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.
A free translation from Portuguese into English of Quarterly
Financial Information prepared in Brazilian currency and in
accordance with the accounting practices adopted in Brazil.
FEDERAL GOVERNMENT SERVICE | Corporate Legislation June 30, 2008 | |
BRAZILIAN SECURITIES COMMISSION (CVM) | ||
QUARTERLY INFORMATION - ITR | ||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES | ||
REGISTRATION WITH THE CVM DOES NOT IMPLY ANY ANALYSIS OF THE COMPANY. COMPANY MANAGEMENT IS RESPONSIBLE FOR THE ACCURACY OF THE INFORMATION PROVIDED. |
01.01 IDENTIFICATION
1 - CVM CODE 01763-9 |
2 COMPANY NAME TIM PARTICIPAÇÕES S.A. |
3 - National Corporate Taxpayers' Registration Number CNPJ 02.558.115/0001-21 |
4 State Registration Number NIRE |
01.02 - HEAD OFFICE
1 - ADDRESS Avenida das Américas, 3434, Bloco 1 7º andar - parte |
2 SUBURB OR DISTRICT Barra da Tijuca | |||
3 POSTAL CODE 22640-102 |
4 MUNICIPALITY Rio de Janeiro |
5 STATE Rio de Janeiro |
||
6 - AREA CODE 21 |
7 TELEPHONE 4009-3742 |
8 TELEPHONE 4009-4017 |
9 TELEPHONE - |
10 TELEX - |
11 - AREA CODE 21 |
12 FAX 4009-3314 |
13 FAX 4009-3990 |
14 FAX - |
- |
15 - E-MAIL rtostes@timbrasil.com.br |
01.03 - INVESTOR RELATIONS OFFICER (Company Mail Address)
1 NAME Mario Cesar Pereira de Araujo |
|||||
2 ADDRESS Avenida das Américas, 3434, Bloco 1 7º andar - parte |
3 SUBURB OR DISTRICT Barra da Tijuca |
||||
3 POSTAL CODE 22640-102 |
4 MUNICIPALITY Rio de Janeiro |
5 STATE Rio de Janeiro | |||
6 - AREA CODE 21 |
7 TELEPHONE 4009-3742 |
8 TELEPHONE 4009-4017 |
9 TELEPHONE - |
10 TELEX - | |
11 - AREA CODE 21 |
12 FAX 4009-3314 |
13 FAX 4009-3990 |
14 FAX - |
- | |
15 - E-MAIL rtostes@timbrasil.com.br |
01.04 - GENERAL INFORMATION/INDEPENDENT ACCOUNTANT
CURRENT YEAR | CURRENT QUARTER | PRIOR QUARTER | |||||
1 - BEGINNING | 2 END | 3 - QUARTER | 4 BEGINNING | 5 END | 6 QUARTER | 7 BEGINNING | 8 END |
01.01.2008 | 12.31.2008 | 2 | 04.01.2008 | 06.30.2008 | 1 | 01.01.2008 | 03.31.2008 |
9 - INDEPENDENT ACCOUNTANT Directa Auditores |
10 - CVM CODE 3670 | ||||||
11 PARTNER RESPONSIBLE Ernesto Rubens Gelbcke |
12 INDIVIDUAL TAXPAYERS REGISTRATION NUMBER OF THE PARTNER RESPONSIBLE 062.825.718-04 |
1
01.05 - CAPITAL COMPOSITION
Number of shares (Thousand) |
Current quarter 06.30.2008 |
Prior quarter 03.31.2008 |
Same quarter in prior year 06.30.2007 |
Paid-up capital | |||
1 Common | 798,351 | 794,992 | 793,544 |
2 Preferred | 1.545,476 | 1,538,972 | 1,536,171 |
3 Total | 2,343,827 | 2,333,964 | 2,329,715 |
Treasury stock | |||
4 Common | 0 | 0 | 0 |
5 Preferred | 0 | 0 | 0 |
6 Total | 0 | 0 | 0 |
01.06 CHARACTERISTICS OF THE COMPANY
1 - TYPE OF COMPANY Commercial, industrial and other |
2 SITUATION Operational |
3 NATURE OF OWNERSHIP Local Private |
4 ACTIVITY CODE 1130 Telecommunication |
5 - MAIN ACTIVITY Cellular Telecommunication Services |
6 TYPE OF CONSOLIDATION Full |
7 - TYPE OF REPORT OF INDEPENDENT ACCOUNTANT Unqualified |
01.07 - COMPANIES EXCLUDED FROM THE CONSOLIDATED FINANCIAL STATEMENTS
1 ITEM | 2 - CNPJ | 3 NAME |
01.08 - DIVIDENDS AND OR INTEREST ON CAPITAL APPROVED AND/OR PAID DURING AND AFTER THE QUARTER
1 ITEM | 2 EVENT | 3 - DATE APPROVED | 4 AMOUNT | 5 - DATE OF PAYMENT | 6 - TYPE OF SHARE | 7 - AMOUNT PER SHARE |
01 | AGO/E | 04/11/2008 | Dividends | 06/23/2008 | PN | 0.1377000000 |
2
01.09 - SUBSCRIBED CAPITAL AND CHANGES IN THE CURRENT YEAR
1 ITEM | 2 DATE OF CHANGE | 3 CAPITAL (IN THOUSANDS OF REAIS) |
4 - TOTAL CHANGE (IN THOUSANDS OF REAIS) |
5 NATURE OF CHANGE | 7 - NUMBER OF SHARES ISSUED (IN THOUSAND) |
8 SHARE PRICE ON ISSUE DATE (IN REAIS) |
01 | 04.11.2008 | 7,613,610 | 63,085 | Capital reserves | 9,862 | 6.3967755019 |
01.10 - INVESTOR RELATIONS OFFICER
1 DATE | 2 SIGNATURE |
3
FEDERAL GOVERNMENT SERVICE | ||
CVM - COMISSÃO DE VALORES MOBILIÁRIOS | ||
ITR Quarterly Information | Corporate Legislation | |
COMERCIAL, INDUSTRIAL AND OTHER COMPANIES | Base date 06/30/2008 |
01763-9 TIM PARTICIPAÇÕES S.A. | 02.558.115/0001-21 |
04.01 EXPLANATORY NOTES | |
Parent Company Balance Sheet - Assets (thousand of reais)
Code | Heading | 06/30/2008 | 03/31/2008 |
1 | Total assets | 7,669,035 | 7,908,156 |
1.01 | Current assets | 41,525 | 116,241 |
1.01.01 | Cash and cash equivalents | 40,989 | 36,531 |
1.01.01.01 | Cash and Bank | 8,721 | 3,940 |
1.01.01.02 | Short-term investments in the money market | 32,268 | 32,591 |
1.01.02 | Credits | - | - |
1.01.02.01 | Accounts receivable | - | - |
1.01.02.02 | Others Credits | - | - |
1.01.03 | Inventories | - | - |
1.01.04 | Others | 536 | 79,710 |
1.01.04.01 | Recoverable taxes and contributions | 302 | 268 |
1.01.04.02 | Dividends | - | 79,196 |
1.01.04.03 | Others currents assets | 234 | 246 |
1.02 | Noncurrent assets | 7,627,510 | 7,791,915 |
1.02.01 | Noncurrent assets | 11,041 | 9,840 |
1.02.01.01 | Others Credits | 6,037 | 6,007 |
1.02.01.01.01 | Taxes and contributions recoverable | 6,037 | 6,007 |
1.02.01.02 | Related parties | - | - |
1.02.01.02.01 | Affiliates | - | - |
1.02.01.02.02 | Subsidiaries | - | - |
1.02.01.02.03 | Other related parties | - | - |
1.02.01.03 | others | 5,004 | 3,833 |
1.02.01.03.01 | Judicial deposits | 4,710 | 3,543 |
1.02.01.03.02 | Other assets | 294 | 290 |
1.02.02 | Permanent assets | 7,616,469 | 7,782,075 |
1.02.02.01 | Investments | 7,616,469 | 7,782,075 |
1.02.02.01.01 | Affiliates | - | - |
1.02.02.01.02 | Affiliates - Agio | - | - |
1.02.02.01.03 | Subsidiaries | 7,612,132 | 7,777,343 |
1.02.02.01.04 | Subsidiaries - Agio | - | - |
1.02.02.01.05 | Other investments | 4,337 | 4,732 |
1.02.02.02 | Property, plant and equipment | - | - |
1.02.02.03 | Intangible | - | - |
1.02.02.04 | Deferred charges | - | - |
4
Parent Company Balance Sheet - Liabilities and shareholders equity (thousands of reais)
Code | Heading | 06/30/2008 | 03/31/2008 |
2 | Total liabilities and shareholders' equity | 7,669,035 | 7,908,156 |
2.01 | Current liabilities | 29,649 | 236,236 |
2.01.01 | Loans and financing | - | - |
2.01.02 | Debentures | - | - |
2.01.03 | Suppliers | 858 | 1,175 |
2.01.04 | Taxes, charges and contributions | 6 | 9 |
2.01.05 | Dividends payable | 25,222 | 232,642 |
2.01.06 | Provisions | - | - |
2.01.07 | Related parties | - | - |
2.01.08 | Other | 3,563 | 2,410 |
2.01.08.01 | Labor liabilities | 32 | 81 |
2.01.08.02 | Othes liabilities | 3,531 | 2,329 |
2.02 | Noncurrent liabilities | 30,897 | 29,363 |
2.02.01 | Noncurrent liabilities | 30,897 | 29,363 |
2.02.01.01 | Loans and financing | - | - |
2.02.01.02 | Debentures | - | - |
2.02.01.03 | Provisions | 10,228 | 8,694 |
2.02.01.03.01 | Provision for contingencies | 5,102 | 3,568 |
2.02.01.03.02 | Supplementary pension plan | 5,126 | 5,126 |
2.02.01.04 | Related parties | - | - |
2.02.01.05 | Advances for future capital increase | - | - |
2.02.01.06 | Other | 20,669 | 20,669 |
2.02.02 | Deferred income | - | - |
2.04 | Shareholders' equity | 7,608,489 | 7,642,557 |
2.04.01 | Capital | 7,613,610 | 7,550,525 |
2.04.02 | Capital reserves | 34,330 | 97,415 |
2.04.03 | Revaluation reserves | - | - |
2.04.03.01 | Own assets | - | - |
2.04.03.02 | Subsidiaries/affiliates | - | - |
2.04.04 | Income reserves | 102,546 | 102,546 |
2.04.04.01 | Legal reserve | 102,546 | 102,546 |
2.04.04.02 | Statutory reserve | - | - |
2.04.04.03 | Reserves for contingencies | - | - |
2.04.04.04 | Unearned income reserve | - | - |
2.04.04.05 | Retained earnings | - | - |
2.04.04.06 | Special reserve for undistributed dividends | - | - |
2.04.04.07 | Other income reserves | - | - |
2.04.05 | Retained earnings | (141,997) | (107,929) |
2.04.06 | Advances for future capital increase | - | - |
5
Parent Company - Statements of operations (thousand of reais)
Code | Heading | From 04/01/2008 to 06/30/2008 | Acumulated From 01/01/2008 to 06/30/2008 |
From 04/01/2007 to 03/31/2007 |
Acumulated From 01/01/2007 to 06/30/2007 |
3.01 | Gross revenues | - | - | - | - |
3.02 | Deductions from gross revenues | - | - | - | - |
3.03 | Net revenues | - | - | - | - |
3.04 | Cost of goods sold and services rendered | - | - | - | - |
3.05 | Gross profit | - | - | - | - |
3.06 | Operating income (expenses) | (34,068) | (141,997) | 33,982 | 14,517 |
3.06.01 | Selling | - | - | - | - |
3.06.02 | General and administrative | (883) | (2,717) | (3,220) | (5,862) |
3.06.03 | Financial income (expenses) | 1,052 | 2,301 | 266 | 824 |
3.06.03.01 | Financial income | 1,169 | 2,303 | 622 | 1,195 |
3.06.03.02 | Financial expenses | (117) | (2) | (356) | (371) |
3.06.04 | Other operating income | - | 201 | 4 | 729 |
3.06.05 | Other operating expenses | (1,819) | (2,218) | (504) | (1,140) |
3.06.06 | Equity pickup | (32,418) | (139,564) | 37,436 | 19,966 |
3.07 | Operating income | (34,068) | (141,997) | 33,982 | 14,517 |
3.08 | Nonoperating result | - | - | - | - |
3.08.01 | Income | - | - | - | - |
3.08.02 | Expenses | - | - | - | - |
3.09 | Income before taxation and participations | (34,068) | (141,997) | 33,982 | 14,517 |
3.10 | Provision for income and social contribution taxes | - | - | - | - |
3.11 | Deferred income tax | - | - | - | - |
3.12 | Participations/statutory contributions | - | - | - | - |
3.12.01 | Participations | - | - | - | - |
3.12.02 | Contributions | - | - | - | - |
3.13 | Reversal of interest on shareholders' equity | - | - | - | - |
3.15 | Net income for the period | (34,068) | (141,997) | 33,982 | 14,517 |
6
TIM PARTICIPAÇÕES S.A.
NOTES TO THE FINANCIAL STATEMENTS
As of June 30, 2008
(In thousands of Reais unless otherwise stated)
1 Operations
TIM Participações S.A. (TIM Participações or the Company), is a publicly-held company controlled by TIM Brasil Serviços e Participações S.A., a Telecom Italia Groups company, who holds interests of 81.32% of its voting capital and 69.85% of its total capital.
The Companys main operations comprise, among other things, the control of companies exploring telecommunications services, including cellular telephones, in its concession and/or authorization areas.
Through its wholly owned subsidiary TIM Celular S.A. (TIM Celular), the Company holds all the capital of TIM Nordeste S.A. (TIM Nordeste). TIM Celular operates as a provider of Commuted Fixed Telephone Service (STFC) of the following types: Local, Domestic Long Distance and International Long Distance, and Multimedia Communication Service (SCM) in every Brazilian state. Also, together with its subsidiary, it operates as a provider of Personal Mobile Service in every Brazilian State.
