Oi S.A. - under Judicial Reorganization and Subsidiaries
Financial Statements for the Quarters Ended September 30, 2019 and
Report on the Review of the Interim Financial Information
EO/GP/PC/WCJ/LCSM | 5533i/19 |
Tel.: +55 21 2210-5166 | Rua Buenos Aires, 48, 4°andar |
Fax: + 55 21 2224-5285 | Centro - Rio de Janeiro, RJ - Brasil |
www.bdobrazil.com.br | 20070-022 |
OI S.A. - UNDER JUDICIAL REORGANIZATIONINDEPENDENT AUDITOR'S
REVIEW REPORT ON THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
To the
Shareholders and Management of
Oi S.A. - Under Judicial Reorganization
Rio de Janeiro - RJ
Introduction
We have reviewed the individual and consolidated interim financial information of Oi S.A. - Under Judicial Reorganization(the Company), included in the Quarterly Information, for the quarter ended September 30, 2019, which comprise the statement of financial position as at September 30, 2019 and the respective statements of operations and comprehensive income (loss) for the three and nine-month periods then ended, and of changes in equity and cash flows for the nine-month period then ended, as well as the corresponding notes to the financial statements, including the notes.
The Company's Management is responsible for the preparation of the individual and consolidated interim financial information in accordance with NBC TG 21 (R4) - Interim Financial Reporting and in accordance with International Accounting Standard (IAS) 34 - Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), and for the presentation of this information in accordance with the standards issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the Quarterly Information. Our responsibility is to express a conclusion on this individual and consolidated interim financial information based on our review.
Scope of the review
We conducted our review in accordance with Brazilian and international standards for reviewing interim information (NBC TR 2410 and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity). An interim review consists principally of applying analytical and other review procedures, and making enquiries of and having discussions with persons responsible for financial and accounting matters. An interim review is substantially less in scope than an audit conducted in accordance with auditing standards. An interim review does not provide assurance that we would become aware of any or all significant matters that might be identified in an audit. Accordingly, we do not express such an audit opinion.
Conclusion on the individual and consolidated interim financial information
Based on our review, we are not aware of any fact that leads us to believe that the individual and consolidated interim financial information included in the Quarterly Information referred to above has not been prepared, in all material respects, in accordance with NBC TG 21 (R4) and IAS 34, applicable to the preparation of the Quarterly Information, and presented in accordance with the standards issued by the Brazilian Securities and Exchange Commission (CVM).
2
Emphasis
Going concern
We draw attention to Note 1 to the individual and consolidated interim financial information, on the section about going concern, which informs that the individual and consolidated interim financial information has been prepared assuming the continuity of the Company as a going concern, considering the success in the implementation of the Judicial Reorganization Plan ("PRJ") and compliance with the requirements set forth in Law No. 11.101/2005. These events or conditions indicate that there are significant uncertainties that may cast doubt on the Company's going concern. Our conclusion is not modified in respect of this matter.
Other matters
Statements of value added
The interim financial information referred to above includes the individual and consolidated statements of value added for the nine-month period ended September 30, 2019, prepared under the responsibility of the Company's Management and presented as supplementary information for the purposes of IAS 34. These statements were submitted to review procedures executed with the review of the quarterly information, with the purpose of concluding whether they are reconciled with the interim financial information and accounting records, as applicable, and if its form and contents meet the criteria defined in NBC TG 09 - Statement of Value Added. Based on our review, we are not aware of any fact that would lead us to believe that these statements of value added were not prepared, in all material respects, in accordance with the criteria established in this Standard and consistently with the individual and consolidated interim financial information taken as whole.
The accompanying financial statements have been translated into English for the convenience of readers outside Brazil.
Rio de Janeiro, December 2, 2019.
BDO RCS Auditores Independentes SS
CRC 2 SP 013846/F
Esmir de Oliveira
Accountant CRC 1 SP 109628/O-0 - S - RJ
3
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial Reorganization | Version: 1 |
Contents
Company Data
Capital Breakdown | 1 |
Individual Financial Statements
Balance Sheets, Assets | 2 |
Balance Sheets, Liabilities and Equity | 4 |
Statements of Profit or Loss | 6 |
Statements of Comprehensive Income | 7 |
Statements of Cash Flows | 8 |
Statements of Changes in Equity | |
Statement of Changes in Equity - 1/1/2019 to 9/30/2019 | 10 |
Statement of Changes in Equity - 1/1/2018 to 9/30/2018 | 11 |
Statements of Value Added | 12 |
Consolidated Financial Statements
Balance Sheets, Assets | 13 |
Balance Sheets, Liabilities and Equity | 15 |
Statements of Profit or Loss | 17 |
Statements of Comprehensive Income | 18 |
Statements of Cash Flows | 19 |
Statements of Changes in Equity | |
Statement of Changes in Equity - 1/1/2019 to 9/30/2019 | 21 |
Statement of Changes in Equity - 1/1/2018 to 9/30/2018 | 22 |
Statements of Value Added | 23 |
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial Reorganization | Version: 1 |
Company Data / Capital Breakdown
Number of Shares | Current Quarter |
(thousand) | 09/30/2019 |
Paid-in Capital | |
Common shares | 5,796,478 |
Preferred shares | 157,727 |
Total | 5,954,205 |
In Treasury | |
Common shares | 31 |
Preferred shares | 1,812 |
Total | 1,843 |
PAGE: 1 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial Reorganization | Version: 1 |
Individual Balance Sheets as at September 30, 2019
Assets
(In thousands of Brazilian reais - R$)
Code | Line Item | Current Quarter | Prior Year |
09/30/2019 | 12/31/2018 | ||
1 | Total assets | 44,371,034 | 53,516,055 |
1.01 | Current assets | 9,696,977 | 17,109,300 |
1.01.01 | Cash and cash equivalents | 1,613,530 | 1,669,059 |
1.01.02 | Cash investments | 173,320 | 190,779 |
1.01.02.01 | Cash investments measured at fair value through profit | 173,320 | 190,779 |
or loss | |||
1.01.02.01.01 | Trading securities | 173,320 | 190,779 |
1.01.03 | Accounts receivable | 1,337,172 | 1,193,687 |
1.01.03.01 | Trade receivables | 1,337,172 | 1,193,687 |
1.01.04 | Inventories | 53,030 | 57,599 |
1.01.06 | Recoverable taxes | 76,580 | 146,426 |
1.01.06.01 | Current recoverable taxes | 76,580 | 146,426 |
1.01.07 | Prepaid expenses | 178,487 | 191,087 |
1.01.08 | Other current assets | 6,264,858 | 13,660,663 |
1.01.08.03 | Other | 6,264,858 | 13,660,663 |
1.01.08.03.01 | Due from related parties | 379,088 | 7,565,968 |
1.01.08.03.02 | Other taxes | 498,037 | 232,961 |
1.01.08.03.03 | Judicial deposits | 1,213,184 | 1,348,700 |
1.01.08.03.04 | Pension plan assets | 544 | 4,366 |
1.01.08.03.05 | Held-for-sale assets | 3,682,912 | 3,721,549 |
1.01.08.03.06 | Other assets | 491,093 | 787,119 |
1.02 | Non-current assets | 34,674,057 | 36,406,755 |
1.02.01 | Long-term receivables | 10,185,342 | 8,082,659 |
1.02.01.01 | Cash investments measured at fair value through profit | 5,028 | 4,860 |
or loss | |||
1.02.01.01.01 | Securities designated at fair value | 5,028 | 4,860 |
1.02.01.08 | Prepaid expenses | 113,022 | 113,507 |
1.02.01.09 | Due from related parties | 5,206,800 | 4,394,712 |
1.02.01.09.02 | Due from subsidiaries | 5,206,800 | 4,394,712 |
1.02.01.10 | Other non-current assets | 4,860,492 | 3,569,580 |
1.02.01.10.03 | Other taxes | 1,322,701 | 147,409 |
1.02.01.10.04 | Judicial deposits | 3,445,896 | 3,337,981 |
1.02.01.10.05 | Pension plan assets | 59,084 | 64,253 |
1.02.01.10.06 | Other assets | 32,811 | 19,937 |
1.02.02 | Investments | 16,213,229 | 16,931,222 |
1.02.02.01 | Equity interests | 16,213,229 | 16,931,222 |
1.02.02.01.02 | Investments in subsidiaries | 16,199,157 | 16,917,150 |
1.02.02.01.04 | Other investments | 14,072 | 14,072 |
1.02.03 | Property, plant and equipment | 7,100,096 | 6,322,834 |
1.02.03.01 | Property, plant and equipment in service | 6,282,292 | 5,862,699 |
1.02.03.02 | Right of use in a lease | 664,761 | 0 |
1.02.03.03 | Property, plant and equipment in progress | 153,043 | 460,135 |
1.02.04 | Intangible assets | 1,175,390 | 5,070,040 |
1.02.04.01 | Intangible assets | 1,175,390 | 5,070,040 |
1.02.04.01.02 | Regulatory licenses | 1,087,791 | 4,961,425 |
1.02.04.01.03 | Software | 61,079 | 15,685 |
PAGE: 2 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial ReorganizationVersion: 1
Individual Balance Sheets as at September 30, 2019
Assets
(In thousands of Brazilian reais - R$)
Code | Line Item | Current Quarter | Prior Year |
09/30/2019 | 12/31/2018 | ||
1.02.04.01.04 | Intangible assets in progress | 12,489 | 12,656 |
1.02.04.01.05 | Other | 14,031 | 80,274 |
PAGE: 3 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial Reorganization | Version: 1 |
Individual Balance Sheets as at September 30, 2019
Liabilities and Equity
(In thousands of Brazilian reais - R$)
Code | Line Item | Current Quarter | Prior Year |
09/30/2019 | 12/31/2018 | ||
2 | Total liabilities and shareholders' equity | 44,371,034 | 53,516,055 |
2.01 | Current liabilities | 2,406,214 | 3,402,850 |
2.01.01 | Payroll and related taxes | 129,258 | 157,451 |
2.01.01.02 | Mandatory benefits | 129,258 | 157,451 |
2.01.02 | Trade payables | 989,896 | 1,301,537 |
2.01.02.01 | Domestic suppliers | 989,896 | 1,301,537 |
2.01.02.01.01 | Trade payables | 812,278 | 1,231,040 |
2.01.02.01.02 | Trade payables subject to the JRP | 177,618 | 70,497 |
2.01.03 | Taxes payable | 0 | 963 |
2.01.03.01 | Federal taxes payable | 0 | 963 |
2.01.03.01.01 | Income tax and social contribution payable | 0 | 963 |
2.01.04 | Borrowings and financing | 130,373 | 660,172 |
2.01.04.01 | Borrowings and financing | 130,373 | 660,172 |
2.01.04.01.01 | In local currency | 4,283 | 402 |
2.01.04.01.02 | In foreign currency | 126,090 | 659,770 |
2.01.05 | Other payables | 892,388 | 853,652 |
2.01.05.02 | Other | 892,388 | 853,652 |
2.01.05.02.01 | Dividends and interest on capital payable | 5,037 | 5,075 |
2.01.05.02.04 | Other taxes | 248,310 | 233,714 |
2.01.05.02.05 | Licenses and concessions payable | 0 | 22,925 |
2.01.05.02.06 | Leases payable | 110,306 | 0 |
2.01.05.02.07 | Tax refinancing program | 55,710 | 86,154 |
2.01.05.02.08 | Other payables | 473,025 | 505,784 |
2.01.06 | Provisions | 264,299 | 429,075 |
2.01.06.01 | Tax, social security, labor, and civil provisions | 264,299 | 429,075 |
2.01.06.01.01 | Tax provisions | 7,206 | 6,728 |
2.01.06.01.02 | Social security and labor provisions | 111,175 | 82,597 |
2.01.06.01.04 | Civil provisions | 145,918 | 339,750 |
2.02 | Non-current liabilities | 22,047,575 | 27,460,885 |
2.02.01 | Borrowings and financing | 10,343,013 | 9,297,642 |
2.02.01.01 | Borrowings and financing | 10,343,013 | 9,297,642 |
2.02.01.01.01 | In local currency | 3,566,695 | 3,184,085 |
2.02.01.01.02 | In foreign currency | 6,776,318 | 6,113,557 |
2.02.02 | Other payables | 9,517,862 | 15,481,729 |
2.02.02.01 | Due to related parties | 692,672 | 377,184 |
2.02.02.01.02 | Payables to subsidiaries | 692,672 | 377,184 |
2.02.02.02 | Other | 8,825,190 | 15,104,545 |
2.02.02.02.03 | Trade payables subject to the JRP | 957,296 | 942,845 |
2.02.02.02.04 | Other taxes | 229,063 | 222,995 |
2.02.02.02.05 | Leases payable | 548,335 | 0 |
2.02.02.02.06 | Tax refinancing program | 225,739 | 267,342 |
2.02.02.02.07 | Provision for negative shareholders' equity | 4,553,276 | 11,434,504 |
2.02.02.02.08 | Other payables | 2,311,481 | 2,236,859 |
2.02.04 | Provisions | 2,186,700 | 2,681,514 |
2.02.04.01 | Tax, social security, labor, and civil provisions | 2,186,700 | 2,681,514 |
2.02.04.01.01 | Tax provisions | 63,989 | 77,142 |
PAGE: 4 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial ReorganizationVersion: 1
Individual Balance Sheets as at September 30, 2019
Liabilities and Equity
(In thousands of Brazilian reais - R$)
Code | Line Item | Current Quarter | Prior Year |
09/30/2019 | 12/31/2018 | ||
2.02.04.01.02 | Social security and labor provisions | 520,225 | 375,915 |
2.02.04.01.03 | Accrued employee benefits | 621,423 | 579,122 |
2.02.04.01.04 | Civil provisions | 981,063 | 1,649,335 |
2.03 | Equity | 19,917,245 | 22,652,320 |
2.03.01 | Realized capital | 32,538,937 | 32,038,471 |
2.03.02 | Capital reserves | 12,873,890 | 8,729,745 |
2.03.02.02 | Special merger goodwill reserve | 1,750,494 | 1,750,494 |
2.03.02.05 | Treasury shares | -33,315 | -2,803,250 |
2.03.02.07 | Donations and investment grants | 123,558 | 123,558 |
2.03.02.08 | Special merger reserve - Net assets | 6,703,309 | 6,703,309 |
2.03.02.09 | Interest on construction in progress | 745,756 | 745,756 |
2.03.02.10 | Law 8200/91 inflation adjustment | 31,287 | 31,287 |
2.03.02.11 | Restructured senior notes | 0 | 3,719 |
2.03.02.12 | Other capital reserves | 3,552,801 | 2,174,872 |
2.03.05 | Retained earnings/accumulated losses | -24,465,485 | -17,530,108 |
2.03.06 | Valuation adjustments to equity | -793,746 | -377,429 |
2.03.08 | Other comprehensive income | -236,351 | -208,359 |
PAGE: 5 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial ReorganizationVersion: 1
Individual Statements of Profit or Loss for the Periods Ended September 30, 2019 and 2018
(In thousands of Brazilian reais - R$)
Code | Line Item | Current Quarter | YTD | Same Quarter Prior Year | Prior YTD |
1/7/2019 to 9/30/2019 | 1/1/2019 to 9/30/2019 | 01/04/2018 to 9/30/2018 | 01/01/2018 to 9/30/2018 | ||
3.01 | Net operating revenue | 910,513 | 2,862,889 | 1,092,320 | 3,442,310 |
3.02 | Cost of sales and/or services | -787,351 | -2,360,142 | -842,561 | -2,442,075 |
3.03 | Gross profit | 123,162 | 502,747 | 249,759 | 1,000,235 |
3.04 | Operating expenses/income | -5,084,374 | -6,543,897 | -2,040,205 | -679,580 |
3.04.01 | Selling expenses | -196,007 | -622,837 | -189,119 | -608,240 |
3.04.02 | General and administrative expenses | -206,862 | -637,625 | -214,047 | -660,612 |
3.04.04 | Other operating income | 186,116 | 1,491,745 | 191,297 | 448,953 |
3.04.05 | Other operating expenses | -3,026,882 | -3,065,809 | -50,831 | 24,209 |
3.04.06 | Share of profit (loss) of investees | -1,840,739 | -3,709,371 | -1,777,505 | 116,110 |
3.05 | Profit (loss) before financial income (expenses) and taxes | -4,961,212 | -6,041,150 | -1,790,446 | 320,655 |
3.06 | Financial income (expenses) | -788,190 | -697,178 | 304,167 | 27,413,914 |
3.06.01 | Financial income | 1,894,079 | 3,055,123 | 3,296,716 | 33,468,782 |
3.06.02 | Financial expenses | -2,682,269 | -3,752,301 | -2,992,549 | -6,054,868 |
3.07 | Profit before taxes on income | -5,749,402 | -6,738,328 | -1,486,279 | 27,734,569 |
3.08 | Income tax and social contribution | 2,513 | 797 | 149,892 | 214,723 |
3.08.01 | Current | 2,513 | 797 | -3,579 | -23,594 |
3.08.02 | Deferred | 0 | 0 | 153,471 | 238,317 |
3.09 | Profit (loss) for the period from continuing operations | -5,746,889 | -6,737,531 | -1,336,387 | 27,949,292 |
3.11 | Profit/loss for the period | -5,746,889 | -6,737,531 | -1,336,387 | 27,949,292 |
3.99Earnings per share - (R$ per share)
3.99.01Basic earnings per share
3.99.01.01 | Common shares (ON) | -0,97000 | -1,13000 | -0,58000 | 22,92000 |
3.99.01.02 | Preferred shares (PN) | -0,97000 | -1,13000 | -0,58000 | 22,92000 |
3.99.02Diluted earnings per share
3.99.02.01 | Common shares (ON) | -0,97000 | -1,13000 | -0,58000 | 22,92000 |
3.99.02.02 | Preferred shares (PN) | -0,97000 | -1,13000 | -0,58000 | 22,92000 |
PAGE: 6 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial Reorganization | Version: 1 |
Individual Statements of Comprehensive Income for the Periods Ended September 30, 2019 and 2018
(In thousands of Brazilian reais - R$)
Code | Line Item | Current Quarter | YTD | Same Quarter Prior Year | Prior YTD |
1/7/2019 to 9/30/2019 | 1/1/2019 to 9/30/2019 | 01/04/2018 to 9/30/2018 | 01/01/2018 to 9/30/2018 | ||
4.01 | Profit for the period | -5,746,889 | -6,737,531 | -1,336,387 | 27,949,292 |
4.02 | Other comprehensive income | -39,499 | -27,992 | -12,252 | -53,781 |
4.02.01 | Actuarial loss | -11,320 | -11,320 | 0 | 0 |
4.02.02 | Subsidiaries' actuarial gains | 4,329 | 4,329 | -12,252 | -53,781 |
4.02.03 | Exchange losses on investment abroad | -32,508 | -21,001 | 0 | 0 |
4.03 | Comprehensive income for the period | -5,786,388 | -6,765,523 | -1,348,639 | 27,895,511 |
PAGE: 7 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial Reorganization | Version: 1 |
Individual Statements of Cash Flows - Indirect Method for the Periods Ended September 30, 2019 and 2018
(In thousands of Brazilian reais - R$)
Code | Line Item | YTD | Prior YTD |
1/1/2019 to 9/30/2019 | 1/1/2018 to 9/30/2018 | ||
6.01 | Net cash from operating activities | -1,260,613 | -55,117 |
6.01.01 | Cash generated by operations | 1,007,980 | 1,074,631 |
6.01.01.01 | Profit (loss) before income tax and social contribution | -6,738,328 | 27,734,569 |
6.01.01.02 | Charges, interest income, inflation adjustment, and | 1,476,942 | -286,960 |
exchange differences | |||
6.01.01.03 | Fair value adjustment to borrowings and financing | -316,163 | -23,863,893 |
6.01.01.04 | Present value adjustment to other liabilities | 87,980 | -284,693 |
6.01.01.05 | Gain on the restructuring of third-party borrowings | 0 | -3,269,445 |
6.01.01.06 | Transaction with derivative financial instruments | -55,025 | 0 |
6.01.01.07 | Depreciation and amortization | 1,357,191 | 1,269,812 |
6.01.01.08 | Estimated loss on doubtful debts | 91,049 | 66,640 |
6.01.01.09 | Impairment losses | 3,341,842 | 0 |
6.01.01.10 | Provisions/(reversals) | -380,440 | -124,753 |
6.01.01.11 | Provision for pension plans | 158 | 155 |
6.01.01.12 | Equity in investees | 3,709,371 | -116,110 |
6.01.01.13 | Loss on disposal of capital assets | 29,756 | 52,309 |
6.01.01.14 | Concession Agreement Extension Fee - ANATEL | 60,371 | 17,654 |
6.01.01.15 | Employee and management profit sharing | 25,934 | 14,469 |
6.01.01.16 | Tax recovery | -1,483,270 | 0 |
6.01.01.17 | Inflation adjustment to provisions/(reversals) | 209,990 | -49,584 |
6.01.01.18 | Inflation adjustment to tax refinancing program | 7,495 | 17,461 |
6.01.01.19 | Other | -416,873 | -103,000 |
6.01.02 | Changes in assets and liabilities | -1,283,692 | -1,114,603 |
6.01.02.01 | Accounts receivable | -234,534 | -371,550 |
6.01.02.02 | Inventories | 4,569 | 8,171 |
6.01.02.03 | Taxes | -52,541 | 37,775 |
6.01.02.04 | Held-for-trading cash investments | -98,039 | -176,784 |
6.01.02.05 | Redemption of held-for-trading cash investments | 127,742 | 178,865 |
6.01.02.06 | Trade payables | -682,186 | -789,196 |
6.01.02.07 | Payroll, related taxes and benefits | -54,127 | -54,193 |
6.01.02.08 | Licenses and concessions | -51,898 | 0 |
6.01.02.09 | Provisions | -217,578 | -101,928 |
6.01.02.10 | Other assets and liabilities | -25,100 | 154,237 |
6.01.03 | Other | -984,901 | -15,145 |
6.01.03.01 | Financial charges paid - debt | -924,688 | -11,806 |
6.01.03.02 | Income tax and social contribution paid - Company | -2,766 | -3,339 |
6.01.03.03 | Income tax and social contribution paid - third parties | -57,447 | 0 |
6.02 | Net cash from investing activities | -2,635,491 | -2,235,082 |
6.02.01 | Purchases of tangibles and intangibles | -676,314 | -575,007 |
6.02.02 | Due from related parties and debentures - disbursements | 0 | -21,835 |
6.02.03 | Due from related parties and debentures - receipts | 162 | 107,620 |
6.02.04 | (Increase) decrease in permanent investments | 0 | 18 |
PAGE: 8 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial Reorganization | Version: 1 |
Individual Statements of Cash Flows - Indirect Method for the Periods Ended September 30, 2019 and 2018
(In thousands of Brazilian reais - R$)
Code | Line Item | YTD | Prior YTD |
1/1/2019 to 9/30/2019 | 1/1/2018 to 9/30/2018 | ||
6.02.05 | Judicial deposits | -246,317 | -353,277 |
6.02.06 | Redemption of judicial deposits | 377,378 | 555,080 |
6.02.07 | Capital increase in subsidiary | 9,600 | -1,947,681 |
6.02.08 | Advance for future capital increase in subsidiary | -2,100,000 | 0 |
6.03 | Net cash from financing activities | 3,840,575 | -118,444 |
6.03.02 | Repayment of principal of borrowings, financing, and | -84 | 0 |
derivatives | |||
6.03.03 | Proceeds from derivative financial instrument transactions | 66,926 | 0 |
6.03.04 | Due to related parties and debentures - Repayments | 0 | -110 |
6.03.05 | Capital increase | 4,000,000 | 0 |
6.03.06 | Commitment to investors premium | -58,489 | 0 |
6.03.07 | Tax refinancing program | -79,542 | -118,292 |
6.03.08 | Payment of dividends and interest on capital | -38 | -42 |
6.03.09 | Leases | -85,626 | 0 |
6.03.10 | Share buyback | -2,572 | 0 |
6.04 | Exchange differences on cash and cash equivalents | 0 | 9,296 |
6.05 | Increase (decrease) in cash and cash equivalents | -55,529 | -2,399,347 |
6.05.01 | Cash and cash equivalents at the beginning of the period | 1,669,059 | 3,875,141 |
6.05.02 | Cash and cash equivalents at the end of the period | 1,613,530 | 1,475,794 |
PAGE: 9 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial ReorganizationVersion: 1
Individual Statement of Changes in Equity for the Period January 31, 2019 to September 30, 2019
(In thousands of Brazilian reais - R$)
Code | Line Item | Paid-in capital | Capital reserves, stock | Profit reserves | Retained earnings or | Other comprehensive | Equity |
options granted and | accumulated losses | income | |||||
treasury shares | |||||||
5.01 | Opening balances | 32,038,471 | 8,729,745 | 0 | -17,530,108 | -585,788 | 22,652,320 |
5.03 | Adjusted opening balances | 32,038,471 | 8,729,745 | 0 | -17,530,108 | -585,788 | 22,652,320 |
5.04 | Capital transactions with shareholders | 500,466 | 4,144,145 | 0 | -197,846 | 0 | 4,446,765 |
5.04.01 | Capital Increases | 500,466 | 3,837,009 | 0 | 0 | 0 | 4,337,475 |
5.04.04 | Bought-back treasury shares | 0 | -2,572 | 0 | 0 | 0 | -2,572 |
5.04.08 | Pharol agreement | 0 | -2,462,799 | 0 | 0 | 0 | -2,462,799 |
5.04.09 | Pharol agreement | 0 | 2,772,507 | 0 | -197,846 | 0 | 2,574,661 |
5.05 | Total comprehensive income | 0 | 0 | 0 | -6,737,531 | -444,309 | -7,181,840 |
5.05.01 | Profit for the period | 0 | 0 | 0 | -6,737,531 | 0 | -6,737,531 |
5.05.02 | Other comprehensive income | 0 | 0 | 0 | 0 | -444,309 | -444,309 |
5.05.02.06 | Share issue costs | 0 | 0 | 0 | 0 | -416,317 | -416,317 |
5.05.02.07 | Other comprehensive income | 0 | 0 | 0 | 0 | -27,992 | -27,992 |
5.07 | Closing balances | 32,538,937 | 12,873,890 | 0 | -24,465,485 | -1,030,097 | 19,917,245 |
PAGE: 10 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial Reorganization | Version: 1 |
Individual Statement of Changes in Equity for the Period January 31, 2018 to September 30, 2018
(In thousands of Brazilian reais - R$)
Code | Line Item | Paid-in capital | Capital reserves, stock | Profit reserves | Retained earnings or | Other comprehensive | Equity |
options granted and | accumulated losses | income | |||||
treasury shares | |||||||
5.01 | Opening balances | 21,438,374 | 7,711,282 | 0 | -42,335,925 | -619,711 | -13,805,980 |
5.03 | Adjusted opening balances | 21,438,374 | 7,711,282 | 0 | -42,335,925 | -619,711 | -13,805,980 |
5.04 | Capital transactions with shareholders | 10,600,097 | -10,600,097 | 0 | 1,212 | 0 | 1,212 |
5.04.01 | Capital Increases | 10,600,097 | -10,600,097 | 0 | 0 | 0 | 0 |
5.04.08 | Merger of subsidiary | 0 | 0 | 0 | 1,212 | 0 | 1,212 |
5.05 | Total comprehensive income | 0 | 0 | 0 | 27,949,292 | -53,781 | 27,895,511 |
5.05.01 | Profit for the period | 0 | 0 | 0 | 27,949,292 | 0 | 27,949,292 |
5.05.02 | Other comprehensive income | 0 | 0 | 0 | 0 | -53,781 | -53,781 |
5.05.02.06 | Other comprehensive income | 0 | 0 | 0 | 0 | -53,781 | -53,781 |
5.06 | Internal change in shareholder | 0 | 11,613,980 | 0 | 282,135 | 0 | 11,896,115 |
5.06.04 | Effects of initial adoption of IFRSs 9 and 15 | 0 | 0 | 0 | 282,135 | 0 | 282,135 |
5.06.05 | Effects of the restructuring of senior notes pursuant to the | 0 | 11,613,980 | 0 | 0 | 0 | 11,613,980 |
Judicial Reorganization Plan | |||||||
5.06.06 | Delivery of treasury shares | 0 | 2,727,842 | 0 | 0 | 0 | 2,727,842 |
5.06.07 | Delivery of treasury shares | 0 | -2,727,842 | 0 | 0 | 0 | -2,727,842 |
5.07 | Closing balances | 32,038,471 | 8,725,165 | 0 | -14,103,286 | -673,492 | 25,986,858 |
PAGE: 11 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial Reorganization | Version: 1 |
Individual Statements of Value Added
for the Periods Ended September 30, 2019 and 2018
(In thousands of Brazilian reais - R$)
Code | Line Item | YTD | Prior YTD |
