sbsitr2q14_6k.htm - Generated by SEC Publisher for SEC Filing
 
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 

 
FORM 6-K
 
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For September 9, 2014
(Commission File No. 1-31317)
 

 
Companhia de Saneamento Básico do Estado de São Paulo - SABESP
(Exact name of registrant as specified in its charter)
 
 
Basic Sanitation Company of the State of Sao Paulo - SABESP
(Translation of Registrant's name into English)
 


Rua Costa Carvalho, 300
São Paulo, S.P., 05429-900
Federative Republic of Brazil
(Address of Registrant's principal executive offices)



Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.

Form 20-F ___X___ Form 40-F ______
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(1)__.
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(7)__.

 

Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under
the Securities Exchange Act of 1934.

Yes ______ No ___X___

 

If "Yes" is marked, indicated below the file number assigned to the
registrant in connection with Rule 12g3-2(b):

 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Version: 1

 

 

Table of Contents

 

Company Information

 

Capital Breakdown

1

Cash Proceeds

2

Parent Company’s Financial Statements

 

Statement of Financial Position – Assets

3

Statement of Financial Position – Liabilities

4

Statement of Income

6

Statement of Comprehensive Income

8

Statement of Cash Flows

9

Statement of Changes in Equity

 

1/1/2014 to 6/30/2014

11

1/1/2013 to 6/30/2013

12

Statement of Value Added

13

Comments on the Company’s Performance

14

Notes to the Financial Statements

22

Comments on the Company’s Projections

74

Other Information Deemed as Relevant by the Company

75

Reports and Statements

 

Unqualified Report on Special Review

77

 

 

 


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Version: 1

 

Company Information / Capital Breakdown

 

Number of Shares

(Units)

Current Quarter

6/30/2014

 

Paid-in Capital

 

 

Common

683,509,869

 

Preferred

0

 

Total

683,509,869

 

Treasury Shares

 

 

Common

0

 

Preferred

0

 

Total

0

 

 

Page 1 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Version: 1

 

 

Company Information / Cash Proceeds

 

Event

Approval

Proceeds

Date of Payment

Type of Share

Class of Share

Earnings per Share

(Reais / Share)

Board of Directors’ Meeting

3/27/2014

Interest on Shareholders’ Equity

6/27/2014

Common

 

0.78633

 

                                                                                                                                             

                                                                                                                                             

 

Page 2 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Version: 1

 

 

Parent Company’s Financial Statements/Statement of Financial Position - Assets

 

 

(R$ thousand)

Code

Description

Current Quarter

6/30/2014

Previous Year

12/31/2013

1

Total Assets

28,983,259

28,274,294

1.01

Current Assets

3,314,589

3,254,087

1.01.01

Cash and Cash Equivalents

1,823,711

1,782,001

1.01.03

Accounts Receivable

1,218,897

1,254,908

1.01.03.01

Trade Accounts Receivable

1,095,827

1,120,053

1.01.03.02

Other Accounts Receivable

123,070

134,855

1.01.03.02.01

Balances with Related Parties

123,070

134,855

1.01.04

Inventories

58,394

58,401

1.01.06

Recoverable Taxes

88,927

87,405

1.01.06.01

Current Recoverable Taxes

88,927

87,405

1.01.08

Other Current Assets

124,660

71,372

1.01.08.03

Other

124,660

71,372

1.01.08.03.01

Restricted Cash

20,463

10,333

1.01.08.03.20

Other Accounts Receivable

104,197

61,039

1.02

Noncurrent Assets

25,668,940

25,020,207

1.02.01

Long-Term Assets

683,423

896,781

1.02.01.03

Accounts Receivable

185,509

395,512

1.02.01.03.01

Trade Accounts Receivable

185,509

395,512

1.02.01.06

Deferred Taxes

143,440

114,030

1.02.01.06.01

Deferred Income Tax and Social Contribution

143,440

114,030

1.02.01.08

Receivables from Related Parties

110,881

130,457

1.02.01.08.03

Receivables from Controlling Shareholders

110,881

130,457

1.02.01.09

Other Noncurrent Assets

243,593

256,782

1.02.01.09.04

Escrow Deposits

45,673

54,827

1.02.01.09.05

ANA – National Water Agency

120,204

107,003

1.02.01.09.20

Other Accounts Receivable

77,716

94,952

1.02.02

Investments

77,397

77,699

1.02.02.01

Shareholdings

23,358

23,660

1.02.02.01.04

Other Shareholdings

23,358

23,660

1.02.02.02

Investment Properties

54,039

54,039

1.02.03

Property, Plant and Equipment

277,175

199,496

1.02.04

Intangible Assets

24,630,945

23,846,231

1.02.04.01

Intangible Assets

24,630,945

23,846,231

1.02.04.01.01

Concession Contracts

8,226,241

8,265,936

1.02.04.01.02

Program Contracts

5,904,356

5,281,887

1.02.04.01.03

Service Contracts

10,270,155

10,124,603

1.02.04.01.04

Software License

230,193

173,805

 

Page 3 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Version: 1

 

 

Parent Company’s Financial Statements/Statement of Financial Position – Liabilities

 

 

(R$ thousand)

Code

Description

Current Quarter

6/30/2014

Previous Year

12/31/2013

2

Total Liabilities

28,983,529

28,274,294

2.01

Current Liabilities

2,452,310

2,972,381

2.01.01

Labor and Pension Plan Liabilities

350,270

314,926

2.01.01.01

Pension Plan Liabilities

23,256

36,151

2.01.01.02

Labor Liabilities

327,014

278,775

2.01.02

Trade Accounts Payable

249,768

275,051

2.01.02.01

Domestic Suppliers

249,768

275,051

2.01.03

Tax Liabilities

53,288

115,382

2.01.03.01

Federal Tax Liabilities

45,806

108,604

2.01.03.01.02

PIS-PASEP and COFINS (taxes on revenue) Payable

0

21,797

2.01.03.01.03

INSS (social security contribution) Payable

31,671

30,822

2.01.03.01.20

Other Federal Taxes

14,135

55,985

2.01.03.02

State Tax Liabilities

812

0

2.01.03.03

Municipal Taxes Liabilities

6,670

6,778

2.01.04

Loans and Financing

637,898

640,940

2.01.04.01

Loans and Financing

415,098

560,963

2.01.04.01.01

In Domestic Currency

209,268

344,983

2.01.04.01.02

In Foreign Currency

205,830

215,980

2.01.04.02

Debentures

214,750

79,977

2.01.04.03

Financing through finance lease

8,050

0

2.01.05

Other Liabilities

611,801

994,708

2.01.05.01

Payables to Related Parties

1,395

1,791

2.01.05.01.03

Payables to Controlling Shareholders

1,395

1,791

2.01.05.02

Other

610,406

992,917

2.01.05.02.01

Dividends and Interest on Equity Payable

32,458

456,975

2.01.05.02.04

Services Payable

334,123

323,208

2.01.05.02.05

Refundable Amounts

24,203

30,543

2.01.05.02.06

Program Contract Commitments

128,505

77,360

2.01.05.02.07

Private Public Partnership – PPP

21,043

20,241

2.01.05.02.09

Indemnities

6,766

6,895

2.01.05.02.20

Other Payables

63,308

77,695

2.01.06

Provisions

549,285

631,374

2.01.06.01

Tax, Social Security, Labor and Civil Provisions

78,637

107,554

2.01.06.01.01

Tax Provisions

6,422

6,824

2.01.06.01.02

Social Security and Labor Provisions

42,767

62,535

2.01.06.01.04

Civil Provisions

29,448

38,195

2.01.06.02

Other Provisions

470,648

523,820

2.01.06.02.03

Provisions for Environmental

45,366

42,761

2.01.06.02.04

Provisions for Customers

362,905

355,403

2.01.06.02.05

Provisions for Suppliers

62,377

125,656

2.02

Non-Current Liabilities

12,863,272

12,371,112

2.02.01

Loans and Financing

9,180,826

8,809,134

2.02.01.01

Loans and Financing

4,876,235

4,950,864

 

Page 4 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Version: 1

 

 

Parent Company’s Financial Statements/Statement of Financial Position – Liabilities

 

 

(R$ thousand)

Code

Description

Current Quarter

6/30/2014

Previous Year

12/31/2013

2.02.01.01.01

In Domestic Currency

1,488,408

1,468,291

2.02.01.01.02

In Foreign Currency

3,387,827

3,482,573

2.02.01.02

Debentures

3,878,397

3,475,778

2.02.01.03

Financing through finance lease

426,194

382,492

2.02.02

Other Payables

3,079,480

3,012,970

2.02.02.02

Other

3,079,480

3,012,970

2.02.02.02.04

Pension Plan Liabilities

2,392,839

2,327,016

2.02.02.02.05

Program Contract Commitments

82,674

88,678

2.02.02.02.06

Private Public Partnership – PPP

319,263

322,267

2.02.02.02.07

Indemnities

6,520

6,439

2.02.02.02.08

Labor Liabilities

18,758

15,704

2.02.02.02.09

Deferred COFINS and PASEP

131,412

129,849

2.02.02.02.20

Other Payables

128,014

123,017

2.02.04

Provisions

602,966

549,008

2.02.04.01

Tax, Pension Plan, Labor and Civil Provisions

241,199

222,030

2.02.04.01.01

Tax Provisions

46,851

50,869

2.02.04.01.02

Pension Plan and Labor Provisions

123,533

91,911

2.02.04.01.04

Civil Provisions

70,815

79,250

2.02.04.02

Other Provisions

361,767

326,978

2.02.04.02.03

Provisions for Environmental

170,859

139,928

2.02.04.02.04

Provisions for Customers

180,397

156,212

2.02.04.02.05

Provisions for Suppliers

10,511

30,838

2.03

Equity

13,667,947

12,930,801

2.03.01

Paid-Up Capital

10,000,000

6,203,688

2.03.02

Capital Reserves

0

124,255

2.03.02.07

Projects Support

0

108,475

2.03.02.08

Incentive Reserves

0

15,780

2.03.04

Profit Reserve

3,021,470

6,736,389

2.03.04.01

Legal Reserve

712,992

712,992

2.03.04.08

Additional Dividend Proposed

0

42,862

2.03.04.10

Reserve for Investments

2,308,478

5,980,535

2.03.05

Retained Earnings/Accumulated Losses

780,008

0

2.03.06

Other Comprehensive Income

-133,531

-133,531

 

Page 5 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Version: 1

 

 

 

Parent Company’s Financial Statements/Statement of Income

 

 

(R$ thousand)

Code

Description

Current Quarter

4/1/2014 to 6/30/2014

YTD Current Year

1/1/2014 to 6/30/2014

Same Quarter

Previous Year

4/1/2013 to 6/30/2013

YTD Previous Year

1/1/2013 to 6/30/2013

3.01

Revenue from Sales and/or Services

2,754,153

5,546,083

2,796,278

5,441,322

3.02

Cost of Sales and/or Services

-1,830,133

-3,508,850

-1,731,945

-3,268,811

3.02.01

Cost of Sales and/or Services

-1,165,916

-2,324,161

-1,088,716

-2,139,620

3.02.02

Construction Cost

-664,217

-1,184,689

-643,229

-1,129,191

3.03

Gross Profit

924,020

2,037,233

1,064,333

2,172,511

3.04

Operating Income/Expenses

-479,678

-880,386

-348,169

-721,204

3.04.01

Selling Expenses

-215,232

-371,829

-164,722

-306,005

3.04.02

General and Administrative Expenses

-269,704

-470,378

-184,843

-425,280

3.04.04

Other Operating Income

21,638

38,145

13,581

24,218

3.04.04.01

Other Operating Income

25,091

42,905

15,289

27,018

3.04.04.02

COFINS and PASEP

-3,453

-4,760

-1,708

-2,800

3.04.05

Other Operating Expenses

-16,429

-76,005

-12,074

-13,876

3.04.05.01

Loss on Write-off of Property, Plant and Equipment Items

-6,445

-52,092

-3,768

-5,433

3.04.05.03

Tax Incentives

-7,702

-8,567

-8,151

-8,286

3.04.05.06

Provision for losses - Diadema and Saned

-1,967

-14,967

0

0

3.04.05.20

Other

-315

-379

-155

-157

3.04.06

Equity in the Earnings (Losses) of Subsidiaries

49

-319

-111

-261

3.05

Income Before Financial Result and Taxes

444,342

1,156,847

716,164

1,451,307

3.06

Financial Result

-21,577

5,942

-207,256

-179,948

3.06.01

Finance Income

84,607

181,115

101,290

194,657

3.06.01.01

Finance Income

84,875

181,727

101,040

194,442

3.06.01.02

Foreign Exchange Gains

-268

-612

250

215

3.06.02

Finance Expenses

-106,184

-175,173

-308,546

-374,605

3.06.02.01

Finance Expenses

-190,409

-376,407

-106,863

-302,524

3.06.02.02

Foreign Exchange Losses

84,225

201,234

-201,683

-72,081

3.07

Earnings Before Income Tax

422,765

1,162,789

508,908

1,271,359

3.08

Income Tax and Social Contribution

-120,343

-382,781

-147,239

-413,488

3.08.01

Current

-135,474

-412,191

-116,317

-403,858

 

 

 

Page 6 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Version: 1

 

 

 

Parent Company’s Financial Statements/Statement of Income

 

 

(R$ thousand)

Code

Description

Current Quarter

4/1/2014 to 6/30/2014

YTD Current Year

1/1/2014 to 6/30/2014

Same Quarter Previous Year

4/1/2013 to 6/30/2013

YTD Previous Year

1/1/2013 to 6/30/2013

3.08.02

Deferred

15,131

29,410

-30,922

-9,630

3.09

Net Result from Continued Operations

302,422

780,008

361,669

857,871

3.11

Profit/Loss for the Period

302,422

780,008

361,669

857,871

3.99

Earnings per Share - (Reais / Share)

 

 

 

 

3.99.01

Basic Earnings per Share

 

 

 

 

3.99.01.01

Common Share

0.44246

1.14118

0.52914

1.25510

3.99.02

Diluted Earnings per Share

 

 

 

 

3.99.02.01

Common Share

0.44246

1.14118

0.52914

1.25510

 

 

 

 

Page 7 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Version: 1

 

 

 

Parent Company’s Financial Statements / Statement of Comprehensive Income

 

 

(R$ thousand)

Code

Description

Current Quarter

4/1/2014 to 6/30/2014

YTD Current Year

1/1/2014 to 6/30/2014

Same Quarter Previous Year

4/1/2013 to 6/30/2013

YTD Previous Year

1/1/2013 to 6/30/2013

4.01

Net Income for the Period

302,422

780,008

361,669

857,871

4.03

Comprehensive Income for the Period

302,422

780,008

361,669

857,871

 

 

 

Page 8 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Version: 1

 

 

 

Parent Company’s Financial Statements/Statement of Cash Flows – Indirect Method

 

 

(R$ thousand)

Code

Description

YTD Current Year

1/1/2014 to 6/30/2014

YTD Previous Year

1/1/2013 to 6/30/2013

6.01

Net Cash from Operating Activities

1,277,913

1,404,860

6.01.01

Cash from Operations

1,991,784

2,169,418

6.01.01.01

Profit Before Income Tax and Social Contribution

1,162,789

1,271,359

6.01.01.02

Provision and Inflation Adjustments on Provisions

95,467

157,834

6.01.01.04

Financial Charges from Customers

-99,846

-118,983

6.01.01.05

Residual Value of Written-off Property, Plant and Equipment

1,801

5,433

6.01.01.06

Depreciation and Amortization

482,852

391,924

6.01.01.07

Interest on Loans and Financing Payable

216,351

192,352

6.01.01.08

Monetary and Foreign Exchange Variation on Loans and Financing

-139,278

112,612

6.01.01.09

Interest and Monetary Variation on Liabilities

10,850

12,974

6.01.01.10

Interest and Monetary Variation in Assets

-5,626

-8,736

6.01.01.11

Allowance for Doubtful Accounts

76,328

56,239

6.01.01.12

Provision for Consent Decree (TAC)

23,986

10,228

6.01.01.13

Equity in the Earnings of Subsidiaries

319

261

6.01.01.14

Provision for Sabesprev Mais

3,515

4,849

6.01.01.15

Other Provisions/Reversals

50,292

-21,512

6.01.01.16

Transfer of Funds to São Paulo Municipal Government

-18,051

-5,007

6.01.01.17

Gross Margin over Intangible Assets Resulting from Concession Contracts

-25,287

-23,262

6.01.01.18

Pension Plan Liabilities

144,647

130,853

6.01.01.20

Other Adjustments

10,675

0

6.01.02

Changes in Assets and Liabilities

-18,549

-191,964

6.01.02.01

Trade Accounts Receivable

262,977

68,869

6.01.02.02

Balances and Transactions with Related Parties

30,566

19,758

6.01.02.03

Inventories

-256

455

6.01.02.04

Recoverable Taxes

0

-21,226

6.01.02.05

Other Accounts Receivable

-39,123

-17,310

6.01.02.06

Escrow Deposits

10,345

1,203

6.01.02.08

Contractors and Suppliers

-18,357

-22,834

6.01.02.09

Payroll, Provisions and Social Contribution

7,843

45,087

6.01.02.10

Pension Plan Liabilities

-78,824

-70,413

6.01.02.11

Taxes and Contributions Payable

-87,530

-66,150

6.01.02.12

Services Received

28,966

15,619

6.01.02.13

Other Liabilities

-13,121

-12,732

6.01.02.14

Provisions

-123,598

-136,371

6.01.02.15

Deferred COFINS/PASEP

1,563

4,081

6.01.03

Other

-695,322

-572,594

 

Page 9 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Version: 1

 

 

Parent Company’s Financial Statements/Statement of Cash Flows – Indirect Method

 

 

(R$ thousand)

Code

Description

YTD Current Year

1/1/2014 to 6/30/2014

YTD Previous Year

1/1/2013 to 6/30/2013

6.01.03.01

Interest Paid

-307,106

-294,990

6.01.03.02

Income Tax and Social Contribution Paid

-388,216

-277,604

6.02

Net Cash from Investing Activities

-1,192,404

-955,580

6.02.01

Acquisition of Intangible Assets

-1,130,122

-999,765

6.02.02

Acquisition of Property, Plant and Equipment

-52,135

-7,947

6.02.03

Increase in Investments

-17

-357

6.02.04

Restricted Cash

-10,130

52,489

6.03

Net Cash from Financing Activities

-43,799

-696,167

6.03.01

Funding – Loans

795,911

1,262,709

6.03.02

Amortization of Loans

-326,390

-1,409,371

6.03.03

Payment of Interests on Equity

-467,439

-498,648

6.03.04

Public-Private Partnership (PPP)

-9,921

-20,963

6.03.05

Program Contract Commitments

-35,960

-29,894

6.05

Increase (Decrease) in Cash and Cash Equivalents

41,710

-246,887

6.05.01

Opening Cash and Cash Equivalents

1,782,001

1,915,974

6.05.02

Closing Cash and Cash Equivalents

1,823,711

1,669,087

 

 

Page 10 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Version: 1

 

 

Parent Company’s Financial Statements/Statement of Changes in Equity – 1/1/2014 to 6/30/2014

 

 

(R$ thousand)

Code

Description

Paid-up Capital

Capital Reserves, Options Granted and Treasury Shares

Profit Reserves

Retained Earnings/ Accumulated Losses

Other Comprehensive Income

Total Equity

5.01

Opening Balances

6,203,688

124,255

6,736,389

0

-133,531

12,930,801

5.03

Restated Opening Balances

6,203,688

124,255

6,736,389

0

-133,531

12,930,801

5.04

Capital Transactions with Shareholders

0

0

-42,862

0

0

-42,862

5.04.08

Additional Dividends Approved

0

0

-42,862

0

0

-42,862

5.05

Total Comprehensive Income

0

0

0

780,008

0

780,008

5.05.01

Net Income for the Period

0

0

0

780,008

0

780,008

5.06

Internal Changes in the Shareholders’ Equity

3,796,312

-124,255

-3,672,057

0

0

0

5.06.04

Capitalization of Reserves

3,796,312

-124,255

-3,672,057

0

0

0

5.07

Closing Balances

10,000,000

0

3,021,470

780,008

-133,531

13,667,947

 

Page 11 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Version: 1

 

 

Parent Company’s Financial Statements/Statement of Changes in Equity– 1/1/2013 to 6/30/2013

