Download NOTAS EXPLICATIVAS ÀS INFORMAÇÕES TRIMESTRAIS DE 30

Oi S.A. - under Judicial
Reorganization and
Subsidiaries
Independent Auditor’s
Review Report on the
Interim Financial
Information (ITRs) for the
Quarter Ended June 30,
2016
(A free translation of the
original report in Portuguese
containing financial statements
prepared in accordance with
accounting practices adopted in
Brazil)
KPDS 159864
KPMG Auditores Independentes
Av. Almirante Barroso, 52 - 4º andar
20031-000 - Rio de Janeiro/RJ - Brasil
Caixa Postal 2888 - CEP 20001-970 - Rio de Janeiro/RJ - Brasil
Telefone +55 (21) 3515-9400, Fax +55 (21) 3515-9000
www.kpmg.com.br
Report on the Review of Quarterly Information (ITR)
To
The Board of Directors and Shareholders of
Oi S.A. - under Judicial Reorganization
Rio de Janeiro, RJ
Introduction
We were engaged to review the individual and consolidated interim accounting information
of Oi S.A. - Under Judicial Reorganization (“Company”), included in the quarterly
information form - ITR for the quarter ended June 30, 2016, which comprises the balance
sheet as of June 30, 2016 and the respective statements of operations and comprehensive
income for the three and six-month periods ended at that date and of changes in
shareholders’ equity and of cash flows for the six-month period then ended, including the
explanatory notes.
Management is responsible for the preparation of the interim accounting information in
accordance with the Accounting Pronouncement CPC 21(R1) - Interim Financial Reporting
and with the international accounting rule IAS 34 - Interim Financial Reporting, issued by
the International Accounting Standards Board - IASB, as well as the presentation of these
information in accordance with the standards issued by the Brazilian Securities and
Exchange Commission (CVM), applicable to the preparation of quarterly information - ITR.
Scope of the review
Our responsibility is to express our conclusion on these interim accounting information
based on our review, conducted in accordance with Brazilian and International Interim
Information Review Standards (NBC TR 2410 - Revisão de Informações Intermediárias
Executada pelo Auditor da Entidade and ISRE 2410 - Review of Interim Financial
Information Performed by the Independent Auditor of the Entity, respectively). As a result of
the matters described in paragraphs Basis for disclaimer of conclusion, we were unable to
obtain sufficient appropriate evidence to support our conclusion on the interim accounting
information.
KPMG Auditores Independentes, uma sociedade simples brasileira e firmamembro da rede KPMG de firmas-membro independentes e afiliadas à KPMG
International Cooperative (“KPMG International”), uma entidade suíça.
KPMG Auditores Independentes, a Brazilian entity and a member firm of the
KPMG network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
2
Basis for disclaimer of conclusion
Goodwill and impairment of assets
As described in Note 22.c to the financial statements, Telemar Participações S.A.
(“TmarPart”), the former Parent Company, was merged into the Company on September 1,
2015. TmarPart’s assets included the acquisition accounting adjustments (“Step-up
adjustments”), when the acquisition of Brasil Telecom Participações S.A. (“BrT”, currently
Oi S.A.- Under Judicial Reorganization), that as allowed by the Brazilian Securities and
Exchange Comission - CVM, through its OFFICIAL LETTER/CVM/SEP/GEA-5/No.
119/2013 (“CVM Official Letter 2013”), was derecognized from its books and recognized up
to their full amortization in 2025 at higher consolidated level, in the financial statements of
TmarPart. This procedure was adopted by the Company and TmarPart in 2012. As
described in note 22.c, the accounting practice adopted by the Company in the Merger, did
not include the Step-up adjustments, and with a view to positioning the Step-up
adjustments at higher consolidated level, according to CVM Official Letter 2013, and has
decided to provide technical consultation to the CVM on the adopted accounting policy. The
adoption of this accounting policy was object to modification of our review reports for the
quarters ended September 30, 2015 and March 31, 2016 and of the audit report for the
year ended December 31, 2015. On July 29, 2016, through Official Letter No. 149/2016CVM/SEP/GEA-5 ("CVM Official Letter 2016"), CVM expressed its view that the Step-up
adjustments should not have been written down from TmarPart, but maintained at the
assets to be incorporated to the Company, respecting the valuation basis of the net assets
acquired under the business combination between independent parties that took place at
the time of the acquisition of BrT. Considering it is a recent decision, the Company is
evaluating the content of the Official Letter CVM 2016 conclusions and therefore did not
proceed the adjustments that would be required. Consequently, as of June 30, 2016, the
balances of non current assets and shareholder’s equity are understated by R$ 1,165,294
thousand (R$1,233,299 thousand as of December 31, 2015), relating to the net Step-up
adjustments of R$ 8,976,950 thousand (R$ 9,079,988 thousand as of December 31, 2015),
deducted of a provision for impairment of R$ 7,211,353 thousand (R$ 7,211,353 thousand
as of December 31, 2015) and tax effects of R$ 600,303 thousand (R$ 635,336 thousand
as of December 31, 2015). The loss for the quarter and for the semester then ended is
understated by R$ 33,540 thousand and R$ 68,055 thousand, respectively, relating to the
non-recognition of the amortization net of taxes.
Going Concern
According to Note 1 to the interim accounting information, on June 20, 2016, Oi S.A. Under Judicial Reorganization and its direct and indirect subsidiaries, Oi Móvel S.A. - Under
Judicial Reorganization, Telemar Norte Leste S.A. - Under Judicial Reorganization, Copart
4 Participações S.A. - Under Judicial Reorganization, Copart 5 Participações S.A. - Under
Judicial Reorganization, Oi Brazil Holdings Coöperatief U.A. and Portugal Telecom
International Finance BV, filed a request for judicial reorganization with the Judge of the 7th
Corporate Court of the Judicial District of the Capital of the State of Rio de Janeiro, which
was granted on June 29, 2016 pursuant to Brazilian Law No. 11.101/05. Under the referred
Law, the Company must present in court, in non-extendable period of 60 (sixty) days after
the publication of the decision, granting the processing of judicial reorganization, the
Reorganization Plan which must contain: detailed description of the recovery actions
proposed; demonstration of the economic feasibility of the plan; and the economic and
financial report and property and assets valuation report of the debtor, issued by a legally
accredited professional or specialized company. The general meeting of creditors, under
the Law, will vote on the plan in a deadline that does not exceed 150 (one hundred and
fifty) days from the granting of the processing of judicial reorganization. The Company is in
KPMG Auditores Independentes, uma sociedade simples brasileira e firmamembro da rede KPMG de firmas-membro independentes e afiliadas à KPMG
International Cooperative (“KPMG International”), uma entidade suíça.
KPMG Auditores Independentes, a Brazilian entity and a member firm of the
KPMG network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
3
preparation stage of the plan and have not measured, up to the date of this report, the
possible effects on the balance sheets, statements of operations, comprehensive income,
cash flows and all related disclosures, in view of the negotiations in progress, and the
dependence of the aforementioned future events that may or may not occur, such as, the
approval of the Reorganization Plan by creditors. In addition, the Company incurred
significant losses in recent fiscal years and in the six-month period ended June 30, 2016.
On June 30, 2016, the assets and liabilities of the Company were presented and measured
assuming business as a going concern. As required by Brazilian and international
accounting standards, Management should assess whether it is appropriate the Company's
ability to continue in operation for a foreseeable future to conclude about the going concern
assumption, basis for the preparation of interim accounting information.
Consequently, considering the circumstances described, it is not possible to determine at
this stage what will be the outcome of this issue, its impact on the individual and
consolidated interim accounting information, as well, our conclusion if the going concern
assumption, basis for the preparation of interim accounting information, is appropriate.
Disclaimer of conclusion on the interim accounting information
Due to the relevance of the matters described in paragraph Basis for disclaimer of
conclusion, we have not been able to obtain sufficient appropriate evidence to support our
conclusion on the individual and consolidated interim accounting information included in the
quarterly information referred above. Consequently, we do not express a conclusion on this
interim accounting information.
Other matters
Statements of added value
We have also been engaged to review the individual and consolidated statements of added
value for the six-month period ended June 30, 2016, prepared under the responsibility of
the Company`s management, for which presentation is required in the interim information in
accordance with the standards issued by the Brazilian Securities and Exchange
Commission - CVM applicable to the preparation of quarterly information - ITR, and
considered as supplementary information by IFRS, which does not require the presentation
of the statements of added value. However, due to the significance of the matters described
in paragraphs Basis for disclaimer of conclusion, we also have not been able to obtain
sufficient appropriate evidence to support our conclusion on this statement in relation to the
individual and consolidated interim accounting statements, taken as a whole. Consequently,
we do not express a conclusion on the statements of added value referred above.
Rio de Janeiro, August 10, 2016
KPMG Auditores Independentes
CRC SP-014428/O-6 F-RJ
Original report in Portuguese signed by
José Luiz de Souza Gurgel
Accountant CRC RJ-087339/O-4
KPMG Auditores Independentes, uma sociedade simples brasileira e firmamembro da rede KPMG de firmas-membro independentes e afiliadas à KPMG
International Cooperative (“KPMG International”), uma entidade suíça.
KPMG Auditores Independentes, a Brazilian entity and a member firm of the
KPMG network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
4
Oi S.A. – under Judicial Reorganization and Subsidiaries
Balance Sheets as at June 30, 2016 and December 31, 2015
(In thousands of Brazilian reais - R$, unless otherwise stated)
Company
Assets
Current assets
Cash and cash equivalents
Cash investments
Derivative financial instruments
Accounts receivable
Inventories
Current recoverable taxes
Other taxes
Judicial deposits
Dividends and interest on capital
Pension plan assets
Prepaid expenses
Held-for-sale assets
Other assets
Non-current assets
Due from related parties
Cash investments
Derivative financial instruments
Deferred recoverable taxes
Other taxes
Judicial deposits
Pension plan assets
Prepaid expenses
Other assets
Investments
Property, plant and equipment
Intangible assets
Notes
8
8
18
9
10
11
12
25
23
26
25
8
18
10
11
12
23
13
14
15
06/30/2016
Consolidated
12/31/2015
06/30/2016
12/31/2015
2,962,415
48,033
171,998
1,852,962
27,678
435,363
318,717
802,013
869,165
3,609
61,552
4,069,697
630,479
1,518,584
18,153
103,537
2,428,751
34,658
370,076
210,603
887,449
891,270
700
26,046
5,455,262
527,312
4,852,353
213,216
313,808
8,765,453
384,732
879,425
1,130,853
1,202,256
14,898,063
1,801,720
606,387
8,379,719
351,993
915,573
922,986
1,258,227
4,013
689,512
5,822,384
816,105
753
293,036
7,686,298
952,254
12,253,681
12,472,401
25,074,110
38,067,009
3,444,651
11,809
5,854,846
197,864
8,837,054
128,698
5,939
368,044
16,875,648
5,504,366
191,426
3,353,617
20,580
5,290,136
6,461,517
194,696
8,426,835
124,289
7,905
325,629
17,144,175
5,498,089
232,925
7,794,037
853,313
13,893,032
133,176
28,112
218,357
139,731
25,519,183
3,482,024
125,966
6,780,316
8,883,002
659,899
13,119,130
129,128
71,194
225,310
154,890
25,497,191
3,301,771
41,420,345
47,080,393
52,101,551
58,947,797
40,586
Company
Liabilities and equity
Current liabilities
Payroll, related taxes and benefits
Trade payables
Borrowings and financing
Due to related parties
Derivative financial instruments
Current taxes payable
Other taxes
Dividends and interest on capital
Licenses and concessions payable
Tax refinancing program
Provisions
Provisions for pension funds
Liabilities associated to held-for-sale assets
Other payables
Non-current
Borrowings and financing
Due to related parties
Derivative financial instruments
Other taxes
Licenses and concessions payable
Tax refinancing program
Provisions
Provisions for pension funds
Other payables
Equity
Capital
Share issue costs
Capital reserves
Treasury shares
Other comprehensive income
Changes in equity interest percentage
Accumulated losses
Notes
16
17
17
18
10
11
19
20
21
23
26
17
17
18
11
19
20
21
23
06/30/2016
Total assets
53,674,026
59,552,794
77,175,661
97,014,806
12/31/2015
103,253
1,379,537
15,401,961
311,378
192,810
62,037
804,543
28,070
15,079
54,782
558,029
125,127
168,660
1,388,520
5,257,349
245,076
1,890,443
82,009
762,079
65,663
341,482
19,378,088
06/30/2016
12/31/2015
682,317
5,111,389
46,610,730
660,415
5,004,833
11,809,598
2,753,145
194,948
277,357
1,584,815
39,965
62,446
98,269
931,808
125,417
519,935
1,019,434
1,988,948
339,624
1,553,651
96,433
911,930
78,432
1,020,994
144,589
745,000
1,219,624
13,422,188
57,258,830
25,574,071
42,694
622,213
144,337
161,701
14,931,006
12,790,445
521,395
126,253
401,738
1,852,933
411,811
2,241,880
23,863,416
18,793,353
48,047,819
436,961
1,808,332
399,396
1,901,154
992,863
7,298
673,460
3,772,632
411,847
2,803,520
521,395
924,337
6,607
716,656
3,413,972
399,431
3,004,307
32,914,942
8,661,620
57,034,524
21,438,374
21,438,374
(377,429)
(377,429)
7,016,003
7,016,003
(5,531,092) (5,531,092)
338,226
(283,699)
3,916
3,916
(9,672,334) (11,833,551)
21,438,374
(377,429)
7,016,003
(5,531,092)
338,226
3,916
(9,672,334)
13,215,664
10,432,522
13,215,664
822,689
1,190,547
22
21,438,374
(377,429)
7,016,003
(5,531,092)
(283,699)
3,916
(11,833,551)
10,432,522
Non-controlling interests
Consolidated
26
Total equity
10,432,522
13,215,664
11,255,211
14,406,211
Total liabilities and equity
53,674,026
59,552,794
77,175,661
97,014,806
The accompanying notes are an integral part of these financial statements.
5
Oi S.A. – under Judicial Reorganization and Subsidiaries
Statements of Profit or Loss
For the Periods Ended June 30, 2016 and 2015
(In thousands of Brazilian reais - R$, unless otherwise stated)
Company
Notes
06/30/2016
Consolidated
06/30/2015
06/30/2016
06/30/2015
Continuing operations
Net operating revenue
Cost of sales and/or services
4 and 5
5
Gross profit
Operating income (expenses)
Share of profits of investees
Selling expenses
General and administrative expenses
Other operating income
Other operating expenses
5 and 13
5
5
5
5
Profit (loss) before financial income (expenses) and
taxes
2,955,788
3,149,440
13,279,240
13,823,721
(1,421,746)
(1,175,277)
(8,260,316)
(7,502,780)
1,534,042
1,974,163
5,018,924
6,320,941
(1,360,942)
(509,906)
(636,361)
361,933
(421,103)
(272,958)
(551,723)
(761,999)
189,999
(441,203)
(922)
(2,215,306)
(1,850,846)
789,040
(1,249,397)
514
(2,371,149)
(1,946,430)
547,170
(1,131,665)
(2,566,379)
(1,837,884)
(4,527,431)
(4,901,560)
(1,032,337)
136,279
491,493
1,419,381
Financial income
Financial expenses
5 and 6
5 and 6
3,327,634
(3,754,597)
740,434
(2,100,324)
713,317
(1,993,724)
877,304
(3,355,991)
Financial income (expenses)
5 and 6
(426,963)
(1,359,890)
(1,280,407)
(2,478,687)
(1,459,300)
(1,223,611)
(788,914)
(1,059,306)
(11,824)
(690,093)
(12,512)
374,562
(307,304)
(1,203,445)
(397,604)
600,847
(2,161,217)
(861,561)
(2,299,663)
(856,063)
Pre-tax loss
Income tax and social contribution
Current
Deferred
7
7
Loss from continuing operations
Discontinued operations
Profit (loss) for the quarter from discontinued operations,
net (net of taxes)
1,080,061
1,080,061
Profit (loss) for the period
(2,161,217)
218,500
(2,299,663)
223,998
Profit (loss) attributable to owners of the Company
(2,161,217)
218,500
(2,161,217)
218,500
(138,446)
5,498
Profit attributable to non-controlling interests
Basic and diluted earnings (loss) per share:
22(h)
Common shares - basic and diluted (R$)
Preferred shares - basic and diluted (R$)
Basic and diluted loss per share - discontinued
operations:
(3.20)
(3.20)
0.28
0.28
(3.20)
(3.20)
0.28
0.28
(3.20)
(3.20)
(1.12)
(1.12)
(3.20)
(3.20)
(1.12)
(1.12)
22(h)
Common shares - basic and diluted (R$)
Preferred shares - basic and diluted (R$)
The accompanying notes are an integral part of these financial statements.
6
Oi S.A. – under Judicial Reorganization and Subsidiaries
Statements of Comprehensive Income
For the Periods Ended June 30, 2016 and 2015
(In thousands of Brazilian reais - R$, unless otherwise stated)
Company
06/30/2016
Consolidated
06/30/2015
06/30/2016
06/30/2015
Continuing operations
Profit (loss) for the period
(2,161,217)
218,500
(2,299,663)
223,998
Hedge accounting gains (losses)
Subsidiaries’ hedge accounting gain
Actuarial gains (losses)
Exchange gains on investment abroad
Exchange gains on subsidiaries’ investment abroad
450,593
55,294
(10,083)
(366,272)
(601,682)
(30,255)
8,203
10,475
(78,478)
534,372
(17,827)
(10,083)
(967,954)
10,475
(78,478)
Comprehensive income before taxes - continuing
operations
(2,633,367)
128,445
(2,743,328)
138,168
(153,202)
3,428
10,287
(3,562)
(181,687)
3,428
6,062
(3,562)
(2,783,141)
135,170
(2,921,587)
140,668
Effect of taxes on other comprehensive income:
Hedge accounting
Actuarial gains (losses)
Comprehensive income - continuing operations
Discontinued operations
Comprehensive income of discontinued operations
45,018
45,018
Total comprehensive income for the period
(2,783,141)
180,188
(2,921,587)
185,686
Comprehensive income attributable to owners of the
Comprehensive
income attributable to non-controlling
Company
interests
(2,783,141)
180,188
(2,783,141)
(138,446)
180,188
5,498
The accompanying notes are an integral part of these financial statements.
7
Oi S.A. – under Judicial Reorganization and Subsidiaries
Statement of Changes in Equity for the Periods Ended June 30, 2016 and 2015
(In thousands of Brazilian reais - R$, unless otherwise stated)
Attributable to owners of the Company
Income reserve
Special
Special
inflation
Changes in
merger
Special merger Interest on adjustment Obligations in
equity
Other
goodwill
reserve - net construction
Law
Other
equity
Treasury Accumulated
interest
comprehensi
reserve
assets
in progress
8200/1991
reserves Investments
instruments
shares
losses
percentage
ve income
767,726
2,309,296
745,756
31,287
1,933,354
(2,894,619) (2,367,552) (4,024,184)
3,916
45,126
982,768
122,412
(5,809)
1,933,200
(1,933,354)
Capital reserves
“Balance at January 1, 2015
Merger of TmarPart
Capital increase
Share conversion cost (Note 22 f)
Obligations in equity instruments
Exchange of treasury shares
Loss for the year
Hedge accounting losses
Subsidiaries’ hedge accounting losses
Actuarial loss
Subsidiaries’ actuarial gain transferred
to accumulated losses
Exchange gains/losses on investment
abroad
Exchange gains/losses on subsidiaries’
investment abroad
Other comprehensive income for the
year
Comprehensive income transferred to
profit or loss
Balance at December 31, 2015
Loss for the period
Hedge accounting gain
Subsidiaries’ hedge accounting gain
Actuarial loss
Exchange gains/losses on investment
abroad
Exchange gains/losses on subsidiaries’
investment abroad
At June 30, 2016
Share
Share capital issue costs
21,438,220 (309,592)
(33,692)
154
(34,145)
Donations and
investment
grants
123,558
(268,921)
3,163,540 (3,163,540)
(4,934,908)
(468,984)
(57,662)
(44,108)
(707,433)
21,438,374 (377,429)
21,438,374 (377,429)
21,438,374 (377,429)
123,558
123,558
The accompanying notes are an integral part of these financial statements.
1,750,494
1,750,494
2,431,708
2,431,708
7,016,003
745,756
745,756
31,287 1,933,200
31,287 1,933,200
(5,531,092)
(9,672,334)
(2,161,217)
(5,531,092) (11,833,551)
(5,531,092) (11,833,551)
3,916
3,916
3,916
Total
controlling Non-controlling
interests
interests
Total equity
17,802,292
1,509,197 19,311,489
1,065,679
1,065,679
(34,145)
(268,921)
(34,145)
(268,921)
(4,934,908)
(468,984)
(57,662)
(44,108)
(412,693) (5,347,601)
(468,984)
(57,662)
(44,108)
715,680
8,247
1,332,415
1,332,415
8,247
380,371
380,371
380,371
144,735
144,735
144,735
(1,709,347)
338,226
297,390
55,294
(6,655)
(1,709,347)
13,215,664
(2,161,217)
297,390
55,294
(6,655)
(1,709,347)
1,190,547 14,406,211
(138,446) (2,299,663)
297,390
55,294
(6,655)
(366,272)
(366,272)
(229,412)
(595,684)
(601,682)
(283,699)
(283,699)
(601,682)
10,432,522
10,432,522
822,689
822,689
(601,682)
11,255,211
11,255,211
94,043
8
1,426,458
Oi S.A. – under Judicial Reorganization and Subsidiaries
Statement of Cash Flows
For the Periods Ended June 30, 2016 and 2015
(In thousands of Brazilian reais - R$, unless otherwise stated)
Company
06/30/2016
06/30/2015
Consolidated
06/30/2016
06/30/2015
Operating activities - continuing operations
Loss before income tax and social contribution
(1,459,300)
(1,223,611)
(788,914)
(1,059,306)
(3,747,796)
3,725,554
534,221
42,001
227,879
4,945
1,360,942
9,344
15,079
2,200
2,927,175
(1,258,503)
458,262
49,006
258,048
4,498
272,958
1,889
12,119
(5,274,874)
5,079,077
2,709,610
291,537
494,457
5,800
922
13,975
48,212
10,649
3,780,256
(1,722,051)
2,392,679
324,148
524,202
4,544
(514)
2,470
35,338
6,087
(17,362)
61,701
9,597
(35,536)
(129,007)
(112,067)
20,418
27,380
(92,336)
(333,936)
194,403
16,189
(37,015)
(112,277)
115,362
52,864
(93,257)
(364,068)
604,462
1,011,300
2,651,751
3,998,754
533,788
6,980
(331,719)
(179,623)
161,162
(186,511)
(67,605)
(181,802)
(50,000)
(392,820)
829
(199,836)
(919,648)
927,419
(253,701)
(44,471)
(224,490)
(139,325)
(763,422)
(658,665)
483,789
(476,329)
354
(784,664)
(1,282,267)
2,984,198
(203,266)
(88,520)
(447,163)
(50,000)
346,503
7,457
(1,147,994)
(1,109,336)
32,725
(290,334)
(4,575,807)
1,702,865
(426,672)
(230,373)
(491,609)
(139,324)
(863,217)
48,076
430,455
(953,995)
(1,525,676)
(1,141,691)
(5,912,551)
(718,960)
(9,965)
(21,857)
35,709
(1,291,813)
(1,938)
(19,555)
26,229
(2,230,705)
(86,191)
(107,816)
(2,183,166)
(126,228)
(97,520)
(715,073)
(1,287,077)
(2,424,712)
(2,406,914)
(1,064,606)
(1,801,453)
(914,652)
(4,320,711)
Non-cash items
Charges, interest income, and inflation adjustment
Financial instrument transactions
Depreciation and amortization
Losses on receivables
Provisions
Provision for pension plans
Equity in investees
Loss on write-off of permanent assets
Concession Agreement Extension Fee - ANATEL
Employee and management profit sharing
Inflation adjustment to intragroup receivables and private debentures
Inflation adjustment to provisions
Inflation adjustment to tax refinancing program
Expired dividends
Other
Changes in assets and liabilities
Accounts receivable
Inventories
Taxes
Held-for-trading cash investments
Redemption of held-for-trading cash investments
Trade payables
Payroll, related taxes and benefits
Provisions
Provision for pension plans
Changes in assets and liabilities held for sale
Dividends and interest on capital
Other assets and liabilities
Financial charges paid
Income tax and social contribution paid - Company
Income tax and social contribution paid - third parties
Dividends received
Cash flows from operating activities - continuing operations
485,342
Cash flows from operating activities - discontinued operations
Net cash generated by operating activities
The accompanying notes are an integral part of these financial statements.