1/1/2019 to 9/30/2019 | 1/1/2018 to 9/30/2018 | ||
7.01 | Revenue | 5,174,782 | 5,186,386 |
7.01.01 | Sales of goods and services | 3,776,999 | 4,584,466 |
7.01.02 | Other income | 1,488,832 | 668,560 |
7.01.04 | Allowance for/reversal of doubtful accounts | -91,049 | -66,640 |
7.02 | Inputs purchased from third parties | -1,771,391 | -1,848,876 |
7.02.01 | Cost of sales and services | -71,371 | -110,088 |
7.02.02 | Supplies, power, outside services, and other | -1,632,421 | -1,664,398 |
inputs | |||
7.02.04 | Other | -67,599 | -74,390 |
7.03 | Gross value added | 3,403,391 | 3,337,510 |
7.04 | Retentions | -4,558,289 | -1,348,369 |
7.04.01 | Depreciation, amortization and depletion | -1,357,191 | -1,269,812 |
7.04.02 | Other | -3,201,098 | -78,557 |
7.04.02.01 | Provisions (including inflation adjustment) | 170,450 | -48,564 |
7.04.02.02 | Impairment losses | -3,341,842 | 0 |
7.04.02.03 | Other expenses | -29,706 | -29,993 |
7.05 | Wealth created | -1,154,898 | 1,989,141 |
7.06 | Value added received as transfer | -654,248 | 33,584,892 |
7.06.01 | Share of profit (loss) of investees | -3,709,371 | 116,110 |
7.06.02 | Financial income | 3,055,123 | 33,468,782 |
7.07 | Wealth for distribution | -1,809,146 | 35,574,033 |
7.08 | Wealth distributed | -1,809,146 | 35,574,033 |
7.08.01 | Personnel | 271,806 | 275,992 |
7.08.01.01 | Salaries and wages | 194,497 | 196,595 |
7.08.01.02 | Benefits | 56,151 | 57,132 |
7.08.01.03 | Severance pay fund (FGTS) | 15,945 | 16,867 |
7.08.01.04 | Other | 5,213 | 5,398 |
7.08.02 | Taxes and fees | 714,174 | 649,445 |
7.08.02.01 | Federal | -42,627 | -333,952 |
7.08.02.02 | State | 744,773 | 966,378 |
7.08.02.03 | Municipal | 12,028 | 17,019 |
7.08.03 | Lenders and lessors | 3,942,405 | 6,699,304 |
7.08.03.01 | Interest | 3,618,166 | 6,275,032 |
7.08.03.02 | Rentals | 324,239 | 424,272 |
7.08.04 | Shareholders | -6.737.531 | 27.949.292 |
7.08.04.03 | Retained earnings/Accumulated losses for the | -6.737.531 | 27.949.292 |
period |
PAGE: 12 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial Reorganization | Version: 1 |
Consolidated Balance Sheets as at September 30, 2019
Assets
(In thousands of Brazilian reais - R$)
Code | Line Item | Current Quarter | Prior Year |
09/30/2019 | 12/31/2018 | ||
1 | Total assets | 72,866,528 | 65,437,797 |
1.01 | Current assets | 20,154,514 | 21,313,484 |
1.01.01 | Cash and cash equivalents | 2,978,526 | 4,385,329 |
1.01.02 | Cash investments | 178,598 | 201,975 |
1.01.02.01 | Cash investments measured at fair value through profit | 178,598 | 201,975 |
or loss | |||
1.01.02.01.01 | Held-for-trading securities | 178,598 | 201,975 |
1.01.03 | Accounts receivable | 6,616,234 | 6,516,555 |
1.01.03.01 | Trade receivables | 6,616,234 | 6,516,555 |
1.01.04 | Inventories | 317,933 | 317,503 |
1.01.06 | Recoverable taxes | 493,385 | 621,246 |
1.01.06.01 | Current recoverable taxes | 493,385 | 621,246 |
1.01.07 | Prepaid expenses | 853,670 | 743,953 |
1.01.08 | Other current assets | 8,716,168 | 8,526,923 |
1.01.08.03 | Other | 8,716,168 | 8,526,923 |
1.01.08.03.02 | Other taxes | 1,476,577 | 803,252 |
1.01.08.03.03 | Judicial deposits | 1,520,873 | 1,715,934 |
1.01.08.03.04 | Pension plan assets | 766 | 4,880 |
1.01.08.03.05 | Held-for-sale assets | 4,870,208 | 4,923,187 |
1.01.08.03.06 | Other taxes | 847,744 | 1,079,670 |
1.02 | Non-current assets | 52,712,014 | 44,124,313 |
1.02.01 | Long-term receivables | 11,145,839 | 8,632,464 |
1.02.01.01 | Cash investments measured at fair value through profit | 34,767 | 36,987 |
or loss | |||
1.02.01.01.01 | Securities at fair value | 34,767 | 36,987 |
1.02.01.07 | Deferred taxes | 0 | 23,050 |
1.02.01.07.01 | Deferred income tax and social contribution | 0 | 23,050 |
1.02.01.08 | Prepaid expenses | 584,251 | 522,550 |
1.02.01.10 | Other non-current assets | 10,526,821 | 8,049,877 |
1.02.01.10.03 | Other taxes | 3,062,830 | 715,976 |
1.02.01.10.04 | Judicial deposits | 6,956,066 | 7,018,786 |
1.02.01.10.05 | Pension plan assets | 63,384 | 64,253 |
1.02.01.10.06 | Other taxes | 444,541 | 250,862 |
1.02.02 | Investments | 118,184 | 117,840 |
1.02.02.01 | Equity interests | 118,184 | 117,840 |
1.02.02.01.01 | Investments in associates | 47,643 | 44,124 |
1.02.02.01.04 | Interests in joint ventures | 28,069 | 31,488 |
1.02.02.01.05 | Other investments | 42,472 | 42,228 |
1.02.03 | Property, plant and equipment | 38,506,466 | 28,425,563 |
1.02.03.01 | Property, plant and equipment in service | 28,041,047 | 25,073,950 |
1.02.03.02 | Right of use in a lease | 8,057,731 | 0 |
1.02.03.03 | Property, plant and equipment in progress | 2,407,688 | 3,351,613 |
1.02.04 | Intangible assets | 2,941,525 | 6,948,446 |
1.02.04.01 | Intangible assets | 2,941,525 | 6,948,446 |
1.02.04.01.02 | Regulatory licenses | 1,866,533 | 5,850,907 |
1.02.04.01.03 | Software | 927,913 | 865,233 |
PAGE: 13 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial ReorganizationVersion: 1
Consolidated Balance Sheets as at September 30, 2019
Assets
(In thousands of Brazilian reais - R$)
Code | Line Item | Current Quarter | Prior Year |
09/30/2019 | 12/31/2018 | ||
1.02.04.01.04 | Intangible assets in progress | 10,703 | 27,195 |
1.02.04.01.05 | Other | 136,376 | 205,111 |
PAGE: 14 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial Reorganization | Version: 1 |
Consolidated Balance Sheets as at September 30, 2019
Liabilities and Equity
(In thousands of Brazilian reais - R$)
Code | Line Item | Current Quarter | Prior Year |
09/30/2019 | 12/31/2018 | ||
2 | Total liabilities and shareholders' equity | 72,866,528 | 65,437,797 |
2.01 | Current liabilities | 11,923,361 | 10,689,459 |
2.01.01 | Payroll and related taxes | 942,472 | 906,655 |
2.01.01.02 | Mandatory benefits | 942,472 | 906,655 |
2.01.02 | Trade payables | 5,900,431 | 5,225,862 |
2.01.02.01 | Domestic suppliers | 5,900,431 | 5,225,862 |
2.01.02.01.01 | Trade payables | 5,186,659 | 5,024,260 |
2.01.02.01.02 | Trade payables subject to the JRP | 713,772 | 201,602 |
2.01.03 | Taxes payable | 47,012 | 27,026 |
2.01.03.01 | Federal taxes payable | 47,012 | 27,026 |
2.01.03.01.01 | Income tax and social contribution payable | 47,012 | 27,026 |
2.01.04 | Borrowings and financing | 138,842 | 672,894 |
2.01.04.01 | Borrowings and financing | 138,842 | 672,894 |
2.01.04.01.01 | In local currency | 11,678 | 13,124 |
2.01.04.01.02 | In foreign currency | 127,164 | 659,770 |
2.01.05 | Other payables | 4,379,570 | 3,176,480 |
2.01.05.02 | Other | 4,379,570 | 3,176,480 |
2.01.05.02.01 | Dividends and interest on capital payable | 6,156 | 6,168 |
2.01.05.02.04 | Other taxes | 956,370 | 1,033,868 |
2.01.05.02.05 | Licenses and concessions payable | 39,071 | 85,619 |
2.01.05.02.06 | Leases payable | 1,505,995 | 0 |
2.01.05.02.07 | Tax refinancing program | 87,016 | 142,036 |
2.01.05.02.08 | Liabilities associated to held-for-sale assets | 525,606 | 526,870 |
2.01.05.02.09 | Other payables | 1,259,356 | 1,381,919 |
2.01.06 | Provisions | 515,034 | 680,542 |
2.01.06.01 | Tax, social security, labor, and civil provisions | 515,034 | 680,542 |
2.01.06.01.01 | Tax provisions | 26,275 | 14,925 |
2.01.06.01.02 | Social security and labor provisions | 214,224 | 174,694 |
2.01.06.01.04 | Civil provisions | 274,535 | 490,923 |
2.02 | Non-current liabilities | 40,862,172 | 31,852,527 |
2.02.01 | Borrowings and financing | 17,766,446 | 15,777,012 |
2.02.01.01 | Borrowings and financing | 17,766,446 | 15,777,012 |
2.02.01.01.01 | In local currency | 8,449,769 | 7,620,016 |
2.02.01.01.02 | In foreign currency | 9,316,677 | 8,156,996 |
2.02.02 | Other payables | 17,697,495 | 11,138,215 |
2.02.02.02 | Other | 17,697,495 | 11,138,215 |
2.02.02.02.03 | Trade payables subject to the JRP | 3,255,450 | 3,593,008 |
2.02.02.02.04 | Other taxes | 690,144 | 628,716 |
2.02.02.02.05 | Leases payable | 6,725,444 | 0 |
2.02.02.02.06 | Tax refinancing program | 353,573 | 411,170 |
2.02.02.02.07 | Other payables | 6,672,884 | 6,505,321 |
2.02.03 | Deferred taxes | 177,116 | 0 |
2.02.03.01 | Deferred income tax and social contribution | 177,116 | 0 |
2.02.04 | Provisions | 5,221,115 | 4,937,300 |
2.02.04.01 | Tax, social security, labor, and civil provisions | 5,221,115 | 4,937,300 |
2.02.04.01.01 | Tax provisions | 742,557 | 635,158 |
PAGE: 15 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial Reorganization | Version: 1 |
PAGE: 16 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial ReorganizationVersion: 1
Consolidated Balance Sheets as at September 30, 2019
Liabilities and Equity
(In thousands of Brazilian reais - R$)
Code | Line Item | Current Quarter | Prior Year |
09/30/2019 | 12/31/2018 | ||
2.02.04.01.02 | Social security and labor provisions | 1,779,554 | 1,282,487 |
2.02.04.01.03 | Accrued employee benefits | 621,423 | 579,122 |
2.02.04.01.04 | Civil provisions | 2,077,581 | 2,440,533 |
2.03 | Consolidated equity | 20,080,995 | 22,895,811 |
2.03.01 | Realized capital | 32,538,937 | 32,038,471 |
2.03.02 | Capital reserves | 12,873,890 | 8,729,745 |
2.03.02.02 | Special merger goodwill reserve | 1,750,494 | 1,750,494 |
2.03.02.05 | Treasury shares | -33,315 | -2,803,250 |
2.03.02.07 | Donations and investment grants | 123,558 | 123,558 |
2.03.02.08 | Special merger reserve - Net assets | 6,703,309 | 6,703,309 |
2.03.02.09 | Interest on construction in progress | 745,756 | 745,756 |
2.03.02.10 | Law 8200/91 inflation adjustment | 31,287 | 31,287 |
2.03.02.11 | Restructured senior notes | 0 | 3,719 |
2.03.02.12 | Other capital reserves | 3,552,801 | 2,174,872 |
2.03.05 | Retained earnings/accumulated losses | -24,465,485 | -17,530,108 |
2.03.06 | Valuation adjustments to equity | -793,746 | -377,429 |
2.03.08 | Other comprehensive income | -236,351 | -208,359 |
2.03.09 | Non-controlling interests | 163,750 | 243,491 |
PAGE: 17 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial ReorganizationVersion: 1
Consolidated Statements of Profit or Loss for the Periods Ended September 30, 2019 and 2018
(In thousands of Brazilian reais - R$)
Code | Line Item | Current Quarter | YTD | Same Quarter Prior Year | Prior YTD |
1/7/2019 to 9/30/2019 | 1/1/2019 to 9/30/2019 | 01/04/2018 to 9/30/2018 | 01/01/2018 to 9/30/2018 | ||
3.01 | Net operating revenue | 5,001,232 | 15,222,613 | 5,481,370 | 16,694,936 |
3.02 | Cost of sales and/or services | -3,829,421 | -11,562,503 | -4,078,693 | -12,111,143 |
3.03 | Gross profit | 1,171,811 | 3,660,110 | 1,402,677 | 4,583,793 |
3.04 | Operating expenses/income | -4,370,735 | -6,232,366 | -1,408,416 | -4,158,425 |
3.04.01 | Selling expenses | -931,331 | -2,689,618 | -908,811 | -2,753,994 |
3.04.02 | General and administrative expenses | -710,348 | -2,090,203 | -649,703 | -2,025,032 |
3.04.04 | Other operating income | 1,116,808 | 3,257,537 | 537,604 | 1,477,638 |
3.04.05 | Other operating expenses | -3,845,624 | -4,708,553 | -380,583 | -843,195 |
3.04.06 | Share of profit (loss) of investees | -240 | -1,529 | -6,923 | -13,842 |
3.05 | Profit (loss) before financial income (expenses) and taxes | -3,198,924 | -2,572,256 | -5,739 | 425,368 |
3.06 | Financial income (expenses) | -2,375,971 | -3,951,382 | -1,455,378 | 27,524,961 |
3.06.01 | Financial income | 1,499,447 | 2,829,768 | 731,509 | 31,195,560 |
3.06.02 | Financial expenses | -3,875,418 | -6,781,150 | -2,186,887 | -3,670,599 |
3.07 | Profit before taxes on income | -5,574,895 | -6,523,638 | -1,461,117 | 27,950,329 |
3.08 | Income tax and social contribution | -208,610 | -290,349 | 126,136 | 7,929 |
3.08.01 | Current | -84,966 | -90,183 | 1,768 | 60,869 |
3.08.02 | Deferred | -123,644 | -200,166 | 124,368 | -52,940 |
3.09 | Profit (loss) for the period from continuing operations | -5,783,505 | -6,813,987 | -1,334,981 | 27,958,258 |
3.11 | Consolidated profit/loss for the period | -5,783,505 | -6,813,987 | -1,334,981 | 27,958,258 |
3.11.01 | Attributable to the Company owner | -5,746,889 | -6,737,531 | -1,336,387 | 27,949,292 |
3.11.02 | Attributable to non-controlling interests | -36,616 | -76,456 | 1,406 | 8,966 |
3.99Earnings per share - (R$ per share)
3.99.01Basic earnings per share
3.99.01.01 | Common shares (ON) | -0.97000 | -1.13000 | -0.58000 | 22.92000 |
3.99.01.02 | Preferred shares (PN) | -1.97000 | -1.13000 | -0.58000 | 22.92000 |
3.99.02Diluted earnings per share
3.99.02.01 | Common shares (ON) | -0.97000 | -1.13000 | -0.58000 | 22.92000 |
3.99.02.02 | Preferred shares (PN) | -0.97000 | -1.13000 | -0.58000 | 22.92000 |
PAGE: 18 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial Reorganization | Version: 1 |
Consolidated Statements of Comprehensive Income for the Periods Ended September 30, 2019 and 2018
(In thousands of Brazilian reais - R$)
Code | Line Item | Current Quarter | YTD | Same Quarter Prior Year | Prior YTD |
1/7/2019 to 9/30/2019 | 1/1/2019 to 9/30/2019 | 01/04/2018 to 9/30/2018 | 01/01/2018 to 9/30/2018 | ||
4.01 | Consolidated profit for the period | -5,783,505 | -6,813,987 | -1,334,981 | 27,958,258 |
4.02 | Other comprehensive income | -57,864 | -31,277 | -16,937 | -80,350 |
4.02.01 | Actuarial gains (losses) | -6,991 | -6,991 | 0 | 0 |
4.02.02 | Exchange losses on investment abroad | -50,873 | -24,286 | -16,937 | -80,350 |
4.03 | Consolidated comprehensive income for the period | -5,841,369 | -6,845,264 | -1,351,918 | 27,877,908 |
4.03.01 | Attributable to the Company owner | -5,786,388 | -6,765,523 | -1,348,639 | 27,895,511 |
4.03.02 | Attributable to non-controlling interests | -54,981 | -79,741 | -3,279 | -17,603 |
PAGE: 19 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial Reorganization | Version: 1 |
Consolidated Statements of Cash Flows - Indirect Method for the Periods Ended September 30, 2019 and 2018
(In thousands of Brazilian reais - R$)
Code | Line Item | YTD | Prior YTD |
1/1/2019 to 9/30/2019 | 1/1/2018 to 9/30/2018 | ||
6.01 | Net cash from operating activities | 949,000 | 2,251,935 |
6.01.01 | Cash generated by operations | 4,440,516 | 4,711,163 |
6.01.01.01 | Profit (loss) before income tax and social contribution | -6,523,638 | 27,950,329 |
6.01.01.02 | Charges, interest income, inflation adjustment, and | 2,780,235 | -2,189,808 |
exchange differences | |||
6.01.01.03 | Fair value adjustment to borrowings and financing | 82,357 | -14,488,842 |
6.01.01.04 | Present value adjustment to other liabilities | 816,000 | -796,057 |
6.01.01.05 | Gain on the restructuring of third-party borrowings | 0 | -11,054,126 |
6.01.01.06 | Transaction with derivative financial instruments | -55,025 | 0 |
6.01.01.07 | Depreciation and amortization | 5,171,189 | 4,324,720 |
6.01.01.08 | Estimated loss on doubtful debts | 427,122 | 565,572 |
6.01.01.09 | Impairment losses | 3,341,842 | 0 |
6.01.01.10 | Provisions/(reversals) | 186,128 | 11,339 |
6.01.01.11 | Provision for pension plans | 193 | 195 |
6.01.01.12 | Equity in investees | 1,529 | 13,842 |
6.01.01.13 | Loss on disposal of capital assets | 106,887 | 173,529 |
6.01.01.14 | Concession Agreement Extension Fee - ANATEL | 263,927 | 52,721 |
6.01.01.15 | Employee and management profit sharing | 132,855 | 109,180 |
6.01.01.16 | Tax recovery | -3,066,919 | 0 |
6.01.01.17 | Inflation adjustment to provisions/(reversals) | 721,527 | 166,443 |
6.01.01.18 | Inflation adjustment to tax refinancing program | 12,986 | 22,626 |
6.01.01.19 | Other | 41,321 | -150,500 |
6.01.02 | Changes in assets and liabilities | -2,372,341 | -1,834,006 |
6.01.02.01 | Accounts receivable | -526,852 | -846,140 |
6.01.02.02 | Inventories | 58 | 9,036 |
6.01.02.03 | Taxes | -146,125 | -40,127 |
6.01.02.04 | Held-for-trading cash investments | -224,668 | -746,127 |
6.01.02.05 | Redemption of held-for-trading cash investments | 265,563 | 801,236 |
6.01.02.06 | Trade payables | -680,044 | -1,063,820 |
6.01.02.07 | Payroll, related taxes and benefits | -96,324 | -184,718 |
6.01.02.08 | Licenses and concessions | -127,313 | 0 |
6.01.02.09 | Provisions | -378,841 | -295,233 |
6.01.02.10 | Changes in assets and liabilities held for sale | -146,791 | -248,561 |
6.01.02.11 | Other assets and liabilities | -311,004 | 780,448 |
6.01.03 | Other | -1,119,175 | -625,222 |
6.01.03.01 | Financial charges paid - debt | -926,037 | -13,840 |
6.01.03.02 | Financial charges paid - other | -351 | -288 |
6.01.03.03 | Income tax and social contribution paid - Company | -33,323 | -484,021 |
6.01.03.04 | Income tax and social contribution paid - third parties | -159,464 | -127,073 |
6.02 | Net cash from investing activities | -5,034,474 | -3,703,022 |
6.02.01 | Purchases of tangibles and intangibles | -5,245,591 | -3,884,462 |
6.02.02 | (Increase) decrease in permanent investments | 70,048 | 15,122 |
PAGE: 20 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial Reorganization | Version: 1 |
Consolidated Statements of Cash Flows - Indirect Method for the Periods Ended September 30, 2019 and 2018
(In thousands of Brazilian reais - R$)
Code | Line Item | YTD | Prior YTD |
1/1/2019 to 9/30/2019 | 1/1/2018 to 9/30/2018 | ||
6.02.03 | Judicial deposits | -395,351 | -669,840 |
6.02.04 | Redemption of judicial deposits | 536,420 | 836,158 |
6.03 | Net cash from financing activities | 2,678,671 | -362,288 |
6.03.01 | Repayment of principal of borrowings, financing, and | -9,435 | -161,884 |
derivatives | |||
6.03.02 | Proceeds from derivative financial instrument transactions | 66,926 | 0 |
6.03.03 | Capital increase | 4,000,000 | 0 |
6.03.04 | Commitment to investors premium | -58,489 | 0 |
6.03.05 | Licenses and concessions | 0 | -161 |
6.03.06 | Tax refinancing program | -125,603 | -200,206 |
6.03.07 | Payment of dividends and interest on capital | -12 | -37 |
6.03.08 | Leases | -1,192,144 | 0 |
6.03.09 | Share buyback | -2,572 | 0 |
6.04 | Exchange differences on cash and cash equivalents | 0 | 19,812 |
6.05 | Increase (decrease) in cash and cash equivalents | -1,406,803 | -1,793,563 |
6.05.01 | Cash and cash equivalents at the beginning of the period | 4,385,329 | 6,862,684 |
6.05.02 | Cash and cash equivalents at the end of the period | 2,978,526 | 5,069,121 |
PAGE: 21 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial Reorganization | Version: 1 |
Consolidated Statement of Changes in Equity for the Period January 31, 2019 to September 30, 2019
(In thousands of Brazilian reais - R$)
Code | Line Item | Paid-in capital Capital reserves, stock | Profit | Retained earnings or | Other | Equity | Non-controlling | Consolidated | |
options granted and | reserves | accumulated losses | comprehensive | interests | equity | ||||
treasury shares | income | ||||||||
5.01 | Opening balances | 32,038,471 | 8,729,745 | 0 | -17,530,108 | -585,788 | 22,652,320 | 243,491 | 22,895,811 |
5.03 | Adjusted opening balances | 32,038,471 | 8,729,745 | 0 | -17,530,108 | -585,788 | 22,652,320 | 243,491 | 22,895,811 |
5.04 | Capital transactions with shareholders | 500,466 | 4,144,145 | 0 | -197,846 | 0 | 4,446,765 | 0 | 4,446,765 |
5.04.01 | Capital Increases | 500,466 | 3,837,009 | 0 | 0 | 0 | 4,337,475 | 0 | 4,337,475 |
5.04.04 | Bought-back treasury shares | 0 | -2,572 | 0 | 0 | 0 | -2,572 | 0 | -2,572 |
5.04.08 | Pharol agreement | 0 | -2,462,799 | 0 | 0 | 0 | -2,462,799 | 0 | -2,462,799 |
5.04.09 | Pharol agreement | 0 | 2,772,507 | 0 | -197,846 | 0 | 2,574,661 | 0 | 2,574,661 |
5.05 | Total comprehensive income | 0 | 0 | 0 | -6,737,531 | -444,309 | -7,181,840 | -79,741 | -7,261,581 |
5.05.01 | Profit for the period | 0 | 0 | 0 | -6,737,531 | 0 | -6,737,531 | -76,456 | -6,813,987 |
5.05.02 | Other comprehensive income | 0 | 0 | 0 | 0 | -444,309 | -444,309 | -3,285 | -447,594 |
5.05.02.06 | Share issue costs | 0 | 0 | 0 | 0 | -416,317 | -416,317 | 0 | -416,317 |
5.05.02.07 | Other comprehensive income | 0 | 0 | 0 | 0 | -27,992 | -27,992 | -3,285 | -31,277 |
5.07 | Closing balances | 32,538,937 | 12,873,890 | 0 | -24,465,485 | -1,030,097 | 19,917,245 | 163,750 | 20,080,995 |
PAGE: 22 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial Reorganization | Version: 1 |
Consolidated Statement of Changes in Equity for the Period January 31, 2018 to September 30, 2018
(In thousands of Brazilian reais - R$)
Code | Line Item | Paid-in capital Capital reserves, stock | Profit | Retained earnings or | Other | Equity | Non-controlling | Consolidated | |
options granted and | reserves | accumulated losses | comprehensive | interests | equity | ||||
treasury shares | income | ||||||||
5.01 | Opening balances | 21,438,374 | 7,711,282 | 0 | -42,335,925 | -619,711 | -13,805,980 | 293,457 | -13,512,523 |
5.03 | Adjusted opening balances | 21,438,374 | 7,711,282 | 0 | -42,335,925 | -619,711 | -13,805,980 | 293,457 | -13,512,523 |
5.04 | Capital transactions with shareholders | 10,600,097 | -10,600,097 | 0 | 1,212 | 0 | 1,212 | 0 | 1,212 |
5.04.01 | Capital Increases | 10,600,097 | -10,600,097 | 0 | 0 | 0 | 0 | 0 | 0 |
5.04.08 | Merger of subsidiary | 0 | 0 | 0 | 1,212 | 0 | 1,212 | 0 | 1,212 |
5.05 | Total comprehensive income | 0 | 0 | 0 | 27,949,292 | -53,781 | 27,895,511 | -17,603 | 27,877,908 |
5.05.01 | Profit for the period | 0 | 0 | 0 | 27,949,292 | 0 | 27,949,292 | 8,966 | 27,958,258 |
5.05.02 | Other comprehensive income | 0 | 0 | 0 | 0 | -53,781 | -53,781 | -26,569 | -80,350 |
5.05.02.06 | Other comprehensive income | 0 | 0 | 0 | 0 | -53,781 | -53,781 | -26,569 | -80,350 |
5.06 | Internal change in shareholder | 0 | 11,613,980 | 0 | 282,135 | 0 | 11,896,115 | 0 | 11,896,115 |
5.06.04 | Effects of initial adoption of IFRSs 9 and 15 | 0 | 0 | 0 | 282,135 | 0 | 282,135 | 0 | 282,135 |
5.06.05 | Effects of the restructuring of senior notes pursuant to | 0 | 11,613,980 | 0 | 0 | 0 | 11,613,980 | 0 | 11,613,980 |
the Judicial Reorganization Plan | |||||||||
5.06.06 | Delivery of treasury shares | 0 | 2,727,842 | 0 | 0 | 0 | 2,727,842 | 0 | 2,727,842 |
5.06.07 | Delivery of treasury shares | 0 | -2,727,842 | 0 | 0 | 0 | -2,727,842 | 0 | -2,727,842 |
5.07 | Closing balances | 32,038,471 | 8,725,165 | 0 | -14,103,286 | -673,492 | 25,986,858 | 275,854 | 26,262,712 |
PAGE: 23 of 23
Interim Financial Information (ITR) - September 30, 2019 - OI S.A. - in Judicial Reorganization | Version: 1 |
Consolidated Statements of Value Added
for the Periods Ended September 30, 2019 and 2018
(In thousands of Brazilian reais - R$)
Code | Line Item | YTD | Prior YTD |
1/1/2019 to 9/30/2019 | 1/1/2018 to 9/30/2018 | ||
7.01 | Revenue | 22,328,181 | 22,941,065 |
7.01.01 | Sales of goods and services | 19,512,473 | 21,868,950 |
7.01.02 | Other income | 3,242,830 | 1,637,687 |
7.01.04 | Allowance for/reversal of doubtful accounts | -427,122 | -565,572 |
7.02 | Inputs purchased from third parties | -7,886,333 | -7,855,408 |
7.02.01 | Cost of sales and services | -501,280 | -635,837 |
7.02.02 | Supplies, power, outside services, and other inputs | -6,700,063 | -6,531,461 |
7.02.04 | Other | -684,990 | -688,110 |
7.03 | Gross value added | 14,441,848 | 15,085,657 |
7.04 | Retentions | -9,822,764 | -4,806,658 |
7.04.01 | Depreciation, amortization and depletion | -5,171,189 | -4,324,720 |
7.04.02 | Other | -4,651,575 | -481,938 |
7.04.02.01 | Provisions (including inflation adjustment) | -907,655 | -333,869 |
7.04.02.02 | Impairment losses | -3,341,842 | 0 |
7.04.02.03 | Other expenses | -402,078 | -148,069 |
7.05 | Wealth created | 4,619,084 | 10,278,999 |
7.06 | Value added received as transfer | 2,828,239 | 31,181,718 |
7.06.01 | Share of profit (loss) of investees | -1,529 | -13,842 |
7.06.02 | Financial income | 2,829,768 | 31,195,560 |
7.07 | Wealth for distribution | 7,447,323 | 41,460,717 |
7.08 | Wealth distributed | 7,447,323 | 41,460,717 |
7.08.01 | Personnel | 1,632,073 | 1,665,821 |
7.08.01.01 | Salaries and wages | 1,163,349 | 1,205,179 |
7.08.01.02 | Benefits | 328,734 | 320,562 |
7.08.01.03 | Severance pay fund (FGTS) | 98,117 | 103,377 |
7.08.01.04 | Other | 41,873 | 36,703 |
7.08.02 | Taxes and fees | 4,458,982 | 4,899,716 |
7.08.02.01 | Federal | 786,107 | 505,707 |
7.08.02.02 | State | 3,443,314 | 4,164,032 |
7.08.02.03 | Municipal | 229,561 | 229,977 |
7.08.03 | Lenders and lessors | 8,170,255 | 6,936,922 |
7.08.03.01 | Interest | 6,156,643 | 3,747,054 |
7.08.03.02 | Rentals | 2,013,612 | 3,189,868 |
7.08.04 | Shareholders | -6,813,987 | 27,958,258 |
7.08.04.03 | Retained earnings/Accumulated losses for the period | -6,737,531 | 27,949,292 |
7.08.04.04 | Non-controlling interests in retained earnings | -76.456 | 8,966 |
PAGE: 24 of 23
Oi S.A. - under Judicial Reorganization and Subsidiaries
Financial Statements for the Quarters Ended September 30, 2019 and
Report on the Review of the Interim Financial Information
ADDITIONAL DISCLOSURES RELATING TO THE STATEMENT OF CASH FLOWS
Non-cash transactions
COMPANY | CONSOLIDATED | |||
09/30/2019 | 09/30/2018 | 09/30/2019 | 09/30/2018 | |
Variance between economic and financial investment (acquisition | ||||
of PP&E and intangible assets) | 273,608 | 319,683 | 718,379 | 257,678 |
Offset of judicial deposits against provisions and other obligations | 102,485 | 128,872 | 272,663 | 762,133 |
Capital increase | 337,475 | 337,475 | ||
Capital increase in subsidiaries | 7,437,061 | |||
Settlement of payables for own shares (Notes 1 and 25 (b)) | 46,680 | 46,680 |
Reconciliation of liabilities resulting from financing activities
The changes in financial charges and the settlement of the debt resulting from financing activities are presented in Note 19.