 

(R$ thousand)

Code

Description

 

Paid-up Capital

Capital Reserves, Options Granted and Treasury Shares

Profit Reserves

Retained Earnings/ Accumulated Losses

Other Comprehensive Income

Total Equity

5.01

Opening Balances

6,203,688

124,255

5,387,634

0

-458,815

11,256,762

5.03

Restated Opening Balances

6,203,688

124,255

5,387,634

0

-458,815

11,256,762

5.04

Capital Transactions with Shareholders

0

0

-80,201

0

0

-80,201

5.04.08

Additional Dividends Approved

0

0

-80,201

0

0

-80,201

5.05

Total Comprehensive Income

0

0

0

857,871

0

857,871

5.05.01

Net Income for the Period

0

0

0

857,871

0

857,871

5.07

Closing Balances

6,203,688

124,255

5,307,433

857,871

-458,815

12,034,432

 

 

 

Page 12 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Version: 1

 

 

Parent Company’s Financial Statements/Statement of Value Added

 

 

(R$ thousand)

Code

Description

YTD Current Year

1/1/2014 to 6/30/2014

YTD Previous Year

1/1/2013 to 6/30/2013

7.01

Revenue

5,845,001

5,749,507

7.01.01

Operating Revenue

4,668,448

4,626,275

7.01.02

Other Revenue

42,905

27,018

7.01.03

Revenue from the Construction

1,209,976

1,152,453

7.01.04

Allowance for/Reversal of Doubtful Accounts

-76,328

-56,239

7.02

Inputs Acquired from Third Parties

-2,566,871

-2,278,969

7.02.01

Costs of Sales and Services

-2,079,367

-1,910,433

7.02.02

Materials, Energy, Outsourced Services and Other

-411,499

-354,660

7.02.04

Other

-76,005

-13,876

7.03

Gross Value Added

3,278,130

3,470,538

7.04

Retentions

-482,852

-391,924

7.04.01

Depreciation, Amortization and Depletion

-482,852

-391,924

7.05

Net Value Added Produced

2,795,278

3,078,614

7.06

Value Added Received through Transfer

180,796

194,396

7.06.01

Equity in the Earnings (Losses) of Subsidiaries

-319

-261

7.06.02

Finance Income

181,115

194,657

7.07

Total Value Added to Distribute

2,976,074

3,273,010

7.08

Value Added Distribution

2,976,074

3,273,010

7.08.01

Personnel

959,765

862,952

7.08.01.01

Direct Compensation

631,107

580,793

7.08.01.02

Benefits

254,575

232,134

7.08.01.03

Government Severance Indemnity Fund for Employees (FGTS)

74,083

50,025

7.08.02

Taxes and Contributions

948,275

976,961

7.08.02.01

Federal

897,965

919,473

7.08.02.02

State

35,867

28,044

7.08.02.03

Municipal

14,443

29,444

7.08.03

Value Distributed to Providers of Capital

288,026

575,226

7.08.03.01

Interest

249,891

542,396

7.08.03.02

Rental

38,135

32,830

7.08.04

Value Distributed to Shareholders

780,008

857,871

7.08.04.03

Retained Earnings/Accumulated Loss for the Period

780,008

857,871

 

 

                                                                                                                          

 

Page 13 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Version: 1

 

 

1. Financial highlights

 

              R$ million
  2Q14 2Q13 Chg. (R$)  % 1H14 1H13 Chg. (R$)  %
(+) Gross operating revenue 2,224.0 2,307.4 (83.4) (3.6) 4,668.4 4,626.3 42.1 0.9
(+) Construction revenue 678.7 656.9 21.8 3.3 1,210.0 1,152.4 57.6 5.0
(-) COFINS and PASEP taxes 148.6 168.0 (19.4) (11.5) 332.3 337.4 (5.1) (1.5)
(=) Net operating revenue 2,754.1 2,796.3 (42.2) (1.5) 5,546.1 5,441.3 104.8 1.9
(-) Costs and expenses 1,650.8 1,438.3 212.5 14.8 3,166.4 2,870.9 295.5 10.3
(-) Cunstruction costs 664.2 643.2 21.0 3.3 1,184.7 1,129.2 55.5 4.9
(+) Equity result - (0.1) 0.1 (100.0) (0.3) (0.2) (0.1) 50.0
(+) Other operating revenue/expenses, net 5.2 1.5 3.7 246.7 (37.8) 10.3 (48.1) (467.0)
(=) Earnings before financial result, income tax and social contribution 444.3 716.2 (271.9) (38.0) 1,156.9 1,451.3 (294.4) (20.3)
(+) Net financial (21.6) (207.3) 185.7 (89.6) 5.9 (179.9) 185.8 (103.3)
(=) Earnings before income tax and social contribution 422.7 508.9 (86.2) (16.9) 1,162.8 1,271.4 (108.6) (8.5)
(+) Income tax and social contribution (120.3) (147.2) 26.9 (18.3) (382.8) (413.5) 30.7 (7.4)
Net Income 302.4 361.7 (59.3) (16.4) 780.0 857.9 (77.9) (9.1)
Earnings per share* (R$) 0.44 0.53     1.14 1.26    
* Total shares = 683,509,869                
 
 
Adjusted EBITDA Reconciliation (Non-accounting measures)            
              R$ million
  2Q14 2Q13 Chg. (R$)  % 1H14 1H13 Chg. (R$)  %
Net income 302.4 361.7 (59.3) (16.4) 780.0 857.9 (77.9) (9.1)
(+) Income tax and social contribution 120.3 147.2 (26.9) (18.3) 382.8 413.5 (30.7) (7.4)
(+) Net financial 21.6 207.3 (185.7) (89.6) (5.9) 179.9 (185.8) (103.3)
(+) Other operating revenues/expenses, net (5.2) (1.5) (3.7) 246.7 37.8 (10.3) 48.1 (467.0)
(=) Earnings before financial result (EBIT)* 439.1 714.7 (275.6) (38.6) 1,194.7 1,441.0 (246.3) (17.1)
(+) Depreciation and amortization 222.6 196.7 25.9 13.2 482.9 391.9 91.0 23.2
(=) Adjusted EBITDA ** 661.7 911.4 (249.7) (27.4) 1,677.6 1,832.9 (155.3) (8.5)
(%) Adjusted EBITDA margin 24.0 32.6     30.2 33.7    

(*) Earnings before interest, income tax and social contribution.

(**) Adjusted EBITDA is net income before: (i) depreciation and amortization; (ii) income tax and social contribution; (iii) financial result; and (iv) other operating revenues/expenses, net.

 

In 2Q14, net operating revenue reached R$ 2.8 billion; a 1.5% decrease compared to the same period of 2013.

Costs and expenses, including construction costs, totaled R$ 2.3 billion, up 11.2% on the R$ 2.1 billion recorded in 2Q13.

EBIT, in the amount of R$ 439.1 million, dropped 38.6% from R$ 714.7 million in 2Q13.

Adjusted EBITDA, in the amount of R$ 661.7 million, dropped 27.4% from R$ 911.4 million in 2Q13 (R$ 1,677.6 million in the last 6 months and R$ 3,851.3 million in the last 12 months).

The adjusted EBITDA margin was 24.0% in 2Q14, versus the 32.6% in 2Q13 (30.2% in the last 6 months and 33.7% in the last 12 months). Excluding construction revenues and construction costs, the adjusted EBITDA margin was 31.2% in 2Q14 (42.0% in 2Q13, 38.1% in the last 6 months and 42.6% in the last 12 months).

Net income totaled R$ 302.4 million, 16.4% lower than the R$ 361.7 million recorded in 2Q13.

 

2. Gross operating revenue

Gross operating revenue from water and sewage totaled R$ 2.2 billion, a drop of R$ 83.4 million or 3.6%, when compared to the R$ 2.3 billion recorded in 2Q13.

The main factors that led to this variation were:

·         Decrease of 1.8% in the Company’s total billed volume (2.8% in water and 0.6% in sewage); and

 

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(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Comments on the Company’s Performance

Version: 1

 

·         Payment of bonus, within the scope of the Corporate Program for Water Loss Reduction, with an R$ 88.1 million impact.


The decreases mentioned above were partially offset by the 3.1% tariff adjustment since December 2013.

 

3. Construction revenue

Construction revenue increased R$ 21.8 million or 3.3%, when compared to 2Q13. The variation was mainly due to higher investments in 2Q14.


4. Billed volume

 

The following tables show the water and sewage billed volume, quarter-on-quarter, and semester-on-semester, per customer category and region.

 

 

WATER AND SEWAGE BILLED VOLUME (1) PER CUSTOMER CATEGORY - million m3
    Water     Sewage   Water + Sewage  
Category 2Q14 2Q13 % 2Q14 2Q13 % 2Q14 2Q13 %
Residential 382.0 383.6 (0.4) 319.2 318.7 0.2 701.2 702.3 (0.2)
Commercial 42.7 43.7 (2.3) 40.3 40.8 (1.2) 83.0 84.5 (1.8)
Industrial 9.9 9.7 2.1 10.9 11.7 (6.8) 20.8 21.4 (2.8)
Public 13.3 14.1 (5.7) 10.3 10.9 (5.5) 23.6 25.0 (5.6)
Total retail 447.9 451.1 (0.7) 380.7 382.1 (0.4) 828.6 833.2 (0.6)
Wholesale 63.1 74.4 (15.2) 6.6 7.5 (12.0) 69.7 81.9 (14.9)
Total 511.0 525.5 (2.8) 387.3 389.6 (0.6) 898.3 915.1 (1.8)
  1H14 1H13 % 1H14 1H13 % 1H14 1H13 %
Residential 792.6 772.6 2.6 659.5 639.9 3.1 1,452.1 1,412.5 2.8
Commercial 87.7 86.8 1.0 82.3 80.7 2.0 170.0 167.5 1.5
Industrial 20.1 19.3 4.1 22.0 22.2 (0.9) 42.1 41.5 1.4
Public 27.1 26.9 0.7 20.9 21.1 (0.9) 48.0 48.0 -
Total retail 927.5 905.6 2.4 784.7 763.9 2.7 1,712.2 1,669.5 2.6
Wholesale 138.5 149.0 (7.0) 13.1 14.8 (11.5) 151.6 163.8 (7.4)
Total 1,066.0 1,054.6 1.1 797.8 778.7 2.5 1,863.8 1,833.3 1.7
 
WATER AND SEWAGE BILLED VOLUME (1) PER REGION - million m3
  Water     Sewage     Water + Sewage  
Region 2Q14 2Q13 % 2Q14 2Q13 % 2Q14 2Q13 %
Metropolitan 292.8 298.8 (2.0) 251.2 255.1 (1.5) 544.0 553.9 (1.8)
Regional (2) 155.1 152.3 1.8 129.5 127.0 2.0 284.6 279.3 1.9
Total retail 447.9 451.1 (0.7) 380.7 382.1 (0.4) 828.6 833.2 (0.6)
Wholesale 63.1 74.4 (15.2) 6.6 7.5 (12.0) 69.7 81.9 (14.9)
Total 511.0 525.5 (2.8) 387.3 389.6 (0.6) 898.3 915.1 (1.8)
  1H14 1H13 % 1H14 1H13 % 1H14 1H13 %
Metropolitan 601.9 595.6 1.1 514.1 507.4 1.3 1,116.0 1,103.0 1.2
Regional (2) 325.6 310.0 5.0 270.6 256.5 5.5 596.2 566.5 5.2
Total retail 927.5 905.6 2.4 784.7 763.9 2.7 1,712.2 1,669.5 2.6
Wholesale 138.5 149.0 (7.0) 13.1 14.8 (11.5) 151.6 163.8 (7.4)
Total 1,066.0 1,054.6 1.1 797.8 778.7 2.5 1,863.8 1,833.3 1.7

            (1) Unaudited

            (2) Including coastal and interior region

 

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(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Comments on the Company’s Performance

Version: 1

 

 

 

 

5. Costs, administrative and selling expenses

In 2Q14, costs, administrative and selling expenses, grew 11.2% (R$ 233.5 million). Excluding construction costs, total costs and expenses grew 14.8%. As a percentage of net revenue, cost and expenses was 84.1% in 2Q14 from 74.4% in 2Q13.

 

                R$ million
  2Q14 2Q13 Chg. (R$)  % 1H14 1H13 Chg. (R$)  %
Payroll and benefits 551.4 492.0 59.4 12.1 1,048.1 953.8 94.3 9.9
Supplies 46.9 49.4 (2.5) (5.1) 94.1 93.7 0.4 0.4
Treatment supplies 64.6 55.2 9.4 17.0 134.3 120.0 14.3 11.9
Services 351.6 295.1 56.5 19.1 666.2 523.9 142.3 27.2
Electric power 144.5 133.0 11.5 8.6 284.5 277.8 6.7 2.4
General expenses 190.0 186.3 3.7 2.0 342.7 401.8 (59.1) (14.7)
Tax expenses 17.6 11.8 5.8 49.2 37.3 51.8 (14.5) (28.0)
Sub-total 1,366.6 1,222.8 143.8 11.8 2,607.2 2,422.8 184.4 7.6
Depreciation and amortziation 222.6 196.7 25.9 13.2 482.9 391.9 91.0 23.2
Credit write-offs 61.6 18.8 42.8 227.7 76.3 56.2 20.1 35.8
Sub-total 284.2 215.5 68.7 31.9 559.2 448.1 111.1 24.8
Costs and expenses 1,650.8 1,438.3 212.5 14.8 3,166.4 2,870.9 295.5 10.3
Construction costs 664.2 643.2 21.0 3.3 1,184.7 1,129.2 55.5 4.9
Costs, adm., selling and construction expenses 2,315.0 2,081.5 233.5 11.2 4,351.1 4,000.1 351.0 8.8
% of net revenue 84.1 74.4     78.5 73.5    

 

5.1. Payroll and benefits

 

In 2Q14 payroll and benefits grew R$ 59.4 million or 12.1%, from R$ 492.0 million to R$ 551.4 million, due to the following:

 

·         R$ 17.9 million increase in provisions, from the higher number of employees who are entitled to request retirement (TAC), in addition to the wage increase in the period;

·         R$ 14.0 million increase due to the 8.0% increase in wages since May 2013 and the average wage increase of 6.80% since May 2014, in addition to the changes from the career and wage plan carried out by the Company;

·         R$ 8.0 million upturn in the provision for the Pension Plan, arising from changes in actuarial assumptions;

·         R$ 4.4 million increase in expenses related to the Profit Sharing Program, chiefly due to lower reversal of provision occurred in 2Q14, due to higher compliance with the targets estimated for the period, combined with adjustments made in the period; and

·         R$ 4.3 million increase in overtime pay, mainly due to wage adjustment in the period, and the higher number of hours exercised.

 

5.2. Supplies

 

In 2Q14, expenses with supplies decreased R$ 2.5 million or 5.1%, when compared to the same period of the previous year, from R$ 49.4 million to R$ 46.9 million, mostly due to:

 

·         R$ 1.2 million decrease, basically due to space that has been adapted to develop Sabesp Information Integrated System (SiiS), in 2Q13; and

·         Lower use of materials in preventive and corrective maintenance and in several water and sewage systems, thus, resulting in a reduction of R$ 0.8 million.

 

Page 16 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Comments on the Company’s Performance

Version: 1

 

 

5.3. Treatment supplies

 

Treatment supplies expenses in 2Q14 were R$ 9.4 million or 17.0% higher than in 2Q13, from R$ 55.2 million to R$ 64.6 million. The main factors for this variation were:

·         Increase in the consumption of activated carbon, in the amount of R$ 4.3 million, essentially in the Guarapiranga and Taiaçupeba Water Treatment Stations  due to the proliferation of algae;

·         Use of chemical products since the second half of 2013, for the recovery of springs (mainly at the Guarapiranga System), in the amount of R$ 2.2 million;

·         Increase of R$ 1.5 million in the consumption of aluminum sulfate; and

·         Application of calcium nitrate since January 2014 to control smell in several Sewage Treatment Stations, in the amount of R$ 0.9 million.

5.4. Services

 

Services, in the amount of R$ 351.6 million, grew R$ 56.5 million or 19.1%, in comparison to the R$ 295.1 million in 2Q13. The main factors were:

·           Advertising campaigns, in the amount of R$ 28.1 million,  mainly due to the intensification of the rational use of water campaign;

·           Higher estimate of services expenses, in the amount of R$ 7.0 million, basically due to higher volume of advertising services in the period;

·           Expenses with risk contracts for credit recovery, in the amount of R$ 6.3 million; and

·           Hiring of services, in the amount of R$ 6.2 million, due to the beginning of operations in Diadema, in the amount of R$ 4.6 million.

 

5.5. Electric power

 

This item totaled R$ 144.5 million, an increase of R$ 11.5 million or 8.6% in comparison to the R$ 133.0 million in 2Q13, mainly due to the average increase of 14.0% in free market tariffs and of 6.2% in regulated market.


5.6. General expenses

 

General expenses grew R$ 3.7 million or 2.0%, totaling R$ 190.0 million, versus the R$ 186.3 million recorded in 2Q13, due to the following:

·         Increase in the provision for lawsuits in the amount of R$ 14.6 million, mainly related to civil (R$ 8.0 million) and labor (R$ 5.3 million) contingencies; and

·         Decrease of R$ 10.5 million in provision related to the transfer to the Municipal Fund for Environmental Sanitation and Infrastructure, as a result of the decrease in revenues in the municipality of São Paulo.

 

 

 

 

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ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Comments on the Company’s Performance

Version: 1

 

5.7. Tax expenses

 

In 2Q14, there was an increase of R$ 5.8 million or 49.2%, due to increased tax expenses in 2Q14.

 

5.8. Depreciation and amortization

 

Depreciation and amortization increased R$ 25.9 million or 13.2%, from the R$ 196.7 million recorded in 2Q13, totaling R$ 222.6 million, due to the beginning of operations of intangible assets, in the amount of R$ 2.0 billion.

 

5.9. Credit write-offs

 

Credit write-offs grew R$ 42.8 million, to R$ 61.6 million in 2Q14, chiefly due to the higher provision of losses with allowance for doubtful accounts.

 

 

 

6. Other operating revenues and expenses, net

 

6.1. Other operating revenues, net

 

Recorded an R$ 8.1 million increase, mainly due to fine applied to suppliers and third parties.

 

 

6.2. Other operating expenses

 

R$ 4.3 million increase in other operating expenses due to:

·         Provision for the write-off of hydrometers in the amount of R$ 5.6 million; and

·         Losses regarding contractual payments related to the agreement with the municipality of Diadema, in the amount of R$ 2.0 million.

The increases mentioned above were partially offset by the R$ 3.4 million drop in the write-off of studies and projects.

                                                                                                                                            

7. Net financial

 

        R$ million
  2Q14 2Q13 Chg. %
Financial expenses, net of revenues (74.4) (11.5) (62.9) 547.0
Net monetary and exchange variation 52.8 (195.8) 248.6 (127.0)
Net financial (21.6) (207.3) 185.7 (89.6)

 

 

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(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Comments on the Company’s Performance

Version: 1

 

 

7.1. Financial revenues and expenses

                                                                                                                                                        

 

        R$ million
  2Q14 2Q13 Chg. %
Financial expenses        
Interest and charges on international loans and financing (23.1) (22.1) (1.0) 4.5
Interest and charges on domestic loans and financing (79.9) (64.9) (15.0) 23.1
Other financial expenses (45.3) (5.6) (39.7) 708.9
Total financial expenses (148.3) (92.6) (55.7) 60.2
Financial revenues 73.9 81.1 (7.2) (8.9)
Financial expenses net of revenues (74.4) (11.5) (62.9) 547.0

 

 

7.1.1. Financial expenses

 

Financial expenses grew R$ 55.7 million or 60.2%. The main reasons were:

 

·         R$ 39.7 million increase in other financial expenses, chiefly due to the favorable results of lawsuits in 2Q13, reducing interest expenses in that period, representing a variation of R$ 37.8 million; and

·         R$ 15.0 million increase in interest and charges on domestic loans and financing, due to the higher increase in the Interbank Deposit Certificate (CDI) in 2Q14 (10.8%), versus 2Q13 (7.7%).

 

7.1.2. Financial revenues

 

Financial revenues from interests dropped R$ 7.2 million or 8.9%, due to lower number of instalment agreements held in 2Q14.