The services provided by the subsidiaries are regulated by ANATEL Brazilian Telecommunications Agency in charge of regulating all Brazilian telecommunications. The exploration of the Personal Mobile Service (SMP and the Commuted Fixed Telephone Service (STFC) is for an indefinite period.
The authorization for use of radio-frequency granted to the subsidiaries mature as follows:
TIM Nordeste | Expiry Date | |||
Radio-frequencies | ||||
800MHz, 900 MHz | Radio-frequencies | |||
and 1.800 MHz | 3G | |||
Region 1 | ||||
Pernambuco | May, 2009 | April, 2023 | ||
Ceará | November, 2008 | April, 2023 | ||
Paraíba, Rio Grande do Norte e Alagoas | December, 2008 | April, 2023 | ||
Piauí | March, 2009 | April, 2023 | ||
Region 2 | ||||
Minas Gerais (except for the Triângulo | ||||
Mineiro(*) municipalities for Radio- | ||||
frequencies 3G) | April, 2013 | April, 2023 | ||
Region 3 | ||||
Bahia and Sergipe | August, 2012 | April, 2023 |
7
TIM Celular | Expiry Date | |||
Radio-frequencies | Radio- | |||
800MHz, 900 MHz | frequencies | |||
and 1.800 MHz | 3G | |||
Region 1 | ||||
Amapá, Roraima, Pará, Amazonas, | ||||
Maranhão, Rio de Janeiro and Espírito Santo | March, 2016 | April, 2023 | ||
Region 2 | ||||
Acre, Rondônia, Mato Grosso, Mato Grosso | ||||
do Sul, Tocantins, Distrito Federal, Goiás, | ||||
Rio Grande do Sul (except for Pelotas and | ||||
the respective region) and Londrina and | ||||
Tamarana in Paraná. | March, 2016 | April, 2023 | ||
Region 3 | ||||
São Paulo | March, 2016 | April, 2023 | ||
Region 4 | ||||
Paraná (except for Londrina and Tamarana) | September, 2022 | April, 2023 | ||
Santa Catarina | September, 2008 | April, 2023 | ||
Pelotas and the respective region in the state | ||||
of Rio Grande do Sul | April, 2009 | April, 2023 |
Renewal of authorizations
The radio-frequency licensing authorizations for the 800 MHz, 900 MHz and 1800 MHz bands referring to SMP service provision begin to expire in September 2007 (under the Term of Authorization for the State of Paraná except for Londrina and Tamarana) and are renewable for one more 15-year period, requiring payment, at every two-year period, of the equivalent to 2% (two percent) of the prior years revenue net of taxes, by way of investment under the Basic and Alternative Service Plans. The first payment is scheduled for April 30, 2009.
The authorizations maturing in 2008 are already being renewed at the competent regulatory agency.
2 Quarterly Information Preparation and Presentation Basis
a. Preparation and disclosure criteria
The quarterly information was prepared in accordance with accounting practices applicable in Brazil (BR GAAP), based on the Corporate Law; the rules applicable to public telecommunications service concessionaires/authorized companies; CVM Brazilian Securities Commission standards and procedures; and Ibracon Brazilian Institute of Independent Auditors´ pronouncements.
8
Because it still holds American Depositary Receipts traded on the New York Stock Exchange USA, the Company is subject to the rules of the Securities and Exchange Commission (SEC). In order to meet its market needs, it is the Companys principle to disclose information prepared in accordance with the BR GAAP, simultaneously to both markets in Brazilian Reais, in Portuguese and in English.
Assets and liabilities are classified as current when their realization or settlement is estimated to occur in the next twelve months. Otherwise, they are shown as non-current. Monetary assets and liabilities denominated in foreign currencies were converted into Reais at the exchange rate in effect at the balance sheet date. The translation differences were recognized in the statement of income.
b. Changes in preparation and disclosure of the financial statements
The Law 11.638/07, promulgated on December 28, 2007 changes and revokes provisions of the Law 6.404 of December 15, 1976 and Law 6.385 of December 7, 1976. The main objective of this new law, which came into effect on January 1, 2008, was to update Brazilian accounting regulations and consolidate the harmonization thereof with international pronouncements, in particular those issued by the International Accounting Standards Board (IASB) through the International Financial Reporting Standards (IFRS).
The provisions of this Law, which apply to the financial statements for the fiscal years beginning on January 1, 2008, are not deemed as changes in circumstances or estimates. Accordingly, as a rule, the new practices introduced by Law 11,638/07 should be retroactive, as though they were used in the periods under examination. To this end, the standard dealing with Accounting Practices, Changes in Accounting Estimates and Correction of Errors, approved by the Brazilian Securities Commission (CVM) Deliberation no. 506 must be observed. In the specific case of the Company, whose financial statements for the year ending December 31, 2008 are presented comparatively with those of 2007, the opening balances of adjustments will be shown (as of January 1, 2007), so that the two years are presented in accordance with the same accounting practices.
On May 2, 2008, the Brazilian Securities Commission (CVM) issued Instruction 469/08, which partially standardized Law 11.638/07, establishing minimum requirements for quarterly information (ITR) presentation throughout 2008. This instruction, under certain conditions, allows companies to fully adopt the provisions of the above mentioned Law. Because it did not opt for this alternative, in presenting its ITR in the year 2008, the Company´s Management applied Law 11,638/07 to the minimum extent required by CVM Instruction 469.
The Companys assessment of the impact of Law 11.638/07 showed that among the items mandatory applicable in accordance with the Instruction 460/08 are:
9
Adjustment to present value of any long-term and current assets and liabilities deemed relevant. After evaluating the impact of this change, the Company´s Management concluded that the amounts payable in connection with exploration of the 3G network would have relevant effects on the quarterly information. As a consequence, they were adjusted to present value, as disclosed in Note 12. On the other current and long-term assets and liabilities no relevant effects of adjustment to present value were identified, which might be reflected in the consolidated quarterly information.
Investments in affiliates on whose management a company has significant influence or in which it holds 20% of the voting capital (rather than the total capital, as before), and in subsidiaries and other companies pertaining to a single group or who are under common control at the moment must be valued on the equity method.
Revocation of the permission to record premium received on debenture issuance.The Company has not performed transactions involving this kind of premium.
Revocation of the permission to directly record donations and subventions for investment (including fiscal incentives) as capital reserves in a Shareholders´ Equity account. This means that donations and subventions for investment will begin to be recorded as Income for the Year. However, any government -related amounts may be appropriated to a Fiscal Incentive Reserve, after being reclassified as shareholders´ equity. In preparing its consolidated financial statements, the Company has complied with these requirements.
The revaluation reserve under the shareholders´ equity was replaced by an adjustment account under the heading Assets Evaluation Adjustments. While not recorded as income for the year, on the accrual basis, the counter entries to increases and decreases in assets and liabilities valued at market will be classified as assets evaluation adjustments. The Company and its subsidiaries do not have revaluation reserves.
Stock-based yield: Should the Company have any stock-based yield with the characteristics of expenses, its effect should be recognized as income for the year.The Company does not have this kind of yield.
The Company Management´s assessed the other changes introduced by Law 11.638/07 in its financial statements for the year ending December 31, 2008. The main effects of these changes can be described as follows:
Creation of a new group of accounts under the heading Intangibles, for balance sheet presentation purposes. In this group of accounts are intangible assets intendeds for maintenance of the Company´s operations, including the goodwill acquired. The Company has adopted this practice since June 30, 2008, and accordingly, a reclassification as Intangibles is required as of March 31, 2008 of R$2,023,556 referring to software licensing, constructions in progress and others, originally recorded as Property, Plant and Equipment .
10
The financial assets including derivative instruments, intended for trading or sale, should be valued and recorded at market. The other assets are to be valued at the acquisition cost or issuance value, restated as legally required or contracted and adjusted to their probable realizable value, if this is lower. The effects of determination of market value of financial instruments, including the effects shown comparatively to March 31, 2008 are shown in Note 31.
The preparation of cash flow and value-added statements, in the place of the statement of changes in financial position becomes mandatory. The Company is already complying with this requirement.
c. Consolidated Quarterly Information
The consolidated quarterly information includes assets, liabilities and the consolidated results of operations of the Company and its subsidiaries TIM Celular e TIM Nordeste, respectively, as follows:
% Participation | ||||||||
06/2008 | 03/2008 | |||||||
Direct | Indirect | Direct | Indirect | |||||
TIM Participações | ||||||||
TIM Celular | 100.00 | - | 100.00 | - | ||||
TIM Nordeste | - | 100.00 | - | 100.00 |
The quarterly information on subsidiaries included in consolidation coincides with those of the parent company and the accounting policies were consistently applied by the consolidated companies in relation to the previous year.
The main consolidation procedures are as follows:
I. Elimination of intercompany consolidated assets and liabilities accounts;
II. Elimination of participation in capital, reserves and retained earnings of the subsidiaries;
III. Elimination of consolidated intercompany revenues and expenses;
d. Comparability of the Quarterly Information
In order to continuously improve their corporate governance level and presentation of the quarterly information, and especially ensure compliance with CVM´s and international accounting practices applicable to their field of activity, the Company and its subsidiaries have analyzed the best accounting practices used in their industry. The results are changes with the effects described below and other effects on the financial statements adjusted in relation to those previously published and made available to the shareholders.
11
The Company reclassified related-party receivables and payables amounting to R$11,272 and R$47,536, respectively, as of June 30, 2007, according to their nature, i.e., accounts and loans receivable (under the heading Other Assets) and accounts payable, in accordance with the respective realization periods. In this context, the amounts referred to above, originally presented as non-current assets and liabilities, were reclassified as current.
Under Permanent Assets was R$1,980,485 referring to software licensing, constructions in progress and others, originally recorded as Property, Plant and Equipment and reclassified as Intangibles as of June 30, 2007.
e. Statements of cash flow and value added
The Company includes in Note 36 the statements of cash flow and value added. These statements were prepared in accordance with IBRACON NPC no. 20 (Accounting Standards and Procedures) and CFC (Federal Accounting Council) Resolution 1.010, respectively.
3 | Summary of the main accounting practices | |
a. Cash and cash equivalents
These comprise movement account balances and short-term investments in the money market realizable in up to 90 days as from the balance sheet date.
b. Short-term investments in the money market
These comprise investments in the money market maturing in over 90 days as from the balance sheet date, which are shown at cost plus the related earnings up to the balance sheet date, and limited to market value, where applicable.
c. Accounts receivable
Accounts receivable from the telecommunications service costumers are calculated at the tariff rate ruling on the date of service-rendering, including credits for services rendered but not billed until the balance sheet date, receivables from network use and receivables from sales of cell phone sets and accessories.
d. Allowance for doubtful accounts
The allowance for doubtful accounts shown as reduction of accounts receivable is recorded based on the customer base profile, the aging of past due accounts, the economic scenario and the risks involved in each case. The allowance amount is considered sufficient to cover possible losses on receivables.
12
e. Inventories
Inventories are stated at the average acquisition cost, which does not exceed the market value or net realizable value.
f. Prepaid expenses
The prepaid expenses are shown at the amount actually disbursed and not yet incurred.
The subsidized sales of phone sets and mini modems under the post-paid system are deferred and amortized over at least the duration of the service contract signed by clients (12 and 18 months, respectively) in 2007 and 12 months as from 2008. The contractual fine for clients who cancel their subscriptions or migrate to the prepaid system before the end of their contracts is invariably higher than the subsidy granted for sales of phone sets and mini modems.
g. Investments
The investments in subsidiaries are valued by the equity method. The other investments are shown at cost, net of the provision for devaluation, where applicable.
The economic basis for TIM Celular goodwill was its expected profitability. It is amortized on a straight-line basis in ten years through 2010.
h. Property, plant and equipment
The property, plant and equipment items are shown at the acquisition and/or construction cost net of accumulated depreciation, which is calculated on the straight-line method over the useful life of assets involved. Any repair and maintenance costs incurred representing improvement, higher capacity or longer useful life is capitalized, whereas the others are recorded as income.
Interest and other financial charges on financing taken for funding construction work in progress (assets and facilities under construction) are capitalized up to the startup date.
The estimated costs to be incurred on disassembly of towers and equipment in property rented are capitalized and depreciated over the useful lives of these assets.
The long-term assets, especially property, plant and equipment, are periodically reviewed to determine the need for recording a provision for losses on any such items and recovery thereof.
The estimated useful lives of all property, plant and equipment items are regularly reviewed considering technological advances.
i Intangibles
Intangibles are stated at the acquisition cost, net of accumulated amortization. Amortization expenses are calculated on the straight-line method over the useful life of assets.
13
The estimates of useful lives of property, plant and equipment are regularly reviewed in order to reflect technological changes.
j. Deferred charges
The deferred charges comprise pre-operating expenses and financial costs of the required working capital at the subsidiaries´ pre-operating stage, which are amortized on the straight-line basis in ten years from the date the subsidiaries become operative.
k. Liabilities
These are recognized in the balance sheet when the Company has a legal obligation or one arising from past events, the settlement of which may require disbursement of economic resources. Some liabilities involve uncertainties concerning the term and value, being estimated as incurred and recorded by means of a provision. The provisions are recorded based on the best estimates of related risks.
l. Income tax and social contribution
The provision for income tax and social contribution was calculated in accordance with pertinent legislation in force at the balance sheet date. Income tax is calculated at 15% on taxable income, plus 10% surtax on portions exceeding R$240 in a 12-month period. Social contribution is calculated at 9% on taxable income recognized on the accrual basis. As a consequence, temporarily non-deductible expenses included in the book value of income or temporarily non-deductible revenues excluded from taxable income give rise to deferred tax credits and debits.
Prepaid amounts or those which can be offset are shown as current or non-current assets, depending on the prospects of realization.
The deferred income tax and social contribution on accumulated tax losses and negative social contribution basis and on temporary differences are calculated based on the expected taxable income generation in the future, net of the provision for adjustment to the recovery value, set up in accordance with CVM Instruction 371/02.