(1,064,606)
(1,801,453)
(914,652)
9
(3,835,369)
Oi S.A. – under Judicial Reorganization and Subsidiaries
Statement of Cash Flows
For the Periods Ended June 30, 2016 and 2015
(In thousands of Brazilian reais - R$, unless otherwise stated)
(continued)
Investing activities - continuing operations
Purchases of tangibles and intangibles
Due from related parties and debentures - disbursements
Due from related parties and debentures - receipts
Proceeds from the sale of investments, tangibles and intangibles
Cash received for the sale of PT Portugal
Judicial deposits
Redemption of judicial deposits
Changes in cash and cash equivalents for the period
Capital increase in subsidiaries
Increase/(decrease) in permanent investments
Cash flows from investing activities - continuing operations
Company
06/30/2016
06/30/2015
Consolidated
06/30/2016
06/30/2015
(327,489)
(2,155,795)
2,075,870
42,248
(2,173,655)
(1,880,384)
2,265
29,251
17,218,275
(1,010,161)
483,512
201,591
(768,607)
345,518
(293,791)
(2,066,444)
1,919,138
42
682,681
(761,380)
376,199
(2,174,164)
9
(7,065)
(2,962,410)
(150,620)
(1,149,494)
510,771
(144)
(2,810,113)
(194,739)
Cash flows from investing activities - discontinued operations
Net cash used in investing activities
Financing activities - continuing operations
Borrowings net of costs
Repayment of principal of borrowings, financing, and derivatives
Proceeds from (repayments of) derivative financial instrument transactions
Debts to related parties and debentures - Borrowings
Debts to related parties and debentures - Repayments
Licenses and concessions
Tax refinancing program
Payment of dividends and interest on capital
Cash flows from financing activities - continuing operations
(2,962,410)
(150,620)
(32,732)
(2,057)
2,641,230
(3,146,864)
1,212,552
2,587,981
(684,720)
(49,665)
(30,616)
(342)
5,471,880
2,529,556
(3,060,694)
(272,316)
20,706,564
(11,866,885)
(2,810,113)
14,847,201
(6,238,467)
212,794
4,711,333
(5,279,028)
1,358,514
(203,449)
(49,186)
(37,762)
(347,215)
(46,000)
(26,931)
(6,316,070)
370,673
(492,194)
Cash flows from financing activities - discontinued operations
Net cash used in financing activities
Foreign exchange differences on cash equivalents
Cash flows for the period
15,041,940
5,471,880
2,529,556
(6,316,070)
(121,521)
(1,033)
(15,955)
(4,875)
156,071
1,443,831
561,528
(10,045,710)
11,046,382
2,962,415
1,518,584
915,612
354,084
4,852,353
14,898,063
13,495,588
2,449,206
1,443,831
561,528
(10,045,710)
11,046,382
Cash and cash equivalents
Closing balance
Opening balance
Changes in the period
ADDITIONAL DISCLOSURES RELATING TO THE STATEMENT OF CASH FLOWS
Non-cash transactions
Company
Consolidated
06/30/2016 06/30/2015 06/30/2016 06/30/2015
Variance between economic and financial investment (PP&E and
intangible assets)
Offset of judicial deposits against provisions
The accompanying notes are an integral part of these financial statements.
180,855
127,361
201,114
142,777
223,903
174,466
10
140,690
170,637
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
1.
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
GENERAL INFORMATION
Oi S.A. - under judicial reorganization (“Company” or “Oi”), is a Switched Fixed-line Telephony
Services (“STFC”) concessionaire, operating since July 1998 in Region II of the General
Concession Plan (“PGO”), which covers the Brazilian states of Acre, Rondônia, Mato Grosso,
Mato Grosso do Sul, Tocantins, Goiás, Paraná, Santa Catarina and Rio Grande do Sul, and the
Federal District, in the provision of STFC as a local and intraregional long-distance carrier. Since
January 2004, the Company also provides domestic and international long-distance services in all
Regions and local services outside Region II started to be provided in January 2005. These
services are provided under concessions granted by Agência Nacional de Telecomunicações ANATEL (National Telecommunications Agency), the regulator of the Brazilian
telecommunications industry.
The Company is headquartered in Brazil, in the city of Rio de Janeiro, at Rua do Lavradio, 71 2º andar.
The Company also holds: (i) through its wholly-owned subsidiary Telemar Norte Leste S.A. under judicial reorganization (“Telemar”) a concession to provide fixed telephone services in
Region I and nationwide International Long-distance services; and (ii) through its indirect
subsidiary Oi Móvel S.A. - under judicial reorganization (“Oi Móvel”) a license to provide mobile
telephony services in Region I, II and III.
The local and nationwide STFC long-distance concession agreements entered into by the
Company and its subsidiary Telemar with the ANATEL are effective until December 31, 2025.
These concession agreements provide for reviews on a five-year basis and in general have a higher
degree of intervention in the management of the business than the licenses to provide private
services, and also include several consumer protection provisions, as perceived by the regulator.
On December 30, 2015, the ANATEL announced that the review to be implemented by the end
of 2015 had been postponed to April 30, 2016. Subsequently, On April 29, 2016, the ANATEL
decided, under a Resolution Circular Letter, postpone again the execution of the new agreements,
this time to December 31, 2016.
In April 2014, as part of the combination transaction of the share bases of the Company and Pharol
SGPS S.A. (new name of Portugal Telecom, SGPS, S.A., “Pharol”), a capital increase of the
Company was approved through the public subscription of shares, which was partially paid-in
through the assignment, by Pharol, of all the shares issued by PT Portugal SGPS, S.A. (“PT
Portugal”).
The sale of all the shares of PT Portugal to Altice Portugal S.A. (“Altice”), involving basically
the operations in Portugal and in Hungary, was completed on June 2, 2015. After this sale, the
Company retained its stakes in the following former PT Portugal subsidiaries:
(i)
(ii)
100% of the shares of PT Participações SGPS, S.A. (“PT Participações”), holder of
the operations in Africa, through Africatel Holdings BV (“Africatel”), and Timor,
through Timor Telecom, S.A. (“Timor Telecom”);
100% of the shares of Portugal Telecom International Finance B.V. - under judicial
reorganization (“PTIF”), CVTEL B.V. (“CVTEL”), and Carrigans Finance S.à.r.l.
(“Carrigans”).
11
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
In Africa, the Company provides fixed and mobile telecommunications services indirectly
through Africatel Holding BV (“Africatel”). The Company provides services in Namibia,
Mozambique, and São Tomé, among other countries, notably through its subsidiaries Mobile
Telecommunications Limited (“MTC”), Listas Telefónicas de Moçambique (“LTM”), and CST Companhia Santomense de Telecomunicações, SARL (“CST”). Additionally, Africatel holds an
indirect 25% stake in Unitel S.A. (“Unitel”) and a 40% stake in Cabo Verde Telecom, S.A.
(“CVT”), which provide telecommunications services in Angola and Cape Verde.
In Asia, the Company provides fixed and mobile telecommunications services basically through
its subsidiary Timor Telecom.
The Company is registered with the Brazilian Securities and Exchange Commission (“CVM”) and the U.S.
Securities and Exchange Commission (“SEC”). Its shares are traded on the São Paulo Mercantile and Stock
Exchange (“BM&FBOVESPA”) and its American Depositary Receipts (“ADRs”) representing Oi common
shares and preferred shares traded on the New York Stock Exchange (“NYSE”).
The Board of Directors authorized the completion of these quarterly financial information at the
meeting held on August 10, 2016, after being reviewed at the Board of Directors’ meeting held
on August 10, 2016.
Judicial reorganization
On June 20, 2016, Oi, together with its direct or indirect wholly owned subsidiaries Oi Móvel,
Telemar, Copart 4 Participações S.A. - under judicial reorganization (“Copart 4”), Copart 5
Participações S.A. - under judicial reorganization (“Copart 5”), PTIF, and Oi Brasil Holdings
Cooperatief U.A. - under judicial reorganization (“Oi Holanda”) (collectively with the Company,
the "Oi Companies") filed, as a matter of urgency, a request for judicial reorganization with the
Court of the State of Rio de Janeiro, as approved by the Company’s Board of Directors and the
authorized governing bodies of the Oi Companies.
As previously announced, the Company had been taking actions and conducting studies, together
with its financial and legal advisors to optimize its liquidity and debt profile. The Company, after
considering the challenges arising from its economical and financial situation and in light of the
maturity schedule of its financial debts, threats to cash represented for imminent block or pledge
of amounts in lawsuits, and in light of the urgency to adopt protection measures of the Oi
Companies, concluded that the request for judicial reorganization was the most appropriate course
of action at that time to (i) preserve the continuity of its offering of quality services to its
customers, within the rules and commitments undertaken with the Brazilian National
Telecommunications Agency (ANATEL), (ii) preserve the value of the Oi Companies, (iii)
maintain the continuity of operations and corporate activities in an organized manner that protects
the interests of the Oi Companies, its customers, shareholders and other stakeholders, and (iv)
protect the Oi Companies cash and cash equivalents.
12
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
The request for judicial reorganization was filed in light of the obstacles intended to adequately
protect the Oi Companies against creditors while preserving the continuity of the Oi Companies’
operations to find a viable alternative with their creditors that would allow Company the
objectives referred to above and allow for the appropriate protection of the Oi Companies against
creditors, preserving their continuity as business concerns. Total payables to businesses and
individuals not controlled by Oi listed in the documents filed with the judicial reorganization
request is approximately R$65.4 billion, which take into consideration the financial debts and
contingent liabilities.
The filing of the judicial reorganization was another step towards the Company’s financial
restructuring, and that the Company would continue working to secure new customers while
maintaining its service and product sales to all market segments, in all of its distribution and
customer service channels. The installation, maintenance and repair activities will also continue
to be performed on a timely basis. All Oi’s workforce will continue to work as usual, including
the sales, operating and administrative activities. Oi keeps focusing in its investments in
structuring projects aimed promoting the improvement of service quality to continue to bringing
technologic advances, high service standards, and innovation to its customers.
On June 22, 2016, the United States Bankruptcy Court for the Southern District of New York
(“U.S. Bankruptcy Court”) entered an order granting the provisional relief requested by Oi,
Telemar, Oi Coop and Oi Móvel (all four collectively referred to as “Debtors”) in their United
States bankruptcy code Chapter 15 cases that were filed on June 21, 2016.
The provisional relief prevents creditors from initiating actions against the Debtors or their
property located within the territorial jurisdiction of the United States and parties from terminating
their existing U.S. contracts with the Debtors.
On July 21, 2016, the U.S. Bankruptcy Court held a hearing to judge the Debtors’ request and no
objection to the recognition was submitted and the U.S. Bankruptcy Court recognized the judicial
reorganization as a main foreign proceeding with regard to each of the Debtors. As a result of this
recognition, a stay is automatically applied, preventing the filing, in the United States, of any
actions against the Debtors or their properties located within the territorial jurisdiction of the
United States and parties from terminating their existing U.S. contracts with the Debtors.
On June 23, 2016, the High Court of Justice of England and Wales issued orders recognizing the
judicial reorganization request in respect of the Company, Telemar and Oi Móvel filed in Brazil
pursuant to Law 11101/2005, as a foreign main proceeding in accordance with the United Nations
Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency
(as set out in Schedule 1 to the Cross-Border Insolvency Regulations 2006 (S.I. 2006 No 1030))
("Recognition Orders").
The Recognition Orders establish that the commencement or continuation of proceedings
(including enforcement actions) in England and Wales relating to the Company’s, Telemar’s and
Oi Móvel’s assets, rights, obligations or liabilities are stayed from June 23, 2016.
13
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
On June 29, 2016, the Judge of the 7th Corporate Court of the Judicial District of the State Capital
of Rio de Janeiro granted the processing of the judicial reorganization of the Oi Companies
determining, among other measures, in particular:
a)
to request that ANATEL present, within five days, up to 5 names of legal entities with
competence and expertise on the subject to be evaluated for appointment as trustee;
b)
the ratification of the decision to grant an emergency measure to exempt the Oi
Companies from the requirement to present clearance certificates for the exercise of
their activities;
c)
the re-ratification of the decision to grant an emergency measure in regards to the
suspension of all lawsuit and execution actions for 180 business days;
d)
the suspension of the effectiveness of clauses inserted in contracts signed by the Oi
Companies that cause the termination of such agreements due to the request for
judicial reorganization;
e)
permission for the Oi Companies to participate in all forms of bidding processes;
f)
that the Oi Companies add "in judicial reorganization" after their respective business
names, pursuant to Law 11101/2005;
g)
the suspension of publicity surrounding protests and enrollment in the credit
protection agencies, with respect to the Oi Companies, for a period of 180 business
days;
h)
the presentation by the Oi Companies of monthly statements of accounts throughout
the judicial reorganization process, under penalty of dismissal of its officers;
i)
that all Presidencies and General Internal Affairs of Justice of Brazil (Superior, State
and Federal Courts), and Internal Affairs of the Regional Courts and Superior Labor
Court are officiated, and inform of the suspension of lawsuits, in accordance with the
terms described in the decision, and requesting notice from the lower courts, in the
sense that: i) the eligibility of loans subject to judicial reorganization shall be
formalized in accordance with Law 11101/2005, not through an Official Letter, but
rather by formal request of the creditor itself, as instructed in the appropriate debt
clearance certificate, and ii) the ongoing lawsuits, as plaintiffs or defendants, that
demand a gross amount, as provided in Art.6, paragraph 1 of Law 11101/2005, shall
continue the judgment in which they are being processed until execution; and the
jurisdictional provisions reflecting asset constriction or in connection with a decision
to block or pledge gross amounts that involve any kind of asset loss of the applicants
or that interferes with the ownership of goods related to their business activity shall
also be suspended, with the court processing the judicial reorganization being
response for analyzing the specific case; and
j)
the creditors may at any time request the convening of a General Meeting to establish
a creditors committee or replace its members, subject to the provisions of Law
11101/2005.
14
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
The Court also ruled that the Oi Companies shall present their recovery plan within 60 business
days- The decision granting the processing of judicial recovery of Oi Companies, particularly
with regard to the form of procedural time limits in business days, is still subject to appeal and
may be modified, as example, to be counted in calendar days the deadline for submission the
judicial recovery plan for Oi Companies -, which shall comply with the requirements of Law No.
11101/2005.
On July 22, 2016, the judicial reorganization request filed by the Company’s management was
ratified by the shareholders at a Company’s Extraordinary Shareholders’ Meeting.
The shareholders also authorized the Company’s management to take all the actions and practice
all the acts necessary with regard to the judicial reorganization of the Oi Companies and ratified
all the actions taken through that date.
Also on July 22, 2016, the 7th Corporate Court of the Judicial District of the State Capital of Rio
de Janeiro appointed PricewaterhouseCoopers Assessoria Empresarial Ltda. and the law firm
Arnoldo Wald to act as trustees of the Oi Companies.
Going concern
The Company's interim financial information for the quarter ended June 30, 2016 have been
prepared assuming that the Company will continue as a going concern, based on management's
assessment of (i) the achievement of reaching an agreement with the majority of Oi Group’s
creditors in the judicial reorganization procedure and (ii) the approval of a judicial reorganization
plan by the of its creditors and the confirmation of such plan by the Court.
The judicial reorganization is aimed at the continuation of the Oi group as a going concern. Based
on the information available on this date, the Company has no reason to believe that it will not be
possible to reach an agreement with the majority of Oi Group’s creditors. Furthermore, the Board
of Directors have a reasonable expectation that the Oi Group can carry on their business and that
their contracts will remain in force throughout the duration of the judicial reorganization. The
going concern of the Company is ultimately depending on the successful outcome of the judicial
reorganization and the realization of other forecasts of Oi Companies Group. These conditions
and circumstances indicate that existence of a significant uncertainty may cast doubts as to the Oi
Companies ability to continue as a going concern.
15
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
2.
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies detailed below have been consistently applied in all fiscal years presented
in these interim financial information, and have been consistently applied both by the Company
and its subsidiaries.
(a)
Reporting basis
The Company’s quarterly information have been prepared for the period ended June 30, 2016, in
accordance with IAS 34 and CPC 21 (R1) issued by the Accounting Pronouncements Committee
(CPC), which addresses interim financial reporting.
CPC 21 (R1)/IAS 34 requires that management use certain accounting estimates. The quarterly
information has been prepared based on the historical cost, except for certain financial assets and
financial liabilities measured at their fair values.
This quarterly information does not include all the information and disclosures required in annual
financial statements and should be read in conjunction with the annual financial statements for
the year ended December 31, 2015, which have been prepared in accordance with International
Financial Reporting Standards (IFRSs) and the accounting practices adopted in Brazil. There were
no changes in the accounting policies adopted in the period ended June 30, 2016 as compared to
those applicable in the year ended December 31, 2015.
The assets and liabilities related to the operations in Africa are consolidated and stated in a single
line item of the balance sheet as held-for-sale assets as a result of Management’s expectation and
decision to hold these assets and liabilities for sale.
Functional and presentation currency
The Company and its subsidiaries operate mainly as telecommunications industry operators in
Brazil, Africa, and Asia, and engage in activities typical of this industry. The items included in
the financial statements of each group company are measured using the currency of the main
economic environment where it operates ("functional currency"). The individual and consolidated
financial statements are presented in Brazilian reais (R$), which is the Company’s functional and
presentation currency.
Transactions and balances
Foreign currency-denominated transactions are translated into the functional currency using the
exchange rates prevailing on the transaction dates. Foreign exchange gains and losses arising on
the settlement of the transaction and the translation at the exchange rates prevailing at period-end,
related foreign currency-denominated monetary assets and liabilities are recognized in the income
statement, except when qualified as hedge accounting and, therefore, deferred in equity as cash
flow hedges.
16
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Group companies with a different functional currency
The profit or loss and the financial position of all Group entities, none of which uses a currency
from a hyperinflationary economy, whose functional currency is different from the presentation
currency are translated into the presentation currency as follows:

assets and liabilities are translating at the rate prevailing at the end of the reporting period;

revenue and expenses disclosed in the statement of profit or loss are translated using the
average exchange rate;

all the resulting foreign exchange differences are recognized as a separate component of
equity in other comprehensive income; and

goodwill and fair value adjustments, arising from the acquisition of a foreign entity are
treated as assets and liabilities of the foreign entity and translated at the closing exchange
rate.
As at June 30, 2016 and December 31, 2015, the foreign currency-denominated assets and
liabilities were translated into Brazilian reais using mainly the following foreign exchange rates:
Currency
Euro
US dollar
Cabo Verdean escudo
Sao Tomean dobra
Kenyan shilling
Namibian dollar
Mozambican metical
(b)
Closing rate
06/30/2016
12/31/2015
3.5414
4.2504
3.2098
3.9048
0.0325
0.0390
0.000150
0.000174
0.0318
0.0382
0.2171
0.2510
0.0507
0.0832
Average rate
06/30/2016
06/30/2015
4.1289
3.3112
3.7017
2.9709
0.0378
0.0306
0.000172
0.000139
0.0365
0.0317
0.2403
0.2491
0.0715
0.0831
Estimates and critical accounting judgments
In preparing the quarterly information, the Company’s management uses estimates and
assumptions based on historical experience and other factors, including expected future events,
which are considered reasonable and relevant. The use of estimates and assumptions frequently
requires judgments related to matters that are uncertain with respect to the outcomes of
transactions and the amount of assets and liabilities. Actual results of operations and the financial
position may differ from these estimates. The estimates that represent a significant risk of causing
material adjustments to the carrying amounts of assets and liabilities were disclosed in the
Company’s financial annual statements referred to above. In the period ended June 30, 2016, there
was no material change in the accounting estimates adopted by the Company and its subsidiaries.
17
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
3.
FINANCIAL INSTRUMENTS AND RISK ANALYSIS
3.1.
Fair value measurement
CPC 46/IFRS 13 defines fair value as the price for which an asset could be exchanged, or a
liability settled, between knowledgeable, willing parties, in an arm’s length transaction on
measurement date. The standard clarifies that the fair value must be based on the assumptions that
market participants would consider in pricing an asset or a liability, and establishes a hierarchy
that prioritizes the information used to build such assumptions. The fair value measurement
hierarchy attaches more importance to available market inputs (i.e., observable data) and a less
weight to inputs based on data without transparency (i.e., unobservable data). Additionally, the
standard requires that an entity consider all nonperformance risk aspects, including the entity’s
credit, when measuring the fair value of a liability.