 

 

7.2. Monetary and exchange rate variation on assets and liabilities

 

        R$ million
  2Q14 2Q13 Chg. %
Exchange rate variation on loans and financing 84.2 (201.7) 285.9 (141.7)
Monetary variation on loans and financing (28.9) (16.4) (12.5) 76.2
Other monetary variations (13.1) 2.1 (15.2) (723.8)
Monetary/exchange rate variation on liabilities 42.2 (215.9) 258.1 (119.5)
Monetary/exchange rate variation on assets 10.6 20.1 (9.5) (47.3)
Monetary/exchange rate variation, net 52.8 (195.8) 248.6 (127.0)

 

7.2.1. Monetary/exchange rate variation on liabilities

 

The effect on the monetary/currency exchange variation on liabilities in 2Q14 was R$ 258.1 million, lower than in 2Q13, especially due to:

 

·         Revenue of exchange rate variation in the amount of R$ 84.2 million in 2Q14, mainly deriving from the depreciation of the US Dollar and Japanese Yen versus Brazilian Real (2.7% and 1.0%, respectively), versus an expense of exchange rate variation of R$ 201.7 million in 2Q13, deriving from the appreciation of both currencies (10.0% and 4.3%, respectively);

 

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ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Comments on the Company’s Performance

Version: 1

 

·         R$ 12.5 million increase in monetary variation expenses over domestic loans and financing, mainly due to the higher variation of the IPCA rate in 2Q14 (2.06%), versus a 1.4% variation recorded in 2Q13. This increase is also a result of the higher amount of debt indexed to the IPCA rate, due to the 18th debenture issuance, in December 2013; and

·         R$ 15.2 million increase in other monetary variation due to the greater need of provision for lawsuits, in the amount of R$12.6 million.


8. Income tax and social contribution

Income tax and social contribution expenses decreased by R$ 26.9 million, due to the drop in taxable income in the period.

 

9. Indicators



 

9.1. Operating

 

Non-revenue water loss (IPF) and micro-measured water loss (IPM) continued to decline, reaching 23.8% and 30.8%, respectively, in 2Q14. This reduction was expected as a result of investments in the Corporate Program for Water Loss Reduction​. Produced volume fell by 5.6% in 2Q14, thanks to the Corporate Program for Water Loss Reduction​ that covers the entire São Paulo Metropolitan Region.

 

 

Operating indicators * 2Q14 2Q13 %
Water connections (1) 8,100 7,778 4.1
Sewage connections (1) 6,542 6,223 5.1
Population directly served - water (2) 25.1 24.4 2.9
Population directly served - sewage (2) 22.1 21.2 4.2
Number of employees 14,799 15,124 (2.1)
Water volume produced in the quarter(3) 710 752 (5.6)
Water volume produced in the semester(3) 1,488 1,514 (1.7)
IPF - Non-revenue water loss (%) 23.8 25.3 (5.9)
IPM - Micro-measured water loss (%) 30.8 31.6 (2.5)

(1)        Total connections, active and inactive, in thousand units at the end of the period

(2)        In million inhabitants, at the end of the period. Not including wholesale

(3)        In millions of cubic meters

(*)        Unaudited

 

 

 

9.2. Financial

 

Economic Indexes * (quarter end) 2Q14 2Q13
Amplified Consumer Price Index (IPCA) 1.54% 1.18%
Referential Rate (TR) 0.15% 0.00%
Interbank Deposit Certificate (CDI) 10.80% 7.72%
US DOLAR (R$) 2.2025 2.2156
YEN (R$) 0.0218 0.0223

                 (*)     Unaudited

 

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ITR - Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Comments on the Company’s Performance

Version: 1

 

 

10. Loans and financing

 

In June 2014, the Company conducted the 19th Issuance of Debentures, in a single series, in the amount of R$ 500 million to mature in June 2017 and progress payment of half-yearly interest rates from 0.80% to 1.08% p.a., plus CDI (interbank deposit certificate) variation. Proceeds are destined to settle financial commitments to mature in 2014 and 2015.

 

Amortization schedule – accounting balance

 

 

                R$ million
INSTITUTION 2014 2015 2016 2017 2018 2019  2020 and
onwards
Total
Local market                
Caixa Econômica Federal 36.7 65.5 65.7 69.0 72.8 76.0 679.8 1,065.5
Debentures - 594.3 236.5 755.1 443.2 515.1 514.2 3,058.4
Debentures BNDES 37.7 74.5 74.5 74.5 74.5 74.4 125.0 535.1
Debentures FI FGTS 22.7 45.5 45.5 45.5 45.5 45.5 249.4 499.6
BNDES 24.6 50.7 57.3 59.4 59.4 59.4 230.1 540.9
Others 8.3 17.2 18.0 18.9 19.6 20.0 334.9 436.9
Interest and charges 61.5 27.2 - - - - - 88.7
Local market total 191.5 874.9 497.5 1,022.4 715.0 790.4 2,133.4 6,225.1
International market                
BID 42.0 84.0 84.0 112.0 56.8 56.8 674.4 1,110.0
BIRD - - - - - 3.4 97.2 100.6
Eurobonds - - 308.1 - - - 765.1 1,073.2
JICA 23.8 47.6 47.6 48.0 48.4 59.2 676.2 950.8
BID 1983AB - 52.7 52.7 52.7 52.4 39.0 88.0 337.5
Interest and charges 21.5 - - - - - - 21.5
International market total 87.3 184.3 492.4 212.7 157.6 158.4 2,300.9 3,593.6
Total 278.8 1,059.2 989.9 1,235.1 872.6 948.8 4,434.3 9,818.7

 

11. Capex

Our capex plan is designed to improve and expand our water and sewage system and to increase and protect our water sources in order to meet the growing demand for water and sewage services in the 364 municipalities we serve.

In 2Q14 the Company invested R$ 728.4 million versus R$ 716.0 million invested in 2Q13.

 

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ITR –– Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

 

1   Operations

 

Companhia de Saneamento Básico do Estado de São Paulo ("SABESP" or the "Company") is a mixed-capital company headquartered in São Paulo, at Rua Costa Carvalho, 300, CEP 05429-900, controlled by the São Paulo State Government. The Company is engaged in the provision of basic and environmental sanitation services in the State of São Paulo, as well as it supplies treated water on a wholesale basis

 

In addition to providing basic sanitation services in the State of São Paulo, SABESP may perform these activities in other states and countries, and can operate in drainage, urban cleaning, solid waste handling and energy markets. The objective set in the new vision of SABESP is to be recognized as the company that ensured universal access to water and sewage services in its marketplace, in a sustainable and competitive manner, with excellence in customer service.

 

On June 30, 2014, the Company operated water and sewage services in 364 municipalities of the State of São Paulo. Most of these municipalities operations are based on 30-year concession, program and services contracts. The Company has two partial contracts with the municipality of Mogi das Cruzes, however, since most of municipality is serviced by wholesale, it was not included in the 364 municipalities. On June 30, 2014, the Company had 366 contracts.

 

SABESP is not temporarily operating in some municipalities due to judicial orders. The lawsuits in progress refer to Álvares Florense, Cajobi, Embaúba, Iperó and Macatuba, and the carrying amount of these municipalities' intangible assets was R$11,330 as of June 30, 2014.

 

As of June 30, 2014, 54 concession agreements had expired and are being negotiated. From 2014 to 2030, 38 concession agreements will expire. Management believes that concession agreements expired and not yet renewed will result in new contracts, disregarding the risk of discontinuity in the provision of municipal water supply and sewage services. By June 30, 2014, 274 program and services contracts were signed (266 contracts on December 31, 2013).

 

As of June 30, 2014, the carrying amount of the underlying assets used in the 54 concessions of the municipalities under negotiation totaled R$6,012,934, accounting for 24.40% of total, and the related gross revenue for the six-month period then ended totaled R$951,526 on June 30, 2014, accounting for 16.19% of total.

 

The Company's operations are concentrated in the municipality of São Paulo, which represents 49.79% of the gross revenues on  June 30, 2014 (51.15% on June 30, 2013) and 41.62% of intangible assets (42.46% on December 31, 2013). 

 

On June 23, 2010, the State of São Paulo, the municipality of São Paulo, the Company and the regulatory agency “Sanitation and Energy Regulatory Agency – ARSESP” signed an agreement to share the responsibility for water supply and sewage services to the Municipality of São Paulo based on a 30-year concession agreement. This agreement is extendable for another 30 years, pursuant to the law. This agreement sets forth SABESP as the exclusive service provider and designates ARSESP as regulator, establishing prices, controlling and monitoring services.

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

 

Also, on June 23, 2010, the State of São Paulo, the city of São Paulo and SABESP signed the “Public service provision agreement of water supply and sewage services”, a 30-year concession agreement which is extendable for another 30 years. This agreement involves the following activities:

 

i. protection of the sources of water in collaboration with other agencies of the State and the City;

ii. capture, transport and treat of water;

iii. collect, transport, treatment and final dispose of  sanitary sewage; and

iv. adoption of other actions of basic and environmental sanitation.

 

In the municipality of Santos, in the Santos coast region, which has a significant population, the Company operates under an authorization by public deed, a situation similar to other municipalities in that region and in the Ribeira valley, where the Company started to operate after the merger of the companies that formed it. As of June 30, 2014, the carrying amount of the municipality of Santos’ intangible assets was R$307,275 (R$340,530 on December 31, 2013) and gross revenue in the six-month period ended June 30, 2014 was R$117,885 (R$124,077 on June 30, 2013).

 

Article 58 of Law 11,445/07 determines that precarious and overdue concessions, as well as those effective for an undetermined period of time, including those that do not have an instrument formalizing them, will be valid until December 31, 2010. However, Article 2 of Law 12,693 of July 24, 2012 allows program agreements to be executed until December 31, 2016.

 

The Company’s Management understands that the concession agreements not yet renewed are valid and will be governed by Laws 8,987/95 and 11,445/07, including those municipalities served without an agreement.

 

Public deeds are valid and governed by the Brazilian Civil Code.

 

The Company's shares have been listed in the Novo Mercado (New Market) segment of BM&FBovespa under the ticker symbol SBSP3 since April 2002 and on the New York Stock Exchange (NYSE) as American Depositary Receipts (“ADRs”) Level III, under the SBS code, since May 2002. In 2007, SABESP adhered to the Corporate Sustainability Index, or ISE of BM&FBovespa, which reflects the high level of commitment with sustainable development and social practices.

 

Since 2008, the Company has been setting up partnerships with other companies, which resulted in the following companies: Sesamm, Águas de Andradina, Saneaqua Mairinque, Aquapolo Ambiental, Águas de Castilho and Attend Ambiental. Although SABESP has no majority interest in the capital stock of these companies, the shareholders’ agreements provide for the power of veto and casting vote in certain issues jointly with associates, indicating the shared control in the management of investees.

 

The interim financial information was approved by the Board of Directors on August 14, 2014.

 

 

 

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ITR –– Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

2   Basis of preparation and presentation of the interim financial information

 

Presentation of the quarterly financial information

 

The quarterly financial information as of June 30, 2014 was prepared based on the provisions of CPC 21 (R1) – Interim Financial Information and the international standard IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), applicable to the preparation of Quarterly Information Form– ITR and they are fairly presented consistent with the rules issued by the Brazilian Securities and Exchange Commission (CVM). Therefore, this Interim Financial Information takes into consideration the official letter CVM/SNC/SEP 003 of April 28, 2011, which allows the entities to present selected notes to the financial statements, in cases of redundant information already disclosed in the Annual Financial Statements. The interim financial information for the six-month period ended June 30, 2014, therefore, does not include all the notes and reporting required by the annual financial statements, and accordingly, shall be read jointly with the financial statements as of December 31, 2013, prepared pursuant to the International Financial Reporting Standards – IFRS, issued by the International Accounting Standards Board – IASB and pursuant to the accounting practices adopted in Brazil which observe the pronouncements issued by the Brazilian Accounting Pronouncements Committee- CPC.

 

2.1  Accounting policies

 

The accounting policies used in the preparation of the quarterly financial information for the quarter ended June 30, 2014 are consistent with those used to prepare the Annual Financial Statements for the year ended December 31, 2013. These policies are disclosed in Note 3 to the Annual Financial Statements.

 

 

3   Financial Risk Management

 

 

3.1  Financial risk factors

 

 

The Company's activities are affected by Brazilian economic scenario, making it exposed to market risk, such as exchange rate, interest rate, credit risk and liquidity risk. The Company’s financial risk management is focused on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance.

 

 

The Company has not utilized derivative instruments in any of the reported periods.

 

 

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

 

(a)       Market risk

 

Foreign currency risk

 

SABESP’s foreign exchange exposure implies market risks associated with Brazilian Real currency fluctuations against the US dollar and yen. SABESP’s foreign currency-denominated liabilities mainly include US dollar and yen-denominated loans.

 

In case of Brazilian real depreciation in relation to foreign currency in which the debt is denominated, SABESP will incur in monetary loss in relation to such debt.

 

SABESP’s specific foreign currency risks are related to exposures caused by its current and non-current debts denominated in foreign currency.

 

The management of SABESP’s foreign currency exposure considers several current and projected economic factors, besides market conditions.

 

This risk arises from the possibility that the Company may incur in losses due to exchange rate fluctuations that would impact liability balances of foreign currency-denominated loans and financing raised in the market and related financial expenses. The Company does not maintain hedge or swap contracts or any financial instrument to hedge against this risk, but conducts an active management of debt, taking advantage of opportunities to change expensive debts with “cheaper” debts, reducing the cost through early maturity.

 

A significant amount of the Company’s financial debt is indexed to the U.S. dollar and Yen, in the total amount of R$3,611,392 on June 30, 2014 (R$3,715,645 in December 2013). Below, the Company’s exposure to foreign exchange risk:

 

 

June 30,2014

 

December 31, 2013

 

Foreign currency

 

R$

 

Foreign currency

 

R$

 

 

 

 

 

 

 

 

Loans and financing – US$

1,197,399

 

2,637,271

 

1,181,256

 

2,767,210

Loans and financing – Yen

43,800,424

 

952,659

 

41,504,249

 

926,790

Interest and charges from loans and financing – US$

 

 

14,592

 

 

 

14,512

Interest and charges from loans and financing – Yen

 

 

6,870

 

 

 

7,133

Total exposure

 

 

3,611,392

 

 

 

3,715,645

Financing cost

 

 

(17,735)

 

 

 

(17,092)

Total loans in foreign currency

 

 

3,593,657

 

 

 

3,698,553

 

As of June 30, 2014, if the Brazilian real had depreciated or appreciated by 10% against the US dollar and Yen with all other variables held constant, effects on results before taxes on June 30, 2014 would have been R$361,139 (R$371,564 in December 2013), lower or higher, mainly as a result of foreign exchange losses or gains on the translation of foreign currency-denominated loans.

 

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ITR –– Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

Scenario I below presents the effect in income statements for the next 12 months, considering the projected rates of the U.S. dollar and the Yen. Considering the other variables as remaining constant, the impacts for the next 12 months are shown in scenarios II and III with possible depreciations of 25% and 50%, respectively, in the Brazilian Real.

 

 

 

Scenario I (Probable)

 

Scenario II (+25%)

 

Scenario III (+50%)

 

 

(*)

 

 

 

 

Net currency exposure on June 30, 2014 (Liabilities) in US$

 

1,197,399

 

1,197,399

 

1,197,399

 

 

 

 

 

 

 

US$ rate on June 30, 2014

 

2.2025

 

2.2025

 

2.2025

Exchange rate estimated according to the scenario

 

2.5000

 

3.1250

 

3.7500

Difference between the rates

 

(0.2975)

 

(0.9225)

 

(1.5475)

 

 

 

 

 

 

 

Effect on net financial result in R$- (loss)

 

(356,226)

 

(1,104,601)

 

(1,852,975)

 

 

 

 

 

 

 

Net currency exposure on June 30, 2014 (Liabilities) in Yen

 

43,800,424

 

43,800,424

 

43,800,424

 

 

 

 

 

 

 

Yen rate on June 30, 2014

 

0.021750

 

0.021750

 

0.021750

Exchange rate estimated according to the scenario

 

0.022836

 

0.02854

 

0.03425

Difference between the rates

 

(0.00109)

 

(0.00679)

 

(0.01250)

 

 

 

 

 

 

 

Effect on net financial result in R$- (loss)

 

(47,742)

 

(297,405)

 

(547,505)

 

 

 

 

 

 

 

Total effect on net financial result in R$- (loss)

 

(403,968)

 

(1,402,006)

 

(2,400,480)

 

 

 

 

 

 

 

 

(*) The probable scenario in foreign currency (US dollar and Yen) considered the average exchange rate for the 12-month period after June 30, 2014, according to BM&FBovespa.

 

Interest rate risk

 

This risk arises from the possibility that the Company could incur losses due to fluctuations in interest rates, increasing the financial expenses related to loans and financing.

 

The Company has not entered into any derivative contract to hedge against this risk; however continually monitors market interest rates, in order to evaluate the possible need to replace its debt.

 

The table below provides the Company's loans and financing subject to variable interest rate:

 

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

 

 

 

June 30,2014

 

December 31, 2013

 

 

 

 

 

TR(i)

 

1,568,109

 

1,646,546

CDI(ii)

 

1,712,010

 

1,212,010

TJLP(iii)

 

957,830

 

990,273

IPCA(iv)

 

1,473,252

 

1,413,629

LIBOR(v)

 

1,542,750

 

1,599,815

Interest and charges

 

96,165

 

120,839

Total

 

7,350,116

 

6,983,112

 

(i) TR – Interest Benchmark Rate

(ii) CDI (Certificado de Depósito Interbancário), an interbank deposit certificate

(iii) TJLP (Taxa de Juros a Longo Prazo), a long-term interest rate index

(iv) IPCA (Índice Nacional de Preços ao Consumidor Amplo), a consumer price index

(v) LIBOR - London Interbank Offered Rate

 

Another risk to which the Company is exposed, is the mismatch of the monetary restatement indices of its debts with those of its service revenues. Water supply and sewage services tariff adjustments do not necessarily follow the increases in the inflation indexes to adjust loans, financing and interest rates affecting the Company's indebtedness.

 

On June 30, 2014, if interest rates on loans and financing denominated in Brazilian reais had been 100 basis points higher or lower with all other variables held constant, the effects on profit for the six-month period ended June 30, 2014, before taxes would have been R$73,501 (R$69,831 in December 2013) lower or higher, mainly as a result of a lower or higher interest expense on floating rate loans and financing.

 

(b)         Credit risk

 

Credit risk arises from cash and cash equivalents, deposits in banks and financial institutions, as well as credit exposures to wholesale basis and retail customers, including outstanding accounts receivable, restricted cash, accounts receivable from related parties and indemnities. Credit risk exposure is mitigated by sales to a dispersed customer base.

 

The maximum exposures to credit risk at the reporting date are the carrying amounts of instruments classified as cash equivalents, deposits in banks and financial institutions, restricted cash, trade accounts receivable and accounts receivable from related parties in the balance sheet date, as per Notes 5, 6, 7 and 8.

 

Regarding the financial assets held with financial institutions, the credit quality that is not past due or subject to provision for impairment may can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates. The credit quality of counterparties which are banks, such as deposits and financial investments, the Company considers the lower rating of the counterparty published by three main international rating agencies (Moody's, Fitch and S&P), according to internal policy of market risk management:

 

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

 

 

June 30, 2014

 

December 31, 2013

Cash at bank and short-term bank deposits

 

 

 

AAA(bra)

1,821,961

 

1,781,327

Other (*)

1,750

 

674

 

1,823,711

 

1,782,001

 

(*)This category includes current accounts and investment funds in banks which have no credit rating information available.

 

The available credit rating information of the banks in which the Company made transactions during the period is as follows:

 

Banks

Fitch

 

Moody's

 

Standard Poor's

 

 

 

 

 

 

Banco do Brasil S.A.

AAA (bra)

 

Aaa.br

 

-

Banco Santander Brasil S.A.

AAA (bra)

 

Aaa.br

 

brAAA

Brazilian Federal Savings Bank

AAA (bra)

 

Aaa.br

 

-

Banco Bradesco S.A.

AAA (bra)

 

Aaa.br

 

brAAA

Itaú Unibanco Holding S.A.

