sbsitr3q15_6k.htm - Generated by SEC Publisher for SEC Filing
 
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 

 
FORM 6-K
 
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For November 30, 2015
(Commission File No. 1-31317)
 

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


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



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

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

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

Yes ______ No ___X___

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

 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 
 

Table of Contents

 

Company Information

 

Capital Breakdown

1

Cash Proceeds

2

Parent Company’s Financial Statements

 

Statement of Financial Position – Assets

3

Statement of Financial Position – Liabilities

4

Statement of Income

6

Statement of Comprehensive Income

8

Statement of Cash Flows

9

Statement of Changes in Equity

 

1/1/2015 to 9/30/2015

11

1/1/2014 to 9/30/2014

12

Statement of Value Added

13

Comments on the Company’s Performance

14

Notes to the Financial Statements

22

Comments on the Company’s Projections

82

Other Information Deemed as Relevant by the Company

83

Reports and Statements

 

Unqualified Report on Special Review

85

 

 

 


 
 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 

 

Company Information / Capital Breakdown

 

Number of Shares

(Units)

Current Quarter

9/30/2015

 

Paid-in Capital

 

 

Common

683,509,869

 

Preferred

0

 

Total

683,509,869

 

Treasury Shares

 

 

Common

0

 

Preferred

0

 

Total

0

 

 

Page 1 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 

 

 

 

Company Information / Cash Proceeds

 

Event

Approval

Proceeds

Date of Payment

Type of Share

Class of Share

Earnings per Share

(Reais / Share)

Board of Directors’ Meeting

3/26/2015

Interest on Shareholders’ Equity

6/29/2015

Common

 

0.36913

 

                                                                                                                                             

                                                                                                                                             

 

Page 2 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 

 

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

 

 

(R$ thousand)

Code

Description

Current Quarter

09/30/2015

Previous Year

12/31/2014

1

Total Assets

32,456,526

30,355,440

1.01

Current Assets

2,612,733

3,215,445

1.01.01

Cash and Cash Equivalents

889,933

1,722,991

1.01.03

Accounts Receivable

1,374,497

1,156,785

1.01.03.01

Trade Accounts Receivable

1,236,982

1,034,820

1.01.03.02

Other Accounts Receivable

137,515

121,965

1.01.03.02.01

Balances with Related Parties

137,515

121,965

1.01.04

Inventories

56,739

66,487

1.01.06

Recoverable Taxes

66,097

148,768

1.01.06.01

Current Recoverable Taxes

66,097

148,768

1.01.08

Other Current Assets

225,467

120,414

1.01.08.03

Other

225,467

120,414

1.01.08.03.01

Restricted Cash

29,331

19,750

1.01.08.03.02

Financial Asset Held for Trading

90,617

0

1.01.08.03.20

Other Accounts Receivable

105,519

100,664

1.02

Noncurrent Assets

29,843,793

27,139,995

1.02.01

Long-Term Assets

1,441,729

780,362

1.02.01.03

Accounts Receivable

164,311

189,458

1.02.01.03.01

Trade Accounts Receivable

164,311

189,458

1.02.01.06

Deferred Taxes

348,913

209,478

1.02.01.06.01

Deferred Income Tax and Social Contribution

348,913

209,478

1.02.01.08

Receivables from Related Parties

678,337

102,018

1.02.01.08.03

Receivables from Controlling Shareholders

678,337

102,018

1.02.01.09

Other Noncurrent Assets

250,168

279,408

1.02.01.09.04

Escrow Deposits

78,041

69,488

1.02.01.09.05

ANA – National Water Agency

88,267

122,634

1.02.01.09.20

Other Accounts Receivable

83,860

87,286

1.02.02

Investments

81,999

75,262

1.02.02.01

Shareholdings

22,759

21,223

1.02.02.01.04

Other Shareholdings

22,759

21,223

1.02.02.02

Investment Properties

59,240

54,039

1.02.03

Property, Plant and Equipment

299,526

304,845

1.02.04

Intangible Assets

28,020,539

25,979,526

1.02.04.01

Intangible Assets

28,020,539

25,979,526

1.02.04.01.01

Concession Contracts

8,352,777

8,650,531

1.02.04.01.02

Program Contracts

7,280,311

6,082,062

1.02.04.01.03

Service Contracts

12,080,775

10,986,386

1.02.04.01.04

Software License

306,676

260,547

 

Page 3 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 

 

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

 

 

(R$ thousands)

Code

Description

Current Quarter

09/30/2015

Previous Year

12/31/2014

2

Total Liabilities

32,456,526

30.355.440

2.01

Current Liabilities

2,990,989

3.480.576

2.01.01

Labor and Pension Plan Liabilities

397,105

387.971

2.01.01.01

Pension Plan Liabilities

24,430

38.427

2.01.01.02

Labor Liabilities

372,675

349.544

2.01.02

Trade Accounts Payable

225,804

323.513

2.01.02.01

Domestic Suppliers

225,804

323.513

2.01.03

Tax Liabilities

75,724

74.138

2.01.03.01

Federal Tax Liabilities

67,943

64.209

2.01.03.01.02

PIS-PASEP and COFINS (taxes on revenue) Payable

23,430

0

2.01.03.01.03

INSS (social security contribution) Payable

33,425

33.324

2.01.03.01.20

Other Federal Taxes

11,088

30.885

2.01.03.02

State Taxes Liabilities

0

48

2.01.03.03

Municipal Taxes Liabilities

7,781

9.881

2.01.04

Loans and Financing

973,726

1.207.126

2.01.04.01

Loans and Financing

606,154

484.064

2.01.04.01.01

In Domestic Currency

224,093

245.384

2.01.04.01.02

In Foreign Currency

382,061

238.680

2.01.04.02

Debentures

357,615

714.065

2.01.04.03

Financing through finance lease

9,957

8.997

2.01.05

Other Liabilities

701,445

862.736

2.01.05.01

Payables to Related Parties

1,544

1.569

2.01.05.01.03

Payables to Controlling Shareholders

1,544

1.569

2.01.05.02

Other

699,901

861.167

2.01.05.02.01

Dividends and Interest on Equity Payable

81

214.523

2.01.05.02.04

Services Payable

328,281

318.973

2.01.05.02.05

Refundable Amounts

8,443

16.929

2.01.05.02.06

Program Contract Commitments

256,944

189.551

2.01.05.02.07

Private Public Partnership – PPP

39,456

38.047

2.01.05.02.09

Indemnities

8,831

10.516

2.01.05.02.20

Other Payables

57,865

72.628

2.01.06

Provisions

617,185

625.092

2.01.06.01

Tax, Social Security, Labor and Civil Provisions

128,592

120.003

2.01.06.01.01

Tax Provisions

10,714

8.681

2.01.06.01.02

Social Security and Labor Provisions

49,891

48.340

2.01.06.01.04

Civil Provisions

67,987

62.982

2.01.06.02

Other Provisions

488,593

505.089

2.01.06.02.03

Provisions for Environmental Liabilities and Decommissioning

12,929

62.250

2.01.06.02.04

Provisions for Customers

408,965

382.937

2.01.06.02.05

Provisions for Suppliers

66,699

59.902

2.02

Non-Current Liabilities

16,107,787

13.570.461

2.02.01

Loans and Financing

11,659,836

9.578.641

2.02.01.01

Loans and Financing

7,926,240

5.718.135

 

Page 4 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 

 

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

 

 

(R$ thousands)

Code

Description

Current Quarter

09/30/2014

Previous Year

12/31/2013

2.02.01.01.01

In Domestic Currency

1,591,500

1,610,523

2.02.01.01.02

In Foreign Currency

6,334,740

4,107,612

2.02.01.02

Debentures

3,221,234

3,386,913

2.02.01.03

Financing through finance lease

512,362

473,593

2.02.02

Other Payables

4,058,440

3,396,565

2.02.02.02

Other

4,058,440

3,396,565

2.02.02.02.04

Pension Plan Liabilities

2,849,389

2,729,598

2.02.02.02.05

Program Contract Commitments

98,506

18,208

2.02.02.02.06

Private Public Partnership – PPP

832,203

330,236

2.02.02.02.07

Indemnities

11,664

8,925

2.02.02.02.08

Labor Liabilities

15,980

23,498

2.02.02.02.09

Deferred COFINS and PASEP

132,779

129,351

2.02.02.02.20

Other Payables

117,919

156,749

2.02.04

Provisions

389,511

595,255

2.02.04.01

Tax, Pension Plan, Labor and Civil Provisions

263,531

285,197

2.02.04.01.01

Tax Provisions

49,361

46,873

2.02.04.01.02

Pension Plan and Labor Provisions

169,030

184,893

2.02.04.01.04

Civil Provisions

45,140

53,431

2.02.04.02

Other Provisions

125,980

310,058

2.02.04.02.03

Provisions for Environmental Liabilities and Decommissioning

70,284

163,347

2.02.04.02.04

Provisions for Customers

54,329

141,237

2.02.04.02.05

Provisions for Suppliers

1,367

5,474

2.03

Equity

13,357,750

13,304,403

2.03.01

Paid-Up Capital

10,000,000

10,000,000

2.03.04

Profit Reserve

3,672,149

3,694,151

2.03.04.01

Legal Reserve

758,141

758,141

2.03.04.08

Additional Dividend Proposed

0

22,002

2.03.04.10

Reserve for Investments

2,914,008

2,914,008

2.03.05

Retained Earnings/Accumulated Losses

75,349

0

2.03.06

Equity Valuation Adjustment

-389,748

-389,748

 

 

 

 

Page 5 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 
 

 

Parent Company’s Financial Statements/Statement of Income

 

 

(R$ thousands)

Code

Description

Current Quarter

7/1/2015 to 9/30/2015

YTD Current Year

1/1/2015 to 9/30/2015

Same Quarter

Previous Year

7/1/2014 to 9/30/2014

YTD Previous Year

1/1/2014 to 9/30/2014

3.01

Revenue from Sales and/or Services

3,196,992

8,488,485

2,823,532

8,369,615

3.02

Cost of Sales and/or Services

-2,261,459

-6,125,545

-1,985,938

-5,494,788

3.02.01

Cost of Sales and/or Services

-1,268,475

-3,670,962

-1,203,695

-3,527,856

3.02.02

Construction Cost

-992,984

-2,454,583

-782,243

-1,966,932

3.03

Gross Profit

935,533

2,362,940

837,594

2,874,827

3.04

Operating Income/Expenses

-249,406

-56,349

-344,615

-1,225,001

3.04.01

Selling Expenses

-109,709

-441,161

-126,564

-498,393

3.04.02

General and Administrative Expenses

-192,637

287,039

-210,716

-681,094

3.04.04

Other Operating Income

63,732

128,201

21,014

59,159

3.04.04.01

Other Operating Income

69,923

143,449

24,291

67,196

3.04.04.02

COFINS and PASEP

-6,191

-15,248

-3,277

-8,037

3.04.05

Other Operating Expenses

-9,417

-30,052

-27,182

-103,187

3.04.05.01

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

-7,313

-6,551

-24,917

-77,009

3.04.05.02

Provision for Tax Incentive Losses

500

500

0

0

3.04.05.03

Tax Incentives

0

-7,770

-2,096

-10,663

3.04.05.04

Surplus Cost of Traded Electricity

-2,847

-14,465

0

0

3.04.05.06

Provision for losses - Diadema and Saned

0

0

0

-14,967

3.04.05.20

Other

243

-1,766

-169

-548

3.04.06

Equity in the Earnings (Losses) of Subsidiaries

-1,375

-376

-1,167

-1,486

3.05

Income Before Financial Result and Taxes

686,127

2,306,591

492,979

1,649,826

3.06

Financial Result

-1,539,410

-2,369,778

-337,772

-331,830

3.06.01

Finance Income

124,544

354,322

109,724

290,839

3.06.01.01

Finance Income

130,438

359,609

109,902

291,629

3.06.01.02

Foreign Exchange Gains

10

617

-178

-790

3.06.01.03

COFINS and PASEP

-5,904

-5,904

0

0

3.06.02

Finance Expenses

-1,663,954

-2,724,100

-447,496

-622,669

3.06.02.01

Finance Expenses

-215,016

-599,550

-134,535

-510,942

3.06.02.02

Foreign Exchange Losses

-1,448,938

-2,124,550

-312,961

-111,727

3.07

Earnings Before Income Tax

-853,283

-63,187

155,207

1,317,996

3.08

Income Tax and Social Contribution

273,139

138,536

-63,706

-446,487

3.08.01

Current

-674

-899

-41,608

-453,799

 

Page 6 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 
Parent Company’s Financial Statements/Statement of Income

 

 

(R$ thousands)

Code

Description

Current Quarter

7/1/2014 to 9/30/2014

YTD Current Year

1/1/2014 to 9/30/2014

Same Quarter Previous Year

7/1/2013 to 9/30/2013

YTD Previous Year

1/1/2013 to 9/30/2013

3.08.02

Deferred

273,813

139,435

-22,098

7,312

3.09

Net Result from Continued Operations

-580,144

75,349

91,501

871,509

3.11

Profit/Loss for the Period

-580,144

75,349

91,501

871,509

3.99

Earnings per Share - (Reais / Share)

 

 

 

 

3.99.01

Basic Earnings per Share

 

 

 

 

3.99.01.01

Common Share

-0.84877

0.11024

0.13387

1.27505

3.99.02

Diluted Earnings per Share

 

 

 

 

3.99.02.01

Common Share

-0.84877

0.11024

0.13387

1.27505

 

 

 

 

Page 7 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 
 

Parent Company’s Financial Statements / Statement of Comprehensive Income

 

 

(R$ thousands)

Code

Description

Current Quarter

7/1/2015 to 9/30/2015

YTD Current Year

1/1/2015 to 9/30/2015

Same Quarter Previous Year

7/1/2014 to 9/30/2014

YTD Previous Year

1/1/2014 to 9/30/2014

4.01

Net Income for the Period

-580,144

75,349

91,501

871,509

4.03

Comprehensive Income for the Period

-580,144

75,349

91,501

871,509

 

 

 

Page 8 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 
 

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

 

 

(R$ thousands)

Code

Description

YTD Current Year

1/1/2015 to 9/30/2015

YTD Previous Year

1/1/2014 to 9/30/2014

6.01

Net Cash from Operating Activities

1,853,010

2,006,936

6.01.01

Cash from Operations

2,521,581

2,865,933

6.01.01.01

Profit (loss) Before Income Tax and Social Contribution

-63,187

1,317,996

6.01.01.02

Provision and Inflation Adjustments on Provisions

-116,292

151,776

6.01.01.03

GESP Agreement

-696,283

0

6.01.01.04

Financial Charges from Customers

-199,994

-142,996

6.01.01.05

Residual Value of Written-off Property, Plant and Equipment and Intangible Assets

18,214

28,887

6.01.01.06

Depreciation and Amortization

808,706

726,051

6.01.01.07

Interest on Loans and Financing Payable

357,306

293,000

6.01.01.08

Monetary and Foreign Exchange Change on Loans and Financing

2,247,653

183,808

6.01.01.09

Interest and Monetary Change on Liabilities

17,469

13,942

6.01.01.10

Interest and Monetary Change in Assets

-36,514

-24,564

6.01.01.11

Allowance for Doubtful Accounts

9,389

54,688

6.01.01.12

Provision for Consent Decree (TAC)

-17,916

40,977

6.01.01.13

Equity in the Earnings of Subsidiaries

376

1,486

6.01.01.14

Provision for Sabesprev Mais

5,908

7,105

6.01.01.15

Other Provisions/Reversals

-13,731

57,086

6.01.01.16

Transfer of Funds to São Paulo Municipal Government

8,012

-17,504

6.01.01.17

Gross Margin over Intangible Assets Resulting from Concession Contracts

-53,881

-42,775

6.01.01.18

Pension Plan Liabilities

246,346

216,970

6.01.02

Changes in Assets and Liabilities

-129,262

-20,975

6.01.02.01

Trade Accounts Receivable

17,731

277,581

6.01.02.02

Balances and Related Party Transactions

15,364

40,940

6.01.02.03

Inventories

9,366

5,096

6.01.02.04

Recoverable Taxes

82,671

0

6.01.02.05

Other Accounts Receivable

-26

-30,621

6.01.02.06

Escrow Deposits

25,696

598

6.01.02.08

Contractors and Suppliers

-31,968

1,694

6.01.02.09

Payroll, Provisions and Social Contribution

27,050

49,815

6.01.02.10

Pension Plan Liabilities

-126,555

-119,580

6.01.02.11

Taxes and Contributions Payable

15,776

-100,753

6.01.02.12

Services Received

1,296

22,070

6.01.02.13

Other Liabilities

-71,732

-18,437

6.01.02.14

Provisions

-97,359

-150,331

6.01.02.15

Deferred COFINS/PASEP

3,428

953

6.01.03

Other

-539,309

-838,022

 

Page 9 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 

 

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

 

 

(R$ thousands)

Code

Description

YTD Current Year

1/1/2015 to 9/30/2015

YTD Previous Year

1/1/2014 to 9/30/2014

6.01.03.01

Interest Paid

-521,566

-415,829

6.01.03.02

Income Tax and Social Contribution Paid

-17,743

-422,193

6.02

Net Cash from Investing Activities

-1,886,867

-1,929,606

6.02.01

Acquisition of Intangible Assets

-1,856,910

-1,834,304

6.02.02

Acquisition of Property, Plant and Equipment

-21,902

-85,031

6.02.03

Increase in Investments

0

-24

6.02.04

Restricted Cash

-9,581

-10,247

6.02.05

Dividends Received

1,526

0

6.03

Net Cash from Financing Activities

-799,201

359

6.03.01

Funding – Loans

684,586

940,215

6.03.02

Amortization of Loans

-1,219,588

-418,963

6.03.03

Payment of Interest on Shareholders’ Equity

-202,108

-467,470

6.03.04

Public-Private Partnership (PPP)