CPC 40/IFRS 7 establishes a three-level hierarchy to measure and disclose fair value. The
classification of an instrument in the fair value measurement hierarchy is based on the lowest
level of input significant for its measurement. We present below a description of the three-level
hierarchy:
Level 1—inputs consist of prices quoted (unadjusted) in active markets for identical assets or
liabilities to which the entity has access on measurement date;
Level 2—inputs are different from prices quoted in active markets used in Level 1 and consist of
directly or indirectly observable inputs for the asset or liability. Level 2 inputs include quoted
prices for similar assets or liabilities in active markets, quoted prices for identical assets or
liabilities in markets that are not active; or inputs that are observable for the asset or liability or
that can support the observed market inputs by correlation or otherwise for substantially the entire
asset or liability.
Level 3—inputs used to measure an asset or liability are not based on observable market variables.
These inputs represent management’s best estimates and are generally measured using pricing
models, discounted cash flows, or similar methodologies that require significant judgment or
estimate.
The Company and its subsidiaries have measured their financial assets and financial liabilities at
their market or actual realizable values (fair value) using available market inputs and valuation
techniques appropriate for each situation. The interpretation of market inputs for the selection of
such techniques requires considerable judgment and the preparation of estimates to obtain an
amount considered appropriate for each situation. Accordingly, the estimates presented may not
necessarily be indicative of the amounts that could be obtained in an active market. The use of
different assumptions for the calculation of the fair value may have a material impact on the
amounts obtained.
18
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
The carrying amounts and the estimated fair values of our main financial assets and financial
liabilities as at June 30, 2016 and December 31, 2015 are summarized as follows:
COMPANY
Accounting
measurement
Carrying
amount
CONSOLIDATED
06/30/2016
Carrying
Fair value
amount
Fair value
Assets
Cash and banks
Cash equivalents
Fair value
152,233
152,233
355,705
355,705
Fair value
2,810,182
2,810,182
4,496,648
4,496,648
Cash investments
Fair value
59,842
59,842
253,802
253,802
Derivative financial instruments
Fair value
171,998
171,998
313,808
313,808
Due from related parties
Amortized cost
3,444,651
3,444,651
Accounts receivable (i)
Amortized cost
1,852,962
1,852,962
8,765,453
8,765,453
Dividends and interest on capital receivable
Amortized cost
869,165
869,165
Held-for-sale assets
Held-for-sale financial asset (Note 6)
Fair value
2,174,998
2,174,998
2,174,998
2,174,998
Dividends receivable (Note 6)
Amortized cost
1,976,162
1,976,162
1,976,162
1,976,162
Amortized cost
1,379,537
1,379,537
5,111,389
5,111,389
12,419,582
12,419,582
Liabilities
Trade payables (i)
Borrowings and financing (ii)
Borrowings and financing
Amortized cost
2,016,821
2,016,821
Due to related parties
Amortized cost
19,104,731
19,531,261
Public debentures
Amortized cost
4,076,412
4,076,412
4,128,008
4,128,008
Senior Notes
Amortized cost
9,308,729
1,626,658
30,063,140
5,231,092
192,810
192,810
194,948
194,948
39,965
Derivative financial instruments
Fair value
Dividends and interest on capital
Amortized cost
28,070
28,070
39,965
Licenses and concessions payable (iii)
Amortized cost
15,079
15,079
69,744
69,744
Tax refinancing program (iii)
Amortized cost
456,520
456,520
771,729
771,729
Other payables (payable for the acquisition of equity
interest) (iii)
Amortized cost
405,018
405,018
405,018
405,018
19
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Company
Accounting
measurement
Carrying
amount
CONSOLIDATED
12/31/2015
Carrying
Fair value
amount
Fair value
Assets
Cash and banks
Fair value
177,573
177,573
1,111,840
1,111,840
Cash equivalents
Fair value
1,341,011
1,341,011
13,786,223
13,786,223
Cash investments
Fair value
38,733
38,733
1,927,686
1,927,686
Derivative financial instruments
Fair value
5,393,673
5,393,673
7,386,703
7,386,703
Due from related parties
Amortized cost
3,353,617
3,353,617
Accounts receivable (i)
Amortized cost
2,428,751
2,428,751
8,379,719
8,379,719
Dividends and interest on capital receivable
Amortized cost
891,270
891,270
Held-for-sale assets
Held-for-sale financial asset (Note 6)
Fair value
3,541,314
3,541,314
3,541,314
3,541,314
Dividends receivable (Note 6)
Amortized cost
2,042,191
2,042,191
2,042,191
2,042,191
Amortized cost
1,388,520
1,388,520
5,004,833
5,004,833
Borrowings and financing
Amortized cost
4,936,551
4,936,551
17,049,280
17,049,280
Due to related parties
Amortized cost
13,035,521
13,063,594
Public debentures
Amortized cost
4,088,002
4,078,516
4,138,025
4,128,539
Senior Notes
Amortized cost
11,163,801
6,468,489
38,670,111
22,159,838
2,411,838
2,411,838
2,510,343
2,510,343
65,663
65,663
96,433
96,433
918,537
918,537
Liabilities
Trade payables (i)
Borrowings and financing (ii)
Derivative financial instruments
Fair value
Dividends and interest on capital
Amortized cost
Licenses and concessions payable (iii)
Amortized cost
Tax refinancing program (iii)
Amortized cost
479,655
479,655
795,088
795,088
Other payables (payable for the acquisition of equity
interest) (iii)
Amortized cost
382,230
382,230
382,230
382,230
(i)
The balances of accounts receivables and trade payables have near terms and, therefore,
they are not adjusted to fair value.
(ii)
Part of this balance of borrowings and financing with the BNDES - Banco Nacional de
Desenvolvimento Econômico e Social and export credit agencies correspond to exclusive
markets and, therefore, the fair values of these instruments is similar to their carrying
amounts. A portion of the balance of borrowings and financing refers to the bonds issued
in the international market, for which is there is a secondary market, and their fair values
are different from their carrying amounts.
(iii)
The licenses and concessions payable, the tax refinancing program, and other obligations
(payable for the acquisition of equity interest) are stated at the amounts that these
obligations are expected to be discharged and are not adjusted to fair value.
20
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
The levels of the financial assets, cash and cash equivalents and cash investments, held-for-sale
assets, and derivative financial instruments at fair value as at June 30, 2016 and December 31,
2015 are as follows:
COMPANY
Fair value
measurement
hierarchy
Fair value
CONSOLIDATED
Fair value
Fair value
Fair value
06/30/2016 12/31/2015
06/30/2016
12/31/2015
355,705
1,111,840
Assets
Cash and banks
Level 1
152,233
177,573
Cash equivalents
Level 2
2,810,182
1,341,011
Cash investments
Level 2
59,842
38,733
253,802
1,927,686
Derivative financial instruments
Level 2
171,998
5,393,673
313,808
7,386,703
Held-for-sale assets
Level 3
2,174,998
3,541,314
2,174,998
3,541,314
Level 2
192,810
2,411,838
194,948
2,510,343
4,496,648 13,786,223
Liabilities
Derivative financial instruments
There were no transfers between levels between June 30, 2016 and December 31, 2015.
The Company and its subsidiaries have measured their financial assets and financial liabilities at
their market or actual realizable values (fair value) using available market inputs and valuation
techniques appropriate for each situation, as follows:
(a)
Cash, cash equivalents and cash investments
Foreign currency-denominated cash equivalents and cash investments are basically maintained in
euro and US dollar checking deposits Euros (“dollar” or “dollars”).
The fair value of securities traded in active markets is equivalent to the amount of the last closing
quotation available at the end of the reporting period, multiplied by the number of outstanding
securities.
For the remaining contracts, the Company carries out an analysis comparing the current contractual
terms and conditions with the terms and conditions effective for the contract when they were
originated. When terms and conditions are dissimilar, fair value is calculated by discounting future
cash flows at the market rates prevailing at the end of the period, and when similar, fair value is
similar to the carrying amount on the reporting date.
21
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
(b)
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Held-for-sale assets
Refers to the fair value of the financial investment in Unitel, classified as held for sale. The fair
value of this investment is estimated based on the internal valuation made, including cash flows
forecasts for a four-year period, the choice of a growth rate to extrapolate the cash flows
projections, and definition of appropriate discount rates. The Company has the policy of
monitoring and periodically updating the main assumptions and material estimates used in the fair
value measurement, and also takes into consideration in this assessment possible impacts of actual
events related to the investment, notably the lawsuits filed against Unitel and its shareholders (Note
6).
(c)
Derivative financial instruments
The Company conducts derivative transactions to manage certain market risks, mainly the interest
rate risk and foreign exchange risk. As a result of a decision by the Company’s board, at the end
of the reporting period, on June 30, 2016, these financial instruments include the use of cross
currency swaps. The financial instruments position as at June 30, 2016, pursuant to a Board of
Directors’ resolution, reflects a material decrease in the Company’s derivatives portfolio compared
to the previous quarters. The Company does not use derivatives for any other purposes.
The method used for calculation of the fair value of derivative instruments was the future cash
flows associated to each instrument contracted, discounted at market rates prevailing at June 30,
2016.
Derivative financial instruments contracted to manage foreign exchange exposure are
summarized as follows:
Cross-currency swaps
Derivatives designated for hedge accounting
Fair value
Amounts (payable)/receivable
Maturity
(years)
COMPANY
CONSOLIDATED
06/30/2016
12/31/2015
06/30/2016 12/31/2015
5.6 - 7.7
83,882
4,106,304
220,682
5,604,425
Cross-currency swaps
Non-deliverable forwards (NDFs)
Options
Derivatives not designated for hedge accounting
Fair value
Amounts (payable)/receivable
Maturity
(years)
Company
CONSOLIDATED
06/30/2016
12/31/2015
06/30/2016 12/31/2015
3.6 - 4.7
2,872
3,502
< 1 year
(533,892)
(584,159)
3.1 - 4.6
1,285
1,285
22
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Derivative financial instruments contracted to manage interest rate exposure are summarized as
follows:
Fixed rate/DI rate swaps
Derivatives designated for hedge accounting
Fair value
Amounts (payable)/receivable
Maturity
(years)
COMPANY
CONSOLIDATED
06/30/2016
12/31/2015
06/30/2016 12/31/2015
4.5
(146,121)
(146,121)
US$ LIBOR/US$ fixed rate swaps
US$ fixed rate/US$ LIBOR swaps
Derivatives not designated for hedge accounting
Fair value
Amounts (payable)/receivable
Maturity
(years)
COMPANY
CONSOLIDATED
06/30/2016
12/31/2015 06/30/2016 12/31/2015
0.2 - 5.8
(445,741)
(448,312)
5.8
445,740
As at June 30, 2016 and 2015, the derivative transactions in the amounts shown below were
recognized in financial income (expenses) (see Note 6):
Gain (loss) on currency swaps
Currency forwards
Options
Gain (loss) on interest rate swap
Total
There-month period ended
COMPANY
CONSOLIDATED
06/30/2016
06/30/2015
06/30/2016
06/30/2015
(1,479,101)
(525,185)
(1,826,511)
(681,481)
(2,832)
(133,043)
(3,410)
(148,335)
(35,171)
(8,467)
(35,171)
(8,467)
622,620
95,010
(30,794)
(3,061)
(894,484)
(571,685)
(1,895,886)
(841,344)
Gain (loss) on currency swaps
Currency forwards
Options
Gain (loss) on interest rate swap
Total
Six-month period ended
COMPANY
CONSOLIDATED
06/30/2016
06/30/2015
06/30/2016
06/30/2015
(3,297,802)
1,122,823
(4,119,804)
1,496,928
(784,769)
216,522
(937,034)
264,304
14,215
(8,467)
14,215
(8,467)
342,802
(72,375)
(36,454)
(30,714)
(3,725,554)
1,258,503
(5,079,077)
1,722,051
23
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
The movements below, related foreign exchange hedges designated for hedge accounting
treatment, were recognized in other comprehensive income:
Table of movements in hedge accounting effects in other comprehensive income
COMPANY
Foreign
exchange
hedge
Balance at Dec 31, 2015
Gain on designated hedges
Transfer on ineffective portion to profit or loss
Amortization of hedges to profit or loss at the
effective rate
Deferred taxes on hedge accounting
Share of subsidiary’s hedge accounting
Balance at Jun 30, 2016
3.2.
Interest
rate hedge
CONSOLIDATED
Total
Foreign
exchange
hedge
Interest
rate
hedge
Total
(294,946)
(108,059)
(403,005)
(294,946)
(108,059)
(403,005)
258,082
142,634
400,716
328,144
142,634
470,778
1,286
(597)
689
8,658
(597)
8,061
27,499
21,689
49,188
33,844
21,689
55,533
(97,535)
(55,667)
(153,202)
(126,020)
(55,667)
(181,687)
55,294
55,294
(50,320)
(50,320)
(50,320)
(50,320)
Financial risk management
The Company’s and its subsidiaries’ activities expose them to several financial risks, such as:
market risk (including currency fluctuation risk, interest rate risk on fair value, interest rate risk
on cash flows, and price risk), credit risk, and liquidity risk. According to their nature, financial
instruments may involve known or unknown risks, and it is important to assess to the best
judgment the potential of these risks. The Company and its subsidiaries use derivative financial
instruments to mitigate them against certain exposures to these risks.
Risk management is carried out by the Company's treasury officer, in accordance with the policies
approved by management.
The Hedging and Cash Investments Policies, approved by the Board of Directors, document the
management of exposures to market risk factors generated by the financial transactions of the Oi
Group companies.
To ensure a proper risk management, the Company can contract or reverse hedging instruments,
including derivative transactions such as swaps and currency forwards. The contract of such
instruments depends of, among other factors, available funds within the credit limit set by banks.
According to the hedging policy, the Company and its subsidiaries can only use derivatives for
hedging purposes.
At the end of the quarter, pursuant to a Board of Directors’ resolution, the Company’s derivatives
portfolio had already decreased drastically when compared to the previous quarters.
24
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
3.2.1.
Market risk
(a)
Foreign exchange risk
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Financial assets
The Company is not exposed to any material foreign exchange risk involving foreign currencydenominated financial assets as at June 30, 2016, except with regard to the assets held for sale, for
which we did not enter into any currency hedging transaction.
Financial liabilities
The Company and its subsidiaries have foreign currency-denominated or foreign currency-indexed
borrowings and financing. The risk associated with these liabilities is related to the possibility of
fluctuations in foreign exchange rates that could increase the balance of such liabilities. The
Company’s and its subsidiaries’ borrowings and financing exposed to this risk represent
approximately 73.1% of total liabilities from borrowings and financing (78.5% at December 31,
2015), less the contracted currency hedging transactions. Out of the consolidated foreign currencydenominated debt, 6.5% (99.5% at December 31, 2015) is hedged by exchange swaps, currency
forwards, and cash investments in foreign currency. The cash funds in euros and US dollars operate
as a natural hedge for foreign currency-denominated debt.
Foreign currency-denominated financial liabilities are presented in the balance sheet as follows:
Borrowings and financing (Note 17)
Derivative financial instruments
COMPANY
06/30/2016
12/31/2015
Carrying
Carrying
amount
Fair value
amount
Fair value
8,891,710
2,158,478 13,530,721
9,138,347
192,810
192,810 1,819,976
1,819,976
Borrowings and financing (Note 17)
Derivative financial instruments
CONSOLIDATED
06/30/2016
12/31/2015
Carrying
Carrying
amount
Fair value
amount
Fair value
33,985,912
10,102,702 46,935,152
30,727,817
194,948
194,948 1,915,910
1,915,910
Foreign exchange risk sensitivity analysis
As established by CVM Instruction 475, as at June 30, 2016, management estimated the
depreciation scenarios of the Brazilian real in relation to other currencies, at the end of the
reporting period. It is worth noting, however, that in light of the filing of the judicial
reorganization request on June 20, 2016—as referred to in Note 1—the Company’s foreign
currency-denominated financial liabilities are part of the list of payables subject to renegotiation.
Contingent to the successful implementation of said negotiation, the scenarios described below
should not represent a cash outflow of this magnitude since the onerous liability associated to this
risk factor will subject to a renegotiation under the judicial reorganization plan.
25
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
For purposes of this Instruction, however, the rates used for the probable scenario were the rates
prevailing at the end of June 2016. The probable rates were then depreciated by 25% and 50%
and used as benchmark for the possible and remote scenarios, respectively.
Rate
Description
Probable scenario
US dollar
Euro
Possible scenario
US dollar
Euro
Remote scenario
US dollar
Euro
06/30/2016
Depreciation
3.2098
3.5414
0%
0%
4.0123
4.4268
25%
25%
4.8147
5.3121
50%
50%
The impacts of foreign exchange exposure, in the sensitivity scenarios estimated by the Company,
are shown in the table below:
06/30/2016
Individual
risk
Description
Probable
scenario
COMPANY
Possible
scenario
Remote
scenario
CONSOLIDATED
Probable
Possible
Remote
scenario
scenario
scenario
Dollar
appreciation
6,993,187
8,741,483 10,489,780 16,120,721 20,150,901 24,181,082
Derivatives (net position - US$)
Dollar
depreciation
(1,524,730)
(1,905,912) (2,287,095) (1,920,026) (2,400,033) (2,880,039)
US dollar cash
Dollar
depreciation
(29,073)
(36,341)
Euro debt
Euro appreciation
2,112,532
2,640,665
3,168,798 18,261,353 22,826,692 27,392,030
Derivatives (net position - euro)
Euro depreciation
(167,980)
(209,975)
(251,970)
(167,980)
(209,975)
(251,970)
Euro cash
Euro depreciation
Total assets/liabilities indexed to
exchange fluctuation
Total (gain) loss
(35,018)
(43,772)
(52,527)
(67,960)
(84,950)
(101,940)
US dollar debt
(a)
7,348,918
(43,609)
(84,684)
(105,855)
(127,025)
9,186,148 11,023,377 32,141,424 40,176,780 48,212,138
1,837,230
3,674,459
8,035,356 16,070,714
Interest rate risk
Financial assets
Cash equivalents and cash investments in local currency are substantially maintained in financial
investment funds exclusively managed for the Company and its subsidiaries, and investments in
private securities issued by prime financial institutions.
The interest rate risk linked to these assets arises from the possibility of decreases in these rates
and consequent decrease in the return on these assets.
Financial liabilities
The Company and its subsidiaries have borrowings and financing subject to floating interest rates,
based on the Long-term Interest Rate (TJLP) or the CDI, in the case of real-denominated debt,
and on the LIBOR, in the case of U.S. dollar-denominated debt.
26
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
As at June 30, 2016, approximately 33.4% (33.4% at December 31, 2015) of the consolidated
incurred debt, less balance adjustment for derivative transactions, was subject to floating rates.
After the derivative transactions, approximately 35.9% (59.6% at December 31, 2015) of the
consolidated debt was subject to floating rates. The most material exposure of Company’s and its
subsidiaries’ debt after the hedging transactions is to CDI. Therefore, a continued increase in this
interest rate would have an adverse impact on future interest payments and hedging adjustments.
These assets and liabilities are presented in the balance sheet as follows:
COMPANY
06/30/2016
12/31/2015
Carrying
Market
Carrying
Market
amount
value
amount
value
Financial assets
Cash equivalents
Cash investments
Due from related parties
Financial liabilities
Borrowings and financing
Derivative financial instruments
2,788,302
52,898
3,444,651
2,788,302
52,898
3,444,651
1,335,559
35,066
3,353,617
1,335,559
35,066
3,353,617
24,521,368
23,572,530
21,397,323
591,862
21,387,837
591,862
CONSOLIDATED
06/30/2016
12/31/2015
Carrying
Market
Carrying
Market
amount
value
amount
value
Financial assets
Cash equivalents
Cash investments
Derivative financial instruments
Financial liabilities
Borrowings and financing
Derivative financial instruments
4,430,195
236,414
4,430,195
236,414
3,232,771
162,145
445,740
3,232,771
162,145
445,740
13,913,312
12,964,474
18,307,705
594,433
18,298,218
594,433
Interest rate fluctuation risk sensitivity analysis
Management believes that the most significant risk related to interest rate fluctuations arises from
its liabilities pegged to the TJLP, the USD LIBOR, and mainly the CDI. This risk is associated to
an increase in those rates.
As established by CVM Instruction 475, as at June 30, 2016, management estimated the
fluctuation scenarios of the rates CDI, TJLP, and USD LIBOR. The rates used for the probable
scenario were the rates prevailing at the end of the reporting period. It is worth noting, however,
that in light of the filing of the judicial reorganization request on June 20, 2016—as referred to in
Note 1—the Company’s financial liabilities indexed to floating interest rates are part of the list of
payables subject to renegotiation. Contingent to the successful implementation of said
negotiation, the scenarios described below should not represent a cash outflow risk. In the period
from the filing and approval of the judicial reorganization plan by the creditors the payment of
interest and repayment of principal of the Company’s borrowings and financing are suspended.
27
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
For purposes of this Instruction, however, these rates have been stressed by 25 and 50 percent,
and used as benchmark for the possible and remote scenarios. Note that beginning January 2015,
the TJLP increased from 5.0% p.a. to 5.5% p.a., which was the start of successive increases. For
the quarter beginning April 2015, the TJLP increased to 6.0%, remaining at 6.5% in July and in
October 1-December 31, 2015 it increased 7.0%. Beginning January 1 through June 30, 2016, the
TJLP was increased to 7.5% p.a.
06/30/2016
Interest rate scenarios
Possible scenario
Probable scenario
Remote scenario
CDI
TJLP
6M USD
LIBOR
CDI
TJLP
6M USD
LIBOR
CDI
TJLP
6M USD
LIBOR
14.13%
7.50%
0.92415%
17.65%
9.38%
1.15519%
21.20%
11.25%
1.38623%
As at June 30, 2016, management estimated the future outflows for the payment of interest and
principal of its debt pegged to CDI, TJLP, and US$ LIBOR based on the interest rates above. The
outflows related to debts between Oi Group companies ware not considered.
Such sensitivity analysis considers payment outflows in future dates. Thus, the aggregate of the
amounts for each scenario is not equivalent to the fair values, or even the present values of these
liabilities. The fair values of these liabilities, should the Company’s credit risk remain unchanged,
would not be impacted in the event of fluctuations in interest rates, as the interest rates used to
estimate future cash outflows would be the same rates that discount such flows to present value.
The impacts of exposure to interest rates, in the sensitivity scenarios estimated by the Company,
are shown in the tables below:
Description
CDI-indexed debt
Derivatives (net position - CDI)
Individual
risk
CDI increase
06/30/2016
COMPANY
Consolidated
Probable
Possible
Remote
Probable
Possible
Remote
scenario
scenario
scenario
scenario
scenario
scenario
1,193,926 1,439,871 1,712,313 1,552,517 1,867,753 2,212,450
CDI increase
1,054,279
1,300,840
1,506,534
1,129,318
1,392,473
1,611,423
191,665
228,095
266,030
816,022
971,754
1,133,847
67,891
72,942
80,175
424,999
451,095
490,021
TJLP-indexed debt
TJLP increase
US$ LIBOR-indexed debt
US$
appreciation
Derivatives (net position - LIBOR)
US$ LIBOR
decrease
Total (gain) loss
3.2.2.