Pursuant to the Northeast Development Agency ADENE´s Constitutive Reports 0144/2003 and 0232/2003 of March 31, 2003, TIM Nordeste became a beneficiary of a fiscal incentive consisting of: i) 75% reduction of income tax and non-reimbursable surtaxes, for a 10-year period from fiscal 2002 through 2011, calculated based on the exploration profit deriving from implementation of its installed capacity for digital mobile cell telephony services; and (ii) 37.5%, 25% and 12.5% reduction of income tax and non-reimbursable surtaxes for the fiscal years 2003, 2004-2008 and 2009-2013, respectively, calculated based on the exploration profit deriving from implementation of its installed capacity for analogical mobile cell telephony services.
m. Provision for contingencies
This provision is set up based on the opinion of the Companies´ internal and external lawyers and management, in an amount deemed sufficient to cover probable losses and risks. Possible losses and risks are disclosed, while remote losses are not.
14
n. Assets retirement obligations
Pursuant to the Circular Communication CVM/SNC/SEP no. 01/2007, the subsidiaries record provisions for asset retirement obligations and estimated costs brought to present value, which will be incurred on disassembly of towers and equipment in rented properties.
o. Revenue recognition
Service revenues are recognized as services are provided. Billings are monthly recorded. Unbilled revenues from the billing date to the month end are measured and recognized during the month in which services are provided. Revenues from prepaid telecommunications services are recognized on the accrual basis in the period of utilization. Revenues from the sale of cell phone sets and accessories are recognized as these products are delivered to, and accepted by, end-consumers or distributors. No revenue is recognized if realization is rather uncertain.
p. Derivative instruments
The subsidiaries enter into swap derivative contracts, accounted for on the accrual basis, in order to control exposure to the risk of exchange variation and interest rate fluctuation. Derivative instruments are recorded based on the average curve against financial revenues, and expenses and variations incurred are recognized as adjustments to exchange variations.
These contracts are signed with big, highly experienced financial institutions. The subsidiaries do not sign derivative contracts for commercial or speculative purposes.
q. Pension plans and other post-employment benefits
The Company and its subsidiaries record the adjustments connected with the employees pension plan obligations according to the rules established by NPC 26 of IBRACON, approved by CVM Deliberation n° . 371, which defines the characteristics of the plan, obligations and events described in Note 32.
r. Employees´ profit-sharing
The Company and its subsidiaries monthly record a provision for employees´ profit-sharing, based on the targets disclosed to its employees and approved by the Administrative Council. These amounts are recorded as personnel expenses and allocated to profit and loss accounts considering each employees cost center.
s. Use of estimates
The preparation of the financial statements in conformity with accounting practices adopted in Brazil requires management to make estimates and assumptions concerning the amounts of assets and liabilities recorded, and the disclosure of contingent assets and liabilities at the balance sheet date, as well as the estimation of revenues and expenses for the year. The actual results may differ from those estimates.
15
4 Short-term investments in the money market
Parent Company | Consolidated | |||||||
06/2008 | 03/2008 | 06/2008 | 03/2008 | |||||
Current | ||||||||
CDB | 32,268 | 32,591 | 50,227 | 50,444 | ||||
Debentures | - | - | 7 | - | ||||
32,268 | 32,591 | 50,234 | 50,444 | |||||
Non-current | ||||||||
CDB | 10 | 10 | 6,712 | 3,624 | ||||
Federal public securities | 284 | 280 | 284 | 280 | ||||
Debentures | - | - | 126 | 13 | ||||
294 | 290 | 7,122 | 3,917 | |||||
32,562 | 32,881 | 57,356 | 54,361 | |||||
The companys average yield on TIM Participações´ consolidated investments is 103.06 % of the CDI Interbank Deposit Certificate variation.
These investments are redeemable at any time, with no significant loss on recorded yield, except in the case of long-term investments earmarked for use in connection with legal suits.
5 Accounts receivable
Consolidated | ||||
06/2008 | 03/2008 | |||
Billed services | 1,026,616 | 1,226,199 | ||
Unbilled services | 613,257 | 521,097 | ||
Network use | 884,110 | 888,298 | ||
Goods sold | 640,290 | 626,520 | ||
Other receivables | 15,647 | 9,043 | ||
3,179,920 | 3,271,157 | |||
Allowance for doubtful accounts | (492,429) | (569,378) | ||
2,687,491 | 2,701,779 | |||
16
The changes in the allowance for doubtful accounts can be summarized as follows:
Consolidated | ||||
06/2008 | 03/2008 | |||
(6 months) | (3 months) | |||
Opening balance | 455,939 | 455,939 | ||
Provision set up | 475,028 | 271,701 | ||
Provision written off | (438,538) | (158,262) | ||
Closing balance | 492,429 | 569,378 | ||
6 Inventories
Consolidated | ||||
06/2008 | 03/2008 | |||
Cell phone sets | 225,528 | 210,372 | ||
Accessories and prepaid cards | 29,313 | 29,835 | ||
TIM chips | 22,839 | 23,785 | ||
268,680 | 263,992 | |||
Provision for adjustment to realizable value | (11,659) | (12,109) | ||
257,021 | 251,883 | |||
7 Taxes and contributions recoverable
Parent Company | Consolidated | |||||||
06/2008 | 03/2008 | 06/2008 | 03/2008 | |||||
Income tax | 6,040 | 6,022 | 46,516 | 44,533 | ||||
Social contribution | - | - | 7,418 | 7,015 | ||||
ICMS | - | - | 499,035 | 497,499 | ||||
PIS / COFINS | - | - | 164,114 | 153,050 | ||||
IRRF recoverable | 298 | 252 | 4,846 | 956 | ||||
Other | 1 | 1 | 5,437 | 3,443 | ||||
6,339 | 6,275 | 727,366 | 706,496 | |||||
Current portion | (302) | (268) | (507,182) | (478,285) | ||||
Long-term portion | 6,037 | 6,007 | 220,184 | 228,211 | ||||
The parent companys long-term portion basically refers to income tax and social contribution recoverable, whereas the consolidated figure also includes ICMS on the subsidiaries´ permanent assets.
17
The Company and TIM Celular have filed suits against the alleged unconstitutionality of Law 9.718 for expanding the basis of calculation of taxes dealt with therein, and preventing collection of PIS and COFINS on revenues other than those arising from the Companys sales. However, as they have not had a final favorable sentence, no PIS and COFINS credits have been recorded. According to the Management, there is the probability of a favorable outcome to these companies. The amounts involved are respectively R$16,924 and R$39,201, monetarily adjustment.
8 Deferred income tax and social contribution
Below, the composition of deferred income tax and social contribution:
Consolidated | ||||
06/2008 | 03/2008 | |||
Goodwill paid upon privatization | 12,364 | 49,460 | ||
Provision for maintenance of shareholders´ equity integrity | (8,160) | (32,643) | ||
Merger-generated tax credit | 4,204 | 16,187 | ||
Merger-generated tax credit
The deferred tax asset relating to the merger-generated tax credit refers to future tax benefit under the restructuring plan started in 2000. As a counter entry to said tax is a special reserve composed of goodwill on shareholders´ equity. The tax is realized ratably to estimated future income, over the duration of the authorization granted, which is due to end by July 2008. The amortization of goodwill which reflects the tax benefit is recorded as Provision for income tax and social contribution.
In the six-month period ended June 30, 2008, R$25,225 was amortized in connection with the above mentioned goodwill (in the same period of 2007 R$25,225).
Also, under the terms of the restructuring plan, the actual tax benefit for each fiscal year will be subsequently capitalized in the name of the controlling shareholder (Note 20-b).
9 Prepaid expenses
Consolidated | ||||
06/2008 | 03/2008 | |||
Fistel fee | 214,126 | 321,190 | ||
Subsidized sale of phone sets and mini-modems | 144,798 | 165,925 | ||
Rentals | 7,306 | 8,170 | ||
Unpublicized advertising | 28,927 | 47,642 | ||
Financial charges on loans | 4,364 | 5,291 | ||
Other | 8,118 | 4.776 | ||
407,639 | 552,994 | |||
Current portion | (398,554) | (545,144) | ||
Long-term portion | 9,085 | 7,850 | ||
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10 Investments
Parent Company | Consolidated | |||||||
06/2008 | 03/2008 | 06/2008 | 03/2008 | |||||
Investments | ||||||||
Subsidiaries | 7,612,132 | 7,777,343 | - | - | ||||
Goodwill | 4,337 | 4,732 | 4,337 | 4,732 | ||||
Other | - | - | 20 | 20 | ||||
7,616,469 | 7,782,075 | 4,357 | 4,752 | |||||
(a) Shareholding in subsidiary:
06/2008 | 03/2008 | |||
TIM Celular | ||||
- Subsidiary | ||||
Number of shares held | 31.506.833.561 | 31.506.833.561 | ||
Participation in total capital | 100% | 100% | ||
Shareholders´ equity | 7,612,132 | 7,777,343 | ||
Income (loss) for the year | (139,564) | (107,145) | ||
Equity pickup | (139,564) | (107,145) | ||
Investment amount | 7,596,251 | 7,723,558 | ||
Special goodwill reserve (*) | 15,881 | 53,785 | ||
Investment amount | 7,612,132 | 7,777,343 | ||
(*) The special goodwill reserve recorded at TIM Nordeste and TIM Celular represents the parent companys rights in future capitalizations. These tax benefits are connected with goodwill paid upon privatization of Tele Nordeste Celular Participações S.A (merged into TIM Participações in August 2004) and Tele Celular Sul Participações S.A. (formerly TIM Participações). This goodwill was recorded against the special goodwill reserve, under Shareholders equity. Based on the projected income and the concession duration, in the first two years amortization was at 4% p.a., the remainder, under amortization on the straight-line basis, being due to mature by July 2008.
(b) Changes in investments in subsidiaries:
06/2008 | 03/2008 | |||
Opening balance | 7,884,488 | 7,884,488 | ||
Equity pickup | (139,564) | (107,145) | ||
Capital reduction (i) | (132,792) | - | ||
Closing balance | 7,612,132 | 7,777,343 | ||
(i) Capital reduction to stimulate the flow of resources to the parent company.
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(c) Goodwill:
Parent Company and | ||||
Consolidated | ||||
06/2008 | 03/2008 | |||
Goodwill on acquisition of TIM Celular´s minority | 16,918 | 16,918 | ||
shareholding | ||||
Accumulated amortization | (12,581) | (12,186) | ||
4,337 | 4,732 | |||
11 Property, plant and equipment
Consolidated | ||||||||||
06/2008 | 03/2008 | |||||||||
Annual | ||||||||||
depreciation | ||||||||||
rate | Accumulated | Net | ||||||||
% | Cost | depreciation | Net | (adjusted) | ||||||
Switching / transmission | ||||||||||
equipment | 14,29 | 7,454,010 | (4,680,302) | 2,773,708 | 2,730,639 | |||||
Loan-for-use handsets | 50 | 897,018 | (561,308) | 335,710 | 263,563 | |||||
Infrastructure | 33,33 | 1,720,335 | (823,206) | 897,129 | 876,990 | |||||
Leasehold improvements | 33,33 | 115,432 | (77,132) | 38,300 | 39,351 | |||||
Computer assets | 20 | 1,055,926 | (747,054) | 308,872 | 340,820 | |||||
General use assets | 10 | 332,382 | (125,966) | 206,416 | 207,221 | |||||
Assets and facilities in use | 11,575,103 | (7,014,968) | 4,560,135 | 4,458,584 | ||||||
Plots of land | 27,213 | - | 27,213 | 25,663 | ||||||
Construction in progress | 118,928 | 118,928 | 283,229 | |||||||
11,721,244 | (7,014,968) | 4,706,276 | 4,767,476 | |||||||
The construction in progress basically refers to the construction of new transmission units (Base Radio Broadcast Station - ERB) for network expansion.
In the six-month period ended June 30, 2008, R$1,383 of property, plant and equipment was capitalized by the subsidiaries, (March 31, 2008 R$948) relating to financial charges on loans taken to finance the construction.
GSM technology implementation
The subsidiaries´ operate their service network using TDMA, GSM and 3G technologies. At June 30, 2008, no provision for loss on recovery of property, plant and equipment was deemed necessary. The assets related to TDMA technology are fully depreciated as of June 30, 2008.
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12 Intangibles
The authorizations for SMP exploitation rights and radio-frequency licensing, Softwares and others, can be thus shown:
Consolidated | ||||||||||
06/2008 | 03/2008 | |||||||||
Annual average | ||||||||||
depreciation | Accumulated | Net | ||||||||
rate % | Cost | Amortized | Net | (adjusted) | ||||||
Software licensing | 20 | 4,384,439 | (2,360,611) | 2,023,828 | 1,937,707 | |||||
Concession licenses | 7 - 20 | 4,491,097 | (1,686,583) | 2,804,514 | 1,641,643 | |||||
Assets and facilities in | ||||||||||
process | 15,506 | - | 15,506 | 85,463 | ||||||
Other assets | 20 | 3,039 | (2,682) | 357 | 386 | |||||
8,894,081 | (4,049,876) | 4,844,205 | 3,665,199 | |||||||
Acquisition of authorizations 3G technology
In December 2007, under the ANATEL Invitation to Bid no. 002/2007/SPV, TIM Celular and TIM Nordeste jointly purchased authorizations to use Radio-frequencies at the F, G, and I radio-frequency sub-bands referring to the 3G (UMTS) pattern and corresponding to all the Brazilian states, except the Triângulo Mineiro municipalities in the state of Minas Gerais. In April 2008, the terms of authorization to use the 3G Radio-frequencies in the amount of R$1,324,672 were signed, of which 10% was paid at that time, the remainder R$1,192,204 - being payable in a lump sum by December 10, 2008. The balance payable and the corresponding intangibles were recognized at their present value: R$1,106,527. The discount to present value was based on basic interest rates prevailing in the Brazilian market, taking into consideration based on maturity period of each operation. These authorizations are valid for 15 years and renewable for a further equal period.
As a consequence of this purchase, the subsidiaries assumed coverage commitments to be met using the acquired frequencies (1.9GHz/2.1GHz) in several municipalities, including those with less than 30,000 inhabitants and not covered by the SMP.