-17,169

-15,030

6.03.05

Program Contract Commitments

-44,922

-38,393

6.05

Increase (Decrease) in Cash and Cash Equivalents

-833,058

77,689

6.05.01

Opening Cash and Cash Equivalents

1,722,991

1,782,001

6.05.02

Closing Cash and Cash Equivalents

889,933

1,859,690

 

 

Page 10 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 
 

Parent Company’s Financial Statements/Statement of Changes in Equity – 1/1/2015 to 9/30/2015

 

 

(R$ thousands)

Code

Description

Paid-up Capital

Capital Reserves, Options Granted and Treasury Shares

Profit Reserves

Retained Earnings/ Accumulated Losses

Other Comprehensive Income

Total Equity

5.01

Opening Balances

10,000,000

0

3,694,151

0

-389,748

13,304,403

5.03

Restated Opening Balances

10,000,000

0

3,694,151

0

-389,748

13,304,403

5.04

Capital Transactions with Partners

0

0

-22,002

0

0

-22,002

5.04.08

Additional Dividends Approved

0

0

-22,002

0

0

-22,002

5.05

Total Comprehensive Income

0

0

0

75,349

0

75,349

5.05.01

Net Income for the Period

0

0

0

75,349

0

75,349

5.07

Closing Balances

10,000,000

0

3,672,149

75,349

-389,748

13,357,750

 

Page 11 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 
 

Parent Company’s Financial Statements/Statement of Changes in Equity– 1/1/2014 to 9/30/2014

 

(R$ thousands)

Code

Description

 

Paid-up Capital

Capital Reserves, Options Granted and Treasury Shares

Profit Reserves

Retained Earnings/ Accumulated Losses

Other Comprehensive Income

Total Equity

5.01

Opening Balances

6,203,688

124,255

6,736,389

0

-133,531

12,930,801

5.03

Restated Opening Balances

6,203,688

124,255

6,736,389

0

-133,531

12,930,801

5.04

Capital Transactions with Partners

0

0

-42,862

0

0

-42,862

5.04.08

Additional Dividends Approved

0

0

-42,862

0

0

-42,862

5.05

Total Comprehensive Income

0

0

0

871,509

0

871,509

5.05.01

Net Income for the Period

0

0

0

871,509

0

871,509

5.06

Internal Changes in the Shareholders’ Equity

3,796,312

-124,255

-3,672,057

0

0

0

5.06.04

Capitalization of Reserves

3,796,312

-124,255

-3,672,057

0

0

0

5.07

Closing Balances

10,000,000

0

3,021,470

871,509

-133,531

13,759,448

 

 

 

Page 12 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 
 

Parent Company’s Financial Statements/Statement of Value Added

 

 

(R$ thousands)

Code

Description

YTD Current Year

1/1/2015 to 9/30/2015

YTD Previous Year

1/1/2014 to 9/30/2014

7.01

Revenue

9,021,425

8,856,341

7.01.01

Operating Revenue

6,378,901

6,834,126

7.01.02

Other Revenue

143,449

67,196

7.01.03

Revenue from the Construction

2,508,464

2,009,707

7.01.04

Allowance for/Reversal of Doubtful Accounts

-9,389

-54,688

7.02

Inputs Acquired from Third Parties

-4,025,989

-3,963,237

7.02.01

Costs of Sales and Services

-3,720,310

-3,269,421

7.02.02

Materials, Energy, Outsourced Services and Other

-275,627

-590,629

7.02.04

Other

-30,052

-103,187

7.03

Gross Value Added

4,995,436

4,893,104

7.04

Retentions

-808,706

-726,051

7.04.01

Depreciation, Amortization and Depletion

-808,706

-726,051

7.05

Net Value Added Produced

4,186,730

4,167,053

7.06

Value Added Received through Transfer

1,056,133

289,353

7.06.01

Equity in the Earnings (Losses) of Subsidiaries

-376

-1,486

7.06.02

Finance Income

360,226

290,839

7.06.03

Other

696,283

0

7.06.03.01

GESP Reimbursement – Benefits Paid

696,283

0

7.07

Total Value Added to Distribute

5,242,863

4,456,406

7.08

Value Added Distribution

5,242,863

4,456,406

7.08.01

Personnel

1,495,699

1,451,547

7.08.01.01

Direct Compensation

984,944

958,390

7.08.01.02

Benefits

415,006

383,074

7.08.01.03

Government Severance Indemnity Fund for Employees (FGTS)

95,749

110,083

7.08.02

Taxes and Contributions

639,712

1,275,831

7.08.02.01

Federal

563,731

1,204,239

7.08.02.02

State

53,114

50,402

7.08.02.03

Municipal

22,867

21,190

7.08.03

Value Distributed to Providers of Capital

3,032,103

857,519

7.08.03.01

Interest

2,971,176

799,392

7.08.03.02

Rental

60,927

58,127

7.08.04

Value Distributed to Shareholders

75,349

871,509

7.08.04.03

Retained Earnings/Accumulated Loss for the Period

75,349

871,509

 

 

                                                                                                                          

 

Page 13 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 

 

 

1.    Financial highlights

 

               

R$ million

 

 

3Q15

3Q14

Chg. (R$)

%

9M15

9M14

Chg. (R$)

%

 

Gross operating revenue

2,327.2

2,165.6

161.6

7.5

6,378.9

6,834.1

(455.2)

(6.7)

 

Construction revenue

1,015.2

799.7

215.5

26.9

2,508.5

2,009.7

498.8

24.8

 

COFINS and PASEP taxes

(145.4)

(141.8)

(3.6)

2.5

(398.9)

(474.2)

75.3

(15.9)

(=)

Net operating revenue

3,197.0

2,823.5

373.5

13.2

8,488.5

8,369.6

118.9

1.4

 

Costs and expenses

(1,570.8)

(1,541.0)

(29.8)

1.9

(3,825.1)

(4,707.3)

882.2

(18.7)

 

Construction costs

(993.0)

(782.1)

(210.9)

27.0

(2,454.6)

(1,966.9)

(487.7)

24.8

 

Equity result

(1.3)

(1.2)

(0.1)

-

(0.4)

(1.5)

1.1

(73.3)

 

Other operating revenue (expenses), net

54.3

(6.2)

60.5

(975.8)

98.1

(44.1)

142.2

(322.4)

(=)

Earnings before financial result, income tax and social contribution

686.2

493.0

193.2

39.2

2,306.5

1,649.8

656.7

39.8

 

Financial result

(1,539.4)

(337.8)

(1,201.6)

355.7

(2,369.7)

(331.8)

(2,037.9)

614.2

(=)

Earnings before income tax and social contribution

(853.2)

155.2

(1,008.4)

(649.7)

(63.2)

1,318.0

(1,381.2)

(104.8)

 

Income tax and social contribution

273.1

(63.7)

336.8

(528.7)

138.5

(446.5)

585.0

(131.0)

(=)

Net income (loss)

(580.1)

91.5

(671.6)

(734.0)

75.3

871.5

(796.2)

(91.4)

 

Earnings (loss) per share* (R$)

(0.85)

0.13

 

 

0.11

1.28

 

 

 

* Total shares = 683,509,869

               

 

 

Adjusted EBITDA Reconciliation (Non-accounting measures)

 

               

R$ million

 

 

3Q15

3Q14

Chg. (R$)

%

9M15

9M14

Chg. (R$)

%

 

Net income (loss)

(580.1)

91.5

(671.6)

(734.0)

75.3

871.5

(796.2)

(91.4)

 

Income tax and social contribution

(273.1)

63.7

(336.8)

(528.7)

(138.5)

446.5

(585.0)

(131.0)

 

Financial result

1,539.4

337.8

1,201.6

355.7

2,369.7

331.8

2,037.9

614.2

 

Other operating revenues (expenses), net

(54.3)

6.2

(60.5)

(975.8)

(98.1)

44.1

(142.2)

(322.4)

(=)

Adjusted EBIT*

631.9

499.2

132.7

26.6

2,208.4

1,693.9

514.5

30.4

 

Depreciation and amortization

271.3

243.2

28.1

11.6

808.7

726.0

82.7

11.4

(=)

Adjusted EBITDA **

903.2

742.4

160.8

21.7

3,017.1

2,419.9

597.2

24.7

 

(%) Adjusted EBITDA margin

28.3

26.3

 

 

35.5

28.9

 

 

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

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

 

In 3Q15, net operating revenue, including construction revenue, reached R$ 3.2 billion; a 13.2% increase compared to 3Q14.

Costs and expenses, including construction costs, totaled R$ 2.6 billion, up by 10.4% compared to R$ 2.3 billion recorded in 3Q14.

Adjusted EBIT, in the amount of R$ 631.9 million, grew 26.6% from R$ 499.2 million recorded in the same quarter of the previous year.

Adjusted EBITDA, in the amount of R$ 903.2 million, increased 21.7% from R$ 742.4 million recorded in 3Q14 (R$ 3,017.1 million in the last 9 months and R$ 3,515.9 million in the last 12 months).

The adjusted EBITDA margin was 28.3% in 3Q15, versus 26.3% in 3Q14 (35.5% in the last 9 months and 31.0% in the last 12 months). Excluding construction revenues and construction costs, the adjusted EBITDA margin was 40.4% in 3Q15 (35.8% in 3Q14, 49.6% in the last 9 months and 43.5% in the last 12 months).

In 3Q15 the Company recorded a net loss of R$ 580.1 million, in comparison to a net income of R$ 91.5 million recorded in 3Q14.

 

 

 

 

 

Page 14 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 

 

 

2. Gross operating revenue

Gross operating revenue from water and sewage, not including construction revenue, totaled R$ 2.3 billion, an increase of R$ 161.6 million or 7.5%, when compared to the R$ 2.2 billion recorded in 3Q14.

The main factors that led to this variation were:

·         6.5% repositioning tariff index since December 2014;

·         15.2% tariff increase (7.8% ordinary tariff adjustment and 6.9% extraordinary tariff revision) since June 2015; and

·         Application of contingency tariff, with a R$ 144.8 million impact in 3Q15.

 

The increase in gross operating revenue was mitigated by:

 

·        The bonus granted under the Water Consumption Reduction Incentive Program, with a R$ 248.8 million impact in 3Q15, versus the R$ 129.4 million granted in 3Q14, resulting in a decrease of 5.5% in gross operating revenue; and

·         Decrease of 5.8% in the Company’s total billed volume (6.8% in water and 4.4% in sewage).

 

 

3. Construction revenue

Construction revenue increased R$ 215.5 million or 26.9%, when compared to 3Q14. The variation was mainly due to higher investments in the concessions.

 

 

Page 15 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 

 

 


4. Billed volume

 

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

 

WATER AND SEWAGE BILLED VOLUME (1) PER CUSTOMER CATEGORY - million m3

 

 

Water

 

 

Sewage

 

Water + Sewage

 

Category

3Q15

3Q14

%

3Q15

3Q14

%

3Q15

3Q14

%

Residential

363.1

379.6

(4.3)

306.1

318.2

(3.8)

669.2

697.8

(4.1)

Commercial

39.6

42.4

(6.6)

37.8

40.1

(5.7)

77.4

82.5

(6.2)

Industrial

8.0

9.6

(16.7)

9.6

10.7

(10.3)

17.6

20.3

(13.3)

Public

9.6

12.9

(25.6)

8.4

9.9

(15.2)

18.0

22.8

(21.1)

Total retail

420.3

444.5

(5.4)

361.9

378.9

(4.5)

782.2

823.4

(5.0)

Wholesale (3)

52.8

63.1

(16.3)

5.8

5.8

-

58.6

68.9

(14.9)

Total

473.1

507.6

(6.8)

367.7

384.7

(4.4)

840.8

892.3

(5.8)

 

9M15

9M14

%

9M15

9M14

%

9M15

9M14

%

Residential

1,090.1

1,172.3

(7.0)

916.0

977.8

(6.3)

2,006.1

2,150.1

(6.7)

Commercial

119.5

130.1

(8.1)

113.4

122.4

(7.4)

232.9

252.5

(7.8)

Industrial

24.5

29.7

(17.5)

29.2

32.7

(10.7)

53.7

62.4

(13.9)

Public

30.8

39.8

(22.6)

24.8

30.8

(19.5)

55.6

70.6

(21.2)

Total retail

1,264.9

1,371.9

(7.8)

1,083.4

1,163.7

(6.9)

2,348.3

2,535.6

(7.4)

Wholesale (3)

164.9

208.0

(20.7)

18.3

18.9

(3.2)

183.2

226.9

(19.3)

Total

1,429.8

1,579.9

(9.5)

1,101.7

1,182.6

(6.8)

2,531.5

2,762.5

(8.4)

                   

WATER AND SEWAGE BILLED VOLUME (1) PER REGION - million m3

 

Water

 

Sewage

 

Water + Sewage

 

Region

3Q15

3Q14

%

3Q15

3Q14

%

3Q15

3Q14

%

Metropolitan

271.6

289.4

(6.2)

235.7

249.1

(5.4)

507.3

538.5

(5.8)

Regional (2)

148.7

155.1

(4.1)

126.2

129.8

(2.8)

274.9

284.9

(3.5)

Total retail

420.3

444.5

(5.4)

361.9

378.9

(4.5)

782.2

823.4

(5.0)

Wholesale (3)

52.8

63.1

(16.3)

5.8

5.8

-

58.6

68.9

(14.9)

Total

473.1

507.6

(6.8)

367.7

384.7

(4.4)

840.8

892.3

(5.8)

 

9M15

9M14

%

9M15

9M14

%

9M15

9M14

%

Metropolitan

806.6

891.2

(9.5)

698.2

763.3

(8.5)

1,504.8

1,654.5

(9.0)

Regional (2)

458.3

480.7

(4.7)

385.2

400.4

(3.8)

843.5

881.1

(4.3)

Total retail

1,264.9

1,371.9

(7.8)

1,083.4

1,163.7

(6.9)

2,348.3

2,535.6

(7.4)

Wholesale (3)

164.9

208.0

(20.7)

18.3

18.9

(3.2)

183.2

226.9

(19.3)

Total

1,429.8

1,579.9

(9.5)

1,101.7

1,182.6

(6.8)

2,531.5

2,762.5

(8.4)


               (1) Unaudited
               (2) Including coastal and interior region
               (3) Reused water and non-domestic sewage are included in wholesale

 

Page 16 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 

 

 

5. Costs, administrative, selling and construction expenses

In 3Q15, costs, administrative, selling and construction expenses, grew 10.4% (R$ 240.7 million). Excluding construction costs, total costs and expenses grew by 1.9%. As a percentage of net revenue, cost and expenses were 82.3% in 3Q14 and 80.2% in 3Q15.

 

             

R$ million

 

3Q15

3Q14

Chg. (R$)

%

9M15

9M14

Chg. (R$)

%

Payroll and benefits

552.0

535.9

16.1

3.0

1,615.3

1,584.0

31.3

2.0

Supplies

42.0

54.7

(12.7)

(23.2)

133.7

148.8

(15.1)

(10.1)

Treatment supplies

62.9

65.6

(2.7)

(4.1)

198.8

199.9

(1.1)

(0.6)

Services

296.6

301.1

(4.5)

(1.5)

862.5

967.4

(104.9)

(10.8)

Electric power

220.0

156.3

63.7

40.8

587.4

440.8

146.6

33.3

General expenses

144.5

187.6

(43.1)

(23.0)

247.7

530.3

(282.6)

(53.3)

Tax expenses

19.6

18.2

1.4

7.7

57.9

55.4

2.5

4.5

São Paulo state government reimbursement

-

-

-

-

(696.3)

-

(696.3)

-

Sub-total

1,337.6

1,319.4

18.2

1.4

3,007.0

3,926.6

(919.6)

(23.4)

Depreciation and amortization

271.3

243.2

28.1

11.6

808.7

726.0

82.7

11.4

Credit write-offs

(38.1)

(21.6)

(16.5)

76.4

9.4

54.7

(45.3)

(82.8)

Sub-total

233.2

221.6

11.6

5.2

818.1

780.7

37.4

4.8

Costs, administrative and selling expenses

1,570.8

1,541.0

29.8

1.9

3,825.1

4,707.3

(882.2)

(18.7)

Construction costs

993.0

782.1

210.9

27.0

2,454.6

1,966.9

487.7

24.8

Costs, adm., selling and construction expenses

2,563.8

2,323.1

240.7

10.4

6,279.7

6,674.2

(394.5)

(5.9)

% of net revenue

80.2

82.3

 

 

74.0

79.7

 

 

 

5.1. Payroll and benefits

 

In 3Q15 payroll and benefits increased R$ 16.1 million or 3.0%, due to the following:

 

·         R$ 20.5 million, mainly due to the average wage increase of 9.7% in May 2015 and by the application of 1% related to the career and wage plan, since July 2015;

·         R$ 10.3 million in the provision for the pension plan, arising from changes in actuarial assumptions; and

·         R$ 8.3 million severance payments, due to dismissal in 3Q15.

 

Despite the above factors, there was a decrease of R$ 24.9 million, due to the smaller number of employees entitled to retirement (TAC).

 

 5.2. Supplies

 

In 3Q15, expenses with supplies decreased R$ 12.7 million or 23.2%, from R$ 54.7 million to R$ 42.0 million, mostly due to lower use of materials in preventive and corrective maintenance in water and sewage systems, expansion of computerized systems and conservation of properties and installations, in the amount of R$ 8.7 million.