(44,698)
(48,601)
(52,506)
(61,946)
(67,141)
(72,338)
2,463,063
2,993,147
3,512,546
3,860,910
4,615,934
5,375,403
Credit risk
The concentration of credit risk associated to trade receivables is immaterial due to the
diversification of the portfolio. Doubtful receivables are adequately covered by an allowance for
doubtful accounts.
28
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Transactions with financial institutions (cash investments and borrowings and financing) are
made with prime entities, avoiding the concentration risk. The credit risk of financial investments
is assessed by setting caps for investment in the counterparts, taking into consideration the ratings
released by the main international risk rating agencies for each one of such counterparts. As at
June 30, 2016, approximately 97.4% of the consolidated cash investments were made with
counterparties with an AAA, AA, A or sovereign risk rating.
The Company had credit risks related to dividends receivable associated to the investment in
Unitel.
3.2.3.
Liquidity risk
The liquidity risk also arises from the possibility of the Company being unable to discharge its
liabilities on maturity dates and obtain cash due to market liquidity restrictions. Management uses
its resources mainly to fund capital expenditures incurred on the expansion and upgrading of the
network, invest in new businesses, pay dividends, and service and refinance its debt.
The Company’s management monitors the continual forecasts of the liquidity requirements to
ensure that the company has sufficient cash to meet its operating needs and fund capital
expenditure to modernize and expand its network.
In light of the current judicial reorganization scenario, as referred to in Note 1, the Company’s
obligations related to the contractual maturities of financial liabilities, including the payments of
interest in borrowings, financing and debentures, will be negotiated with creditors in the context
of the judicial reorganization.
4.
NET OPERATING REVENUE
There-month period ended
COMPANY
CONSOLIDATED
06/30/2016
06/30/2015
06/30/2016
06/30/2015
Gross operating revenue
Deductions from gross revenue
Taxes
Other deductions
Net operating revenue
3,498,553
3,443,923
11,574,466
11,090,596
(2,023,917)
(459,881)
(1,564,036)
(1,884,567)
(486,423)
(1,398,144)
(5,050,337)
(1,979,896)
(3,070,441)
(4,306,810)
(2,049,159)
(2,257,651)
1,474,636
1,559,356
6,524,129
6,783,786
Six-month period ended
COMPANY
CONSOLIDATED
06/30/2016
06/30/2015
06/30/2016
06/30/2015
Gross operating revenue
Deductions from gross revenue
Taxes
Other deductions
Net operating revenue
6,950,845
6,909,691
23,211,118
22,250,023
(3,995,057)
(925,131)
(3,069,926)
(3,760,251)
(985,365)
(2,774,886)
(9,931,878)
(3,974,688)
(5,957,190)
(8,426,302)
(4,160,469)
(4,265,833)
2,955,788
3,149,440
13,279,240
13,823,721
29
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
5.
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
REVENUE AND EXPENSES BY NATURE
Net operating revenue
Operating income (expenses):
Interconnection
Personnel
Third-party services
Grid maintenance service
Handset and other costs
Advertising and publicity
Rentals and insurance
Provisions/reversals
Allowance for doubtful accounts
Taxes and other income (expenses) (i)
Other operating expenses, net (ii)
Operating expenses excluding depreciation and
amortization
Depreciation and amortization
Total operating expenses
Profit (loss) before financial income (expenses) and
taxes
Financial income (expenses):
Financial income
Financial expenses
Total financial income (expenses)
Profit (loss) before taxes
Income tax and social contribution
Loss from continuing operations
Discontinued operations
Profit (loss) for the quarter from discontinued
operations, net (net of taxes)
Profit (loss) for the period
Profit (loss) attributable to owners of the Company
There-month period ended
COMPANY
CONSOLIDATED
06/30/2016
06/30/2015
06/30/2016
06/30/2015
1,474,636
1,559,356
6,524,129
6,783,786
(108,621)
(145,154)
(305,771)
(162,709)
(192,425)
(130,209)
(381,080)
(121,490)
(2,676)
(95,153)
(119,721)
(15,482)
(380,372)
(27,390)
(222,444)
(745,288)
(1,622,347)
(516,015)
(60,208)
(137,510)
(1,071,135)
(289,502)
(163,963)
(175,633)
(84,680)
(450,670)
(622,222)
(1,619,155)
(501,022)
(47,791)
(97,793)
(822,743)
(268,897)
(182,288)
(224,455)
(47,756)
(49,315)
(167,766)
(149,995)
(29,431)
(1,010,537)
(23,212)
(2,152,511)
(255,957)
(2,408,468)
(1,465,998)
(229,845)
(1,695,843)
(5,088,725)
(1,336,430)
(6,425,155)
(4,884,792)
(1,272,484)
(6,157,276)
(933,832)
(136,487)
98,974
626,510
2,048,501
(792,067)
1,256,434
322,602
(815,213)
(492,611)
559,063
(1,030,629)
(471,566)
(608,053)
115,364
(492,689)
435,229
187,166
622,395
721,369
(1,376,880)
(655,511)
570,383
(1,779,983)
(1,209,600)
(583,090)
141,123
(441,967)
(492,611)
1,112,506
619,817
(655,511)
1,112,506
670,539
(492,611)
619,817
(492,611)
619,817
(162,900)
50,722
(4,131,576)
(1,157,297)
(927,181)
418,628
(627,154)
(575)
(6,425,155)
(3,708,018)
(1,223,383)
(997,035)
362,392
(591,314)
82
(6,157,276)
Profit (loss) attributable to non-controlling interests
Operating expenses by function:
Cost of sales and/or services
Selling expenses
General and administrative expenses
Other operating income
Other operating expenses
Share of profits of investees
Total operating expenses
(651,243)
(262,264)
(315,889)
196,978
(284,902)
(1,091,148)
(2,408,468)
(498,365)
(273,015)
(438,074)
132,198
(234,777)
(383,810)
(1,695,843)
30
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Net operating revenue
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Six-month period ended
COMPANY
CONSOLIDATED
06/30/2016
06/30/2015
06/30/2016
06/30/2015
2,955,788
3,149,440
13,279,240
13,823,721
Operating income (expenses):
Interconnection
(323,439)
(430,357)
(580,075)
(956,473)
Personnel
(219,350)
(271,633)
(1,429,888)
(1,238,738)
Third-party services
(677,954)
(731,832)
(3,173,731)
(3,172,589)
Grid maintenance service
(317,994)
(279,991)
(1,004,560)
(960,610)
(133,859)
(196,702)
Handset and other costs
Advertising and publicity
(52,039)
(5,721)
(230,974)
(136,950)
Rentals and insurance
(338,511)
(199,400)
(2,167,949)
(1,709,178)
Provisions/reversals
(227,879)
(225,886)
(494,457)
(492,041)
(42,001)
(49,006)
(291,537)
(351,564)
(1,231,525)
(333,683)
(476,431)
(650,867)
(23,212)
(27,390)
(94,676)
(47,756)
(3,453,904)
(2,554,899)
(10,078,137)
(9,913,468)
Allowance for doubtful accounts
Taxes and other income (expenses) (i)
Other operating expenses, net (ii)
Operating expenses excluding depreciation and
amortization
Depreciation and amortization
(534,221)
(458,262)
(2,709,610)
(2,490,872)
Total operating expenses
(3,988,125)
(3,013,161)
(12,787,747)
(12,404,340)
Profit (loss) before financial income (expenses) and
taxes
(1,032,337)
136,279
491,493
1,419,381
3,327,634
740,434
713,317
877,304
(3,754,597)
(2,100,324)
(1,993,724)
(3,355,991)
(426,963)
(1,359,890)
(1,280,407)
(2,478,687)
Financial income (expenses):
Financial income
Financial expenses
Total financial income (expenses)
Pre-tax loss
(1,459,300)
(1,223,611)
(788,914)
(1,059,306)
Income tax and social contribution
(701,917)
362,050
(1,510,749)
203,243
Loss from continuing operations
(2,161,217)
(861,561)
(2,299,663)
(856,063)
Discontinued operations
Profit (loss) for the quarter from discontinued
operations, net (net of taxes)
1,080,061
1,080,061
Profit (loss) for the period
(2,161,217)
218,500
(2,299,663)
223,998
Profit (loss) attributable to owners of the Company
(2,161,217)
218,500
(2,161,217)
218,500
(138,446)
5,498
Profit (loss) attributable to non-controlling interests
Operating expenses by function:
Cost of sales and/or services
(1,421,746)
(1,175,277)
(8,260,316)
(7,502,780)
Selling expenses
(509,906)
(551,723)
(2,215,306)
(2,371,149)
General and administrative expenses
(636,361)
(761,999)
(1,850,846)
(1,946,430)
Other operating income
Other operating expenses
361,933
189,999
789,040
547,170
(421,103)
(441,203)
(1,249,397)
(1,131,665)
Share of profits of investees
(1,360,942)
(272,958)
(922)
514
Total operating expenses
(3,988,125)
(3,013,161)
(12,787,747)
(12,404,340)
31
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
(i)
Includes the equity is subsidiaries expense of R$1,360,942 in Company (income of
R$272,958 for the period ended June 30, 2015) and expense of R$922 (expense of R$514
for the period ended June 30, 2015) on a consolidated basis.
(ii)
The other operating expenses, net for the periods ended June 30, 2016 and 2015 include
basically costs associated downsizings in these periods.
6.
FINANCIAL INCOME (EXPENSES)
There-month period ended
COMPANY
CONSOLIDATED
06/30/2016 06/30/2015 06/30/2016 06/30/2015
Financial income
Interest on and inflation adjustment to other assets
Income from cash investments
Interest on and inflation adjustment to intragroup loans
Exchange differences on translating foreign cash
investments
Other income (i)
Total
Financial expenses and other charges
a) Borrowing and financing costs
Inflation adjustment to and exchange losses on third-party
borrowings
Financial instrument transactions
Interest on borrowings payable to third parties
Interest on debentures
Interest on and inflation adjustment to intragroup
borrowings
Subtotal:
b) Other charges
Loss on cash investments classified as held for sale (ii)
Interest on and inflation adjustment to other liabilities
Tax on transactions and bank fees
Inflation adjustment to provisions
Interest on taxes in installments - tax financing program
Other expenses (iii)
Subtotal:
Total
Financial income (expenses)
51,854
33,060
1,975,439
122,843
16,209
84,720
153,884
70,261
(241)
258,078
67,715
(125,908)
114,056
2,048,501
3,653
331,638
559,063
(142,009)
353,334
435,229
(179,744)
424,334
570,383
1,051,140
(894,484)
(238,517)
(142,383)
340,481
4,329,693
(571,685) (1,895,886)
(264,492)
(724,837)
(263,636)
(143,175)
626,890
(841,344)
(679,850)
(264,382)
(409,415)
(633,659)
(78,846)
(838,178)
1,565,795 (1,158,686)
(888,852)
(60,471)
(65,573)
(137,814)
(283,002)
(57,341)
(94,592)
(183,739)
(154,006)
929
(3,360)
(57,713)
(62,786)
(9,245)
(13,600)
(12,559)
(29,084)
(32,280)
(15,326)
(97,952)
(92,419)
(158,408)
(192,451) (1,378,629)
(621,297)
(792,067) (1,030,629)
187,166 (1,779,983)
1,256,434
(471,566)
622,395 (1,209,600)
32
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Six-month period ended
COMPANY
CONSOLIDATED
06/30/2016 06/30/2015 06/30/2016 06/30/2015
Financial income
Interest on and inflation adjustment to other assets
Income from cash investments
Interest on and inflation adjustment to intragroup loans
Exchange differences on translating foreign cash
investments
Other income (i)
Total
Financial expenses and other charges
a) Borrowing and financing costs
Inflation adjustment to and exchange losses on third-party
borrowings
Financial instrument transactions
Interest on borrowings payable to third parties
Interest on debentures
Interest on and inflation adjustment to intragroup
borrowings
Subtotal:
b) Other charges
Loss on cash investments classified as held for sale (ii)
Interest on and inflation adjustment to other liabilities
Tax on transactions and bank fees
Inflation adjustment to provisions
Interest on taxes in installments - tax financing program
Other expenses (iii)
Subtotal:
Total
Financial income (expenses)
102,125
53,786
3,371,773
192,164
28,159
146,320
290,197
125,006
445,177
112,394
(382,304)
182,254
3,327,634
11,763
362,028
740,434
(257,111)
555,225
713,317
(135,226)
454,959
877,304
1,794,936 (1,767,481)
6,897,667 (2,130,000)
(3,725,554)
1,258,503 (5,079,077)
1,722,051
(479,338)
(539,812) (1,495,903) (1,291,382)
(284,313)
(549,666)
(285,886)
(551,137)
(692,672)
(162,366)
(3,386,941) (1,760,822)
36,801 (2,250,468)
(888,852)
(116,347)
(113,682)
(402,839)
(510,998)
(140,082)
(136,343)
(374,406)
(252,283)
(61,701)
(20,418)
(194,403)
(115,362)
(9,597)
(27,380)
(16,189)
(52,864)
(39,929)
(41,679)
(153,836)
(174,016)
(367,656)
(339,502) (2,030,525) (1,105,523)
(3,754,597) (2,100,324) (1,993,724) (3,355,991)
(426,963) (1,359,890) (1,280,407) (2,478,687)
(i) In 2016 includes dividends receivable from Unitel in the amount of Kwanzas 12.6 billion
(R$280,076) for 2014 and in 2015, refers basically to the gain on debenture buyback
transactions.
(ii) Refers to the loss of US$242 million resulting from the revision of the recoverable amount
of dividends receivable from Unitel and the fair value of the cash investment in Unitel
(Note 26), due to the devaluation of the Kwanza against the US dollar and the Brazilian
real.
(iii) Represented mainly by financial fees and commissions.
7.
INCOME TAX AND SOCIAL CONTRIBUTION
Income taxes encompass the income tax and the social contribution. The income tax rate is 25%
and the social contribution rate is 9%, generating aggregate nominal tax rate of 34%.
33
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
The provision for income tax and social contribution is broken down as follows:
There-month period ended
COMPANY
CONSOLIDATED
06/30/2016
06/30/2015
06/30/2016
06/30/2015
Income tax and social contribution
Current taxes
Deferred taxes
Total
Pre-tax loss
Income tax and social contribution
Income tax and social contribution on taxed income
Equity in investees
Tax effect of interest on capital
Tax incentives (basically, operating profit) (i)
Permanent deductions (add-backs) (ii)
Utilization of tax loss carryforwards
Unrecognized deferred tax assets in Brazil (iii)
Unrecognized deferred tax assets abroad (iii)
Income tax and social contribution effect on profit or
loss
(7,159)
(808,054)
(815,213)
(1,743)
117,107
115,364
(150,825)
(1,226,055)
(1,376,880)
(126,561)
267,684
141,123
There-month period ended
COMPANY
CONSOLIDATED
06/30/2016
06/30/2015
06/30/2016
06/30/2015
322,602
(608,053)
721,369
(583,090)
(109,685)
(370,990)
109
(24,055)
206,738
(130,495)
544
6
38,571
(310,592)
(815,213)
115,364
(245,265)
(196)
198,251
28
778
(163,752)
5,289
(27,953)
(498,215)
(470,230)
(13,147)
(1,376,880)
141,123
Six-month period ended
COMPANY
CONSOLIDATED
06/30/2016
06/30/2015
06/30/2016
06/30/2015
Income tax and social contribution
Current taxes
Deferred taxes (Note 10)
Total
Profit (loss) before taxes
Income tax and social contribution
Income tax and social contribution on taxed income
Equity in investees
Tax effect of interest on capital
Tax incentives (basically, operating profit) (i)
Permanent deductions (add-backs) (ii)
Utilization of tax loss carryforwards
Unrecognized deferred tax assets in Brazil (iii)
Unrecognized deferred tax assets abroad (iii)
Income tax and social contribution effect on profit or
loss
(i)
(11,824)
(690,093)
(701,917)
(12,512)
374,562
362,050
(307,304)
(1,203,445)
(1,510,749)
(397,604)
600,847
203,243
Six-month period ended
COMPANY
CONSOLIDATED
06/30/2016
06/30/2015
06/30/2016
06/30/2015
(1,459,300)
(1,223,611)
(788,914) (1,059,306)
496,162
(462,720)
198
25,402
416,028
(92,806)
1,087
93
37,648
(760,959)
(701,917)
362,050
268,230
(314)
360,164
175
1,479
(130,519)
16,081
(145,159)
(1,316,256)
(333,369)
(57,203)
29,185
(1,510,749)
203,243
Refers to the exploration profit recognized in the profit or loss of subsidiary Oi Móvel
pursuant to Law 11638/2007.
34
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
(ii)
The main components of permanent deduction (addition) tax effects are: nondeductible
fines, sponsorships, nondeductible donations, and income from forfeited dividends.
(iii)
Refers to the Company’s unrecognized deferred tax assets held by the Company and
subsidiaries in Brazil and abroad that do not have a history of profitability and/or an
expectation to generate taxable income (Note 10).
8.
CASH, CASH EQUIVALENTS AND CASH INVESTMENTS
Cash investments made by the Company and its subsidiaries in the periods ended June 30, 2016
and December 31, 2015 are classified as held for trading securities and are measured at their fair
values.
(a)
Cash and cash equivalents
Cash and banks
Cash equivalents
Total
COMPANY
06/30/2016
12/31/2015
152,233
177,573
2,810,182
1,341,011
2,962,415
1,518,584
CONSOLIDATED
06/30/2016
12/31/2015
355,705
1,111,840
4,496,648
13,786,223
4,852,353
14,898,063
Repurchase agreements
Bank certificates of deposit (CDBs)
Time deposits
Other
Cash equivalents
COMPANY
06/30/2016
12/31/2015
2,139,647
744,220
646,341
589,664
1,022
4,175
23,172
2,952
2,810,182
1,341,011
CONSOLIDATED
06/30/2016
12/31/2015
3,221,646
1,637,798
1,205,023
1,387,158
13,229
10,734,985
56,750
26,282
4,496,648
13,786,223
COMPANY
06/30/2016
12/31/2015
CONSOLIDATED
06/30/2016
12/31/2015
1,700,386
213,216
101,334
40,586
125,966
(b)
Cash investments
Time deposits
Government securities
Private securities
Other
Total
Current
Non-current
41,089
11,809
6,944
59,842
48,033
11,809
14,486
20,580
3,667
38,733
18,153
20,580
253,802
213,216
40,586
1,927,686
1,801,720
125,966
The Company and its subsidiaries hold short-term investments in Brazil and abroad for the purpose
of earning interest on cash, benchmarked to CDI in Brazil, LIBOR for the US dollar-denominated
portion, and EURIBOR for the euro-denominated portion.
35
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
9.
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
ACCOUNTS RECEIVABLE
Billed services
Unbilled services
Mobile handsets and accessories sold
Subtotal:
Allowance for doubtful accounts
Total
COMPANY
06/30/2016
12/31/2015
1,584,431
2,176,019
450,606
448,768
88,972
80,331
2,124,009
2,705,118
(271,047)
(276,367)
1,852,962
2,428,751
CONSOLIDATED
06/30/2016
12/31/2015
7,179,397
6,733,219
1,106,702
1,296,562
999,039
911,077
9,285,138
8,940,858
(519,685)
(561,139)
8,765,453
8,379,719
COMPANY
06/30/2016
12/31/2015
1,498,548
1,868,784
392,444
624,402
45,356
34,392
29,484
27,415
25,586
22,362
132,591
127,763
2,124,009
2,705,118
CONSOLIDATED
06/30/2016
12/31/2015
7,280,174
6,855,027
1,163,961
1,296,612
187,418
146,608
139,101
121,916
112,649
124,887
401,835
395,808
9,285,138
8,940,858
The aging list of trade receivables is as follows:
Current
Past-due up to 60 days
Past-due from 61 to 90 days
Past-due from 91 to 120 days
Past-due from 121 to 150 days
Over 150 days past-due
Total
The movements in the allowance for doubtful accounts were as follows:
Balance at Dec 31, 2015
Allowance for doubtful accounts
Trade receivables written off as uncollectible
Balance at Jun 30, 2016
COMPANY
(276,367)
(42,001)
47,321
(271,047)
CONSOLIDATED
(561,139)
(290,495)
331,949
(519,685)
36
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
10.
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
CURRENT AND DEFERRED TAXES
Assets
COMPANY
06/30/2016
Current recoverable taxes
Recoverable income tax (IRPJ) (i)
Recoverable social contribution (CSLL) (i)
IRRF/CSLL - withholding income taxes (ii)
Total current
Deferred recoverable taxes
Income tax on tax credits - merged goodwill (iii)
Social contribution on tax credits - merged goodwill (iii)
Income tax on temporary differences (iv)
Social contribution on temporary differences (iv)
Income tax on tax loss carryforwards (iv)
Social contribution on tax loss carryforwards (iv)
Subtotal - deferred taxes recoverable
Deferred taxes recoverable (v)
Non-total current
CONSOLIDATED
12/31/2015
06/30/2016
12/31/2015
5,914
3,616
425,833
435,363
212,808
74,124
83,144
370,076
100,462
37,106
741,857
879,425
416,125
153,059
346,389
915,573
1,674,898
602,963
1,544,782
546,854
828,306
298,190
5,495,993
358,853
5,854,846
1,782,179
641,584
2,055,051
730,550
828,306
298,190
6,335,860
125,657
6,461,517
1,674,898
602,963
2,116,868
666,984
1,675,943
616,364
7,354,020
440,017
7,794,037
1,782,179
641,584
3,030,285
993,486
1,673,150
615,040
8,735,724
147,278
8,883,002
Liabilities
COMPANY
CONSOLIDATED
06/30/2016
12/31/2015
06/30/2016
12/31/2015
Current taxes payable
Income tax payable
Social contribution payable
Total current
5,241
56,796
62,037
23,240
58,769
82,009
163,408
113,949
277,357
211,571
128,053
339,624
(i)
Refer mainly to prepaid income tax and social contribution that will be offset against
federal taxes payable in the future.
(ii)
Refer to corporate income tax credits on cash investments, derivatives, intragroup loans,
government entities, and other that are used as deductions from income tax for the periods,
and social contribution withheld at source on services provided to government agencies.
(iii)
Refer to: (i) deferred income tax and social contribution assets calculated as tax benefit
originating from the goodwill paid on acquisition of the Company and recognized by the
merged companies in the course of 2009. The realization of the tax credit arises from the
amortization of the goodwill balance based on the STFC license and in the appreciation
of property, plant and equipment, the utilization of which is estimated to occur through
2025, and (ii) deferred income tax and social contribution assets originating from the
goodwill paid on the acquisition of interests in the Company in 2008-2011, recognized by
the companies merged with and into TmarPart and by TmarPart merged with and into the
Company on September 1, 2015, which was based on the Company’s expected future
earnings and the amortization of which is estimated to occur through 2027.