21
13 Deferred charges
Consolidated | ||||
06/2008 | 03/2008 | |||
Pre-operating expenses: | ||||
Third parties´ services | 228,665 | 228,665 | ||
Personnel expenses | 79,367 | 79,367 | ||
Rentals | 48,914 | 48,914 | ||
Materials | 3,439 | 3,439 | ||
Depreciation | 10,202 | 10,202 | ||
Financial charges, net | 46,774 | 46,774 | ||
Other expenses | 5,990 | 5,990 | ||
423,351 | 423,351 | |||
Accumulated amortization | (254,264) | (243,680) | ||
169,087 | 179,671 | |||
14 Suppliers Trade payables
Parent Company | Consolidated | |||||||
06/2008 | 03/2008 | 06/2008 | 03/2008 | |||||
Local currency | ||||||||
Suppliers of materials e services | 858 | 1,175 | 1,299,350 | 1,253,212 | ||||
Interconnection (a) | - | - | 324,853 | 312,732 | ||||
Roaming (b) | - | - | 945 | 868 | ||||
Co-billing (c) | - | - | 198,119 | 210,582 | ||||
858 | 1,175 | 1,823,267 | 1,777,394 | |||||
Foreign currency | ||||||||
Suppliers of materials e services | - | - | 39,149 | 42,395 | ||||
Roaming (b) | - | - | 59,915 | 60,130 | ||||
- | - | 99,064 | 102,525 | |||||
858 | 1,175 | 1,922,331 | 1,879,919 | |||||
(a) This refers to the use of network of other fixed and mobile cell telephone operators, with calls being initiated at TIM network and ended in the network of other operators.
(b) This refers to calls made by customers outside their registration area, who are therefore considered visitors in the other network.
(c) This refers to calls made by customers when they choose another long-distance call operator.
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15 Loans and Financing
Consolidated | ||||||
Guarantees | 06/2008 | 03/2008 | ||||
Local currency | ||||||
Banco do Nordeste: financing subject to pre-fixed interest of 10% p.a. and a 15% and 25% bonus on charges, for payment upon maturity. This financing is the subject matter of a swap operation which changes the cost into % of the CDI daily rate varying between 75.75% and 76.90%. |
Bank surety | 79,939 | 84,954 | |||
Banco do Nordeste: financing subject to pre-fixed interest of 10% p.a. and a 15% and 25% bonus on charges, for payment upon maturity. This financing is the subject matter of a swap operation which changes the cost into % of the CDI daily rate beginning with 69.80%. |
Bank surety and TIM Brasil Serviços e Participações´s surety | |||||
68,744 | 72,316 | |||||
Banco do Nordeste: financing subject to pre-fixed interest of 10% p.a. and a 15% and 25% bonus on charges, for payment upon maturity. |
Bank surety and TIM Brasil Serviços e Participações´s surety | |||||
45,224 | - | |||||
BNDES (Banco Nacional do Desenvolvimento Econômico e Social): this financing bears interest at 4.20% p.a. plus variation of the TJLP (long-term interest rate) as disclosed by the Brazilian Central Bank 39% of the financing at the TJLP was the object of a swap to 91.43% of the daily CDI rate. |
TIM Brasil Serviços e Participações´s surety, with part of the service collection blocked up to the amount of the loan debit balance | |||||
1,077,066 | 1,082,597 | |||||
BNDES (Banco Nacional de Desenvolvimento |
||||||
Econômico e social): this financing bears interest at 3.00% p.a. plus variation of the TJLP (long-term interest rate) as disclosed by the Brazilian Central Bank. The financing at the TJLP was the object of a swap to 81.80% of the daily CDI rate. |
||||||
Bank surety | 42,155 | 45,289 | ||||
Syndicated Loan (a) the debit balance is restated based on the CDI rate variation plus a 0.90% p.a. This margin is established in accordance with the Consolidated Net Debt / Consolidated EBITDA ratio, calculated based on the quarterly information on the Company. |
TIM Brasil Serviços Participações´surety | |||||
624,591 | 606,567 | |||||
Resolution 2770 (Compror): Bank financing for payment of suppliers of goods and services, linked to foreign currency variations. 28% of the agreements denominated in US dollars (average coupon of 6.35% p.a.) and 72% of the agreements denominated in Yen (average coupon of 1.83% p.a.) These agreements are the object of swap operations which result in cost of some 112.8% of the CDI daily rate. |
||||||
N.A | 204,197 | 256,885 | ||||
Resolution 2770 (Working Capital): Bank financing for meeting working capital requirements, linked to the variation of foreign currencies. 36% of the agreements denominated in US dollars (average coupon of 2.65% p.a.)and 64% of the agreements denominated in Yen (average coupon of 1% p.a.). These agreements are the object of swap operations which result in cost of some 112.5% of the CDI daily rate. |
||||||
NA | 576,200 | 650,561 |
23
Consolidated | ||||||
Guarantees | 06/2008 | 03/2008 | ||||
CCB Working Capital: Bank financing in local currency for meeting working capital requirements. At the restated cost at 110% of the CDI daily rate. |
N.A. | 204,412 | - | |||
Swap contracts relating to the above financing. |
63,778 | (43,905) | ||||
2,986,306 | 2,755,264 | |||||
Current portion |
(1,262,823) | (1,423,510) | ||||
Long-term portion |
1,723,483 | 1,331,754 | ||||
The syndicated loan taken by TIM Celular has restrictive clauses concerning certain financial indices calculated on a half-yearly basis. The subsidiary are fully complied by the borrower. The following Financial Institutions are party to this loan agreement: HSBC Bank Brasil S.A. Banco Múltiplo, Banco ABN AMRO Real S.A., Banco BNP Paribas Brasil S.A., Banco Bradesco S.A., Banco do Brasil S.A., Banco Itaú BBA S.A., Banco Santander Brasil S.A., Banco Société Générale Brasil S.A., Banco Votorantim S.A., Unibanco União de Bancos Brasileiros S.A.
The CCB (Bank Credit Schedules) for Working Capital also have the same restrictive clauses as the syndicated loan, all of which have been complied with by the subsidiary. These loans have been taken from ABN AMRO Real S.A.
The BNDES loan to TIM Celular S.A. for financing the mobile telephone network has restrictive clauses concerning certain financial indices, calculated on a half-yearly basis. As the subsidiary has observed four (4) of the five (5) requirements, it is in compliance with the contractual provisions.
The subsidiaries entered into swap operations as a safeguard against devaluation of the Brazilian currency (Real) in relation to foreign currencies and changes in the fair value of financing bearing prefixed interest rates and TJLP. The terms of these swap operations are the same as those of the respective loans.
The long-term portions of loans and financing at June 30, 2008 mature as follows:
Consolidated | ||
2009 | 426,602 | |
2010 | 433,693 | |
2011 | 458,789 | |
2012 | 238,591 | |
From 2013 on | 165,808 | |
1,723,483 | ||
24
16 Labor obligations
Parent Company | Consolidated | |||||||
06/2008 | 03/2008 | 06/2008 | 03/2008 | |||||
Salaries and fees | - | - | 87 | 38 | ||||
Payroll taxes | 24 | 18 | 29,324 | 26,118 | ||||
Vacation and bonuses payable | - | 63 | 78,120 | 89,758 | ||||
Employees´ withholding | 8 | - | 8,344 | 8,779 | ||||
32 | 81 | 115,875 | 124,693 | |||||
17 Taxes, rates and contributions
Parent Company | Consolidated | |||||||
06/2008 | 03/2008 | 06/2008 | 03/2008 | |||||
IRPJ and CSLL | - | 4,093 | - | |||||
ICMS | - | - | 363,683 | 307,831 | ||||
COFINS | - | - | 42,153 | 38,972 | ||||
PIS | - | - | 9,133 | 8,444 | ||||
ANATEL (FISTEL, FUST/FUNTTEL | ||||||||
etc) | - | - | 23,752 | 14,487 | ||||
IRRF | 1 | 4 | 3,241 | 2,179 | ||||
ISS | 5 | 5 | 21,268 | 19,740 | ||||
Other | - | - | 18,036 | 14,415 | ||||
6 | 9 | 485,359 | 406,068 | |||||
18 | Provision for contingencies | |
The Company and its subsidiaries are parties to certain lawsuits (labor, tax, regulatory and civil) arising in the normal course of their business, and have recorded provisions when management understands that the risk of loss is deemed probable, based on the opinion of their legal advisors.
The provision for contingencies and the escrow deposits made are thus composed:
Parent Company | ||||||||
Contingencies | Escrow Deposits | |||||||
06/2008 | 03/2008 | 06/2008 | 03/2008 | |||||
Civil | 44 | 43 | - | - | ||||
Labor | 5,058 | 3,525 | 4,279 | 3,120 | ||||
Tax | - | - | 431 | 423 | ||||
5,102 | 3,568 | 4,710 | 3,543 | |||||
25
Consolidated | ||||||||
Contingencies | Escrow deposits | |||||||
06/2008 | 03/2008 | 06/2008 | 03/2008 | |||||
Civil | 103,894 | 89,976 | 28,296 | 26,328 | ||||
Labor | 53,049 | 50,055 | 41,519 | 37,168 | ||||
Tax | 73,536 | 76,697 | 53,328 | 51,602 | ||||
Regulatory | 21,404 | 19,467 | - | - | ||||
251,883 | 236,195 | 123,143 | 115,098 | |||||
The changes in the provision for contingencies can be summarized as follows:
Additions, | ||||||||||
net of | Monetary | |||||||||
12/2007 | reversals | Payments | adjustment | 06/2008 | ||||||
Civil | 79,639 | 41,432 | (20,629) | 3,452 | 103,894 | |||||
Labor | 50,008 | 4,843 | (1,897) | 96 | 53,049 | |||||
Tax | 76,159 | (531) | (2,803) | 710 | 73,536 | |||||
Regulatory | 9,934 | 9,664 | - | 1,806 | 21,404 | |||||
215,740 | 55,408 | (25,329) | 6,064 | 251,883 | ||||||
Civil contingencies
Several legal and administrative processes have been filed against the Company by consumers, suppliers, service providers and consumer protection agencies, dealing with various issues arising in the regular course of business. The Management analyzes each legal or administrative process to determine whether it involves probable, possible or remote risk of contingencies. In doing so, the Company always takes into account the opinion of lawyers engaged to conduct the processes. The evaluation is periodically reviewed, with the possibility of being modified over the processes due to facts of events such as case law changes.
Consumer lawsuits
Approximately 56,300 individual lawsuits (March 31, 2008 38,600) have been filed against the subsidiaries, mostly by consumers claiming for settlement of matters arising from their relationship with the Company. Among these, the allegedly undue collection, contract cancellation, defects of equipment, non-compliance with delivery deadlines and undue restriction credit stand out.
26
Collective actions
There are three collective actions against subsidiaries involving the risk of probable loss, which can be summarized as follows: (i) a suit against TIM Celular claiming for the installation of a service unit for personal assistance in Rio Branco, AC.; (ii) a suit against TIM Nordeste in the state of Bahia claiming for prohibition of collection of long-distance calls originated and received between Petrolina/PE and Juazeiro/BA, because of the existing state line areas; and (iii) a suit against TIM Celular in the state of Rio de Janeiro, involving the impossibility of collecting a fidelization fine in the event of phone set thefts. No provisions have been recorded for these contingencies, given the obligations involved therein and the impossibility of accurately quantifying possible losses at the current stage of the processes.
Labor contingencies
These refer to claims filed by both former employees, in connection with salaries, salary differences and equalization, overtime, variable compensation/commissions, and former employees of service providers who, based on pertinent legislation, claim for the Companys and/or its subsidiaries´ accountability for labor obligations defaulted on by their outsourced employers.
Labor claims
Of the 2,720 labor suits filed against the Company and its subsidiaries (March 31, 2008 2,528) over 65% involve claims against service providers, concentrated on certain companies from São Paulo, Rio de Janeiro, Curitiba and Recife.
Still on third parties´ claims, part of these relate to specific projects of service agreement review, often ended in rescission in 2007, winding up of the companies and termination of employees involved. A further significant portion of contingencies refers to organizational restructuring, among which the discontinuance of the Client Relationship Centers in Fortaleza, Salvador and Belo Horizonte, and the termination of 800 own employees and outsourced personnel stand out.
The probability of winning these actions and the amount of contingencies are subject to periodical reviews, taking into account the legal decisions made thereon, some regulatory changes or amendments to Case Law and Abridgement of Law issued by Superior Courts.
Tax Contingencies
IR and CSLL
In 2005, TIM Nordeste S.A. was assessed by the Internal Revenue Secretariat of the State of Minas Gerais for R$126,933, for the following reasons: (i) taxation of monetary variations on swap operations and exchange variation on unsettled loans; (ii) a separate fine for default on payment of social contribution on an estimated monthly basis for the year 2002 and part of 2001; (iii) default on payment of corporate income tax on an estimated monthly basis for the year 2002; and (iv) remittance of interest (IRRF) a voluntary denunciation without payment of arrears charges.
27
The subsidiary is currently discussing these assessments with the taxing authorities. Based on its internal and external advisors´ opinion, the Management estimates probable losses on these processes at R$32,750, an amount duly provided for under Provision for income tax and social contribution in 2006.
In September 2003 TIM Nordeste S.A. was assessed by the Internal Revenue Secretariat of the State of Ceará for R$12,721 referring to: (i) disallowance of R$8,402 expenses included in the IRPJ determination for the period from 1999 through 2001; (ii) differences of R$3,208 in CSLL payments for the years from 1998 through 2001; (iii) differences of R$334 and R$777, respectively, in the payment of PIS and COFINS for the years from 1998 through 2002. The subsidiary unsuccessfully filed an impugnation and a voluntary appeal against this assessment, at the administrative level. As a consequence, based on its internal and external lawyers´ opinion that there is the probability of losses thereon, in September 2007 the Management set up two provisions: one in the amount of R$11,610 for IRPJ and CSLL, under the heading Provision for Income Tax and Social Contribution, and one in the amount of R$1,111, for PIS and COFINS, under the heading Other Operating Expenses.
ICMS
In 2003 and 2004 TIM Celular was assessed by the Internal Revenue Secretariat of the State of Santa Catarina for R$39,048 (current value), mainly relating to dispute on the levying of ICMS on certain services provided. This amount is the result of several favorable sentences in administrative processes initially involving assessments of R$95,449. The Company is currently discussing these assessments with the taxing authorities. Based on the internal and external lawyers, the Management concluded that there is still the possibility of loss on the processes under discussion.