2
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
1. GENERAL INFORMATION
Oi S.A. - in Judicial Reorganization ("Company" or "Oi"), is a Switched Fixed-line Telephony Services ("STFC") concessionaire, operating since July 1998 in Region II of the General Concession Plan ("PGO"), which covers the Brazilian states of Acre, Rondônia, Mato Grosso, Mato Grosso do Sul, Tocantins, Goiás, Paraná, Santa Catarina and Rio Grande do Sul, and the Federal District, in the provision of STFC as a local and intraregional long-distance carrier. Since January 2004, the Company also provides domestic and international long-distance services in all Regions and local services outside Region II started to be provided in January 2005. These services are provided under concessions granted by Agência Nacional de Telecomunicações - ANATEL (National Telecommunications Agency), the regulator of the Brazilian telecommunications industry ("ANATEL" or "Agency").
The Company also holds: (i) through its wholly-owned subsidiary Telemar Norte Leste S.A. - in Judicial Reorganization ("Telemar") a concession to provide fixed telephone services in Region I and nationwide International Long-distance services; and (ii) through its indirect subsidiary Oi Móvel S.A. - in Judicial Reorganization ("Oi Móvel") a license to provide mobile telephony services in Region I, II and III.
In Africa, the Company provides fixed and mobile telecommunications services through subsidiaries and investees of Africatel Holdings B.V. ("Africatel"), and in Asia the Company provides fixed, mobile, and other telecommunications services basically related through its subsidiary Timor Telecom (Note 29).
The local and nationwide STFC long-distance concession agreements entered into by the Company and its subsidiary Telemar with ANATEL are effective until December 31, 2025. These concession agreements provide for reviews on a five-year basis and in general have a higher degree of intervention in the management of the business than the licenses to provide private services, and also include several consumer protection provisions, as perceived by the regulator. At the end of 2018, ANATEL published Public Hearing No. 51/2018 to address the revision of the Concession Agreements for the concession's last five-year period (2021-2025). The contribution period to the Public Hearing ended on March 26, 2019, and the draft in being analyzed by ANATEL. It is worth noting that the recently enacted Law 13879/2019 creates the legal possibility to migrate from the public utility regime to the STFC provision under private law (still subject to regulation by ANATEL), as well as the possibility to renew the Concession for another 20 years.
With the approval of the Judicial Reorganization Plan ("PRJ" or "Plan"), ANATEL initiated some procedures aiming at monitoring the Company's financial situation, as well as to assess its Company's ability to discharge its obligations arising from the terms of the concession agreements. In March 2019, ANATEL decided, among other issues, to maintain the special monitoring of the provision of telecommunications services of the Oi Group companies in 2019 by imposing actions related to transparency, corporate governance, and corporate control, financial and operating performance, and asset and credit management, as informed in the Notice to the Market disclosed by the Company on May 8, 2019.
3
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
On December 21, 2018, the Government enacted Decree 9619/2018, which repeals Decree 7512/2011 and approves a New PGMU, effective for 2016-2020. The highlight of the New PGMU is the fact that the New PGMU introduces a significant reduction in the plant of payphones ("TUP") currently in use. As a replacement for the payphones no longer required, the concessionaires have a new obligation consisting of the implementation of wireless fixed access systems supporting broadband connections.
The Company is registered with the Brazilian Securities and Exchange Commission ("CVM") and the U.S. Securities and Exchange Commission ("SEC"). Its shares are traded on B3 S.A. - Brasil, Stock Exchange, OTC ("B3") and its American Depositary Receipts ("ADRs") representing Oi common shares and preferred shares are traded on the New York Stock Exchange ("NYSE").
Corporate Authorization
The Executive Committee authorized the completion of this quarterly information at the meeting held on November 29, 2019, after being reviewed at the Board of Directors' meeting held on the same daily.
Judicial Reorganization
The information on the Plan should be read together with the financial statements for the year ended December 31, 2018.
On June 20, 2016, the Oi Companies filed a judicial reorganization petition with the Court of the State of Rio de Janeiro ("Judicial Reorganization Proceeding").
On December 19, 2017, after confirming that the required quorum of classes I, II, III, and IV creditors was in attendance, the General Creditors' Meeting was held and the JRP was approved by a vast majority of creditors on December 20, 2017.
On January 8, 2018, the competent court issued a decision that ratified the JRP and granted the judicial reorganization to the Oi Companies, which was published on February 5, 2018.
On July 31, 2018, the restructuring of the Oi Companies' financial debt was completed with the implementation of the applicable terms and conditions provided for in the JRP, including the completion of the first capital increase provided for in the JRP, Capital Increase - Claim Capitalization.
On January 25, 2019 the Company completed the second capital increase provided for in the JRP ("Capital Increase - New Funds"), with the issue of 3,225,806,451 book-entry, registered common shares, without par value, including new common shares represented by ADSs, pursuant to the JRP and the subscription and commitment agreement entered into by the Company, its subsidiaries, and the Backstop Investors.
4
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
The law prescribes that it is the Judicial Reorganization Court that decides the termination of the judicial reorganization based on the analysis of the discharging of all obligations set forth in the plan, the dead line of which is two years after the decision granting the judicial reorganization.
The Company believes, in line with other court precedents, that the Judicial Reorganization Court's prerogative to decide on whether or not to terminate the Judicial reorganization court could and should take into consideration the specific circumstances of the concrete case, in light of the complexities inherent to Oi's judicial reorganization process and its ratified JRP. Accordingly, the Company is discussing internally, as well as with its advisors, the best way to file with the court, based on its concrete case, the inputs that might assist the court n making an informed decision.
Capital Increase - New Funds
Exercise of Subscription Warrants and American Depositary Warrants ("ADWs")
On October 28, 2018, the Company commenced the issuance and delivery of all warrants and ADWs exercised by their holders. The process was completed on January 4, 2019. All Warrants that were not exercised on or prior to January 2, 2019 have been cancelled.
Preferential offer and completion of the Capital Increase - New Funds, pursuant to the commitment agreement terms
As contemplated by Section 6 of the JRP, on November 13, 2018 the Company commenced a preemptive offering of common shares that was registered with the SEC under the Securities Act under which holders of common shares and preferred shares, including the ADS Depositary and The Bank of New York Mellon, as depositary of the Preferred ADS program, received transferable rights for each common share or preferred share held as of November 19, 2018, which refers to as subscription rights.
The subscription rights expired on January 4, 2019. On January 16, 2019, the Company issued 1,530,457,356 common shares to holders of subscription rights that had exercised those subscription rights with respect to the initial common shares. On January 21, 2019, the Company issued 91,080,933 common shares to holders of subscription rights that had requested subscriptions for excess common shares. The proceeds of these subscriptions totaled R$2,011 million.
On January 25, 2019, the Company issued 1,604,268,162 common shares, representing the total number of common shares that were offered in the preemptive offering less the total number of initial common shares and excess common shares, to the Backstop Investors in a private placement under the terms of the commitment agreement for the aggregate amount of R$1,989 million ("Share Balance"). Because of the subscription and payment of the Share Balance, the Company completed, on this date, the Capital Increase - New Funds, through the subscription and payment of all 3,225,806,451 New Common Shares issued as part of the Capital Increase - New Funds, representing a contribution of new funds for the Company totaling R$4.0 billion. In addition, under the terms of the commitment agreement, on that date the Company issued, as compensation for their commitments under the commitment agreement, 272,148,705 common shares in a private placement to the Backstop Investors and paid US$13 million to the Backstop Investors. As a result of the
5
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
outcome of the subscription and payment of the Capital Increase - New Funds and the Commitment Shares, the Company's share capital increased to R$32,538,937,370.00, represented by 5,954,205,001 shares, divided into 5,796,477,760 registered common shares and 157,727,241 registered preferred shares, without par value.
Litigation discontinuation settlement between the Company and Pharol
On February 8, 2019, in order to discontinue any disputes that might harm the implementation of the JRP, the Company disclosed a Material Fact Notice informing that its Board of Directors approved, in accordance with CVM Instruction 567/2015, the acquisition of 1,800,000 preferred shares issued by the Company to ensure the compliance of the commitment assumed by the Company to transfer its treasury shares to Bratel, wholly-owned subsidiary of Pharol SGPS, S.A., in the context of the settlement entered into, subject matter of the Material Fact Notice of January 8, 2019 ("Settlement"), in transactions conducted in B3's OTC to deliver the treasury shares to Bratel, which would be made within four business days from the confirmation of the settlement by the Judicial Reorganization Court.
On February 18, 2019, the Court issued a decision suspending conflict of jurisdiction injunction No. 157.099 during the period requested by the parties.
On April 3, 2019, the Company disclosed a notice to the market to inform on the confirmation of the settlement, referred to above, because the fifteen-day term for the publication of the related court decision has run out. Accordingly, as determined in the Settlement, the term for the compliance with the second part of the obligations established by both parties to the Settlement started on this same date, including: (a) the request to discontinue all the litigation involving the parties; and (b) the delivery to Bratel of 33.8 million Oi shares currently held in treasury, including 32 million common shares and 1.8 million preferred shares.
In addition, several obligations and rights of the parties described in the Material Fact Notice disclosed by Oi and the Notice disclosed by Pharol, both of January 9, 2019, are being fully met, which, pursuant to the Settlement, could be resolved if such Settlement were not approved by the Judicial Reorganization Court.
Default Payment Method provided for by Clause 4.3.6 of the Plan - Bondholders
On May 20, 2019, in strict compliance with the decision issued under Chapter 15 that determined that the cancelation of the notes regulated by New York Law should take place on June 14, 2019, the Company announced that it started the procedure so that the holders of the notes (a) Portugal Telecom International Finance B.V.'s €500,000,000 in 4.375% notes maturing in 2017 (ISIN No.: XS0215828913); (b) Portugal Telecom International Finance B.V.'s €750,000,000 in 5.875% notes maturing in 2018 (ISIN No.: XS0843939918); (c) Portugal Telecom International Finance B.V.'s €750,000,000 in 5.00% notes maturing in 2019 (ISIN No.: XS0462994343); (d) Portugal Telecom International Finance B.V.'s €1,000,000,000 in 4.625% notes maturing in 2020 (ISIN No.: XS0927581842); (e) Portugal Telecom International Finance B.V.'s €500,000,000 in 4.5% notes maturing in 2025 (ISIN No.: XS0221854200); (f) Oi Brasil Holdings Coöperatief U.A.'s €600,000,000
6
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
in 5.625% notes maturing in 2021 (ISIN No.: XS1245245045); (g) Oi Brasil Holdings Coöperatief
U.A.'s US$1,500,000,000 in 5.75% notes maturing in 2022 (ISIN No.: US10553MAD39); (h) Oi
S.A.'s €750,000,000 in 5.125% notes maturing in 2017 (ISIN No.: XS0569301327); (i) Oi S.A.'s
US$750,000,000 9.500% maturing in 2019 (ISIN No.: 87944LAD1); (j) Oi S.A.'s BRL1,100,000,000 in 9.75% maturing in 2016 (ISIN No. US10553MAC55); and (k) Oi S.A.'s US$1,000,000,000 in 5.500% maturing in 2020 (ISIN No. 144A: US87944LAE92) (the "Legacy Notes") are able to support their claims to receive on a future date or on the Company's payment dates pursuant to Clause 4.3.6 of the Plan.
The procedure detailed above is not applicable for the holders of the 6.25% Notes issued by Portugal Telecom International Finance B.V. - in Judicial Reorganization maturing in 2016 (ISIN No.: PTPTCYOM0008). The Company will provide at the appropriate time the information on the procedure to register the beneficiaries of the Default Payment Method provided for by Clause 4.3.6 of the Plan with regard to such series.
Going concern
The interim financial information for the period ended September 30, 2019, has been prepared assuming that the Company will continue as a going concern and in compliance with the legal requirements applicable to a judicial reorganization. The judicial reorganization is aimed at ensuring the continuation of the Oi Companies as going concerns. This continuity was strengthen with the approval of the JRP and, as a result, the borrowings and financing were novated and the related balances were recalculated under the terms and conditions of the JRP, including the Capital Increase with Claim Capitalization and the Capital Increase with New Funds.
The continuity of the Company as a going concern is ultimately depending on the successful outcome of the judicial reorganization and the realization of other forecasts of the Oi Companies.
The Company has been successfully discharging the obligations set forth in the judicial reorganization proceedings and even though there are no indications in this regard, we emphasize that these conditions and circumstances indicate, by their own nature, uncertainties that may affect the success of the judicial reorganization and possibly cast doubts as to the Oi Companies' ability to continue as going concerns. As at September 30, 2019 and after the implementation of the JRP, total shareholders' equity was R$20,080,995 (R$19,917,245 in the Company), loss for the period then ended was R$6,813,987 (R$6,737,531 in the Company), and working capital totaled R$8,231,153 (R$7,290,763 in the Company). As at December 31, 2018 and after the recognition of the effects of the JRP, total shareholders' equity was R$22,895,811 (R$22,652,320 in the Company), profit for the year then ended was R$24,615,555 (R$24,591,140 in the Company), and working capital totaled R$10,624,025 (R$13,706,450 in the Company).
7
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
2. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies detailed below have been consistently applied in all fiscal periods presented in this individual and consolidated interim financial information, and have been consistently applied both by the Company and its subsidiaries.
- Reporting basis
The Company's interim financial information has been prepared for the period ended September 30, 2019 and in accordance with IAS 34 and CPC 21 (R1) issued by the Accounting Pronouncements Committee ("CPC"), which address interim financial reporting.
CPC 21 (R1)/IAS 34 requires that management use certain accounting estimates. The quarterly information has been prepared based on the historical cost, except for certain financial assets and financial liabilities measured at their fair values.
This quarterly information does not include all the information and disclosures required in annual financial statements and should be read in conjunction with the annual financial statements for the year ended December 31, 2018, which have been prepared in accordance with International Financial Reporting Standards ("IFRSs") and the accounting practices adopted in Brazil. There were no changes in the accounting policies adopted in the period ended September 30, 2019 as compared to those applicable in the year ended December 31, 2018, besides the new pronouncements, interpretations, and changes that became effective after December 31, 2018, as described in item (b) of this note.
The assets and liabilities related to the operations in Africa are consolidated and stated in a single line item of the balance sheet as held-for-sale assets as a result of Management's expectation and decision to hold these assets and liabilities for sale. In the statement of profit or loss, however, costs/expenses and revenue/gains are stated under the full consolidation method because these assets do not meet the criteria to be classified as 'discontinued operation', as provided for by CPC 31/IFRS 5.
Estimates and critical accounting judgments
The Company's management uses estimates and assumptions based on historical experience and other factors, including expected future events, which are considered reasonable and relevant, and also requires judgments related to these matters. Actual results of operations and the financial position may differ from these estimates. The estimates that represent a significant risk of causing material adjustments to the carrying amounts of assets and liabilities are related to: (i) the recognition of revenue and trade receivables; (ii) estimated credit losses on doubtful accounts; (iii) depreciation and amortization of assets with finite useful lives; (iv) impairment of long-lived assets; (v) fair value of financial liabilities; (vi) provisions; (vii) fair value of financial assets; (viii) deferred income tax and social contribution; (ix) employee benefits; and (x) leases.
8
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
With regard to item (iv) above, the recoverable amounts of long-lived assets are determined based on the comparison between the value-in-use calculations and the sales value. These calculations require the use of judgments and assumptions that may be influenced by different external and internal factors, such are economic trends, industry trends and interest rates, changes in business strategies, and changes in the type of services and products provided by the Company to the market. The use of different assumptions may significantly change our Quarterly Financial Information.
On July 16, 2019, the Company disclosed to the market general, in a material fact notice, its strategic plan approved by the Board of Directors, which is focused on the improvement of operational and financial performance by using a sustainable business model aimed at maximizing the Company's value in the context of the judicial reorganization.
On September 30, 2019, based on this strategic plan, the Company conducted an impairment test of its assets with finite useful lives and long-lived assets and identified an impairment loss of R$3,342 million basically caused by the following factors: (i) revision of said plan; and (ii) increase of market competitiveness, especially in the residential market, intensifying the drop in revenue from landline and DTH services.
For impairment test purposes of the Cash-generating Unite (CGU), the Company defined the value in use of these assets.
The Company used the cash flows forecasts outlined in the strategic plan referred to above, approved by Management, and already disclosed to the market in a material fact notice to measure the value in use. These forecasts cover a ten-year period, taking into account the useful lives of the assets, the JRP cash flow period, and are consistent with previous years. The discount rate used in the cash flows corresponds to the weighted average cost of capital of 10.94% (11.55% at December 31, 2018), which is reviewed at least annually by the Company.
Pursuant to CPC 01 R1 (IAS 36), an impairment loss shall be allocated to reduce the carrying amount of the assets of the cash-generating unit, first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Accordingly, the impairment loss was filly allocated to the goodwill of regulatory licenses (Notes 5 and 17).
Functional and presentation currency
The Company and its subsidiaries operate mainly as telecommunications industry operators in Brazil, Africa, and Asia, and engage in activities typical of this industry. The items included in the financial statements of each group company are measured using the currency of the main economic environment where it operates ("functional currency"). The individual and consolidated financial statements are presented in Brazilian reais (R$), which is the Company's functional and presentation currency.
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FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
Transactions and balances
Foreign currency-denominated transactions are translated into the functional currency using the exchange rates prevailing on the transaction dates. Foreign exchange gains and losses arising on the settlement of the transaction and the translation at the exchange rates prevailing at period-end, related foreign currency-denominated monetary assets and liabilities are recognized in the income statement, except when qualified as hedge accounting and, therefore, deferred in equity as cash flow hedges.
Group companies with a different functional currency
The profit or loss and the financial position of all Group entities, none of which is operating under hyperinflationary conditions, whose functional currency is different from the presentation currency are translated into the presentation currency as follows:
- assets and liabilities are translating at the rate prevailing at the end of the reporting period;
- revenue and expenses disclosed in the statement of profit or loss are translated using the average exchange rate;
- all the resulting foreign exchange differences are recognized as a separate component of equity in other comprehensive income; and
- goodwill and fair value adjustments, arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing exchange rate.
As at September 30, 2019 and December 31, 2018, the foreign currency-denominated assets and liabilities were translated into Brazilian reais using mainly the following foreign exchange rates:
Closing rate | Average rate | |||
Currency | 09/30/2019 | 12/31/2018 | 09/30/2019 | 09/30/2018 |
Euro | 4.5425 | 4.4390 | 4.3679 | 4.2969 |
US dollar | 4.1644 | 3.8748 | 3.8887 | 3.6055 |
Cape Verdean escudo | 0.0412 | 0.0403 | 0.0396 | 0.039 |
Sao Tomean dobra | 0.000198 | 0.000185 | 0.000185 | 0.000176 |
Kenyan shilling | 0.0401 | 0.0381 | 0.0382 | 0.0357 |
Namibian dollar | 0.2749 | 0.2698 | 0.2708 | 0.2795 |
Mozambican metical | 0.0669 | 0.0627 | 0.0619 | 0.0595 |
Angolan kwanza | 0.0113 | 0.0126 | 0.0118 | 0.0155 |
Segment reporting
The information about operating segments is presented consistently with the internal report provided to the Company's main decision-making body, its Board of Directors. The results of operations are
10
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
regularly reviewed with regard to the resources to be allocated to assess their performance and for strategic decision-making.
Reclassifications of accounting balances during the comparative period
The Company made some reclassifications in the statement of profit or loss for the period ended September 30, 2018 for better comparability and understanding of the transactions and balances in the individual and e consolidated accounting information for the period ended September 30, 2019. These reclassifications do not affect the Company's or equity as at September 30, 2019 and profit or loss for the period then ended. We highlight below the stated reclassifications:
COMPANY | CONSOLIDATED | |||
Currently | Originally | Currently | Originally | |
stated | stated | stated | stated | |
09/30/2018 | 09/30/2018 | 09/30/2018 | 09/30/2018 | |
Cost of sales and/or services | (2,442,075) | (2,398,308) | (12,111,143) | (11,744,615) |
Selling expenses | (2,753,994) | (2,967,814) | ||
General and administrative expenses | (2,025,032) | (1,957,961) | ||
Other operating expenses | 24,209 | (19,558) | (843,195) | (1,062,974) |
- New and revised standards and interpretations
Effective for annual | ||
periods beginning on | ||
New and revised standards | or after: | |
Annual improvements to IFRSs | 2015-2017 Cycle | January 1, 2019 |
IFRS 16 | Leases | January 1, 2019 |
IFRIC 23 | Uncertainty over Income Tax Treatments | January 1, 2019 |
Amendment to IFRS 9 | Prepayment Features with Negative Compensation | January 1, 2019 |
Amendment to IAS 28 | Long-term interests in associates and joint ventures | January 1, 2019 |
Among the standards, changes, and interpretations referred to above, on IFRS 16/CPC 06 (R2) had an impact on the Company and subsidiaries' financial position as from January 1, 2018, as detailed below.