AAA (bra)

 

Aaa.br

 

brAAA

 

(c)         Liquidity risk

 

The Company's liquidity is primarily reliant upon cash provided by operating activities, loans from Brazilian Federal and State governmental financial institutions, and financing in the domestic and international capital markets. The liquidity risk management considers the assessment of its liquidity requirements to ensure it has sufficient cash to meet its Capex and operating expenses needs, as well as the payment of debts.

 

The funds held by the Company are invested in interest-bearing current accounts, time deposits, short-term deposits and securities, selecting instruments with appropriate maturity or liquidity sufficient to provide margin as determined by projections mentioned above.

 

The table below analyzes the financial assets and liabilities of the Company, into relevant maturities, including the installment of principal and interest to be paid according to the agreement.

 

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

 

 

 

July to December 2014

 

2015

 

2016

 

2017

 

2018

 

2019 onwards

 

Total

As of June 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and financing

 

505,107

 

1,593,684

 

1,458,995

 

1,639,729

 

1,215,237

 

7,116,526

 

13,529,278

Accounts payable to suppliers and contractors

 

249,768

 

-

 

-

 

-

 

-

 

-

 

249,768

Services payable

 

334,123

 

-

 

-

 

-

 

-

 

-

 

334,123

Public-private partnership (PPP)

 

21,804

 

43,607

 

43,607

 

43,607

 

282,673

 

4,930,579

 

5,365,877

Program contract commitments

 

78,818

 

129,199

 

3,222

 

881

 

780

 

16,658

 

229,558

 

     

 

 

2014

 

2015

 

2016

 

2017

 

2018

 

2019 onwards

 

Total

As of December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and financing

 

1,186,907

 

1,545,451

 

1,458,618

 

1,125,401

 

1,186,483

 

6,860,587

 

13,363,447

Accounts payable to suppliers and contractors

 

275,051

 

-

 

-

 

-

 

-

 

-

 

275,051

Services payable

 

323,208

 

-

 

-

 

-

 

-

 

-

 

323,208

Public-private partnership (PPP)

 

43,607

 

43,607

 

43,607

 

43,607

 

282,673

 

4,930,579

 

5,387,680

Program contract commitments

 

85,277

 

77,772

 

3,452

 

1,110

 

1,010

 

22,251

 

190,872

 

 

Future interest

 

Future interest was calculated based on the contractual clauses for all agreements. For agreements with floating interest rate, the interest rates used correspond to the base dates above.

 

Cross default

 

The Company has loan agreements including cross default clauses, i.e., the early maturity of any Company’s debt will imply the early maturity of these agreements. The indicators are continuously monitored in order to avoid the execution of this clause.

 

(d)         Sensitivity analysis on interest rate risk

 

The table below shows the sensitivity analysis of the financial instruments, prepared in accordance with CVM Rule 475/2008 in order to evidence the balances of main financial assets and liabilities, calculated at a rate projected until the final settlement of each contract, considering a probable scenario (scenario I), appreciation of 25% (scenario II) and 50% (scenario III).

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

 

The purpose of the sensitivity analysis is to measure the impact of changes in the market over the financial instruments of the Company, considering constant all other variables. In the time of settlement the amounts can be different from those presented above, due to the estimates used in the measurement.

 

 

June 30, 2014

Indicators

 

Exposure

 

Scenario I

(Probable) (i)

 

Scenario II

(25%)

 

Scenario III

(50%)

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

CDI

 

1,214,038

 

11.8800 %(*)

 

14.8500 %

 

17.8200%

Financial income to be incurred

 

 

 

144,228

 

180,285

 

216,342

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

CDI

 

1,712,010

 

11.8800 %(*)

 

14.8500 %

 

17.8200%

Interest to be incurred

 

 

 

(203,387)

 

(254,233)

 

(305,080)

 

 

 

 

 

 

 

 

 

CDI net exposure

 

 

 

(59,159)

 

(73,948)

 

(88,738)

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

TR

 

1,568,109

 

0.0069 %(*)

 

0.0086%

 

0.0104%

Expenses to be incurred

 

 

 

(108)

 

(135)

 

(163)

 

 

 

 

 

 

 

 

 

IPCA

 

1,473,252

 

6.1000 %(*)

 

7.6250%

 

9.1500%

Expenses to be incurred

 

 

 

(89,868)

 

(112,335)

 

(134,803)

 

 

 

 

 

 

 

 

 

TJLP

 

957,830

 

5.0000 %(*)

 

6.2500%

 

7.5000%

Interest to be incurred

 

 

 

(47,892)

 

(59,864)

 

(71,837)

 

 

 

 

 

 

 

 

 

LIBOR

 

1,542,750

 

0.2793 %(**)

 

0.3491%

 

0.4189%

Interest to be incurred

 

 

 

(4,309)

 

(5,386)

 

(6,463)

 

 

 

 

 

 

 

 

 

Total net expenses to be incurred

 

 

 

(201,336)

 

(251,668)

 

(302,004)

 

 

 

 

 

 

 

 

 

(*) Source: Focus Report – BACEN, June 30, 2014

(**) Source: Bloomberg

 

 (i)   Refers to the scenario of interest to be incurred for the 12 months as of June 30, 2014 or until the maturity of the agreements, whichever is shorter.

 

 

3.2 Capital management

 

The Company's objectives when managing capital are ensure its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

 

The Company monitors capital based on the leverage ratio. This ratio corresponds to net debt divided by total capital. Net debt corresponds to total loans and financing less cash and cash equivalents. Total capital is calculated as total equity as shown in the statement of financial position plus net debt.

 

 

 

June 30, 2014

 

December 31, 2013

 

 

 

 

 

Total loans and financing

 

9,818,724

 

9,450,074

Less: cash and cash equivalents

 

(1,823,711)

 

(1,782,001)

 

 

 

 

 

Net debt

 

7,995,013

 

7,668,073

Total equity

 

13,667,947

 

12,930,801

 

 

 

 

 

Total capital

 

21,662,960

 

20,598,874

 

 

 

 

 

Leverage ratio

 

37%

 

37%

 

On June 30, 2014 the leverage ratio did not change in comparison to the ratio posted on December 31, 2013.

 

3.3 Fair value estimates

 

It is assumed that balances from trade accounts receivable (current) and accounts payable to suppliers by carrying amount approximate their fair values, considering the short maturity. Long-term trade accounts receivable also approximate their fair values, as they will be adjusted by inflation and/or will bear contractual interest rates over time.

 

3.4 Financial Instruments

 

On June 30, 2014 and December 31, 2013, the Company did not have financial assets classified into the fair value categories through profit or loss, held to maturity and available for sale. The Company’s financial instruments included in the loans and receivables category comprise cash and cash equivalents, trade accounts receivable, balances with related parties, other accounts receivable, balances receivable from the Water National Agency – ANA, contractors and suppliers, loans and financing, balances payable deriving from the Public Private Partnership-PPP and program contract commitments, which are non-derivative financial assets and liabilities with fixed or determinable payments, not quoted in an active market.

 

 

The estimated fair values of financial instruments are as follows:

 

 

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

Financial assets

 

 

June 30, 2014

 

December 31, 2013

 

Carrying amount

 

Fair

value

 

Carrying amount

 

Fair

value

Cash and cash equivalents

1,823,711

 

1,823,711

 

1,782,001

 

1,782,001

Restricted cash

20,463

 

20,463

 

10,333

 

10,333

Trade accounts receivable

1,281,336

 

1,281,336

 

1,515,565

 

1,515,565

Accounts receivable from related parties

233,951

 

233,951

 

265,312

 

265,312

Water National Agency – ANA

120,204

 

120,204

 

107,003

 

107,003

Other accounts receivable

181,913

 

181,913

 

155,991

 

155,991

 

 

Financial liabilities

 

 

June 30, 2014

 

December 31, 2013

 

Carrying amount

 

Fair

value

 

Carrying amount

 

Fair

value

Loans and financing

9,818,724

 

9,689,340

 

9,450,074

 

9,439,094

Accounts payable to suppliers and contractors

249,768

 

249,768

 

275,051

 

275,051

Services payable

334,123

 

334,123

 

323,208

 

323,208

Program contract commitments

211,179

 

211,179

 

166,038

 

166,038

Public-private partnership - PPP

340,306

 

340,306

 

342,508

 

342,508

 

To obtain fair value of loans and financing, the following criteria have been adopted:

 

(i)       Agreements with CEF (Federal Savings Bank) were projected until final maturity, at contractual rates (projected TR + spread) and discounted at present value by TR x DI, both rates were obtained from BM&FBovespa.

 

(ii)     Debentures were projected up to the final maturity date according to contractual rates (IPCA, DI, TJLP or TR), and discounted to present value considering the future interest rate published by ANBIMA in the secondary market, or by market equivalent rates, or the Company’s share traded in the Brazilian market.

 

(iii)     BNDES loans are financial instruments valued at carrying amount plus contractual interest rate till mature date, and are indexed by long term interest rate – TJLP.

 

 

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

These loans have specific characteristics and the conditions defined in the loan agreements with BNDES between independent parties, and reflect the conditions for those types of loan. In Brazil, a consolidated market of long-term debts does not exist with the same characteristics of BNDES loans, the offering of credit to the entities in general, with this long-term characteristic, usually is restricted to BNDES.

 

(iv)   Other financing in local currency are considered by carrying amount plus contractual interest rate till mature date, discounted to present value considering a future interest rate published by BM&FBovespa.

 

(v)     Agreements with IDB, IBRD, were projected until final maturity in origin currency, applying interest rates contracted, discounted at present value at Libor futures rate, obtained from Bloomberg. Eurobonds were priced at market value through quotes published by Bloomberg. All the amounts obtained were translated into Brazilian reais at the exchange rate of June 30, 2014.

 

(vi)   Agreements with JICA, were projected until final maturity in origin currency, using interest rates contracted and discounted at present value, at Tibor futures rate obtained from Bloomberg. The amounts obtained were translated into Brazilian reais at the exchange rate of June 30, 2014.

 

(vii) Leases are financial instruments considered by face value restated until maturity date, whose characteristic is the indexation by fixed contractual rate, which is a specific type, not compared to any other market rate. Thus, the Company discloses as market capitalization, the amount recorded on June 30, 2014.

 

Considering the nature of other financial instruments, assets and liabilities of the Company, the balances recognized in the statement of financial position approximate the fair values, taking into account the maturities close to the end of the reporting period, comparison of contractual interest rates with market rates in similar operations at the end of the reporting periods, their nature and maturity terms.

 

 

4   Critical accounting estimates and judgments

 

 

Estimates and judgments are continually evaluated and are based on historical experience and on other factors, including expectations of future events that are believed to be reasonable under the circumstances.

 

There were no changes in relation to what was presented in the Annual Financial Statements as of December 31, 2013, as per Note 5.

 

 

 

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Notes to the Interim Financial Information

 

Version: 1

5   Cash and Cash Equivalents

 

 

June 30, 2014

December 31, 2013

 

 

 

 

Cash and banks

609,673

 

189,836

Cash equivalents

1,214,038

 

1,592,165

 

1,823,711

 

1,782,001

 

Cash and cash equivalents include cash, bank deposits and high-liquidity short-term financial investments, mainly represented by repurchase agreements (accruing CDI interest rates), deposited at Banco do Brasil, whose original maturities are lower than three months, which are convertible into a cash amount and subject to an insignificant risk of change in value.

 

The average yield of financial investments corresponds to 99.85% of CDI in June 2014 (100.00% in December 2013).

 

 

6   Restricted cash

 

On June 30, 2014, the Company’s restricted cash, under current assets, totaled R$20,463, mainly referring to the agreement with the local government of the city of São Paulo, in which the Company transfers 7.5% of the Municipal revenue to the Municipal Fund (December 2013 – R$10,333).

 

 

7   Trade Accounts Receivable

 

(a)         Equity balances

 

 

 

June 30, 2014

 

December 31, 2013

Private sector:

 

 

 

 

General and special customers (i) (ii)

 

847,042

 

1,008,335

Agreements (iii)

 

302,575

 

287,662

 

 

 

 

 

 

 

1,149,617

 

1,295,997

Government entities:

 

 

 

 

Municipal

 

523,769

 

511,967

Federal

 

4,170

 

4,292

Agreements (iii)

 

189,116

 

167,642

 

 

 

 

 

 

 

717,055

 

683,901

Wholesale customers – Municipal governments: (iv)

 

 

 

 

Guarulhos

 

709,555

 

661,908

Mauá

 

355,125

 

327,451

Mogi das Cruzes

 

2,388

 

15,430

Santo André

 

748,112

 

700,550

São Caetano do Sul

 

2,054

 

2,114

Diadema (*)

 

224,433

 

210,406

 

 

 

 

 

Total wholesale customers – Municipal governments

 

2,041,667

 

1,917,859

 

 

 

 

 

Unbilled supply

 

411,632

 

474,492

 

 

 

 

 

Subtotal

 

4,319,971

 

4,372,249

Allowance for doubtful accounts

 

(3,038,635)

 

(2,856,684)

 

 

 

 

 

Total

 

1,281,336

 

1,515,565

 

 

 

 

 

Current

 

1,095,827

 

1,120,053

Noncurrent

 

185,509

 

395,512

 

 

 

 

 

 

 

1,281,336

 

1,515,565

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

 

(*) On March 18, 2014, the State of São Paulo, the municipality of Diadema and SABESP entered into a “Water Supply and Sewage Public Utility Services Agreement” in the municipality of Diadema. Through this contract, the State of São Paulo and the municipality of Diadema have ensured to SABESP (or subsidiary) exclusive rights to render services for a 30-year term.

 

On this same date, judicial settlements were signed in lawsuits filed by SABESP against the municipality of Diadema and Saned – a municipal company. Through these settlements, SABESP, the municipality of Diadema and Saned agree to suspend the execution of suits to collect receivables related to water supply at wholesale and collection of indemnity debt. The debts will progressively decrease throughout a 30-year period, under the condition that there is a full compliance with the agreements and provision of services contract.

 

This balance is fully accrued as losses.

 

From January to June 2014, there were no relevant changes in relation to the operations presented in the financial statements as of December 31, 2013.

 

(i)   General customers - residential and small and mid-sized companies

 

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

(ii)  Special customers - large consumers, commercial, industries, condominiums and special billing consumers (industrial waste, wells, etc.).

 

(iii) Agreements - installment payments of past-due receivables, plus monetary restatement and interest.

 

(iv) Wholesale basis customers - municipal governments - This balance refers to the sale of treated water to municipalities, which are responsible for distributing to, billing and charging final customers. Some of these municipalities are questioning in court the tariffs charged by SABESP, which have full allowance for doubtful accounts. Additionally, the overdue amounts are included in the allowance for doubtful account and are classified in noncurrent assets.

 

 

Six-month period ended June 30, 2014

 

Year ended

December 31, 2013

Balance at the beginning of the period

1,917,859

 

1,677,727

Services provided

203,020

 

424,018

Receipts – services in current year

(20,136)

 

(160,944)

Receipts – services in previous years

(59,076)

 

(22,942)

 

 

 

 

Balance at the end of the period

2,041,667

 

1,917,859

 

 

 

(b)         The aging of trade accounts receivable is as follows:

 

 

June 30, 2014

 

December 31, 2013

Current

1,023,435

 

1,243,156

Past-due:

 

 

 

Up to 30 days

173,230

 

191,668

From 31 to 60 days

104,728

 

105,542

From 61 to 90 days

77,231

 

60,868

From 91 to 120 days

68,206

 

51,932

From 121 to 180 days

106,943

 

90,498

From 181 to 360 days

163,333

 

149,242

Over 360 days

2,602,865

 

2,479,343

 

 

 

 

Total past-due

3,296,536

 

3,129,093

 

 

 

 

Total

4,319,971

 

4,372,249

 

 

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

The increase in the balance overdue is mainly due to accounts receivable at wholesale, where the municipalities are challenging in court the tariffs charged by SABESP. These amounts are fully covered by the allowance for doubtful accounts.

 

(c)         Allowance for doubtful accounts

 

 

June 30, 2014

 

June 30, 2013

Balance at the beginning of the period

2,856,684

 

2,723,408

Private sector/government entities

34,927

 

45,892

Recoveries

(22,075)

 

(22,619)

Wholesale customers

169,228

 

109,065

 

 

 

 

 

 

 

 

Additions for the period

182,080

 

132,338

 

 

 

 

Write-offs in the period referring to the bad debt

(129)

 

-

 

 

 

 

Balance at the end of the period

3,038,635

 

2,855,746

 

 

 

 

 

 

 

Reconciliation of provision for losses of income

April to June 2014

 

January to June 2014

 

April to June 2013

 

January to June 2013

Losses (write-off)

10,697

 

20,086

 

10,775

 

32,006

Provision for state entities (related parties)

795

 

795

 

418

 

960

Provision for private sector/government entities

17,862

 

34,926

 

24,304

 

45,892

Provision for wholesale supply

42,596

 

42,596

 

-

 

-

Recoveries

(10,315)

 

(22,075)

 

(16,658)

 

(22,619)

 

 

 

 

 

 

 

 

Balance

61,635

 

76,328

 

18,839

 

56,239

 

The Company does not have customers representing 10% or more of its revenues.

 

 

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

 

8   Related Party Balances and Transactions

 

The Company is a party to transactions with its controlling shareholder, the State Government, and companies related to it.

 

(a) Accounts receivable, interest on shareholders' equity payable, revenue and expenses with the São Paulo State Government

 

 

June 30, 2014

 

December 31, 2013

Accounts receivable

 

 

 

Current:

 

 

 

Water and sewage services

108,415

 

110,615

Allowance for losses

(47,469)

 

(46,674)

Reimbursement for pension benefits paid -

 

 

 

Gesp Agreement

39,201

 

39,201

Reimbursement for pension benefits paid -

 

 

 

Monthly flow

5,836

 

9,399

Se Liga na Rede” (Connect to the Network Program)

17,088

 

22,314

 

 

 

 

Total current

123,070

 

134,855

 

 

 

 

Noncurrent:

 

 

 

Reimbursement for pension benefits paid -

 

 

 

GESP Agreement

110,881

 

130,457

 

 

 

 

Total noncurrent

110,881

 

130,457

 

 

 

 

Total receivables from shareholder

233,951

 

265,312

 

 

 

 

Assets:

 

 

 

Water and sewage services

60,945

 

63,941

Reimbursement of additional retirement and pension benefits

155,918

 

179,057

“Se Liga na Rede” (Connect to the Network Program) (l)

17,088

 

22,314

 

 

 

 

Total

233,951

 

265,312

 

 

 

 

Liabilities:

 

 

 

Interest on shareholders’ equity payable to related parties

32,289

 

229,605

 

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

 

 

April to June 2014

 

January to June 2014

 

April to June 2013

 

January to June 2013

Revenue from water and sewage services

 

 

 

 

 

 

 

Water supply

56,772

 

116,701

 

63,257

 

117,757

Sewage services

50,202

 

103,268

 

55,090

 

103,271

Payments received from related parties

(113,589)

 

(220,923)

 

(113,943)

 

(214,836)

 

 

 

 

 

 

 

 

Receipt of GESP reimbursement referring to Law 4819/58

(28,001)

 

(59,337)

 

(31,256)

 

(54,355)

 

 

In the period between January and June 2014, there were no relevant changes in relation to the operations presented in the financial statements as of December 31, 2013. See further details and explanations about the nature of related party transactions in Note 9 to the Financial Statements as of December 31, 2013.

 

(b)          Contingent assets - GESP (not recorded)

 

On June 30, 2014 and December 31, 2013, SABESP had contingent assets with GESP, not recorded in assets referring to the additional retirement and pension paid (Law 4,819/58), as follows:

 

 

June 30, 2014

 

December 31, 2013

Controversial amounts receivable

747,811

 

716,196

Undisputed amount referring to the transfer to SABESP of reservoirs at Alto Tietê system (original value)

696,283

 

696,283

Total

1,444,094

 

1,412,479

 

During the period from January to June 30, 2014, there were neither relevant changes in the negotiations nor in the progress of legal proceedings. See further details and explanations about the nature of these contingent assets in Note 9 (vii) to the Financial Statements as of December 31, 2013.

 

(c)          Use of reservoirs - EMAE

 

Empresa Metropolitana de Águas e Energia S.A. - EMAE plans to receive for the credit and to obtain financial compensation for the use of water from the Guarapiranga and Billings reservoirs, which SABESP uses in its operations, as well as the reimbursement of damages related to the failure to pay appropriately.