 

 

5.3. Services

 

Services expenses, in the amount of R$ 296.6 million, dropped R$ 4.5 million or 1.5%, in comparison to R$ 301.1 million in 3Q14. The main factors that led to this decrease were lower expenses with the Program for the Rational Use of Water (PURA), in the amount of R$ 2.4 million and with surveillance services, in the amount of R$ 2.3 million.

 

 

5.4. Electric power

 

Electric power expenses totaled R$ 220.0 million, an increase of R$ 63.7 million or 40.8% in comparison to the R$ 156.3 million in 3Q14, chiefly due to the following:

·         Average increase of 76.4% in the regulated market tariffs, with a 8.3% decrease in consumption; and

 

Page 17 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 

 

 

·         Average increase of 196.4% in the grid market tariffs (TUSD), with a 4.0% decrease in consumption.

The increases were partially offset by the 11.1% drop in tariffs and the 2.6% drop in the free market consumption.

 

In 3Q15 the regulated market accounted for 67.1% of the total electric power consumed by the Company, the free market accounted for 17.4% and the grid market (TUSD) accounted for 15.5% of total consumption.

 

5.5. General expenses

 

General expenses dropped R$ 43.1 million or 23.0%, totaling R$ 144.5 million, versus the R$ 187.6 million recorded in 3Q14 mainly due to:

·         Reversal of the provision, totaling R$ 17.9 million, related to the recovery of amounts with the Government of the State of São Paulo – GESP due to the disposal of employees; and

·         R$ 17.7 million decrease in the provision for lawsuits.

 

5.6. Depreciation and amortization

 

R$ 28.1 million increase or 11.6%, reaching R$ 271.3 million in comparison to the R$ 243.2 million recorded in 3Q14, largely due to the beginning of operations of intangible assets, in the amount of R$ 2.5 billion.

 


5.7. Credit write-offs

 

Credit write-offs decreased R$ 16.5 million, especially due to the reversal of the provision for losses with the municipality of Santos, in the amount of R$ 70.5 million, as a result of the settlement of an agreement.

 

The decrease was offset by the additional provisions for losses in the amount of R$ 54.0 million, mostly with public entities and private clients.

 

6. Other operating revenues and expenses, net

 

Other net operational revenues and expenses reported an upturn of R$ 60.5 million, mainly due to the following:

 

·         An increase of R$ 42.7 million in other operating revenues, largely due to the proceeds of R$ 22.1 million related to the Depollution Program of Hydrographic Basins and the sale of real estate in 3Q15, totaling R$ 16.6 million; and

·         A decrease of R$ 17.8 million on other operating expenses, as a result of the decrease in the write-off of obsolete goods during 3Q15, in the amount of R$ 14.6 million.

 

7. Financial result

     

R$ million

 

3Q15

3Q14

Chg.

%

Financial expenses, net of revenues

(105.6)

(36.7)

(68.9)

187.7

Net monetary and exchange variation

(1,433.8)

(301.1)

(1,132.7)

376.2

Financial result

(1,539.4)

(337.8)

(1,201.6)

355.7

 

 

Page 18 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 

 

 

7.1. Financial revenues and expenses 

 

     

R$ million

 

3Q15

3Q14

Chg.

%

Financial expenses

 

 

 

 

Interest and charges on international loans and financing

(39.2)

(27.1)

(12.1)

44.6

Interest and charges on domestic loans and financing

(80.9)

(46.6)

(34.3)

73.6

Other financial expenses

(50.4)

(43.9)

(6.5)

14.8

Total financial expenses

(170.5)

(117.6)

(52.9)

45.0

Financial revenues

64.9

80.9

(16.0)

(19.8)

Financial expenses net of revenues

(105.6)

(36.7)

(68.9)

187.7

 

7.1.1. Financial expenses

 

Financial expenses grew R$ 52.9 million. The main reasons were:

 

·         R$ 34.3 million in interest and charges on domestic loans and financing, especially due to the higher appreciation of the CDI in 3Q15, in comparison to 3Q14 (14.13% and 10.81%, respectively); and

·         R$ 12.1 million in interest and charges on international loans and financing, due to the higher appreciation of US dollar and the Yen versus the Brazilian Real in 3Q15 (28.1% and 30.5%, respectively), when compared to 3Q14 (11.3% and 2.8%, respectively).

 

7.1.2. Financial revenues

 

Financial revenues decreased R$ 16.0 million, largely due to lower financial investments held in the period.

 

7.2. Monetary and exchange rate variation on assets and liabilities

 

       

R$ million

 

3Q15

3Q14

Chg.

%

Monetary variation on loans and financing

(25.9)

(10.2)

(15.7)

153.9

Currency exchange variation on loans and financing

(1,448.9)

(312.9)

(1,136.0)

363.1

Other monetary variations

(18.6)

(6.8)

(11.8)

173.5

Monetary/exchange rate variation on liabilities

(1,493.4)

(329.9)

(1,163.5)

352.7

Monetary/exchange rate variation on assets

59.6

28.8

30.8

106.9

Monetary/exchange rate variation, net

(1,433.8)

(301.1)

(1,132.7)

376.2

 

 

7.2.1. Monetary/currency exchange variation on liabilities

 

The effect on the monetary/currency exchange variation on liabilities in 3Q15 was R$ 1,163.5 million, higher than in 3Q14, especially due to:

 

·         Negative variation of R$ 1,136.0 million in expenses with exchange rate variation on loans and financing, due to a higher appreciation of the US dollar and the Yen versus the Brazilian Real in 3Q15 (28.1% and 30.5%, respectively), when compared to 3Q14 (11.3% and 2.8%, respectively); and

·         An upturn of R$ 15.7 million in expenses with monetary variation on loans and financing, due to the increase in the IPCA (Amplified Consumer Price Index) in 3Q15 compared to 3Q14 (1.4% and 0.8%, respectively).

 

7.2.2. Monetary/Exchange rate variation on assets

 

An increase of R$ 30.8 million, especially due to the monetary update on the agreement with the municipality of Santos, in 3Q15.

 

 

Page 19 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 

 

 

8. Income tax and social contribution

Recorded a R$ 336.8 million upturn, due to the decrease in taxable income in 3Q15, versus 3Q14.

 

 

9. Indicators



 

9.1. Operating

 

As a result of the water crisis, there was a substantial reduction in the water production volume, down by 11.1% in the quarter and 15.9% in the nine month period.

 

There was also a substantial decline in the index that measures water losses per connection per day (IPDT) which came to 261 liters/connection x day versus 340 liters/connection x day on the same period last year. This reduction was the result not only of loss control initiatives, but also of the water crisis and the consequent need to reduce the network pressure as a demand management mechanism.

 

 

Operating indicators *

3Q15

3Q14

%

Water connections (1)

8,366

8,156

2.6

Sewage connections (1)

6,806

6,607

3.0

Population directly served - water (2)

25.5

25.2

1.2

Population directly served - sewage (2)

22.7

22.2

2.3

Number of employees

14,056

14,766

(4.8)

Water volume produced - quarter (3)

615

692

(11.1)

Water volume produced - nine months (3)

1,834

2,180

(15.9)

IPM - Measured water loss (%)

28.3

30.2

(6.3)

IPDt (liters/connection x day)

261

340

(23.2)

(1)        Total connections, active and inactive, in thousand units at the end of the period
(2)        In million inhabitants, at the end of the period. Not including wholesale
(3)        In millions of cubic meters
(*)      Unaudited

 

 

9.2. Financial

 

Economic Indexes * (quarter end)

3Q15

3Q14

Amplified Consumer Price Index (IPCA) - %

0.54

0.57

Referential Rate (TR) - %

0.19

0.09

Interbank Deposit Certificate (CDI) - %

14.13

10.81

US DOLAR (R$)

3.9729

2.4510

YEN (R$)

0.03316

0.02235

(*)     Unaudited

 

 

Page 20 of 86


 

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

ITR - Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Version: 1

 

 

10. Loans and financing

 

On September 30, 2015, the Company and the IDB entered into a Letter Agreement related to the AB Loan 1983AB Loan Agreement, in which the IDB irrevocably agreed not to exercise its right to accelerate the debt, in the period between September 30, 2015 and October 1, 2016, in the case of non-compliance, in a single quarter, with the “Adjusted net debt / EBITDA” ratio, which should be lower than 3.65. The IDB may exercise its right to accelerate repayment in the case of non-compliance with said ratio for more than one quarter. The Company’s ratio this quarter was 3.54, in line with the contractual requirement.

 

 

             

R$ million

INSTITUTION

2015

2016

2017

2018

2019

2020

2021 and onwards

Total

Local market

 

 

 

 

 

 

 

 

Caixa Econômica Federal

11.1

48.0

52.5

55.9

57.6

59.7

749.5

1,034.3

Debentures

38.4

360.8

889.4

604.9

698.7

388.9

597.8

3,578.9

BNDES

13.5

70.1

75.5

75.5

75.5

57.8

299.2

667.1

Commercial Leasing

2.8

20.1

21.2

22.4

23.6

25.0

407.2

522.3

Others

0.2

0.6

0.7

0.5

-

-

-

2.0

Interest and charges

45.3

66.9

-

-

-

-

-

112.2

Local market total

111.3

566.5

1,039.3

759.2

855.4

531.4

2,053.7

5,916.8

International market

 

 

 

 

 

 

 

 

BID

5.5

151.6

223.3

123.6

123.5

123.6

1,435.7

2,186.8

BIRD

-

-

-

-

7.7

15.3

206.6

229.6

Eurobonds

-

556.1

-

-

-

1,386.2

-

1,942.3

JICA

-

72.6

74.0

75.3

114.0

114.0

1,329.6

1,779.5

BID 1983AB

-

95.1

95.1

94.9

70.3

69.6

90.8

515.8

Interest and charges

55.9

6.9

-

-

-

-

-

62.8

International market total

61.4

882.3

392.4

293.8

315.5

1,708.7

3,062.7

6,716.8

Total

172.7

1,448.8

1,431.7

1,053.0

1,170.9

2,240.1

5,116.4

12,633.6

 

 

11. Capex

 

In the third quarter of 2015 R$ 1.0 billion were invested, totaling R$ 2.6 billion investments in the first nine months of 2015.

 

 

Page 21 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

1              Operations

 

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

 

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

 

On September 30, 2015, the Company operated water and sewage services in 364 municipalities of the State of São Paulo. Most of these municipalities operations are based on 30-year concession, program and services contracts. On August 5, 2015, the Company signed an agreement with the municipality of Santa Isabel and will start operations in 2016; thus, Santa Isabel is not included in the aforementioned 364 municipalities. The Company has two partial contracts with the municipality of Mogi das Cruzes, however, since most of municipality is serviced by wholesale, it was not included in the 364 municipalities. On September 30, 2015, the Company had 367 contracts.

 

SABESP is not operating in some municipalities due to judicial orders. The lawsuits in progress refer to Álvares Florence, Cajobi, Embaúba, Iperó and Macatuba, and the carrying amount of these municipalities’ intangible assets was R$11,322 on September 30, 2015 (R$11,328 on December 31, 2014).

 

As of September 30, 2015, 52 concession agreements had expired and are being negotiated. From September 30, 2015 to 2030, 37 concession agreements will expire. Management believes that concession agreements expired and not yet renewed will result in new contracts, disregarding the risk of discontinuity in the provision of municipal water supply and sewage services. By September 30, 2015, 278 program and services contracts were signed (274 contracts on December 31, 2014).

 

As of September 30, 2015, the carrying amount of the underlying assets used in the 52 concessions of the municipalities under negotiation totaled R$5,897,430, accounting for 21.05% of the total, and the related gross revenue for the nine-month period then ended totaled R$1,165,943, accounting for 13.12% of the total.

 

The Company’s operations are concentrated in the municipality of São Paulo, which represents 51.52% of the gross revenues on September 30, 2015 (50.00% on September 30, 2014) and 43.11% of intangible assets (42.29% on December 31, 2014).

 

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

 

Page 22 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

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

 

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

ii.    capture, transport and treat of water;

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

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

 

The Company operates under an authorization by public deed in some municipalities in the Santos coast region and in the Vale do Ribeira, where the Company started to operate after the merger of the companies that formed it.

 

In September 2015, the Company entered into a water supply and sewage public utility services agreement with the municipality of Santos where it used to operate under a public deed of authorization (See note 8 (d)). As of September 30, 2015, the carrying amount of the municipality of Santos’ intangible assets was R$561,736 (R$205,261 on December 31, 2014) and gross revenue in the nine-month period ended  September 30, 2015 was R$197,723 (R$170,712 on September 30, 2014).

 

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

 

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

 

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

 

 

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

 

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

 

Page 23 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

Water shortage – the Company’s operations have been influenced by the lowest rainfall and inflow never seen in 85 years, especially at the reservoirs composing the Cantareira System which, under usual conditions, is liable for the direct supply of approximately 8.8 million people. During the rainy season from October 2013 to March 2014, rainfall was well below average. The Company expected the water stored in the Cantareira System to recover in the rainy season from October 2014 to March 2015.  As this did not happen, reservoir levels are below the historical series. To face this situation and ensure that the water supply is not interrupted, the Company has been adopting several measures since February 2014, such as:

 

·        Using pumps to remove water below the catchment level of the Cantareira System, the so-called  “technical reserve”;

·        Offering financial incentives to reduce consumption through bonus granted to consumers, whose volume consumed is below the average stipulated;

·        Using water from other producing systems to serve consumers previously supplied by the Cantareira System;

·        Intensifying the advertising campaigns towards the rational use of water;

·        Reducing pressure in the distribution network, in order to prevent water losses;

·        Adjusting the water volume sold to municipalities which operate their own distribution networks, due to lower availability;

·        Anticipating investments to expand water safety in the Metropolitan Region of São Paulo - RMSP

·        Performing short-term emergency works to increase water availability in the reservoirs, improving and optimizing supply systems in the RMSP, thereby lessening the impacts arising from the drought;

·        Installing ultrafiltration membranes which enabled rapid increase in the Guarapiranga System’s water production; and

·        Implementing the contingency tariff for consumers whose volume consumed is above the average stipulated.

 

At the end of September 2015, the year’s main work was concluded and delivered to contribute to the water supply in the Metropolitan Region of São Paulo. This interconnection will enable the transfer of up to 4m³/s of the Rio Grande Reservoir (Billings) to the Alto Tietê System, bringing more water safety so that this system expand to regions previously served only by the Cantareira System.

 

The water reservation volume at the reservoirs relies on several factors, such as levels of rain, temperature and atmospheric humidity, as well as the type and humidity of soil in water sources regions.

 

This scenario of water shortage also had adverse effects for the Company. As a result, since 2014 up to date, the Company has taken decisions to minimize these effects, including:

 

·            Rearrangement of investments,

·            Expense budget reduction,

·            Negotiation of overdue receivables (until September 30, 2015, the Company included in the State CADIN a total of 33 municipalities with unpaid water bills, including those municipalities served by wholesale);

·            Contracting guarantee insurance for escrow deposits; and

 

Page 24 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

         ·            Application of the extraordinary tariff revision since June 2015.

 

The Company’s Management expects that these measures and their impacts on operating cash generation and the lines of credit available for investments, will be sufficient to meet its short-term liabilities and not compromise the actions required to overcome the water shortage, thus preserving its consumers’ supply.

 

The interim financial information was approved by the Board of Directors on November 12, 2015.

 

 

2          Basis of preparation and presentation of the financial statements

 

 

(i)                    Presentation of the quarterly financial information

 

The quarterly financial information as of September 30, 2015, was prepared based on the provisions of CPC 21 (R1) – Interim Financial Information and the international standard IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), applicable to the preparation of Quarterly Information Form– ITR and they are fairly presented consistent with the rules issued by the Brazilian Securities and Exchange Commission (CVM). Therefore, this Interim Financial Information takes into consideration the official letter CVM/SNC/SEP 003 of April 28, 2011, which allows the entities to present selected notes to the financial statements, in cases of redundant information already disclosed in the Annual Financial Statements. The interim financial information for September 30, 2015, therefore, does not include all the notes and reporting required by the annual financial statements, and accordingly, shall be read jointly with the financial statements as of December 31, 2014, prepared pursuant to the International Financial Reporting Standards – IFRS, issued by the International Accounting Standards Board – IASB and pursuant to the accounting practices adopted in Brazil which observe the pronouncements issued by the Brazilian Accounting Pronouncements Committee- CPC.

 

 

3          Accounting policies

 

The accounting policies used in the preparation of the quarterly financial information for the quarter ended September 30, 2015 are consistent with those used to prepare the Annual Financial Statements for the year ended December 31, 2014. These policies are disclosed in Note 3 to the Annual Financial Statements.

 

 

 

Page 25 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

 

4          Risk Management

 

4.1 Financial Risk Management

 

Financial risk factors

 

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

 

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

 

(a)       Market risk

 

Foreign exchange risk

 

SABESP’s foreign exchange exposure implies market risks associated with currency fluctuations, since the Company has foreign currency-denominated liabilities, mainly US dollar and yen-denominated short and long-term loans.

 

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

 

This risk arises from the possibility that the Company may incur in losses due to exchange rate fluctuations that would impact liability balances of foreign currency-denominated loans and financing raised in the market and related financial expenses. The Company does not maintain hedge or swap contracts or any derivative financial instrument to hedge against this risk.