IFRS 16/CPC 06 (R2) Leases
IFRS 16/CPC 06 (R2) Leasesestablishes the principles for the recognition, measurement, presentation, and disclosures, and requires that lessees account for all the leases under a single model in the balance sheet. The standard includes two recognition exemptions for lessees: leases of low value assets (for example, personal computers) and short-term leases (i.e., with a lease tem of twelve months or less). At the lease commencement date, the lessee recognizes a liability related to the lease payments (i.e., a lease liability) and a lease asset that represents the right to use the underlying asset during the lease term (i.e., a right-of-use asset). The lessees are required to separately recognize an interest expense on the lease liability and a depreciation expense on the right-of-use asset. The lessees shall also revalue the lease liability should certain events occur (for example, any change in the lease term, a change in the future lease payments as a result of a change in the index or rate used
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FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
to determine such payments). As a rule, the lessee recognizes the revised amount of the lease liability as an adjustment to the right-of-use asset.
There is no significant change in the lessor's recognition based on IFRS 16 regarding the current accounting in accordance with IAS 17. The lessors shall continue to classify all leases pursuant to the same classification principle of IAS 17, differentiating between two types of leases: operating and finance leases.
Transition
The Company adopted IFRS 16 pursuant to the modified retrospective approach (i.e., beginning January 1, 2019, taking into account the right-of-use equal to the lease liability upon the first-time adoption), without any restatement of comparative information. The Company elected to apply the standard to agreements that were identified as leases pursuant to the previous standard. As a result, the Company did not apply the standard to agreements that have not previously been identified as containing a lease by applying IAS 17 and IFRIC 4, and excluded lease agreements maturing in the next twelve months, without probable renewal intention, in addition to applying a single discount rate to leases with similar characteristics and excluding to direct initial costs in the measurement of the right-of-use.
Exemptions
The Company elected to use the exemptions proposed by the standard on short-term agreements (i.e., that will be end within 12 months from the commencement date), lease agreements for which there is an underlying low value asset.
Impacts
The impacts refer basically to the lease agreements of towers, properties, stores, vehicles, and sites (physical spaces) and as described in Notes 16 and 21.
Upon the initial adoption of IFRS 16/CPC 06 (R2), the Company recognized a right-of-use asset and a lease liability in balance sheet. The right-of-use asset is measured at cost, which consists of the initial amount of the lease liability measurement, any initial direct costs incurred by the Company, an estimate of any costs to disassemble and remove the asset at the end of the lease, and any lease payments made before the lease commencement date (net of any incentives received), calculated at present value.
The Company depreciates the right-of-use assets on a straight-line basis from the commencement of the lease to the termination of the lease. The Company also assesses impairment when there are indicators that an asset might be impaired.
At the commencement date, the Company measured the lease liability at the present value of the consideration paid or payable, discounted using the Company's incremental lending rate.
The lease payments included in the lease liability measurement consist of fixed payments and variable payments based on either an index or a rate.
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FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
After the initial measurement, the liability will be written down by the payments made and increased by the interest incurred. If necessary, the liability is recalculated to reflect any remeasurement or change, or if there are changes in the substance of the fixed payments.
When there is a significant contractual change, a lease liability is remeasured and the corresponding adjustment is reflected in the right-of-use asset, or in profit or loss, if the right-of-use asset is already written down to nil.
The Company elected to use the exemptions proposed by the standard for lease agreements, for short- term and low value contracts. Accordingly, instead of recognizing a right-of-use asset and a lease liability, these are recognized as an expense in profit or loss over the lease period.
The Company individually measured any new agreement entered into after January 1, 2019 if such agreement contained a lease. A lease is defined as an "a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration."
To apply this definition the Company assessed whether a contract meets the three key characteristics:
- The agreement contains an identified asset, which is explicitly identified in the agreement or implicitly specified to be identified at the time that the asset is made available to the Company;
- The Company has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use, considering its rights within the scope set out in the agreement; and
- The Company has the right to direct the use of the identified asset throughout the period of use the and right to direct "how and for what purpose" the asset is used throughout the period of use.
As at January 1, 2019, the company and its subsidiaries recognized a right-of-use asset as a corresponding entry to the lease liability payable, amounting to R$8.2 billion (Notes 16 and 21). As at September 30, 2019, the amounts recognized for the right-of-use asset and the lease liability payable are R$8.1 billion and R$8.2 billion, respectively.
The Company adopted IFRS 16, taking into account the modified retrospective application permitted by the respective standards. Accordingly, we present below the consolidated results for the periods ended September 30, 2019 and 2018, less the effects recognized as a result of this application.
Balance at 09/30/2019 | IFRS 16 | Balance at 09/30/2019 | Balance at | |||
(with IFRS 16) | adjustments | (w/o IFRS 16) | 09/30/2018 | |||
Net operating revenue | 15,222,613 | 15,222,613 | 16,694,936 | |||
Cost of sales and/or services | (11,562,503) | (440,353) | (12,002,856) | (12,111,143) |
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FEDERAL PUBLIC SERVICE | |||||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | |||||||||
Quarterly Financial Information (ITR) | Corporate Legislation | ||||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | ||||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | ||||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | ||||||||
Gross profit (loss) | 3,660,110 | (440,353) | 3,219,757 | 4,583,793 | |||||
Operating income (expenses) | |||||||||
Share of profit (loss) of investees | (1,529) | (1,529) | (13,842) | ||||||
Selling expenses | (2,689,618) | (5,564) | (2,695,182) | (2,753,994) | |||||
General and administrative expenses | (2,090,203) | (4,225) | (2,094,428) | (2,025,032) | |||||
Other operating income | 3,257,537 | 3,257,537 | 1,477,638 | ||||||
Other operating expenses | (4,708,553) | (4,708,553) | (843,195) | ||||||
(6,232,366) | (9,789) | (6,242,155) | (4,158,425) | ||||||
Profit (loss) before financial income | |||||||||
(expenses) and taxes | (2,572,256) | (450,142) | (3,022,398) | 425,368 | |||||
Financial income | 2,829,768 | 2,829,768 | 31,195,560 | ||||||
Financial expenses | (6,781,150) | 710,147 | (6,071,003) | (3,670,599) | |||||
Financial income (expenses) | (3,951,382) | 710,147 | (3,241,235) | 27,524,961 | |||||
Profit (loss) before taxes | (6,523,638) | 260,005 | (6,263,633) | 27,950,329 | |||||
Income tax and social contribution | |||||||||
Current | (90,183) | (90,183) | 60,869 | ||||||
Deferred | (200,166) | (200,166) | (52,940) | ||||||
Profit (loss) for the period | (6,813,987) | 260,005 | (6,553,982) | 27,958,258 | |||||
3. FINANCIAL INSTRUMENTS AND RISK ANALYSIS
3.1. Financial Instruments
The carrying amounts and the estimated fair values of our main financial assets and financial liabilities as at September 30, 2019 and December 31, 2018 are summarized as follows:
COMPANY | CONSOLIDATED | ||||
Accounting | 09/30/2019 | ||||
measurement | |||||
Carrying | Carrying | ||||
amount | Fair value | amount | Fair value | ||
Assets | |||||
Cash and banks | Fair value | 149,887 | 149,887 | 237,734 | 237,734 |
Cash equivalents | Fair value | 1,463,643 | 1,463,643 | 2,740,792 | 2,740,792 |
Cash investments | Fair value | 178,348 | 178,348 | 213,365 | 213,365 |
Due from related parties | Amortized cost | 5,585,888 | 5,585,888 | ||
Accounts receivable (i) | Amortized cost | 1,337,172 | 1,337,172 | 6,616,234 | 6,616,234 |
Financial asset at fair value | Fair value | 47,475 | 47,475 | ||
Held-for-sale assets | |||||
Held-for-sale financial asset (Note 29) | Fair value | 1,583,146 | 1,583,146 | 1,583,146 | 1,583,146 |
Dividends receivable (Note 29) | Amortized cost | 2,746,026 | 2,746,026 | 2,746,026 | 2,746,026 |
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BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | |||||||
Quarterly Financial Information (ITR) | Corporate Legislation | ||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | ||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | ||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | ||||||
Liabilities | |||||||
Trade payables (i) | Amortized cost | 1,947,192 | 1,947,192 | 9,155,881 | 9,155,881 | ||
Borrowings and financing (ii) | |||||||
Borrowings and financing | Amortized cost | 2,021,746 | 2,021,746 | 6,933,484 | 6,933,484 | ||
Due to related parties | Amortized cost | 692,672 | 692,672 | ||||
Public debentures | Amortized cost | 2,263,188 | 2,263,188 | 4,783,352 | 4,783,352 | ||
Senior notes | Amortized cost | 6,188,452 | 6,554,128 | 6,188,452 | 6,554,128 | ||
Dividends and interest on capital | Amortized cost | 5,037 | 5,037 | 6,156 | 6,156 | ||
Licenses and concessions payable (iii) | Amortized cost | 39,071 | 39,071 | ||||
Tax refinancing program (iii) | Amortized cost | 281,449 | 281,449 | 440,589 | 440,589 | ||
Leases payable (iv) | Amortized cost | 658,641 | 658,641 | 8,231,439 | 8,231,439 | ||
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BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | |||||||
Quarterly Financial Information (ITR) | Corporate Legislation | ||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | ||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | ||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | ||||||
COMPANY | CONSOLIDATED | ||||||
Accounting | 12/31/2018 | ||||||
measurement | |||||||
Carrying | Carrying | ||||||
amount | Fair value | amount | Fair value | ||||
Assets | |||||||
Cash and banks | Fair value | 152,454 | 152,454 | 287,491 | 287,491 | ||
Cash equivalents | Fair value | 1,516,605 | 1,516,605 | 4,097,838 | 4,097,838 | ||
Cash investments | Fair value | 195,639 | 195,639 | 238,962 | 238,962 | ||
Due from related parties | Amortized cost | 11,960,680 | 11,960,680 | ||||
Accounts receivable (i) | Amortized cost | 1,193,687 | 1,193,687 | 6,516,555 | 6,516,555 | ||
Held-for-sale assets | |||||||
Held-for-sale financial asset (Note 29) | Fair value | 1,843,778 | 1,843,778 | 1,843,778 | 1,843,778 | ||
Dividends receivable (Note 29) | Amortized cost | 2,566,935 | 2,566,935 | 2,566,935 | 2,566,935 | ||
Liabilities | |||||||
Trade payables (i) | Amortized cost | 2,244,382 | 2,244,382 | 8,818,870 | 8,818,870 | ||
Borrowings and financing (ii) | |||||||
Borrowings and financing | Amortized cost | 1,759,635 | 1,759,635 | 7,140,960 | 7,140,960 | ||
Due to related parties | Amortized cost | 377,184 | 377,184 | ||||
Public debentures | Amortized cost | 1,992,339 | 1,992,339 | 3,103,106 | 3,103,106 | ||
Senior notes | Amortized cost | 6,205,840 | 6,937,764 | 6,205,840 | 6,937,764 | ||
Dividends and interest on capital | Amortized cost | 5,075 | 5,075 | 6,168 | 6,168 | ||
Licenses and concessions payable (iii) | Amortized cost | 22,925 | 22,925 | 85,619 | 85,619 | ||
Tax refinancing program (iii) | Amortized cost | 353,496 | 353,496 | 553,206 | 553,206 | ||
For the closing of the period ended September 30, 2019:
- The balances of accounts receivables have near terms and, therefore, they are not adjusted to fair value. Under the Plan, the suppliers with claims in excess of R$150,000 would receive the remaining balance in four annual installments, beginning 2018, which were adjusted to present value (Note 18).
- The balance of the borrowings and financing with the BNDES, Local Banks, and ECAs correspond to exclusive markets, and the fair value of these instruments is similar to their carrying amounts. The balances of borrowings and financing refers to the bonds issued in the international market, for which is there is a secondary market, and their fair values differ from their carrying amounts.
- The licenses and concessions payable and the tax refinancing program are stated at the amounts that these obligations are expected to be discharged and are not adjusted to fair value.
- The leases payable are represented by the amounts that the obligations are expected to be settled, adjusted at present value.
The levels of the financial assets, cash, cash equivalents, cash investments, and held-for-sale assets measured at fair value as at September 30, 2019 and December 31, 2018 are broken down below:
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FEDERAL PUBLIC SERVICE | ||||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | ||||||||
Quarterly Financial Information (ITR) | Corporate Legislation | |||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | |||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | |||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | |||||||
Fair value | COMPANY | CONSOLIDATED | ||||||
measurement | Fair value | Fair value | Fair value | Fair value | ||||
hierarchy | ||||||||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |||||
Assets | ||||||||
Cash and banks | Level 1 | 149,887 | 152,454 | 237,734 | 287,491 | |||
Cash equivalents | Level 2 | 1,463,643 | 1,516,605 | 2,740,792 | 4,097,838 | |||
Cash investments | Level 2 | 178,348 | 195,639 | 213,365 | 238,962 | |||
Held-for-sale financial asset | Level 3 | 1,583,146 | 1,843,778 | 1,583,146 | 1,843,778 |
There were no transfers between levels in the periods ended September 30, 2019 and December 31, 2018.
The Company and its subsidiaries have measured their financial assets and financial liabilities at their market or actual realizable values (fair value) using available market inputs and valuation techniques appropriate for each situation, as follows:
- Cash, cash equivalents and cash investments
Foreign currency-denominated cash equivalents and cash investments are basically kept in checking deposits denominated in euro and US dollars and in euros.
The fair value of securities traded in active markets is equivalent to the amount of the last closing quotation available at the end of the reporting period, multiplied by the number of outstanding securities.
For the remaining contracts, the Company carries out an analysis comparing the current contractual terms and conditions with the terms and conditions effective for the contract when they were originated. When terms and conditions are dissimilar, fair value is calculated by discounting future cash flows at the market rates prevailing at the end of the period, and when similar, fair value is similar to the carrying amount on the reporting date.
- Held-for-saleassets
Refers to the fair value of the financial investment in Unitel, classified as a financial asset at fair value through profit or loss and the recoverable amount of dividends receivable from Unitel. The fair value of the investment is driven by a number of estimations concerning the potential outcomes and recoveries from the various legal proceedings which have been instituted on behalf of the Company and its affiliates. In addition, the fair value is estimated based on the internal valuation made, including cash flows forecasts for a five-year period, the choice of a growth rate to extrapolate the cash flows projections, and definition of appropriate discount rates and foreign exchange rates consistent with the reality of the country where the business is located. In addition to the financial and business assumptions referred to above, the Company also takes into consideration the fair value measurement of cash investment, qualitative assumptions, including the outcomes and conclusions of the lawsuits filed against third parties, and the opinion of the legal counsel on these lawsuits. With
17
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
regard to the impairment test of dividends, the Company uses financial assumptions on the discount rate in time and the foreign exchange rate, and uses qualitative assumptions based on the opinion of the legal counsel on the outcome the proceedings of filed against Unitel and third parties for the nonpayment of dividends and interest.
The Company monitors and periodically updates the key assumptions and critical estimates used to calculate fair value. See Note 29 for further information.
- Derivative financial instruments
The Company conducts derivative transactions to manage certain market risks, mainly the foreign exchange risk. As at September 30, 2019, the Company does not have any derivatives in its portfolio. The Company does not use derivatives for any purposes other than hedging against these risks.
The method used to calculate the fair value of the derivative instruments contracted throughout the year was the future cash flows method associated to each contracted instrument, discounted using the market rates prevailing at the reporting date.
3.2. Financial risk management
The Company's and its subsidiaries' activities expose them to several financial risks, such as: market risk (including currency fluctuation risk, interest rate risk on fair value, interest rate risk on cash flows), credit risk, and liquidity risk. According to their nature, financial instruments may involve known or unknown risks, and it is important to assess to the best judgment the potential of these risks. The Company and its subsidiaries may use derivative financial instruments to mitigate certain exposures to these risks.
The Company's risk management process is a three-step process, taking into account its consolidated structure: strategic, tactical, and operational. At the strategic level, the Company's executive committee agrees with the Board of Directors the risk guidelines to be followed. A Financial Risk Management Committee is responsible for overseeing and ensuring that Oi comply with the existing policies. At the operating level, risk management is carried out by the Company's treasury officer, in accordance with the policies approved by the Board of Directors.
The Financial Risk Management Committee meets on a monthly basis and currently consists of the Corporate Finance Officer, The Regulation Planning and Wholesale Officer, Legal Tax Officer, Chief Controller, Investor Relations Officer, and the Treasury Officer.
The Hedging and Cash Investments Policies, approved by the Board of Directors, document the management of exposures to market risk factors generated by the financial transactions of the Oi Group companies.
In the aftermath of the approval of the JRP, based on the measured new risk factors, the Company approved with the Board of Directors a new strategy to the Board of Directors to mitigate the risks arising on the foreign exchange exposure of its financial liabilities, as is ready to implement it as from
18
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
this point in time. In line with the Hedging Policy pillars, the strategy is focused on the preservation of the Company's cash flows, maintaining the liquidity, and comply with the financial covenants.
3.2.1. Market risk
- Foreign exchange risk
Financial assets
The Company is not exposed to any material foreign exchange risk involving foreign currency- denominated financial assets as at September 30, 2019, except with regard to the assets held for sale, for which the Company does not enter into any currency hedging transaction.
Financial liabilities
The Company and its subsidiaries have foreign currency-denominated or foreign currency-indexed borrowings and financing. The risk associated with these liabilities is related to the possibility of fluctuations in foreign exchange rates that could increase the balance of such liabilities. The Company's and its subsidiaries' borrowings and financing exposed to this risk represent approximately 52.8% of total liabilities from borrowings and financing (53.6% at December 31, 2018), less the contracted currency hedging transactions. To minimize this type of risk, the Company entered into currency hedges with financial institutions for part of the foreign currency-denominated interest payments made in 2019. The Company hedged 67% of its total dollar-denominated debt service in 2019 through hedging transactions in the form of currency forwards and foreign currency- denominated cash investments. The currency hedging percentage for purposes of covenant compliance and the financial expenses of the existing borrowings and financing, including the impacts of changes in foreign exchange rates on the fair value adjustment gain, is 49.7%.
Additionally, the Company hedged part of the Company's operating expenses contractually denominated in US dollar accounted for through the end of this quarter.
Foreign currency-denominated financial assets and financial liabilities are presented in the balance sheet as follows (includes intragroup balances transferred to Company amounts):
COMPANY | ||||
09/30/2019 | 12/31/2018 | |||
Carrying | Carrying | |||
amount | Fair value | amount | Fair value | |
Financial assets | ||||
Cash and banks | 105,424 | 105,424 | 39,779 | 39,779 |
Cash equivalents | 153,428 | 153,428 | ||
Due from related parties | 5,585,888 | 5,585,888 | 11,960,680 | 11,960,680 |
Financial liabilities | ||||
Borrowings and financing (Note 19) | 7,560,647 | 7,560,647 | 7,131,350 | 7,863,274 |
19
FEDERAL PUBLIC SERVICE | |||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | |||||
Quarterly Financial Information (ITR) | Corporate Legislation | ||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | ||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | ||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | ||||
CONSOLIDATED | |||||
09/30/2019 | 12/31/2018 | ||||
Carrying | Carrying | ||||
amount | Fair value | amount | Fair value | ||
Financial assets | |||||
Cash and banks | 107,686 | 107,686 | 70,116 | 70,116 | |
Cash equivalents | 1,166 | 1,166 | 154,514 | 154,514 | |
Financial liabilities | |||||
Borrowings and financing (Note 19) | 9,443,842 | 9,443,842 | 8,816,766 | 9,548,690 |
At the end of this quarter, the Company did not have foreign exchange hedging transactions with financial institutions.
As at September 30, 2019 and December 31, 2018, the Company recognized as result of derivative transactions the amounts shown below:
Three-month period ended | ||||
COMPANY | CONSOLIDATED | |||
09/30/2019 | 09/30/2018 | 09/30/2019 | 09/30/2018 | |
Forward currency transactions - financial income | ||||
(expenses) | 944 | 944 | ||
Forward currency transactions - operating revenues | ||||
(expenses) | 756 | 756 | ||
Total | 1,700 | 1,700 | ||
Nine-month period ended | ||||
COMPANY | CONSOLIDATED | |||
09/30/2019 | 09/30/2018 | 09/30/2019 | 09/30/2018 | |
Forward currency transactions - financial income | ||||
(expenses) | 55,025 | 55,025 | ||
Forward currency transactions - operating revenues | ||||
(expenses) | 11,901 | 11,901 | ||
Total | 66,926 | 66,926 |
And the movements in foreign exchange hedges designated for hedge accounting were recognized in other comprehensive income.
Table of movements in hedge accounting effects in other comprehensive income
COMPANY | CONSOLIDATED | |
Balance at Dec 31, 2018 | ||
Gain on designated hedges | 11,145 | 11,145 |
Expensed hedge amortization | (11,145) | (11,145) |
Balance at Sep 30, 2019 |
Foreign exchange risk sensitivity analysis
20
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
As established by CVM Instruction 475, as at September 30, 2019, management estimated the depreciation scenarios of the Brazilian real in relation to other currencies, at the end of the reporting period.
For purposes of this Instruction, however, the rates used for the probable scenario were the rates prevailing at the end of June 2019. The probable rates were then depreciated by 25% and 50% and used as benchmark for the possible and remote scenarios, respectively.
Rate | |||
Description | 09/30/2019 | Depreciation | |
Probable scenario | |||
U.S. dollar | 4.1644 | 0% | |
Euro | 4.5425 | 0% | |
Possible scenario | |||
U.S. dollar | 5.2055 | 25% | |
Euro | 5.6781 | 25% | |
Remote scenario | |||
U.S. dollar | 6.2466 | 50% | |
Euro | 6.8138 | 50% |
The impacts of foreign exchange exposure on the foreign currency-denominated debt, considering offshore derivatives and cash, in the sensitivity scenarios estimated by the Company, are shown in the table below (excludes intragroup balances):
09/30/2019 | |||||||||
COMPANY | CONSOLIDATED | ||||||||
Description | Individual | Probable | Possible | Remote | Probable | Possible | Remote | ||
risk | scenario | scenario | scenario | scenario | scenario | scenario | |||
US dollar debt | Dollar appreciation | 9,297,158 | 11,621,447 | 13,945,736 | 15,878,463 | 19,848,079 | 23,817,694 | ||
US dollar cash | Dollar depreciation | (65,355) | (81,694) | (98,033) | (67,739) | (84,674) | (101,609) | ||
Euro debt | Euro appreciation | 185,728 | 232,160 | 278,592 | 2,718,640 | 3,398,301 | 4,077,961 | ||
Euro cash | Euro depreciation | (40,068) | (50,085) | (60,102) | (41,113) | (51,391) | (61,669) | ||
Dollar /euro | |||||||||
Fair value adjustment | depreciation | (2,569,184) | (3,211,480) | (3,853,776) | (9,141,525) | (11,426,906) | (13,712,287) | ||
Total assets/liabilities | |||||||||
indexed to exchange | |||||||||
fluctuation | 6,808,279 | 8,510,348 | 10,212,417 | 9,346,726 | 11,683,409 | 14,020,090 | |||
Total (gain) loss | 1,702,069 | 3,404,138 | 2,336,683 | 4,673,364 |
- Interest rate risk Financial assets
Cash equivalents and cash investments in local currency are substantially maintained in financial investment funds exclusively managed for the Company and its subsidiaries, and investments in private securities issued by prime financial institutions.
21
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
The interest rate risk linked to these assets arises from the possibility of decreases in these rates and consequent decrease in the return on these assets.
Financial liabilities
The Company and its subsidiaries have borrowings and financing subject to floating interest rates, based on the Long-term Interest Rate (TJLP), the CDI, or the Benchmark Rate in the case of real- denominated debt as at September 30, 2019. After the approval of the JRP, the Company does not have borrowings and financing subject to foreign currency-denominated floating interest rate.
As at September 30, 2019, approximately 46.9% (46.0% at December 31, 2018) of the incurred debt was subject to floating interest rates. The most material exposure of Company's and its subsidiaries' debt after is to CDI. Therefore, a continued increase in this interest rate would have an adverse impact on future interest payments.
These assets and liabilities are presented in the balance sheet as follows:
COMPANY | ||||||||
09/30/2019 | 12/31/2018 | |||||||
Carrying | Market | Carrying | Market | |||||
amount | value | amount | value | |||||
Financial assets | ||||||||
Cash equivalents | 1,463,643 | 1,463,643 | 1,363,177 | 1,363,177 | ||||
Cash investments | 178,348 | 178,348 | 195,639 | 195,639 | ||||
Financial liabilities | ||||||||
Borrowings and financing (Note 19) | 3,605,411 | 3,605,411 | 3,203,648 | 3,203,648 | ||||
CONSOLIDATED | ||||||||
09/30/2019 | 12/31/2018 | |||||||
Carrying | Market | Carrying | Market | |||||
amount | value | amount | value | |||||
Financial assets | ||||||||
Cash equivalents | 2,739,626 | 2,739,626 | 3,943,324 | 3,943,324 | ||||
Cash investments | 213,365 | 213,365 | 238,962 | 238,962 | ||||
Financial liabilities | ||||||||
Borrowings and financing (Note 19) | 8,461,446 | 8,461,446 | 7,633,140 | 7,633,140 |
Interest rate fluctuation risk sensitivity analysis
Management believes that the most material risk related to interest rate fluctuations arises from its liabilities pegged to the TJLP and primarily the CDI. This risk is associated to an increase in those rates. The TJLP rate remained stable at 7.0% p.a. from April 1, 2017 to December 31, 2017. Beginning January 1, 2018, the TJLP was being successively reduced: 6.75% per year up to March 2018, 6.6% per year from April to June 2018, and 6.56% from July to September 2018. In turn, from October to December 2018 this rate was increased to 6.98% per year, and from January to March 2019 it increased to 7.03% to be reduced again from April to June to 6.26% and from July to September to 5.95%. Before the end of the quarter the National Monetary Council decided to reduce this rate again to 5.57% per year, effective for October-December 2019.
22
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
As required by CVM Instruction 475, Management estimated the fluctuation scenarios of the rates CDI and TJLP as at September 30, 2019. The rates used for the probable scenario were the rates prevailing at the end of the reporting period.
For purposes of this Instruction, however, these rates have been stressed by 25% and 50%, and used as benchmark for the possible and remote scenarios.
09/30/2019
Interest rate scenarios
Probable scenario | Possible scenario | Remote scenario | |||
CDI | TJLP | CDI | TJLP | CDI | TJLP |
5.40% | 5.95% | 6.75% | 7.44% | 8.10% | 8.93% |
Such sensitivity analysis considers payment outflows in future dates. Thus, the aggregate of the amounts for each scenario is not equivalent to the fair values, or even the present values of these liabilities.