In April 2008 TIM Celular adhered to the Programa Catarinense Revigorar which provides for remission of 50% of pending tax debt with the State of Santa Catarina. This decision led to the voidance of two tax assessment notices issued for the following : (i) misappropriation of ICMS credit in connection with acquisition of unused third party services totaling R$1,802; and (ii): default on ICMS due on services rendered to users who had been blocked or disconnected from the network, totaling R$3,300. The total amount due R$5,102 was reduced by 50% under the Programa Catarinense Revigorar, with what only R$2,551 was paid. As a provision of R$4,284 had been recorded for these cases, the R$1,773 difference between the provision and the amount actually paid was reversed to the subsidiary.
Regulatory Contingencies
Due to an alleged default on some SMPs provisions and quality targets defined under the PGMQ-SMP General SMP Quality Goals Plan ANATEL started some procedures for determining Default on Obligations PADO, involving the subsidiaries.
The subsidiaries have endeavored to avoid being assessed, with arguments, mostly of technical and legal nature, that may contribute to reduce significantly the initial fine charged or definitively close the PADO, without sanctions. The related provision was set up based on the amount of fines charged, the risk of loss involved being classified as probable (Note 34).
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Contingencies involving possible losses
Civil, Labor, Regulatory and Tax-related actions have been filed against the Company and its subsidiaries involving a risk of loss that is classified as possible or remote by the management and the Companys lawyers. No provision has been set up for these contingencies.
Consolidated | ||||
06/2008 | 03/2008 | |||
Civil | 106,374 | 93,066 | ||
Labor | 86,995 | 83,969 | ||
Tax | 1,011,233 | 947,662 | ||
Regulatory | 23,596 | 24,592 | ||
1,228,198 | 1,149,289 | |||
Below, the main actions involving possible risk of loss:
Civil
Collective Actions
Two collective actions have been brought to Court against subsidiaries, which involve the risk of probable loss and can be summarized as follows: (i) a suit against TIM Nordeste in the state of Pernambuco, questioning the Company´s policy of defective phone replacement, allegedly in disagreement with the manufacturer´s warranty terms; (ii) a suit against TIM Nordeste S.A. in the state of Ceará, claiming for the Companys obligation to replace cell phone sets which have been the subject of fraud in that state.
Other Actions and Proceedings
TIM Nordeste is the defendant in an action filed by the legal services providers, the law firm Mattos & Callumby Lisboa Advogados, in Rio de Janeiros 29th Civil Court. They claim for success fees allegedly due under a service agreement for filing court injunctions against interest and monetary restatement on purchase prices of the subsidiarys Band B.
TIM Celular, together with other telecommunications companies, has also been sued by GVT at the 4th Federal Audit Court. The plaintiff claims for declaration of nullity of a contractual clause dealing the VU-M amount used by the defendants by way of interconnection, which is deemed illegal and abusive and as such requiring refunding of all amounts allegedly charged in excess since July 2004. A preliminary order was granted determining the payment of VU-M on the basis of R$0.2899 per minute, and escrow deposits to be made by GVT in the amount of the difference between this and the value claimed by the defendants.
Labor
Labor claims
A substantial portion of contingencies refers to organizational restructuring, among which the discontinuance of the Client Relationship Centers (call centers) in Fortaleza, Salvador and Belo Horizonte, and the termination of 800 own employees and outsourced personnel stand out.
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The process 01102-2006.024.03.00.0 refers to a civil public action filed by the State of Minas Gerais´s Public Labor 3rd Region, on the charge of irregular outsourcing practices and collective damages. In the respective sentence published on April 16, 2008, the first degree substitute judge found the Public Prosecution Service´s request partly founded, having judged the outsourcing irregular and the damages collective and determined. An ordinary appeal filed against this decision is now awaiting judgment. Prior to this appeal, TIM filed a writ of mandamus requesting a preliminary order to stop the coercive acts imposed by the sentence.
Also worth noting are the processes filed in the state of Paraná, involving claims for indemnity in connection with labor registration cards. According to an internal rule, TELEPAR undertook to supplement retirement benefits of employees hired until 1982, having proposed to comply with this obligation through payment of a certain amount in cash, before the privatization process. Some of its former employees, however, have questioned this transaction, and were granted their claims, in certain cases.
Social Security
TIM Celular received in São Paulo a Debit Assessment Notice referring to an alleged irregularity in the payment of contributions to social security levied on Employees´ Profit-Sharing plan in the amount of R$2,131. After filing its administrative defense, the subsidiary awaits the outcome of the process.
Taxes
IR and CSLL
On October 30, 2006, TIM Nordeste was assessed under a single administrative process referring to IRPJ, CSLL totaling R$331,171, subsequently reduced to R$258,144, and a separate fine, for different reasons. Most of the assessment refers to amortization of goodwill determined at a Telebrás System privatization auction and the related tax deductions. Under Law 9.532/97, art. 7, the proceeds of goodwill amortization can be included in the taxable income of a company resulting from merger or split, whereby one company holds investment in the other, and pays for it using the goodwill determined based on the investee´s expected profitability. Also, this is a usual operation performed in accordance with CVM Instruction 319/99.
After timely challenging these assessment notices TIM Nordeste now awaits the taxing authorities´ decision on the matter. In March 2007, by means of a Fiscal Information Report, the Recife/PE´s Internal Revenue Secretariat informed TIM that the amounts of IRPJ, CSLL and a separate fine totaling R$73,027 (principal and separate fine) had been excluded from the assessment notice. So, part of the infractions contained in the assessment notice were transferred to 160 specific compensation processes totaling R$85,562, all of which are deemed capable of resulting in possible loss for the subsidiary.
In May and June 2008, TIM Nordeste received 45 communications of assessment issued by the Secretaria da Receita Federal do Brasil in connection with Income Tax and Social Contribution offset by the subsidiary in the years 2002, 2003 and 2004, totaling R$10,413. After it timely impugned all these assessments, the subsidiary now awaits a decision at administrative level.
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PIS and COFINS
In 2004, TIM Nordeste was assessed in connection with PIS and COFINS due on exchange variation arising from revenue generated in 1999. Both assessment notices amounted to R$30,913. Because this is a controversial matter involving interpretation of applicable legislation, a provision was set up, in 2004, for the same amount. On March 13, 2006, a decision not subject to further appeal was issued on the action filed by the company against Law 9718 of November 27, 1998. The company alleged that this law was unconstitutional concerning the expansion of the tax basis of calculation, preventing the collection of PIS and COFINS on non-operating revenue.
In view of the legal decision recognizing the unconstitutionality of PIS and COFINS levying on exchange variation, which was the reason for the above mentioned assessments, the Management of TIM Nordeste requested the extinction thereof and reversed the provision set up in 2004.
In April 2007, the amount of PIS on exchange variation claimed was reduced by R$5,293, after the declaration of unconstitutionality obtained with the sentence was recognized administratively. The remainder R$25,620 which refers to COFINS, is now under discussion. The subsidiary awaits the recognition, at administrative level, of the impossibility of collecting the remaining of COFINS infraction, after the sentence was issued.
ICMS
In 2006, TIM Nordeste was assessed by the taxing authorities from the State of Piauí for R$7,308, in connection with the payment of a difference between intrastate and interstate ICMS rate on fixed assets items for use and consumption and the determination of ICMS basis of calculation for acquisition of goods intended for sale. The subsidiary is impugning these assessments at administrative level.
In November 2007, TIM Celular was assessed by the State of Rio de Janeiro´s taxing authorities for R$38,274, for allegedly having taken undue ICMS credit from acquisition of fixed assets without application to monthly installments of a coefficient calculated ratably to the goods dispatched subjected to tax and the total goods dispatched. This assessment is being impugned by the Company at administrative level.
In November 2007, TIM Celular was assessed by the State of Rio de Janeiros taxing authorities for R$17,241 for defaulting on payment of ICMS and Contribution to the Fundo Estadual de Combate à Pobreza e Desigualdades Sociais (State Fund for Fighting Poverty and Social Inequalities) allegedly due on international roaming services. This assessment is being impugned by the subsidiary at administrative level.
In November 2007 TIM Celular was assessed by the State of São Paulo taxing authorities for R$151,017, for allegedly having failed to include conditional discounts granted to clients in the ICMS basis of calculation. Also, this subsidiary was fined for delivery of digital files allegedly containing incomplete information on operations and services rendered in the January-December 2003 period. This assessment is being impugned by the subsidiary at administrative level.
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In June 2008, TIM Nordeste was assessed by the State of Bahia taxing authorities for R$16,444, for an allegedly defaulting on payment of an additional 2% ICMS rate referring to the Contribution to the Fundo Estadual de Combate à Pobreza e Desigualdades Sociais (State Fund for Fighting Poverty and Social Inequalities) due on prepaid reloading revenues. The amounts in question are being discussed after a writ of mandamus obtained by the subsidiary with the respective escrow deposits being duly made. Anyhow, the assessment is being impugned at administrative level.
ISS
Also, on December 20, 2007, TIM Celular was assessed by the State of Rio de Janeiros taxing authorities for R$66,634 for allegedly failing to pay ISS on the following services: technical programming; administrative plan cancellation services; telephone directory aid service and provision of data and information; and network infrastructure sharing. This assessment is being impugned by the Company at administrative level.
FUST Telecommunications Service Universalization Fund
On December 15, 2005, ANATEL issued its Summary no. 07 aimed at collecting contributions to the FUST out of interconnection revenues earned by providers of telecommunications services, as from the date of enactment of Law 9998. The subsidiaries still believe that based on applicable legislation (including the sole paragraph of article 6 of Law 9998/00), the above revenues are not subject to the FUST charges, and accordingly, the Management has taken the necessary measures to protect their interests. In October and November 2006, ANATEL assessed the Companys subsidiaries for R$31,338 referring to FUST on interconnection revenues arrears fine allegedly due (in 2001), all because of Súmula 07/05.
From September to December 2007, ANATEL issued several assessment notices against the Companys subsidiaries totaling R$18,623, in connection with FUST allegedly due on interconnection revenues for the year 2002. ANATEL claims for FUST collection on interconnection revenues is currently suspended, due to a sentence that is favorable to the subsidiaries.
In June 2008, new assessment notices amounting to R$6,335 were issued by ANATEL in connection with FUST levied on interconnection revenues allegedly due for the year 2003. ANATEL claims for FUST collection on interconnection revenues is currently suspended, due to a sentence that is favorable to the subsidiaries.
FUNTTEL Telecommunications Technological Development Fund
The Ministry of Communications assessed TIM Celular and TIM Nordeste for R$10,662 claiming for FUNTTEL amounts allegedly due on interconnection revenues for the years 2001 and 2002. At the same time an arrears fine was imposed on these subsidiaries. In these companies´ opinions, the above mentioned revenues are not subject to FUNTTEL. A writ of mandamus was filed to safeguard the Company´s interests in this case of default on FUNTTEL fees allegedly due on interconnection revenues, based on the same arguments used for the FUST process. The claims for FUNTTEL collection on interconnection revenues are currently suspended, due to a writ of mandamus favorable to the subsidiaries.
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Regulatory Proceedings
The subsidiary TIM Celular holds the PCS authorization to operate in Paraná state (except for the cities of Londrina and Tamarana). During 2006 the authorization was renewed for an additional period the Authorization Term n° 002/2006/PVCP/SPV issued by ANATEL , for the period of 15 years, starting at the primarily effective date of this authorization, and, therefore, extended until September 3, 2022. As a consequence of the renewal of this authorization, as a consequence of Act nº 57,551, issued on April 13, 2006, ANATEL charged the company with a Facilities Fiscalization Tax (TFI) related to its mobile stations operating in the service area, although these stations are already licensed, at the amount of R$80,066.
The obligation of a new TFIs collection results of the ANATELs understanding of the applicability of Resolution nº 255, article 9, that foresees the issuance of new licenses for stations as a consequence of authorization renewal. Management does not believe that this charge is appropriate and will file an administrative claim, which will cease the obligation until ANATEL comes to a final decision.
19 Assets retirement obligation
The changes in the asset retirement obligation can be thus shown:
Consolidated | ||||
06/2008 | 03/2008 | |||
(6 months) | (3 months) | |||
Opening balance | 192,137 | 192,137 | ||
Balance throughout the period, net of write offs | 2,021 | 1,077 | ||
Monetary adjustment in the period | 8,100 | 3,981 | ||
Closing balance | 202,258 | 197,195 | ||
The assets retirement obligations were brought to present value, the result being financial expenses of R$8,100 reflected in the statement of income for the six-month period ended June 30, 2008 (same period in 2007 R$11,740).
20 Shareholders´ equity
a. Capital
As deliberated upon by the Administrative Council, regardless of the statutory reform, the Company is authorized to increase its capital by up to 2,500,000,000 (two billion and five hundred million) common or preferred shares.
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At the Shareholders´ Meeting held on April 11, 2008, an R$63,085 capital increase was approved through issuance of 3,359,308 common shares and 6,503,066 preferred shares without nominal value, in the name of TIM Brasil. This capital increase was made possible by a tax benefit granted on amortization of goodwill and the Company´s split off. In order to be able to maintain their stake in the capital, the minority shareholders are entitled to capitalization under the same conditions granted to majority shareholders.
The share subscription price per share was R$7.59 for common shares and R$5.78 for preferred shares.
Capital subscribed and paid-in comprises shares without par value, thus distributed:
06/2008 | 03/2008 | |||
Number of common shares | 798,350,977 | 794,991,669 | ||
Number of preferred shares | 1,545,475,560 | 1,538,972,494 | ||
2,343,826,537 | 2,333,964,163 | |||
b. Capital reserves
Special Goodwill Reserve
This reserve was set up during the corporate reorganization process in 2000. The portion of the special reserve corresponding to the tax benefit obtained may be capitalized at the end of each fiscal year for the benefit of the controlling shareholder, through issuance of new shares. The respective capital increase will be subject to preemptive rights of the minority shareholders, in proportion to their shareholdings, by type and class upon the new issuance, and the amounts payable during the year in connection with this right must be delivered directly to the controlling shareholder, in accordance with Instruction No. 319/99 of the Brazilian Securities Commission (CVM).
c. Revenue Reserves
Legal Reserve
This refers to the 5% (five percent) of net income for every year ended December 31 to be appropriated to the legal reserve, which should not exceed 20% (twenty percent) of capital. Also, the Company is not authorized to set up a legal reserve when it exceeds 30% (thirty percent) of capital plus capital reserves. This reserve can be used only for capital increase or compensation of accumulated losses.