 

The Company understands that no amounts are due for the use of these reservoirs given the grants already made. Should these reservoirs not be available for use to the Company, there could be the need to collect water in more distant places. There is a risk of not properly rendering services in the region, besides increasing water supply cost.

 

Several lawsuits were filed by EMAE, among them a lawsuit to create an arbitration clause related to the Guarapiranga reservoir, a proceeding which had already started and another one, equally pleading for financial compensation due to SABESP’s water collect from Billings reservoir for public supply, these two lawsuits alleging that this conduct has been causing permanent and growing loss in the capacity of generating electricity of Henry Borden hydroelectric power plant with financial losses.

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

 

SABESP understands that the expectation for all cases is of possible losses, and for the time being, it is not feasible to estimate the amounts involved, since they were not determined.

 

On April 10, 2014, we issued a Notice to the Market including the information we have been discussing with EMAE about any future agreement. However, no adjustment was confirmed up to date and no agreement was executed by either party up to date.

(d)          Agreements with reduced tariffs with State and Municipal Government Entities that joined the Water Rational Use Program (PURA).

 

The Company has signed agreements with government entities related to the State Government and municipalities where it operates that benefit from a reduction of 25% in the tariff of water supply and sewage services when they are not in default. These agreements provide for the implementation of the rational water use program, which takes into consideration the reduction in the consumption of water.

 

(e)          Guarantees

 

The State Government provides guarantees for some loans and financing of the Company and does not charge any fee with respect to such guarantees.

 

(f)           Personnel assignment agreement among entities related to the State Government

 

The Company has personnel assignment agreements with entities related to the State Government, under which the expenses are fully passed on and monetarily reimbursed. From April to June 2014 and in 2013, the expenses related to personnel assigned by SABESP to other state government entities amounted to R$2,571 and R$3,706, respectively, and from January to June 2014 and 2013, R$5,065 and R$6,468 were paid, respectively.

 

From April to June 2014 and in 2013, expenses related to personnel assigned by other entities to SABESP totaled R$113 and R$275, respectively, and from January to June 2014 and 2013, expenses totaled R$209 and R$533, respectively.

 

(g)          Services obtained from state government entities

 

As of June 30, 2014 and December 31, 2013, SABESP had an outstanding amounts payable of R$1,395 and R$1,791, respectively, for services rendered by São Paulo State Government entities.

 

(h)          Non-operating assets

 

As of June 30, 2014 and December 31, 2013, the Company had an amount of R$969 related to free land lent to DAEE (Water and Electricity Department).

 

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(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR –– Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

(i)           SABESPREV

 

The Company sponsors a private defined benefit pension plan, which is operated and administered by Fundação Sabesp de Seguridade Social - SABESPREV. The net actuarial liability recognized as of June 30, 2014 amounted to R$568,162 (R$546,748 in December 2013), according to Note 18 (b).

 

(j)           Compensation of Management Key Personnel

 

Expenses related to the compensation to the members of its Board of Directors and Officers amounted to R$766 and R$843 for the second quarter of 2014 and 2013, respectively. From January to June 2014 and 2013, R$1,619 and R$1,618 were accrued, respectively and they refer to short-term benefits. An additional amount of R$113, related to the Officers’ bonus program, was recorded from April to June 2014 (R$146 – April to June 2013). From January to June 2014 and 2013, R$253 and R$286 were accrued, respectively.

 

(k)          Loan agreement through credit facility

 

The Company holds interest in certain Special Purpose Entities (SPE), not holding the majority interest but with cast vote and power of veto in some issues. Therefore, these SPEs are considered for accounting purposes as jointly-owned subsidiaries.

 

The Company entered into a loan agreement through credit facility with the SPEs Águas de Andradina S.A., Águas de Castilho S.A., Aquapolo Ambiental S.A. and Attend Ambiental S.A. to finance the operations of these companies, until the loans and financing requested with financial institutions is cleared.

 

The contracts signed on January 19, 2012 with Águas de Andradina and Águas de Castilho were settled in July 2012, according to the agreement’s provisions. On July 18, 2012, new agreements were signed with both companies, pursuant to the conditions in the table below. The agreement signed with Aquapolo Ambiental on March 30, 2012 remains with the same characteristics, according to the table below:

 

 

SPE

 

Credit limit

 

Principal disbursed amount

 

Interest balance

 

Total

 

Interest rate

 

Maturity

Águas de Andradina

 

3,467

 

1,427

 

446

 

1,873

 

SELIC + 3.5 % p.a.

 

(*)

Águas de Castilho

 

675

 

403

 

126

 

529

 

SELIC + 3.5 % p.a.

 

(*)

Attend Ambiental S/A

 

5,400

 

3,649

 

39

 

3,688

 

SELIC + 3.5 % p.a.

 

(**)

Aquapolo Ambiental

 

5,629

 

5,629

 

2,007

 

7,636

 

CDI + 1.2% p.a.

 

4/30/2016

Aquapolo Ambiental

 

19,000

 

19,000

 

5,560

 

24,560

 

CDI + 1.2% p.a.

 

4/30/2015

Total

 

34,171

 

30,108

 

8,178

 

38,286

 

 

 

 

 

 

 

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ITR –– Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

(*) The loan agreements with SPEs Águas de Andradina and Águas de Castilho mature when funds deriving from long-term agreement with the Brazilian Development Bank – BNDES are released, when borrower will settle all and any debt deriving from current opening of loan facility. The agreement with SPE Águas de Andradina was settled in July 2014.

 

(**) The loan agreement with SPE Attend Ambiental S/A matures within 180 days, from the date when the respective amount is available in the borrower’s account, renewable for the same period. Credit facility will be available to the borrower up to December 31, 2014.

 

The amount disbursed is recognized in Assets under “Other Receivables” and amounts to R$24,479 for principal and R$6,171 for interest recognized in Current Assets and R$5,629 for principal and R$2,007 for interest in Noncurrent Assets. As of June 30, 2014, the balance of principal and interest rates of these agreements is R$38,286 (R$32,058 as of December/2013). In the period between January and June 2014, financial income recognized was R$2,580 (R$1,388 from January to June 2013).

 

(l)           Se Liga na Rede (Connect to the Network Program)

 

The State Government enacted the State Law nº 14,687/12, creating the pro-connection program, destined to financially subsidize the execution of household branches necessary to connect to the sewage collecting networks, in low income households which agreed to adhere to the program. The program expenditures are financed with 80% of funds deriving from the State Government and the remaining 20% invested by SABESP, which is also liable for the execution of works. On June 30, 2014, the year-to-date program total amount was R$45,806, R$17,088 recorded in balances receivable from related parties, the amount of R$11,832 recorded in the group of intangible assets and R$16,886 reimbursed by GESP.

 

 

9   Water National Agency - ANA

 

Refers to agreements executed within the scope of the Hydrographic Basin Depollution Program (PRODES), also known as "Treated Sewage Purchase Program".

 

This program does not finance works or equipment, remunerates by results achieved, i.e., by effectively treated sewage. In this program, the Water National Agency (ANA) makes available funds, which are restricted to a specific current account and applied in investment funds at the Caixa Econômica Federal - Federal Savings Banks (CEF), until the fulfillment of treated sewage volume is evidenced, as well as, the reduction of polluting cargoes of each agreement.

 

On June 30, 2014, the balances of assets and liabilities were R$120,204 (December 2013 – R$107,003), and the liabilities are recorded under "Other liabilities" of noncurrent liabilities.

 

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

 

10   Investments

 

The Company holds interest valued by the equity accounting in the following investees: Sesamm – Serviços de Saneamento de Mogi Mirim S/A, Águas de Andradina, Águas de Castilho, Saneaqua Mairinque, Aquapolo Ambiental and Attend Ambiental.

 

Although SABESP has no majority shares of its investees, the shareholders’ agreement provides for the power of veto in certain management issues, indicating participating shared control (joint venture – CPC 19(R2)).

 

See information about these companies’ activities in Note 11 to the Financial Statements as of December 31, 2013. In the quarter ended June 30, 2014, there were no relevant changes in the operations of these investees.

 

See below a summary of financial information of these investees:

 

Company

Investments

 

Equity in the earnings of subsidiaries

 

Interest percentage

 

Equity

 

Profit or loss for the period

 

June 30, 2014

December 31, 2013

 

June 30, 2014

June 30, 2013

 

June 30, 2014

December 31, 2013

 

June 30, 2014

December 31, 2013

 

June 30, 2014

June 30, 2013

                             

Sesamm

9,093

8,239

 

854

554

 

36%

36%

 

25,257

22,884

 

2,373

1,539

Águas de Andradina

1,124

1,087

 

37

86

 

30%

30%

 

3,746

3,622

 

124

287

Águas de Castilho

727

619

 

108

121

 

30%

30%

 

2,424

2,064

 

360

403

Saneaqua Mairinque

971

931

 

40

(29)

 

30%

30%

 

3,236

3,102

 

134

(97)

Attend Ambiental

1,975

2,707

 

(732)

(568)

 

45%

45%

 

4,389

6,016

 

(1,627)

(1,262)

Aquapolo Ambiental

8,880

9,506

 

(626)

(425)

 

49%

49%

 

18,122

19,400

 

(1,278)

(867)

Total

22,770

23,089

 

(319)

(261)

 

 

 

 

57,174

57,088

 

86

3

 

Other investments

588

571

 

 

 

 

 

 

 

 

 

 

 

 

 

Overall total

23,358

23,660

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11   Investment properties

 

On June 30, 2014, the balances of “Investment properties” are R$54,039 (December/2013 – R$54,039). On June 30, 2014 and December 31, 2013, the market value of these properties is approximately R$327,000 and R$296,000.

 

 

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ITR –– Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

12   Intangible Assets

 

(a)         Equity balances 

 

 

June 30, 2014

 

December 31, 2013

 

 

 

Accumulated

 

 

 

 

 

Accumulated

 

 

 

Cost

 

amortization

 

Net

 

Cost

 

amortization

 

Net

Intangible right arising from:

 

 

 

 

 

 

 

 

 

 

 

Agreements – equity value

8,544,897

 

(1,547,396)

 

6,997,501

 

8,578,886

 

(1,499,096)

 

7,079,790

Concession agreements – economic value

1,596,160

 

(367,420)

 

1,228,740

 

1,529,096

 

(342,950)

 

1,186,146

Program contracts

7,145,992

 

(1,958,017)

 

5,187,975

 

6,473,507

 

(1,804,940)

 

4,668,567

Program contracts – commitments

808,662

 

(92,281)

 

716,381

 

693,029

 

(79,709)

 

613,320

Services contracts – São Paulo

11,894,367

 

(1,624,212)

 

10,270,155

 

11,555,381

 

(1,430,778)

 

10,124,603

Software licenses

274,364

 

(44,171)

 

230,193

 

209,156

 

(35,351)

 

173,805

Total

30,264,442

 

(5,633,497)

 

24,630,945

 

29,039,055

 

(5,192,824)

 

23,846,231

 

(b)         Changes

 

 

December 31, 2013

 

Additions

 

Agreement renewal

 

Provision for write-off

 

Transfer to property and equipment

 

Write-offs and disposals

 

Amortization

 

June 30, 2014

Intangible assets arising from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agreements – equity value

7,079,790

 

263,110

 

(165,093)

 

(27,613)

 

(38,077)

 

(87)

 

(114,529)

 

6,997,501

Concession agreements – economic value

1,186,146

 

67,139

 

-

 

(49)

 

(43)

 

(6)

 

(24,447)

 

1,228,740

Program contracts

4,668,567

 

458,093

 

165,093

 

(4,354)

 

(176)

 

(191)

 

(99,057)

 

5,187,975

Program contracts – commitments

613,320

 

115,633

 

-

 

-

 

-

 

-

 

(12,572)

 

716,381

Services contracts – São Paulo

10,124,603

 

360,357

 

-

 

(18,276)

 

(56)

 

(1,339)

 

(195,134)

 

10,270,155

Software licenses

173,805

 

80,871

 

-

 

-

 

-

 

-

 

(24,483)

 

230,193

Total

23,846,231

 

1,345,203

 

-

 

(50,292)

 

(38,352)

 

(1,623)

 

(470,222)

 

24,630,945

 

 

In the first quarter of 2014, the Company renewed program contracts with municipalities of Itapevi, Jaborandi, Lucélia, Parapuã, Piedade and Rosana, and signed a program contract with the municipality of Diadema, all of them for a 30-year term. In the second quarter of 2014, the contract with municipality of Registro was renewed for 30 years.

 

 

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

 

(c)         Construction services

 

 

From April to June 2014

 

From January to June 2014

 

Water supply

 

Sewage services

 

Total

 

Water supply

 

Sewage services

 

Total

Construction revenue

280,864

 

397,885

 

678,749

 

498,964

 

711,012

 

1,209,976

Construction costs incurred

275,048

 

389,169

 

664,217

 

489,186

 

695,503

 

1,184,689

Margin

5,816

 

8,716

 

14,532

 

9,778

 

15,509

 

25,287

 

 

From April to June 2013

 

From January to June 2013

 

Water supply

 

Sewage services

 

Total

 

Water supply

 

Sewage services

 

Total

Construction revenue

276,904

 

379,940

 

656,844

 

492,591

 

659,862

 

1,152,453

Construction costs incurred

271,478

 

371,751

 

643,229

 

479,996

 

649,195

 

1,129,191

Margin

5,426

 

8,189

 

13,615

 

12,595

 

10,667

 

23,262

 

 

(d)         General information

 

During the period ended June 30, 2014 there were no relevant changes in the criteria to account for intangible assets and types of contracts. See further information in Note 13 (d) to the Financial Statements as of December 31, 2013.

 

The Company has obligations recorded in “Program Contract – Commitments” in current liabilities in the amount of R$128,505 and R$77,360 on June 30, 2014 and December 31, 2013, respectively) and noncurrent liabilities (in the amount of R$82,674 and R$88,678 on June 30, 2014 and December 31, 2013, respectively.

 

(e)         Capitalization of interest and other financial charges

 

From January to June 2014, the Company capitalized interest and inflation adjustment, including related foreign currency exchange effects, in concession intangible assets totaling R$74,718 with an average rate of 1.38% (R$167,791 from January to June 2013, with an average rate of 3.53%), during the period in which assets were recorded as works in progress.

 

(f)          Construction margin

 

The Company acts as a primary responsible to construct and install the infrastructure related to the concession, using own efforts or hiring outsourcing services, receiving the risks and benefits.

 

As a consequence, the Company recognizes revenue from construction service corresponding to the cost of construction increased by margin. Generally, the constructions related to the concessions are performed by third parties, in such case, the margin of the Company is lower, normally, to cover eventual administration costs, and the responsibility of the primary risk. On June 30, 2014 and 2013 the margin was 2.3%.

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

 

Construction margin for the second quarter of 2014 and 2013 was R$14,532 and R$13,615, respectively, and for the period from January to June 2014 and 2013 was R$25,287 and R$23,262.

 

(g)         Expropriations

 

As a result of the construction of priority projects related to water and sewage systems, the Company was required to expropriate or establish rights of way in third-parties' properties, and the owners of these properties will be compensated either amicably or through courts.

 

The assets received as a result of expropriations are recorded as concession intangible assets after the transaction is completed. From April to June 2014, the total amount related to expropriations was R$3,559 and for the period of January to June 2014 was R$7,526 (April to June 2013 – R$16,939 and January to June 2013 – R$20,771).

 

(h)         Public-Private-Partnership (PPP)

 

Alto Tietê Production System

 

The Company and the special purpose entity CAB-Sistema Produtor Alto Tietê S/A, formed by Galvão Engenharia S.A. and Companhia Águas do Brasil – Cab Ambiental, signed in June 2008 the contract of public-private-partnership of Alto Tietê production system.

 

The contract last 15 years which purpose is to expand the capacity of treated water of Taiaçupeba from 10 thousand to 15 thousand of liters per second, whose operation began in October 2011.

 

As of June 30, 2014 and December 31, 2013, the amounts recognized as intangible asset related to PPP were R$410,033 and R$415,619, respectively.

 

In relation to the obligations assumed by the Company on June 30, 2014 and December 31, 2013, the balances in current liabilities were R$21,043 and R$20,241 and under noncurrent liabilities were R$319,263 and R$322,267, respectively.

 

São Lourenço Production System

 

On April 10, 2014, the Company started the construction of the Água São Lourenço Production System, which will expand the São Paulo Metropolitan Region’s supply capacity by 4.7 thousand liters per second. This project will directly benefit 1.5 million people living in the cities of Barueri, Carapicuíba, Cotia, Itapevi, Jandira, Santana de Parnaíba and Vargem Grande Paulista. SABESP’s installed capacity is 73,000 liters of treated water per second. The new system will expand this capacity to 77.7 thousand liters per second. The project has been carried out by means of a Public-Private Partnership. The services agreement, signed in August 2013, has 25-year term, aiming the rendering of dehydration, drying and sludge final disposal, works and maintenance services of the production system, and the estimated amount of R$6.0 billion, with an investment estimated at R$2.21 billion fully made by the Special Purpose Entity referred to as São Lourenço S/A Production System, whose shareholders are Construções e Comércio Camargo Corrêa and Construtora Andrade Gutierrez.

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

 

(i)          Works in progress

 

The amount of R$5,579 million is recorded as intangible assets from works in progress on June 30, 2014 (R$6,498 million in December 2013), and most of works are located in the following municipalities:

 

 

June 30, 2014

 

December 31, 2013

São Paulo

3,107

 

3,201

Praia Grande

258

 

294

Itanhaém

240

 

215

São José dos Campos

208

 

187

Guarujá

198

 

196

Peruíbe

114

 

267

Other

1,454

 

2,138

 

 

 

 

Total

5,579

 

6,498

 

(j)          Amortization of intangible assets

 

The amortization average rate totaled 3.9% and 4.0% on June 30, 2014 and 2013, respectively.

 

(k)          Software license of use

 

The software license of use is capitalized based on the costs incurred to acquire software and make them ready for use. In the first quarter of 2013, the Company started to implement an integrated business management solution (ERP system), where administrative/financial module is expected to have its go live for the second half of 2014 and the commercial module for the first quarter of 2015.

 

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Notes to the Interim Financial Information

 

Version: 1

 

 

13   Property, Plant and Equipment

 

(a)         Equity balances

 

 

June 30, 2014

 

December 31, 2013

 

 

 

Accumulated

 

 

 

 

 

Accumulated

 

 

 

Cost

 

depreciation

 

Net

 

Cost

 

depreciation

 

Net

 

 

 

 

 

 

 

 

 

 

 

Land

88,332

 

-

 

88,332

 

88,332

 

-

 

88,332

Buildings

70,348

 

(31,107)

 

39,241

 

54,187

 

(30,233)

 

23,954

Equipment

272,707

 

(138,855)

 

133,852

 

202,498

 

(130,665)

 

71,833

Transportation equipment

14,291

 

(6,214)

 

8,077

 

13,856

 

(5,961)

 

7,895

Furniture, fixtures and equipment

17,113

 

(9,958)

 

7,155

 

17,060

 

(10,239)

 

6,821

Other

1,063

 

(545)

 

518

 

1,201

 

(540)

 

661

 

463,854

 

(186,679)

 

277,175

 

377,134

 

(177,638)

 

199,496

 

(b)         Changes

 

 

December 31, 2013

 

Additions

 

Transfer of intangible assets

 

Write-offs and disposals

 

Depreciation

 

June 30, 2014

Land

88,332

 

-

 

-

 

-

 

-

 

88,332

Buildings

23,954

 

14,823

 

1,109

 

-

 

(645)

 

39,241

Equipment

71,833

 

34,942

 

38,276

 

(161)

 

(11,038)

 

133,852

Transportation equipment

7,895

 

1,241

 

(517)

 

-

 

(542)

 

8,077

Furniture, fixtures and equipment

6,821

 

755

 

(4)

 

(17)

 

(400)

 

7,155

Other

661

 

374

 

(512)

 

-

 

(5)

 

518

 

199,496

 

52,135

 

38,352

 

(178)

 

(12,630)

 

277,175

 

(c)         Depreciation

 

The Company annually revises the depreciation rates of: buildings - 2%; equipment- 10%; transportation equipment - 10% and furniture, fixture and equipment - 6.7%. Lands are not depreciated.

 

The depreciation average rate was 11.5% and 10.5%, on June 30, 2014 and 2013, respectively.