The impacts of exposure to interest rates, in the sensitivity scenarios estimated by the Company, are shown in the table below:
09/30/2019 | |||||||
COMPANY | CONSOLIDATED | ||||||
Individual | Probable | Possible | Remote | Probable | Possible | Remote | |
Description | risk | scenario | scenario | scenario | scenario | scenario | scenario |
CDI-indexed debt | CDI increase | 1,935,155 | 3,026,394 | 3,750,365 | 3,434,449 | 5,370,950 | 6,655,640 |
TJLP-indexed debt | TJLP increase | 909,879 | 1,143,796 | 1,350,490 | 3,555,922 | 4,470,096 | 5,277,884 |
Total assets/liabilities pegged to the | |||||||
interest rate | 2,845,034 | 4,170,190 | 5,100,855 | 6,990,371 | 9,841,046 | 11,933,524 | |
Total (gain) loss | 1,325,156 | 2,255,821 | 2,850,675 | 4,943,153 |
3.2.2. Credit risk
The concentration of credit risk associated to trade receivables is immaterial due to the diversification of the portfolio. Doubtful receivables are adequately covered by an allowance for doubtful accounts.
Transactions with financial institutions (cash investments and borrowings and financing) are made with prime entities, avoiding the concentration risk. The credit risk of financial investments is assessed by setting caps for investment in the counterparts, taking into consideration the ratings released by the main international risk rating agencies for each one of such counterparts. As at September 30, 2019, approximately 92.67% of the consolidated cash investments were made with counterparties with an AAA, AA, A, and or sovereign risk rating.
The Company had credit risks related to dividends receivable associated to the investment in Unitel. In November 2019, PT Ventures received USD33.1 million in extraordinary dividends from Unitel (see Note 31).
23
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
3.2.3. Liquidity risk
The liquidity risk also arises from the possibility of the Company being unable to discharge its liabilities on maturity dates and obtain cash due to market liquidity restrictions. Management uses its resources mainly to fund capital expenditures incurred on the expansion and upgrading of the network, invest in new businesses.
The Company's management monitors the continual forecasts of the liquidity requirements to ensure that the company has sufficient cash to meet its operating needs and fund capital expenditure to modernize and expand its network.
At the beginning of 2019, Oi completed the capital increase provided for in the JRP. With this increase, the Company received R$4.0 billion, which will be allocated to the incremental CAPEX Plan, directed to the expansion of the mobile and fixed infrastructure, while focused primarily on the fiber optics project. In addition to the capital increase, to finance the incremental CAPEX associated to the Strategic Plan, the Company plans to divest unessential and release cash through non-operating event such as, for example, tax credits.
4. NET OPERATING REVENUE
Three-month period ended | ||||
COMPANY | CONSOLIDATED | |||
09/30/2019 | 09/30/2018 | 09/30/2019 | 09/30/2018 | |
Gross operating revenue | 1,202,282 | 1,452,279 | 6,739,704 | 7,542,074 |
Deductions from gross revenue | (291,769) | (359,959) | (1,738,472) | (2,060,704) |
Taxes | (290,387) | (358,531) | (1,382,412) | (1,665,025) |
Other deductions | (1,382) | (1,428) | (356,060) | (395,679) |
Net operating revenue | 910,513 | 1,092,320 | 5,001,232 | 5,481,370 |
Nine-month period ended | ||||
COMPANY | CONSOLIDATED | |||
09/30/2019 | 09/30/2018 | 09/30/2019 | 09/30/2018 | |
Gross operating revenue | 3,780,265 | 4,590,194 | 20,591,027 | 23,108,953 |
Deductions from gross revenue | (917,376) | (1,147,884) | (5,368,414) | (6,414,017) |
Taxes | (914,110) | (1,142,156) | (4,289,860) | (5,174,014) |
Other deductions | (3,266) | (5,728) | (1,078,554) | (1,240,003) |
Net operating revenue | 2,862,889 | 3,442,310 | 15,222,613 | 16,694,936 |
24
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
5. REVENUE AND EXPENSES BY NATURE
Three-month period ended | ||||
COMPANY | CONSOLIDATED | |||
09/30/2019 | 09/30/2018 | 09/30/2019 | 09/30/2018 | |
Net operating revenue | 910,513 | 1,092,320 | 5,001,232 | 5,481,370 |
Operating income (expenses): | ||||
Interconnection | (20,879) | (33,922) | (110,192) | (147,287) |
Personnel | (112,311) | (126,589) | (615,086) | (665,890) |
Third-party services | (273,380) | (285,764) | (1,516,265) | (1,516,186) |
Grid maintenance service | (153,758) | (172,290) | (250,951) | (288,046) |
Handset and other costs | (36,333) | (45,948) | ||
Advertising and publicity | (26,229) | (17,126) | (148,344) | (73,849) |
Rentals and insurance | (112,468) | (162,994) | (677,047) | (1,105,962) |
Provisions/reversals | 362,617 | 1,003 | (72,351) | (7,443) |
Estimated loss on doubtful debts | (19,970) | (8,753) | (159,636) | (157,783) |
Impairment losses | (3,341,842) | (3,341,842) | ||
Taxes and other income (expenses) | (1,701,581) | (1,644,770) | (40,669) | (13,628) |
Other operating income (expenses), net | (9,944) | 520,685 | ||
Operating expenses excluding depreciation and | ||||
amortization | (5,409,745) | (2,451,205) | (6,448,031) | (4,022,022) |
Depreciation and amortization | (461,980) | (431,561) | (1,752,125) | (1,465,087) |
Total operating expenses | (5,871,725) | (2,882,766) | (8,200,156) | (5,487,109) |
Loss before financial income (expenses) and taxes | (4,961,212) | (1,790,446) | (3,198,924) | (5,739) |
Financial income (expenses): | ||||
Financial income | 1,894,079 | 3,296,716 | 1,499,447 | 731,509 |
Financial expenses | (2,682,269) | (2,992,549) | (3,875,418) | (2,186,887) |
Total financial income (expenses) | (788,190) | 304,167 | (2,375,971) | (1,455,378) |
Pre-tax loss | (5,749,402) | (1,486,279) | (5,574,895) | (1,461,117) |
Income tax and social contribution | 2,513 | 149,892 | (208,610) | 126,136 |
Loss for the period | (5,746,889) | (1,336,387) | (5,783,505) | (1,334,981) |
Loss attributable to Company owners | (5,746,889) | (1,336,387) | (5,746,889) | (1,336,387) |
Profit (loss) attributable to non-controlling interests | (36,616) | 1,406 | ||
Operating expenses by function: | ||||
Cost of sales and/or services | (787,351) | (842,561) | (3,829,421) | (4,078,693) |
Selling expenses | (196,007) | (189,119) | (931,331) | (908,811) |
General and administrative expenses | (206,862) | (214,047) | (710,348) | (649,703) |
Other operating income | 186,116 | 191,297 | 1,116,808 | 537,604 |
Other operating expenses | (3,026,882) | (50,831) | (3,845,624) | (380,583) |
Share of profit (loss) of investees | (1,840,739) | (1,777,505) | (240) | (6,923) |
25 |
FEDERAL PUBLIC SERVICE | ||||||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | ||||||||||
Quarterly Financial Information (ITR) | Corporate Legislation | |||||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | |||||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | |||||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | |||||||||
Total operating expenses | (5,871,725) | (2,882,766) | (8,200,156) | (5,487,109) | ||||||
Nine-month period ended | ||||||||||
COMPANY | CONSOLIDATED | |||||||||
09/30/2019 | 09/30/2018 | 09/30/2019 | 09/30/2018 | |||||||
Net operating revenue | 2,862,889 | 3,442,310 | 15,222,613 | 16,694,936 | ||||||
Operating income (expenses): | ||||||||||
Interconnection | (71,371) | (110,088) | (351,312) | (495,849) | ||||||
Personnel | (306,508) | (318,071) | (1,818,675) | (1,875,329) | ||||||
Third-party services | (845,892) | (870,883) | (4,526,498) | (4,408,207) | ||||||
Grid maintenance service | (484,422) | (511,071) | (782,407) | (837,595) | ||||||
Handset and other costs | (131,972) | (123,189) | ||||||||
Advertising and publicity | (65,060) | (56,480) | (334,227) | (238,088) | ||||||
Rentals and insurance (i) | (324,239) | (424,272) | (2,013,612) | (3,189,868) | ||||||
Provisions/reversals | 380,440 | (98,148) | (186,128) | (167,426) | ||||||
Estimated loss on doubtful debts | (91,049) | (66,640) | (427,122) | (565,572) | ||||||
Impairment losses (ii) | (3,341,842) | (3,341,842) | ||||||||
Taxes and other income (expenses) (iii) | (2,979,731) | 380,909 | (50,360) | (199,812) | ||||||
Other operating income (expenses), net (iv) | 582,826 | 222,901 | 1,340,475 | 156,087 | ||||||
Operating expenses excluding depreciation and | (7,546,848) | (1,851,843) | (12,623,680) | (11,944,848) | ||||||
amortization | ||||||||||
Depreciation and amortization (i) | (1,357,191) | (1,269,812) | (5,171,189) | (4,324,720) | ||||||
Total operating expenses | (8,904,039) | (3,121,655) | (17,794,869) | (16,269,568) | ||||||
Profit (loss) before financial income (expenses) and | (6,041,150) | 320,655 | (2,572,256) | 425,368 | ||||||
taxes | ||||||||||
Financial income (expenses): | ||||||||||
Financial income | 3,055,123 | 33,468,782 | 2,829,768 | 31,195,560 | ||||||
Financial expenses (i) | (3,752,301) | (6,054,868) | (6,781,150) | (3,670,599) | ||||||
Total financial income (expenses) | (697,178) | 27,413,914 | (3,951,382) | 27,524,961 | ||||||
Profit (loss) before taxes | (6,738,328) | 27,734,569 | (6,523,638) | 27,950,329 | ||||||
Income tax and social contribution | 797 | 214,723 | (290,349) | 7,929 | ||||||
Profit (loss) for the period | (6,737,531) | 27,949,292 | (6,813,987) | 27,958,258 | ||||||
Profit (loss) attributable to the owners of the Company | (6,737,531) | 27,949,292 | (6,737,531) | 27,949,292 | ||||||
Profit (loss) attributable to non-controlling interests | (76,456) | 8,966 | ||||||||
Operating expenses by function: | ||||||||||
Cost of sales and/or services | (2,360,142) | (2,442,075) | (11,562,503) | (12,111,143) | ||||||
Selling expenses | (622,837) | (608,240) | (2,689,618) | (2,753,994) | ||||||
General and administrative expenses | (637,625) | (660,612) | (2,090,203) | (2,025,032) | ||||||
Other operating income | 1,491,745 | 448,953 | 3,257,537 | 1,477,638 | ||||||
Other operating expenses | (3,065,809) | 24,209 | (4,708,553) | (843,195) | ||||||
Share of profit (loss) of investees | (3,709,371) | 116,110 | (1,529) | (13,842) | ||||||
Total operating expenses | (8,904,039) | (3,121,655) | (17,794,869) | (16,269,568) |
- Thenone-month comparison was impacted by the adoption of IFRS 16/CPC 06 (R2) Leasesbeginning January 1, 2019 (Note 2(b)).
26
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
- As required by CPC 01/IAS 36, the Company conducted an impairment test of its assets with finite useful lives for reporting date September 30, 2019 and recognized an allowance for impairment losses relating to the expected future profitability of such assets. The Company took into consideration in its assumptions for the impairment test, among other factors, the strategic plan disclosed in July 2019. The plan rests on transformation actions, focused on improving operational and financial performance (see Note 17).
- Includes the share of profit (loss) of investees.
- In 2019, refers basically to the accounting recognition amounting to R$592,770 in the Company and R$1,517,919 on a consolidated basis, of the PIS and COFINS credits arising from the deduction of ICMS from the tax base of PIS and COFINS, as well as the recovery of unduly paid amounts as PIS and COFINS, under a final and unappealable court decision reached in March 2019, as described in Note 11, and R$167,395 on a consolidated basis related to the derecognition for the reconciliation of tax credits and tax incentives from prior periods that are not expected to be realized.
27
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
6. FINANCIAL INCOME (EXPENSES)
Three-month period ended | ||||
COMPANY | CONSOLIDATED | |||
09/30/2019 | 09/30/2018 | 09/30/2019 | 09/30/2018 | |
Financial income | ||||
Adjustment to present value | 14,533 | (19,403) | 45,030 | 87,291 |
Inflation adjustment and foreign exchange differences on | ||||
the fair value adjustment | 228,192 | 100,688 | 705,297 | 364,206 |
Gain on the restructuring of third-party borrowings | (2,053) | (56,190) | ||
Interest on and inflation adjustment to other assets | (45,041) | 139,609 | 653,694 | 296,438 |
Income from cash investments | 34,245 | 21,636 | 51,259 | 75,402 |
Interest and foreign exchange differences on intragroup | ||||
loans | 1,642,486 | 3,082,866 | ||
Exchange differences on translating foreign cash | ||||
investments | 6,942 | 2,912 | 7,136 | 5,777 |
Reversal interest and other revenue | 12,722 | (29,539) | 37,031 | (41,415) |
Total | 1,894,079 | 3,296,716 | 1,499,447 | 731,509 |
Financial expenses and other charges | ||||
a) Borrowing and financing costs | ||||
Recognition of present value adjustment | (130,091) | (102,679) | (294,016) | (231,854) |
Inflation adjustment to and exchange losses on third-party | ||||
borrowings | (736,671) | (321,395) | (1,357,876) | (648,521) |
Interest on borrowings from third parties | (240,847) | (237,865) | (351,024) | (349,064) |
Interest on debentures | (55,103) | (53,846) | (85,827) | (83,869) |
Interest and foreign exchange differences on intragroup | ||||
loans | (1,187,962) | (1,797,718) | ||
Subtotal: | (2,350,674) | (2,513,503) | (2,088,743) | (1,313,308) |
b) Other charges | ||||
Adjustment to present value | (82,283) | (32,600) | (457,330) | (102,774) |
Gain (loss) on cash investments classified as held for sale | 180,990 | (46,124) | 59,813 | (215,860) |
Tax on transactions and bank fees | (21,258) | (21,500) | (67,821) | (87,656) |
Interest on, inflation adjustment to, and foreign exchange | ||||
differences on other liabilities | (205,830) | (86,943) | (635,939) | (243,418) |
Inflation adjustment to (provisions)/reversals | (123,400) | (52,301) | (539,150) | (76,735) |
Interest on taxes in installments - tax financing program | (2,270) | (8,329) | (3,844) | (10,150) |
Derivative transactions | 944 | 944 | ||
Other expenses | (78,488) | (231,249) | (143,348) | (136,986) |
Subtotal: | (331,595) | (479,046) | (1,786,675) | (873,579) |
Total | (2,682,269) | (2,992,549) | (3,875,418) | (2,186,887) |
Financial income (expenses) | (788,190) | 304,167 | (2,375,971) | (1,455,378) |
28
FEDERAL PUBLIC SERVICE | |||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | |||||||
Quarterly Financial Information (ITR) | Corporate Legislation | ||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | ||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | ||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | ||||||
Nine-month period ended | |||||||
COMPANY | CONSOLIDATED | ||||||
09/30/2019 | 09/30/2018 | 09/30/2019 | 09/30/2018 | ||||
Financial income | |||||||
Adjustment to present value (i) | 15,567 | 5,256,395 | 48,854 | 13,291,351 | |||
Inflation adjustment and foreign exchange differences on | |||||||
the fair value adjustment | 196,707 | 536,288 | 582,454 | 1,755,391 | |||
Gain on the restructuring of third-party borrowings (ii) | 3,269,445 | 11,054,126 | |||||
Interest on and inflation adjustment to other assets (iii) | 1,033,153 | 498,693 | 1,903,985 | 993,806 | |||
Income from cash investments | 144,533 | 106,990 | 209,446 | 249,685 | |||
Interest and foreign exchange differences on intragroup | |||||||
loans (iv) | 1,605,009 | 23,270,609 | |||||
Exchange differences on translating foreign cash | |||||||
investments | (49,049) | 9,296 | (49,491) | 19,812 | |||
Reversal of interest and other income (v) | 109,203 | 521,066 | 134,520 | 3,831,389 | |||
Total | 3,055,123 | 33,468,782 | 2,829,768 | 31,195,560 | |||
Financial expenses and other charges | |||||||
a) Borrowing and financing costs | |||||||
Recognition of present value adjustment | (319,852) | (245,831) | (713,664) | (557,900) | |||
Inflation adjustment to and exchange losses on third-party | |||||||
borrowings (vi) | (639,884) | (1,585,291) | (1,149,498) | (3,103,788) | |||
Interest on borrowings from third parties (vii) | (663,644) | 821,074 | (972,830) | 1,569,945 | |||
Interest on debentures (vii) | (161,966) | 649,171 | (252,276) | 576,218 | |||
Interest and foreign exchange differences on intragroup | |||||||
loans (viii) | (1,086,891) | (4,954,591) | |||||
Subtotal: | (2,872,237) | (5,315,468) | (3,088,268) | (1,515,525) | |||
b) Other charges | |||||||
Adjustment to present value (ix) | (244,087) | (78,460) | (1,357,022) | (264,363) | |||
Gain (loss) on cash investments classified as held for sale | 161,151 | 513,258 | 12,585 | 494,540 | |||
Tax on transactions and bank fees | (108,169) | (366,169) | (257,560) | (703,705) | |||
Interest on, inflation adjustment to, and foreign exchange | |||||||
differences on other liabilities | (326,615) | (216,061) | (1,007,179) | (622,374) | |||
Inflation adjustment to (provisions)/reversals | (209,990) | 49,584 | (721,527) | (166,443) | |||
Interest on taxes in installments - tax financing program | (7,495) | (17,461) | (12,986) | (22,626) | |||
Derivative transactions | 55,025 | 55,025 | |||||
Other expenses (x) | (199,884) | (624,091) | (404,218) | (870,103) | |||
Subtotal: | (880,064) | (739,400) | (3,692,882) | (2,155,074) | |||
Total | (3,752,301) | (6,054,868) | (6,781,150) | (3,670,599) | |||
Financial income (expenses) | (697,178) | 27,413,914 | (3,951,382) | 27,524,961 |
- In 2018, refers to the recognition of the fair value ofthird-party borrowings and financing arising from the impacts of the ratification of the JRP.
- In 2018, refers basically to the positive impact of the novation of the debt represented by the qualified Senior Notes, calculated pursuant to the JRP.
29
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
- In 2019, refers to the accounting recognition amounting to R$891 million in the Company and R$1,549 million on a consolidated basis related to the inflation adjustment to PIS and COFINS credits arising from the deduction of ICMS from the tax base of PIS and COFINS, as well as the recovery of unduly paid amounts as PIS and COFINS, under a final and unappealable court decision reached in March and September 2019, as described in Note 11.
- In 2018, in the Company includes R$18,435 million in present value adjustment to intragroup loans.
- In 2018, represented mainly by the reversal of the interest expenses on debt included in the JRP, adjusted in the period prior to the ratification of the Plan amounting to R$2,826 million and adjustment of trade payables and default payment to present value amounting to R$893 million, on a consolidated basis.
- In 2018, in the Company and on a consolidated basis, includes R$555 million related to the capital gain associated to the novation of debts arising on the Senior Notes.
- In 2018, on a consolidated basis, represented mainly by the reversal of interest on the debt included in the JRP amounting to R$3,115 million and interest expenses on novated debt and debentures totaling R$167 million.
- In 2018, in the Company includes R$1,097 million in present value adjustment to intragroup loans.
- Represented by the present value adjustment associated to leases, onerous agreement, and trade payables subject to the Corporate Reorganization.
- Represented mainly by financial banking fees and commissions.
7. INCOME TAX AND SOCIAL CONTRIBUTION
Income taxes encompass the income tax and the social contribution. The income tax rate is 25% and the social contribution rate is 9%, generating aggregate nominal tax rate of 34%.
The provision for income tax and social contribution is broken down as follows:
Three-month period ended | ||||
COMPANY | CONSOLIDATED | |||
09/30/2019 | 09/30/2018 | 09/30/2019 | 09/30/2018 | |
Income tax and social contribution | ||||
Current taxes | 2,513 | (3,579) | (84,966) | 1,768 |
Deferred taxes (Note 10) | 153,471 | (123,644) | 124,368 | |
Total | 2,513 | 149,892 | (208,610) | 126,136 |
30
FEDERAL PUBLIC SERVICE | |||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | |||||||
Quarterly Financial Information (ITR) | Corporate Legislation | ||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | ||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | ||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | ||||||
Three-month period ended | |||||||
COMPANY | CONSOLIDATED | ||||||
09/30/2019 | 09/30/2018 | 09/30/2019 | 09/30/2018 | ||||
Pre-tax loss | (5,749,402) | (1,486,279) | (5,574,895) | (1,461,117) | |||
Income tax and social contribution | |||||||
Income tax and social contribution on taxed income | 1,954,797 | 505,335 | 1,895,464 | 496,780 | |||
Equity in investees | (625,851) | (604,352) | (82) | (2,354) | |||
Tax incentives (basically, operating profit) | 6 | 841 | 1,013 | ||||
Permanent deductions (add-backs) | 369,186 | 603,814 | 346,377 | (312,143) | |||
Reversal of (Allowance for) impairment losses on deferred | |||||||
tax assets | (1,695,619) | (354,911) | (2,261,788) | (215,753) | |||
Tax effects of deferred tax assets of foreign subsidiaries | (189,422) | 158,593 | |||||
Income tax and social contribution effect on profit or loss | 2,513 | 149,892 | (208,610) | 126,136 | |||
Nine-month period ended | |||||||
COMPANY | CONSOLIDATED | ||||||
09/30/2019 | 09/30/2018 | 09/30/2019 | 09/30/2018 | ||||
Income tax and social contribution | |||||||
Current taxes | 797 | (23,594) | (90,183) | 60,869 | |||
Deferred taxes (Note 10) | 238,317 | (200,166) | (52,940) | ||||
Total | 797 | 214,723 | (290,349) | 7,929 | |||
Nine-month period ended | |||||||
COMPANY | CONSOLIDATED | ||||||
09/30/2019 | 09/30/2018 | 09/30/2019 | 09/30/2018 | ||||
Profit (loss) before taxes | (6,738,328) | 27,734,569 | (6,523,638) | 27,950,329 | |||
Income tax and social contribution | |||||||
Income tax and social contribution on taxed income | 2,291,032 | (9,429,753) | 2,218,037 | (9,503,112) | |||
Equity in investees | (1,261,186) | 39,477 | (520) | (4,706) | |||
Tax incentives (basically, operating profit) (i) | 37 | 51 | 949 | 8,254 | |||
Permanent deductions (add-backs) (ii) | (264,148) | 8,939,606 | (494,816) | 14,003,811 | |||
Reversal of (Allowance for) impairment losses on deferred | |||||||
tax assets (iii) | (764,938) | 665,342 | (1,757,417) | (906,268) | |||
Tax effects of deferred tax assets of foreign subsidiaries (iv) | (256,582) | (3,590,050) | |||||
Income tax and social contribution effect on profit or loss | 797 | 214,723 | (290,349) | 7,929 |
- Refers basically to the exploration profit recognized in the profit or loss of subsidiary Oi Móvel pursuant to Law 11638/2007.
- In 2019, the tax effects from permanentadd-backs are represented mainly by the recognition of the present value adjustment to the restructured liabilities included in the JRP. In 2018 the main tax effects from permanent deductions arising from the recognition of the restructuring of the liabilities included in the JRP.
- Refers to the reversal (recognition) of the allowance for the realizable value (impairment) of deferred tax assets (Note 10).
- Refers to the effects of unrecognized deferred tax assets held by foreign subsidiaries that do not have a history of profitability and/or an expectation to generate taxable income.
31
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
8. CASH, CASH EQUIVALENTS AND CASH INVESTMENTS
Cash investments made by the Company and its subsidiaries in the years ended September 30, 2019 and December 31, 2018 are measured at their fair values.
- Cash and cash equivalents
COMPANY | CONSOLIDATED | |||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |
Cash and banks | 149,887 | 152,454 | 237,734 | 287,491 |
Cash equivalents | 1,463,643 | 1,516,605 | 2,740,792 | 4,097,838 |
Total | 1,613,530 | 1,669,059 | 2,978,526 | 4,385,329 |
COMPANY | CONSOLIDATED | |||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |
Repurchase agreements | 1,185,116 | 868,834 | 2,099,330 | 2,742,731 |
Private securities | 133,617 | 364,014 | 369,237 | 895,073 |
Bank certificates of deposit (CDBs) | 142,226 | 127,685 | 267,349 | 301,632 |
Time deposits | 153,428 | 1,166 | 154,514 | |
Other | 2,684 | 2,644 | 3,710 | 3,888 |
Cash equivalents | 1,463,643 | 1,516,605 | 2,740,792 | 4,097,838 |
- Cash investments
COMPANY | CONSOLIDATED | |||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |
Private securities | 165,225 | 180,159 | 195,088 | 213,653 |
Government securities | 13,123 | 15,480 | 18,277 | 25,309 |
Total | 178,348 | 195,639 | 213,365 | 238,962 |
Current | 173,320 | 190,779 | 178,598 | 201,975 |
Non-current | 5,028 | 4,860 | 34,767 | 36,987 |
The Company and its subsidiaries hold cash investments in Brazil and abroad for the purpose of earning interest on cash, benchmarked to CDI in Brazil, LIBOR for the US dollar-denominated portion, and EURIBOR for the euro-denominated portion.
The amounts of cash equivalents and short-term investments are basically invested through exclusive investment funds, and most of the portfolio consists of Government Securities with yield pegged to the SELIC rate. The portfolio is preferably allocated to highly liquid spot market instruments for all investments.