 

A significant amount of the Company’s financial debt is indexed to the U.S. dollar and Yen, in the total amount of R$6,735,687 on September 30, 2015 (R$4,363,898 on December 31, 2014). Below, the Company’s exposure to foreign exchange risk:

 

 

Page 26 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

September 30, 2015

December 31, 2014

 

Foreign currency

R$

Foreign currency

R$

 

 

 

 

 

Loans and financing– US$

1,231,031

4,890,763

1,231,188

3,270,282

Loans and financing – Yen

53,743,581

1,782,137

48,066,910

1,068,527

Interest and charges from loans and financing – US$

 

59,293

 

17,703

Interest and charges from loans and financing– Yen

 

3,494

 

7,386

Total exposure

 

6,735,687

 

4,363,898

Financing cost

 

(18,886)

 

(17,606)

Total loans in foreign currency (Note 15)

 

6,716,801

 

4,346,292

 

 

The 55% increase in foreign currency-denominated debt from December 31, 2014 to September 30, 2015 was mainly due to the following:

 

1)         Exchange rate changes, due to the 49.6% increase in the US dollar, from R$2.6562 on December 31, 2014 to R$3.9729 on September 30, 2015. The US dollar-denominated debt accounts for 73.5% of foreign currency-denominated debts; and

2)        A 12% increase in Yen-denominated debt and 49.2% increase in the Yen, from R$0.02223 on December 31, 2014 to R$0.03316 on September 30, 2015 .

 

On September 30, 2015, if the Brazilian real had depreciated or appreciated by 10% against the US dollar and Yen with all other variables held constant, effects on results before taxes on the nine-month period ended September 30, 2015 would have been R$673,568 (R$436,390 on December 31, 2014), lower or higher, mainly as a result of foreign exchange losses or gains on the translation of foreign currency-denominated loans.

 

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

 

 

Page 27 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

Scenario I (Probable)

Scenario II (+25%)

Scenario III (+50%)

 

(*)

 

 

Net currency exposure on September 30, 2015 (Liabilities) in US$

1,231,031

1,231,031

1,231,031

 

 

 

 

US$ rate on September 30, 2015

3.9729

3.9729

3.9729

Exchange rate estimated according to the scenario

4.0000

5.0000

6.0000

Difference between the rates

(0.0271)

(1.0271)

(2.0271)

 

 

 

 

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

(33,361)

(1,264,392)

(2,495,423)

 

 

 

 

Net currency exposure on September 30, 2015 (Liabilities) in Yen

53,743,581

53,743,581

53,743,581

 

 

 

 

Yen rate on September 30, 2015

0.03316

0.03316

0.03316

Exchange rate estimated according to the scenario

0.03493

0.04367

0.05240

Difference between the rates

(0.00177)

(0.01051)

(0.01924)

 

 

 

 

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

(95,126)

(564,845)

(1,034,026)

 

 

 

 

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

(128,487)

(1,829,237)

(3,529,449)

 

 

 

 

(*)The probable scenario in foreign currency (US dollar and Yen) considered the average exchange rate for the 12-month period after September 30, 2015, according to BACEN’s Focus Report and BM&FBovespa.

 

 

Interest rate risk

 

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

 

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

 

 

Page 28 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

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

 

 

September 30, 2015

December 31, 2014

 

 

 

TR(i)

1,479,549

1,578,250

CDI(ii)

1,117,191

1,712,010

TJLP(iii)

1,099,110

1,059,074

IPCA(iv)

1,593,817

1,492,320

LIBOR(v)

2,927,488

1,953,989

Interest and charges

120,925

133,776

Total

8,338,080

7,929,419

 

(i) TR – Interest Benchmark Rate

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

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

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

(v) LIBOR – London Interbank Offered Rate

 

As of September 30, 2015, if interest rates on loans and financing denominated in Brazilian reais had been 1% higher or lower with all other variables held constant, the effects on profit for the nine-month period ended September 30, 2015, before taxes would have been R$83,380  (R$79,294 on December 31, 2014) lower or higher.

 

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

 

(b)              Credit risk

 

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

 

The maximum exposures to credit risk on September 30, 2015 are the carrying amounts of instruments classified as cash equivalents, deposits in banks and financial institutions, restricted cash, trade accounts receivable and accounts receivable from related parties. See additional information in Notes 6, 7, 8 and 9.

 

 

Page 29 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

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

 

 

September 30, 2015

December 31, 2014

Cash at bank and short-term bank deposits

 

 

AAA(bra)

889,320

1,722,347

Other (*)

613

644

 

889,933

1,722,991

 

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

 

The available credit rating information of the banks in which the Company made deposit transactions and financial investments in domestic currency (R$ - domestic rating) during the period is as follows:

 

Counterparty

Fitch

Moody's

Standard Poor's

 

 

 

 

Banco do Brasil S.A.

AAA (bra)

Aaa.br

-

Banco Santander Brasil S.A.

AAA (bra)

Aaa.br

brAA+

Brazilian Federal Savings Bank

AAA (bra)

Aaa.br

brAAA

Banco Bradesco S.A.

AAA (bra)

Aaa.br

brAA+

Itaú Unibanco Holding S.A.

AAA (bra)

Aa1.br

brAA+

 

(c)    Liquidity risk

 

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

 

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

 

The table below shows the financial liabilities of the Company and São Lourenço PPP’s commitments, by relevant maturities, including the installment of principal and future interest to be paid according to the agreement.

 

 

Page 30 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

October to December 2015

2016

2017

2018

2019

2020 onwards

Total

As of September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Loans and financing

363,841

1,953,103

1,934,088

1,476,714

1,542,438

9,137,674

16,407,858

Accounts payable to suppliers and contractors

225,804

-

-

-

-

-

225,804

Services payable

328,281

-

-

-

-

-

328,281

Public-private partnership – PPP (*)

11,509

46,038

46,038

155,407

308,523

5,248,499

5,816,014

Program contract commitments

174,407

106,318

37,344

26,884

27,094

17,378

389,425

 

(*)The Company also considered future commitments (construction not yet performed) not yet recognized in the financial statements related to São Lourenço PPP, due to the relevance of future cash flows, the impacts on its operations and the fact the Company already has formalized this commitment through an agreement signed by the parties.

 

Future interest

 

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

 

Cross default

 

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

 

(d)             Other price risks

 

The Company is exposed to the price risk of investment in equity instruments of Companhia de Transmissão de Energia Elétrica Paulista – CTEEP, solely held for trading purposes in the short term.

 

Sensitivity analysis of equity instruments price

 

The sensitivity analysis was determined based on the exposure to the equity instruments price at the end of the reporting period.

 

If the equity instrument price were 10% lower, the profit for the quarter ended September 30, 2015 would decrease by R$5,981,  net of taxes.

 

 

 

Page 31 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

(e)   Sensitivity analysis on interest rate risk

 

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

 

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

 

September 30, 2015

Indicators

Exposure

Scenario I

(Probable) (i)

Scenario II

25%

Scenario III

50%

 

 

 

 

 

Assets

 

 

 

 

CDI

830,117

13.5900% (*)

16.9875% (***)

20.3850%

Financial income

 

112,813

141,016

169,219

 

 

 

 

 

Liabilities

 

 

 

 

CDI

(1,117,191)

13.5900% (*)

16.9875% (***)

20.3850%

Interest to be incurred

 

(151,826)

(189,783)

(227,739)

 

 

 

 

 

CDI net exposure

(287,074)

(39,013)

(48,767)

(58,520)

 

 

 

 

 

Liabilities

 

 

 

 

TR

(1,479,549)

0.0203% (*)

0.0254%

0.0305%

Expenses to be incurred

 

(300)

(376)

(451)

 

 

 

 

 

IPCA

(1,593,817)

5.8700% (*)

7.3375%

8.8050%

Expenses to be incurred

 

(93,557)

(116,946)

(140,336)

 

 

 

 

 

TJLP

(1,099,110)

6.5000% (*)

8.1250%

9.7500%

Interest to be incurred

 

(71,442)

(89,303)

(107,163)

 

 

 

 

 

LIBOR

(2,927,488)

0.4934% (**)

0.6168%

0.7402%

Interest to be incurred

 

(14,444)

(18,057)

(21,669)

 

 

 

 

 

Total net expenses to be incurred

 

(218,756)

(273,449)

(328,139)

 

 

 

 

 

(*) Source: Focus Report – BACEN, September 25, 2015

(**) Source: Bloomberg

(***) Scenario with a 25% and 50% increase, as the Company’s net exposure in CDI is negative

 

(i)     Refers to the scenario of interest to be incurred for the 12 months as of September 30, 2015 or until the maturity of the agreements, whichever is shorter.

 

Page 32 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

4.2          Capital management

 

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

 

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

 

 

 

September 30, 2015

December 31, 2014

 

 

 

Total loans and financing (Note 15)

12,633,562

10,785,767

(-) Cash and cash equivalents (Note 6)

(889,933)

(1,722,991)

 

 

 

Net debt

11,743,629

9,062,776

Total equity

13,357,750

13,304,403

 

 

 

Total capital

25,101,379

22,367,179

 

 

 

Leverage ratio

47%

41%

 

The leverage ratio increased from 41% as of December 31, 2014 to 47% on September 30, 2015, due to the increased balance of foreign-currency denominated loans and financing as a result of 49.6% and 49.2% appreciations of the U.S. dollar and the Yen, respectively, in 2015.

 

4.3         Fair value estimates

 

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

 

 

Page 33 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

4.4         Financial instruments

 

On December 31, 2014 the Company neither had financial assets classified as held to maturity, available for sale and fair value through profit or loss nor financial liabilities classified as fair value through profit or loss. In the second quarter of 2015, the Company received CTEEP’s shares, which were classified as financial asset held for trading and are recognized at fair value through profit or loss. This is the only new classification of financial instruments when compared to the year ended December 31, 2014. The Company’s financial instruments included in the loans and receivables category comprise cash and cash equivalents, trade accounts receivable, balances with related parties, other accounts receivable, balances receivable from the Water National Agency – ANA, and the financial instruments under other liabilities category are comprised of balance payable to contractors and suppliers, loans and financing, balances payable deriving from the Public Private Partnership-PPP and program contract commitments, which are non-derivative financial assets and liabilities with fixed or determinable payments, not quoted in an active market.

 

The estimated fair values of financial instruments are as follows:

 

Financial assets

 

 

September 30, 2015

December 31, 2014

 

Carrying amount

Fair value

Carrying amount

Fair value

Cash and cash equivalents

889,933

889,933

1,722,991

1,722,991

Restricted cash

29,331

29,331

19,750

19,750

Trade accounts receivable

1,401,293

1,401,293

1,224,278

1,224,278

Water National Agency – ANA

88,267

88,267

122,634

122,634

Financial asset held for trading

90,617

90,617

-

-

Other accounts receivable

189,379

189,379

187,950

187,950

 

 

Additionally, SABESP has financial instrument assets receivable from related parties, in the amount of R$815,852 as of September 30, 2015 (R$223,983 as of December 31, 2014), which were calculated in accordance with the conditions negotiated between related parties. The conditions and additional information referring to these financial instruments are disclosed in Note 9 to this interim financial information and in Note 10 to the annual financial statements as of December 31, 2014. Part of this balance, totaling R$735,908 (R$155,493 on December 31, 2014), refers to reimbursement from additional retirement and pension plan - G0 and is indexed by IPCA plus simple interest of 0.5% p.m. This interest rate approximates that one practiced by federal government bonds (NTN-b) with terms similar to those of related-party transactions.

 

For financial assets held for trading, which balance of which is measured at fair value at the end of each reporting period and recorded in the financial statements, SABESP measured such fair value at level 1 inputs, as required by the international financial reporting standards and the accounting practices adopted in Brazil, considering share price through quotation at the São Paulo Stock Exchange (Bovespa) on September 30, 2015.

 

Page 34 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

Financial liabilities

 

 

September 30, 2015

December 31, 2014

 

Carrying amount

Fair value

Carrying amount

Fair value

Loans and financing

12,633,562

12,032,668

10,785,767

10,641,611

Accounts payable to suppliers and contractors

225,804

225,804

323,513

323,513

Services payable

328,281

328,281

318,973

318,973

Program contract commitments

355,450

355,450

207,759

207,759

Public-Private-Partnership - PPP

871,659

871,659

368,283

368,283

 

 

The criteria adopted to obtain the fair values of loans and financing, in preparing the interim financial information as of September 30, 2015, are consistent with those adopted in the Annual Financial Statements for the fiscal year ended December 31, 2014. In the Annual Financial Statements, these criteria are disclosed in Note 5.4.

 

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

 

 

5          Critical accounting estimates and judgments

 

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

 

The main accounting estimates and judgments are disclosed in Note 6 to the Annual Financial Statements as of December 31, 2014

 

 

Page 35 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

6          Cash and cash equivalents

 

 

September 30, 2015

December 31, 2014

 

 

 

Cash and banks

59,816

118,226

Cash equivalents

830,117

1,604,765

 

889,933

1,722,991

 

 

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

 

On September 30, 2015, the average yield of financial investments corresponds to 99.25% of CDI (99.68% on December 31, 2014).

 

 

7          Restricted cash

 

 

September 30, 2015

December 31, 2014

 

 

 

Agreement with the municipal government of São Paulo (i)

9,430

9,176

Funds raised with BNDES (ii)

6,927

6,433

Funds raised with JICA (iii)

4,454

371

Brazilian Federal Savings Bank – escrow deposit (iv)

5,155

2,236

Others

3,365

1,534

 

29,331

19,750

 

(i)      Agreement with the municipal government of São Paulo where the Company transfers 7.5% of the Municipal revenue to the Municipal Fund;

 

(ii)    Refers to funds raised with the Brazilian Development Bank– BNDES, awaiting the authorization for use.

 

(iii)  Refers to funds raised with the Japan International Cooperation Agency – JICA, awaiting release.

 

(iv)  Refers to savings account for receiving escrow deposits regarding lawsuits with final and unappealable decisions in favor of the Company, which are blocked as per contractual clause.

 

Page 36 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

8          Trade accounts receivable 

 

(a) Financial position balances

 

 

September 30, 2015

December 31, 2014

Private sector:

 

 

General and special customers (i) (ii)

990,203

852,815

Agreements (iii)

303,975

291,367

 

 

 

 

1,294,178

1,144,182

Government entities:

 

 

Municipal

514,715

533,984

Federal

6,498

4,671

Agreements (iii)

194,616

192,253

 

 

 

 

715,829

730,908

Wholesale customers – Municipal governments: (iv)

 

 

Guarulhos

852,767

776,674

Mauá

403,853

366,515

Mogi das Cruzes

2,384

2,092

Santo André

840,801

787,305

São Caetano do Sul

2,240

1,779

Diadema (*)

222,671

224,433

 

 

 

Wholesale customers – Municipal governments

2,324,716

2,158,798

 

 

 

Unbilled supply

418,072

354,678

 

 

 

Subtotal

4,752,795

4,388,566

Allowance for doubtful accounts

(3,351,502)

(3,164,288)

 

 

 

Total

1,401,293

1,224,278

 

 

 

Current

1,236,982

1,034,820

Noncurrent

164,311

189,458

 

 

 

 

1,401,293

1,224,278

 

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

 

 

Page 37 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

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

 

This balance is fully accrued as losses.

 

From January to September 2015, there were no relevant changes in relation to the operations presented in the financial statements as of December 31, 2014.

 

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

 

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

 

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

 

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

 

 

Page 38 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

Below, the breakdown of trade accounts receivable at wholesale:

 

 

Nine-month period ended September 30, 2015

Twelve-month period ended December 31 , 2014

 

 

 

Balance at the beginning of the period

2,158,798

1,917,859

Services provided

253,281

375,294

Receipts

(87,363)

(134,355)

 

 

 

Balance at the end of the period

2,324,716

2,158,798

 

 

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

 

 

September 30, 2015

December 31, 2014

 

 

 

Current

1,111,580

992,800

Past-due:

 

 

Up to 30 days

200,703

136,666

From 31 to 60 days

90,176

93,534

From 61 to 90 days

67,415

62,276

From 91 to 120 days

64,121

54,725

From 121 to 180 days

99,561

96,079

From 181 to 360 days

186,348

202,024

Over 360 days

2,932,891

2,750,462

 

 

 

Total past-due

3,641,215

3,395,766

 

 

 

Total

4,752,795

4,388,566

 

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

 

Page 39 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

(c)              Allowance for doubtful accounts  

 

 

September 30, 2015

September 30, 2014

 

 

 

Balance at the beginning of the period

3,164,288

2,856,684

Private sector/government entities

54,741

53,004

Recoveries

(57,138)

(111,011)

Wholesale customers

189,611

245,450

 

 

 

Additions for the period

187,214

187,443

 

 

 

Balance at the end of the period

3,351,502

3,044,127

 

Reconciliation of provision for losses

of income

July to September 2015

January to September 2015

July to September 2014

January to September 2014

 

 

 

 

 

Losses (write-off)

(8,130)

22,017

22,521

42,604

Provision for state entities (related parties)

(956)

1,443

-

795

Provision for private sector/government entities

1,098

54,741

18,075

53,004

Provision for wholesale supply

8,934

(11,674)

26,700

69,296

Recoveries

(39,077)

(57,138)

(88,936)

(111,011)

 

 

 

 

 

Amount recorded as selling expenses

(38,131)

9,389

(21,640)

54,688

 

Wholesale sales losses were recorded as revenue reduction, R$63,635 in the third quarter and R$201,285 from January to September  of 2015 (R$49,523 in the third quarter of 2014 and R$175,048 from January to September of 2014).

