially of long stated period and (vii) The associated company investments in which administration has significant influence or that it more than participates in 20% or the capital voter (and not the total capital anymore), in controlled and other companies that are part of the same group or under common control must be evaluated by the equity pick up method, amongst others.
At the present moment it is not possible to anticipate the impacts, introduced for the Law No 11,638. on the results of the operations and the patrimonial and financial position of the Company and the subsidiary for the financial demonstrations of the exercise to be ended as of December 31, 2008 e, retrospectively, in the financial demonstrations of the exercise ended as of December31, 2007, when presented comparativily with the financial demonstrations as of December31, 2008.
A free translation from Portuguese into English of Report of Independent Auditors on financial statements in accordance with accounting practices adopted in Brazil
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
VIVO Participações S.A.
1. We have audited the balance sheet of VIVO Participações S.A. and the consolidated balance sheet of VIVO Participações S.A. and subsidiary as of December 31, 2007, and the related statement of operations, changes in shareholders’ equity and changes in financial position for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements.
2. We conducted our audit in accordance with generally accepted auditing standards in Brazil which comprised: (a) the planning of our work, taking into consideration the materiality of balances, the volume of transactions and the accounting and internal control systems of the Company and subsidiary; (b) the examination, on a test basis, of documentary evidence and accounting records supporting the amounts and disclosures in the financial statements; and (c) an assessment of the accounting practices used and significant estimates made by management of the Company and subsidiary, as well as an evaluation of the overall financial statement presentation.
3. In our opinion, the financial statements referred to above present fairly, in all material respects, the individual and consolidated financial position of VIVO Participações S.A. and subsidiary at December 31, 2007, and the results of their operations, changes in their shareholders’ equity and changes in their financial position for the year then ended, in conformity with accounting practices adopted in Brazil.
4. We conducted our audit with the objective of issuing an opinion on the overall financial statements referred to in paragraph one above. The statement of cash flows for the year ended December 31, 2007, presented to provide additional information on the Company and its subsidiary, is not required as an integral part of statutory financial statements, accounting practices adopted in Brazil. The statement of cash flows was submitted to the same audit procedures described in the paragraph two and, in our opinion, is fairly presented, in all material respects, in relation to the overall financial statements.
5. The financial statements for the year ended December 31, 2006 were audited by other independent auditors, who issued an unqualified opinion dated February 6, 2007.
São Paulo, February 8, 2008
ERNST & YOUNG
Auditores Independentes S.S.
CRC-2-SP-015199/O-6
Luiz Carlos Passetti
Accountant CRC-1-SP-144.343/O-3-S
|
|
Drayton Teixeira de Melo
Accountant CRC-1-SP-236947/O-3
|
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VIVO PARTICIPAÇÕES S.A.
|
|
By:
|
/
S
/ Ernesto Gardelliano
|
|
Ernesto Gardelliano
Investor Relations Officer
|
FORWARD-LOOKING STATEMENTS
This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.
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