37
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
(iv)
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Deferred income tax and social contribution assets are recognized only to the extent that
it is probable that there will be a positive tax base for which temporary differences can be
used and against which tax loss carryforwards can be offset. Deferred income tax and
social contribution assets are reviewed at the end of each annual period and written down
as their realization is no longer possible. The Company and its subsidiaries offset their tax
loss carryforwards against taxable income up to a limit of 30% per year, pursuant to the
prevailing tax law.
Deferred tax assets totaling R$1,201,781 (Note 7) were not recognized for the companies
that, as at June 30, 2016, do not expect to generate sufficient future taxable profits against
which tax assets could be offset.
Additionally, none of the deferred tax assets amounting to R$578,793 (R$454,319 at
December 31, 2015) were recognized for the direct and indirect subsidiaries that do not
have a profitability history and/or do not expect to generate sufficient taxable profits
against which such tax assets could be offset.
The table below shows the expected realization periods of deferred tax assets resulting
from tax credits on tax loss carryforwards and temporary differences:
COMPANY
2016
2017
2018
2019
2020
2021 to 2023
2024 to 2025
Total
(v)
338,161
1,867,934
1,012,037
3,218,132
CONSOLIDATED
5,329
137,215
129,532
290,641
565,271
2,660,637
1,287,534
5,076,159
Refer mainly to prior years’ prepaid income tax and social contribution that will be offset
against federal taxes payable.
38
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Movements in deferred income tax and social contribution
Balance at
12/31/2015
Deferred tax assets arising on:
Temporary differences
Provisions
Provisions for suspended taxes
Provisions for pension funds and impacts of CPC 33 (R1) (IAS
19 R)
Allowance for doubtful accounts
Profit sharing
Foreign exchange differences
Merged goodwill
Hedge accounting
Other temporary add-backs and deductions
Tax loss carryforwards
Income tax loss carryforwards
Social contribution carryforwards
Total
930,751
45,761
(23,674)
13,749
177,724
100,930
23,868
1,578,914
2,423,763
178,072
(250,419)
(6,475)
(8,774)
(23,868)
(364,309)
(145,902)
828,306
298,190
6,335,860
Balance at
12/31/2015
Deferred tax assets arising on:
Temporary differences
Provisions
Provisions for suspended taxes
Provisions for pension funds and impacts of CPC 33 (R1) (IAS
19 R)
Allowance for doubtful accounts
Profit sharing
Foreign exchange differences
Merged goodwill
Hedge accounting
Other temporary add-backs and deductions
Tax loss carryforwards
Income tax loss carryforwards
Social contribution carryforwards
Total
COMPANY
Recognized in
deferred tax
Recognized
income/
directly in
expenses
equity
Balance at
06/30/2016
907,077
59,510
3,428
174,677
92,156
(130,840)
1,214,605
2,277,861
24,870
(381,259)
(690,093)
828,306
298,190
5,495,993
(153,202)
(149,774)
CONSOLIDATED
Recognized in
deferred tax
Recognized
income/
directly in
expenses
equity
Balance at
06/30/2016
1,393,087
146,256
6,757
14,108
1,399,844
160,364
176,436
658,870
64,243
1,778,361
2,423,763
207,609
(401,091)
(6,462)
1,027
(58,187)
(716,053)
(145,902)
(302,850)
173,402
659,897
6,056
1,062,308
2,277,861
25,922
(703,941)
1,673,150
615,040
8,735,724
2,793
1,324
(1,203,445)
1,675,943
616,364
7,354,020
3,428
(181,687)
(178,259)
39
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
11.
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
OTHER TAXES
Recoverable State VAT (ICMS) (i)
Taxes on revenue (PIS and COFINS)
Other
Total
Current
Non-current
Assets
COMPANY
CONSOLIDATED
06/30/2016
12/31/2015
06/30/2016
12/31/2015
386,613
371,479
1,610,542
1,285,800
114,506
18,718
275,614
200,029
15,462
15,102
98,010
97,056
516,581
405,299
1,984,166
1,582,885
318,717
210,603
1,130,853
922,986
197,864
194,696
853,313
659,899
State VAT (ICMS)
ICMS Convention No. 69/1998
Taxes on revenue (PIS and COFINS)
FUST/FUNTTEL/broadcasting fees
Other
Total
Current
Non-current
Liabilities
COMPANY
CONSOLIDATED
06/30/2016
12/31/2015
06/30/2016
12/31/2015
300,453
295,271
730,597
759,922
19,907
18,859
36,297
33,998
423,277
382,680
703,213
668,888
108,628
108,319
889,690
861,212
113,979
83,203
217,881
153,968
966,244
888,332
2,577,678
2,477,988
804,543
762,079
1,584,815
1,553,651
161,701
126,253
992,863
924,337
(i) Recoverable ICMS arises mostly from prepaid taxes and credits claimed on purchases of
property, plant and equipment, which can be offset against ICMS payable within 48 months,
pursuant to Supplementary Law 102/2000.
12.
JUDICIAL DEPOSITS
In some situations the Company makes, by legal requirement or to provide guarantees, judicial
deposits to ensure the continuity of ongoing lawsuits. These judicial deposits can be required for
lawsuits with a likelihood of loss, as assessed by the Company based on the opinion of its legal
counsel, as probable, possible, or remote.
Civil
Tax
Labor
Total
Current
Non-current
COMPANY
CONSOLIDATED
06/30/2016
12/31/2015 06/30/2016 12/31/2015
7,495,344
7,288,084 9,874,383
9,459,735
720,916
669,982 2,688,698
2,548,720
1,422,807
1,356,218 2,532,207
2,368,902
9,639,067
9,314,284 15,095,288
14,377,357
802,013
887,449 1,202,256
1,258,227
8,837,054
8,426,835 13,893,032
13,119,130
As set forth by relevant legislation, judicial deposits are adjusted for inflation.
40
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
13.
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
INVESTMENTS
Investment in subsidiaries
Joint arrangements
Investments in associates
Tax incentives, net of allowances for losses
Goodwill
Other investments
Total
COMPANY
06/30/2016
12/31/2015
16,849,958
17,118,485
10,273
11,618
3,799
16,875,648
CONSOLIDATED
06/30/2016
12/31/2015
10,273
11,618
3,799
17,144,175
47,358
40,323
31,579
63,837
39,003
31,579
20,471
139,731
20,471
154,890
Summary of the movements in investment balances
COMPANY
17,144,175
(1,360,942)
55,294
(4,126)
421,766
(60,139)
539,096
(13,604)
154,137
Balance at Dec 31, 2015
Share of profits of subsidiaries (Note 5)
Subsidiaries’ share of other comprehensive income
Associates’ share of other comprehensive income
Equity in investees recognized in held-for-sale assets
Transfer of investments to provision for equity deficiency
Equity in investees recognized in equity deficiency
Subsidiaries’ dividends
Increase of stake in subsidiary
Write-off of investment
Other
Balance at Jun 30, 2016
CONSOLIDATED
154,890
(922)
(4,126)
1,977
(12,088)
(9)
16,875,648
139,731
The main data related to direct equity interests in subsidiaries, for equity accounting purposes, are
as follows:
COMPANY
06/30/2016
In thousands
Shares
Subsidiaries
Telemar
Rio Alto
Oi Holanda
Oi Serviços Financeiros
PTIF
CVTEL
Carrigans
Serede
Profit (loss)
for the
Equity
period
16,177,036
(509,987)
675,926
99,346
(550,243)
(503,038)
6,675
6,674
(242,703)
24,081
(210)
(60)
84
764,979
(262,995)
Common
154,032,213
215,538,129
100
799
0.042
18
0.100
19,238,257
Equity interests - %
Preferred
Total capital Voting capital
189,400,783
100
100
215,538,129
50
100
100
100
100
100
100
100
100
100
100
100
18.57
18.57
41
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Equity in investees
There-month period
Six-month period ended
ended
Subsidiaries
06/30/2016
06/30/2015
06/30/2016
06/30/2015
06/30/2016
12/31/2015
(61,205)
(244,608)
(509,987)
(295,300)
16,177,036
16,635,856
337,963
295,747
6,675
6,147
Telemar
Rio Alto
Oi Holanda
20,914
25,268
49,673
55,050
(634,466)
(193,401)
(503,038)
(82,939)
3,824
1,301
6,674
5,509
27,308
(14,673)
24,081
(56)
(51)
(60)
Oi Serviços Financeiros
PTIF
CVTEL
(437,316)
Unrealized profits with
investees
Total
(i)
(5,406)
(12,080)
1,929
(1,091,148)
(421,710)
(14,673)
242,703
266,785
(51)
210
190
793,156
314,180
98
1,135
(12,080)
47,760
12/31/2015
47,205
84
Serede
06/30/2016
550,243
Carrigans
PT Participações (i)
Provision for equity
deficiency
Investment value
142,058
5,505
58,311
186,142
180,637
(383,810) (1,360,942)
(272,958)
16,849,958
17,118,485
Refers to the equity in the investments in the operations in Africa and Asia, classified as held-forsale assets.
Summarized financial information
06/30/2016
Subsidiaries
Telemar (ii)
Oi Holanda (ii)
PTIF (ii)
Rio Alto
Oi Serviços Financeiros
CVTEL
Serede
Assets
35,586,093
19,878,348
13,626,914
700,991
69,593
8
1,424,700
Liabilities
19,409,057
20,428,591
13,869,617
25,065
62,918
218
659,721
12/31/2015
Subsidiaries
Telemar (ii)
Oi Holanda (ii)
PTIF
Rio Alto
Oi Serviços Financeiros
CVTEL
(ii)
Assets
36,822,800
24,886,102
18,910,725
686,913
79,084
14
Liabilities
20,186,944
24,933,307
19,177,510
95,419
72,937
204
Revenue
4,823,784
172,032
5,180
316,024
06/30/2015
Revenue
5,334,827
221,603
4,883
Amounts adjusted for consolidation and equity accounting purposes.
42
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
14.
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
PROPERTY, PLANT AND EQUIPMENT
COMPANY
Works in
progress
Automatic
switching
equipment
Transmission
and other
equipment (1)
Infrastructure
Buildings
Balance at Dec 31, 2015
131,743
5,249,747
18,394,951
4,260,392
Additions
454,493
40,000
7,467
Write-offs
(7,398)
(126)
(7,001)
Transfers
(202,114)
4,276
127,100
66,105
Balance at Jun 30, 2016
384,122
5,246,625
18,561,925
4,326,963
Accumulated depreciation
Balance at Dec 31, 2015
(5,110,050)
(15,399,021)
(3,001,826)
Depreciation expenses
(9,323)
(261,916)
(165,766)
Write-offs
62
5,119
Transfers
(174)
121
53
Balance at Jun 30, 2016
(5,119,547)
(15,660,754)
(3,162,420)
Property, plant and
equipment, net
Balance at Dec 31, 2015
131,743
139,697
2,995,930
1,258,566
Balance at Jun 30, 2016
384,122
127,078
2,901,171
1,164,543
Annual depreciation rate
(average)
11%
10%
8%
(1) Transmission and other equipment includes transmission and data communication equipment.
1,155,948
Other
assets
Total
Cost of PP&E (gross amount)
2,267
1,158,215
(725,475)
(17,483)
5
(742,953)
430,473
415,262
8%
2,093,862
3,251
(3)
2,366
2,099,476
31,286,643
505,211
(14,528)
31,777,326
(1,552,182) (25,788,554)
(35,102)
(489,590)
3
5,184
(5)
(1,587,286) (26,272,960)
541,680
512,190
5,498,089
5,504,366
12%
43
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
CONSOLIDATED
Works in
progress
Automatic
switching
equipment
Transmission
and other
equipment (1)
Infrastructure
Buildings
Other
assets
Total
Cost of PP&E (gross amount)
Balance at Dec 31, 2015
Acquisition of investments
(Note 27)
Additions
1,656,581
18,848,684
49,863,703
26,023,848
3,538,924
5,576,826
105,508,566
4,841
261
300
1,045
1,438
72,190
80,075
506
13,037
2,107,487
(5)
(26,205)
1,936,549
148,489
8,906
(11,065)
(2,012)
(13,123)
(1,044,206)
34,747
845,041
133,262
1,820
29,336
2,553,765
18,872,627
50,855,521
26,153,938
3,542,688
5,691,384
107,669,923
(16,924,681)
(36,603,229)
(20,154,173)
(1,736,329)
(4,592,963)
(80,011,375)
Write-offs
Transfers
Balance at Jun 30, 2016
Accumulated depreciation
Balance at Dec 31, 2015
Acquisition of investments
(Note 27)
Depreciation expenses
(108)
(163)
(504)
(626)
(30,074)
(31,475)
(190,450)
(1,161,674)
(583,588)
(50,106)
(134,302)
(2,120,120)
4
12,230
Write-offs
Transfers
Balance at Jun 30, 2016
1,345
10,881
(620)
209
263
71
77
(17,115,859)
(37,763,512)
(20,727,121)
(1,786,990)
(4,757,258)
(82,150,740)
Property, plant and
equipment, net
Balance at Dec 31, 2015
1,656,581
1,924,003
13,260,474
5,869,675
1,802,595
983,863
25,497,191
Balance at Jun 30, 2016
2,553,765
1,756,768
13,092,009
5,426,817
1,755,698
934,126
25,519,183
Annual depreciation rate
(average)
11%
10%
8%
(1) Transmission and other equipment includes transmission and data communication equipment.
8%
12%
Additional disclosures
Pursuant to ANATEL’s concession agreements, all property, plant and equipment items
capitalized by the Company that are indispensable for the provision of the services granted under
said agreements are considered returnable assets and are part of the concession’s cost. These assets
are handed over to ANATEL upon the termination of the concession agreements that are not
renewed.
As at June 30, 2016, the residual balance of the Company’s returnable assets is R$2,893,765
(R$2,840,055 at December 31, 2015) and consist of assets and installations in progress, switching
and transmission equipment, payphones, outside network equipment, power equipment, and
systems and operation support equipment. This balance amounts to R$8,255,719 (R$8,055,876 at
December 31, 2015) on a consolidated basis.
In the period ended June 30, 2016, financial charges and transaction costs incurred on works in
progress were capitalized at the average rate of 9% per year.
44
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
15.
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
INTANGIBLE ASSETS
COMPANY
Intangibles in
progress
Cost of intangibles (gross amount)
Balance at Dec 31, 2015
Additions
Transfers
Balance at Jun 30, 2016
Accumulated amortization
Balance at Dec 31, 2015
Amortization expenses
Balance at Jun 30, 2016
Intangible assets, net
Balance at Dec 31, 2015
Balance at Jun 30, 2016
Annual amortization rate (average)
Data processing
systems
107,567
3,095
(2,693)
107,969
Other
2,425,139
Total
2,634,418
3,132
2,411
2,427,550
101,712
37
282
102,031
(2,327,563)
(43,682)
(2,371,245)
(73,930)
(949)
(74,879)
(2,401,493)
(44,631)
(2,446,124)
97,576
56,305
27,782
27,152
20%
232,925
191,426
107,567
107,969
20%
2,637,550
CONSOLIDATED
Goodwill
Cost of intangibles (gross amount)
Balance at Dec 31, 2015
Acquisition of investments (Note 27)
Additions
Transfers
Balance at Jun 30, 2016
Accumulated amortization
Balance at Dec 31, 2015
Acquisition of investments (Note 27)
Amortization expenses
Balance at Jun 30, 2016
Intangible assets, net
Balance at Dec 31, 2015
Balance at Jun 30, 2016
Annual amortization rate (average)
706,172
Intangibles in Data processing
progress
systems
125,841
7,907,751
169,458
(112,848)
182,451
30,732
11,093
99,130
8,048,706
(459,645)
(459,645)
368,428
1,074,600
246,527
614,955
125,841
182,451
Regulatory
licenses
Other
Total
4,041,011
1,221,786
14,002,561
80,227
4,121,238
29,294
13,718
1,264,798
14,691,793
(6,538,340)
(2,680,178)
(1,022,627)
(10,700,790)
(14,774)
(307,134)
(6,860,248)
(134,311)
(2,814,489)
(52,760)
(1,075,387)
(14,774)
(494,205)
(11,209,769)
1,369,411
1,188,458
20%
1,360,833
1,306,749
9%
199,159
189,411
16%
399,160
290,072
3,301,771
3,482,024
45
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
16.
(Amounts in thousands of Brazilian reais, unless otherwise stated)
TRADE PAYABLES
Infrastructure, network and plant maintenance materials
Services
Rental of polls and rights-of-way
Other
Total
17.
76.535.764/0001-43
COMPANY
06/30/2016
12/31/2015
269,287
222,451
935,392
978,224
131,911
120,050
42,947
67,795
1,379,537
1,388,520
CONSOLIDATED
06/30/2016
12/31/2015
1,579,634
1,282,493
2,996,648
3,059,394
294,642
341,143
240,465
321,803
5,111,389
5,004,833
BORROWINGS AND FINANCING
Borrowings and financing by type
COMPANY
Senior Notes
Local currency
Foreign currency
Financial institutions
06/30/2016
9,458,435
12/31/2015
11,163,801
06/30/2016
30,288,843
1,090,716
1,090,716
1,090,716
Development Banks and Export
Credit Agencies
Sep 2016
Jul 2016 to
Aug 2022
10,073,085
29,198,127
37,579,395
2,094,025
5,196,600
12,633,693
17,540,795
489,467
1,604,558
Revolver credit facility
Public debentures
1,090,716
8,367,719
CCB - Bank Credit Note
Certificates of Real Estate
Receivables (CRI)
CONSOLIDATED
Contractual matuirity
12/31/2015
Principal
Interest
38,670,111
450,263
2,006,070
2,414,263
2,416,314 Jul 2016 to Jan 2028
1,519,182
1,397,504
8,700,248
2,740,267
4,082,068
4,094,737
Loan and debentures from
subsidiaries (Note 25)
19,104,731
13,035,521
Subtotal
34,739,259
(232,567)
Total
10,986,710
Monthly/
semiannual
Aug 2022
Annual
Jul 2016 to
Dec 2033
Monthly/
semiannual
Dec 2016 to
Jul 2021
Semiannual/
annual
2,740,267
4,133,665
4,144,760
33,490,659
47,056,201
60,355,666
(266,783)
(445,471)
(498,249)
34,506,692
33,223,876
46,610,730
59,857,417
Current
15,713,339
5,502,425
46,610,730
11,809,598
Non-current
18,793,353
27,721,451
Incurred debt issuance cost
Semiannual/
annual
48,047,819
46
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
The request for judicial reorganization (filed with the Rio de Janeiro State Courts on June 20,
2016) constitutes a default event under the terms and conditions of the agreements in effect. For
accounting and disclosure purposes, the noncurrent portion of borrowings and financing was
reclassified to current liabilities in the balance sheet as at June 30 2016. The balances of intragroup
loans and subsidiaries’ debentures are disclosed in the balance sheet according to the established
contractual maturity.
Debt issuance costs by type
Financial institutions
Public debentures
Total
Current
Non-current
COMPANY
06/30/2016
12/31/2015
226,910
260,048
5,657
6,735
232,567
266,783
232,567
60,668
206,115
CONSOLIDATED
06/30/2016
12/31/2015
439,814
491,514
5,657
6,735
445,471
498,249
445,471
117,531
380,718
COMPANY
06/30/2016
12/31/2015
11,510,056
2,456,578
11,642,043
11,074,143
11,354,593
19,693,155
34,506,692
33,223,876
CONSOLIDATED
06/30/2016
12/31/2015
18,192,386
24,221,508
15,793,526
22,713,644
12,624,818
12,922,265
46,610,730
59,857,417
COMPANY
06/30/2016
12/31/2015
23,754,965
11,200,270
8,920,752
17,055,791
673,108
3,625,537
667,117
715,995
477,648
505,147
13,102
121,136
34,506,692
33,223,876
CONSOLIDATED
06/30/2016
12/31/2015
31,109,726
39,892,444
6,410,960
6,347,119
4,577,812
8,812,005
2,924,540
3,148,581
1,534,095
1,475,381
53,597
181,887
46,610,730
59,857,417
Breakdown of the debt by currency
Euro
US dollar
Brazilian reais
Total
Breakdown of the debt by index
Fixed rate
CDI
LIBOR
TJLP
IPCA
INPC
Total
Index/rate
2.25% p.a. - 10.00% p.a.
0.75% p.a. - 1.83% p.a.
0.90% p.a. - 2.50% p.a.
0.0% p.a. - 4.08% p.a.
0.50% p.a. - 7.94% p.a.
2.43% p.a.
Description of main borrowings and financing
Senior Notes - foreign and local currency
As at June 30, 2016 the Company held own debentures acquired in the market for approximately
US$33 million, which it retains in its portfolio, marked to market, for cancellation or to be held
to maturity.
47
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Financial institutions
CCB - Bank Credit Note
On May 30, 2016, Telemar entered into with Banco do Brasil S.A. amendments to the Bank Credit
Bills in order to suspend the repayment of the overall principal during the period May 30November 31, 2016.
Development Banks and Export Credit Agencies
The Company and its subsidiaries obtained financing facilities with BNDES and other
development banks from the North and Northeast regions to finance and upgrading their
nationwide fixed and mobile networks and meet their regulatory obligations and the obligations
to the Export Credit Agencies of financing part of the investments in equipment and services that
incorporate international technology. The main export credit agencies with that are the
Company’s and its subsidiaries’ counterparties are: SEK - Swedish Export Corporation; CDB China Development Bank; Delcredere Ducroire; and FEC - Finnish Export Credit.
As a result of the negotiations with its creditors, which were being widely disclosed to the market
in the Material Fact Notices published on March 9 and April 25, 2016, and the Notice to the
Market of May 16, 2016, BNDES - Banco Nacional de Desenvolvimento Econômico e Social
approved the suspension of the repayment of principal of certain subloans of the financing
facilities effective for a 180-day period, from May 30 to November 30, 2016, provided that certain
terms imposed by BNDES are complied.
Public debentures
On April 15, 2016, general debentureholders’ meetings were held for: (i) the 5 th Issue of
Unsecured, Nonconvertible Public Debentures; and (ii) the 9th Issue of Simple, Unsecured,
Nonconvertible Debentures in up to Two Series, for Public Distribution, both issued by the
Company due to the failure to meet the required financial ratios.
The Fiduciary Agents declared the accelerated maturity of all the outstanding debentures, which
were repaid on May 2, 2016, totaling R$1.5 million for the 5th Issue and in April 20, 2016 totaling
R$21.5 million for the 9th Issue.