 

 

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Notes to the Interim Financial Information

Version: 1

 

14   Loans and Financing

 

 Loans and financing outstanding balance

June 30, 2014

December 31, 2013

Financial institution

 

Current

 

Noncurrent

 

Total

 

Current

 

Noncurrent

 

Total

DOMESTIC CURRENCY

 

 

 

 

 

 

Banco do Brasil

-

-

-

100,497

-

100,497

10th issuance debentures

37,722

211,433

249,155

37,171

220,109

257,280

12th issuance debentures

45,455

453,934

499,389

22,727

476,702

499,429

14th issuance debentures

36,755

249,254

286,009

20,079

269,862

289,941

15th issuance debentures

94,819

748,825

843,644

-

820,887

820,887

16th issuance debentures

-

499,518

499,518

-

499,434

499,434

17 th issuance debentures

-

1,053,545

1,053,545

-

1,027,925

1,027,925

18 th issuance debentures

-

164,392

164,392

-

160,859

160,859

19 th issuance debentures

-

497,497

497,497

-

-

-

Brazilian Federal Savings Bank

70,317

995,096

1,065,413

83,267

959,853

1,043,120

Brazilian Development Bank - BNDES BAIXADA SANTISTA

16,309

73,392

89,701

16,309

81,546

97,855

Brazilian Development Bank - BNDES PAC

10,411

83,287

93,698

9,370

79,644

89,014

Brazilian Development Bank - BNDES PAC II 9751

3,360

28,760

32,120

2,308

29,192

31,500

Brazilian Development Bank - BNDES PAC II 9752

425

19,975

20,400

-

20,400

20,400

Brazilian Development Bank - BNDES ONDA LIMPA

19,230

187,219

206,449

19,230

196,821

216,051

Brazilian Development Bank - BNDES TIETE III

-

98,412

98,412

-

98,404

98,404

Leasing

8,050

426,194

434,244

-

382,492

382,492

Others

530

2,266

2,796

498

2,431

2,929

Interest and charges

88,685

-

88,685

113,504

-

113,504

TOTAL IN DOMESTIC CURRENCY

432,068

5,792,999

6,225,067

424,960

5,326,561

5,751,521

 

 

Page 49 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR –– Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 Loans and financing outstanding balance

June 30, 2014

December 31, 2013

Financial institution

 

Current

 

Noncurrent

 

Total

 

Current

 

Noncurrent

 

Total

FOREIGN CURRENCY

 

 

 

 

 

 

Inter-American Development Bank - IDB 713 - US$87,842 thousand ( US$100,391 thousand in December 2013)

55,278

138,192

193,470

58,794

176,382

235,176

Inter-American Development Bank - IDB 896 - US$6,945 thousand (US$8,333 thousand in December 2013)

6,118

9,177

15,295

6,507

13,014

19,521

Inter-American Development Bank - IDB 1212 - US$118,198 thousand (US$123,337 thousand in December 2013)

22,638

237,694

260,332

24,077

264,854

288,931

Inter-American Development Bank - IDB 2202 - US$294,323 thousand (US$243,687 thousand in December 2013)

-

640,930

640,930

-

564,443

564,443

International Bank for Reconstruction and Development -IBRD - US$45,860 thousand (US$37,335 thousand in December 2013)

-

100,631

100,631

-

87,077

87,077

Eurobonds - US$140,000 thousand (US$140,000 thousand in December 2013)

-

308,082

308,082

-

327,640

327,640

Eurobonds - US$350,000 thousand (US$350,000 thousand in December 2013)

-

765,060

765,060

-

813,650

813,650

JICA 15 ¥17,862,665 thousand (¥ 18,438,880 thousand in December 2013)

25,065

363,448

388,513

25,733

386,007

411,740

JICA 18 - ¥ 16,060,480 thousand (¥ 16,578,560 thousand in December 2013)

22,536

326,461

348,997

23,137

346,733

369,870

JICA 17 - ¥ 706,389 thousand (¥ 450,484 thousand in December 2013)

-

14,955

14,955

-

9,704

9,704

JICA 19 - ¥ 9,170,890 thousand (¥ 6,036,325 thousand in December 2013)

-

198,390

198,390

-

134,010

134,010

BID 1983AB - US$154,231 thousand (US$178,173 thousand in December 2013)

52,733

284,807

337,540

56,087

359,059

415,146

Interest and charges

21,462

-

21,462

21,645

-

21,645

TOTAL IN FOREIGN CURRENCY

205,830

3,387,827

3,593,657

215,980

3,482,573

3,698,553

TOTAL LOANS AND FINANCING

637,898

9,180,826

9,818,724

640,940

8,809,134

9,450,074

 

Quote on June 30, 2014 US$2.2025; ¥0.021750 (US$2.3426; ¥0.022330 on December 31, 2013)

On June 30, 2014, the Company did not record balances of loans and financing raised in 2013 to mature within 12 months.

 

 

 

 

 

Page 50 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR –– Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

 

GUARANTEES

MATURITY

ANNUAL INTEREST RATES

INFLATION ADJUSTMENT

DOMESTIC CURRENCY

 

 

 

 

Banco do Brasil

SÃO PAULO STATE GOVERNMENT AND OWN FUNDS

2014

8.50%

TR

10th issuance debentures

OWN FUNDS

2020

TJLP +1.92% (series 1 and 3) and 9.53% (series 2)

IPCA (series 2)

12th issuance debentures

OWN FUNDS

2025

TR + 9.5%

 

14th issuance debentures

OWN FUNDS

2022

TJLP +1.92% (series 1 and 3) and 9.19% (series 2)

IPCA (series 2)

15th issuance debentures

OWN FUNDS

2019

CDI + 0.99% (series 1) and 6.2% (series 2)

IPCA (series 2)

16th issuance debentures

OWN FUNDS

2015

CDI + 0.30% to 0.70%

 

17 th issuance debentures

OWN FUNDS

2023

CDI +0.75 (series 1) and 4.5% (series 2) and+4.75% (series 3)

IPCA (series 2 and 3

18 th issuance debentures

OWN FUNDS

2024

TJLP + 1.92 % (series 1 and 3)and 8.25% (series 2)

IPCA (series 2)

19 th issuance debentures

OWN FUNDS

2017

CDI + 0.80% to 1.08%

 

Brazilian Federal Savings Bank

OWN FUNDS

2013/2032

6.8% (weighted)

TR

Brazilian Development Bank - BNDES BAIXADA SANTISTA

OWN FUNDS

2019

2.5% + TJLP

 

Brazilian Development Bank - BNDES PAC

OWN FUNDS

2023

2.15% + TJLP

 

Brazilian Development Bank - BNDES PAC II 9751

OWN FUNDS

2027

1.72%+TJLP

 

Brazilian Development Bank - BNDES PAC II 9752

OWN FUNDS

2027

1.72%+TJLP

 

Brazilian Development Bank - BNDES ONDA LIMPA

OWN FUNDS

2025

1.92% + TJLP

 

Brazilian Development Bank - BNDES TIETE III

OWN FUNDS

2025

1.66% + TJLP

 

Leasing

OWN FUNDS

2035

7.73% to 10.12%

IPC

Others

OWN FUNDS

2015/2018

TJLP + 2% (Fehidro) and 12% (Presidente Prudente)

TR

 

 

 

Page 51 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR –– Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

GUARANTEES

MATURITY

ANNUAL INTEREST

FOREIGN EXCHANGE ADJUSTMENT

FOREIGN CURRENCY

 

 

 

 

Inter-American Development Bank - IDB 713

FEDERAL GOVERNMENT

2016

2.68%

US$

Inter-American Development Bank - IDB 896

FEDERAL GOVERNMENT

2017

3.00%

US$

Inter-American Development Bank - IDB 1212

FEDERAL GOVERNMENT

2025

2.51%

US$

Inter-American Development Bank - IDB 2202

FEDERAL GOVERNMENT

2035

1.17%

US$

International Bank for Reconstruction and Development - IBRD

FEDERAL GOVERNMENT

2034

0.40%

US$

Eurobonds

2016

7.50%

US$

Eurobonds

2020

6.25%

US$

JICA 15

FEDERAL GOVERNMENT

2029

1.8% and 2.5%

Yen

JICA 18

FEDERAL GOVERNMENT

2029

1.8% and 2.5%

Yen

JICA 17

FEDERAL GOVERNMENT

2035

1.2% and 0.01%

Yen

JICA 19

FEDERAL GOVERNMENT

2037

1.7% and 0.01%

Yen

BID 1983AB

2023

2.49% to 2.99%

US$

                                     

 

 

 

Page 52 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR –– Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

(i)           Payment schedule – accounting balances

 

 

2014

2015

2016

2017

2018

2019

2020 to 2037

TOTAL

IN DOMESTIC CURRENCY

 

 

 

 

 

 

 

 

Debentures

60,449

714,268

356,501

875,151

563,224

634,994

888,562

4,093,149

Brazilian Federal Savings Bank

36,677

65,518

65,686

68,957

72,777

76,023

679,775

1,065,413

BNDES

24,634

50,669

57,300

59,355

59,355

59,356

230,111

540,780

Leasing

8,036

16,603

17,363

18,188

19,083

20,055

334,916

434,244

Other

291

597

668

715

525

-

-

2,796

Interest and other charges

61,475

27,210

-

-

-

-

-

88,685

TOTAL IN DOMESTIC CURRENCY

191,562

874,865

497,518

1,022,366

714,964

790,428

2,133,364

6,225,067

IN FOREIGN CURRENCY

 

 

 

 

 

 

 

 

IDB

42,017

84,033

84,033

112,033

56,756

56,756

674,399

1,110,027

IBRD

-

-

-

-

-

3,367

97,264

100,631

Eurobonds

-

-

308,082

-

-

-

765,060

1,073,142

JICA

23,801

47,602

47,602

48,015

48,429

59,211

676,195

950,855

IDB 1983AB

-

52,733

52,733

52,733

52,399

38,967

87,975

337,540

Interests and other charges

21,462

-

-

-

-

-

-

21,462

TOTAL IN FOREIGN CURRENCY

87,280

184,368

492,450

212,781

157,584

158,301

2,300,893

3,593,657

Overall Total

278,842

1,059,233

989,968

1,235,147

872,548

948,729

4,434,257

9,818,724

 

 

 

 

 

Page 53 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR –– Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

(i)                Main events in the quarter

 

On June 30, 2014, the Company held the 19th issuance of simple, unsecured debentures, not convertible into shares, in a single series, for public distribution, totaling R$500,000, in the number of 50,000 debentures, with a unit value of R$10, whose characteristics are as follows:

 

 

Number

 

Update

 

Interest rates

 

Payment of interest rates

 

Amortization

 

Maturity

 

 

 

 

 

 

 

 

 

 

 

 

Single series

50,000

 

-

 

DI+ 0.80% at 1.08% p.a.

 

Half-yearly (June and December)

 

Lump sum

 

June 2017

 

The proceeds raised by the 19th Issue of Debentures will be allocated to pay the Company’s financial commitments.

 

(ii)             Covenants

 

Some loan and financial agreements have clauses related to meeting certain financial ratios with quarterly or yearly evidence. These covenants are the same disclosed in Note 15 to the Annual Financial Statements as of December 31, 2013.

 

19th Issue of Debentures

 

The indicators are calculated on a quarterly basis, upon the disclosure of the interim or annual financial statements:

 

Total Adjusted Debt in relation to EBITDA must be less than or equal to 3.65;

EBITDA in relation to the financial expenses paid must be equal to or higher than 1.5; and

Decrease in Net Revenue not exceeding 25%, due to termination of license, loss of concession or loss of capacity to execute and operate basic sanitation public utilities, considered severally or jointly.

The Company’s failure to comply with the indicators will result in the early maturity of agreement.

 

The agreement has a cross default clause, i.e., the early maturity of any Company’s debt, in the individual or aggregate amount equal to or higher than one hundred and twenty thousand reais (R$120,000) due to contractual default, the occurrence of which may impact the compliance with the Company’s financial obligations deriving from the Issue, will result in the early maturity of this agreement.

 

On June 30, 2014, the Company had met the requirements set forth by its loan and financing agreement.

 

(a)         Leasing

 

The Company has lease agreements signed as Financial Lease. During the construction period, works are capitalized to intangible assets in progress and the lease amount is recorded at the same proportion. Works are estimated to be concluded in 2014 and 2015.

 

After startup, the lease payment period starts (240 monthly installments), whose amount is periodically restated by contracted price index.

 

On August 31, 2013, the operation of SES Campo Limpo Paulista and Várzea Paulista started and the corresponding amount for June 30, 2014 and December 31, 2013 is R$141,504 and R$144,384, respectively.

 

 

Page 54 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR –– Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

On March 22, 2014, ETE Campos do Jordão started operations and the corresponding amount on June 30, 2014 is R$136,834.

 

(b) Loans and financing contracted and not yet used

 

SABESP in order to comply with its Capex plan relies on a fund-raising plan.

 

Financing resources contracted have specific purposes, which have been released for the execution of their respective investments, according to the progress of the works.

 

Agent

 

June 30, 2014

 

 

(in millions of reais (*))

Brazilian Federal Savings Bank

 

2,513

Japan International Cooperation Agency – JICA

 

651

Inter-American Development Bank – BID

 

673

Brazilian Development Bank – BNDES

 

2,075

International Bank for Reconstruction and Development - IBRD

 

119

Others

 

46

TOTAL

 

6,077

 

(*) Closing quote of 6/30/2014. (US$1.00 = R$2.2025; ¥ 1.00 = R$0.02175).

 

On June 30, 2014, new financing agreements were entered into with BNDES, totaling R$61,143 and with CEF, totaling R$320,804.

 

 

15   Taxes Payable

 

(a)              Current assets

 

 

June 30, 2014

 

December 31, 2013

 

Recoverable taxes

 

 

 

 

Cofins and Pasep

3,336

 

-

 

Income tax and social contribution

82,294

 

79,548

 

Withholding income tax (IRRF) on financial investments

2,151

 

2,437

 

Other federal taxes

634

 

4,764

 

Other municipal taxes

512

 

656

 

Total recoverable taxes

88,927

 

87,405

 

 

 

 

Page 55 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR –– Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

(b)              Current liabilities

 

Taxes and contributions payable

June 30, 2014

 

December 31, 2013

Cofins and Pasep

-

 

21,797

INSS (Social Security contribution)

31,671

 

30,822

IRRF (withholding income tax)

1,469

 

39,330

Other

20,148

 

23,433

Total

53,288

 

115,382

 

The decrease in taxes payable of current liabilities mainly derives from the payment of withholding income tax over interest on shareholders’ equity in 2013 and Cofins and Pasep recoverable relative to previous periods.

 

 

16   Deferred Taxes and Contributions

 

(a)              Equity balances

 

 

June 30, 2014

 

December 31, 2013

Deferred income tax assets

 

 

 

Provisions

499,261

 

506,568

Pension obligations – G0 (1)

85,271

 

85,271

Pension obligations – G1

222,468

 

215,187

Actuarial gain/loss –G1 Plan

(32,405)

 

(32,405)

Donations of underlying assets on concession agreements

43,999

 

43,901

Allowance for loan losses

179,873

 

172,482

Other

112,488

 

87,266

Total deferred tax assets

1,110,955

 

1,078,270

 

 

 

 

 

 

 

 

Deferred income tax liabilities

 

 

 

Temporary difference on concession intangible assets

(579,508)

 

(595,285)

Capitalization of borrowing costs

(210,463)

 

(200,343)

Profit on supply to governmental entities

(81,574)

 

(81,711)

Other

(95,970)

 

(86,901)

Total deferred tax liabilities

(967,515)

 

(964,240)

 

 

 

 

Deferred tax asset, net

143,440

 

114,030

 

(1)    Refers to the installment of R$250,798 from accounts receivable adjustment (GESP), which was accrued as loss in previous years.

 

 

 

Page 56 of 78


 
 

(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR –– Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

(b)         Changes

 

 

December 31, 2013

 

Net Variation in Profit or Loss

 

June 30, 2014

Deferred income tax assets

 

 

 

 

 

Provisions

506,568

 

(7,307)

 

499,261

Pension obligations – G0

85,271

 

-

 

85,271

Pension obligations – G1

215,187

 

7,281

 

222,468

Actuarial gain/loss –G1

(32,405)

 

-

 

(32,405)

Donations of underlying assets on concession agreements

43,901

 

98

 

43,999

Credit losses

172,482

 

7,391

 

179,873

Other

87,266

 

25,222

 

112,488

Total

1,078,270

 

32,685

 

1,110,955

Deferred income tax liabilities

 

 

 

 

 

Temporary difference on concession intangible assets

(595,285)

 

15,777

 

(579,508)

Capitalization of borrowing costs

(200,343)

 

(10,120)

 

(210,463)

Profit on supply to governmental entities

(81,711)

 

137

 

(81,574)

Other

(86,901)

 

(9,069)

 

(95,970)

Total

(964,240)

 

(3,275)

 

(967,515)

 

 

 

 

 

 

Deferred tax asset, net

114,030

 

29,410

 

143,440

 

 

December 31, 2012

 

Net Variation in Profit or Loss

 

June 30, 2013

Deferred tax assets

 

 

 

 

 

Provisions

512,107

 

4,583

 

516,690

Pension obligations – G0

85,271

 

-

 

85,271

Pension obligations - G1

193,125

 

11,674

 

204,799

Actuarial gains(losses)– G1

9,405

 

-

 

9,405

Donations of underlying assets on concession agreements

41,312

 

104

 

41,416

Credit losses

162,670

 

6,414

 

169,084

Other

97,425

 

(11,575)

 

85,850

Total

1,101,315

 

11,200

 

1,112,515

 

Deferred tax liabilities

 

 

 

 

 

Temporary difference on intangible asset concession

(650,093)

 

35,456

 

(614,637)

Capitalization of borrowing costs

(158,298)

 

(45,120)

 

(203,418)

Profit on supply to governmental entities

(77,827)

 

(2,928)

 

(80,755)

Other

(69,795)

 

(8,238)

 

(78,033)

Total

(956,013)

 

(20,830)

 

(976,843)

 

 

 

 

 

 

Deferred tax assets, net

145,302

 

(9,630)

 

135,672

 

 

 

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(CONVENIENCE TRANSLATION INTO ENGLISH FROM THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

ITR –– Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

(c)    Reconciliation of the effective tax rate

 

The amounts recorded as income and social contribution tax expenses in the financial statements are reconciled to the statutory rates, as shown below:

 

 

April to June 2014

 

January to June 2014

 

April to June 2013

 

January to June 2013

Profit before income taxes

422,765

 

1,162,789

 

508,908

 

1,271,359

Statutory rate

34%

 

34%

 

34%

 

34%

 

 

 

 

 

 

 

Estimated expenses at statutory rate

(143,740)

 

(395,348)

 

(173,029)

 

(432,262)

Tax benefit from interest on shareholders’ equity

27,411

 

27,411

 

27,268

 

27,268

Permanent differences

 

 

 

 

 

 

 

Provision - Law 4,819/58 (i)

(13,129)

 

(25,787)

 

(8,944)

 

(18,263)

Donations

(2,201)

 

(4,373)

 

(3,818)

 

(4,877)

Other differences

11,316

 

15,316

 

11,284

 

14,646

 

 

 

 

 

 

 

Income tax and social contribution

(120,343)

 

(382,781)

 

(147,239)

 

(413,488)

 

 

 

 

 

 

 

Current income tax and social contribution

(135,474)

 

(412,191)

 

(116,317)

 

(403,858)

Deferred income tax and social contribution

15,131

 

29,410

 

(30,922)

 

(9,630)

Effective rate

28%

 

33%

 

29%

 

33%

 

 

 

 

 

 

 

 

(i)           Permanent difference related to the provision for actuarial liability (Note 18 (b) (iii)).

 

 

(d)   Transition Tax Regime (RTT)

 

For the purposes of calculating the income tax and the social contribution related to 2009 and 2008, the Company opted to adopt the Transition Tax Regime (RTT), which allow eliminate the accounting effects of the Law 11,638/07 and the Provisional Presidential Decree 449/08, converted into Law No. 11,941/2009, by the registers in the fiscal books – LALUR and auxiliary controls, without any modification in the bookkeeping.

 

The Company has been adopting the same tax practices since 2008, as RTT started to be mandatory.