 

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

 

(d)             Agreement with the municipality of Santos  

 

On September 29, 2015, the State of São Paulo, the municipality of Santos and SABESP entered into a “Water Supply and Sewage Public Utility Services Agreement” in the municipality of Santos. Under this contract, the State of São Paulo and the municipality of Santos, granted SABESP exclusive rights to render services for a 30-year term.

 

On this same date, judicial settlements were signed in lawsuits filed by SABESP against the municipality of Santos, as well as an out-of-court settlement, both aimed to pay up debts owed by the municipality which were overdue up to August 31, 2015. As a result, an allowance for losses amounting to R$70,462 was reversed, an inflation adjustment totaling R$21,838 was recognized, and R$2,905 was recorded under accounts receivable without recording an allowance for losses. With the execution of the agreement, the Company settled accounts receivable and the contra-entry was intangible assets in the amount of R$95,205.

 

Page 40 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

The Company will transfer amounts to the Municipality to be invested in related services and environmental sanitation in the municipality. The Company will transfer R$130,000, in five installments, the first totaling R$25 million, 30 days after the execution of the agreement, and the remaining four installments, of R$26,250 each, adjusted by the IPCA, will be paid annually as of July 5, 2016. Additionally, every quarter, the Company will transfer 0.53% of the revenue obtained from the services rendered in the Municipality, less PIS-PASEP and COFINS taxes. Semi-annually, the Municipality must provide a report describing the initiatives carried out and the actual amounts of the transfers made.

 

 

Page 41 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

9          Related Party Balances and Transactions

 

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

 

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

 

 

September 30, 2015

December 31, 2014

Accounts receivable

 

 

Current:

 

 

Water and sewage services

107,847

96,162

Allowance for losses

(47,209)

(45,333)

Reimbursement for pension benefits (G0):

 

 

- Monthly flow

13,849

9,753

- GESP Agreement – 2008

43,722

43,722

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

19,306

17,661

 

 

 

Total current

137,515

121,965

 

 

 

Noncurrent:

 

 

Reimbursement for pension benefits (G0):

 

 

- GESP Agreement – 2008

69,227

102,018

- GESP Agreement – 2015 (b)

609,110

-

 

 

 

Total noncurrent

678,337

102,018

 

 

 

Total receivables from shareholder

815,852

223,983

 

 

 

Assets:

 

 

Water and sewage services

60,638

50,829

Reimbursement for pension benefits (G0):

735,908

155,493

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

19,306

17,661

 

 

 

Total

815,852

223,983

 

 

 

Liabilities:

 

 

Interest on shareholders’ equity payable to related parties

-

107,784

Other (h)

1,544

1,569

 

Page 42 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

 

 

July to September 2015

January to September 2015

July to September 2014

January to September 2014

Revenue from water and sewage services

 

 

 

 

Water supply

51,574

141,034

51,754

168,455

Sewage services

42,377

117,428

46,210

149,479

Payments received from related parties

(85,468)

(245,970)

(101,132)

(323,312)

 

 

 

 

 

Receipt of GESP reimbursement referring to Law 4,819/58

(31,257)

(87,973)

(29,694)

(89,031)

 

 

(b)             Agreement with the State Government of São Paulo “GESP”

 

The first 24 installments of the agreement signed on March 18, 2015 were settled by transferring 2,221,000 preferred shares issued by Companhia de Transmissão de Energia Elétrica Paulista - CTEEP, totaling R$87,174, based on the share closing price on March 17, 2015.

 

On May 12, 2015, the transfer of shares issued by CTEEP to SABESP was concluded in order to settle the first 24 installments of the agreement signed with the State government on March 18, 2015. On September 30, CTEEP’s shares were recorded under “Financial asset held for trading”, for R$90,617, due to a reduction in its fair value, from thirty-nine reais and twenty-five centavos(R$39.25) on March 18, 2015 to forty reais and eighty centavos(R$40.80) on September 30, 2015. The effect of this appreciation was recorded under financial revenues and totaled R$3,443.

 

On June 8, 2015, SABESP received dividends referring to the 2,221,000 shares, corresponding to R$0.686875 per share, totaling R$1,526.

 

See additional information in Note 9 (b) to the interim financial information for the first quarter of 2015.

 

(c)              Contingent assets - GESP (not recorded)

 

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

 

 

Page 43 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

September 30

2015

 

December 31

2014

Disputed amounts receivable

832,889

 

783,422

Undisputed amount referring to the transfer of two reservoirs at Alto Tietê System to SABESP (Note 9 (b))

-

 

696,283

Total

832,889

 

1,479,705

 

 

(d)             Use of reservoirs – EMAE  

 

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

 

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

 

Several lawsuits were filed by EMAE. Currently, an arbitration proceeding is in progress related to the Guarapiranga reservoir and a lawsuit related to Billings reservoir, both pleading for financial compensation due to SABESP’s water collect for public supply, alleging that this conduct has been causing permanent and growing loss in the capacity of generating electricity of Henry Borden hydroelectric power plant with financial losses.

 

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

 

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

 

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

 

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

 

(f)               Guarantees

 

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

 

 

 

Page 44 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

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

 

The Company has personnel assignment agreements with entities related to the State Government, whose expenses are fully passed on and monetarily reimbursed. From July to September 2015 and 2014, the expenses related to personnel assigned by SABESP to other state government entities amounted to R$2,439 and R$2,321, respectively. From January to September 2015 and 2014, said expenses totaled R$7,870 and R$7,387, respectively.

 

From July to September 2015 and 2014, expenses related to personnel assigned by other entities to SABESP totaled R$91 and R$87, respectively, while from January to September 2015 and 2014 totaled R$322 and R$296, respectively.

 

(h)             Services obtained from state government entities

 

On September 30, 2015 and December 31, 2014, SABESP had an outstanding amounts payable of R$1,544 and R$1,569, respectively, for services rendered by São Paulo State Government entities.

 

(i)               Non-operating assets

 

As of September 30, 2015 and December 31, 2014, the Company had an amount of R$969 related to a free land lent to DAEE (Water and Electricity Department).

 

(j)               Sabesprev

 

The Company sponsors a private defined benefit pension plan, which is operated and administered by Sabesprev. The net actuarial liability recognized until September 30, 2015 amounted to R$718,712 (R$676,071 on December 31, 2014), according to Note 19 (b).

 

(k)              Compensation of Management Key Personnel 

 

Expenses related to the compensation to the members of its Board of Directors, Fiscal Council and Officers amounted to R$1,011 from July to September 2015 (R$911 from July to September 2014). From January to September 2015, these expenses totaled R$2,944 (R$2,664 from January to September 2014). An additional amount of R$124, related to the Officers’ bonus program, was recorded from July to September 2015 (R$120 from July to September 2014). From January to September 2015, this bonus totaled R$397 (R$373 from January to September 2014).

 

(l)               Loan agreement through credit facility

 

The Company holds interest in certain Special Purpose Entities (SPEs), not holding the majority interest but with cast vote and power of veto in some issues, with no ability to use such power of veto in a way to affect returns over investments. Therefore, these SPEs are considered for accounting purposes as jointly-owned subsidiaries.

 

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

 

Page 45 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

The agreements executed with Aquapolo Ambiental S/A, on March 30, 2012 and Attend Ambiental S/A, on May 9, 2014, have the following characteristics:

 

SPE

Principal disbursed amount

Interest balance

Total

Interest rate

Maturity

Attend Ambiental

5,400

1,508

6,908

SELIC + 3.5 % p.a.

(*)

Aquapolo Ambiental

5,629

4,331

9,960

CDI + 1.2% p.a.

4/30/2016

Aquapolo Ambiental

19,000

7,574

26,574

CDI + 1.2% p.a.

10/30/2015

Total

30,029

13,413

43,442

 

 

 

(*)     The loan agreement with SPE Attend Ambiental S/A matures within 180 days, from the date when the respective amount is available in the borrower’s account, renewable for the same period. A portion of the loan has been overdue since May 11, 2015 and is subject to contractual charges (inflation adjustment considering the IGP-M variation, 2% fine and default interest of 1% p.m.). The agreement is being renegotiated between the parties.

 

The amount disbursed is recognized in Current Assets under “Other Receivables” and amounts to R$30,029 for principal andR$13,413 for interest. As of September 30, 2015, the balance of principal and interest rates of these agreements is R$43,442 (R$40,366 on December 31, 2014). In the period between January and September 2015, financial income recognized was R$8,076 (R$3,711 from January to September 2014).

 

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

 

The State Government enacted the State Law 14,687/12, creating the pro-connection program, destined to financially subsidize the execution of household branches necessary to connect to the sewage collecting networks, in low-income households, which agreed to adhere to the program. The program expenditures, except for indirect costs, construction margin and borrowing costs are financed with 80% of funds deriving from the State Government and the remaining 20% invested by SABESP, which is also liable for the execution of works. On September 30, 2015, the program total amount was R$78,597 (R$67,576 on December 31, 2014), R$19,306 (R$17,661 on December 31, 2014) recorded in balances receivable from related parties, the amount of R$34,238 (R$24,862 on December 31, 2014) recorded in the group of intangible assets and R$25,053 (R$25,053 on December 31, 2014) reimbursed by GESP.

 

10                Water National Agency – ANA

 

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

 

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

 

Page 46 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

When resources are made available, liabilities are recorded until funds are released by ANA. After the evidence of targets stipulated in each contract, the revenue deriving from these funds is recognized, but if these targets are not met, funds will return to the National Treasury with the appropriate funds earnings. On September 30, 2015, the balances of assets and liabilities were R$88,267 (R$122,634 on December 31, 2014), and the liabilities are recorded under "Other liabilities" of noncurrent liabilities

 

11            Investment properties

 

The Company holds interest in certain Special Purpose Entities (SPE). Although SABESP has no majority shares of its investees, the shareholders’ agreement provides for the power of veto in certain management issues, with no ability to use such power of veto in a way to affect returns over investments, indicating participating shared control (joint venture – CPC 19 (R2)).

 

The Company measures investments by the equity method.

 

See information on the operations of each investee in Note 12 to the Annual Financial Statements as of December 31, 2014.

 

(a)              Summary of the investees’ financial statements and SABESP’s interest:

 

Company

Equity

Accrued Dividends

Profit (loss) for the period

 

  September 30,

2015

December 31,

2014

 

September 30,

2015

September 30,

2015

  September 30, 2014

     

 

   

Sesamm

31,052

26,788

(92)

4,356

2,638

Águas de Andradina

6,342

4,582

(228)

1,988

13

Águas de Castilho

3,170

2,866

(190)

494

440

Saneaqua Mairinque

3,040

2,697

(282)

625

(139)

Attend Ambiental

2,379

(111)

-

2,490

(2,745)

Aquapolo Ambiental

8,215

16,220

-

(8,005)

(2,640)

Paulista Geradora de Energia

8,524

-

-

(99)

-

Total

62,722

53,042

(792)

1,849

(2,433)

 

 

 

Page 47 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

Company

Investments

Dividends

distributed

Equity in the earnings of subsidiaries

Interest percentage

 

September

30,

2015

December 31,

2014

September

30,

2015

September

30,

2015

September

30,

2014

September

30,

2015

December 31,

2014

     

 

       

Sesamm

11,179

9,644

(33)

1,568

949

36%

36%

Águas de Andradina

1,902

1,375

(69)

596

4

30%

30%

Águas de Castilho

951

860

(57)

148

132

30%

30%

Saneaqua Mairinque

912

809

(85)

188

(42)

30%

30%

Attend Ambiental

1,071

-

-

1,071

(1,235)

45%

45%

Aquapolo Ambiental

4,026

7,948

-

(3,922)

(1,294)

49%

49%

Paulista Geradora de Energia

2,131

-

-

(25)

-

25%

-

Total

22,172

20,636

(244)

(376)

(1,486)

 

 

 

Other investments

587

587

 

 

 

 

 

 

Overall total

22,759

21,223

 

 

 

 

 

 

 

 

12                 Investment properties

 

On September 30, 2015, the balance of “Investment properties” is R$59,240 (R$54,039 on December 31, 2014). On September 30, 2015 and December 31, 2014, the market value of these properties is approximately R$404,000 and R$350,000, respectively.

 

 

December 31,

2014

Transfers

Write-offs and disposals

Depreciation

September 30,

2015

 

 

 

 

 

 

Investment properties

54,039

9,182

(3,602)

(379)

59,240

Total

54,039

9,182

(3,602)

(379)

59,240

 

 

 

 

Page 48 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

13                 Intangible assets

 

(a)         Balance sheet balances 

 

 

September 30, 2015

December 31, 2014

 

Cost

Accumulated

amortization

Net

Cost

Accumulated

amortization

Net

Intangible right arising from:

 

 

 

 

 

 

Agreements – equity value

8,523,330

(1,508,410)

7,014,920

8,983,492

(1,614,221)

7,369,271

Concession agreements – economic value

1,786,676

(448,819)

1,337,857

1,679,042

(397,782)

1,281,260

Program contracts

8,670,827

(2,342,177)

6,328,650

7,338,985

(1,959,832)

5,379,153

Program contracts– commitments

1,079,010

(127,349)

951,661

808,662

(105,753)

702,909

Services contracts– São Paulo

14,371,644

(2,290,869)

12,080,775

12,916,939

(1,930,553)

10,986,386

Software licenses

406,625

(99,949)

306,676

326,045

(65,498)

260,547

Total

34,838,112

(6,817,573)

28,020,539

32,053,165

(6,073,639)

25,979,526

 

 

(b)              Changes

 

 

December 31, 2014

Additions

Contract renewal

Allowance for losses

Transfers

Write-offs and disposals

Amortization

September 30, 2015

Intangible right arising from:

 

 

 

 

 

 

 

 

Concession Agreements – equity value

7,369,271

224,099

(463,362)

2,197

(325)

(785)

(116,175)

7,014,920

Concession agreements – economic value

1,281,260

108,144

-

-

(17)

(133)

(51,397)

1,337,857

Program contracts

5,379,153

666,251

463,362

-

(752)

(5,108)

(174,256)

6,328,650

Program contracts– commitments

702,909

270,349

-

-

-

-

(21,597)

951,661

Services contracts– São Paulo

10,986,386

1,486,149

-

8,145

(4,920)

(8,355)

(386,630)

12,080,775

Software licenses

260,547

80,579

-

-

-

-

(34,450)

306,676

Total

25,979,526

2,835,571

-

10,342

(6,014)

(14,381)

(784,505)

28,020,539

 

In the first half of 2015, the Company formalized program agreements with the municipalities of Barueri and Mairiporã. In the third quarter of 2015, the Company formalized an agreement with the municipality of Santos (see Note 8 (d)) and signed a program agreement with the municipality of Santa Isabel. The duration of all agreements is 30 years.

 

Page 49 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

(c)              Construction services

 

 

July to September 2015

January to September 2015

 

Water supply

Sewage services

Total

Water supply

Sewage services

Total

Construction revenue

732,144

283,094

1,015,238

1,588,137

920,327

2,508,464

Construction costs incurred

716,193

276,791

992,984

1,554,566

900,017

2,454,583

Margin

15,951

6,303

22,254

33,571

20,310

53,881

 

 

 

July to September 2014

January to September 2014

 

Water supply

Sewage services

Total

Water supply

Sewage services

Total

Construction revenue

374,240

425,491

799,731

873,204

1,136,503

2,009,707

Construction costs incurred

366,217

416,026

782,243

855,403

1,111,529

1,966,932

Margin

8,023

9,465

17,488

17,801

24,974

42,775

 

(d)             General information

 

During the period ended September 30, 2015 there were no relevant changes in the criteria to account for intangible assets and types of contracts. See further information in Note 14 (d) to the Annual Financial Statements as of December 31, 2014.

 

The Company has obligations recorded in “Program Contract– Commitments” in current liabilities in the amount of R$256,944 and R$189,551 on September 30, 2015 and December 31, 2014, respectively, and noncurrent liabilities in the amount of R$98,506 and R$18,208 on September 30, 2015 and December 31, 2014, respectively. The increase in balance results from the signature of new program contracts.

 

(e)              Capitalization of interest and other financial charges

 

From January to September 2015, the Company capitalized interest and inflation adjustment, including related foreign currency exchange effects, in concession intangible assets totaling R$247,075 (R$176,724 from January to September 2014), during the period in which assets were recorded as works in progress.

 

(f)               Construction margin

 

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

 

As a consequence, the Company recognizes revenue from construction service corresponding to the cost of construction increased by margin. Generally, the constructions related to the concessions are performed by third parties, in such case, the margin of the Company is lower, normally, to cover eventual administration costs, and the responsibility of the primary risk. On September 30, 2015 and 2014 the margin was 2.3%.

 

Page 50 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

The construction margin for the third quarter of 2015 and 2014 was R$22,254 and R$17,488, respectively, and from January to September of 2015 and 2014 was R$53,881 and R$42,775, respectively.

 

(g)              Expropriations

 

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

 

The assets received as a result of expropriations are recorded as concession intangible assets. From July to September 2015, the total amount related to expropriations was R$4,809 (R$2,685 from July to September 2014), and from January to September 2015 totaled R$43,650 (R$10,211 from January to September 2014).

 

(h)             Public-Private Partnership – PPP

 

SABESP carries out operations related to the PPPs mentioned below. These operations and their respective obligations and guarantees are supported by agreements executed according to Law 11,079/04.

 

Alto Tietê Production System

 

As of September 30, 2015 and December 31, 2014, the amounts recognized as intangible asset related to PPP were R$396,068 and R$404,447, respectively.

 

The obligations assumed by the Company on September 30, 2015 and December 31, 2014 are shown in the table below.