Reserve for Expansion
This reserve, which is set up based on paragraph 2, article 40 of the by-laws and article 194 of Law 6.404/76, is intended to fund investment and network expansion projects.
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d. Dividends
Dividends are calculated in accordance with the Companys by-laws and the Brazilian Corporate Law (Lei das Sociedades por Ações).
As stipulated in its by-laws, the Company shall distribute an amount equivalent to 25% of adjusted net income as minimum dividend every year ended December 31, provided there are funds available for distribution.
Preferred shares are nonvoting but take priority on (i) the payment of capital at no premium, and (ii) payment of a minimum non cumulative dividend of 6% p.a. on the total obtained from dividing the capital stock representing this type of shares by the total number of the same class of shares issued by the Company.
In order to comply with Law 10.303/01, the Companys bylaws were amended, including the First Paragraph of Section 10, which ensures the holders of preferred shares, every year, the right to receive stock dividends corresponding to 3% (three percent) of net earnings per share, based on the balance sheet most recently approved, whenever the dividend established according to this criterion exceeds the dividend calculated according to the criteria previously established, described in the preceding paragraph.
21 Net operating revenue
Consolidated | ||||
06/2008 | 06/2007 | |||
Telecommunications service revenue Mobile | ||||
Subscription | 206,697 | 217,952 | ||
Utilization | 3,798,566 | 3,366,477 | ||
Network use | 2,188,823 | 2,208,464 | ||
Long distance | 972,140 | 906,471 | ||
VAS Additional services | 724,122 | 519,763 | ||
Other | 58,646 | 42,757 | ||
7,948,994 | 7,261,884 | |||
Telecommunications service revenue Fixed | 1,418 | - | ||
Telecommunications service revenue Mobile and Fixed | 7,950,412 | 7,261,884 | ||
Goods sold | 722,962 | 848,961 | ||
Gross operating revenue | 8,673,374 | 8,110,845 | ||
Deductions from gross revenue | ||||
Taxes | (1,843,674) | (1,705,628) | ||
Discounts given | (606,313) | (423,027) | ||
Returns and other | (44,354) | (79,449) | ||
(2,494,341) | (2,208,104) | |||
6,179,033 | 5,902,741 | |||
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22 Cost of services rendered and goods sold
Consolidated | ||||
06/2008 | 06/2007 | |||
Personnel | (50,045) | (50,100) | ||
Third parties´ services | (110,083) | (114,579) | ||
Interconnection charges | (1,915,971) | (1,630,442) | ||
Depreciation and amortization | (645,543) | (654,575) | ||
Telecommunications supervision fund (FISTEL) | (4,365) | (3,476) | ||
Other | (86,698) | (59,998) | ||
Cost of services rendered | (2,812,705) | (2,513,170) | ||
Cost of goods sold | (588,066) | (640,028) | ||
Total cost of services rendered and goods sold | (3,400,771) | (3,153,198) | ||
23 Selling expenses
Consolidated | ||||
06/2008 | 06/2007 | |||
Personnel | (177,933) | (163,220) | ||
Third parties´ services | (794,236) | (754,431) | ||
Advertising and publicity expenses | (146,055) | (161,527) | ||
Loss and allowance for doubtful accounts | (475,028) | (341,373) | ||
Telecommunications supervision fund | (280,413) | (230,376) | ||
Depreciation and amortization | (145,096) | (173,276) | ||
Other | (43,058) | (44,089) | ||
(2,061,819) | (1,868,292) | |||
24 General and administrative expenses
Parent Company | Consolidated | |||||||
06/2008 | 06/2007 | 06/2008 | 06/2007 | |||||
Personnel | (706) | (1,178) | (103,344) | (95,484) | ||||
Third parties´ services | (1,583) | (4,311) | (201,201) | (187,271) | ||||
Depreciation and amortization | - | - | (238,405) | (199,427) | ||||
Other | (428) | (373) | (30,562) | (33,302) | ||||
(2,717) | (5,862) | (573,512) | (515,484) | |||||
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25 Other operating revenues (expenses) net
Parent Company | Consolidated | |||||||
06/2008 | 06/2007 | 06/2008 | 06/2007 | |||||
Revenues | ||||||||
Fines Telecommunications services | - | - | 62,703 | 37,880 | ||||
Reversal of the provision for | ||||||||
contingencies | 201 | 724 | 4,383 | 1,110 | ||||
Other operating revenues | - | 5 | 6,190 | 6,720 | ||||
201 | 729 | 73,276 | 45,710 | |||||
Expenses | ||||||||
Amortization of deferred charges | - | - | (59) | (65) | ||||
Amortization of concessions | - | - | (138,479) | (124,119) | ||||
Taxes, rates and contributions | - | - | (10,511) | (842) | ||||
Goodwill amortization | (790) | (790) | (790) | (790) | ||||
Provision for contingencies | (1,419) | (340) | (59,791) | (29,246) | ||||
Other operating expenses | (9) | (10) | (2,924) | (904) | ||||
(2,218) | (1,140) | (212,554) | (155,966) | |||||
Other operating revenues (expenses) , | ||||||||
net | (2,017) | (411) | (139,278) | (110,256) | ||||
26 Financial revenues
Parent Company | Consolidated | |||||||
06/2008 | 06/2007 | 06/2008 | 06/2007 | |||||
Interest on short-term investments in the | ||||||||
money market | 2,027 | 757 | 24,286 | 13,494 | ||||
Monetary adjustment | 276 | 438 | 7,775 | 23,246 | ||||
Interest received from clients | - | - | 23,368 | 8,699 | ||||
Exchange variation | - | - | 195,477 | 20,219 | ||||
Other revenues | - | - | 4,962 | 4,268 | ||||
2,303 | 1,195 | 255,868 | 69,926 | |||||
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27 Financial expenses
Parent Company | Consolidated | |||||||
06/2008 | 06/2007 | 06/2008 | 06/2007 | |||||
Interest on loans and financing | (2) | - | (106,379) | (105,152) | ||||
Interest paid to suppliers | - | - | (443) | (2,166) | ||||
Interest on taxes and rates | - | - | (688) | (2,870) | ||||
Monetary adjustment | 4 | (339) | (11) | (47,744) | ||||
CPMF | (1) | (29) | (1,194) | (28,366) | ||||
Discounts given | - | - | (21,838) | (4,151) | ||||
Exchange variation | - | - | (222,273) | (17,703) | ||||
Other expenses | (3) | (3) | (18,270) | (6,491) | ||||
(2) | (371) | (371,096) | (214,643) | |||||
28 Non-operating income
Consolidated | ||||
06/2008 | 06/2007 | |||
Revenues | ||||
Property, plant and equipment disposed of | 3,003 | 12,229 | ||
Expenses | ||||
Cost of Property, plant and equipment disposed of | (5,070) | (15,939) | ||
Non-operating income | (2,067) | (3,710) | ||
29 Income tax, social contribution expenses and tax losses
Consolidated | ||||
06/2008 | 06/2007 | |||
Income tax for the period | (10,483) | (49,330) | ||
Social contribution for the period | (3,839) | (17,980) | ||
Fiscal Incentive ADENE | 11,192 | (32) | ||
(3,130) | (67,342) | |||
Amortization of goodwill paid on privatization | (25,225) | (25,225) | ||
(28,355) | (92,567) | |||
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Below, the reconciliation of income tax and social contribution expenses calculated at the applicable tax rates plus the amounts reflected in the income for the period:
Consolidated | ||||
06/2008 | 06/2007 | |||
Pretax income (loss) | (113,642) | 107,084 | ||
Combined tax rate | 34% | 34% | ||
Income tax and social contribution at the combined tax rate | 38,638 | (36,409) | ||
(Additions)/Exclusions: | ||||
Unrecognized tax losses and temporary differences | (79,259) | (47,124) | ||
Permanent (Additions)/Exclusions | (2,498) | (8,578) | ||
ADENE | 11,192 | (32) | ||
Other | 3,572 | (424) | ||
(66,993) | (56,158) | |||
Income tax and social contribution charged to the income for the | ||||
period | (28,355) | (92,567) | ||
Tax rate in effect | -24.95% | 86.44% | ||
Accumulated tax losses and negative basis
The accumulated tax losses and negative bases give rise to tax credits which are recognized only when the prospects of realization are consistent; no statutes of limitation apply to these credits, which can be summarized as follows:
Consolidated | ||||||||
06/2008 | 06/2007 | |||||||
Basis | Tax Credit | Basis | Tax Credit | |||||
Tax loss | 6,122,579 | 1,530,645 | 6,367,796 | 1,591,949 | ||||
Negative basis | 6,122,223 | 551,000 | 6,367,618 | 573,086 | ||||
Temporary differences | 1,046,741 | 355,892 | 1,596,981 | 542,974 | ||||
13,291,543 | 2,437,537 | 14,332,395 | 2,708,009 | |||||
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30 Transactions with Telecom Italy Group
The transactions with Telecom Italy Group, which are performed under regular conditions, similarly to those with third parties, are thus composed:
Consolidated
Assets | ||||
06/2008 | 03/2008 | |||
Telecom Personal Argentina (1) | 491 | 1,962 | ||
Telecom Italia Sparkle (1) | 2,510 | 2,802 | ||
Telecom Italia S.p.A. (2) | 1,450 | 5,730 | ||
Other | 1,674 | 1,909 | ||
Total | 6,125 | 12,403 | ||
Liabilities | ||||
06/2008 | 03/2008 | |||
Telecom Italia S.p.A. (2) | 19,976 | 39,033 | ||
IT Telecom Italia (3) | - | 278 | ||
Telecom Personal Argentina (1) | 1,139 | 3,187 | ||
Telecom Italia Sparkle (1) | 4,786 | 5,730 | ||
Italtel (3) | 10,457 | 5,736 | ||
Other | 867 | 941 | ||
Total | 37,225 | 54,905 | ||
Revenue | ||||
06/2008 | 03/2008 | |||
Telecom Italia S.p.A. (2) | 5,919 | 2,178 | ||
Telecom Personal Argentina (1) | 1,892 | 1,418 | ||
Telecom Italia Sparkle (1) | 3,096 | 1,628 | ||
Other | 1,059 | 832 | ||
Total | 11,966 | 6,056 | ||
Cost/Expense | ||||
06/2008 | 03/2008 | |||
Telecom Italia S.p.A. (2) | 14,289 | 6,883 | ||
Telecom Italia Sparkle (1) | 9,820 | 5,332 | ||
Telecom Personal Argentina (1) | 4,428 | 2,424 | ||
Other | 2,213 | 473 | ||
Total | 30,750 | 15,112 | ||
(1) | These refer to roaming, value-added services VAS and media assignment. |
(2) | These amounts refer to international roaming, technical post-sales assistance and value-added services VAS. |
40
On March 3, 2008, at the General Shareholders´ Meeting of TIM Participações, the renewal for a further 12 months was approved, of a cooperation and support agreement with Telecom Italia S.p.A, which had been approved on May 3, 2007 by TIM Participações´s Administrative Council, This amendment will not exceed approximately R$22,000. Up until June 30, 2008, R$10,000 had been provided for, of which R$8,600 corresponds to property, plant and equipment, and R$1,400 to costs/expenses. This agreement is intended to add value to the Company by making it benefit from Telecom Itália´s experience in (i) improving effectiveness and efficiency by adopting in-house solutions; and (ii) sharing systems, services, processes and better practices widely used in the Italian market, which can be easily customized to the Company´s requirements.
(3) These refer to development and maintenance of software pieces used in telecommunications service billing.
31 Financial instruments and risk management
The following are the main risks to which the Company and its subsidiaries are exposed:
(i) Exchange rate risks
The exchange rate risks relate to the possibility of the subsidiaries to compute losses resulting from fluctuations in exchange rates, thus increasing debt balances of loans obtained in the market and the corresponding financial charges. In order to mitigate this kind of risk, the Company carries out hedge contracts with financial institutions.
As of June 30, 2008 the subsidiaries loans indexed to the exchange variance of foreign currencies are fully covered by swap contracts. Earnings or losses resulting from these agreements are charged to the income.
There are no significant financial assets indexed to foreign currencies.
(ii) Interest rate risks
The interest rate risks relate to:
- Possible variation in the fair value of financing subject to pre-fixed interest rates, if such rates do not reflect current market conditions. In order to mitigate this type of risk, the Company and its subsidiaries enter into swap contracts with financial institutions. Gain or loss from these swap contracts is charged to operating income;
- Possible variation in the fair value of financing indexed to the TJLP, if such rates do not proportionately reflect changes of CDI Interbank Deposit Cetificates. Gains or losses arising from swap contracts are recorded under Income .
- Unfavorable interest rate change, which would lead to an increase in financial expenses of the Company and its subsidiaries on debts and hedging operations entered into at variable interest rate. At June 30, 2008, financial resources of subsidiaries were mainly invested in Interbank Deposit Certificates (CDI), which significantly reduces this risk.
41
(iii) Credit risk inherent in services rendered
This risk relates to the possibility of the Company and its subsidiaries to incur losses arising from the difficulty in collecting accounts receivable billed to subscribers. In order to mitigate this risk, the Company and its subsidiaries perform credit rating analyses to support management of risk related to collection problems and also monitor accounts receivable from subscribers, disabling telephone lines of defaulting subscribers. The Company generally does not require collateral from its customers.
(iv) Credit risk inherent in the sale of telephone sets and prepaid telephone cards
The policy adopted by the subsidiaries for sale of telephone sets and distribution of prepaid telephone cards is directly related to credit risk levels accepted in the regular course of business. The choice of partners, the diversification of the accounts receivable portfolio, the monitoring of loan conditions, the positions and limits defined for orders placed by traders, and the adoption of guarantees are procedures adopted by the subsidiaries to minimize possible collection problems with their business partners. There are no single clients accounting for more than 10% of net receivables from sales of goods as of June 30, 2008 and 2007, or sales revenues earned during the six-month periods then ended;
(v) Financial credit risk
This risk relates to the possibility of the Company and its subsidiaries computing losses originating from the difficulty in realizing its short-term investments and swap contracts. The subsidiaries minimize the risk associated to these financial instruments by investing in well-reputed financial institutions, and adopting policies that establish maximum risk concentration levels by institution.