 

(e)              Law 12,973/2014

 

On May 13, 2014, the Provisional Presidential Decree 627 of November 11, 2013 was converted into Law 12,973, which amend the federal tax laws related to the Corporate Income Tax - IRPJ, Social Contribution on Net Income - CSLL, Contribution to PIS/Pasep and Contribution to Social Security Financing– Cofins and revokes the Tax Transition System- RTT, enacted by Law No.11,941 of May 27, 2009.

 

Pursuant to this law, each legal entity may adopt the rules as of January 1, 2014, an option of which shall be irreversibly expressed to the Federal Revenue Service, except for Articles 3, 72 to 75 and 93 to 119, which are in force as of the publication date. The Company has decided not to adopt such anticipated option.

 

The analyses prepared by the Company do not show relevant impacts on its operations and on its accounting information for the period ended June 30, 2014.

 

 

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ITR –– Quarterly Information Form – June 30, 2014 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

 

17   Provisions

 

                (a)   Lawsuits with probable likelihood of loss

 

(i) Financial position balances

 

The Company is party to a number of claims and legal proceedings arising in the normal course of business, including civil, tax, labor and environmental matters. Management, recognized provisions at an amount considered sufficient to cover probable losses. These provisions, net of escrow deposits are as follows:

 

 

 

Provisions

 

Escrow deposits

 

June 30, 2014

 

Provisions

 

Escrow deposits

 

December 31, 2013

Customer claims (i)

658,317

 

(115,015)

 

543,302

 

621,999

 

(110,384)

 

511,615

Supplier claims (ii)

262,615

 

(189,727)

 

72,888

 

340,100

 

(183,606)

 

156,494

Other civil claims (iii)

109,722

 

(9,459)

 

100,263

 

129,400

 

(11,965)

 

117,435

Tax claims (iv)

53,273

 

-

 

53,273

 

59,659

 

(1,956)

 

57,703

Labor claims (v)

168,262

 

(1,962)

 

166,300

 

156,060

 

(1,614)

 

154,446

Environmental claims (vi)

216,225

 

-

 

216,225

 

182,689

 

-

 

182,689

 

 

 

 

 

 

 

 

 

 

 

 

Total

1,468,414

 

(316,163)

 

1,152,251

 

1,489,907

 

(309,525)

 

1,180,382

 

 

 

 

 

 

 

 

 

 

 

 

Current

549,285

 

-

 

549,285

 

631,374

 

-

 

631,374

Noncurrent

919,129

 

(316,163)

 

602,966

 

858,533

 

(309,525)

 

549,008

 

 

(ii) Changes

 

December 31, 2013

Additional provisions

Interest and inflation adjustment

Amounts from provision

Amounts not used

(reversal)

June 30, 2014

Customer claims (i)

621,999

27,445

51,245

(26,250)

(16,122)

658,317

Supplier claims (ii)

340,100

1,198

10,285

(65,937)

(23,031)

262,615

Other civil claims (iii)

129,400

12,435

12,760

(10,794)

(34,079)

109,722

Tax claims (iv)

59,659

620

4,293

(2,041)

(9,258)

53,273

Labor claims (v)

156,060

37,462

9,994

(24,255)

(10,999)

168,262

Environmental claims (vi)

182,689

33,903

10,691

-

(11,058)

216,225

Subtotal

1,489,907

113,063

99,268

(129,277)

(104,547)

1,468,414

Escrow deposits

(309,525)

(16,395)

(12,317)

22,074

-

(316,163)

Total

1,180,382

96,668

86,951

(107,203)

(104,547)

1,152,251

 

 

 

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Notes to the Interim Financial Information

Version: 1

 

 

 

(b)         Lawsuits with possible likelihood of loss

 

The Company is party to lawsuits and administrative proceedings relating to environmental, tax, civil and labor claims, which are assessed by Management whose chances of loss are possible and are not recorded. Liability contingencies classified as possible loss represent the amount of approximately R$3,717,100 on June 30, 2014 (R$3,244,500 in December 2013).

 

                (c)         Explanation on the nature of main classes of lawsuits

 

(i)                Customer claims

 

Approximately 1,300 lawsuits were filed by commercial customers, which claim that their tariffs should correspond to other consumer categories, and 720 lawsuits which claim a reduction in the sewage tariff due to losses in the system, consequently requesting the refund of amounts charged by the Company. The Company was granted both favorable and unfavorable final decisions at several court levels and recognized provisions when the chances of losses are probable. The R$31,687 increase in the lawsuits classified as probable loss (net of escrow deposits) is related to new lawsuits filed and interest rates, fees and updates of lawsuits in progress, partially offset by payments made in the year and revisions of expectations caused by favorable decisions during 2014.

 

(ii)             Supplier claims

 

Suppliers’ claims include lawsuits filed by some suppliers alleging underpayment of monetary restatements, withholding of amounts related to the understated inflation rates deriving from Real economic plan, and the economic and financial imbalance of the agreements. These lawsuits are in progress at different courts and a provision is recognized when the chances of losses are probable. The R$83,606 decrease in lawsuits whose likelihood of loss is considered probable (net of escrow deposits) is mainly related payments made during 2014.

 

(iii)           Other civil claims

 

These mainly refer to indemnities for property damage, pain and suffering, and loss of profits allegedly caused to third parties, filed at different court levels, dully accrued when classified as probable losses. The R$17,172 decrease in lawsuits with probable chances of loss (net of escrow deposits) was mainly due to shelving of several lawsuits and revisions of expectations caused by favorable decisions to the Company during 2014.

 

(iv)            Tax claims

 

Tax claims refers mainly to issues related to tax collections challenged due to differences in the interpretation of legislation by the Company's management, accrued when classified as probable loss. The decrease of R$4,430 in lawsuits with expectation of probable losses (net of escrow deposits) was mainly due to favorable decisions to the Company.

 

(v)               Labor claims

 

The Company is a party to labor lawsuits, involving issues such as overtime, shift schedule, health hazard premium and hazardous duty premium, prior notice, change of function, salary equalization, and other. Part of the amount involved is in provisional or final execution at various court levels, and thus is classified as of probable or possible loss. The Company recognized a provision for claims which likelihood of loss is considered probable. The R$11,854 increase in lawsuits with probable chances of losses (net of escrow deposits) is related to new lawsuits filed and interest rates, fees and updates of lawsuits in progress.

 

 

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Notes to the Interim Financial Information

Version: 1

 

 

 

(vi)            Environmental claims

 

Environmental claims refer to several administrative proceedings and lawsuits filed by government entities, including Companhia de Tecnologia de Saneamento Ambiental – Cetesb, Public Prosecution Office of the State of São Paulo and others, that aim affirmative and negative covenants and penalty is estimated due to failure to comply in addition to the imposition of indemnity due to environmental damages allegedly caused by the Company. The amounts accrued represent the best estimate of the Company at this moment, however, may differ from the amount to be disbursed as indemnity to alleged damages, in view of the current stage of referred proceedings. The R$33,536 increase in lawsuits with expectation of probable losses (net of escrow deposits) is mainly related to the complementary estimates of lawsuits, agreements in progress and new lawsuits filed during the period of 2014.

 

 

18   Employee Benefits

 

(a)         Health benefit plan

 

The health benefit plan is managed by Fundação Sabesp de Seguridade Social - SABESPREV and consists of optional, free choice, health plans sponsored by contributions of SABESP and the active participants, as follows:

 

.     Company: 7.3 % on average, of gross payroll;

 

.     Participating employees - 3.21% of base salary and premiums, equivalent to 2.1% of payroll, on average.

 

(b)         Pension plan benefits

 

Amounts recorded in the statement of financial position

 

 

Funded plan – G1

 

 

Pension plan liabilities on December 31, 2013

 

546,748

Expenses recognized in 2014

 

32,181

Payments made in 2014

 

(10,767)

Pension plan liabilities on June 30, 2014 (i)

 

568,162

 

 

 

Unfunded plan – G0

 

 

Pension plan liabilities on December 31, 2013

 

1,780,268

Expenses recognized in 2014

 

112,466

Payments made in 2014

 

(68,057)

Pension plan liabilities on June 30, 2014 (iii)

 

1,824,677

 

 

 

Total

 

2,392,839

 

 

 

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Notes to the Interim Financial Information

Version: 1

 

 

 

(i)          Plan G1

 

The Company sponsors a defined benefit pension plan for its employees ("Plan G1"), which is managed by Fundação SABESP de Seguridade Social – SABESPREV, the defined benefit plan is sponsored by similar contributions established in a plan of subsidy of actuarial study of SABESPREV, as follows:

 

·         1.19% of the portion of the salary of participation up to 20 salaries; and

·         10.13% of the surplus, if any, of the portion of the salary of participation over 20 salaries.

 

As of June 30, 2014, SABESP had a net actuarial liability of R$568,162 (R$546,748 in December 2013) representing the difference between the present value of the Company's defined benefit obligations to the participating employees, retired employees, and pensioners; the fair value of the related assets.

 

(ii)        Private pension plan benefits – Defined contribution

 

On June 30, 2014, Sabesprev Mais plan, based on defined contribution, had 5,256 (5,267 in December 2013) active and assisted participants.

 

With respect to the Sabesprev Mais plan, the contributions from the sponsor represent 100% over the total basic contribution from the participants.

 

On June 30, 2014, the commitment to all participants who migrated to the Sabesprev Mais plan amounted to R$9,958 (R$10,613 in December 2013) referred to active participants.

 

(iii)          Plan G0

 

Pursuant to Law 4,819/58, employees who started services prior to May 1974 and were retired as an employee of the Company acquired a legal right to receive supplemental pension payments, which rights are referred as "Plan G0". The Company pays these supplemental benefits on behalf of the State Government and makes claims for reimbursements from the State Government, which are recorded as accounts receivable from shareholder, limited to the amounts considered virtually certain that will be reimbursed by the State Government. As of June 30, 2014, the Company recorded a defined benefit obligation for Plan G0 of R$1,824,677 (R$1,780,268 in December 2013).

 

(c)         Profit sharing

 

The Company recorded as reference to the 2014 Profit Sharing Program, the amount corresponding to one-month salary for each employee, depending on the establishment goals. In the second quarter of 2014, R$19,304 was accrued (second quarter of 2013 – R$18,380). From January to June 2014 and 2013, R$36,516 and R$34,054, respectively were accrued.

 

 

19   Services payable

 

The services account records the balances payable, mainly from services received from third parties, such as supply of electric power, reading of hydrometers and delivery of water and sewage bills, cleaning, surveillance and security services, collection, legal counsel services, audit, marketing and advertising and consulting services, among others. This account also records the amounts payable from the percentage in the revenues of São Paulo local government. The balances on June 30, 2014 and December 31, 2013 were R$334,123 and R$323,208, respectively.

 

 

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Notes to the Interim Financial Information

Version: 1

 

 

 

20   Equity

 

(a)              Authorized capital

 

The Company is authorized to increase capital by up to R$15,000,000 (R$10,000,000 in December 2013), based on a Board of Directors' resolution, after submission to the Fiscal Council.

 

In the event of capital increase, issue of convertible debentures and/or warrants by means of private subscription, shareholders will have preemptive right in the proportion of number of shares held, pursuant to Article 171 of Law 6.404/76.

 

(b)              Subscribed and paid-in capital

 

Subscribed and paid-in capital is represented by 683,509,869 registered, book-entry common shares without par value as of June 30, 2014 (683,509,869 in December 2013) held as follows:

 

 

June 30, 2014

 

December 31, 2013

 

Number of shares

 

%

 

Number of shares

 

%

State Department of Finance

343,524,285

 

50.26%

 

343,524,258

 

50.26%

Brazil Clearing and Depository Corporation - CBLC

163,560,475

 

23.93%

 

174,076,755

 

25.47%

The Bank Of New York ADR Department (equivalent in shares) (*)

175,816,202

 

25.72%

 

165,291,202

 

24.18%

Other

608,907

 

0.09%

 

617,654

 

0.09%

 

 

 

 

 

 

 

 

 

683,509,869

 

100.00%

 

683,509,869

 

100.00%

(*)           Each ADR corresponds to 1 share.

 

The following was approved at the Annual and Extraordinary Shareholders’ Meetings held on April 30, 2014:

·     the distribution of dividends as interest on shareholders’ equity amounting to R$537,465;

·     the capital increase from R$6,203,688 to R$10,000,000, due to the capitalization of part of profit reserve and total capital reserve, totaling R$3,672,057 and R$124,255, respectively; and,

·     regardless of Bylaws amendment, the capital stock may be increased up to the maximum limit of R$15,000,000, by means of the Board of Directors’ resolution and previously hearing the fiscal council.

 

The payment of interest on shareholders’ equity in the amount of R$499,768, net of withholding income tax of R$37,697, totaling R$537,465, started in June 2014, with the amount of R$467,438 paid.

 

Further information about equity, such as shareholder’ compensation, dividends and purpose of reserves, can be found in Note 21 to the Annual Financial Statements as of December 31, 2013.

 

 

21   Earnings per Share

 

Basic and diluted

 

Basic earnings per share is calculated by dividing the income attributable to the Company’s shareholders by the weighted average number of outstanding common shares during the year. The Company does not have potentially dilutive common shares outstanding or debts convertible into common shares. Accordingly, basic and diluted earnings per share are equal.

 

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Notes to the Interim Financial Information

Version: 1

 

 

 

 

January to June 2014

 

January to June 2013

 

 

 

 

 

 

Income attributable to the Company’s shareholders

780,008

 

857,871

 

Weighted average number of common shares issued

683,509,869

 

683,509,869

(*)

 

 

 

 

 

Basic and diluted earnings per share (reais per share)

1.14118

 

1.25510

 

 

(*) Amount restated due to the split occurred on April, 22, 2013.

 

 

22   Business segment information     

 

Management, comprised by the Board of Directors and the Board of Executive Officers, has determined the operating segments used to make strategic decisions, as water supply and sewage services.

 

Result

 

 

 

April to June 2014

 

 

Water

  

Sewage

  

Reconciliation to the financial statements

  

Balance as per financial statements

 

 

 

 

 

 

 

 

 

Gross operating income from external customers

 

1,231,368

 

992,649

 

678,749

 

2,902,766

 

 

 

 

 

 

 

 

 

Gross sales deductions

 

(82,335)

 

(66,278)

 

-

 

(148,613)

 

 

 

 

 

 

 

 

 

Net operating income from external customers

 

1,149,033

 

926,371

 

678,749

 

2,754,153

 

 

 

 

 

 

 

 

 

Costs, selling and administrative expenses

 

(1,026,630)

 

(624,222)

 

(664,217)

 

(2,315,069)

 

 

 

 

 

 

 

 

 

Income from operations before other operating expenses, net and equity accounting

 

122,403

 

302,149

 

14,532

 

439,084

 

 

 

 

 

 

 

 

 

Other operating income (expenses), net

 

 

 

 

 

 

 

5,209

 

 

 

 

 

 

 

 

 

Equity accounting

 

 

 

 

 

 

 

49

 

 

 

 

 

 

 

 

 

Financial result, net

 

 

 

 

 

 

 

(21,577)

 

 

 

 

 

 

 

 

 

Income from operations before taxes

 

 

 

 

 

 

 

422,765

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

117,456

 

105,138

 

-

 

222,594

 

 

 

 

 

 

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Notes to the Interim Financial Information

Version: 1

 

 

 

 

January to June 2014

 

 

Water

 

Sewage

 

Reconciliation to the financial statements

 

Balance as per financial statements

 

 

 

 

 

 

 

 

 

Gross operating income from external customers

 

2,571,445

 

2,097,003

 

1,209,976

 

5,878,424

 

 

 

 

 

 

 

 

 

Gross sales deductions

 

(183,058)

 

(149,283)

 

-

 

(332,341)

 

 

 

 

 

 

 

 

 

Net operating income from external customers

 

2,388,387

 

1,947,720

 

1,209,976

 

5,546,083

 

 

 

 

 

 

 

 

 

Costs, selling and administrative expenses

 

(1,956,371)

 

(1,209,997)

 

(1,184,689)

 

(4,351,057)

 

 

 

 

 

 

 

 

 

Income from operations before other operating expenses, net and equity accounting

 

432,016

 

737,723

 

25,287

 

1,195,026

 

 

 

 

 

 

 

 

 

Other operating income (expenses), net

 

 

 

 

 

 

 

(37,860)

 

 

 

 

 

 

 

 

 

Equity accounting

 

 

 

 

 

 

 

(319)

 

 

 

 

 

 

 

 

 

Financial result, net

 

 

 

 

 

 

 

5,942

 

 

 

 

 

 

 

 

 

Income from operations before taxes

 

 

 

 

 

 

 

1,162,789

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

262,592

 

220,260

 

-

 

482,852

 

 

 

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Notes to the Interim Financial Information

Version: 1

 

 

 

 

 

 

 

April to June 2013

 

 

Water

 

Sewage

 

Reconciliation to the financial statements

 

Balance as per financial statements

 

 

 

 

 

 

 

 

 

Gross operating income from external customers

 

1,272,899

 

1,034,529

 

656,844

 

2,964,272

 

 

 

 

 

 

 

 

 

Gross sales deductions

 

(92,674)

 

(75,320)

 

-

 

(167,994)

 

 

 

 

 

 

 

 

 

Net operating income from external customers

 

1,180,225

 

959,209

 

656,844

 

2,796,278

 

 

 

 

 

 

 

 

 

Costs, selling and administrative expenses

 

(872,632)

 

(565,649)

 

(643,229)

 

(2,081,510)

 

 

 

 

 

 

 

 

 

Income from operations before other operating expenses, net and equity accounting

 

307,593

 

393,560

 

13,615

 

714,768

 

 

 

 

 

 

 

 

 

Other operating income (expenses), net

 

 

 

 

 

 

 

1,507

 

 

 

 

 

 

 

 

 

Equity accounting

 

 

 

 

 

 

 

(111)

 

 

 

 

 

 

 

 

 

Financial result, net

 

 

 

 

 

 

 

(207,256)

 

 

 

 

 

 

 

 

 

Income from operations before taxes

 

 

 

 

 

 

 

508,908

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

104,770

 

91,988

 

-

 

196,758

 

 

 

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Notes to the Interim Financial Information

Version: 1

 

 

 

 

 

January to June 2013

 

 

Water

 

Sewage

 

Reconciliation to the financial statements

 

Balance as per financial statements

 

 

 

 

 

 

 

 

 

Gross operating income from external customers

 

2,558,801

 

2,067,474

 

1,152,453

 

5,778,728

 

 

 

 

 

 

 

 

 

Gross sales deductions

 

(186,620)

 

(150,786)

 

-

 

(337,406)

 

 

 

 

 

 

 

 

 

Net operating income from external customers

 

2,372,181

 

1,916,688

 

1,152,453

 

5,441,322

 

 

 

 

 

 

 

 

 

Costs, selling and administrative expenses

 

(1,761,596)

 

(1,109,309)

 

(1,129,191)

 

(4,000,096)

 

 

 

 

 

 

 

 

 

Income from operations before other operating expenses, net and equity accounting

 

610,585

 

807,379

 

23,262

 

1,441,226

 

 

 

 

 

 

 

 

 

Other operating income (expenses), net

 

 

 

 

 

 

 

10,342

 

 

 

 

 

 

 

 

 

Equity accounting

 

 

 

 

 

 

 

(261)

 

 

 

 

 

 

 

 

 

Financial result, net

 

 

 

 

 

 

 

(179,948)

 

 

 

 

 

 

 

 

 

Income from operations before taxes

 

 

 

 

 

 

 

1,271,359

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

210,023

 

181,901

 

-

 

391,924

 

 

 

Explanation on the reconciliation items for the Financial Statements: the impacts on gross operating income and in costs are as follows:

 

 

 

April to June 2014

 

January to June 2014

 

April to June 2013

 

January to June 2013

 

 

 

 

 

 

 

 

 

Gross revenue from construction recognized under ICPC 1 (R1) (a)

 

678,749

 

1,209,976

 

656,844

 

1,152,453

Construction costs recognized under ICPC 1 (R1) (a)

 

664,217

 

1,184,689

 

643,229

 

1,129,191

 

 

 

 

 

 

 

 

 

Construction margin

 

14,532

 

25,287

 

13,615

 

23,262

 

(a)    Revenue from concession construction contracts is recognized in accordance with CPC 17 (R1), Construction Contracts (IAS 11), using the percentage-of-completion method. See Note 12 (c) and (f).