 

São Lourenço Production System

 

As of September 30, 2015 and December 31, 2014, the amounts recognized as intangible asset related to PPP were R$555,273 and R$22,756, respectively.

 

The obligations assumed by the Company on September 30, 2015 and December 31, 2014 are shown in the table below, and the increase in liabilities and intangible assets was due to the progress of the works in 2015.

 

Payment is scheduled to start in August 2018, four (4) months after the beginning of assisted operations.

 

The following table shows the liabilities balances related to these intangible assets:

 

 

 

 

Page 51 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

September 30, 2015

December 31, 2014

 

Current liabilities

Noncurrent liabilities

Total liabilities

Current liabilities

Noncurrent liabilities

Total liabilities

 

 

 

 

 

 

 

Alto Tietê

39,456

289,414

328,870

38,047

307,991

346,038

São Lourenço

-

542,789

542,789

-

22,245

22,245

 

 

 

 

 

 

 

Total

39,456

832,203

871,659

38,047

330,236

368,283

 

 

See additional information in Note 14 (h) to the Financial Statements for the fiscal year ended December 31, 2014.

 

(i)               Works in progress

 

The amount of R$6,590 million is recorded as intangible assets from works in progress on September 30, 2015 (R$5,180 million on December 31, 2014), and on September 30, 2015, most of works are located in the municipalities of São Paulo, Praia Grande and Franca, totaling R$3,409 million (including R$555 million from São Lourenço PPP), R$248 million and R$184 million, respectively.

 

(j)               Amortization of intangible assets

 

The amortization average rate totaled 3.9% on September 30, 2015 and 2014.

 

(k)              Software license of use   

 

The software license of use is capitalized based on the costs incurred to acquire software and make them ready for use. In the first quarter of 2013, the Company started to implement an integrated business management solution (ERP system), which includes the administrative/financial module and the commercial module. The project is in progress.

 

 

Page 52 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 

14                 Property, Plant and Equipment

 

(a)          Balance sheet balances

 

 

September 30, 2015

December 31, 2014

 

Cost

Accumulated depreciation

Net

Cost

Accumulated depreciation

Net

Land

101,565

-

101,565

100,533

-

100,533

Buildings

79,256

(33,028)

46,228

74,235

(31,720)

42,515

Equipment

300,524

(163,931)

136,593

299,921

(152,999)

146,922

Transportation equipment

12,875

(6,509)

6,366

14,051

(6,438)

7,613

Furniture and fixtures

18,646

(10,023)

8,623

16,556

(9,432)

7,124

Others

434

(283)

151

688

(550)

138

Total

513,300

(213,774)

299,526

505,984

(201,139)

304,845

 

 

(b)              Changes

 

 

December 31, 2014

Additions

Transfers

Write-offs and disposals

Depreciation

September 30,

2015

Land

100,533

1,032

-

-

-

101,565

Buildings

42,515

1,382

3,364

-

(1,033)

46,228

Equipment

146,922

18,806

(7,600)

(217)

(21,318)

136,593

Transportation equipment

7,613

136

(627)

-

(756)

6,366

Furniture and fixtures

7,124

546

1,675

(14)

(708)

8,623

Others

138

-

20

-

(7)

151

Total

304,845

21,902

(3,168)

(231)

(23,822)

299,526

 

 

(c)              Depreciation

 

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

 

The depreciation average rate was 10.3% and 11.5%, on September 30, 2015 and 2014, respectively

 

 

Page 53 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

15           Loans and Financing

 

 Loans and financing outstanding balance

September 30, 2015

December 31, 2014

Financial institution

 

Current

 

Noncurrent

 

Total

 

Current

 

Noncurrent

 

Total

Domestic currency

 

 

 

 

 

 

10th issuance debentures

39,133

174,886

214,019

38,027

187,352

225,379

12th issuance debentures

45,450

397,039

442,489

45,450

431,174

476,624

14th issuance debentures

38,069

214,341

252,410

37,038

239,192

276,230

15th issuance debentures

94,819

711,131

805,950

94,819

761,497

856,316

16th issuance debentures

-

-

-

498,731

-

498,731

17th issuance debentures

140,144

977,671

1,117,815

-

1,067,760

1,067,760

18th issuance debentures

-

247,783

247,783

-

202,145

202,145

19th issuance debentures

-

498,383

498,383

-

497,793

497,793

Brazilian Federal Savings Bank

46,593

987,710

1,034,303

67,085

1,031,438

1,098,523

Brazilian Development Bank - BNDES BAIXADA SANTISTA

16,329

53,069

69,398

16,309

65,237

81,546

Brazilian Development Bank - BNDES PAC

10,301

69,367

79,668

10,287

76,975

87,262

Brazilian Development Bank - BNDES PAC II 9751

4,254

32,188

36,442

4,068

35,318

39,386

Brazilian Development Bank - BNDES PAC II 9752

2,303

24,179

26,482

1,725

25,875

27,600

Brazilian Development Bank - BNDES ONDA LIMPA

20,808

176,572

197,380

20,183

186,374

206,557

Brazilian Development Bank - BNDES TIETE III

10,748

246,983

257,731

-

187,420

187,420

Leasing

9,957

512,362

522,319

8,997

473,593

482,590

Others

627

1,432

2,059

716

1,886

2,602

Interest and charges

112,130

-

112,130

125,011

-

125,011

Total in domestic currency

591,665

5,325,096

5,916,761

968,446

5,471,029

6,439,475

 

 

Page 54 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

 Loans and financing outstanding balance

September 30, 2015

December 31, 2014

Financial institution

 

Current

 

Noncurrent

 

Total

 

Current

 

Noncurrent

 

Total

Foreign currency

 

 

 

 

 

 

Inter-American Development Bank - IDB 713 – US$50,195 thousand(US$75,293 thousand in December 2014)

99,709

99,710

199,419

66,664

133,329

199,993

Inter-American Development Bank - IDB 896 – US$4,167 thousand(US$5,555 thousand in December 2014)

11,036

5,518

16,554

7,377

7,378

14,755

Inter-American Development Bank - IDB 1212 – US$102,781 thousand(US$113,059 thousand in December 2014)

40,834

367,505

408,339

27,301

273,007

300,308

Inter-American Development Bank - IDB 2202 – US$395,714 thousand(US$347,190 thousand in December 2014)

-

1,562,468

1,562,468

-

914,189

914,189

International Bank for Reconstruction and Development -IBRD – US$57,886 thousand (US$45,860 thousand in December 2014)

-

229,621

229,621

-

121,447

121,447

Eurobonds – US$140,000 thousand (US$140,000 thousand in December 2014)

-

556,076

556,076

-

371,655

371,655

Eurobonds – US$350,000 thousand (US$350,000 thousand in December 2014)

-

1,386,200

1,386,200

-

924,741

924,741

JICA 15 – ¥ 16,134,020 thousand (¥ 17,286,450 thousand in December 2014)

38,215

496,790

535,005

25,619

358,659

384,278

JICA 18 – ¥ 14,506,240 thousand (¥ 15,542,400 thousand in December 2014)

34,359

446,376

480,735

23,034

322,166

345,200

JICA 17 – ¥ 1,563,210 thousand (¥ 1,029,992 thousand in December 2014)

-

51,330

51,330

-

22,437

22,437

JICA 19 – ¥ 21,540,111 thousand (¥ 14,208,068 thousand in December 2014)

-

712,460

712,460

-

314,526

314,526

BID 1983AB – US$130,288 thousand (US$154,231 thousand in December 2014)

95,120

420,686

515,806

63,596

344,078

407,674

Interest and charges

62,788

-

62,788

25,089

-

25,089

Total in foreign currency

382,061

6,334,740

6,716,801

238,680

4,107,612

4,346,292

 

 

 

 

 

 

 

Total loans and financing

973,726

11,659,836

12,633,562

1,207,126

9,578,641

10,785,767

 

Current exchange rates on September 30, 2015 were US$3.9729; ¥ 0.03316 (US$2.6562; ¥ 0.02223 on December 31, 2014).

On September 30, 2015, the Company did not have balances of loans and financing raised in 2014 to mature within 12 months.

 

 

Page 55 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

Domestic currency

Guarantees

Maturity

Annual interest rates

Inflation adjustment

 

 

 

 

 

10th issuance debentures

Own funds

2020

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

IPCA (series 2)

12th issuance debentures

Own funds

2025

TR + 9.5%

 

14th issuance debentures

Own funds

2022

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

IPCA (series 2)

15th issuance debentures

Own funds

2019

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

IPCA (series 2)

17th issuance debentures

Own funds

2023

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

IPCA (series 2)

18th issuance debentures

Own funds

2024

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

IPCA (series 2)

19th issuance debentures

Own funds

2017

CDI + 0.80% to 1.08%

 

Brazilian Federal Savings Bank

Own funds

2015/2037

5% to 9.5%

TR

Brazilian Development Bank - BNDES BAIXADA SANTISTA

Own funds

2019

2.5% + TJLP

 

Brazilian Development Bank - BNDES PAC

Own funds

2023

2.15% + TJLP

 

Brazilian Development Bank - BNDES PAC II 9751

Own funds

2027

1.72% + TJLP

 

Brazilian Development Bank - BNDES PAC II 9752

Own funds

2027

1.72% + TJLP

 

Brazilian Development Bank - BNDES ONDA LIMPA

Own funds

2025

1.92% + TJLP

 

Brazilian Development Bank - BNDES TIETE III

Own funds

2028

1.66% + TJLP

 

Leasing

 

2035

7.73% to 10.12%

IPC

Others

Own funds

2015/2018

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

TR

 

 

 

Page 56 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

Foreign currency

Guarantees

Maturity

Annual interest rates

Foreign exchange variation

 

 

 

 

 

Inter-American Development Bank - IDB 713 – US$50,195 thousand

Federal Government

2017

3.35% (*)

US$

Inter-American Development Bank - IDB 896- US$4,167 thousand

Federal Government

2016

3.00%

US$

Inter-American Development Bank - IDB 1212 – US$102,781 thousand

Federal Government

2025

2.28% (*)

US$

Inter-American Development Bank - IDB 2202 – US$395,714 thousand

Federal Government

2035

1.19% (*)

US$

International Bank for Reconstruction and Development - IBRD US$57,886 thousand

Federal Government

2034

0.69% (*)

US$

Eurobonds – US$140,000 thousand

2016

7.50%

US$

Eurobonds – US$350,000 thousand

2020

6.25%

US$

JICA 15 – ¥ 16,134,020 thousand

Federal Government

2029

1.8% and 2.5%

Yen

JICA 18– ¥ 14,506,240 thousand

Federal Government

2029

1.8% and 2.5%

Yen

JICA 17– ¥ 1,563,210 thousand

Federal Government

2035

1.2% and 0.01%

Yen

JICA 19– ¥ 21,540,111 thousand

Federal Government

2037

1.7% and 0.01%

Yen

BID 1983AB – US$130,288 thousand

2023

2.49% to 2.99% (*)

US$

 

 

(*) Rates comprising LIBOR + contractually defined spread.

 

 

 

 

Page 57 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

 

Version: 1

 

 

(i)                 Payment schedule – accounting balances on September 30, 2015

 

 

 

2015

2016

2017

2018

2019

2020

2021 to 2037

Total

Domestic currency

 

 

 

 

 

 

 

 

Debentures

38,434

360,774

889,418

604,872

698,689

388,880

597,782

3,578,849

Brazilian Federal Savings Bank

11,079

48,007

52,463

55,901

57,627

59,705

749,521

1,034,303

BNDES

13,499

70,115

75,489

75,489

75,489

57,853

299,167

667,101

Leasing

2,829

20,090

21,175

22,356

23,638

25,033

407,198

522,319

Others

150

646

728

535

-

-

-

2,059

Interest and other charges

45,265

66,865

-

-

-

-

-

112,130

Total in domestic currency

111,256

566,497

1,039,273

759,153

855,443

531,471

2,053,668

5,916,761

Foreign currency

 

 

 

 

 

 

 

 

IDB

5,518

151,580

223,288

123,578

123,578

123,578

1,435,660

2,186,780

IBRD

-

-

-

-

7,666

15,332

206,623

229,621

Eurobonds

-

556,076

-

-

-

1,386,200

-

1,942,276

JICA

 

72,574

73,975

75,376

113,985

113,985

1,329,635

1,779,530

IDB 1983AB

-

95,120

95,120

94,877

70,290

69,602

90,797

515,806

Interest and other charges

55,930

6,858

-

-

-

-

-

62,788

Total in foreign currency

61,448

882,208

392,383

293,831

315,519

1,708,697

3,062,715

6,716,801

 

 

 

 

 

 

 

 

 

Overall Total

172,704

1,448,705

1,431,656

1,052,984

1,170,962

2,240,168

5,116,383

12,633,562

 

 

 

Page 58 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

 

(i)               Main events in the nine-month period ended September 30, 2015

 

 

(a)  16th issuance debentures

 

On June 24, 2015, the total early payment of the 16th issue occurred totaling R$507,674. Contractual maturity was scheduled for November 12, 2015.

 

(b)  Federal Savings Bank (CEF)

 

Funding totaled R$163,749, mainly related to the agreements in progress of the Growth Acceleration Program (PAC).

 

Advance amortization totaling R$191,081, related to Pro Saneamento and Pro Sanear Programs.

 

(c)  BNDES

 

Funding totaled R$76,000, referring to agreements 12.2.138.1 (BNDES Tiete III) and 09.2.1535.1 (BNDES Onda Limpa).

 

(d)  BID

 

Funding totaled R$145,681, referring to agreement 2202 (BID 2202).

 

(e)  JICA

 

Funding totaled R$223,941, referring to agreements BZ-P17 (JICA 17) and BZ-P19 (JICA 19).

 

(f)   Foreign exchange variation

 

The US dollar exchange rate increased 49.6%, from R$2.6562 on December 31, 2014 to R$3.9729 on September 30, 2015, increasing debt by R$1,628,668. The Yen exchange rate increased 49.2%, from R$0.02223 on December 31, 2014 to R$0.03316 on September 30, 2015, increasing debt by R$546,583.

 

(g)  Leasing

 

On January 15, 2015, the São José dos Campos Sanitary Sewage System started and the corresponding amount on September 30, 2015 is R$96,913.

 

 

Page 59 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

(ii)             Covenants  

 

On September 30, 2015, the Company had met the requirements set forth by its loan and financing agreements.

 

Regarding the agreements with the BNDES, there is a collateral mechanism by which  SABESP has assigned a portion of its tariff payment receivables to BNDES. Under this mechanism, each month, the Company must ensure that a portion of the tariff payments received by it are deposited on a daily basis into a blocked collateral account in Banco do Brasil, before being released to a regular movements account later in the day provided that BNDES has not notified the bank that SABESP is in default. Among the financial ratios set forth in the agreements with the BNDES, there is the adjusted net debt/adjusted EBITDA ratio. If this ratio is at or lower 3.00 the amount that must pass through this blocked collateral account will be R$230 million per month; and if the ratio is in the band between 3.00 and 3.80, for two or more quarters in the last twelve months, the amount that must pass through the blocked collateral account will automatically increase by 20%, equivalent to R$276 million per month.

 

The rations recorded by the Company were 3.28, 3.06, 3.09 and 3.17, on September 30, 2015, June 30, 2015, March 31, 2015 and December 31, 2014, respectively. As a result, since the second quarter of 2015, the monthly guarantee assigned has increased by 20%.

 

Currently, R$226 million are pass through monthly in the blocked collateral account through the abovementioned mechanism. Considering that new loan agreements were signed with the BNDES, where the Company assigned additional guarantees of R$50 million (plus the 20%), total guarantees to pass through to the blocked account will be R$276 million. The Company jointly with the BNDES are formalizing the operation of these guarantees.

 

For the Company to be in default and accordingly, subject to early maturity, the adjusted net debt/ adjusted EBITDA ratio of the agreements with the BNDES must exceed 3.80.

 

On September 30, 2015, the Company and the IDB entered into a Letter Agreement related to the 1983AB Loan Agreement, in which the IDB irrevocably agreed not to exercise its right to accelerate the debt, in the period between September 30, 2015 and October 1, 2016, in the case of non-compliance, in a single quarter, with the “Adjusted net debt / EBITDA” ratio, which should be lower than 3.65. The IDB may exercise its right to accelerate repayment in the case of non-compliance with the ratio for more than one quarter. The Company’s ratio this quarter was 3.54, in line with the contractual requirement.

 

(iii)          Loans and financing contracted and not yet used

 

Agent

 

September 30, 2015

 

 

(in millions of reais (*))

Brazilian Federal Savings Bank

 

2,558

Brazilian Development Bank – BNDES

 

2,120

Inter-American Development Bank – IDB

 

812

Japan International Cooperation Agency – JICA

 

553

International Bank for Reconstruction and Development - IBRD

 

167

Others

 

57

Total

 

6,267

 

(*) Closing quote of 9/30/2015 (US$1.00 = R$3.9729; ¥ 1.00 = R$0.03316.

 

Page 60 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

 

For more information on loans and financing, see Note 16 to the Annual Financial Statements as of December 31, 2014.

 

 

16           Taxes Payable

 

(a)              Current assets

 

 

September 30, 2015

December 31, 2014

Recoverable taxes

 

 

COFINS and PASEP

-

10,121

Income tax and social contribution

55,553

132,447

Withholding income tax (IRRF) on financial investments

6,645

3,718

Other federal taxes

3,454

2,313

Other municipal taxes

445

169

Total

66,097

148,768

 

The reduction in recoverable taxes is mainly due to decrease in “Income tax and social contribution” item, which was offset by Pasep and Cofins payable in the period.