9. ACCOUNTS RECEIVABLE
COMPANY1CONSOLIDATED
32
FEDERAL PUBLIC SERVICE | |||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | |||||||
Quarterly Financial Information (ITR) | Corporate Legislation | ||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | ||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | ||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | ||||||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | ||||
Billed services | 1,202,821 | 1,014,798 | 6,017,978 | 5,699,817 | |||
Unbilled services | 413,304 | 453,985 | 928,945 | 984,062 | |||
Handheld devices, accessories, and other assets | 95,850 | 115,632 | 370,337 | 619,821 | |||
Subtotal | 1,711,975 | 1,584,415 | 7,317,260 | 7,303,700 | |||
Estimated loss on doubtful debts | (374,803) | (390,728) | (701,026) | (787,145) | |||
Total | 1,337,172 | 1,193,687 | 6,616,234 | 6,516,555 |
1 This amount includes the related-party balances, as shown in Note 28.
The aging list of trade receivables is as follows:
COMPANY | CONSOLIDATED | |||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |
Current | 1,441,024 | 1,259,070 | 5,232,962 | 5,167,408 |
Past-due up to 60 days | 125,366 | 177,222 | 604,025 | 672,673 |
Past-due from 61 to 90 days | 24,074 | 29,906 | 137,322 | 131,798 |
Past-due from 91 to 120 days | 19,920 | 26,078 | 125,132 | 132,562 |
Past-due from 121 to 150 days | 19,459 | 19,840 | 96,095 | 104,628 |
Over 150 days past-due | 82,132 | 72,299 | 1,121,724 | 1,094,631 |
Total | 1,711,975 | 1,584,415 | 7,317,260 | 7,303,700 |
The movements in the estimated loss on doubtful accounts were as follows:
COMPANY | CONSOLIDATED | |
Balance at Dec 31, 2018 | (390,728) | (787,145) |
Estimated loss on doubtful debts | (91,049) | (427,173) |
Trade receivables written off as uncollectible | 106,974 | 513,292 |
Balance at Sep 30, 2019 | (374,803) | (701,026) |
33
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
10. CURRENT AND DEFERRED INCOME TAXES
ASSETS | ||||||||||
COMPANY | CONSOLIDATED | |||||||||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |||||||
Current recoverable taxes | ||||||||||
Recoverable income tax (IRPJ) (i) | 20,799 | 72,936 | 289,737 | 287,472 | ||||||
Recoverable social contribution (CSLL) (i) | 3 | 4,349 | 64,457 | 91,996 | ||||||
IRRF/CSLL - withholding income taxes (ii) | 55,778 | 69,141 | 139,191 | 241,778 | ||||||
Total current | 76,580 | 146,426 | 493,385 | 621,246 | ||||||
Deferred recoverable taxes | ||||||||||
Income tax and social contribution on temporary | ||||||||||
differences1 | 23,050 | |||||||||
Total non-current | 23,050 | |||||||||
LIABILITIES | ||||||||||
COMPANY | CONSOLIDATED | |||||||||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |||||||
Current taxes payable | ||||||||||
Income tax payable | 705 | 36,396 | 21,628 | |||||||
Social contribution payable | 258 | 10,616 | 5,398 | |||||||
Total current | 963 | 47,012 | 27,026 | |||||||
Deferred taxes payable | ||||||||||
Income tax and social contribution on temporary | 177,116 | |||||||||
Total non-current | 177,116 | |||||||||
1 See movements table below |
- Refer mainly to prepaid income tax and social contribution that will be offset against federal taxes payable in the future.
- Refer to withholding income tax (IRRF) credits on cash investments, derivatives, intragroup loans, government entities, and other amounts that are used as deductions from income tax payable for the years, and social contribution withheld at source on services provided to government agencies.
34
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
Movements in deferred income tax and social contribution
COMPANY | |||||||||||||
Recognized | |||||||||||||
in deferred | Recognized | ||||||||||||
Balance at | tax benefit/ | directly in | Balance at | ||||||||||
12/31/2018 | expenses | equity | 09/30/2019 | ||||||||||
Deferred tax assets arising on: | |||||||||||||
Temporary differences | |||||||||||||
Provisions | 736,907 | (728,861) | 8,046 | ||||||||||
Provisions for suspended taxes | 20,369 | 1,880 | 22,249 | ||||||||||
Provisions for pension funds and impacts of CPC 33 (R1) (IAS 19 R) | (14,762) | (3,748) | 3,849 | (14,661) | |||||||||
Estimated loss on doubtful debts | 173,766 | (5,075) | 168,691 | ||||||||||
Profit sharing | 18,115 | (11,145) | 6,970 | ||||||||||
Foreign exchange differences | 732,978 | 324,270 | 1,057,248 | ||||||||||
Merged goodwill (i) | 1,690,507 | (209,096) | 1,481,411 | ||||||||||
Other temporary add-backs and deductions | 212,929 | 11,957 | 1,714 | 226,600 | |||||||||
Onerous obligation | 417,123 | 25,498 | 442,621 | ||||||||||
Deferred taxes on temporary differences | 3,987,932 | (594,320) | 5,563 | 3,399,175 | |||||||||
Tax loss carryforwards | 4,125,910 | 37,863 | 25,095 | 4,188,868 | |||||||||
Total deferred tax assets | 8,113,842 | (556,457) | 30,658 | 7,588,043 | |||||||||
Deferred tax liabilities | |||||||||||||
Temporary differences and income tax and social contribution of goodwill (ii) | (2,150,343) | 1,321,395 | (828,948) | ||||||||||
Allowance for impairment loss (iii) | (5,963,499) | (764,938) | (30,658) | (6,759,095) | |||||||||
Total deferred tax assets (liabilities) | |||||||||||||
CONSOLIDATED | |||||||||||||
Recognized in | |||||||||||||
deferred tax | Recognized | ||||||||||||
Balance at | benefit/ | directly in | Balance at | ||||||||||
12/31/2018 | expenses | equity | 09/30/2019 | ||||||||||
Deferred tax assets arising on: | |||||||||||||
Temporary differences | |||||||||||||
Provisions | 1,244,246 | (590,371) | 653,875 | ||||||||||
Provisions for suspended taxes | 29,555 | 4,723 | 34,278 | ||||||||||
Provisions for pension funds and impacts of CPC 33 (R1) (IAS 19 R) | (14,095) | (3,747) | 2,377 | (15,465) | |||||||||
Estimated loss on doubtful debts | 478,827 | (30,743) | 448,084 | ||||||||||
Profit sharing | 94,504 | (43,342) | 51,162 | ||||||||||
Foreign exchange differences | 1,403,193 | 518,396 | 1,921,589 | ||||||||||
Merged goodwill (i) | 1,690,508 | (209,097) | 1,481,411 | ||||||||||
Other temporary add-backs and deductions | 177,085 | 757,628 | 1,714 | 936,427 | |||||||||
Onerous obligation | 1,527,924 | 93,399 | 1,621,323 | ||||||||||
Deferred taxes on temporary differences | 6,631,747 | 496,846 | 4,091 | 7,132,684 | |||||||||
Tax loss carryforwards | 13,703,529 | 471,139 | 25,095 | 14,199,763 | |||||||||
Total deferred tax assets | 20,335,276 | 967,985 | 29,186 | 21,332,447 | |||||||||
Deferred tax liabilities | |||||||||||||
Temporary differences and income tax and social contribution of | |||||||||||||
goodwill (ii) | (2,532,682) | 589,266 | (1,943,416) | ||||||||||
Allowance for impairment loss (iii) | (17,779,544) | (1,757,417) | (29,186) | (19,566,147) | |||||||||
Total deferred tax assets (liabilities) | 23,050 | (200,166) | (177,116) | ||||||||||
35 |
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
- Refer to: (i) deferred income tax and social contribution assets calculated as tax benefit originating from the goodwill paid on acquisition of the Company and recognized by the merged companies in the course of 2009. The realization of the tax credit arises from the amortization of the goodwill balance based on the STFC license and in the appreciation of property, plant and equipment, the utilization of which is estimated to occur through 2025, and
- deferred income tax and social contribution assets originating from the goodwill paid on the acquisition of interests in the Company in2008-2011, recognized by the companies merged with and into Telemar Participações S.A. ("TmarPart") and by TmarPart merged with and into the Company on September 1, 2015, which was based on the Company's expected future profitability and the amortization of which is estimated to occur through 2025.
- Refers basically to the tax effects on the appreciation of property, plant and equipment and intangible assets, merged from TmarPart.
- The Company, based on the schedule of expected generation of future taxable income, supported by a technical feasibility study and the comparison with the estimate of the annual realization amount of asset and liability temporary differences, revised its deferred taxes recovery estimate and identified and recognized an allowance at recovery value.
The stock of tax loss carryforwards in Brazil and foreign subsidiaries is approximately R$31,151,965 and R$14,432,380, and corresponds to R$10,591,668 and R$3,608,095 in deferred tax assets, respectively, which can be carried forward indefinitely and offset against taxes payable in the future.
11. | OTHER TAXES | ||||
ASSETS | |||||
COMPANY | CONSOLIDATED | ||||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | ||
Recoverable State VAT (ICMS) (i) | 254,482 | 280,166 | 1,291,989 | 1,240,353 | |
PIS and COFINS (ii) | 1,566,210 | 100,181 | 3,158,067 | 215,860 | |
Other | 46 | 23 | 89,351 | 63,015 | |
Total | 1,820,738 | 380,370 | 4,539,407 | 1,519,228 | |
Current | 498,037 | 232,961 | 1,476,577 | 803,252 | |
Non-current | 1,322,701 | 147,409 | 3,062,830 | 715,976 | |
LIABILITIES | |||||
COMPANY | CONSOLIDATED | ||||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | ||
State VAT (ICMS) | 176,226 | 197,606 | 504,703 | 556,693 | |
ICMS Convention No. 69/1998 | 24,336 | 23,602 | 66,014 | 34,113 | |
PIS and COFINS (iii) | 66,293 | 23,731 | 236,627 | 235,319 | |
FUST/FUNTTEL/broadcasting fees (iv) | 203,204 | 199,528 | 665,803 | 655,022 | |
Other (v) | 7,314 | 12,242 | 173,367 | 181,437 | |
Total | 477,373 | 456,709 | 1,646,514 | 1,662,584 | |
Current | 248,310 | 233,714 | 956,370 | 1,033,868 | |
Non-current | 229,063 | 222,995 | 690,144 | 628,716 |
36
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
- Recoverable ICMS arises mostly from prepaid taxes and credits claimed on purchases of property, plant and equipment, which can be offset against ICMS payable within 48 months, pursuant to Supplementary Law 102/2000.
- The Company and its subsidiaries had legal proceedings to claim the right to deduct ICMS from the PIS and COFINS tax bases and the recovery of past unduly paid amounts, within the relevant statute of limitations.
In March 2019, the 1stand 2ndRegion Federal Courts (Brasília and Rio de Janeiro) issued final and unappealable decisions favorable to the Company on two of the three main lawsuits of the Company relating to the discussion about the non-levy of PIS and COFINS on ICMS. As for the third most material lawsuit, a final and unappealable decision was issued by the 2ndRegion Federal Court in September 2019.
Accordingly, the Company recognized R$1,498 million in the Company and R$3,087 million on a consolidated basis related to the credits as mentioned above.
The Company is already utilizing part of the credits definitively recognized at court level to offset them against current federal taxes payable and has concurrently been taking the necessary actions to initiate the utilization of the remains tax credits.
- Refers basically to the Social Integration Program Tax on Revenue (PIS) and Social Security Funding Tax on Revenue (COFINS) on revenue, financial income, and other income.
- The Company and its subsidiaries Telemar and Oi Móvel filed lawsuits to discuss the correct calculation of the contribution to the FUST and in the course of the lawsuits made escrow deposits to suspend its collection. These discussions are also being judged by higher courts and a possible transformation of the deposited amounts into definitive payments should not occur within two (2) years.
- Consisting primarily of inflation adjustment to suspended taxes and withholding tax on intragroup loans and interest on capital.
12. JUDICIAL DEPOSITS
In some situations the Company makes, as ordered by courts or even at its own discretion to provide guarantees, judicial deposits to ensure the continuity of ongoing lawsuits. These judicial deposits can be required for lawsuits with a likelihood of loss, as assessed by the Company based on the opinion of its legal counselors, as probable, possible, or remote.
37
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
As set forth by relevant legislation, judicial deposits are adjusted for inflation.
COMPANY | CONSOLIDATED | |||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |
Civil | 3,524,269 | 3,746,025 | 5,340,059 | 5,849,978 |
Tax | 754,261 | 801,340 | 2,253,695 | 2,337,508 |
Labor | 391,875 | 583,723 | 909,633 | 1,197,144 |
Subtotal: | 4,670,405 | 5,131,088 | 8,503,387 | 9,384,630 |
Estimated loss (i) | (11,325) | (444,407) | (26,448) | (649,910) |
Total | 4,659,080 | 4,686,681 | 8,476,939 | 8,734,720 |
Current | 1,213,184 | 1,348,700 | 1,520,873 | 1,715,934 |
Non-current | 3,445,896 | 3,337,981 | 6,956,066 | 7,018,786 |
- This amount represents the estimated loss of balances of judicial deposits which are in the process of reconciliation with the obtained statements.
13. | PREPAID EXPENSES | ||||
COMPANY | CONSOLIDATED | ||||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | ||
Costs incurred on the performance of a contract (IFRS 15) | 246,246 | 238,648 | 1,003,132 | 912,538 | |
Telecom Inspection Fund (FISTEL) fee | 185 | 138,203 | |||
Advertising and publicity | 814 | 580 | 81,735 | 135,049 | |
Bank guarantee | 10,578 | 15,840 | 33,460 | 40,690 | |
Insurance | 12,590 | 22,458 | 31,739 | 48,865 | |
Contractual prepaid expenses | 16,195 | 47,771 | |||
Other | 21,096 | 10,873 | 149,652 | 81,590 | |
Total | 291,509 | 304,594 | 1,437,921 | 1,266,503 | |
Current | 178,487 | 191,087 | 853,670 | 743,953 | |
Non-current | 113,022 | 113,507 | 584,251 | 522,550 |
14. | OTHER ASSETS | ||||
COMPANY | CONSOLIDATED | ||||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | ||
Sureties from related parties | 71,754 | 67,621 | |||
Advances to and amounts recoverable from suppliers | 131,146 | 382,783 | 538,590 | 621,376 | |
Amounts receivable from the sale of property, plant and | |||||
equipment items | 81,527 | 85,684 | 301,816 | 305,155 | |
Amounts receivable | 183,930 | 211,786 | 154,326 | 202,834 | |
Advances to employees | 12,604 | 15,948 | 63,083 | 69,635 | |
Other | 42,943 | 43,234 | 234,470 | 131,532 | |
Total | 523,904 | 807,056 | 1,292,285 | 1,330,532 | |
Current | 491,093 | 787,119 | 847,744 | 1,079,670 | |
Non-current | 32,811 | 19,937 | 444,541 | 250,862 |
38
FEDERAL PUBLIC SERVICE | ||||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | ||||||||
Quarterly Financial Information (ITR) | Corporate Legislation | |||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | |||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | |||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | |||||||
15. | INVESTMENTS | |||||||
COMPANY | CONSOLIDATED | |||||||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |||||
Investment in subsidiaries | 16,199,157 | 16,917,150 | ||||||
Joint arrangements | 28,069 | 31,488 | ||||||
Investments in associates | 47,643 | 44,124 | ||||||
Tax incentives, net of allowances for losses | 10,273 | 10,273 | 31,876 | 31,876 | ||||
Other investments | 3,799 | 3,799 | 10,596 | 10,352 | ||||
Total | 16,213,229 | 16,931,222 | 118,184 | 117,840 |
Summary of the movements in investment balances
COMPANY | CONSOLIDATED | |
Balance at Dec 31, 2018 | 16,931,222 | 117,840 |
Share of profit (loss) of investees (Note 5) | (3,709,371) | (1,529) |
Associates' share of other comprehensive income | 3,504 | (825) |
Reclassification of equity in investees to held-for-sale assets | 221,969 | 1,855 |
Reclassification of equity in investees to the provision for equity | ||
deficiency | 569,410 | |
Advance for future capital increase in subsidiary (*) | 2,100,000 | |
Other | 96,495 | 843 |
Balance at Sep 30, 2019 | 16,213,229 | 118,184 |
- Refers to the advance for capital increase held bywholly-owned subsidiary Telemar to discharge its universal service and quality maintenance obligations. The actual capital increase will depend on a preapproval from ANATEL.
The main data related to direct equity interests in subsidiaries, for equity accounting purposes, are as follows:
COMPANY | ||||||
09/30/2019 | ||||||
In thousands | ||||||
Shares | Equity interests - % | |||||
Profit (loss) | ||||||
for the | ||||||
Subsidiaries | Equity | period | Common | Preferred | Total capital | Voting capital |
Telemar | 16,235,409 | (2,939,228) | 154,032,213 | 189,400,783 | 100 | 100 |
Rio Alto | 5,322 | 143 | 215,538,129 | 215,538,129 | 100 | 100 |
Oi Holanda | (1,523,736) | (160,144) | 100 | 100 | 100 | |
Oi Serviços Financeiros | 4,295 | 3,246 | 799 | 100 | 100 | |
PTIF | (2,969,014) | (349,700) | 0.042 | 100 | 100 | |
CVTEL | (1,217) | (282) | 18 | 100 | 100 | |
Carrigans | 108 | 0.100 | 100 | 100 | ||
PT Participações | 3,640,584 | (221,969) | 1,000,000 | 100 | 100 | |
Serede | (338,713) | (206,017) | 24,431,651 | 17.51 | 17.51 |
39
FEDERAL PUBLIC SERVICE | ||||||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | ||||||||||
Quarterly Financial Information (ITR) | Corporate Legislation | |||||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | |||||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | |||||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | |||||||||
Equity in investees | ||||||||||
Three-month periods | Nine-month period | Provision for negative | ||||||||
ended | ended | Investment value | shareholders' equity | |||||||
Subsidiaries | 09/30/2019 | 09/30/2018 | 09/30/2019 | 09/30/2018 | 09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | ||
Telemar | (1,206,176) | (1,602,227) | (2,939,228) | 11,207,625 | 16,235,409 | 16,951,431 | ||||
Rio Alto | 48 | 344 | 143 | 989 | 5,322 | 5,179 | ||||
Oi Holanda (ii) | (143,874) | (72,511) | (160,144) | (3,193,263) | 1,523,736 | 4,154,419 | ||||
Oi Serviços Financeiros | 1,079 | 1,663 | 3,246 | 5,097 | 4,295 | 1,050 | ||||
PTIF (ii) | (289,926) | (115,291) | (349,700) | (7,850,760) | 2,969,014 | 7,255,948 | ||||
CVTEL | (114) | (49) | (282) | (171) | 1,217 | 902 | ||||
Carrigans | 108 | 105 | ||||||||
Serede | (35,851) | 3,831 | (36,074) | 7,764 | 59,309 | 23,235 | ||||
Unrealized profits or | ||||||||||
losses with investees | (1,986) | 2,567 | (5,363) | (5,702) | (45,977) | (40,615) | ||||
Subtotal: | (1,676,800) | (1,781,673) | (3,487,402) | 171,579 | 16,199,157 | 16,917,150 | 4,553,276 | 11,434,504 | ||
PT Participações (i) | (163,939) | 4,168 | (221,969) | (55,469) | 3,640,584 | 3,721,549 | ||||
Total | (1,840,739) | (1,777,505) | (3,709,371) | 116,110 | 19,839,741 | 20,638,699 | 4,553,276 | 11,434,504 |
- Refers to the share of profit (loss) of investees and the amount of the investments held in the operations in Africa and Asia, classified asheld-for-sale assets.
- With the approval of the JRP, the Oi companies' debts, represented by the bonds, were consolidated at Oi. To document these transactions it was necessary to enter into loan agreements between Oi and Oi Holanda, as well as between Oi and PTIF. These agreements provided for the possibility of paying and settling he total amount due through a capital increase, which was the approach effectively applied by Oi on January 31, 2019, amounting to €665,639,602.32 at Oi Holanda and €1,100,259.843.00 at PTIF.
Summarized financial information
09/30/2019 | |||
Subsidiaries | Assets | Liabilities | Revenue |
Telemar (i) | 36,391,773 | 20,156,364 | 4,563,209 |
Oi Holanda (i) | 968,801 | 2,492,537 | |
PTIF (i) | 745,885 | 3,714,899 | |
Rio Alto | 5,302 | (20) | |
Oi Serviços Financeiros | 21,564 | 17,269 | 390 |
CVTEL | 52 | 1,269 | |
Serede | 1,356,685 | 1,695,398 | 1,918,646 |
(i) Amounts adjusted for consolidation and equity accounting purposes.
40
FEDERAL PUBLIC SERVICE | |||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | |||||||
Quarterly Financial Information (ITR) | Corporate Legislation | ||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | ||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | ||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | ||||||
12/31/2018 | 09/30/2018 | ||||||
Subsidiaries | Assets | Liabilities | Revenue | ||||
Telemar (i) | 33,718,348 | 16,766,917 | 5,129,132 | ||||
Oi Holanda (i) | 549,905 | 4,704,324 | |||||
PTIF (i) | 686,409 | 7,919,147 | |||||
Rio Alto | 5,269 | 90 | |||||
Oi Serviços Financeiros | 22,853 | 21,803 | 674 | ||||
CVTEL | 95 | 997 | |||||
Serede | 1,049,482 | 1,182,178 | 1,204,056 |
(i) Amounts adjusted for consolidation and equity accounting purposes.
16. PROPERTY, PLANT AND EQUIPMENT
COMPANY | |||||||||||
Automatic | Transmission | ||||||||||
Works in | switching | and other | Right of use | ||||||||
progress | equipment | equipment (1) | Infrastructure | Buildings | - leases | Other assets | Total | ||||
Cost of PP&E (gross amount) | |||||||||||
Balance at Dec 31, 2018 | 460,135 | 6,305,104 | 24,435,160 | 6,329,728 | 1,962,675 | 2,192,670 | 41,685,472 | ||||
Initial adoption of IFRS 16 | 624,232 | 624,232 | |||||||||
Contractual changes | 53,377 | 53,377 | |||||||||
Additions | 771,220 | 64,905 | 99,067 | 30,632 | 9,311 | 975,135 | |||||
Write-offs | (8,529) | (23,267) | (78,910) | (8,003) | (72) | (118,781) | |||||
Transfers | (1,069,783) | 2,180 | 634,429 | 331,554 | 14,214 | 87,406 | |||||
Transfer to held-for-sale | |||||||||||
assets (See note 29) | (332) | (154,332) | (154,664) | ||||||||
Balance at Sep 30, 2019 | 153,043 | 6,307,284 | 25,111,227 | 6,681,107 | 1,822,557 | 700,238 | 2,289,315 | 43,064,771 | |||
Accumulated depreciation | |||||||||||
Balance at Dec 31, 2018 | (6,206,296) | (21,385,206) | (4,422,820) | (1,615,284) | (1,733,032) | (35,362,638) | |||||
Depreciation expenses | (13,692) | (358,734) | (333,539) | (26,397) | (39,047) | (27,555) | (798,964) | ||||
Write-offs | 19,180 | 68,805 | 3,570 | (6,964) | 84,591 | ||||||
Transfer to held-for-sale | |||||||||||
assets (See note 29) | 325 | 112,011 | 112,336 | ||||||||
Balance at Sep 30, 2019 | (6,219,988) | (21,724,760) | (4,687,229) | (1,529,670) | (35,477) | (1,767,551) | (35,964,675) | ||||
Property, plant and equipment, net | |||||||||||
Balance at Dec 31, 2018 | 460,135 | 98,808 | 3,049,954 | 1,906,908 | 347,391 | 459,638 | 6,322,834 | ||||
Balance at Sep 30, 2019 | 153,043 | 87,296 | 3,386,467 | 1,993,878 | 292,887 | 664,761 | 521,764 | 7,100,096 | |||
Annual depreciation rate | |||||||||||
(average) | 10% | 12% | 10% | 9% | 8% | 15% |
- Transmission and other equipment include transmission and data communication equipment.
41
FEDERAL PUBLIC SERVICE | |||||||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | |||||||||||
Quarterly Financial Information (ITR) | Corporate Legislation | ||||||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | ||||||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | ||||||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | ||||||||||
CONSOLIDATED | |||||||||||
Automatic | Transmission | ||||||||||
Works in | switching | and other | Right of use | ||||||||
progress | equipment | equipment (1) | Infrastructure | Buildings | - leases | Other assets | Total | ||||
Cost of PP&E (gross amount) | |||||||||||
Balance at Dec 31, 2018 | 3,351,613 | 20,077,960 | 62,092,721 | 30,343,531 | 4,463,690 | 6,466,170 | 126,795,685 | ||||
Initial adoption of IFRS 16 | 8,167,932 | 8,167,932 | |||||||||
Contractual changes | 462,574 | 462,574 | |||||||||
Additions | 5,101,029 | 190,395 | 245,542 | 3,595 | 209,047 | 69,072 | 5,818,680 | ||||
Write-offs | (36,922) | (53,461) | (864,266) | (96,947) | (421) | (1,052,017) | |||||
Transfers | (6,008,032) | 71,141 | 3,729,961 | 1,956,842 | 47,276 | 202,812 | |||||
Transfer to held-for-sale | |||||||||||
assets (See note 29) | (503) | (243,582) | (244,085) | ||||||||
Balance at Sep 30, 2019 | 2,407,688 | 20,149,101 | 65,959,616 | 31,681,146 | 4,270,979 | 8,742,606 | 6,737,633 | 139,948,769 | |||
Accumulated depreciation | |||||||||||
Balance at Dec 31, 2018 | (18,940,570) | (47,888,763) | (23,034,282) | (2,814,575) | (5,691,932) | (98,370,122) | |||||
Depreciation expenses | (204,483) | (1,846,244) | (1,087,121) | (78,081) | (702,492) | (183,094) | (4,101,515) | ||||
Write-offs | 48,194 | 806,897 | 17,617 | (6,907) | 865,801 | ||||||
Transfers | 85 | (1,069) | (261) | 326 | 919 | ||||||
Transfer to held-for-sale | |||||||||||
assets (See note 29) | 331 | 163,202 | 163,533 | ||||||||
Balance at Sep 30, 2019 | (19,144,968) | (49,687,882) | (23,314,436) | (2,729,128) | (684,875) | (5,881,014) | (101,442,303) | ||||
Property, plant and equipment, net | |||||||||||
Balance at Dec 31, 2018 | 3,351,613 | 1,137,390 | 14,203,958 | 7,309,249 | 1,649,115 | 774,238 | 28,425,563 | ||||
Balance at Sep 30, 2019 | 2,407,688 | 1,004,133 | 16,271,734 | 8,366,710 | 1,541,851 | 8,057,731 | 856,619 | 38,506,466 | |||
Annual depreciation rate | |||||||||||
(average) | 10% | 12% | 10% | 9% | 11% | 15% |
(1) Transmission and other equipment include transmission and data communication equipment.
Additional disclosures
Pursuant to ANATEL's concession agreements, the property, plant and equipment items of the Company that are indispensable for the provision of the services provided for in said agreements are considered returnable assets.
As at September 30, 2019, the residual balance of the Company's returnable assets is R$2,984,521 (R$2,900,922 at December 31, 2018) and consists of assets and installations in progress, switching and transmission equipment, payphones, outside network equipment, power equipment, and systems and operation support equipment. On a consolidated basis, this balance amounts to R$8,832,211 (R$8,218,006 at December 31, 2018).
In the period ended September 30, 2019, financial charges and transaction costs incurred on works in progress were capitalized at the average rate of 7% per year.