Guarantees
BNDES financing facilities are collateralized by receivables of the Company and its subsidiaries
Telemar and Oi Móvel. The Company provides guarantees to its subsidiaries Telemar and Oi
Móvel for such financing facilities, totaling R$3,336 million.
Covenants
The financing agreements of the Company and subsidiaries Telemar and Oi Móvel with the
BNDES and other financial institutions, and the debentures issued originally contain covenants
that require the Oi and/or Telemar, as applicable, to maintain certain financial ratios. Compliance
with these covenants is determined either on a quarterly or an annual basis, depending on the
financing agreement. It is worth noticing that, since the judicial reorganization constitutes a default
48
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
event under the loan agreements’ terms and conditions, the liabilities associated to these
agreements were reclassified to current liabilities. Accordingly, the effects of the financial
covenants are not applicable.
18.
DERIVATIVE FINANCIAL INSTRUMENTS
COMPANY
06/30/2016
12/31/2015
Assets
Currency swaps
Interest rate swaps
Non-deliverable forwards (NDFs)
Options
Total
Current
Non-current
Liabilities
Currency swaps
Interest rate swaps
Non-deliverable forwards (NDFs)
Options
Derivative contracts to be settled
Total
Current
Non-current
171,998
171,998
171,998
88,116
104,694
192,810
192,810
5,258,200
101,923
33,550
5,393,673
103,537
5,290,136
1,151,896
591,862
635,815
32,265
2,411,838
1,890,443
521,395
CONSOLIDATED
06/30/2016
12/31/2015
313,808
313,808
313,808
90,254
104,694
194,948
194,948
6,805,084
445,740
102,329
33,550
7,386,703
606,387
6,780,316
1,197,157
594,433
686,488
32,265
2,510,343
1,988,948
521,395
As referred to in Note 3 and as a result of the Company’s board of directors’ decision, the
derivative portfolio as at June 30, 2016 was substantially reduced when compared to the previous
quarters.
19.
LICENSES AND CONCESSIONS PAYABLE
COMPANY
06/30/2016
12/31/2015
SMP
STFC concessions
Total
Current
Non-current
15,079
15,079
15,079
CONSOLIDATED
06/30/2016
12/31/2015
8,596
905,601
61,148
12,936
69,744
918,537
62,446
911,930
7,298
6,607
Correspond to the amounts payable to ANATEL for the radiofrequency concessions and the
licenses to provide the SMP services, and STFC service concessions, obtained at public auctions.
The payment schedule is as follows:
2016
2017
2018
2019
Total
CONSOLIDATED
1,298
64,912
3,256
278
69,744
49
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
20.
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
TAX REFINANCING PROGRAM
The outstanding balance of the Tax Debt Refinancing Program is broken down as follows:
Law 11941/09 and Law 12865/2013 tax financing program
REFIS II - PAES
Total
Current
Non-current
COMPANY
CONSOLIDATED
06/30/2016 12/31/2015 06/30/2016 12/31/2015
452,184
475,319
765,075
791,696
4,336
4,336
6,654
3,392
456,520
479,655
771,729
795,088
54,782
42,694
98,269
78,432
401,738
436,961
673,460
716,656
The amounts of the tax refinancing program created under Law 11941/2009, divided into
principal, fine and interest, which include the debt declared at the time the deadline to join the
program was reopened as provided for by Law 12865/2013 and Law 12996/2014, are broken
down as follows:
Tax on revenue (COFINS)
Income tax
Tax on revenue (PIS)
Social security (INSS - SAT)
Social contribution
Tax on banking transactions
(CPMF)
Other
Total
Principal
164,184
46,578
62,143
(1,006)
11,692
19,165
44,635
347,391
CONSOLIDATED
06/30/2016
Fines
Interest
5,344
202,890
3,831
46,080
1,124
38,563
2,312
4,672
1,553
12,927
2,153
5,168
21,485
27,512
70,209
402,853
Total
372,418
96,489
101,830
5,978
26,172
12/31/2015
Total
387,228
100,897
104,138
9,881
25,651
48,830
120,012
771,729
48,311
118,982
795,088
The payment schedule is as follows:
2016
2017
2018
2019
2020
2021 to 2022
2023 to 2024
Total
COMPANY
CONSOLIDATED
27,392
47,653
54,782
95,306
54,782
95,306
54,782
91,451
54,782
91,451
109,565
182,902
100,435
167,660
456,520
771,729
The Company hereby clarifies that tax debts, as is the case of the debts included in tax refinancing
programs, are not subject to the terms of the judicial reorganization terms.
50
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
21.
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
PROVISIONS
Broken down as follows:
Type
Labor
Overtime
Sundry premiums
Stability/reintegration
Indemnities
Additional post-retirement benefits
Salary differences and related effects
Lawyer/expert fees
Severance pay
Labor fines
Employment relationship
Severance Pay Fund (FGTS)
Joint liability
Other claims
Total
COMPANY
06/30/2016
12/31/2015
CONSOLIDATED
06/30/2016
12/31/2015
203,158
41,113
61,261
50,401
57,763
25,656
12,789
5,489
3,926
168
4,049
463
24,180
490,416
227,874
46,685
65,005
55,558
55,131
28,332
14,360
6,045
3,786
166
4,530
483
22,805
530,760
364,396
139,085
112,060
111,011
88,459
40,406
30,160
17,476
13,920
11,491
7,448
711
48,273
984,896
329,510
110,664
97,783
99,607
70,942
38,013
25,291
15,016
10,275
6,967
6,694
610
38,105
849,477
34,509
246
398
30,947
131
386
12,933
48,086
14,314
45,778
382,387
72,866
30,039
3,108
71,785
560,185
308,144
71,201
29,394
6,882
76,736
492,357
Civil
ANATEL (i)
Corporate
Small claims courts
Other claims
Total
348,293
1,072,103
191,273
260,791
1,872,460
345,045
1,111,742
208,131
189,089
1,854,007
1,160,278
1,072,103
346,079
580,899
3,159,359
1,148,621
1,111,742
361,474
471,295
3,093,132
Total provisions
Current
Non-current
2,410,962
558,029
1,852,933
2,430,545
622,213
1,808,332
4,704,440
931,808
3,772,632
4,434,966
1,020,994
3,413,972
Tax
State VAT (ICMS)
Tax on services (ISS)
INSS (joint liability, fees, and severance pay)
Tax on net income (ILL)
Other claims
Total
(i)
As at June 30, 2016, proceedings for noncompliance in the estimated total of R$6,114
million have been filed with the ANATEL, of which R$2,967 million were related to fines
issued by ANATEL. The Company and the ANATEL are negotiating Policy Adjustment
Commitments (TAC) to convert the noncompliance events into future investment
obligations and/or benefits to customers. To date, the Managing Board of the ANATEL
approved the Quality and Universal Service TAC de that totals R$1,821 million, which is
being reviewed by the Federal Court of Auditors (TCU) and that resulted in the request
clarifications to the ANATEL. Additionally, there is approximately R$7,201 million
related to proceedings for alleged noncompliance not filed with the ANATEL. The
Company disagrees and is challenging some of the alleged noncompliance events, and is
also challenging the unfairness and unreasonableness of the amount of imposed fines in
51
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
light of the pinpointed noncompliance event and has kept in balance sheet the amount it
deems a probable loss.
In compliance with the relevant Law, the provisions are adjusted for inflation on a monthly
basis.
Breakdown of contingent liabilities, per nature
The breakdown of contingent liabilities with a possible unfavorable outcome and, therefore, not
recognized in accounting, is as follows:
COMPANY
Labor
Tax
Civil
Total
06/30/2016
441,208
5,787,222
408,184
6,636,614
12/31/2015
425,753
5,480,219
377,159
6,283,131
CONSOLIDATED
06/30/2016
12/31/2015
809,403
779,776
25,006,585
24,047,529
1,249,449
1,238,279
27,065,437
26,065,584
Summary of movements in provision balances
Labor
Balance at Dec 31, 2015
Inflation adjustment
Additions/(reversals)
Write-offs for payment/terminations
Balance at Jun 30, 2016
530,760
(11,542)
10,548
(39,350)
490,416
Labor
Balance at Dec 31, 2015
Acquisition of investments (Note 27)
Inflation adjustment
Additions/(reversals)
Write-offs for payment/terminations
Balance at Jun 30, 2016
849,477
202,476
15,102
40,333
(122,492)
984,896
Tax
COMPANY
Civil
45,778
3,542
(1,155)
(79)
48,086
1,854,007
69,701
218,486
(269,734)
1,872,460
Total
2,430,545
61,701
227,879
(309,163)
2,410,962
CONSOLIDATED
Tax
Civil
Total
492,357
(393)
43,615
25,266
(660)
560,185
4,434,966
202,242
194,403
494,457
(621,628)
4,704,440
3,093,132
159
135,686
428,858
(498,476)
3,159,359
Guarantees
The Company has bank guarantee letters and guarantee insurance granted by several financial
institutions and insurers to guarantee commitments arising from lawsuits, contractual obligations,
and biddings with the ANATEL. The total adjusted amount of contracted bonds and guarantee
insurances, effective at June 30, 2016 corresponds to R$5,420,593 (R$5,394,597 at December 31,
2015), Company, and R$15,086,130 (R$15,577,522 at December 31, 2015), on a consolidated
basis. The commission charges on these contracts are based on market rates.
52
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
22.
EQUITY
(a)
Share capital
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Subscribed and paid-in capital is R$21,438,374 (R$21,438,374 at December 31, 2015),
represented by the following shares, without par value:
Number of shares (in thousands)
06/30/2016
12/31/2015
Total capital in shares
Common shares
Preferred shares
Total
Treasury shares
Common shares
Preferred shares
Total
Outstanding shares
Common shares
Preferred shares
Total outstanding shares
668,034
157,727
825,761
668,034
157,727
825,761
148,282
1,812
150,094
148,282
1,812
150,094
519,752
155,915
675,667
519,752
155,915
675,667
The Company is authorized to increase its capital under a Board of Directors’ resolution, in
common and preferred shares, up to the share capital ceiling of R$34,038,701,741.49, within the
legal ceiling of 2/3 for the issuance of new nonvoting preferred shares.
By resolution of the Shareholders’ Meeting or Board of Directors’ Meeting, the Company’s capital
can be increased by capitalizing retained earnings or reserves previously set up for this purpose by
the Shareholders’ Meeting. Under these conditions, the capitalization can be made without any
change in the number of shares.
Capital is represented by common and preferred shares without par value, and the Company is not
required to maintain the current proportion of these types of share on capital increases.
By resolution of the Shareholders’ Meeting or the Board of Directors, the preemptive right on
issuance of shares, warrants or convertible debentures can be cancelled in the cases provided for
in Article 172 of the Brazilian Corporate Law.
(b)
Treasury shares
Treasury shares as at June 30, 2016 originate from the corporate events that took place in the first
quarter of 2015, the second quarter of 2014, and the first half of 2012, described below:
(i)
on February 27, 2012, the Extraordinary Shareholders’ Meeting of Oi S.A. approved the
Merger Protocol and Justification of Coari with and into the Company and, as a result, the
cancelation of the all the treasury shares held by the Company on that date;
53
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
(ii)
on February 27, 2012, the Extraordinary Shareholders’ Meeting of Oi S.A. approved the
Merger Protocol and Justification of TNL with and into the Company, and the Company’s
shares then held by TNL, as a result of the merger of Coari with and into the Company,
were canceled, except for 24,647,867 common shares that remained in treasury;
(iii)
starting April 9, 2012, Oi paid the reimbursement of shares to withdrawing shareholders.
(iv)
As a result of the Company’s capital increase approved by the Board of Directors on April
30 and May 5, 2014, and due to subscription made by Pharol in PT Portugal assets,
R$263,028 was reclassified to treasury shares.
(v)
Under the exchange agreement entered into with Pharol on September 8, 2014 (Note 27),
approved at Pharol’s extraordinary shareholders’ meeting, by the CVM, and at Oi’s
extraordinary shareholders’ meeting, on March 30, 2015 the Company conducted a share
exchange under which Pharol delivered to PTIF Oi shares divided into 474,348,720 OIBR3
shares and 948,697,440 OIBR4 shares (47,434,872 and 94,869,744 after the reverse stock
split, respectively); in exchange, the Company delivered Rio Forte securities to PT SGPS,
in the total principal amount of R$3,163 million (€897 million).
(c)
Capital reserves
Capital reserves are recognized pursuant to the following practices:
Special merger goodwill reserve: represents the net amount of the balancing item to goodwill
recorded in assets, as provided for by CVM Instruction 319/1999.
Special merger reserve: net assets: represented by: (i) the net assets merged by the Company under
the corporate reorganization approved on February 27, 2012 amounting to R$2,309,296; (ii) the
net assets merged with and into the Company upon the merger of TmarPart approved on
September 1, 2015 amounting to R$122,412 include, primarily, R$20,349 in Cash and cash
equivalents, R$112,961 in Deferred taxes, and R$11,166 in Borrowings, pursuant to the
provisions of CVM Instruction 319/1999.
As regard TmarPart's net assets, it is worth mentioning that as at June 30, 2015 TmarPart’s
recognized in its balance sheet a gain on property, plant and equipment and intangible assets
appreciation amounting to R$6,347 million, net of taxes. Based on the events that occurred
between June 30, 2015 and the merger date, September 1, 2015, the external technical opinions
obtained by the Company, and taking into account the lack of a specific accounting standard on
mergers of entities under common control in the International Financial Reporting Standards
(“IFRSs”) and the accounting practices adopted in Brazil, and the existence of interpretations
indicating that upon a merger maintaining or reversing goodwill based on a an asset appreciation
gain is an accounting policy option, the Company did not recognize said goodwill in its balance
sheet. As prescribed by ICPC 09 (R2), paragraphs 77 and 78 and CVM Instruction 319/1999, the
Company filed with the CVM a technical inquiry and on July 29, 2016 received a letter from the
the Exchange Commission’s Department of Company Relations ("SEP") replying to the
Company’s inquiry. According to the SEP, "goodwill should not be derecognized by TmarPart
but, instead, kept in the net assets to be merged with and into Oi, following the valuation basis of
the net assets acquired as a result of the business combination between independent parties that
54
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
took place at the time of the acquisition of Brasil Telecom S.A." The Company is assessing the
content of the conclusions stated in said letter, which can be appealed against with the CVM’s
Board.
The Company hereby informs that the recognition of goodwill in its balance sheet as at June 30,
2016 would increase total assets and equity by R$1,165 million (R$1,233 million at December
31, 2015) and decrease loss for the quarter and the six-month period ended June 30, 2016 by R$33
million and R$68 million, respectively, and the amortization for the period (R$4,993 million at
December 31, 2015, resulting from the amortization for the year of R$234 million and the
recognition of the impairment loss of R$4,759 million), net of taxes.
Investment grant reserve: recognized due to the investment grants received before the beginning
of FY 2008 as a balancing item to an asset received by the Company.
Law 8200/91 special inflation adjustment reserve: recognized due to the special inflation
adjustments to capital assets, the purpose of which was to offset distortions in inflation adjustment
indices prior to 1991.
Interest on works in progress: consists of the balancing item to interest on works in progress
incurred through December 31, 1998.
Other capital reserves: consist of the funds invested in income tax incentives before the beginning
of FY 2008.
(d)
Profit reserves
Profit reserves are recognized pursuant to the following practices:
Legal reserve: allocation of 5% of profit for the year up to the limit of 20% of capital. This
allocation is optional when the legal reserve plus the capital reserves exceeds 30% of capital. This
reserve is only used for capital increases or offset losses.
Investments reserve: consists of the balances of profit for the year, adjusted pursuant to Article
202 of Law 6404/76 and allocated after the payment of dividends. The profits for the year used
to recognize this reserve were fully allocated as retained earnings by the related shareholders’
meetings in light of the Company’s investment budget and in accordance with Article 196 of the
Brazilian Corporate Law.
(e)
Dividends and interest on capital
Dividends are calculated pursuant to the Company’s Bylaws and the Brazilian Corporate Law.
Mandatory minimum dividend are calculated in accordance with Article 202 of Law 6404/76, and
preferred or priority dividends are calculated pursuant to the Company’s Bylaws.
Preferred shares are nonvoting, except in the cases specified in paragraphs 1-3 of Article 12 of the
Bylaws, but are assured priority in the payment of the noncumulative minimum dividends equal
to the higher of 6% per year of the amount obtained by dividing capital stock by the total number
55
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
of shares of the Company or 3% per year of the amount obtained by dividing book equity by the
total number of shares of the Company.
By decision of the Board of Directors, the Company can pay or credit, as dividends, interest on
capital pursuant to Article 9, paragraph 7, of Law 9249/1995. The interest paid or credited will be
offset against the annual mandatory minimum dividend amount, pursuant to Article 43 of the
Bylaws.
At the Company’s Annual Shareholders’ Meeting held on April 28, 2016, the allocation of loss
for 2015, amounting to R$4,934,908, to accumulated losses was approved.
(f)
Share issue costs
This line item includes the share issue costs net of taxes amounting to R$377,429, of which
R$194,464 is taxes. These costs are related to the following corporate transactions: (1) capital
increase, in accordance with the plan for the business combination between the Company and
Pharol and (2) the corporate reorganization of February 27, 2012, and (3) merger of TmarPart
with and into Oi. These costs directly attributable to the mentioned events are basically
represented by expenses on the preparation of prospectus and reports, third-party professional
services, fees and commissions, transfer costs, and registration costs.
(g)
Other comprehensive income
We recognize in this line item other comprehensive income, which includes hedge accounting
gains and losses, actuarial gains and losses, foreign exchange differences arising on translating
the net investment in foreign subsidiaries, including exchange differences in intragroup loans that
are part of the net investment in foreign subsidiaries, reclassification adjustments, and the tax
effects related to these components, which are not recognized in the statements of profit or loss.
The quarterly financial information form filed with CVM’s Empresas.Net system presents in the
balance sheet only with the ‘Carrying value adjustments’ and ‘Other comprehensive income’ line
items - equity (and not line items ‘Share issue costs’ and ‘Changes in equity interest percentage’)
and the statement of changes in equity only the ‘Other comprehensive income’ line item (not
presenting the ‘Carrying value adjustments’ or ‘Changes in equity interest percentage’ line items).
56
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
As a result, the effects discussed in the topic above are presented in aggregate in the relevant
existing line items, referred to above, as shown below:
Balance at Dec 31, 2015
Hedge accounting gain
Subsidiaries’ hedge accounting gain
Actuarial loss
Exchange gains on investment abroad
Exchange gains on subsidiaries’ investment abroad
Balance at Jun 30, 2016
(h)
Other
comprehensive
income
338,226
297,390
55,294
(6,655)
(366,272)
(601,682)
(283,699)
Share
issue
costs
(377,429)
Changes in
equity
interest
percentage
3,916
(377,429)
3,916
Total
(35,287)
297,390
55,294
(6,655)
(366,272)
(601,682)
(657,212)
Basic and diluted earnings (losses) per share
The Company’s Bylaws award different rights to holders of common and preferred shares with
respect to dividends, voting rights, and in case of liquidation of the Company. Accordingly, basic
and diluted earnings (losses) per share were calculated based on profit (loss) for the period
available to common and preferred shareholders.
Basic
Basic earnings (losses) per share are calculated by dividing the profit (loss) attributable to the
owners of the Company, available to common and preferred shareholders, by the weighted
average number of common and preferred shares outstanding during the period.
Diluted
Diluted earnings (losses) per share are calculated by adjusting the weighted average number of
outstanding common and preferred shares, to estimate the dilutive effect of all convertible
securities. Currently we do not have any potentially dilutive shares.
57
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
The table below shows the calculations of basic and diluted earnings (losses) per share:
There-month
period ended
06/30/2016
Loss from continuing operations
(492,611)
Six-month
period ended
06/30/2016
(2,161,217)
Loss for the quarter from discontinued operations (net of
taxes)
There-month
period ended
06/30/2015
(492,689)
Six-month
period ended
06/30/2015
(861,561)
1,112,506
1,080,061
Profit (loss) attributable to owners of the Company
(492,611)
(2,161,217)
619,817
218,500
Profit (loss) allocated to common shares - basic and
diluted
(378,937)
(1,662,499)
473,247
71,930
Profit (loss) allocated to preferred shares - basic and
diluted
(113,674)
(498,718)
146,570
146,570
Common shares - basic and diluted
519,752
519,752
230,295
254,013
Preferred shares - basic and diluted
155,915
155,915
470,166
517,601
Common shares - basic and diluted
(0.73)
(3.20)
0.88
0.28
Preferred shares - basic and diluted
(0.73)
(3.20)
0.88
0.28
Common shares - basic and diluted
(0.73)
(3.20)
(0.70)
(1.12)
Preferred shares - basic and diluted
(0.73)
(3.20)
(0.70)
(1.12)
Common shares - basic and diluted
1.59
1.40
Preferred shares - basic and diluted
1.59
1.40
Weighted average number of outstanding shares
(in thousands of shares)
Earnings (losses) per share (in reais):
Loss per share - continuing operations:
Earnings per share - discontinued operations:
23.
EMPLOYEE BENEFITS
As at June 30, 2016, the consolidated liabilities referring to retirement benefits recognized in the
balance sheet are as follows:
06/30/2016
12/31/2015
Actuarial assets
137,189
129,881
Current
4,013
753
Non-current
133,176
129,128
Actuarial liabilities
537,264
544,020
Current
125,417
144,589
Non-current
411,847
399,431
(i) As at June 30, 2016, represented basically by the agreement de financial obligations of BRTPREV, amounting to
R$536,938, entered into by the Company and Fundação Atlântico intended for the payment of the mathematical
provision without coverage by the plan’s assets.
58
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
(a)
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Pension funds
The Company and its subsidiaries sponsor retirement benefit plans (“pension funds”) for their
employees, provided that they elect to be part of such plan, and current beneficiaries. The table
below shows the existing pension plans as at June 30, 2016.
Benefit plans
TCSPREV
BrTPREV
TelemarPrev
PAMEC
PBS-A
PBS-Telemar
PBS-TNCP
CELPREV
PAMA
Sponsors
Oi, Oi Móvel, BrT Multimídia and Oi Internet
Oi, Oi Móvel, BrT Multimídia and Oi Internet
Oi, Telemar, Oi Móvel and Oi Internet
Oi
Telemar and Oi
Telemar
Oi Móvel
Oi Móvel
Oi e Telemar
Manager
FATL
FATL
FATL
Oi
Sistel
FATL
Sistel
Sistel
Sistel
Sistel - Fundação Sistel de Seguridade Social
FATL - Fundação Atlântico de Seguridade Social
For purposes of the pension plans described in this note, the Company can also be referred to as
the “Sponsor”.