There is no concentration of available resources in connection with work; service, concessions or rights that have not been mentioned above that could, if eliminated suddenly, severely impact the operations of the subsidiaries.
Market value of financial instruments
The estimated market value of financial instruments, especially cash and cash equivalents, accounts receivable and short-term financial instruments approximates their book value, given their short duration. Below, the financial instruments with market value different from their book value:
06/2008 | 03/2008 | |||||||
Book | Market | Book | Market | |||||
value | value | value | value | |||||
Loans and financing | 2,922,528 | 2,912,909 | 2,799,169 | 2,800,685 | ||||
Swap contracts | 63,778 | 100,717 | (43,905) | (32,808) | ||||
2,986,306 | 3,013,626 | 2,755,264 | 2,767,877 | |||||
The market value of loans and financing and swap contracts was determined based on future discounted cash flow, at interest rates applicable to similar instruments which involve the same risks and conditions or are based on their market quotations.
42
The market values were estimated at a specific time, using available information and the Companys own evaluation methods. Any change in the underlying assumptions may significantly affect the estimates.
32 Pension plans and other post-employment benefits
Supplementary Pension Plan
On August 7, 2006, the Companys administrative council approved the implementation by Itaú Vida e Previdência S.A, of PGBL and VGBL Supplementary Pension Plans for the Company, TIM Celular and TIM Nordeste. All employees not benefiting from pension plans sponsored by the Company and its subsidiaries are eligible for these supplementary plans.
Term of Atypical Contractual Relationship
The Company is the succeeding sponsoring company arising from the partial spin-off of Telecomunicações do Paraná S,A TELEPAR, of the private pension supplementation plans introduced in 1970 under a Collective Agreement, approved by the Atypical Contractual Agreement entered into by said company and the Unions representing the professional categories then existing.
This agreement covers 86 employees hired before December 31, 1982 to whom a supplementary pension is granted, on the condition that the retirement only occurs after a minimum service length of 30 years for men and 25 years for women.
As a result of Telebrás split in June 1998, the Company opted for extinguishment of this supplementary pension plan, and accordingly, the participants were entitled to payment in cash of accumulated benefits or transfer to the PBT-SISTEL plan of the obligations assumed under this plan. Most of the participants opted for payment in cash or adherence to the PBT-SISTEL plan, the remainder, duly provided for, will be used to cover benefits due to employees who have not made their option (4 employees as of June 30, 2008 and March 31, 2008).
SISTEL and TIMPREV
The Company, TIM Nordeste and TIM Celular have sponsored a private defined benefits pension plan for a group of TELEBRÁS systems former employees, which is managed by Fundação Sistel de Seguridade Social SISTEL, as a consequence of the legal provisions applicable to the privatization process of these companies in July 1998.
As in 1999 and 2000 the sponsors of the pension plans managed by SISTEL had already negotiated conditions for the creation of individual pension plans for each sponsoring company and maintenance of joint liability only in relation to the participants already assisted on January 31, 2000, the Companies and their subsidiaries, like other companies resulting from the former TELEBRÁS system, in 2002 started the creation of a pension plan for defined contributions meeting the most modern social security standards adopted by private companies, with the possibility of migration to this plan of the employee groups linked to SISTEL.
43
On November 13, 2002, the Brazilian Secretariat for Supplementary Pension Plans, through official ruling No, 1917 CGAJ/SPC, approved the statutes of the new pension plan, denominated Statutes of TIMPREV Benefits Plan, defined contributions, which provide for new conditions for benefits granting and maintenance, as well as the rights and obligations of the Plan Managing Entity, the sponsoring companies, participants and the beneficiaries thereof. Over 90% of the previous plans participants had migrated to the new plan by January 29, 2003.
Under this new plan, the sponsors regular contribution will correspond to 100% of a participants basic contribution , and TIMPREV´s managing entity will ensure the benefits listed below, under the terms and conditions agreed upon, with no obligation to grant any other benefits, even if the government-sponsored social security entity starts granting them:
Normal retirement pension
Early retirement pension
Disability pension
Deferred proportional benefit
Death pension
However, as not all of the Companys and its subsidiaries´ employees have migrated to TIMPREV plan, the pension and health care plans deriving from the TELEBRÁS system briefly listed below remain:
PBS: benefits plan of SISTEL for defined benefits, which includes the employees paying contributions to the plan (active) who participated in the plans sponsored by the companies of the former TELEBRÁS system;
PBS Assistidos: a private, multi-sponsored pension plan for employees receiving benefits (inactive);
Convênio de Administração: for managing pension payment to retirees and pensioners of the predecessors of the subsidiary companies;
PAMEC/Apólice de Ativos: health care plan for pensioners of the predecessors of the subsidiary companies;
PBT: defined-benefit plan for pensioners of the predecessors of the company and its subsidiaries;
PAMA: health care plan for retired employees and their dependents, on a shared cost basis.
In accordance with the rules established by NPC-26 issued by the Institute of Independent Auditors of Brazil IBRACON, and approved by CVM Deliberation No, 371, the actuarial position of these plans represents a surplus not recorded by the Company as it was impossible to recover these amounts, and also considering that the amount of contributions will not be reduced for the future sponsor.
On January 31, 2006, the Administrative Council approved the proposed migration from plans sponsored by the Company and its subsidiaries TIM Celular and TIM Nordeste at Sistel, to a new plan administered by the financial institution HSBC.
44
On January 29, 2007 and April 9, 2007, through the Supplementary Social Security Secretariat, the Ministry of Social Security approved the transfer of the benefit plans management PBSTele Celular Sul, TIM Prev Sul, PBTTIM, Management Agreement, PBSTelenordeste Celular and TIM Prev Nordeste (according to Communications SPC/DETEC/CGAT, nos, 169, 167, 168, 912, 171 and 170, respectively) from Fundação Sistel de Seguridade Social- SISTEL, to HSBC Fundo de Pensão.
The other plans PAMA and PBS Assistidos continue to be managed by Fundação Social de Seguridade Social SISTEL. The only exception is Plano PAMEC/Apólice de Ativos, which was terminated, with the Company remaining responsible for coverage of the respective benefit, from now on called PAMEC/Apólice de Ativos.
In view of the approval of the proposed migration by the Administrative Council in January 2006, and those of the Ministry of Social Security, the transfer of the above mentioned Funds from Fundação Sistel de Seguridade Social SISTEL to HSBC Fundo de Pensão came into effect in April 2007.
In the six-month period ended June 30, 2008, the contributions to the pension funds and other post-employment benefits totaled R$107 (in the same period in 2007 - R$118).
33 Insurance
It is the Companys and its subsidiaries´ policy to monitor risks inherent in their operations, which is why as of June 30, 2008, they have insurance coverage against operating risks, third party liability, and health, among others. The Management of the Company and its subsidiaries find the insurance coverage sufficient to cover possible losses. The table below shows the main assets, liabilities or interests insured and the respective amounts:
Types | Amounts insured | |
Operating Risks | R$10,786,935 | |
General Third Party Liability RCG | R$11,405 | |
Cars (Executive and Operational Fleets) | 100% Fipe Table, | |
R$1,000 for RC (DM and DC) |
The scope of our audit work does not include the issuance of an opinion on the sufficiency of insurance coverage, which was determined and checked for adequacy by the Companys Management.
34 Commitments
ANATEL
Under the terms of the Authorization for Mobile Personal Service (SMP) Exploitation, the subsidiaries have committed to implement and actually implemented; mobile personal telecommunications cover for the assigned area. Also under these Terms of Authorization, the subsidiaries are required to operate in accordance with the quality standards established by ANATEL, and comply with the related obligations. In the event these terms are not complied with, the subsidiaries are subject to PADO (Obligation Non-Compliance Determination Procedures) and any subsequently applicable penalties.
45
ANATEL has brought administrative proceedings against the subsidiaries for (i) noncompliance with certain quality service indicators; and (ii) default on certain other obligations assumed under the Terms of Authorization and pertinent regulations.
In their defense before ANATEL, the subsidiaries presented several reasons for defaulting, most of them involuntary and not related to their activities and actions. The provision for regulatory contingencies shown in the balance sheet reflects the amount of losses expected by the Management (Note 18).
Rentals
The equipment and property rental agreements signed by the Company and its subsidiaries have different maturity dates. Below, a list of minimum rental payments to be made under such agreements:
2009 | 217,684 | |
2010 | 225,956 | |
2011 | 234,542 | |
2012 | 243,455 | |
2013 | 252,706 | |
1,174,343 | ||
46
35 | Transactions with Group Telefônica | |
On April 28, 2007, Assicurazioni Generali S.p.A, Intesa San Paolo S,p,A, Mediobanca S.p.A,, Sintonia S.p.A and Telefónica S.A, entered into an agreement to acquire the whole capital of Olimpia S.p.A., a company which, in turn, held approximately 18% of the voting capital of Telecom Italia S.p.A., the Company´s indirect parent company. This acquisition was made through Telco S.p.A. (Telco), With the implementation of the operation in October 2007, Telco came to hold 23.6% of the voting capital of Telecom Italia S.p.A., the indirect parent company of TIM Participações.
Through its Act no, 68.276/2007 published in the Federal Government Official Gazette of November 5, 2007 ANATEL approved the operation and imposed certain restrictions to guarantee absolute segregation of businesses and operations performed by the Telefonica and TIM group companies in Brazil, For purposes of ANATEL´s requirements implementation, TIM Brasil, TIM Celular and TIM Nordeste submitted to ANATEL the necessary measures to ensure this segregation de facto and de jure in Brazil, so that Telefónica´s participation in Telco S.p.A, cannot characterize influence on the financial, operational and strategic decisions made by Group TIM´s Brazilian operators. Therefore, TIM continues to operate in the Brazilian market on the same independent and autonomous basis as before.
The agreements between the subsidiaries controlled by TIM Participações and the Group Telefonica´s operators in Brazil, in force at June 30, 2008, refer solely to telecommunications services covering interconnection, roaming, site-sharing and co-billing procedures, as well contracts relating to CSP (provider operation code) at regular price and conditions, in accordance with pertinent legislation. As of June 30, 2008, the receivables and payables arising from these agreements amount to R$151,769 and R$155,269, respectively. Operating revenues and expenses recorded by the Company for the semester ended June 30, 2008 amount to R$731,355 and R$463,819, respectively.