Movements in the rights of use - leases
COMPANY
42
FEDERAL PUBLIC SERVICE | ||||||||||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | ||||||||||||||
Quarterly Financial Information (ITR) | Corporate Legislation | |||||||||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | |||||||||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | |||||||||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | |||||||||||||
Towers | Site | Vehicles | Real estate | Total | ||||||||||
Balance at Dec 31, 2018 | ||||||||||||||
Initial adoption of IFRS 16 | 577,340 | 45,342 | 1,550 | 624,232 | ||||||||||
Contractual changes | 53,440 | (63) | 53,377 | |||||||||||
Additions | 14,343 | 1,791 | 14,498 | 30,632 | ||||||||||
Write-offs | (8,003) | (8,003) | ||||||||||||
Balance at Sep 30, 2019 | 645,123 | 39,067 | 14,498 | 1,550 | 700,238 | |||||||||
Accumulated depreciation | ||||||||||||||
Balance at Dec 31, 2018 | ||||||||||||||
Depreciation expenses | (33,357) | (4,592) | (939) | (158) | (39,046) | |||||||||
Write-offs | 3,365 | 204 | 3,569 | |||||||||||
Balance at Sep 30, 2019 | (29,992) | (4,388) | (939) | (158) | (35,477) | |||||||||
Right of use, net | ||||||||||||||
Balance at Dec 31, 2018 | ||||||||||||||
Balance at Sep 30, 2019 | 615,131 | 34,679 | 13,559 | 1,392 | 664,761 | |||||||||
CONSOLIDATED | ||||||||||||||
Towers | Site | Stores | Vehicles | Real estate | Total | |||||||||
Balance at Dec 31, 2018 | ||||||||||||||
Initial adoption of IFRS 16 | 7,353,507 | 521,523 | 117,480 | 93,615 | 81,807 | 8,167,932 | ||||||||
Contractual changes | 450,417 | 2,676 | 2,681 | 6,800 | 462,574 | |||||||||
Additions | 53,303 | 28,553 | 13,188 | 113,903 | 100 | 209,047 | ||||||||
Write-offs | (11,506) | (74,391) | (2,483) | (7,265) | (1,302) | (96,947) | ||||||||
Balance at Sep 30, 2019 | 7,845,721 | 478,361 | 130,866 | 200,253 | 87,405 | 8,742,606 | ||||||||
Accumulated depreciation | ||||||||||||||
Balance at Dec 31, 2018 | ||||||||||||||
Depreciation expenses | (549,343) | (69,635) | (23,376) | (45,428) | (14,710) | (702,492) | ||||||||
Write-offs | 11,581 | 2,872 | 221 | 2,379 | 564 | 17,617 | ||||||||
Balance at Sep 30, 2019 | (537,762) | (66,763) | (23,155) | (43,049) | (14,146) | (684,875) | ||||||||
Right of use, net | ||||||||||||||
Balance at Dec 31, 2018 | ||||||||||||||
Balance at Sep 30, 2019 | 7,307,959 | 411,598 | 107,711 | 157,204 | 73,259 | 8,057,731 |
43
FEDERAL PUBLIC SERVICE | ||||||||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | ||||||||||||
Quarterly Financial Information (ITR) | Corporate Legislation | |||||||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | |||||||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | |||||||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | |||||||||||
17. | INTANGIBLE ASSETS | |||||||||||
COMPANY | ||||||||||||
Intangible | ||||||||||||
assets in | Data processing | Regulatory | ||||||||||
progress | systems | licenses | Other | Total | ||||||||
Balance at Dec 31, 2018 | 12,656 | 2,526,470 | 14,477,394 | 539,661 | 17,556,181 | |||||||
Additions | 5,392 | 27 | 5,419 | |||||||||
Transfers | (5,559) | 70,294 | (64,735) | |||||||||
Balance at Sep 30, 2019 | 12,489 | 2,596,764 | 14,477,394 | 474,953 | 17,561,600 | |||||||
Accumulated amortization | ||||||||||||
Balance at Dec 31, 2018 | (2,510,785) | (9,515,969) | (459,387) | (12,486,141) | ||||||||
Amortization expenses | (24,900) | (531,792) | (1,535) | (558,227) | ||||||||
Expense of impairment losses (see Note 5 (ii)) | (3,341,842) | (3,341,842) | ||||||||||
Balance at Sep 30, 2019 | (2,535,685) | (13,389,603) | (460,922) | (16,386,210) | ||||||||
Intangible assets, net | ||||||||||||
Balance at Dec 31, 2018 | 12,656 | 15,685 | 4,961,425 | 80,274 | 5,070,040 | |||||||
Balance at Sep 30, 2019 | 12,489 | 61,079 | 1,087,791 | 14,031 | 1,175,390 | |||||||
Annual amortization rate (average) | 20% | 20% | 23% | |||||||||
CONSOLIDATED | ||||||||||||
Intangible | ||||||||||||
assets in | Data processing | Regulatory | ||||||||||
progress | systems | licenses | Other | Total | ||||||||
Balance at Dec 31, 2018 | 27,195 | 8,981,694 | 18,602,742 | 1,904,547 | 29,516,178 | |||||||
Additions | 312,215 | 2,251 | 39,871 | 354,337 | ||||||||
Transfers | (328,707) | 355,152 | (26,445) | |||||||||
Balance at Sep 30, 2019 | 10,703 | 9,339,097 | 18,602,742 | 1,917,973 | 29,870,515 | |||||||
Accumulated amortization | ||||||||||||
Balance at Dec 31, 2018 | (8,116,461) | (12,751,835) | (1,699,436) | (22,567,732) | ||||||||
Amortization expenses | (294,731) | (642,532) | (82,153) | (1,019,416) | ||||||||
Transfers | 8 | (8) | ||||||||||
Expense of impairment losses (see Note 5 (ii)) | (3,341,842) | (3,341,842) | ||||||||||
Balance at Sep 30, 2019 | (8,411,184) | (16,736,209) | (1,781,597) | (26,928,990) | ||||||||
Intangible assets, net | ||||||||||||
Balance at Dec 31, 2018 | 27,195 | 865,233 | 5,850,907 | 205,111 | 6,948,446 | |||||||
Balance at Sep 30, 2019 | 10,703 | 927,913 | 1,866,533 | 136,376 | 2,941,525 | |||||||
Annual amortization rate (average) | 20% | 20% | 23% |
44
FEDERAL PUBLIC SERVICE | |||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | |||||||
Quarterly Financial Information (ITR) | Corporate Legislation | ||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | ||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | ||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | ||||||
18. | TRADE PAYABLES | ||||||
COMPANY | CONSOLIDATED | ||||||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | ||||
ANATEL (*) | 2,312,003 | 2,209,199 | 7,479,726 | 7,147,137 | |||
Services | 745,414 | 1,030,308 | 3,690,526 | 3,397,413 | |||
Infrastructure, network and plant maintenance | |||||||
materials | 515,129 | 685,303 | 2,667,293 | 2,861,712 | |||
Rental of polls and rights-of-way | 82,939 | 83,553 | 151,171 | 191,723 | |||
Other | 29,456 | 50,106 | 352,641 | 647,856 | |||
Adjustment to present value | (1,737,749) | (1,814,087) | (5,185,476) | (5,426,971) | |||
Total | 1,947,192 | 2,244,382 | 9,155,881 | 8,818,870 | |||
Current | 989,896 | 1,301,537 | 5,900,431 | 5,225,862 | |||
Non-current | 957,296 | 942,845 | 3,255,450 | 3,593,008 | |||
Trade payables subject to the Judicial | |||||||
Reorganization | 1,134,914 | 1,013,342 | 3,969,222 | 3,794,610 | |||
Trade payables not subject to the Judicial | |||||||
Reorganization | 812,278 | 1,231,040 | 5,186,659 | 5,024,260 | |||
Total | 1,947,192 | 2,244,382 | 9,155,881 | 8,818,870 |
- Refers for prepetition claims of the Management Regulatory Agency of the Federal Attorney General's Office (AGU) to be settle pursuant to the JRP.
45
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
19. BORROWINGS AND FINANCING Borrowings and financing by type
COMPANY | CONSOLIDATED | |||||||
Contractual maturity | ||||||||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | Principal | Interest | |||
Foreign currency Senior Notes | 7,009,842 | 7,068,263 | 7,009,842 | 7,068,263 | Jul 2025 | Semiannual | ||
Public debentures | 4,520,332 | 4,358,366 | 7,040,795 | 6,788,519 | Aug 2023 to Feb 2035 | Semiannual | ||
Financial institutions | ||||||||
Local currency | ||||||||
BNDES | 989,380 | 925,271 | 3,866,618 | 3,616,074 | Mar 2024 to Feb 2033 | Monthly | ||
Monthly and | ||||||||
Other | 593,270 | 545,485 | 2,053,580 | 1,905,786 | Oct 2019 to Feb 2035 | semiannual | ||
Foreign currency | 986,198 | 904,553 | 6,920,691 | 6,353,322 | ||||
Foreign | currency | multilateral | ||||||
financing | 369,546 | 326,376 | 369,546 | 326,376 | Aug 2024 to Feb 2030 | Semiannual | ||
Default payment | ||||||||
Local currency | 151,988 | 151,989 | 207,035 | 207,035 | Feb 2038 to Feb 2042 | Single installment | ||
Foreign currency | 1,117,300 | 1,048,285 | 4,297,024 | 4,125,317 | Feb 2038 to Feb 2042 | |||
Loan and debentures from subsidiaries | ||||||||
(Note 28) | 19,322,719 | 18,610,408 | ||||||
Subtotal | 35,060,575 | 33,938,996 | 31,765,131 | 30,390,692 | ||||
Incurred debt issuance cost | (11,906) | (10,629) | (13,539) | (12,126) | ||||
Fair value adjustment (*) | (23,882,611) | (23,593,369) | (13,846,304) | (13,928,660) | ||||
Total | 11,166,058 | 10,334,998 | 17,905,288 | 16,449,906 | ||||
Current | 130,373 | 660,172 | 138,842 | 672,894 | ||||
Non-current | 11,035,685 | 9,674,826 | 17,766,446 | 15,777,012 |
- The calculation takes into consideration the contractual flows provided for in the JRP, discounted using rates that range from 12.6% per year to 16.4% per year, depending on the maturities and currency of each instrument.
Debt issuance costs by type
COMPANY | CONSOLIDATED | |||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |
Financial institutions | 11,590 | 10,298 | 12,924 | 11,481 |
Public debentures | 316 | 331 | 615 | 645 |
Total | 11,906 | 10,629 | 13,539 | 12,126 |
Current | 1,633 | 1,290 | 1,634 | 1,290 |
Non-current | 10,273 | 9,339 | 11,905 | 10,836 |
Breakdown of the debt by currency
COMPANY | CONSOLIDATED | |||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |
Euro | 451,788 | 252,659 | 284,992 | 198,931 |
US dollar | 7,108,859 | 6,878,691 | 9,158,850 | 8,617,835 |
Brazilian reais | 3,605,411 | 3,203,648 | 8,461,446 | 7,633,140 |
Total | 11,166,058 | 10,334,998 | 17,905,288 | 16,449,906 |
46
FEDERAL PUBLIC SERVICE | |||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | |||||||
Quarterly Financial Information (ITR) | Corporate Legislation | ||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | ||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | ||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | ||||||
Debt breakdown per index | |||||||
COMPANY | CONSOLIDATED | ||||||
Index/rate | 09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |||
Fixed rate | 1.75% p.a. - 10.00% p.a. | 6,799,859 | 6,708,094 | 9,039,332 | 8,562,117 | ||
CDI | 80% of CDI | 2,553,690 | 2,235,675 | 4,530,971 | 3,949,639 | ||
TJLP | 2.95% p.a. + TJLP | 989,083 | 924,957 | 3,865,431 | 3,614,820 | ||
TR | 0% p.a. | 15,108 | 10,593 | 20,580 | 14,430 | ||
Other | 0% p.a. | 808,318 | 455,679 | 448,974 | 308,900 | ||
Total | 11,166,058 | 10,334,998 | 17,905,288 | 16,449,906 |
Maturity schedule of the long-term debt and debt issuance costs allocation schedule
Long-term debt | Debt issuance costs | |||
COMPANY | CONSOLIDATED | COMPANY | CONSOLIDATED | |
09/30/2019 | ||||
2020 | 787 | 2,617 | 415 | 558 |
2021 | 2,029 | 3,953 | 1,660 | 1,775 |
2022 | 219 | 970 | 1,660 | 1,775 |
2023 | 118,557 | 315,227 | 1,660 | 1,775 |
2024 and following years | 34,806,977 | 31,301,889 | 4,878 | 6,023 |
Total | 34,928,569 | 31,624,656 | 10,273 | 11,906 |
Guarantees
BNDES financing facilities are originally collateralized by receivables of the Company and its subsidiaries Telemar and Oi Móvel. The Company provides guarantees to its subsidiaries Telemar and Oi Móvel for such financing facilities, totaling R$2,877 million.
Covenants
Pursuant to a Clause 17 of Appendix 4.2.4 to the JRP, the Company and its subsidiaries are subject to certain covenants existing in some loan and financing agreements, based on certain financial ratios, including Gross debt-to-EBITDA. The Company monitors on a quarterly basis these terms and conditions of the covenants and the terms and conditions for the period ended September 30, 2019, the Company and its subsidiaries were compliant with all relevant covenants of the agreements.
Changes in borrowings and financing
Interest, inflation | Principal | Tax and | |||||||||||
adjustment, and | Fair value | and interest | other | Transfers | |||||||||
12/31/2018 | exchange differences | allocation | payment | payments | and other | 09/30/2019 | |||||||
Borrowings and financing | 16,449,906 | 2,370,221 | 82,357 | (932,806) | (165,132) | 100,742 | 17,905,288 |
The Company made the interest payments of the Qualified Bonds, which do not have a grace period for the interest, in August 2019.
47
FEDERAL PUBLIC SERVICE | |||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | |||||||
Quarterly Financial Information (ITR) | Corporate Legislation | ||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | ||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | ||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | ||||||
20. | LICENSES AND CONCESSIONS PAYABLE | ||||||
COMPANY | CONSOLIDATED | ||||||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | ||||
Personal Mobile Services (SMP) | 39,071 | 29,530 | |||||
STFC concessions | 22,925 | 56,089 | |||||
Total | 22,925 | 39,071 | 85,619 | ||||
Current | 22,925 | 39,071 | 85,619 |
Correspond to the amounts payable to ANATEL for the radiofrequency concessions and the licenses to provide the SMP services, obtained at public auctions, and STFC service concessions.
21. | LEASES PAYABLE | ||||
COMPANY | CONSOLIDATED | ||||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | ||
Towers | 607,684 | 7,457,983 | |||
Site | 35,835 | 425,279 | |||
Stores | 111,551 | ||||
Real estate | 1,443 | 76,055 | |||
Vehicles | 13,679 | 160,571 | |||
Total | 658,641 | 8,231,439 | |||
Current | 110,306 | 1,505,995 | |||
Non-current | 548,335 | 6,725,444 |
Movements in leases payable
COMPANY | CONSOLIDATED | |
Balance at Dec 31, 2018 | ||
Initial adoption of IFRS 16 | 624,232 | 8,167,932 |
New contracts | 16,289 | 163,130 |
Cancellations | (7,882) | (91,412) |
Interest | 57,353 | 718,461 |
Payments | (85,626) | (1,192,144) |
Contractual changes | 54,275 | 465,472 |
Balance at Sep 30, 2019 | 658,641 | 8,231,439 |
Aging list of long-term lease payments | ||
COMPANY | CONSOLIDATED | |
2020 | 30,298 | 378,591 |
2021 | 120,277 | 1,470,818 |
2022 | 115,254 | 1,395,734 |
2023 | 109,648 | 1,303,234 |
2024 to 2029 | 465,057 | 6,110,784 |
2030 and following years | 334,772 | 3,607,508 |
Total | 1,175,306 | 14,266,669 |
0 | (626,971) | (7,541,225) |
Non-current | 548,335 | 6,725,444 |
48
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
The present value of leases payable was calculated, based on a projection future payments, discounted using discount rates that range from 10.79% to 12.75% p.a.
Contracts not recognized as leases payable
The Company elected not to recognize a leased not to recognize a lease liability for short-term leases (leases with expected period of 12 months or less) or leases of low value assets. As at September 30, 2019, the payments made under such leases were recognized in profit or loss and amounted to R$817, in the Company and R$45,786, on a consolidated basis. Additionally, the Company also recognized in profit or loss the amount R$99 in the Company and R$6,947, on a consolidated basis, related to variable lease payments.
22. TAX REFINANCING PROGRAM
The outstanding balance of the Tax Debt Refinancing Program is broken down as follows:
COMPANY | CONSOLIDATED | |||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |
281,022 | ||||
Law 11941/09 and Law 12865/2013 tax financing program | 322,654 | 440,162 | 496,240 | |
PRT (MP 766/2017) | 28,404 | 54,528 | ||
PERT (Law 13496/2017) | 427 | 2,438 | 427 | 2,438 |
Total | 281,449 | 353,496 | 440,589 | 553,206 |
Current | 55,710 | 86,154 | 87,016 | 142,036 |
Non-current | 225,739 | 267,342 | 353,573 | 411,170 |
The amounts of the tax refinancing program created under Law 11941/2009, Provisional Act (MP) 766/2017, and Law 13469/2017, divided into principal, fine and interest, which include the debt declared at the time the deadline to join the program (Law 11941/2009 installment plan) was reopened as provided for by Law 12865/2013 and Law 12996/2014, are broken down as follows:
CONSOLIDATED | |||||||
09/30/2019 | 12/31/2018 | ||||||
Principal | Fines | Interest | Total | Total | |||
Tax on revenue (COFINS) | 13,877 | 153,112 | 166,989 | 199,595 | |||
Income tax | 1,800 | 36,680 | 38,480 | 44,967 | |||
Tax on revenue (PIS) | 38,828 | 35,487 | 74,315 | 79,885 | |||
Social security (INSS - SAT) | 700 | 412 | 2,173 | 3,285 | 4,774 | ||
Social contribution | 600 | 107 | 10,778 | 11,485 | 12,503 | ||
Tax on banking transactions (CPMF) | 18,968 | 2,139 | 29,383 | 50,490 | 50,132 | ||
PRT - Other Debts - RFB | 54,528 | ||||||
PERT - Other debts - RFB | 240 | 187 | 427 | 2,438 | |||
Other | 20,061 | 3,366 | 71,691 | 95,118 | 104,384 |
49
FEDERAL PUBLIC SERVICE | ||||||||||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | ||||||||||||||
Quarterly Financial Information (ITR) | Corporate Legislation | |||||||||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | |||||||||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | |||||||||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | |||||||||||||
Total | 95,074 | 6,024 | 339,491 | 440,589 | 553,206 | |||||||||
The payment schedule is as follows: | ||||||||||||||
COMPANY | CONSOLIDATED | |||||||||||||
2019 | 14,247 | 22,074 | ||||||||||||
2020 | 55,283 | 86,589 | ||||||||||||
2021 | 55,283 | 86,589 | ||||||||||||
2022 | 55,283 | 86,589 | ||||||||||||
2023 | 55,283 | 86,589 | ||||||||||||
2024 | 46,070 | 72,159 | ||||||||||||
Total | 281,449 | 440,589 |
The tax debts, as is the case of the debts included in tax refinancing programs, are not subject to the terms of the judicial reorganization terms.
23. | PROVISIONS | ||||
Balance breakdown | |||||
COMPANY | CONSOLIDATED | ||||
Type | 09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |
Labor | |||||
Overtime | 285,570 | 193,343 | 828,478 | 602,673 | |
Indemnities | 58,740 | 46,513 | 240,781 | 187,499 | |
Sundry premiums | 46,423 | 35,720 | 238,213 | 166,963 | |
Stability/reintegration | 70,946 | 52,144 | 219,987 | 160,442 | |
Additional post-retirement benefits | 58,365 | 44,683 | 119,165 | 94,691 | |
Salary differences | 36,264 | 24,473 | 94,612 | 61,674 | |
Lawyer/expert fees | 24,148 | 18,492 | 50,425 | 30,898 | |
Severance pay | 7,660 | 6,700 | 38,740 | 31,521 | |
Labor fines | 4,344 | 3,535 | 32,681 | 25,921 | |
Employment relationship | 244 | 275 | 23,568 | 15,952 | |
Severance Pay Fund (FGTS) | 4,965 | 3,843 | 13,689 | 10,804 | |
Joint liability | 200 | 135 | 2,542 | 889 | |
Other claims | 33,531 | 28,656 | 90,897 | 67,254 | |
Total | 631,400 | 458,512 | 1,993,778 | 1,457,181 | |
Tax | |||||
State VAT (ICMS) | 55,919 | 67,786 | 618,302 | 503,332 | |
Tax on services (ISS) | 20 | 1,269 | 69,863 | 76,389 | |
INSS (joint liability, fees, and severance pay) | 451 | 442 | 23,662 | 23,100 | |
Other claims | 14,805 | 14,373 | 57,005 | 47,262 | |
Total | 71,195 | 83,870 | 768,832 | 650,083 | |
Civil | |||||
ANATEL | 109,842 | 152,445 | 540,965 | 580,182 | |
Corporate | 403,029 | 1,124,037 | 403,029 | 1,124,037 | |
Small claims courts | 122,935 | 108,503 | 237,455 | 191,839 | |
Other claims | 491,175 | 604,100 | 1,170,667 | 1,035,398 | |
Total | 1,126,981 | 1,989,085 | 2,352,116 | 2,931,456 |
50
FEDERAL PUBLIC SERVICE | ||||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | ||||||||
Quarterly Financial Information (ITR) | Corporate Legislation | |||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | |||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | |||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | |||||||
Total provisions | 1,829,576 | 2,531,467 | 5,114,726 | 5,038,720 | ||||
Current | 264,299 | 429,075 | 515,034 | 680,542 | ||||
Non-current | 1,565,277 | 2,102,392 | 4,599,692 | 4,358,178 |
In compliance with the relevant Law, the provisions are adjusted for inflation on a monthly basis.
Breakdown of contingent liabilities, per nature
The breakdown of contingent liabilities with a possible unfavorable outcome and, therefore, not recognized in accounting, is as follows:
COMPANY | CONSOLIDATED | |||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |
Labor | 214,539 | 232,854 | 699,490 | 770,982 |
Tax | 5,567,370 | 5,481,243 | 28,723,241 | 27,586,094 |
Civil | 764,277 | 693,149 | 1,887,589 | 1,723,110 |
Total | 6,546,186 | 6,407,246 | 31,310,320 | 30,080,186 |
Summary of movements in provision balances
COMPANY | ||||||
Labor | Tax | Civil | Total | |||
Balance at Dec 31, 2018 | 458,512 | 83,870 | 1,989,085 | 2,531,467 | ||
Inflation adjustment | 152,934 | (3,655) | 60,711 | 209,990 | ||
Additions/(reversals) | (24,955) | 18,776 | (374,261) | (380,440) | ||
Write-offs for payment/terminations | 44,909 | (27,796) | (548,554) | (531,441) | ||
Balance at Sep 30, 2019 | 631,400 | 71,195 | 1,126,981 | 1,829,576 | ||
CONSOLIDATED | ||||||
Labor | Tax | Civil | Total | |||
Balance at Dec 31, 2018 | 1,457,181 | 650,083 | 2,931,456 | 5,038,720 | ||
Inflation adjustment | 404,214 | 54,646 | 262,667 | 721,527 | ||
Additions/(reversals) | 279,619 | 92,634 | (186,125) | 186,128 | ||
Write-offs for payment/terminations | (147,236) | (28,531) | (655,882) | (831,649) | ||
Balance at Sep 30, 2019 | 1,993,778 | 768,832 | 2,352,116 | 5,114,726 |
In September 2019 the Company revised the methodology used to calculate the provisions for losses in labor lawsuits and civil lawsuits - Corporate related to the financial participation agreements due to the reprocessing of the estimate model because of the lawsuit termination history under the JRP and the larger accumulated experience.
Guarantees
The Company has bank guarantee letters and guarantee insurance granted by several financial institutions and insurers to guarantee commitments arising from lawsuits, contractual obligations, and biddings with ANATEL. The adjusted amount of contracted bonds and guarantee insurances, effective at September 30, 2019 corresponds to R$4,545,575 (R$5,312,744 at December 31, 2018) in
51
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
the Company and R$12,316,782 (R$13,750,739 at December 31, 2018) on a consolidated basis. The commission charges on these contracts are based on market rates.
52
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
24. OTHER PAYABLES
COMPANY | CONSOLIDATED | |||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |
Onerous obligation (*) | 1,301,827 | 1,226,833 | 4,768,597 | 4,493,894 |
Unearned revenues | 496,704 | 542,798 | 1,733,601 | 1,916,570 |
Provisions for indemnities payable | 701,494 | 676,984 | 701,494 | 676,984 |
Advances from customers | 21,251 | 15,778 | 270,250 | 215,228 |
Consignment to third parties | 14,355 | 17,528 | 47,900 | 56,302 |
Provision for asset decommissioning | 7,054 | 6,846 | 17,922 | 17,395 |
Other | 241,821 | 255,876 | 392,476 | 510,867 |
Total | 2,784,506 | 2,742,643 | 7,932,240 | 7,887,240 |
Current | 473,025 | 505,784 | 1,259,356 | 1,381,919 |
Non-current | 2,311,481 | 2,236,859 | 6,672,884 | 6,505,321 |
- The Company and its subsidiaries are parties to a telecommunications signals transmission capacity supply agreement using submarine cables that connect North America and South America. Since (i) the agreement obligations exceed the economic benefits that are expected to be received throughout the agreement and (ii) the costs are unavoidable, the Company and its subsidiaries recognized, pursuant to CPC 25/IAS 37, an onerous obligation measured at the lowest of net output cost of the agreement brought to present value.
25. SHAREHOLDERS' EQUITY
- Issued capital
On January 25, 2019, the Company completed the capital increase provided for by the JRP (Capital Increase - New Funds), with the issue of 3,225,806,451 new common shares, and the issue of 272,148,705 new common shares for private placement aimed at the Backstop Investors, and the issue of 275,985 new common shares related to the Subscription Warrants, all registered, book-entry, and without par value. The capital increase attributed to the capital and the capital reserves was R$500,466 and R$3,837,009, respectively (Note 1).
Subscribed and paid-in capital is R$32,538,937 (R$32,038,471 at December 31, 2018), represented by the following shares, without par value:
Number of shares (in thousands) | ||
09/30/2019 | 12/31/2018 | |
Total capital in shares | ||
Common shares | 5,796,478 | 2,298,247 |
Preferred shares | 157,727 | 157,727 |
Total | 5,954,205 | 2,455,974 |
Treasury shares | ||
Common shares | 31 | 32,030 |
Preferred shares | 1,812 | 1,812 |
Total | 1,843 | 33,842 |
Outstanding shares | ||
Common shares | 5,796,447 | 2,266,217 |
Preferred shares | 155,915 | 155,915 |
Total outstanding shares | 5,952,362 | 2,422,132 |
53
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
At the Company's Annual Shareholders' Meeting held on April 26, 2019, it was approved the allocation of the profit for the year 2018, amounting to R$24,591,140 to offset prior years' accumulated losses.
- Treasury shares
In February 2019, the Company bought back 1,800,000 preferred shares, in trades in the stock market, at a total cost of R$2,572 to ensure the compliance of the obligation assumed by the Company to transfer own shares held in treasury to shareholder Bratel, wholly-owned subsidiary da Pharol, in the context of the settlement entered into by both companies (Note 1).
In April 2019, due to confirmation of the settlement entered into by Oi and Pharol, 32,000,000 common shares and 1,800,000 preferred shares were delivered to Bratel, totaling 33,800,000 shares as provided for by the settlement entered into by the parties (Note 1).
As at September 30, 2019, the Company keeps all its treasury preferred shares pledged as collateral in lawsuits.
- Capital reserves
As mentioned in this Note, letter (a), R$3,837,009 refers to the capital increase with new funds that were attributed to the capital reserves, and letter (b), R$2,462,799 refers to the absorption of capital reserves due to the delivery of treasury shares to Bratel.