The sponsored plans are valued by independent actuaries at the end of the annual reporting period.
For the year ended December 31, 2015, the actuarial valuations were performed by Mercer Human
Resource Consulting Ltda. The Bylaws provide for the approval of the supplementary pension
plan policy, and the joint liability attributed to the defined benefit plans is ruled by the agreements
entered into with the pension fund entities, with the agreement of the National Pension Plan
Authority (PREVIC), as regards the specific plans. PREVIC is the official agency that approves
and oversees said plans.
The sponsored defined benefit plans are closed to new entrants because they are close-end pension
funds. Participants’ and the sponsors’ contributions are defined in the funding plan.
Actuarial liabilities are recognized for the sponsored defined benefit plans that report an actuarial
deficit. For the plans that report an actuarial surplus, assets are recorded when there is an express
authorization for offsetting them against future employer contributions.
The obligations in the balance as at June 30, 2016 were recognized based on the actuarial studies
for base date December 31, 2015, prepared using the “Projected Unit Credit Method”. The main
actuarial assumptions taken into consideration in the actuarial studies as at December 31, 2015
and June 30, 2016 after the revision of the discount rates are as follows:
59
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
CONSOLIDATED
MEDICAL CARE
PLANS
PENSION PLANS
Nominal discount rate of
actuarial liability
Estimated inflation rate
Estimated nominal
salary increase index
Estimated nominal
benefit growth rate
Total expected rate of
return on plan assets
General mortality
biometric table
Biometric disability
table
Biometric disabled
mortality table
Turnover rate
Starting age of the
benefits
Nominal medical costs
growth rate
BrTPREV
TCSPREV
PBSTelemar
TelemarPrev
PBS-A
PBS-TNCP
CELPREV
PAMEC
PAMA
13.10%
13.10%
13.10%
13.10%
13.10%
13.10%
13.10%
13.10%
13.10%
5.50%
5.5% to
6.12%
5.50%
5.5% to
6.00%
5.50%
5.50%
5.50%
5.50%
5.50%
5.50%
5.50%
5.50%
5.5% to
7.09%
N.A.
10.61%
5.50%
N.A.
N.A.
5.50%
5.50%
5.50%
5.50%
5.50%
5.50%
5.50%
N.A.
N.A.
13.10%
13.10%
13.10%
13.10%
13.10%
13.10%
13.10%
N.A.
13.10%
AT-2000
AT-2000
AT-2000
AT-2000
AT-2000
AT-2000
AT-2000
AT-2000
AT-2000
Zimmermann Zimmermann Zimmermann Zimmermann Zimmermann Zimmermann Zimmermann Zimmermann Zimmermann
Nichzugs
Nichzugs
Nichzugs
Nichzugs
Nichzugs
Nichzugs
Nichzugs
Nichzugs
Nichzugs
Winklevoss
Winklevoss
Winklevoss
Winklevoss
Winklevoss
Winklevoss
Winklevoss
Winklevoss
N.A.
5.10%
4.40%
Nil
5.10%
N.A.
Nil
Nil
N.A.
N.A.
57 years
57 years
57 years
55 years
N.A.
57 years
55 years
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
8.67%
8.67%
The main movements in the actuarial liabilities related to pension plans in the period ended June
30, 2016 were as follows:
Balance at December 31, 2015
Pension plan costs, net
Payments, contributions and reimbursements
Balance at June 30, 2016
COMPANY
CONSOLIDATED
543,733
544,020
43,204
43,244
(50,000)
(50,000)
536,937
537,264
The main movements in the actuarial assets related to the pension plans in the period ended June
30, 2016 were as follows:
Balance at December 31, 2015
Pension plan income, net
Actuarial gains (losses), net
Payments, contributions and reimbursements
Balance at June 30, 2016
COMPANY
CONSOLIDATED
124,989
129,881
8,187
8,507
2,166
2,166
(3,035)
(3,365)
132,307
137,189
60
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
24.
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
SEGMENT INFORMATION
The Company’s management uses operating segment information for decision-making. The
Company identified only one operating segment that corresponds to the telecommunications
business in Brazil.
In addition to the telecommunications business in Brazil, the Company conducts other businesses
that individually or in aggregate do not meet any of the quantitative indicators that would require
their disclosure as reportable business segments. These businesses refer basically to the following
companies: Mobile Telecommunications Limited in Namibia, Companhia Santomense de
Telecomunicações, Listas Telefónicas de Moçambique, ELTA - Empresa de Listas Telefónicas
de Angola, and Timor Telecom, which provide fixed and mobile telecommunications services
and publish telephone directories, and which have been consolidated since May 2014.
The revenue generation is assessed by Management based on a view segmented by customer, into
the following categories:



Residential Services, focused on the sale of fixed telephony services, including voice
services, data communication services (broadband), and pay TV;
Personal Mobility, focused on the sale of mobile telephony services to subscription and
prepaid customers, and mobile broadband customers; and
SMEs/Corporate, which includes corporate solutions offered to our small, medium-sized,
and large corporate customers.
61
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Telecommunications in Brazil
In preparing the financial information for this reportable segment, the transactions between the
companies included in the segment have been eliminated. The financial information of this
reportable segment of the periods ended June 30, 2016 and 2015 is as follows:
Residential
Personal mobiliy
SMEs/Corporate
Other services and businesses
Net operating revenue
Operating expenses
Depreciation and amortization
Interconnection
Personnel
Third-party services
Grid maintenance services
Handset and other costs
Advertising and publicity
Rentals and insurance
Provisions/reversals
Allowance for doubtful accounts
Taxes and other expenses
Other operating income, net
OPERATING INCOME BEFORE FINANCIAL INCOME
(EXPENSES) AND TAXES
There-month period ended
06/30/2016
06/30/2015
2,411,313
2,459,916
1,944,072
2,017,639
1,908,464
2,001,289
58,689
75,966
6,322,538
6,554,810
(1,286,463)
(214,822)
(721,250)
(1,577,093)
(506,436)
(50,990)
(130,891)
(1,059,744)
(289,502)
(163,695)
(163,914)
(84,681)
(1,219,397)
(426,991)
(596,037)
(1,574,043)
(490,084)
(35,979)
(90,954)
(811,248)
(268,897)
(178,623)
(265,704)
(47,756)
73,057
549,097
Financial income (expenses)
Financial income
Financial expenses
217,815
1,050,548
433,581
(1,654,813)
PRETAX INCOME
1,341,420
(672,135)
(1,349,762)
157,954
(8,342)
(514,181)
Income tax and social contribution
LOSS FOR THE QUARTER FROM CONTINUING OPERATIONS
62
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Residential
Personal mobiliy
SMEs/Corporate
Other services and businesses
Net operating revenue
Operating expenses
Depreciation and amortization
Interconnection
Personnel
Third-party services
Grid maintenance services
Handset and other costs
Advertising and publicity
Rentals and insurance
Provisions/reversals
Allowance for doubtful accounts
Taxes and other expenses
Other operating income, net
OPERATING INCOME BEFORE FINANCIAL INCOME
(EXPENSES) AND TAXES
Six-month period ended
06/30/2016
06/30/2015
4,804,824
4,950,796
3,976,081
4,276,447
3,973,817
4,022,201
106,355
146,146
12,861,077
13,395,590
(2,614,326)
(562,273)
(1,378,160)
(3,091,604)
(984,130)
(112,968)
(218,434)
(2,144,466)
(494,457)
(290,496)
(453,930)
(94,677)
(2,392,679)
(930,610)
(1,187,725)
(3,106,426)
(941,560)
(173,637)
(124,173)
(1,687,219)
(492,041)
(324,148)
(683,414)
(47,756)
421,156
1,304,202
401,538
(1,039,030)
731,488
(3,222,861)
(216,336)
(1,187,171)
Income tax and social contribution
(1,460,212)
297,578
PROFIT (LOSS) FOR THE QUARTER FROM CONTINUING
OPERATIONS
(1,676,548)
(889,593)
Financial income (expenses)
Financial income
Financial expenses
PRETAX INCOME
Reconciliation of revenue and profit (loss) for the quarter and information per geographic
market
In the periods ended June 30, 2016 and 2015, the reconciliation of the segment
telecommunications in Brazil revenue and total consolidated revenue is as follows:
There-month period ended
06/30/2016
06/30/2015
Net operating revenue
Revenue related to the reportable segment
Revenue related to other businesses
Consolidated net operating revenue
6,322,538
201,591
6,524,129
6,554,810
228,976
6,783,786
63
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Six-month period ended
06/30/2016
06/30/2015
Net operating revenue
Revenue related to the reportable segment
Revenue related to other businesses
Consolidated net operating revenue
12,861,077
418,163
13,279,240
13,395,590
428,131
13,823,721
In the periods ended June 30, 2016 and 2015, the reconciliation between the profit (loss) before
financial income (expenses) and taxes of the segment telecommunications in Brazil and the
consolidated profit (loss) before financial income (expenses) and taxes is as follows:
There-month period ended
06/30/2016
06/30/2015
Profit (loss) before financial income (expenses) and taxes
Telecommunications in Brazil
Other businesses
Consolidated income before financial income (expenses) and taxes
73,057
25,917
98,974
549,097
77,413
626,510
Six-month period ended
06/30/2016
06/30/2015
Profit (loss) before financial income (expenses) and taxes
Telecommunications in Brazil
Other businesses
Consolidated income before financial income (expenses) and taxes
421,156
70,337
491,493
1,304,202
115,179
1,419,381
Total assets, liabilities and tangible and intangible assets per geographic market as at June 30,
2016 are as follows:
06/30/2016
Brazil
Other, primarily Africa
Total
assets
71,353,277
5,822,384
Total
liabilities
65,400,515
519,935
Tangible
assets
25,519,183
396,763
Capital
expenditures on
tangible and
Intangible
intangible
assets
assets
3,482,024
2,087,398
744,043
86,257
64
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
25.
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
RELATED-PARTY TRANSACTIONS
Transactions with consolidated related parties
COMPANY
06/30/2016
12/31/2015
Assets
Securities issued by related parties (Senior Notes)
Oi Holanda
Accounts receivable
BrT Call Center
Oi Internet
BrT Multimídia
Oi Móvel
Telemar
Conecta
Serede
Receivables from related parties (current and non-current)
Telemar
Oi Móvel
Oi Internet
PT Participações
Dividends and interest on capital receivable
Telemar
Rio Alto
Oi Serviços Financeiros
Other
Telemar
BrT Call Center
BrT Multimídia
Oi Móvel
Oi Holanda
Dommo
6,944
6,944
598,282
36,295
26,242
45,183
132,130
208,680
149,606
146
3,444,651
2,595,120
64,090
14,266
771,175
869,165
848,040
21,125
518,468
76,406
43,445
14,980
373,569
10,068
3,667
3,667
1,070,416
40,156
22,487
41,079
782,985
183,709
3,353,617
2,086,734
1,077,813
189,070
891,270
848,041
28,251
14,978
342,041
38,540
36,650
10,051
246,689
10,068
43
65
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
COMPANY
06/30/2016
12/31/2015
Liabilities
Trade payables
389,096
489,081
BrT Call Center
3,751
100,364
Oi Internet
123,044
131,257
BrT Multimídia
106,306
146,559
Oi Móvel
40,102
34,864
Telemar
60,880
59,507
Paggo Administradora
18,361
16,530
Conecta
28,876
Serede
7,776
Borrowings and financing, and debentures (i)
19,104,731
13,035,521
Telemar
1,004,832
939,723
Oi Móvel
3,839,400
1,052
Oi Holanda
14,260,390
12,093,929
Oi Internet
109
817
Other payables
105,011
2,339,498
BrT Call Center
396
411
Oi Internet
25,130
25,130
BrT Multimídia
55,885
42,396
Oi Móvel
18,367
18,311
Telemar
1,258
124,500
PTIF
2,125,200
PT Investimentos
3,975
3,550
(i) The Company conducted loans with and acquires debentures from its subsidiaries under market terms and conditions
to finance its operations or repay its debt.
66
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
There-month period ended
COMPANY
06/30/2016
06/30/2015
Revenue
Revenue from services rendered
Oi Internet
BrT Multimídia
Oi Móvel
Telemar
Serede
PT Portugal
Other operating income
BrT Call Center
BrT Multimídia
Oi Móvel
Telemar
Serede
Financial income
BrT Call Center
Oi Móvel
Telemar
Serede
Oi Internet
Oi Holanda (ii)
PT Participações
PTIF
95,955
2,147
1,570
73,868
18,368
2
10,655
1,212
9,426
17
1,975,439
6,045
86,301
924
86
1,876,055
6,028
126,305
1,804
3,094
97,028
22,529
1,850
11,939
2,173
330
9,401
29
6
84,720
2,245
18,030
53,674
10,771
67
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Six-month period ended
COMPANY
06/30/2016
06/30/2015
Revenue
Revenue from services rendered
199,300
BrTI
Oi Internet
4,477
BrT Multimídia
3,191
Oi Móvel
152,499
Telemar
39,131
Telemar Internet
Serede
2
PT Portugal
Other operating income
20,139
BrT Call Center
BrT Multimídia
1,290
Oi Móvel
18,812
Telemar
37
Serede
Financial income
3,371,773
BrT Call Center
Oi Móvel
32,017
Telemar
158,578
Serede
924
Oi Internet
86
Oi Holanda (ii)
3,170,044
PT Participações
10,124
PTIF
(ii) Refers basically to the foreign exchange gain on foreign currency-denominated financing.
Operating costs and expenses
BrT Multimídia
Oi Móvel
Telemar
Paggo Administradora
BrT Call Center
Oi Internet
Serede
PT Portugal
Financial expenses
Oi Móvel
Oi Internet
Telemar
Oi Holanda
PT Portugal
255,742
208
3,331
6,166
195,598
45,579
260
4,600
23,915
4,388
660
18,802
59
6
146,320
5,896
28,518
81,509
30,397
There-month period ended
COMPANY
06/30/2016
06/30/2015
(251,785)
(268,130)
(1,222)
(1,475)
(60,317)
(105,882)
(14,615)
(16,262)
(994)
(2,548)
(138,012)
(140,855)
(324)
(36,625)
(784)
(409,415)
(78,846)
(148,780)
(2,405)
(4)
(9,378)
(33,983)
(27,124)
(139,334)
(39,939)
(87,314)
68
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Operating costs and expenses
BrT Multimídia
Oi Móvel
Telemar
Paggo Administradora
BrT Call Center
Oi Internet
Serede
PT Portugal
PT Inovação e Sistemas
Financial expenses
Oi Móvel
Telemar
Oi Holanda
Oi Internet
Telemar Internet
PT Portugal
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Six-month period ended
COMPANY
06/30/2016
06/30/2015
(479,473)
(561,138)
(2,446)
(11,449)
(138,267)
(238,646)
(30,849)
(33,390)
(1,830)
(6,682)
(269,455)
(268,413)
(1)
(645)
(36,625)
(1,822)
(91)
(692,672)
(162,366)
(192,077)
(14,589)
(65,954)
(52,715)
(275,639)
(78,083)
(18)
(15,145)
(1,834)
(158,984)
Credit facilities
The purpose of the credit facilities extended by the Company to its subsidiaries is to provide them
with working capital for their operating activities and the maturities of these loans can be
rescheduled according to these companies’ projected cash flows. The disbursed amounts bear
interest equivalent to 115% of CDI (115% of CDI at December 31, 2015).
Lease of transmission infrastructure
The transactions conducted with Telemar and Oi Móvel refer to the provision of services and the
assignment of means involving mainly interconnection and Industrial Exploitation of Dedicated
Line (EILD).
The transactions conducted with Telemar Internet, a Telemar subsidiary, refer to the provision of
port rental services.
Guarantees
The Company is the guarantor of subsidiaries Telemar and Oi Móvel in financing obtained from
the BNDES, public debentures, and some other loans. The Company recorded for the period ended
June 30, 2016, as commission on guarantee provided, income amounting to R$24,652 (R$34,253
for the period ended June 30, 2015). Additionally, Telemar provided guarantees to the Company
at the cost of 0.5% of the outstanding balance per year. Related expenses for the period ended June
30, 2016 totaled R$161 (R$136 for the period ended June 30, 2015).
69
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
Corporate Legislation
Quarter Ended 06/30/2016
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Transactions with jointly controlled entities, associates, and unconsolidated entities
COMPANY
06/30/2016
12/31/2015
CONSOLIDATED
06/30/2016
12/31/2015
4,942
4,916
4,942
4,916
COMPANY
06/30/2016
12/31/2015
725
725
Consolidated
06/30/2016
12/31/2015
38,320
53,246
35,633
52,425
2,687
821
Accounts receivable and other assets
Other entities
Accounts payable and other liabilities
Hispamar
Other entities
There-month period ended
COMPANY
CONSOLIDATED
06/30/2016
06/30/2015
06/30/2016
06/30/2015
Revenue
Revenue from services rendered
Contax (i)
TODO
Other entities
15
15
8.802
8,617
145
40
Six-month period ended
COMPANY
CONSOLIDATED
06/30/2016
06/30/2015
06/30/2016
06/30/2015
Revenue
Revenue from services rendered
Contax (i)
TODO
Other entities
39
39
16.500
16,169
276
55
There-month period ended
COMPANY
CONSOLIDATED
06/30/2016
06/30/2015
06/30/2016
06/30/2015
Costs/expenses
Operating costs and expenses
Veotex
TODO
Hispamar
Other entities
(1,497)
(1,497)
(4,872)
(372)
(4,500)
(61,241)
(9,654)
(2,530)
(7,124)
(50,970)
(10,271)
70
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Six-month period ended
COMPANY
CONSOLIDATED
06/30/2016
06/30/2015
06/30/2016
06/30/2015
Costs/expenses
(2,305)
(9,932)
(131,668)
Operating costs and expenses
(839)
Veotex
(9,093)
TODO
(2,305)
(112,991)
Hispamar
(18,677)
Other entities
(i) As a result of the TmarPart downstream merger in September 2015 and voting right dilution events, Contax
longer reported as a Company related party, pursuant to CPC 5 requirements.
(19,412)
(4,953)
(14,459)
is no
The balances and transactions with jointly controlled entities, associates, and unconsolidated
entities result from business transactions carried out in the normal course of operations, namely
the provision of telecommunications services by the Company to these entities and the acquisition
of these entities’ contents and the lease of their infrastructure.
Under the terms of the agreements entered into Company and Pharol aimed at the union of their
share bases, a set of Pharol’s assets and liabilities were transferred to the Company, which assumed
the compensation or payment obligation of possible incurred contingencies. In the first half of
2016 the Company paid to third parties contingencies incurred by Pharol amounting to €5.5 million
and as at June 30, 2016 it hell in judicial deposits and an escrow deposit in favor of third parties
amounting to €21.6 million, and was the guarantor in certain bank guarantees of Pharol, on account
of lawsuits, amounting to €187.4 million.
Compensation of key management personnel
The compensation of the officers responsible for planning, managing and controlling the
Company's activities, including the compensation of the directors and executive officers, totaled
R$28,666 (R$12,587 at June 30, 2015) in the Company and R$28,744 (R$12,691 at June 30, 2015)
on a consolidated basis.
26.
HELD-FOR-SALE ASSETS
Sale of PT Portugal shares to Altice
On December 9, 2014, the Company and Altice entered into a purchase and sale agreement of all
PT Portugal shares to Altice, basically involving the operations conducted by PT Portugal in
Portugal and in Hungary.
On January 22, 2015, Pharol shareholders approved the sale by Oi of all PT Portugal shares to
Altice, under the terms and conditions of the Share Purchase and Sale Agreement. Accordingly,
the suspensive condition provided for in said agreement to its effectiveness was implemented.
71
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
On June 2, 2015, the sale by Oi to Altice of its entire stake in PT Portugal was completed. Altice
Portugal paid a total of €5,789 million for PT Portugal, of which €4,920 million were received in
cash by Oi and PTIF and €869 million were immediately allocated to settle PT Portugal eurodenominated debt. There is also a provision for the payment of an earn-out of €500 million related
to PT Portugal’s future generation of revenue and Oi provided a set of guarantees and
representations usual in this type of agreements to the buyer.
Approval of preparatory actions for the sale of Africatel
At the Board of Directors’ meeting held on September 16, 2014, Oi’s management was authorized
to take all the necessary actions to divest Oi’s stake in Africatel, representing 75% of Africatel’s
share capital, and/or dispose of its assets. Oi will lead the sale process, even though we believe
that it would be in the best interests of both Africatel shareholders to maximize the value of their
investments, that this sale be coordinated with Samba Luxco, a Helios Investors L.P. affiliate that
holds the remaining 25% of Africatel’s share capital. Oi is committed to working with its local
partners and each one of the operating companies where Africatel holds investments to ensure a
coordinated transition of its interests in these companies.
Notwithstanding the above, our indirect subsidiary Africatel GmbH & Co. KG (“Africatel
GmbH”), direct holder of the Oi’s investment in Africatel, received on September 16, 2014 a letter
from Samba Luxco, where Samba Luxco exercised an alleged right to sell the shares it holds in
Africatel (put option), pursuant to Africatel’s shareholders’ agreement. According to this letter,
this put option results from the indirect transfer of Africatel shares, previously indirectly held by
Pharol, to the Company as the payment for the capital increase made in May 2014. In the letter,
Samba Luxco purported to exercise the alleged put right and thereby require Africatel GmbH to
acquire its shares in Africatel.
The Company believes that there was not any action or event that, under Africatel’s shareholders’
agreement terms, would trigger the right to exercise the put option. Accordingly, without
prejudice to the value the Company attributes to maintaining a relationship of mutual respect with
Samba Luxco, Africatel GmbH intends to challenge the exercise of this put option by Samba
Luxco in the current circumstances, which, pursuant to Africatel’s shareholders’ agreement,
which was duly notified in Africatel GmbH’s reply to Samba Luxco’s letter, on September 26,
2014.
Thus, on November 12, 2014, the International Court of Arbitration of the International Chamber
of Commerce notified Africatel GmbH that Samba Luxco had commenced arbitral proceedings
against Africatel GmbH to enforce its purported put right or, in the alternative, certain ancillary
rights and claims. Africatel GmbH presented its answer to Samba Luxco’s request for arbitration
on December 15, 2014. The arbitral tribunal was constituted on March 12, 2015 and Africatel
GmbH filed its defense on October 9, 2015.
At the same time it intended to vigorously defend Africatel GmbH in this proceeding, Oi also
focused its efforts on the sale of Africatel and/or its assets, since the Company believed that if this
goal was successfully met, the initiated arbitration proceeding would lose its purposes.
72
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
On June 16, 2016, PT Participações, Africatel GmbH and Africatel, and Company subsidiaries,
entered into a series of contractual agreements with Samba Luxco, with the primary purpose of
settling and terminate the arbitration proceeding.