 

 

Page 61 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

 

(b)              Current liabilities

 

 

September 30, 2015

December 31, 2014

Taxes and contributions payable

 

 

Cofins and Pasep

23,430

-

INSS(Social Security contribution)

33,425

33,324

IRRF(withholding income tax)

189

17,377

Others

18,680

23,437

Total

75,724

74,138

 

 

17         Deferred Taxes and Contributions

 

(a)              Balance sheet balances

 

 

September 30,

2015

December 31,

2014

Deferred income tax assets

 

 

Provisions

461,779

524,728

Pension obligations – G0

-

85,271

Pension obligations – G1

243,764

229,266

Donations of underlying assets on concession agreements

49,205

45,742

Allowance for loan losses

226,964

222,587

Tax losses

275,620

-

Others

114,648

112,566

Total deferred tax assets

1,371,980

1,220,160

 

 

 

Deferred income tax liabilities

 

 

Temporary difference on concession intangible assets

(532,861)

(559,411)

Capitalization of borrowing costs

(299,995)

(253,581)

Profit on supply to governmental entities

(81,030)

(87,092)

Actuarial gain/loss – G1 Plan

(2,514)

(2,514)

Construction margin

(97,744)

(98,772)

Financing costs

(8,923)

(9,312)

Total deferred tax liabilities

(1,023,067)

(1,010,682)

 

 

 

Deferred tax asset, net

348,913

209,478

 

 

 

Page 62 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

(b)              Changes

 

 

Deferred income tax assets

December 31,

2014

Net

Change

September 30,

2015

Provisions

524,728

(62,949)

461,779

Pension obligations – G0

85,271

(85,271)

-

Pension obligations – G1

229,266

14,498

243,764

Donations of underlying assets on concession agreements

45,742

3,463

49,205

Credit losses

222,587

4,377

226,964

Tax losses

-

275,620

275,620

Others

112,566

2,082

114,648

Total

1,220,160

151,820

1,371,980

 

 

 

 

Deferred income tax liabilities

 

 

 

Temporary difference on concession intangible assets

(559,411)

26,550

(532,861)

Capitalization of borrowing costs

(253,581)

(46,414)

(299,995)

Profit on supply to governmental entities

(87,092)

6,062

(81,030)

Actuarial gain/loss –G1

(2,514)

-

(2,514)

Construction margin

(98,772)

1,028

(97,744)

Financing cost

(9,312)

389

(8,923)

Total

(1,010,682)

(12,385)

(1,023,067)

 

 

 

 

Deferred tax asset, net

209,478

139,435

348,913

 

 

 

Page 63 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

Deferred income tax assets

December 31,

2013

Net

Change

September 30,

2014

Provisions

506,568

5,294

511,862

Pension obligations – G0

85,271

-

85,271

Pension obligations – G1

215,187

10,841

226,028

Donations of underlying assets on concession agreements

43,901

1,074

44,975

Credit losses

172,482

(12,714)

159,768

Others

87,266

27,852

115,118

Total

1,110,675

32,347

1,143,022

 

 

 

 

Deferred income tax liabilities

 

 

 

Temporary difference on concession intangible assets

(595,285)

27,292

(567,993)

Capitalization of borrowing costs

(200,343)

(33,503)

(233,846)

Profit on supply to governmental entities

(81,711)

(4,034)

(85,745)

Actuarial gain/loss –G1

(32,405)

-

(32,405)

Others

(86,901)

(14,790)

(101,691)

Total

(996,645)

(25,035)

(1,021,680)

 

 

 

 

Deferred tax asset, net

114,030

7,312

121,342

 

 

 

 

Page 64 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

(c)              Reconciliation of the effective tax rate

 

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

 

 

September 30, 2015

September 30, 2014

 

 

 

Profit before income taxes

(63,187)

1,317,996

Statutory rate

34%

34%

 

 

Estimated expenses at statutory rate

21,484

(448,119)

Tax benefit of interest on equity

12,868

27,411

Permanent differences

 

 

Provision - Law 4,819/58 (i)

(43,049)

(37,723)

Donations

(2,853)

(5,593)

GESP Agreement (Note 9(b))

151,465

-

Other differences

(1,379)

17,537

 

 

Income tax and social contribution

138,536

(446,487)

 

 

Current income tax and social contribution

(899)

(453,799)

Deferred income tax and social contribution

139,435

7,312

Effective rate

219%

34%

 

(i) Permanent difference related to the provision for actuarial liability (Note 19 (b) (iii)).

 

 

Page 65 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

18                Provisions

 

(a)            Lawsuits with probable likelihood of loss

 

(I) Financial position balances

 

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

 

 

 

Provisions

Escrow deposits

September 30,

2015

 

Provisions

Escrow deposits

December31,

2014

Customer claims (i)

586,436

(123,142)

463,294

 

638,637

(114,463)

524,174

Supplier claims (ii)

280,574

(212,508)

68,066

 

260,854

(195,478)

65,376

Other civil claims (iii)

125,091

(11,964)

113,127

 

126,403

(9,990)

116,413

Tax claims (iv)

60,735

(660)

60,075

 

55,554

-

55,554

Labor claims (v)

221,856

(2,935)

218,921

 

235,466

(2,233)

233,233

Environmental claims (vi)

84,088

(875)

83,213

 

226,404

(807)

225,597

Total

1,358,780

(352,084)

1,006,696

 

1,543,318

(322,971)

1,220,347

 

 

 

 

 

 

 

 

Current

617,185

-

617,185

 

625,092

-

625,092

Noncurrent

741,595

(352,084)

389,511

 

918,226

(322,971)

595,255

 

 

(II) Changes

 

 

December 31, 2014

Additional provisions

Interest and inflation adjustment

Amounts from provision

Amounts not used

(reversal)

September 30,

2015

Customer claims (i)

638,637

29,962

77,416

(48,863)

(110,716)

586,436

Supplier claims (ii)

260,854

3,059

24,797

(5,452)

(2,684)

280,574

Other civil claims (iii)

126,403

10,888

14,771

(8,901)

(18,070)

125,091

Tax claims (iv)

55,554

1,316

6,596

(215)

(2,516)

60,735

Labor claims (v)

235,466

51,272

18,076

(18,778)

(64,180)

221,856

Environmental claims (vi)

226,404

12,218

12,320

(4,873)

(161,981)

84,088

Subtotal

1,543,318

108,715

153,976

(87,082)

(360,147)

1,358,780

Escrow deposits

(322,971)

(18,050)

(19,678)

7,773

842

(352,084)

Total

1,220,347

90,665

134,298

(79,309)

(359,305)

1,006,696

 

 

 

Page 66 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

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

 

(i)                    Customer claims

 

Approximately 1,190 lawsuits were filed by commercial customers, which claim that their tariffs should correspond to other consumer categories, and 740 lawsuits which claim a reduction in the sewage tariff due to losses in the system, consequently requesting the refund of amounts charged by the Company and 60 lawsuits where customers plead the reduction in tariff under the category as “Social Welfare Entity”. The Company was granted both favorable and unfavorable final decisions at several court levels and recognized provisions when the chances of losses are probable. The decrease of R$60,880 in the lawsuits classified as probable loss (net of escrow deposits) is mainly related to revisions of expectations caused by favorable decisions to the Company.

 

(ii)             Supplier claims

 

Suppliers’ claims include lawsuits filed by some suppliers alleging underpayment of monetary restatements, withholding of amounts related to the understated inflation rates deriving from Real economic plan, and the economic and financial imbalance of the agreements. These lawsuits are in progress at different courts and a provision is recognized when the chances of losses are probable.

 

(iii)           Other civil claims

 

These mainly refer to indemnities for property damage, pain and suffering, and loss of profits allegedly caused to third parties, filed at different court levels, dully accrued when classified as probable losses.

 

(iv)            Tax claims

 

Tax claims refers mainly to issues related to tax collections challenged due to differences in the interpretation of legislation by the Company's management, accrued when classified as probable loss.

 

(v)               Labor claims

 

The Company is a party to labor lawsuits, involving issues such as overtime, shift schedule, health hazard premium and hazardous duty premium, prior notice, change of function, salary equalization, and other. Part of the amount involved is in provisional or final execution at various court levels, and thus is classified as of probable loss and accordingly, accrued.

 

 

Page 67 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

(vi)            Environmental claims

 

Environmental claims refer to several administrative proceedings and lawsuits filed by government entities, including Companhia de Tecnologia de Saneamento Ambiental – Cetesb, Public Prosecution Office of the State of São Paulo and others, that aim affirmative and negative covenants and penalty is estimated due to failure to comply in addition to the imposition of indemnity due to environmental damages allegedly caused by the Company. The amounts accrued represent the best estimate of the Company at this moment, however, may differ from the amount to be disbursed as indemnity to alleged damages, in view of the current stage of referred proceedings. The decrease of R$142,384 in lawsuits with expectation of probable losses (net of escrow deposits) is mainly related to two proceedings, one due to change in its amount, totaling R$36,500, due to the expectation of settlement with the parties involved and the other one due to provision reversal totaling R$106,339, due to court decision favorable to the Company.

 

(c)              Lawsuits with possible likelihood of loss

 

The Company is party to lawsuits and administrative proceedings relating to environmental, tax, civil and labor claims, which are assessed by Management whose chances of loss are possible and are not recorded. Liability contingencies classified as possible loss represent the amount of R$5,295,900 on September 30, 2015 (December/2014 – R$3,779,100). In the first nine months of 2015, three new lawsuits were filed totaling R$559,887 related to environmental, labor and tax claims. The amounts considered for reporting purposes are the amounts questioned by adverse parties, which is not possible estimate the amounts involved for the Company, due to the initial phase of lawsuit. In addition, there was a decision favorable to the Company related to an environmental lawsuit that changed its likelihood of loss from probable to possible, in the amount of R$115,227, and an increase in the estimated loss amount for a lawsuit regarding other civil matters totaling R$112,548.

 

(d)             Lawsuits with settlements made in 2015

 

During the first nine months of 2015, the Company made several judicial and administrative settlements, totaling R$194,348. Of this amount, R$189,475 refer to works and R$4,873 refer to environmental compensation, the latter, recorded as “other liabilities”. The accumulated balance on September 30, 2015, referring to these environmental liabilities is R$20,583.

 

Other information is stated in Note 19 to the Annual Financial Statements as of December 31, 2014.

 

(e)              Guarantee insurance for escrow deposit

 

During the second quarter of 2015, the Company contracted guarantee insurance for escrow deposit totaling R$500 million. Such insurance will be used in legal claims where instead of making immediate cash disbursement by the Company, such insurance is used until the conclusion of these proceedings or up to three-year effectiveness term of the agreement.

 

In 2015, the Company used R$168,063 of the total contracted amount.

 

 

Page 68 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

 

 

 

19                 Employee Benefits

 

(a)              Health benefit plan

 

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

 

.        Company: 7.9% on average, of gross payroll;

 

.        Participating employees: 3.21% of base salary and premiums, equivalent to 2.3% of payroll, on average.

 

(b)              Pension plan benefits

 

Amounts recorded in the statement of financial position

 

 

Funded plan – G1

 

 

Pension plan liabilities on December 31, 2014

 

676,071

Expenses recognized in 2015

 

60,452

Payments made in 2015

 

(17,811)

Pension plan liabilities on September 30, 2015 (i)

 

718,712

 

 

 

Unfunded plan – G0

 

 

Pension plan liabilities on December 31, 2014

 

2,053,527

Expenses recognized in 2015

 

185,894

Payments made in 2015

 

(108,744)

Pension plan liabilities on September 30, 2015 (iii)

 

2,130,677

 

 

 

Total

 

2,849,389

 

 

(i)               Plan G1

 

The Company sponsors a defined benefit pension plan for its employees ("Plan G1"), which is managed by Sabesprev, receives similar contributions established in a plan of subsidy of actuarial study of SABESPREV, as follows:

 

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

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

 

As of September 30, 2015, SABESP had a net actuarial liability of R$718,712 (R$676,071 on December 31, 2014) representing the difference between the present value of the Company's defined benefit obligations to the participating employees, retired employees, and pensioners; the fair value of the plan’s assets.

 

 

Page 69 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

(ii)             Private pension plan benefits – Defined contribution

 

On September 30, 2015, Sabesprev Mais plan, based on defined contribution, had 5,257 active and assisted participants (5,188 in December 2014).

 

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

 

The commitment to all participants who migrated from Plan G1 to the Sabesprev Mais Plan amounted to R$8,198 on September 30, 2015 (R$9,214 on December 31, 2014) referred to active participants.

 

(iii)          Plan G0

 

Pursuant to Law 4,819/58, employees who started services prior to May 1974 and were retired as an employee of the Company acquired a legal right to receive supplemental pension payments, which rights are referred as "Plan G0". The Company pays these supplemental benefits on behalf of the State Government and makes claims for reimbursements from the State Government, which are recorded as accounts receivable from shareholder, limited to the amounts considered virtually certain that will be reimbursed by the State Government. As of September 30, 2015, the Company recorded a defined benefit obligation for Plan G0 of R$2,130,677 (R$2,053,527 on December 31, 2014).

 

(c)       Profit sharing

 

The Company recorded as reference to the 2015 Profit Sharing Program, the amount corresponding to one-month salary for each employee, depending on the establishment goals. In the third quarter of 2015, R$19,207 were accrued (R$18,233 in the third quarter of 2014). From January to September 2015 and 2014, R$57,127 and R$54,749, respectively were accrued.

 

 

20                Services payable

 

The services account records the balances payable, mainly from services received from third parties, such as supply of electric power, reading of hydrometers and delivery of water and sewage bills, cleaning, surveillance and security services, collection, legal counsel services, audit, marketing and advertising and consulting services, among others. This account also records the amounts payable from the percentage in the revenues of São Paulo local government. The balances on September 30, 2015 and December 31, 2014 were R$328,281 and R$318,973, respectively.

 

 

21                 Equity

 

(a)              Authorized capital

 

The Company is authorized to increase capital by up to R$15,000,000 (R$15,000,000 in December 2014), based on a Board of Directors' resolution, after submission to the Fiscal Council.

 

In the event of capital increase, issue of convertible debentures and/or warrants by means of private subscription, shareholders will have preemptive right in the proportion of number of shares held, pursuant to Article 171 of Law 6,404/76.

 

 

 

Page 70 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

(b)              Subscribed and paid-in capital

 

Subscribed and paid-in capital is represented by 683,509,869 registered, book-entry common shares without par value as of September 30, 2015 (683,509,869 on December 31, 2014), held as follows:

 

 

 

September 30, 2015

December 31, 2014

 

Number of shares

Number of shares

State Department of Finance

343,524,285

50.26%

343,524,285

50.26%

Brazil Clearing and Depository Corporation - CBLC

184,871,804

27.05%

169,000,272

24.73%

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

152,957,613

22.38%

170,351,902

24.92%

Others

2,156,167

0.31%

633,410

0.09%

 

 

 

 

 

 

683,509,869

100.00%

683,509,869

100.00%

 

(*) Each ADR corresponds to 1 share.

 

The Annual Shareholders’ Meeting held on April 30, 2015 approved the distribution of dividends as interest on shareholders’ equity amounting to R$252,304 and the transfer to Investments Reserves of retained earnings balances totaling R$605,530.

 

The payment of interest on equity declared in 2014, in the amount of R$252,304, began in June 2015. In June 2014, the Company paid R$106,980 to minority shareholders and R$126,805 to the controlling shareholder on September 24, 2015, totaling R$233,785. Of the amount paid to the controlling shareholder, R$95,123 were through bank transfer, while R$31,682 were offset with receivables from reimbursement of costs of SABESP employees available for the São Paulo State Government. Additionally, the Company paid R$5 as interest on  equity reported in prior years.

 

 

Further information about equity, such as shareholder’ compensation, dividends and purpose of reserves, can be found in Note 22 to the Annual Financial Statements as of December 31, 2014.