 

 

 

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Notes to the Interim Financial Information

Version: 1

 

 

 

23   Operating Revenue

 

(a)            Revenue from water and sewage services:

 

 

 

April to June 2014

 

January to June 2014

 

April to June 2013

 

January to June 2013

 

 

 

 

 

 

 

 

 

Metropolitan region of São Paulo

 

1,579,335

 

3,308,583

 

1,701,779

 

3,389,795

Regional Systems (i)

 

644,682

 

1,359,865

 

605,649

 

1,236,480

 

 

 

 

 

 

 

 

 

Total (ii)

 

2,224,017

 

4,668,448

 

2,307,428

 

4,626,275

 

(i)  Including the municipalities operated in countryside and at the coast of the State of São Paulo.

 

(ii)          Revenue from water and sewage services decreased by 3.6% in the second quarter of 2014 year-on-year. This result was mainly impacted by the incentive program for reduction of consumption (Bonus*).

 

* Bonus: SABESP’s Incentive Program for Reduction of Water Consumption

 

After ARSESP’s approval on an emergency basis by means of Resolution 469/2014, SABESP adopted an economic incentive to encourage the population of Greater São Paulo to reduce water consumption. This measure was adopted due to the record heat and the unheard lack of rainfall at the Cantareira System, which is at a critical level and supplies almost 10 million people.

 

Consumers who reduce by, at least, 20% the average consumption of the twelve-month period, between February 2013 and January 2014, will receive 30% discount in their bills. The discount shall apply to a smaller amount, since reduced consumption will result in cheaper bills.

 

This measure applies to households, commerce and industries supplied by the Cantareira System – the entire north zone and São Paulo downtown, part of the east and west zones of São Paulo, Barueri, Caieiras, Carapicuíba, Francisco Morato, Franco da Rocha, Itapevi, Jandira, Osasco and Santana de Parnaíba. In Guarulhos and São Caetano do Sul, also supplied by the Cantareira System, distribution relies on the local governments, which buy water from SABESP. The municipal services shall resolve on granting this incentive.

 

The benefit will be valid for the bills of reference months from February to August, and consumers will receive the bills between March and September. In Santana de Parnaíba, this measure will be applied in the reference months from March to August and consumers will receive the bills between April and September.

 

However, in April 2014, the incentive program for reduction of water consumption was postponed until the end of 2014 to the entire São Paulo metropolitan region, or until water levels at reservoirs are regularized. Due to the dry weather and the low water volume at the Cantareira System, the Department of Water and Electricity of the State of São Paulo (DAEE) and the National Water Agency (ANA) set forth that, as of March 10, 2014, we are temporarily required to restrict the water outflow caught from the Cantareira System, from 33m3/s to 27.9m3/s. In order to supply this lower water availability and continue supplying the population, we are expanding the use of water from other water mains. This may increase costs to serve consumers of the metropolitan region of São Paulo. If the situation of the reservoirs affected by dry weather does not improve, we may be forced to take more drastic measures.

 

On May 26, 2014, the Incentive Program for Reduction of Water Consumption was expanded to the municipalities operated by SABESP which compose by Piracicaba basins, Capivari and Jaguari rivers, located in the coverage area of the Cantareira System.

 

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Notes to the Interim Financial Information

Version: 1

 

Likewise, consumers who reduce by, at least, 20% their monthly consumption will be entitled to bonus, compared to the average consumption of the twelve-month period, between February 2013 and January 2014. These consumers will receive 30% discount on their water and sewage bills. The participating municipalities are Bragança Paulista, Joanópolis, Nazaré Paulista, Pinhalzinho, Piracaia, Vargem, Hortolândia, Itatiba, Jarinu, Monte Mor, Morungaba and Paulínia.

 

This measure includes residential, commercial, industrial and government customers and will be valid for the bills issued as of June 2014, effective until December 2014.

 

The amount of the discount for the first and second quarters of 2014 was R$10,778 and R$88,084, respectively.

 

(b)     Reconciliation between gross operating income and net operating income:

 

 

April to June 2014

 

January to June 2014

 

April to June 2013

 

January to June 2013

 

 

 

 

 

 

 

 

 

Revenue from water and sewage services

 

2,224,017

 

4,668,448

 

2,307,428

 

4,626,275

Construction revenue (Note 12 (c))

 

678,749

 

1,209,976

 

656,844

 

1,152,453

Sales tax

 

(148,613)

 

(332,341)

 

(167,994)

 

(337,406)

 

 

 

 

 

 

 

 

 

Net revenue

 

2,754,153

 

5,546,083

 

2,796,278

 

5,441,322

 

24   Operating Costs and Expenses

 

 

April to June 2014

 

January to June 2014

 

April to June 2013

 

January to June 2013

Operating costs

 

 

 

 

 

 

 

Salaries and payroll charges

388,229

 

732,528

 

343,874

 

662,609

Pension obligations

11,982

 

23,751

 

14,316

 

29,718

Construction costs (Note 12 (c))

664,217

 

1,184,689

 

643,229

 

1,129,191

General supplies

43,595

 

88,545

 

44,557

 

85,132

Treatment supplies

64,598

 

134,252

 

55,141

 

120,017

Outsourced services

209,742

 

410,215

 

205,295

 

369,025

Electricity

144,133

 

283,823

 

132,579

 

276,966

General expenses

100,409

 

208,389

 

106,297

 

222,647

Depreciation and amortization

203,228

 

442,658

 

186,657

 

373,506

 

1,830,133

 

3,508,850

 

1,731,945

 

3,268,811

Selling expenses

 

 

 

 

 

 

 

Salaries and payroll charges

60,628

 

115,500

 

54,636

 

106,122

Pension obligations

1,540

 

3,093

 

1,949

 

4,550

General supplies

1,071

 

2,170

 

1,844

 

3,962

Outsourced services

65,856

 

127,985

 

61,865

 

88,292

Electricity

138

 

304

 

134

 

306

General expenses

21,795

 

41,081

 

22,865

 

41,226

Depreciation and amortization

2,569

 

5,368

 

2,590

 

5,308

Allowance for doubtful accounts, net of recoveries (Note 7 (c))

61,635

 

76,328

 

18,839

 

56,239

 

215,232

 

371,829

 

164,722

 

306,005

Administrative expenses

 

 

 

 

 

 

 

Salaries and payroll charges

46,616

 

88,753

 

45,495

 

87,350

Pension plan

42,407

 

84,515

 

31,692

 

63,431

General supplies

2,291

 

3,339

 

2,981

 

4,565

Outsourced services

75,985

 

128,043

 

27,958

 

66,553

Electricity

256

 

418

 

260

 

528

General expenses

67,801

 

93,204

 

57,176

 

137,888

Depreciation and amortization

16,797

 

34,826

 

7,511

 

13,110

Tax expenses

17,551

 

37,280

 

11,770

 

51,855

 

269,704

 

470,378

 

184,843

 

425,280

Operating costs and expenses

 

 

 

 

 

 

 

Salaries and payroll charges

495,473

 

936,781

 

444,005

 

856,081

Pension plan

55,929

 

111,359

 

47,957

 

97,699

Construction costs (Note 12 (c))

664,217

 

1,184,689

 

643,229

 

1,129,191

General supplies

46,957

 

94,054

 

49,382

 

93,659

Treatment supplies

64,598

 

134,252

 

55,141

 

120,017

Outsourced services

351,583

 

666,243

 

295,118

 

523,870

Electricity

144,527

 

284,545

 

132,973

 

277,800

General expenses

190,005

 

342,674

 

186,338

 

401,761

Depreciation and amortization

222,594

 

482,852

 

196,758

 

391,924

Tax expenses

17,551

 

37,280

 

11,770

 

51,855

Allowance for doubtful accounts, net of recoveries (Note 7 (c))

61,635

 

76,328

 

18,839

 

56,239

 

2,315,069

 

4,351,057

 

2,081,510

 

4,000,096

 

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Notes to the Interim Financial Information

Version: 1

 

 

 

 

25   Financial Expenses and Income

 

 

 

April to June 2014

 

January to June 2014

 

April to June 2013

 

January to June 2013

 

 

 

 

 

 

 

 

Financial expenses

 

 

 

 

 

 

 

Interest and charges on loans and financing – local currency

(79,962)

 

(162,171)

 

(64,904)

 

(147,429)

Interest and charges on loans and financing – foreign currency

(23,098)

 

(47,441)

 

(22,090)

 

(40,506)

Other financial expenses (i)

(20,994)

 

(42,025)

 

(20,701)

 

(32,878)

Income tax over international remittance

(4,154)

 

(6,739)

 

(2,540)

 

(4,417)

Inflation adjustment on loans and financing (ii)

(28,932)

 

(61,986)

 

(16,399)

 

(40,548)

Inflation adjustment on Sabesprev Mais deficit (iii)

(345)

 

(684)

 

(357)

 

(805)

Other inflation adjustments (iv)

(3,378)

 

(5,869)

 

(722)

 

(4,360)

Interest and inflation adjustments on provisions (viii)

(29,546)

 

(49,492)

 

20,850

 

(31,581)

Total financial expenses

(190,409)

 

(376,407)

 

(106,863)

 

(302,524)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial income

 

 

 

 

 

 

 

Inflation adjustment gains (v)

10,894

 

36,238

 

19,986

 

48,981

Income on short-term investments

48,398

 

96,104

 

37,285

 

70,263

Interest and other income (vi)

25,583

 

49,385

 

43,769

 

75,198

Total financial income

84,875

 

181,727

 

101,040

 

194,442

 

 

 

 

 

 

 

 

Financial, net before foreign exchange variations

(105,534)

 

(194,680)

 

(5,823)

 

(108,082)

 

 

 

 

 

 

 

 

Net foreign exchange gains (losses)

 

 

 

 

 

 

 

Foreign exchange variation on loans and financing (vii)

84,228

 

201,264

 

(201,667)

 

(72,064)

Other foreign exchange variations

(3)

 

(30)

 

(16)

 

(17)

Foreign exchange gains

(268)

 

(612)

 

250

 

215

Foreign exchange variations, net

83,957

 

200,622

 

(201,433)

 

(71,866)

 

 

 

 

 

 

 

 

Financial, net

(21,577)

 

5,942

 

(207,256)

 

(179,948)

 

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Notes to the Interim Financial Information

Version: 1

 

 

 

 

(i)          There was no significant variation in the second quarter 2014 when compared to the same period.

 

(ii)        The account variation mainly derives from an increase in debt balance indexed to IPCA in view of the 18th Issue of Debentures. This inflation adjustment derives from changes in the indexes defined in loan agreements, such as, UPR, IPCA, CDI and TJLP, corresponding to 0.2%, 1.5%, 10.8% and 1.3%, respectively, in the second quarter of 2014. (0.0%, 1.2%, 7.7% and 1.3%, respectively, in the same period of 2013). The exposures to these rates are shown in Note 3.1.

 

(iii)        This reduction derives from the variation in the National Consumer Price Index (INPC) rate of 1.6% in the second quarter of 2014 and 1.2% in the same period of 2013, which is used to adjust the balance of SABESP’s commitment in relation to the deficit of the Sabesprev Mais pension plan.

 

(iv)         Other expenses related to inflation adjustment mainly arises from the adjustment of liabilities referring to investment commitments required by the public-private partnerships and mainly from program contracts indexed by the IPC and IPCA of 0.8% and 1.5% in the second quarter of 2014 and 0.7% and 1.2% % in the second quarter of 2013, respectively.

 

(v)           These inflation adjustments arise from accounts/bills of overdue accounts receivable, which are remesured depending on the payment date, by IPCA (1.5% in the second quarter of 2014 and 1.2% in the same period of 2013) or IPC-FIPE (Consumer Price Index, 0.8% in the second quarter of 2014 and 0.7% in the same period of 2013), and escrow deposits, which are adjusted by the index defined by the Judiciary Branch, which varied between 2.2% in the second quarter of 2014 and 1.5% in the same period of 2013. Such decrease was mainly due to reversal of monetary restatement on escrow deposits, the change in the expected return thereof.

 

(vi)         The variation is mainly due to the reduced interest rates on agreements and installment payments in the second quarter of 2014.

 

 

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Notes to the Interim Financial Information

Version: 1

 

 

(vii)       Revenue from foreign exchange variation on loans and financing mainly arises from the 2.7% Dollar and 1.0% Yen depreciation against the Brazilian Real in the second quarter of 2014, when compared to appreciation of both currencies in the same period of 2013, 10.0% and 4.3% respectively.

 

(viii)     The variation is mainly due to favorable development of lawsuits in the second quarter of 2013, reducing interest expenses in that period.

 

 

26   Other Operating Income (expenses), net

 

 

April to June 2014

 

January to June 2014

 

April to June 2013

 

January to June 2013

 

 

 

 

 

 

 

 

Other net operating income

21,638

 

38,145

 

13,581

 

24,218

Other operating expenses

(16,429)

 

(76,005)

 

(12,074)

 

(13,876)

 

 

 

 

 

 

 

 

Other net operating income (expenses)

5,209

 

(37,860)

 

1,507

 

10,342

 

Other operating income is comprised by sale of property, plant and equipment, sale of contracts awarded in public bids, indemnities and reimbursement of expenses, fines and collaterals, property leases, reuse water, PURA projects and services.

 

Other operating expenses consist mainly of write-off of property, plant and equipment due to obsolescence, discontinued construction works, unproductive wells, projects considered economically unfeasible and losses on property, plant and equipment.

 

 

27   Commitments

 

The Company has agreements to manage and maintain its activities, as well as agreements to build new projects aiming at achieving the objectives proposed in its target plan. Below, main committed amounts as of June 30, 2014 are as follows:

 

 

 

1 year

1-3 year

3-5 year

More than

5 years

Total

Contractual obligations - Expenses

707,326

1,177,701

59,471

3,785,124

5,729,622

Contractual obligations – Investments (i)

861,578

2,156,781

584,851

3,585,419

7,188,629

Total

1,568,904

3,334,482

644,322

7,370,543

12,918,251

 

(i)                 The main commitment refers to São Lourenço PPP, see Note 12 (h).

 

 

 

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Notes to the Interim Financial Information

Version: 1

 

 

 

28    Additional information on cash flows

 

 

 

January to June 2014

 

January to June 2013

 

 

 

 

 

Total additions of intangible assets as per Note 12

 

1,345,203

 

1,308,224

 

 

 

 

 

Items not affecting cash (see breakdown below)

 

(215,081)

 

(308,459)

 

 

 

 

 

Total additions to intangible assets as per statement of cash flows

 

1,130,122

 

999,765

 

 

 

 

 

Investments and financing operations affecting intangible assets but not cash:

 

 

 

 

Interest capitalized in the period

 

74,718

 

167,791

Contractors

 

(6,926)

 

(33,165)

Program contract commitments

 

70,251

 

35,879

Leasing

 

51,751

 

114,692

Construction margin

 

25,287

 

23,262

Total

 

215,081

 

308,459

 

 

 

 

 

 

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Comments on the Company’s Projections

 

Version: 1

 

 

Comments on the Company’s projections

 

The projections presented in the reference form are annual and not on a quarterly basis. Therefore, the quarterly comparison between the information disclosed in the reference form with quarterly results shall not apply.

 

The projections monitoring occurs on an annual basis and are disclosed in the reference form.

 

 

 

 

 

 

 

 

                                                                    

 

 

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Other Information Deemed as Relevant by the Company

Version: 1

 

 

1. CHANGES IN INTEREST HELD BY CONTROLLING SHAREHOLDER, BOARD MEMBERS AND EXECUTIVE OFFICERS

 

CONSOLIDATED SHAREHOLDING OF CONTROLLING SHAREHOLDERS, MANAGEMENT AND OUTSTANDING SHARES
Position as at 6/30/2014

Shareholder

Number of
Common Shares
(units)

%

Total Number of Shares
(units)

%

Controlling shareholder

 

 

 

 

Treasury Department

343,524,285

50.3%

343,524,285

50.3%

Management

 

 

 

 

Board of Directors

-

-

-

-

Executive Officers

-

-

-

-

 

 

 

 

 

Fiscal Council

-

-

-

-

 

 

 

 

 

Treasury shares

-

-

-

-

 

 

 

 

 

Other shareholders

 

 

 

 

 

 

 

 

 

Total

343,524,285

50.3%

343,524,285

50.3%

 

 

 

 

 

 

 

 

 

 

Outstanding shares

339,985,584

49.7%

339,985,584

49.7%

 

 

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Other Information Deemed as Relevant by the Company

Version: 1

 

 

CONSOLIDATED SHAREHOLDING OF CONTROLLING SHAREHOLDERS, MANAGEMENT AND OUTSTANDING SHARES
Position as at 6/30/2013

Shareholder

Number of
Common Shares
(units)

%

Total Number of Shares
(units)

%

Controlling shareholder

 

 

 

 

Treasury Department

343,524,258

50.3%

343,524,258

50.3%

Management

 

 

 

 

Board of Directors

1,518

0

1,518

0

Executive Officers

-

-

-

-

 

 

 

 

 

Fiscal Council

-

-

-

-

 

 

 

 

 

Treasury shares

-

-

-

-

 

 

 

 

 

Other shareholders

 

 

 

 

 

 

 

 

 

Total

343,525,776

50.3%

343,525,776

50.3%

 

 

 

 

 

 

 

 

 

 

Outstanding shares

339,984,093

49.7%

339,984,093

49.7%

 

 

2.  SHAREHOLDING POSITION

 

SHAREHOLDING POSITION OF HOLDERS OF MORE THAN 5% OF EACH TYPE AND CLASS OF COMPANY SHARES, UP TO THE INDIVIDUAL LEVEL

Company:

CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Position as at
6/30/2014
(shares)

 

Common shares

Total

Shareholder

Number of shares

%

Number of shares

%

Treasury Department

343,524,285

50.3

343,524,285

50.3

 

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Reports and Statements / Unqualified Report on Special Review

Version: 1

 

(Convenience Translation into English from the Original Previously Issued in Portuguese)

 

REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION

To the Shareholders, Board of Directors and Management of

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

São Paulo - SP

Introduction

We have reviewed the accompanying interim financial information of Companhia de Saneamento Básico do Estado de São Paulo - SABESP (the “Company”) included in the Interim Financial Information Form (ITR), for the quarter ended June 30, 2014, which comprises the balance sheet as of June 30, 2014 and the related statements of income and comprehensive income for the three and six-months period then ended and changes in equity and of cash flows for the six-month period then ended, including the explanatory notes.

The Company’s Management is responsible for the preparation of the interim financial information in accordance with technical pronouncement CPC 21 (R1) - Interim Financial Information and with international standard IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board - IASB, as well as for the presentation of such information in accordance with the standards issued by the Brazilian Securities and Exchange Commission (CVM), applicable to the preparation of Interim Financial Information (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review.

Scope of review

We conducted our review in accordance with Brazilian and international standards on review of interim financial information (NBC TR 2410 and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with standards on auditing and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion on the interim financial information

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information included in the ITR referred to above was not prepared, in all material respects, in accordance with technical pronouncement CPC 21 (R1) and international standard IAS 34, applicable to the preparation of Interim Financial Information (ITR), and presented in accordance with the standards issued by the CVM.

 

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Reports and Statements / Unqualified Report on Special Review

Version: 1

 

Other matters

Statements of value added

We have also reviewed the statements of value added (DVA) for the six-month period ended June 30, 2014, prepared under the responsibility of the Company’s Management, the presentation of which is required by the standards issued by the CVM applicable to the preparation of Interim Financial Information (ITR) and considered as supplemental information for International Financial Reporting Standards - IFRS, which does not require the presentation of DVA. These statements were subject to the same review procedures described above, and, based on our review, nothing has come to our attention that causes us to believe that they were not prepared, in all material respects, consistently with the interim financial information taken as a whole.

The accompanying interim financial information has been translated into English for the convenience of readers outside Brazil.

 

São Paulo, August 14, 2014

DELOITTE TOUCHE TOHMATSU

Délio Rocha Leite

Auditores Independentes

Engagement Partner

 

 

 

Page 78 of 78

 

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, in the city São Paulo, Brazil.
Date: September 9, 2014
 
Companhia de Saneamento Básico do Estado de São Paulo - SABESP
     
By: /s/  Rui de Britto Álvares Affonso    
 
 
Name: Rui de Britto Álvares Affonso
Title: Chief Financial Officer and 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.