The agreements entered into include the amendments to Africatel’s Shareholders’ Agreement and
a Settlement and Share Exchange Agreement, under which Samba Luxco shall, upon the
implementation of the agreement: (i) terminate the ongoing arbitration proceeding and exempt
Oi’s subsidiaries with regard to all the past and current demands related to alleged breaches of
Africatel’s Shareholders’ Agreement and raise in the arbitration proceeding, (ii) waive certain
approval rights it has under Africatel’s Shareholders’ Agreement, and (iii) transfer to Africatel
11,000 Africatel shares, each of each with a part value of €1.00, thus decreasing Samba Luxco’s
stake in Africatel from 25% to 14%. In exchange, Africatel BV shall transfer to Samba Luxco its
current stake of approximately 34% in the capital of the Namibian telecommunications operator
MTC.
The agreement’s implementation is subject to obtaining the necessary regulatory and antitrust
approvals.
With regard to Africatel’s indirect stake in Unitel, through its subsidiary PT Ventures, it is worth
noting that on October 13, 2015, PT Ventures initiate the arbitration proceeding against Unitel’s
shareholders as a result of the violation by the latter of several rules of Unitel’s shareholders’
agreement and the Angolan law, including the fact that such shareholders caused Unitel not to
pay the dividends paid to PT Ventures and retain the information and clarifications on such
payment. Additionally, on October 20, 2015, PT Ventures filed an action for a declaration of
sentence against Unitel with an Angolan court, claiming the recognition of PT Ventures’ right to
receive the outstanding dividends declared in 2010, and the dividends for the years 2011, 2012,
and 2013.
The other shareholders of Unitel have asserted to PT Ventures that they believe that Pharol’s sale
of a non-controlling interest in Africatel to Samba Luxco in 2007 constituted a breach the Unitel
shareholders’ agreement. PT Ventures disputes this interpretation of the relevant provisions of the
Unitel shareholders’ agreement and believes that such provisions apply only to a transfer of Unitel
shares by PT Ventures itself. By the date of this report, the Company had not been notified of any
proceedings initiated with respect to Pharol’s sale of a non-controlling stake in Africatel to Samba
Luxco.
The assets and of the African operations are stated at the lower of their carrying amounts and their
fair values less costs to sell.
The African operations are consolidated in the statement of profit or loss since May 5, 2014.
73
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
The main components of the assets for held sale and liabilities associated to assets held for sale
of the African operations are as follows:
Held-for-sale assets
Cash, cash equivalents and cash investments
Accounts receivable
Dividends receivable (i)
Available-for-sale financial asset (ii)
Other assets
Investments
Property, plant and equipment
Intangible assets
Goodwill (iii)
Operations in Africa
06/30/2016
12/31/2015
5,822,384
7,686,298
291,900
214,413
156,082
217,992
1,976,162
2,042,191
2,174,998
3,541,314
121,614
230,318
19,753
61,425
396,763
466,049
197,093
356,900
488,019
555,696
Liabilities directly associated to assets held for sale
Borrowings and financing
Trade payables
Provisions for pension plans
Other liabilities
519,935
4,758
39,460
648
475,069
745,000
9,557
85,730
923
648,790
Non-controlling interests (iv)
822,689
1,190,547
4,479,760
(410,063)
4,069,697
4,069,697
5,750,751
(295,489)
5,455,262
5,455,262
Total assets held for sale and liabilities associated to assets held for sale consolidated
Intragroup eliminations
Total assets held for sale - Parent company
Investments in Africa
(i)
Refers to dividends receivable from Unitel. The Company’s recognizes dividends not yet
received based on the expected recoverable amount and takes into account, for this
valuation, the existence of lawsuits filed to collect these amounts, the expected favorable
decisions on these lawsuits, and the existence of cash at Unitel for the payment of these
dividends. The dividends not paid by Unitel to PT Ventures refer to fiscal years 2010, 2011,
2012, 2013, and 2014, nominal totaling US$737 million, including 12.6 billion Kwazas
recognized in 2016 related to the dividends for fiscal year 2014;
(ii)
Refers mainly to the fair value of the indirect interest financial investment of 25% of
Unitel’s share capital, classified as held for sale. The fair value of this investment is
estimated based on the internal valuation made, including cash flows forecasts for a fouryear period, the choice of a growth rate to extrapolate the cash flows projections, and
definition of appropriate discount rates. The Company has the policy of monitoring and
periodically updating the main assumptions and material estimates used in the fair value
measurement, and also takes into consideration in this assessment possible impacts of
actual events related to the investment, notably the lawsuits filed against Unitel and its
shareholders in 2015. As at June 30, 2016 and in the context of the updating of assumptions
74
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
referred to above, the fair value of the investment in Unitel was R$2,092 million (R$3,436
million at December 31, 2015), which reported a loss of R$839 million for the first half of
2016 (R$2,208 million for the year ended December 31, 2015). The Company believes that
the fair value measured under the Discounted Cash Flows method and using the discount
rate assumptions (from 15.5% to 17.5%), foreign exchange rates, and other Angolan
official financial indicators, corresponds to the best estimate of the realizable value of the
investment in Unitel.
(iii)
In 2015, the Company conducted the annual impairment test of its assets related to the
operations in Africa and recognized a loss on goodwill amounting to R$89,176.
(iv)
Represented mainly by the Samba Luxco’s 25% stake in Africatel Holdings, BV and,
consequently, in its net assets.
27.
OTHER INFORMATION
(a)
Acquisition of investments - ARM Engenharia
In October 2012, the Company and some of its subsidiaries entered into a service agreement with
ARM Tecnologia e Serviços de Entenharia S.A. (“ARM Engenharia”) for the installation,
operation, and corrective and preventive maintenance of the outside plant and related equipment
of Oi and its subsidiaries, payphones, and the fiber optics and data communication networks
(including broadband access services) in the States of Maranhão, Piauí, Ceará, Rio Grande do
Norte, Paraíba, Pernambuco, Alagoas, Sergipe, Bahia, Amazonas, Roraima, Pará, Amapá, Rio
Grande do Sul, Paraná, and Santa Catarina, and in January 2012, in the State of São Paulo.
In October 2012, the Company and some of its subsidiaries entered into a service agreement with
ARM Tecnologia e Serviços de Entenharia S.A. (“ARM Engenharia”) for the installation,
operation, and corrective and preventive maintenance of the outside plant and related equipment
of Oi and its subsidiaries, payphones, and the fiber optics and data communication networks
(including broadband access services) in the States of Maranhão, Piauí, Ceará, Rio Grande do
Norte, Paraíba, Pernambuco, Alagoas, Sergipe, Bahia, Amazonas, Roraima, Pará, Amapá, Paraná,
and Santa Catarina.
In April and May 2016, Serede - Serviços de Rede S.A. (“Serede”), indirect wholly-owned
subsidiary of the Company, acquired the corporate units of ARM Engenharia nos Estados do Rio
Grande do Sul, Santa Catarina, and Paraná, and started to manage and conducting operations.
Also in May 2016, Serede entered into with the shareholders of ARM Engenharia an agreement
for the acquisition of all ARM Engenharia shares. The transaction was completed on June 27,
2016, after the compliance of the conditions precedent established in the agreement, common to
similar transactions, including the completion of the legal and financial due diligence at ARM
Engenharia, and the approval by the Administrative Economic Defense Council. On the same
date, the corporate name of ARM Engenharia was changed to Rede Conecta - Serviços de Rede
S.A.(“Rede Conecta”).
75
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
The acquisition of the assets and liabilities of Rede Conecta was recognized using the acquisition
method, as prescribed by CPC 15 and IFRS 3, taking into account the fair value of the provisional
identifiable assets and liabilities, resulting in preliminary goodwill arising on the acquisition
amounting to R$368,428. During the measurement period, the Company will value the necessary
adjustments and the provisional amounts of the identifiable assets and liabilities.
(b)
Rio Forte securities
On June 30, 2014, the Company was informed, through a notice disclosed by Pharol, of the
investment made by PTIF and PT Portugal, companies contributed by Pharol to Oi in the capital
increase, in a commercial paper of Rio Forte Investments S.A. (“Securities” and “Rio Forte”,
respectively), a company part of the Portuguese group Espírito Santo (“GES”), when both PTIF
and PT Portugal were Pharol subsidiaries.
According to said notice, the Securities had been issued in the total amount of €897 million, and
bore average annual interest of 3.6% and matured on July 15 and July 17, 2014 (€847 and €50
million, respectively), stressing that since April 28, 2014 no other investment and/or renewal of
this type of investments had been made.
Both PT Portugal and PTIF (collectively “Oi Subsidiaries”) became Company subsidiaries due to
the assignment of all PT Portugal shares to the Company by Pharol, on May 5, 2014, to pay in the
Company’s capital increase approved on April 28 and 30, 2014.
The Securities matured in July 2014 and subsequent the cure period for payment of the securities
ended without Rio Forte paying the amount due. The Luxembourg Commercial Court denied Rio
Forte’s request for controlled management on October 17, 2014 and Rio Forte’s bankruptcy was
declared on December 8, 2014.
Agreements entered into by the Company, TmarPart, and Pharol related to the cash
investments made in Rio Forte commercial papers
On September 8, 2014, after obtaining the due corporate approvals, the Company, the Oi
Subsidiaries, TmarPart, and Pharol entered into definitive agreements related to the investments
made in the Securities. The agreements provided for (i) an exchange (the “Exchange”) through
which Oi Subsidiaries transferred the Securities to Pharol in exchange for preferred shares and
common shares of the Company and held by Pharol, as well as (ii) the assignment by Oi
Subsidiaries of a call option on the Company shares to the benefit of PT (“Call Option”).
On March 26, 2015, in order to comply with the conditions presented by the CVM’s Board to
grant the waivers necessary for the implementation of the Share Exchange and Put Option,
according to the decision issued on March 4, 2015, the Company held a Shareholders’ Meeting
which approved the terms and conditions of the Share Exchange and Put Option agreements.
On March 31, 2015, the Company announced in a Material Fact Notice, the consummation of the
Exchange, under which Pharol delivered to the Oi Subsidiaries Oi unencumbered shares
corresponding to 47,434,872 OIBR3 (common shares) and 94,869,744 OIBR4 (preferred shares)
76
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
(“Exchanged Shares”); and in exchange Oi, through PTIF, delivered the Securities to Pharol,
totaling €897 million, with no money involved.
With implementation of the Exchange, Pharol became the holder of the Securities and the sole
responsible for negotiating with Rio Forte and the decisions related to the Securities, and the
Company is responsible for the supporting documentation to Pharol to take the necessary actions
to collect the receivables represented by the Securities.
As a result of the consummation of the Exchange, Pharol’s direct interest in Oi decreased from
104,580,393 common shares and 172,025,273 preferred shares, representing 37.66% of the voting
capital (ex-treasury) and 32.82% of the total capital of Oi (ex-treasury) to 57,145,521 common
shares and 77,155,529 preferred shares, representing 24.81% of the voting capital (ex-treasury)
and 19.17% of the total capital of Oi (ex-treasury).
Main terms of the Call Option for the Purchase of Shares (“Option Contract”)
Under the Call Option Agreement entered into on September 8, 2014 by Pharol, PTIF, PT
Portugal, Oi, and TmarPart, and amended on March 31, 2015, the call option became exercisable
with the consummation of the Exchange, beginning March 31, 2015, at any time, during a sixyear period.
Under the terms of the Call Option Agreement, the Call Option will involve 47,434,872 Oi
common shares and 94,869,744 Oi preferred shares (“Shares Subject to the Option”) and can be
exercised, in whole or in part, at any time, pursuant to the following terms and conditions:
(i) Term: six (6) years, noting that Pharol’s right to exercise the Option on the Shares Subject to
the Option will be reduced by the percentages below:
Date of Reduction
As from 03/31/2016
As from 03/31/2017
As from 03/31/2018
As from 03/31/2019
As from 03/31/2020
As from 03/31/2021
% of Shares Subject to the Option that cease to
the subject to the Option each year
10%
18%
18%
18%
18%
18%
(ii) Exercise Price: R$1.8529 per Company preferred share and R$2.0104 per Company common
share, before the reverse share split approved on November 18, 2014, as adjusted by the interbank
deposit rate (CDI), plus 1.5% per annum, calculated on a pro rata temporis basis, from the date of
the Exchange to the date of the effective payment of each exercise price, in whole or in part, of
the Option. The exercise price of the shares will be paid in cash, at the transfer date of the Shares
Subject to the Option.
By March 31, 2016, Pharol had not exercised the Option, in whole or in part, on the Shares Subject
to the Option. Accordingly, beginning on this date, 4,743,487 Company common shares and
9,486,974 Company preferred shares, equivalent to 10% of the Shares Subject to the Option, are
no longer subject to this call option.
77
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Oi is not required to maintain the Exchanged Shares in treasury. In the event that PTIF or any of
Oi’s subsidiaries do not hold, in treasury, a sufficient number of Shares Subject to the Option to
transfer to Pharol, the Option may be financially settled through payment by the Oi Subsidiaries
of the amount corresponding to the difference between the market price of the Shares Subject to
the Option and the respective exercise price corresponding to these shares.
While the Option is effective, Pharol may not purchase Oi shares, directly or indirectly, in any
manner other than by exercising the Option. Pharol may not transfer or assign the Option, nor
grant any rights under the Option, including security, without the consent of Oi. If Pharol issues,
directly or indirectly, derivatives that are backed by or referenced to Oi shares, it shall
immediately use the proceeds derived from such a derivative transaction, directly or indirectly, to
acquire the Shares Subject to the Option.
Oi may terminate the Option if (i) the Bylaws of Pharol are amended voluntarily to remove or
amend the provision that limits the voting right to 10% of all votes corresponding to the capital
stock of Pharol; (ii) Pharol directly or indirectly engages in activities that compete with the
activities of Oi or its subsidiaries in the countries in which they operate; (iii) Pharol violates
certain obligations under the Option Contract.
On March 31, 2015, the Option Agreement was amended to provided for (i) the possibility of
Pharol assigning or transferring the Call Option, regardless of previous consent by Oi, provided
that such assignment or transfer covers at least ¼ of the Shares Subject to the Option, and Pharol
can freely use the use the proceeds of such transactions, (ii) the possibility of Pharol, subject to
previous, written consent from Oi, creating or granting any rights arising on the Call Option or,
pledging the guarantees supported by the Call Option, and (iii) the grant of a right of first refusal
to Oi for the acquisition of the Call Option, should Pharol wish to sell, assign, transfer, contribute
the capital of another entity, transmit, or otherwise sell or dispose of the Call Option.
This amendment has been executed with a suspensive condition and would only be effective after
an authorization from the CVM to amend the Option Agreement were granted. However, at a
meeting held on December 16, 2015, the CVM’s board decided to refuse the entire request filed
by the Company for waiver of the requirements of CVM Instructions 10/1980 and 390/2003 to
amend the Option Agreement.
These Instructions determine that the acquisition and sale of shares of a publicly held company
must be conducted in a stock exchange and that the stock options transactions of a publicly held
company must be conducted in the markets where the company’s shares are traded, and interdicts
any private transactions. The waiver of these requirements would allow the enforcement of the
provisions of the amendment to the Call Option Agreement related to (i) the possibility of
privately transferring the Call Option from Pharol to Oi; (ii) granting a right of first refusal to Oi
to acquire the Call Option; and (iii) the possibility of making the payment of the Option
acquisition price in Oi shares, if the right of first refusal if exercised.
As at June 30, 2015, the fair value of the Call Option is estimated at R$3.5 million calculated by
the Company using the Black-Scholes model and theoretical share volatility assumptions, using
the Revenue Approach valuation technique provided for by paragraphs B10 and B11 of CPC
46/IFRS 13 Fair Value Measurement.
78
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
(c)
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
New York Stock Exchange (NYSE) Listing Rule
In September 2015, the Company was notified by the NYSE that Oi was not complying with the
continued listing rule, which requires that the average closing price of the listed securities of a
company cannot go below US$1.00 per share in any consecutive 30-day trading period.
On January 22, 2016, in order to comply with the minimum share price requirement established
by NYSE, Oi disclosed a Notice to the Market announcing the change in Company’s common
shares ratio of the Depositary Receipts Program, Level II, Sponsored (“Common DR”) so that
each Common DR, which was previously one (1) common share, represents five (5) common
shares as from February 1, 2016.
(d)
CEO
On June 10, 2016, Mr. Bayard De Paoli Gontijo delivered his resignation as the Company’s CEO.
On the same date, the Board of Directors elected, to replace Mr. Bayard De Paoli Gontijo, Mr.
Marco Norci Schroeder as Oi’s CEO, who will also act as Chief Financial Administrative Officer,
a position he currently holds.
(e)
Lawsuits in the Netherlands
Syzygy Capital Management, Ltd.; Loomis Sayles Strategic Income Fund; some Italian Bond
Holders (SANDRO BOSCOLO BRAGADIN, STEFANO CRISPO, PAOLO DENICOLI,
IVANO FALCERI, ALEX LO FURNO, DARIO FARINA, ALDO FAZZINI, WALTER
MASONI, SALVATORE LUCIO MARCUCCIO, LUCA MARSILI, ANIELLO MATRONE,
VINCENZO MATRONE, MARIO PARCIANELLO, FRANCESCA RISICATO, ANTONIO
SCALZULLO, GIOVANNI MARCHESELLI, NADIA BENEDETT); and some Bond Holders
(ALLESANDRO CALLEGARI, STEFANO CAPODARCA, BANCO CONSULIA S.P.A.,
VALENTINA BASSO AND PIERO BASSO) have filed each up to the present date a petition for
a declaration of bankruptcy of Oi Brasil Holdings Coöperatief U.A. with the District Court of
Amsterdam which are filed on June 27, 2016, on July 8, 2016, on July 11, 2016 and on July 15,
2016 respectively.
28.
SUBSEQUENT EVENTS
(a)
Retail Bond - PTIF (Issuer)
In the context of the processing of the judicial reorganization, the Oi Companies are required to
file a recovery plan and, as a rule, any payment related to debts originated before the judicial
reorganization processing request (dated June 20, 2016), including those related to the Notes, will
have to be made in under the recovery plan, to be submitted to the creditors’ approval and ratified
by the court. Thus, no payments will be made on the Notes’ maturity date.
The Issuer will promptly report any material development to the holders of the Notes that results
from the judicial reorganization processing.
79
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION
Quarterly Financial Information (ITR)
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY
01131-2 Oi S.A. - UNDER JUDICIAL REORGANIZATION
NOTES TO THE FINANCIAL STATEMENTS
(b)
Corporate Legislation
Quarter Ended 06/30/2016
76.535.764/0001-43
(Amounts in thousands of Brazilian reais, unless otherwise stated)
Action to stay payments of Oi Holanda
On August 9th, due to the risk that the Judicial Restructuring proceedings would not be directly
recognized in the Netherlands, e.g on the basis of any treaty or regulation, Oi Brasil Holdings
Cooperatif U.A., filed a petition for suspension of payments (“verzoekschrift tot aanvragen
surseance van betaling”) with the District Court of Amsterdam and simultaneously submitted the
draft composition plan (“akkoord”).
80
Oi S.A. – under Judicial Reorganization and Subsidiaries
Appendix - Statement of Value Added
For the Periods Ended June 30, 2016 and 2015
(In thousands of Brazilian reais - R$, unless otherwise stated)
Company
06/30/2016
Revenue
Sales of goods and services
Voluntary discounts and returns
Allowance for doubtful accounts
Other income
Consolidated
06/30/2015
06/30/2016
06/30/2015
6,950,845
(3,069,926)
(42,001)
351,266
6,909,691
(2,774,886)
(49,006)
183,345
23,211,118
(5,957,190)
(291,537)
759,529
22,250,023
(4,265,833)
(351,564)
522,194
4,190,184
4,269,144
17,721,920
18,154,820
(323,439)
(189,226)
(430,357)
(150,299)
(1,013,421)
(32,369)
(1,013,122)
(28,027)
(580,075)
(671,688)
(152,113)
(4,440,533)
(426,665)
(956,473)
(644,550)
(223,525)
(4,367,145)
(419,873)
(1,558,455)
(1,621,805)
(6,271,074)
(6,611,566)
Gross value added
2,631,729
2,647,339
11,450,846
11,543,254
Retentions
Depreciation and amortization
Provisions (includes inflation adjustment)
Loss for the year of discontinued operations
Other expenses
(534,221)
(289,580)
(2,709,610)
(688,860)
(137,393)
(458,262)
(246,304)
1,080,061
(133,785)
(313,779)
(2,490,872)
(607,403)
1,080,061
(124,044)
(961,194)
241,710
(3,712,249)
(2,142,258)
Wealth created by the Company
1,670,535
2,889,049
7,738,597
9,400,996
Value added received as transfer
Equity in investees
Financial income
(1,360,942)
3,327,634
(272,958)
740,434
(922)
713,317
514
877,304
1,966,692
467,476
712,395
877,818
Wealth for distribution
3,637,227
3,356,525
8,450,992
10,278,814
Wealth distributed
Personnel
Salaries and wages
Benefits
Severance Pay Fund (FGTS)
Other
(137,942)
(39,095)
(11,785)
(4,118)
(188,430)
(47,033)
(22,178)
(5,096)
(908,443)
(247,555)
(84,132)
(35,906)
(821,487)
(219,250)
(84,555)
(30,885)
(192,940)
(262,737)
(1,276,036)
(1,156,177)
(764,859)
(730,884)
(7,741)
216,862
(788,459)
(15,069)
(2,121,430)
(3,164,152)
(90,672)
(570,814)
(3,281,611)
(77,492)
(1,503,484)
(586,666)
(5,376,254)
(3,929,917)
Inputs purchased from third parties
Interconnection costs
Supplies and power
Cost of sales
Third-party services
Other
Taxes and fees
Federal
State
Municipal
81
Oi S.A. – under Judicial Reorganization and Subsidiaries
Appendix - Statement of Value Added
For the Periods Ended June 30, 2016 and 2015
(In thousands of Brazilian reais - R$, unless otherwise stated)
(continued)
Company
06/30/2016
Lenders and lessors
Interest and other financial charges
Rents, leases and insurance
Shareholders
Non-controlling interests
Retained losses
Wealth distributed
Consolidated
06/30/2015
06/30/2016
06/30/2015
(3,763,509)
(338,511)
(2,089,222)
(199,400)
(1,930,416)
(2,167,949)
(3,259,544)
(1,709,178)
(4,102,020)
(2,288,622)
(4,098,365)
(4,968,722)
2,161,217
(218,500)
138,446
2,161,217
(5,498)
(218,500)
2,161,217
(218,500)
2,299,663
(223,998)
(3,637,227)
(3,356,525)
(8,450,992)
(10,278,814)
82