47
36 | Statements of Cash Flow and Value-added | |
a. Statements of Cash Flow
Parent Company | Consolidated | |||||||
06/2008 | 06/2007 | 06/2008 | 06/2007 | |||||
Operating Activities | ||||||||
Net Income (Loss) for the period | (141,997) | 14,517 | (141,997) | 14,517 | ||||
Adjustments for reconciliation of income to cash generated by | ||||||||
operating activities: | ||||||||
Depreciation and amortization | 790 | 790 | 1,168,372 | 1,152,252 | ||||
Equity pickup | 139,565 | (19,966) | - | - | ||||
Deferred income tax and social contribution | - | - | 25,225 | 25,225 | ||||
Residual value of permanent assets written off | - | - | 5,070 | 15,939 | ||||
Monetary adjustment of asset retirement obligations | - | - | 8,100 | 11,740 | ||||
Monetary adjustment of escrow deposits | (31) | - | (2,448) | (13,043) | ||||
Monetary adjustment of contingencies | 4 | - | 6,064 | 32,852 | ||||
Interest, monetary adjustment and exchange variation on loans |
- | - | 121,424 | 109,621 | ||||
Interest on short term in the money market | (2,027) | (757) | (24,286) | (13,494) | ||||
Allowance for doubtful accounts | - | - | 475,028 | 341,373 | ||||
Decrease(increase) in operating assets | ||||||||
Trade receivables | - | - | (132,590) | (593,790) | ||||
Taxes and contributions recoverable | (153) | (371) | 2,048 | (32,758) | ||||
Inventories | - | 21,105 | (16,234) | |||||
Prepaid expenses | - | (159,746) | (122,706) | |||||
Dividends received | 79,195 | - | - | - | ||||
Other current assets | (77) | (75) | (11,597) | (11,487) | ||||
Other long-term assets | (1,148) | (2,331) | (18,286) | (17,417) | ||||
Increase (decrease) in operating liabilities | ||||||||
Labor obligations | (133) | (169) | 5,322 | 21,564 | ||||
Suppliers Trade Payables | (989) | (1,092) | (726,519) | (318,189) | ||||
Taxes, rates and contributions | 1 | (39) | (84,987) | 78,331 | ||||
Provision for contingencies | 1,211 | (45) | 30,079 | 15,266 | ||||
Other current liabilities | 1,203 | 2,210 | 11,584 | (7,100) | ||||
Net cash and cash equivalents generated (used) by operating activities | 75,414 | (7,328) | 576,965 | 672,462 | ||||
Investment activities | ||||||||
Short-term investments in the money market | 8,058 | (19,034) | 26,174 | 520,176 | ||||
Additions to property, plant and equipment and intangibles | - | - | (2,469,998) | (1,077,399) | ||||
Net cash and cash equivalents generated (used) by investment activities | 8,058 | (19,034) | (2,443,824) | (557,223) | ||||
Financing activities | ||||||||
Capital reduction | 132,792 | 450,762 | - | |||||
New loans | - | - | 967,497 | 355,261 | ||||
New authorizations | 1,238,995 | - | ||||||
Amortization of loans | - | - | (263,035) | (389,930) | ||||
Amortization of authorizations | - | - | (132,467) | - | ||||
Dividends and interest on own capital paid | (207,600) | (439,749) | (207,629) | (439,857) | ||||
Net cash and cash equivalents generated (used) by financing activities | (74,808) | 11,013 | 1,603,361 | (474,526) | ||||
Increase (decrease) in cash and cash equivalents | 8,664 | (15,349) | (263,498) | (359,287) | ||||
Cash and cash equivalents at the beginning of the period | 57 | 16,370 | 1,117,410 | 592,564 | ||||
Cash and cash equivalents at the end of the period | 8,721 | 1,021 | 853,912 | 233,277 | ||||
48
Parent Company | Consolidated | |||||||
06/2008 | 06/2007 | 06/2008 | 06/2007 | |||||
Supplementary cash flow information | - | - | ||||||
Income tax and social contribution paid | - | - | 36,397 | 25,523 | ||||
Interest paid | - | - | 98,678 | 114,992 | ||||
Capitalized interest | - | - | 1,383 | 5,616 | ||||
Payables from expenses incurred on addition to property, plant and equipment | - | - | 549,695 | 432,655 |
b. Value-added statements
Parent Company | Consolidated | |||||||
06/2008 | 06/2007 | 06/2008 | 06/2007 | |||||
Revenues | ||||||||
Gross operating revenue | - | - | 8,673,374 | 8,110,845 | ||||
Allowance for doubtful accounts | - | - | (475,028) | (341,373) | ||||
Discounts given, returns and other | - | - | (650,668) | (502,476) | ||||
Non-operating revenues (expenses) - net | - | - | (2,067) | (3,710) | ||||
- | - | 7,545,611 | 7,263,286 | |||||
Input acquired from third parties | ||||||||
Costs of services rendered and goods sold | - | - | (2,620,271) | (2,389,462) | ||||
Materials, energy, third parties´ services and other | (2,821) | (3,946) | (1,582,996) | (1,131,432) | ||||
(2,821) | (3,946) | (4,203,267) | (3,520,894) | |||||
Withholding | ||||||||
Depreciation and amortization | (790) | (790) | (1,168,372) | (1,152,252) | ||||
Value-added produced net | (3,611) | (4,736) | 2,173,972 | 2,590,140 | ||||
Value added received through reclassification | ||||||||
Equity pickup | (139,564) | 19,966 | - | - | ||||
Financial revenues | 2,303 | 1,195 | 255,869 | 69,926 | ||||
(137,261) | 21,161 | 255,869 | 69,926 | |||||
Total value added undistributed | (140,872) | 16,425 | 2,429,841 | 2,660,066 | ||||
Value added distribution | ||||||||
Personnel and related charges | 609 | 1,017 | 103,798 | 263,498 | ||||
Taxes, rates and contributions | 462 | 500 | 2,009,062 | 2,103,368 | ||||
Interest and rentals | 54 | 391 | 458,978 | 278,683 | ||||
Retained earnings (Accumulated losses) | (141,997) | 14,517 | (141,997) | 14,517 | ||||
(140,872) | 16,425 | 2,429,841 | 2,660,066 | |||||
49
Consolidated Balance Sheet - Assets (thousand of reais)
Code | Heading | 06/30/2008 | 03/31/2008 |
1 | Total assets | 14,887,678 | 13,663,346 |
1.01 | Current assets | 4,796,951 | 4,683,905 |
1.01.01 | Cash and cash equivalents | 904,146 | 659,737 |
1.01.01.01 | Cash and Banks | 853,912 | 609,293 |
1.01.01.02 | Short-term investments in the money market | 50,234 | 50,444 |
1.01.02 | Accounts receivable | 2,687,491 | 2,701,779 |
1.01.02.01 | Accounts receivable | - | - |
1.01.02.02 | Accounts receivable | 2,687,491 | 2,701,779 |
1.01.02.02.01 | Accounts receivable | 2,687,491 | 2,701,779 |
1.01.03 | Inventories | 257,021 | 251,883 |
1.01.04 | Others | 948,293 | 1,070,506 |
1.01.04.01 | Recoverable taxes and contributions | 507,182 | 478,285 |
1.01.04.02 | Deferred income and social contribution taxes | 4,204 | 16,817 |
1.01.04.03 | Prepaid expenses | 398,554 | 545,144 |
1.01.04.04 | Other | 38,353 | 30,260 |
1.02 | Noncurrent assets | 10,090,727 | 8,979,441 |
1.02.01 | Noncurrent assets | 366,802 | 362,343 |
1.02.01.01 | Sundry receivables | 220,184 | 228,211 |
1.02.01.01.01 | Taxes and contributions recoverable | 220,184 | 228,211 |
1.02.01.02 | Related parties | - | - |
1.02.01.02.01 | Affiliates | - | - |
1.02.01.02.02 | Subsidiaries | - | - |
1.02.01.02.03 | Other related parties | - | - |
1.02.01.03 | Other | 146,618 | 134,132 |
1.02.01.03.01 | Judicial deposits | 123,143 | 115,098 |
1.02.01.03.02 | Prepaid expenses | 9,085 | 7,850 |
1.02.01.03.03 | Other assets | 14,390 | 11,184 |
1.02.02 | Permanent assets | 9,723,925 | 8,617,098 |
1.02.02.01 | Investments | 4,357 | 4,752 |
1.02.02.01.01 | Affiliates | - | - |
1.02.02.01.02 | Affiliates - Agio | - | - |
1.02.02.01.03 | Subsidiaries | - | - |
1.02.02.01.04 | Subsidiaries - Agio | - | - |
1.02.02.01.05 | Others Investments | 4,357 | 4,752 |
1.02.02.02 | Property, plant and equipment | 4,706,276 | 4,767,476 |
1.02.02.03 | Intangible | 4,844,205 | 3,665,199 |
1.02.02.04 | Deferred charges | 169,087 | 179,671 |
50
Consolidated Balance Sheet - Liabilities and shareholders equity (thousand of reais)
Code | Heading | 06/30/2008 | 03/31/2008 |
2 | Total liabilities and shareholders' equity | 14,887,678 | 13,663,346 |
2.01 | Current liabilities | 5,073,519 | 4,227,599 |
2.01.01 | Loans and financing | 1,262,823 | 1,423,510 |
2.01.02 | Debentures | - | - |
2.01.03 | Suppliers | 1,922,331 | 1,879,919 |
2.01.04 | Taxes, charges and contributions | 485,359 | 406,068 |
2.01.05 | Dividends payable | 31,880 | 239,312 |
2.01.06 | Provisions | - | - |
2.01.07 | Related parties | - | - |
2.01.08 | Other | 1,371,126 | 278,790 |
2.01.08.01 | Labor liabilities | 115,875 | 124,693 |
2.01.08.02 | Authorizations payable | 1,128,150 | 34,791 |
2.01.08.03 | Other liabilities | 127,101 | 119,306 |
2.02 | Noncurrent liabilities | 2,205,670 | 1,793,190 |
2.02.01 | Noncurrent liabilities | 2,205,670 | 1,793,190 |
2.02.01.01 | Loans and financing | 1,723,483 | 1,331,754 |
2.02.01.02 | Debentures | - | - |
2.02.01.03 | Provisions | 259,260 | 243,572 |
2.02.01.03.01 | Provision for contingency | 251,883 | 236,195 |
2.02.01.03.02 | Supplementary pension plan | 7,377 | 7,377 |
2.02.01.04 | Related parties | - | - |
2.02.01.05 | Advances for future capital increase | - | - |
2.02.01.06 | Others | 222,927 | 217,864 |
2.02.01.06.01 | Asset retirement obligation | 202,258 | 197,195 |
2.02.01.06.02 | Others Liabilities | 20,669 | 20,669 |
2.02.02 | Deferred income | - | - |
2.03 | Minority interests | - | - |
2.04 | Shareholders' equity | 7,608,489 | 7,642,557 |
2.04.01 | Capital | 7,613,610 | 7,550,525 |
2.04.02 | Capital reserves | 34,330 | 97,415 |
2.04.03 | Revaluation reserves | - | - |
2.04.03.01 | Own assets | - | - |
2.04.03.02 | Subsidiaries/affiliates | - | - |
2.04.04 | Income reserves | 102,546 | 102,546 |
2.04.04.01 | Legal reserve | 102,546 | 102,546 |
2.04.04.02 | Statutory reserve | - | - |
2.04.04.03 | Reserve for contingencies | - | - |
2.04.04.04 | Unearned income reserve | - | - |
2.04.04.05 | Retained earnings | - | - |
2.04.04.06 | Special reserve for undistributed dividends | - | - |
2.04.04.07 | Other income reserves | - | - |
2.04.05 | Retained earnings | (141,997) | (107,929) |
2.04.06 | Advances for future capital increase | - | - |
51
Consolidated Statements of operations (thousands of reais)
Code | Heading | From 04/01/2008 to 06/30/2008 | Acumulated From 01/01/2008 to 06/30/2008 | From 04/01/2007 to 03/31/2007 | Acumulated From 01/01/2007 to 06/30/2007 |
3.01 | Gross revenues | 4,454,459 | 8,673,374 | 4,215,510 | 8,110,845 |
3.02 | Deductions from gross revenues | (1,268,384) | (2,494,341) | (1,155,942) | (2,208,104) |
3.03 | Net revenues | 3,186,075 | 6,179,033 | 3,059,568 | 5,902,741 |
3.04 | Cost of goods sold and services rendered | (1,749,214) | (3,400,771) | (1,625,095) | (3,153,198) |
3.05 | Gross profit | 1,436,861 | 2,778,262 | 1,434,473 | 2,749,543 |
3.06 | Operating income (expenses) | (1,455,695) | (2,889,837) | (1,342,210) | (2,638,749) |
3.06.01 | Selling | (1,032,650) | (2,061,819) | (953,964) | (1,868,292) |
3.06.02 | General and administrative | (280,957) | (573,512) | (256,335) | (515,484) |
3.06.03 | Financial income (expenses) | (59,157) | (115,228) | (81,463) | (144,717) |
3.06.03.01 | Financial income | 153,746 | 255,868 | 35,303 | 69,926 |
3.06.03.02 | Financial expenses | (212,903) | (371,096) | (116,766) | (214,643) |
3.06.04 | Other operating income | 32,493 | 73,276 | 22,607 | 45,710 |
3.06.05 | Other operating expenses | (115,424) | (212,554) | (73,055) | (155,966) |
3.06.06 | Equity pickup | - | - | - | - |
3.07 | Operating income | (18,834) | (111,575) | 92,263 | 110,794 |
3.08 | Nonoperating income | 508 | (2,067) | (2,554) | (3,710) |
3.08.01 | Income | 847 | 3,003 | 7,498 | 12,229 |
3.08.02 | Expenses | (339) | (5,070) | (10,052) | (15,939) |
3.09 | Income before taxation and participations | (18,326) | (113,642) | 89,709 | 107,084 |
3.10 | Provision for income and social contribution taxes | (15,742) | (28,355) | (55,727) | (92,567) |
3.11 | Deferred income tax | - | - | - | - |
3.12 | Participations/statutory contributions | - | - | - | - |
3.12.01 | Participations | - | - | - | - |
3.12.02 | Contributions | - | - | - | - |
3.13 | Reversal of interest on shareholders' equity | - | - | - | - |
3.14 | Minority interests | - | - | - | - |
3.15 | Net income for the period | (34,068) | (141,997) | 33,982 | 14,517 |
52
INDEPENDENT AUDITORS´ SPECIAL REVIEW REPORT
The
Management and Shareholders
TIM PARTICIPAÇÕES S.A.
1. We have performed a special review of the Quarterly Information (ITR) of TIM PARTICIPAÇÕES S.A., for the quarter ended June 30, 2008, comprising the individual and consolidated balance sheet, and the statements of income, of cash flow and of value added, the performance report and explanatory notes prepared under the responsibility of the management. Our responsibility is to issue an opinion on this information. TIM PARTICIPAÇÕES S.A. has full control of TIM CELULAR S.A., who, in turn, fully controls TIM NORDESTE S.A. The financial statements of these subsidiaries for the quarter ended June 30, 2008, which serve as a basis for investment evaluation on the equity method and consolidation, were examined by Ernst & Young Auditores Independentes S.S.. Our report, with respect to the book value of these investments and their effects on the income for the quarter and consolidated figures, is based solely on those auditors´ examination, and given the size of the subsidiaries´ amounts involved, required a coordinated monitoring work and review of auditing procedures performed by that firm.
2. Our review was conducted in accordance with specific standards jointly set by IBRACON Brazilian Independent Auditors´ Institute and the Federal Accounting Council, mainly consisting of: (a) inquiry of, and discussion with, the heads of the Company´s accounting, financial and operational departments about the criteria used in preparing Quarterly Information; and (b) review of subsequent information and events that may significantly affect the Company´s financial condition and operations.
3. Based on our special review and the other independent auditors´ review of the subsidiary TIM CELULAR S.A. and the indirect subsidiary TIM NORDESTE S.A., we are not aware of any relevant change required for the Quarterly Information referred to above to comply with accounting practices stipulated by the Brazilian Securities Commission CVM´s standards, applicable to Quarterly Information preparation, including CVM Instruction 469/08.
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4. As mentioned in Note 2.b, the Law 11.648, promulgated on December 28, 2007 and effective as from January 1, 2008, amended, revoked and introduced new provisions in Law 6.404 (the Corporate Law) which imply changes in accounting practices adopted in Brazil until then.
Although this new law is already in effect, several changes applicable to the financial statements as of December 31, 2008 which it introduced, depend on regulation before being applicable by the companies. Accordingly, at this transition stage, through its Instruction 469/08, CVM authorizes non-compliance with all the provisions of Law 11,638/07 for preparation of Quarterly Information relating to the year 2008. So, the financial statements contained in the ITR for the quarter ended June 30, 2008, prepared in accordance with specific CVM instructions, do not take into account the changes in accounting practices introduced by Law 11.638/07. The information referring to the previous quarter and presented for comparative purposes were adjusted to include the changes in accounting practices introduced in 2008, specifically the reclassification of property, plant and equipment as intangibles (Note 2.b).
Rio de Janeiro, July 21, 2008
Original report in Portuguese was signed by | ||
Ernesto Rubens Gelbcke | ||
Accountant CTCRC SP-071189/O-6S-RJ |
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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.
TIM PARTICIPAÇÕES S.A. | |||
Date: August 08, 2008 | By: | /s/ Gianandrea Castelli Rivolta | |
Name: Gianandrea Castelli Rivolta | |||
Title: Chief Financial Officer |
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 offuture 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 a ctually 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.