 

22                Earnings per share

 

Basic and diluted

 

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

 

 

 

Page 71 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

 

January to September 2015

January to September 2014

 

 

 

Income attributable to the Company’s shareholders

75,349

871,509

Weighted average number of common shares issued

683,509,869

683,509,869

 

 

 

Basic and diluted earnings per share (reais per share)

0.11024

1.27505

 

 

23                Business segment information     

 

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

 

 

 

July to September 2015

 

Water

Sewage

Reconciliation to

the statement

of income

Balance as per

financial

statements

Gross operating income

1,310,877

1,016,290

1,015,238

3,342,405

Gross sales deductions

(81,910)

(63,503)

-

(145,413)

Net operating income

1,228,967

952,787

1,015,238

3,196,992

Costs, selling, general and administrative expenses

(964,788)

(606,033)

(992,984)

(2,563,805)

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

264,179

346,754

22,254

633,187

Other operating income (expenses), net

 

 

 

54,315

Equity accounting

 

 

 

(1,375)

Financial result, net

 

 

 

(1,539,410)

Income from operations before taxes

 

 

 

(853,283)

Depreciation and amortization

158,137

113,174

-

271,311

 

 

 

 

Page 72 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

 

January to September 2015

 

Water

Sewage

Reconciliation

to the statement

of income

Balance as per

financial

statements

Gross operating income

3,591,248

2,787,653

2,508,464

8,887,365

Gross sales deductions

(224,565)

(174,315)

-

(398,880)

Net operating income

3,366,683

2,613,338

2,508,464

8,488,485

Costs, selling, general and administrative expenses

(2,352,670)

(1,472,414)

(2,454,583)

(6,279,667)

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

1,014,013

1,140,924

53,881

2,208,818

Other operating income (expenses), net

 

 

 

98,149

Equity accounting

 

 

 

(376)

Financial result, net

 

 

 

(2,369,778)

Income from operations before taxes

 

 

 

(63,187)

Depreciation and amortization

445,414

363,292

-

808,706

 

 

 

Page 73 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

 

 

July to September 2014

 

Water

Sewage

Reconciliation

to the statement

of income

Balance as per

financial

statements

Gross operating income

1,192,165

973,512

799,731

2,965,408

Gross sales deductions

(78,097)

(63,779)

-

(141,876)

Net operating income

1,114,068

909,733

799,731

2,823,532

Costs, selling, general and administrative expenses

(905,554)

(635,421)

(782,243)

(2,323,218)

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

208,514

274,312

17,488

500,314

Other operating income (expenses), net

 

 

 

(6,168)

Equity accounting

 

 

 

(1,167)

Financial result, net

 

 

 

(337,772)

Income from operations before taxes

 

 

 

155,207

Depreciation and amortization

121,541

121,658

-

243,199

 

 

 

Page 74 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

 

 

January to September 2014

 

Water

Sewage

Reconciliation to the

statement of income

Balance as per

financial statements

Gross operating income

3,763,611

3,070,515

2,009,707

8,843,833

Gross sales deductions

(261,156)

(213,062)

-

(474,218)

Net operating income

3,502,455

2,857,453

2,009,707

8,369,615

Costs, selling, general and administrative expenses

(2,861,925)

(1,845,418)

(1,966,932)

(6,674,275)

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

640,530

1,012,035

42,775

1,695,340

Other operating income (expenses), net

 

 

 

(44,028)

Equity accounting

 

 

 

(1,486)

Financial result, net

 

 

 

(331,830)

Income from operations before taxes

 

 

 

1,317,996

Depreciation and amortization

384,133

341,918

-

726,051

 

 

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

 

 

 

July to September 2015

January to September 2015

July to September 2014

January to September 2014

 

 

 

 

 

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

1,015,238

2,508,464

799,731

2,009,707

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

992,984

2,454,583

782,243

1,966,932

 

 

 

 

 

Construction margin

22,254

53,881

17,488

42,775

 

 

(a)    Revenue from concession construction contracts is recognized in accordance with CPC 17 (R1), Construction Contracts (IAS 11), using the percentage-of-completion method. See Note 13 (c) and (f).

 

 

Page 75 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

24                Operating Revenue

 

(a)          Revenue from water and sewage services:

 

 

July to September 2015

January to September 2015

July to September 2014

January to September 2014

 

 

 

 

 

Metropolitan region of São Paulo

1,576,110

4,261,892

1,513,008

4,821,592

Regional Systems (i)

751,057

2,117,009

652,669

2,012,534

Total (ii)

2,327,167

6,378,901

2,165,677

6,834,126

 

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

 

The gross operating revenue from sale of products and services increased by 7.5% year-on-year in the quarter ended September 30, 2015, due to the effect of the 6.5% tariff increase as of December 2014, the 15.2% tariff adjustment as of June 2015, and the application of contingency tariff totaling R$144.8 million in the third quarter of 2015.

 

The increase was offset by larger bonuses, R$248.8 million in the third quarter of 2015 and R$129.4 million in the third quarter of 2014, in addition to the 5.8% decline in water and sewage billed volume.

                  

 

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

 

 

July to September 2015

January to September 2015

July to September 2014

January to September 2014

 

 

 

 

 

Revenue from water and sewage services

2,327,167

6,378,901

2,165,677

6,834,126

Construction revenue (Note 13 (c))

1,015,238

2,508,464

799,731

2,009,707

Sales tax

(145,413)

(398,880)

(141,876)

(474,218)

Net revenue

3,196,992

8,488,485

2,823,532

8,369,615

 

 

 

 

Page 76 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

 

25                Operating costs and expenses

 

 

 

July to September 2015

January to September 2015

July to September 2014

January to September 2014

Operating costs

 

 

 

 

Salaries and payroll charges

385,270

1,115,186

377,045

1,109,573

Pension obligations

14,960

44,381

12,135

35,886

Construction costs (Note 13 (c))

992,984

2,454,583

782,243

1,966,932

General supplies

40,689

129,469

51,827

140,372

Treatment supplies

62,878

198,788

65,628

199,880

Outsourced services

189,962

580,024

217,728

627,943

Electricity

219,281

585,610

155,801

439,624

General expenses

105,543

268,477

99,632

308,021

Depreciation and amortization

249,892

749,027

223,899

666,557

 

2,261,459

6,125,545

1,985,938

5,494,788

 

 

 

 

 

Selling expenses

 

 

 

 

Salaries and payroll charges

59,767

174,832

60,248

175,748

Pension obligations

1,924

5,740

1,582

4,675

General supplies

805

2,640

1,094

3,264

Outsourced services

63,541

180,055

60,363

188,348

Electricity

206

561

139

443

General expenses

19,087

60,509

22,304

63,385

Depreciation and amortization

2,510

7,435

2,474

7,842

Allowance for doubtful accounts, net of recoveries (Note 8 (c))

(38,131)

9,389

(21,640)

54,688

 

109,709

441,161

126,564

498,393

 

 

 

 

 

Administrative expenses

 

 

 

 

Salaries and payroll charges

43,888

135,039

45,876

134,629

Pension obligations

46,164

140,149

38,982

123,497

GESP reimbursement– benefits paid (Note 9 (b))

-

(696,283)

-

-

General supplies

508

1,621

1,799

5,138

Outsourced services

43,096

102,452

23,052

151,095

Electricity

520

1,230

340

758

General expenses

19,921

(81,338)

65,660

158,864

Depreciation and amortization

18,909

52,244

16,826

51,652

Tax expenses

19,631

57,847

18,181

55,461

 

192,637

(287,039)

210,716

681,094

 

 

 

 

 

Operating Costs and Expenses

 

 

 

 

Salaries and payroll charges

488,925

1,425,057

483,169

1,419,950

Pension obligations

63,048

190,270

52,699

164,058

GESP reimbursement– benefits paid (Note 9 (b))

-

(696,283)

-

-

Construction costs (Note 13 (c))

992,984

2,454,583

782,243

1,966,932

General supplies

42,002

133,730

54,720

148,774

Treatment supplies

62,878

198,788

65,628

199,880

Outsourced services

296,599

862,531

301,143

967,386

Electricity

220,007

587,401

156,280

440,825

General expenses

144,551

247,648

187,596

530,270

Depreciation and amortization

271,311

808,706

243,199

726,051

Tax expenses

19,631

57,847

18,181

55,461

Allowance for doubtful accounts, net of recoveries (Note 8 (c))

(38,131)

9,389

(21,640)

54,688

 

2,563,805

6,279,667

2,323,218

6,674,275

 

 

Page 77 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

 

26                Financial Expenses and Income

 

 

July to September 2015

January to September 2015

July to September 2014

January to September 2014

Financial expenses

 

 

 

 

Interest and charges on loans and financing – local currency (i)

(80,914)

(248,635)

(46,533)

(208,704)

Interest and charges on loans and financing – foreign currency

(39,146)

(94,688)

(27,140)

(74,581)

Other financial expenses

(25,783)

(82,420)

(23,351)

(65,376)

Income tax over international remittance

(5,045)

(13,983)

(2,976)

(9,715)

Inflation adjustment on loans and financing (ii)

(25,882)

(123,632)

(10,155)

(72,141)

Inflation adjustment on Sabesprev Mais

incentive deficit

(379)

(1,307)

(215)

(899)

Other inflation adjustments

(6,334)

(15,361)

(1,817)

(7,686)

Interest and inflation adjustments on provisions

(31,533)

(19,524)

(22,348)

(71,840)

Total financial expenses

(215,016)

(599,550)

(134,535)

(510,942)

 

 

 

 

 

Financial revenues

 

 

 

 

Inflation adjustment gains

59,640

124,752

29,024

65,262

Income on short-term investments

36,300

131,211

52,205

148,309

Interest receivable

30,585

97,082

27,909

76,480

Cofins and Pasep

(5,904)

(5,904)

-

-

Other

3,913

6,564

764

1,578

Total financial income

124,534

353,705

109,902

291,629

 

 

 

 

 

Financial, net before foreign exchange variations

(90,482)

(245,845)

(24,633)

(219,313)

 

 

 

 

 

Net foreign exchange gains (losses)

 

 

 

 

Foreign exchange variation on loans and financing (iii)

(1,448,717)

(2,124,021)

(312,931)

(111,667)

Other foreign exchange variations

(221)

(529)

(30)

(60)

Foreign exchange gains

10

617

(178)

(790)

Foreign exchange variations, net

(1,448,928)

(2,123,933)

(313,139)

(112,517)

 

 

 

 

 

Financial, net

(1,539,410)

(2,369,778)

(337,772)

(331,830)

 

 

 

Page 78 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

(i)                 The R$34.3 million increase in interests and charges on internal loans and financing results from the higher CDI variation in the third quarter of 2015 when compared with the same period of 2014 (14.13% and 10.81%, respectively).

(ii)               The R$15.7 million increase is mainly due to IPCA and TR variations increase of 1.4% and 0.6%, respectively, in the third quarter of 2015, compared to variations of 0.8% and 0.3%, respectively, in the third quarter of 2014.

(iii)             The R$1,135.9 million increase in expenses is due to the third-quarter appreciation of the U.S. Dollar and the Yen of 28.1% and 30.5%, respectively, compared with the appreciations of 11.3% and 2.8%, respectively, in the same period of 2014.

 

 

27                Other operating income (expenses), net

 

 

July to September 2015

January to September 2015

July to September 2014

January to September 2014

 

 

 

 

 

Other net operating income

63,732

128,201

21,014

59,159

Other operating expenses

(9,417)

(30,052)

(27,182)

(103,187)

 

 

 

 

 

Other operating income (expenses), net

54,315

98,149

(6,168)

(44,028)

 

 

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

 

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

 

 

 

Page 79 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

28        Commitments

 

 

The Company has agreements to manage and maintain its activities, as well as agreements to build new projects aiming at achieving the objectives proposed in its target plan. Below, main committed amounts as of September 30, 2015:

 

 

October to December

2015

2016 – 2017

2018 – 2019

2020 onwards

Total

Contractual obligations- Expenses

335,844

1,319,793

318,804

1,358,237

3,332,678

Contractual obligations- Investments

304,173

2,613,819

1,128,299

6,277,186

10,323,477

Total

640,017

3,933,612

1,447,103

7,635,423

13,656,155

 

The main commitment refers to São Lourenço PPP. See Note 13 (h).

 

 

29                Additional information on cash flows

 

(a)         Investment activities not affecting cash:

 

 

January to September 2015

January to September 2014

 

 

 

Total additions of intangible assets (Note 13)

2,835,571

2,283,864

 

 

 

Items not affecting cash (see breakdown below)

(978,661)

(449,560)

 

 

 

Total additions to intangible assets as per statement of cash flows

1,856,910

1,834,304

 

 

 

Investments and financing operations affecting intangible assets but not cash:

 

 

Interest capitalized in the period (Note 13 (e))

247,075

176,724

Contractors payable

(65,741)

37,535

Program contract commitments

175,144

70,250

Public-Private-Partnership (Note 13 (h))

520,545

43,459

Leasing

47,757

78,817

Construction margin (Notes 13 (f) and 23)

53,881

42,775

Total

978,661

449,560

 

 

Page 80 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Notes to the Interim Financial Information

Version: 1

 

 

 

30          Events after the reporting period

 

 

 

On November 10, 2015, the Extraordinary Shareholders’ Meeting (ESM) was held to:

 

I. Elect an alternate member to the Fiscal Council, with term of office until 2016. Sandra Maria Giannella was elected to replace Marcio Rea;

II. Resolve on the terms and conditions of the Protocol and Justification of Merger of Empresa de Água e Esgoto de Diadema S.A. (“EAED”), a wholly-owned investee of the Company;

III. Ratify the appointment and engagement of Priori Serviços e Soluções Contabilidade EIRELI-ME, to prepare the Valuation Report of the assets of EAED (“Valuation Report”);

IV. Approve the Valuation Report prepared by experts, which concluded that the book value of shareholders’ equity for the purpose of merger of EAED into the Company is R$1,269; and

V. Resolve on the merger of EAED into the Company.

All items were approved by a majority vote.

 

 

 

The merger of EAED into the Company, approved by the ESM held on November 10, 2015, will not materially affect the Company’s financial statements.

 

 

 

At the beginning of October, the agreement for the interconnection between the Jaguari (Paraíba do Sul basin) and Atibainha (Cantareira System basin) reservoirs was signed. This project will allow the transfer of an average annual inflow of 5.13 m³/s and maximum inflow of 8.5 m³/s into Cantareira System. The works are expected to be concluded in 2017. The company which was awarded the contract submitted a bid of R$555 million.

 

 

On October 15, 2015, the final and unappelable decision regarding the lawsuit to resume sewage services in the municipality of Álvares Florence was issued. The decision was unfavorable to the Company, and the book value of intangible assets in this municipality amounted to R$847 on September 30, 2015.

 

 

 

 

 

Page 81 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/ 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Comments on the Company’s Projections

 

Version: 1

 

 

 

 

Comments on the Company’s projections

 

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

 

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

 

 

 

 

 

 

                                                                    

 

Page 82 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Other Information Deemed as Relevant by the Company

Version: 1

 

 

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

 

CONSOLIDATED SHAREHOLDING OF CONTROLLING SHAREHOLDERS,
MANAGEMENT AND OUTSTANDING SHARES
Position as of 9/30/2015

Shareholder

Number of
Common Shares
(units)

%

Total
Number of Shares
(units)

%

Controlling shareholder

 

 

 

 

Treasure Department

343,524,285

50.3%

343,524,285

50.3%

Management

 

 

 

 

Board of Directors

-

-

-

-

Executive Officers

-

-

-

-

 

 

 

 

 

Fiscal Council

15

-

15

-

 

 

 

 

 

Treasury shares

-

-

-

-

 

 

 

 

 

Other shareholders

 

 

 

 

 

 

 

 

 

Overall Total

343,524,300

50.3%

343,524,300

50.3%

 

 

 

 

 

 

 

 

 

 

Outstanding shares

339,985,569

49.7%

339,985,569

49.7%

 

 

 

Page 83 of 86


 
 

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

 

ITR –– Quarterly Information Form – 09/30/2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Other Information Deemed as Relevant by the Company

Version: 1

 

 

CONSOLIDATED SHAREHOLDING OF CONTROLLING SHAREHOLDERS,
MANAGEMENT AND OUTSTANDING SHARES
Position as of 9/30/2014

Shareholder

Number of
Common Shares
(units)

%

Total
Number of Shares
(units)

%

Controlling shareholder

 

 

 

 

Treasury Department

343,524,285

50.3%

343,524,285

50.3%

Management

 

 

 

 

Board of Directors

-

-

-

-

Executive Officers

-

-

-

-

 

 

 

 

 

Fiscal Council

-

-

-

-

 

 

 

 

 

Treasury shares

-

-

-

-

 

 

 

 

 

Other shareholders

 

 

 

 

 

 

 

 

 

Overall Total

343,524,285

50.3%

343,524,285

50.3%

 

 

 

 

 

 

 

 

 

 

Outstanding shares

339,985,584

49.7%

339,985,584

49.7%

 

 

2.      SHAREHOLDING POSITION

 

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

Company:
CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Position as of 9/30/2015
(shares)

 

Common shares

Overall Total

Shareholder

Number of shares

%

Number of shares

%

Treasury Department

343,524,285

50.3

343,524,285

50.3

 

Page 84 of 86


 
 

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

 

ITR –– Quarterly Information Form – September 30, 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Reports and Statements / Unqualified Report on Special Review

Version: 1

 

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

REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION

To the Shareholders, Board of Directors and Management of

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

São Paulo - SP

Introduction

We have reviewed the accompanying interim financial information of Companhia de Saneamento Básico do Estado de São Paulo - SABESP (the “Company”) included in the Quarterly Information Form (ITR), for the quarter ended September 30, 2015, which comprises the financial position as of September 30, 2015 and the related statements of income and comprehensive income for the three and nine-month period then ended and changes in equity and cash flows for the nine-month period then ended, including the explanatory notes.

 

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

Scope of review

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

Conclusion on the interim financial information

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

 

 

Page 85 of 86


 
 

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

 

ITR –– Quarterly Information Form – September 30, 2015 – CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

 

Reports and Statements / Unqualified Report on Special Review

Version: 1

 

 

Other matters

Statements of value added

We have also reviewed the statements of value added (DVA) for the nine-month period ended September 30, 2015, prepared under the responsibility of the Company’s Management, the presentation of which is required by the standards issued by the CVM - Brazilian Securities and Exchange Commission applicable to the preparation of Interim Financial Information - ITR and considered as supplemental information by IFRSs, which does not require the presentation of DVA. These statements were subject to the same review procedures described above, and, based on our review, nothing has come to our attention that causes us to believe that they were not prepared, in all material respects, consistently with the interim financial information taken as a whole.

 

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

 

São Paulo, November 12, 2015

DELOITTE TOUCHE TOHMATSU

Délio Rocha Leite

Auditores Independentes

Engagement Partner

 

 

 

 

Page 86 of 86


 

SIGNATURE  
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city São Paulo, Brazil.
Date: November 30, 2015
 
Companhia de Saneamento Básico do Estado de São Paulo - SABESP
By: /s/  Rui de Britto Álvares Affonso    
 
Name: Rui de Britto Álvares Affonso
Title: Chief Financial Officer and Investor Relations Officer
 

 

 
FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.