The capital reserves consist mainly of the reserves described below and according to the following practices:
Special merger goodwill reserve: represents the net amount of the balancing item to goodwill recorded in assets, as provided for by CVM Instruction 319/1999.
Special merger reserve - net assets: represented by: (i) the net assets merged by the Company under the Corporate Reorganization approved on February 27, 2012; and (ii) the net assets merged with and into the Company upon the merger of TmarPart approved on September 1, 2015, pursuant to the provisions of CVM Instruction 319/1999.
- Other comprehensive income
The table below shows the impacts disclosed in other comprehensive income:
Other | Valuation | |||
comprehensive | Share issue | adjustments | ||
income | costs | to equity | Total |
54
FEDERAL PUBLIC SERVICE | |||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | |||||||
Quarterly Financial Information (ITR) | Corporate Legislation | ||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | ||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | ||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | ||||||
Balance at Dec 31, 2018 | (66,488) | (377,429) | (141,871) | (585,788) | |||
Share issue costs | (416,317) | (416,317) | |||||
Actuarial loss | (6,991) | (6,991) | |||||
Exchange losses on investment abroad | (21,001) | (21,001) | |||||
Balance at Sep 30, 2019 | (94,480) | (793,746) | (141,871) | (1,030,097) |
- Share issue costs
As mentioned in item (a) of this Note, under the commitment agreement entered into with the backstoppers, the Company issued 272,148,705 new common shares, as compensation for the commitments assumed in said agreement, at a cost of R$337,464, recognized in share issuance cost as a contra entry to the capital increase, plus R$78,853 related to expenses incurred in the issue process.
- Basic and diluted earnings per share
The table below shows the calculations of basic and diluted earnings per share:
Three-month | Nine-month | Three-month | Nine-month | |
period ended | period ended | period ended | period ended | |
09/30/2019 | 09/30/2019 | 09/30/2018 | 09/30/2018 | |
Profit (loss) attributable to owners of the Company | (5,746,889) | (6,737,531) | (1,336,387) | 27,949,292 |
Profit (loss) allocated to common shares - basic and | ||||
diluted | (5,596,356) | (6,561,174) | (1,246,039) | 24,374,994 |
Profit (loss) allocated to preferred shares - basic and | ||||
diluted | (150,533) | (176,357) | (90,348) | 3,574,298 |
Weighted average number of outstanding shares | ||||
(in thousands of shares) | ||||
Common shares - basic and diluted | 5,796,447 | 5,785,780 | 2,150,302 | 1,063,268 |
Preferred shares - basic and diluted | 155,915 | 155,515 | 155,915 | 155,915 |
Earnings (losses) per share (in reais): | ||||
Common shares - basic and diluted | (0.97) | (1.13) | (0.58) | 22.92 |
Preferred shares - basic and diluted | (0.97) | (1.13) | (0.58) | 22.92 |
Preferred shares will become voting shares if the Company does not pay minimum dividends to which preferred shares are entitled under the Company's Bylaws during three consecutive years.
26. EMPLOYEE BENEFITS
As at September 30, 2019, the liabilities referring to retirement benefits recognized in the balance sheet are as follows:
COMPANYCONSOLIDATED
09/30/2019 12/31/2018 09/30/2019 12/31/2018
Actuarial assets | ||||
TCSPREV Plan | 59,628 | 68,619 | 63,928 | 68,934 |
55
FEDERAL PUBLIC SERVICE | |||||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | |||||||||
Quarterly Financial Information (ITR) | Corporate Legislation | ||||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | ||||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | ||||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | ||||||||
CELPREV Plan | 222 | 199 | |||||||
Total | 59,628 | 68,619 | 64,150 | 69,133 | |||||
Current | 544 | 4,366 | 766 | 4,880 | |||||
Non-current | 59,084 | 64,253 | 63,384 | 64,253 | |||||
COMPANY | CONSOLIDATED | ||||||||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | ||||||
Actuarial liabilities | |||||||||
Financial obligations - BrTPREV plan (i) | 615,156 | 574,725 | 615,156 | 574,725 | |||||
PAMEC Plan | 6,267 | 4,397 | 6,267 | 4,397 | |||||
Total | 621,423 | 579,122 | 621,423 | 579,122 | |||||
Non-current | 621,423 | 579,122 | 621,423 | 579,122 |
- The Company had a financial obligations agreement entered into with Fundação Atlântico intended for the payment of the mathematical provision without coverage by the plan's assets. With the approval and ratification of the JRP, the related claim of Fundação Atlântico against Oi is subject to the new terms and conditions of the JRP.
The Company had a financial obligations agreement, entered into with Fundação Atlântico intended for the payment of the mathematical provision without coverage by the plan's assets. This agreement is subject to the new contract terms required by the JRP.
The obligation under the terms of the judicial reorganization is recognized as an additional commitment whenever the financial obligation is higher than the provision recognized pursuant to CPC 33/IAS 19 (CVM 695).
PENSION PLANS
The Company and its subsidiaries sponsor retirement benefit plans ("Pension Funds") for their employees, provided that they elect to be part of such plan, and current beneficiaries.
The sponsored plans are valued by independent actuaries at the end of the annual reporting period.
The obligations in the balance as at September 30, 2019 were recognized based on the actuarial studies for base date December 31, 2018, prepared using the "Projected Unit Credit Method". The main actuarial assumptions taken into consideration in the actuarial studies as at December 31, 2018 and September 30, 2019 after the revision of the discount rates are as follows:
CONSOLIDATED | |||||||||
MEDICAL CARE | |||||||||
PENSION PLANS | PLANS | ||||||||
PBS- | |||||||||
BrTPREV | TCSPREV | Telemar | TelemarPrev | PBS-A | PBS-TNC | CELPREV | PAMEC | PAMA | |
Nominal discount rate of actuarial | |||||||||
liability | 9.20% | 9.20% | 9.20% | 9.20% | 9.20% | 9.20% | 9.20% | 9.20% | 9.20% |
Estimated inflation rate | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% |
Estimated nominal salary increase | |||||||||
index | 4.00% | 4.00% | 4.00% | Per sponsor | N.A. | 4.84% | 3.59% | N.A. | N.A. |
56
FEDERAL PUBLIC SERVICE | ||||||||||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | ||||||||||||||
Quarterly Financial Information (ITR) | Corporate Legislation | |||||||||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | |||||||||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | |||||||||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | |||||||||||||
Estimated nominal benefit growth | ||||||||||||||
rate | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% | N.A. | N.A. | |||||
Total expected rate of return on | ||||||||||||||
plan assets | 9.20% | 9.20% | 9.20% | 9.20% | 9.20% | 9.20% | 9.20% | 9.20% | 9.20% | |||||
AT-2000 | ||||||||||||||
AT-2000 | AT-2000 | Basic | AT-2000 | AT-2000 | AT-2000 | AT-2000 | AT-2000 | |||||||
Basic | Basic | eased by | Basic | Basic | Basic | Basic | Basic | |||||||
eased by 15%, | eased by 15%, | 20%, | eased by 20%, | eased by | eased by | eased by | eased by | |||||||
segregated by | segregated by | segregated | segregated by | 15%, | 15%, | 15%, | 15%, | |||||||
gender | gender | by gender | gender | segregated | segregated | segregated | segregated | |||||||
General mortality biometric table | by gender | by gender | N.A. | by gender | by gender | |||||||||
Álvaro | Álvaro | Álvaro | Álvaro | Álvaro | Álvaro | Álvaro | Álvaro | |||||||
Vindas, | Vindas, | Vindas, | Vindas, | Vindas, | Vindas, | Vindas, | Vindas, | |||||||
increased | increased | increased | increased | increased | increased | increased | increased | |||||||
Biometric disability table | by100% | by100% | by100% | by100% | by100% | by100% | N.A. | by100% | by100% | |||||
AT-49, | AT-49, | AT-49, | AT-49, | AT-49, | AT-49, | AT-49, | AT-49, | |||||||
segregated by | segregated by | segregated | segregated by | segregated | segregated | segregated | segregated | |||||||
Biometric disabled mortality table | gender | gender | by gender | gender | by gender | by gender | N.A. | by gender | by gender | |||||
Per sponsor, | ||||||||||||||
null starting at | ||||||||||||||
50 years old | ||||||||||||||
and null for | ||||||||||||||
Settled Benefit | ||||||||||||||
Turnover rate | Per sponsor | Per sponsor | Nil | Nil | Nil | 2% | Nil | Nil | ||||||
Starting age of the benefits | 57 years old | 57 years old | 57 years old | 55 years old | N.A. | 57 years old | 55 years old | N.A. | N.A. | |||||
Nominal medical costs growth rate | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | N.A. | 7.43% | 7.43% |
N.A. = Not applicable.
The main movements in the actuarial assets related to the pension plans in the period ended September 30, 2019 were as follows:
COMPANY | CONSOLIDATED | |
Balance at Dec 31, 2018 | 68,619 | 69,133 |
Pension plan income, net | 4,735 | 4,770 |
Payments, contributions and reimbursements | (13,726) | (9,753) |
Balance at Sep 30, 2019 | 59,628 | 64,150 |
The main movements in the actuarial liabilities related to pension plans in the period ended September 30, 2019 were as follows:
COMPANY | CONSOLIDATED | |
Balance at Dec 31, 2018 | 579,122 | 579,122 |
Pension plan costs, net | 1,870 | 1,870 |
Actuarial interest liabilities | 40,431 | 40,431 |
Balance at Sep 30, 2019 | 621,423 | 621,423 |
Share-based compensation
The Long-term Incentives Plan currently in effect, granted to certain Company executives, was renewed by the General Creditors' Meeting at the time of the approval of Oi's JRP. This plan seeks a greater alignment with the Company's management cycle and business priorities and consists of paying a gross cash reward, in accordance with the prevailing labor laws and regulations. The gross cash reward is benchmarked to the quotation of Company shares. The beneficiaries are not entitled to
57
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
receiving Company shares since the plan does not provide for the transfer of shares to its beneficiaries.
The first installment of this program, referring to 2018, was paid in January 2019.
A new long-term incentives plan based on shares granted the Executives and the Board of Directors (Executive Committee's Stock Option Plan and the Board of Directors' Stock Option Plan) was submitted to and approved at the Extraordinary Shareholders' Meeting held on April 26, 2019.
The purpose of these plans is to allow granting shares to the Beneficiaries, aiming at promoting the engagement of the Company's executives and directors, and keep them committed to ensure the achievements of the strategic goals and also to seek an alignment of these goals with the Company's and its shareholders' medium- and long-term interests.
In light of the opinion issued by the Federal Public Prosecution Office and the Judicial Reorganization Court on the new long-term incentives plans, the Oi's Board of Directors decided and communicated to the Extraordinary Shareholders' Meeting that such plans would only be implemented after the decision of said Court. On June 13, 2019, the Honorable Judge of the 7thCorporate Court of the Rio de Janeiro State Court of Justice issued a new decision clarifying that the effects of the decision to implement the new long-term incentives plans shall remain suspended until the end of the judicial reorganization.
27. SEGMENT REPORTING
The Company's management uses operating segment information for decision-making. The Company identified only one operating segment that corresponds to the telecommunications business in Brazil.
In addition to the telecommunications business in Brazil, the Company conducts other businesses that individually or in aggregate do not meet any of the quantitative indicators that would require their disclosure as reportable business segments. These businesses refer basically to the following companies: Companhia Santomense de Telecomunicações, Listas Telefónicas de Moçambique, ELTA - Empresa de Listas Telefónicas de Angola, and Timor Telecom, which provide fixed and mobile telecommunications services and publish telephone directories, and which have been consolidated since May 2014.
The revenue generation is assessed by Management based on a view segmented by customer, into the following categories:
- Residential Services, focused on the sale of fixed telephony services, including voice services, data communication services (broadband), and pay TV;
- Personal Mobility, focused on the sale of mobile telephony services to subscription and prepaid customers, and mobile broadband customers; and
- SMEs/Corporate, which includes corporate solutions offered to our small,medium-sized, and large corporate customers.
58
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
59
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
Telecommunications in Brazil
In preparing the financial information for this reportable segment, the transactions between the companies included in the segment have been eliminated. The financial information of this reportable segment for the periods ended September 30, 2019 and 2018 is as follows:
Three-month period ended | ||
09/30/2019 | 09/30/2018 | |
Residential | 1,802,621 | 2,083,582 |
Personal mobility | 1,763,282 | 1,813,305 |
SMEs/Corporate | 1,357,460 | 1,474,960 |
Other services and businesses | 31,635 | 59,000 |
Net operating revenue | 4,954,998 | 5,430,847 |
Operating expenses | ||
Depreciation and amortization | (1,735,409) | (1,446,502) |
Interconnection | (109,296) | (146,061) |
Personnel | (604,763) | (654,345) |
Third-party services | (1,497,102) | (1,484,890) |
Grid maintenance services | (250,508) | (294,370) |
Handset and other costs | (33,909) | (43,670) |
Advertising and publicity | (147,674) | (73,229) |
Rentals and insurance | (675,687) | (1,104,114) |
Provisions/reversals | (72,351) | (7,444) |
Estimated loss on doubtful debts | (159,586) | (157,508) |
Impairment losses | (3,341,842) | |
Taxes and other expenses | (1,450) | (11,525) |
Other operating income (expenses), net | 520,685 | |
OPERATING INCOME BEFORE FINANCIAL INCOME (EXPENSES) | ||
AND TAXES | (3,153,894) | 7,189 |
FINANCIAL INCOME (EXPENSES) | ||
Financial income | 1,496,991 | 715,306 |
Financial expenses | (3,807,125) | (2,201,755) |
PRETAX LOSS | (5,464,028) | (1,479,260) |
Income tax and social contribution | (145,281) | 113,713 |
LOSS FOR THE PERIOD | (5,609,309) | (1,365,547) |
60
FEDERAL PUBLIC SERVICE | |||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | |||||
Quarterly Financial Information (ITR) | Corporate Legislation | ||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | ||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | ||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | ||||
Nine-month period ended | |||||
09/30/2019 | 09/30/2018 | ||||
Residential | 5,540,606 | 6,398,969 | |||
Personal mobility | 5,240,068 | 5,421,545 | |||
SMEs/Corporate | 4,194,844 | 4,546,985 | |||
Other services and businesses | 111,586 | 175,246 | |||
Net operating revenue | 15,087,104 | 16,542,745 | |||
Operating expenses | |||||
Depreciation and amortization | (5,120,931) | (4,270,928) | |||
Interconnection | (348,690) | (492,495) | |||
Personnel | (1,788,279) | (1,844,006) | |||
Third-party services | (4,477,296) | (4,339,344) | |||
Grid maintenance services | (781,356) | (836,850) | |||
Handset and other costs | (125,056) | (113,851) | |||
Advertising and publicity | (332,266) | (236,287) | |||
Rentals and insurance | (2,008,789) | (3,185,553) | |||
Provisions/reversals | (186,128) | (167,426) | |||
Estimated loss on doubtful debts | (427,173) | (558,372) | |||
Impairment losses | (3,341,842) | ||||
Taxes and other expenses | (5,440) | (192,819) | |||
Other operating income (expenses), net | 1,340,475 | 156,087 | |||
OPERATING INCOME BEFORE FINANCIAL INCOME (EXPENSES) | |||||
AND TAXES | (2,515,667) | 460,901 | |||
FINANCIAL INCOME (EXPENSES) | |||||
Financial income | 2,825,737 | 31,116,423 | |||
Financial expenses | (6,640,899) | (3,637,036) | |||
PRETAX LOSS | (6,330,829) | 27,940,288 | |||
Income tax and social contribution | (213,025) | (37,370) | |||
PROFIT (LOSS) FOR THE PERIOD | (6,543,854) | 27,902,918 |
Reconciliation of revenue and profit (loss) for the quarter and information per geographic market
In the periods ended September 30, 2019 and 2018, the reconciliation of the revenue from the segment telecommunications in Brazil and total consolidated revenue is as follows:
Three-month period ended | ||
09/30/2019 | 09/30/2018 | |
Net operating revenue | ||
Revenue related to the reportable segment | 4,954,998 | 5,430,847 |
Revenue related to other businesses | 46,234 | 50,523 |
Consolidated net operating revenue (Note 5) | 5,001,232 | 5,481,370 |
61
FEDERAL PUBLIC SERVICE | ||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | ||||||
Quarterly Financial Information (ITR) | Corporate Legislation | |||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | |||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | |||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | |||||
Nine-month period ended | ||||||
09/30/2019 | 09/30/2018 | |||||
NET OPERATING REVENUE | ||||||
Revenue related to the reportable segment | 15,087,104 | 16,542,745 | ||||
Revenue related to other businesses | 135,509 | 152,191 | ||||
Consolidated net operating revenue (Note 5) | 15,222,613 | 16,694,936 |
In the periods ended September 30, 2019 and 2018, the reconciliation between the profit (loss) before financial income (expenses) and taxes of the segment telecommunications in Brazil and the consolidated profit (loss) before financial income (expenses) and taxes is as follows:
Three-month period ended | ||
09/30/2019 | 09/30/2018 | |
Profit (loss) before financial income (expenses) and taxes | ||
Telecommunications in Brazil | (3,153,894) | 7,189 |
Other businesses | (45,030) | (12,928) |
Consolidated income before financial income (expenses) and taxes (Note | (3,198,924) | (5,739) |
Nine-month period ended | ||
09/30/2019 | 09/30/2018 | |
Profit (loss) before financial income (expenses) and taxes | ||
Telecommunications in Brazil | (2,515,667) | 460,901 |
Other businesses | (56,589) | (35,532) |
Consolidated income before financial income (expenses) and taxes (Note | (2,572,256) | 425,368 |
Total assets, liabilities and tangible and intangible assets per geographic market as at September 30,
2019 are as follows:
09/30/2019 | |||||
Investment in | |||||
tangible and | |||||
Total | Total | Tangible | Intangible | intangible | |
assets | liabilities | assets | assets | assets | |
Brazil | 68,076,872 | 52,259,927 | 38,506,466 | 2,941,525 | 5,229,538 |
Other, primarily Africa | 4,789,656 | 525,606 | 58,697 | 28,943 | 16,053 |
62
FEDERAL PUBLIC SERVICE | |||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | |||||||
Quarterly Financial Information (ITR) | Corporate Legislation | ||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | ||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | ||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | ||||||
28. | RELATED-PARTY TRANSACTIONS | ||||||
Transactions with consolidated related parties | |||||||
COMPANY | |||||||
09/30/2019 | 12/31/2018 | ||||||
ASSETS | |||||||
Accounts receivable | 279,463 | 174,788 | |||||
BrT Call Center | 38,610 | 38,610 | |||||
BrT Multimídia | 46,266 | 46,447 | |||||
Oi Móvel | 7,980 | ||||||
Telemar | 193,640 | 81,160 | |||||
Serede | 947 | 591 | |||||
Receivables from related parties (current and non-current) | 5,585,888 | 11,960,680 | |||||
PTIF (i) | 3,464,240 | 7,555,189 | |||||
Oi Holanda (i) | 1,766,070 | 4,066,221 | |||||
PT Participações | 355,578 | 339,270 | |||||
Other | 209,742 | 525,013 | |||||
Telemar | 73,413 | 110,678 | |||||
Oi Móvel | 111,774 | 148,058 | |||||
Oi Holanda | 15,064 | 47,602 | |||||
PTIF | 209,184 | ||||||
Serede | 9,442 | 9,442 | |||||
Dommo | 49 | 49 | |||||
(i) See information in Note 15. | |||||||
COMPANY | |||||||
09/30/2019 | 12/31/2018 | ||||||
Liabilities | |||||||
Trade payables | 232,801 | 399,758 | |||||
BrT Call Center | 53,649 | 43,723 | |||||
BrT Multimídia | 58,641 | 136,963 | |||||
Oi Móvel | 85,555 | 111,745 | |||||
Telemar | 13,301 | 26,287 | |||||
Paggo Administradora | 21,655 | 25,370 | |||||
Serede | 55,670 | ||||||
Borrowings and financing, and debentures (ii) | 692,672 | 377,184 | |||||
Telemar | 34,434 | 19,161 | |||||
Oi Holanda | 658,238 | 358,023 | |||||
Other payables | 119,188 | 115,328 | |||||
BrT Call Center | 203 | 396 | |||||
BrT Multimídia | 13,539 | ||||||
Oi Móvel | 33,030 | 31,095 | |||||
Telemar | 68,789 | 61,338 | |||||
Dommo | 7 | 7 | |||||
Rio Alto | 975 | 975 | |||||
Oi Investimentos | 7,670 | 7,978 | |||||
PT Participações | 8,514 |
- The Company conducted loans with and acquires debentures from its subsidiaries under market terms and conditions to finance its operations or repay its debt.
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FEDERAL PUBLIC SERVICE | ||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | ||||||
Quarterly Financial Information (ITR) | Corporate Legislation | |||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | |||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | |||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | |||||
Three-month period ended | ||||||
COMPANY | ||||||
09/30/2019 | 09/30/2018 | |||||
Revenue | ||||||
Revenue from services rendered | 11,831 | 10,775 | ||||
BrT Multimídia | 139 | 140 | ||||
Oi Móvel | 8,563 | 7,255 | ||||
Telemar | 2,926 | 3,235 | ||||
Serede | 203 | 141 | ||||
Rede Conecta | 4 | |||||
Other operating income | 10,124 | 10,263 | ||||
BrT Multimídia | 1,092 | 818 | ||||
Oi Móvel | 9,032 | 9,445 | ||||
Financial income | 1,642,631 | 3,082,866 | ||||
Oi Móvel | 4,079 | |||||
Telemar | 583 | 987,160 | ||||
Serede | 10,821 | |||||
Rede Conecta | 4,914 | |||||
BrT Multimídia | 25,549 | |||||
BrT Call Center | 6,339 | |||||
Oi Holanda | 1,199,667 | 1,592,675 | ||||
PTIF | 425,348 | 409,403 | ||||
PT Participações | 17,033 | 41,926 | ||||
Nine-month period ended | ||||||
COMPANY | ||||||
09/30/2019 | 09/30/2018 | |||||
Revenue | ||||||
Revenue from services rendered | 36,025 | 54,850 | ||||
Oi Internet | 133 | |||||
BrT Multimídia | 418 | 421 | ||||
Oi Móvel | 26,044 | 28,828 | ||||
Telemar | 9,040 | 25,043 | ||||
Serede | 523 | 421 | ||||
Rede Conecta | 4 | |||||
Other operating income | 30,652 | 30,790 | ||||
BrT Multimídia | 2,729 | 2,454 | ||||
Oi Móvel | 27,923 | 28,336 | ||||
Financial income | 1,593,549 | 23,270,609 | ||||
Oi Móvel | 13,179 | |||||
Telemar | 4,132 | 1,046,368 | ||||
Serede | 10,821 | |||||
Rede Conecta | 4,914 | |||||
BrT Multimídia | 25,549 | |||||
BrT Call Center | 6,339 | |||||
Oi Holanda | 1,001,463 | 20,960,368 | ||||
PTIF | 571,646 | 1,069,826 | ||||
PT Participações | 16,308 | 133,245 |
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FEDERAL PUBLIC SERVICE | ||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | ||||||
Quarterly Financial Information (ITR) | Corporate Legislation | |||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | |||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | |||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | |||||
Three-month period ended | ||||||
COMPANY | ||||||
09/30/2019 | 09/30/2018 | |||||
Operating costs and expenses | (229,826) | (217,739) | ||||
BrT Multimídia | (1,220) | (1,224) | ||||
Oi Móvel | (8,797) | (15,766) | ||||
Telemar | (3,266) | (3,402) | ||||
Paggo Administradora | (749) | (1,084) | ||||
BrT Call Center | (128,770) | (103,714) | ||||
Serede | (87,024) | (92,549) | ||||
Financial expenses | (1,191,091) | (1,797,718) | ||||
Telemar | (5,091) | 11,938 | ||||
Serede | (992) | |||||
BrT Call Center | (418) | |||||
BrT Multimídia | (1,683) | |||||
Oi Holanda | (1,134,741) | (1,593,978) | ||||
PTIF | (48,136) | (193,804) | ||||
PT Participações | (30) | (21,874) | ||||
Nine-month period ended | ||||||
COMPANY | ||||||
09/30/2019 | 09/30/2018 | |||||
Operating costs and expenses | (690,583) | (697,851) | ||||
BrT Multimídia | (3,663) | (3,667) | ||||
Oi Móvel | (31,300) | (51,578) | ||||
Telemar | (9,734) | (22,807) | ||||
Paggo Administradora | (2,462) | (3,256) | ||||
BrT Call Center | (374,540) | (338,798) | ||||
Serede | (268,884) | (277,745) | ||||
Financial expenses | (1,099,382) | (4,954,591) | ||||
Oi Móvel | 751,262 | |||||
Telemar | (15,273) | (331,244) | ||||
Serede | (3,262) | |||||
BrT Call Center | (1,405) | |||||
BrT Multimídia | (5,512) | |||||
Oi Holanda | (1,031,819) | (4,557,647) | ||||
PTIF | (41,963) | (773,019) | ||||
Oi Internet | 20 | |||||
PT Participações | (148) | (43,963) |
Credit facilities
The Company may grant credit facilities to its subsidiaries for the purpose of providing working capital for their operating activities. In these cases, maturities can be rescheduled based on these companies' projected cash flows and these facilities bear interest equivalent to 115% of CDI (115% of CDI at December 31, 2018). In the period ended September 30, 2019 there are no outstanding balances between group companies for this purpose since, as approved in the JRP, real-denominated intercompany claims for working capital purposes were extinguished by netting payables and receivables between the Brazilian RJ Debtors.
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FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
The intercompany credit facilities effective at September 30, 2019 are linked to the terms approved in the JRP. The intercompany claims not covered by said netting as provided for in the JRP were restructured and will be paid 20 years after the end of the settlement of all the claims paid under the terms and conditions of the Default Payment Method, adjusted using the TR for real-denominated credit facilities and changes in foreign exchange rates for international credit facilities. Additionally, credit facilities between the Company, a PTIF, and Oi Holanda were created since that in the context of the implementation of the JRP, the financial debt of the RJ Debtors were substantially consolidated in the Company, which issued financial and equity instruments to settle these debts originally recognized by said subsidiaries.
Guarantees
The Company and the other RJ Debtors are jointly and severally liable for the compliance of all obligations set forth by the JRP, as provided therefor.
Transactions with jointly controlled entities, associates, and unconsolidated entities
COMPANY | CONSOLIDATED | |||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |
Accounts receivable and other assets | 6,695 | 6,359 | ||
Other entities | 6,695 | 6,359 | ||
COMPANY | CONSOLIDATED | |||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |
Accounts payable and other liabilities | 915 | 67,753 | 74,210 | |
Hispamar | 915 | 55,954 | 66,704 | |
Other entities | 11,799 | 7,506 | ||
Three-month period ended | ||||
COMPANY | CONSOLIDATED | |||
09/30/2019 | 09/30/2018 | 09/30/2019 | 09/30/2018 | |
Revenue | ||||
Revenue from services rendered | 120 | 85 | ||
Other entities | 120 | 85 | ||
Financial income | 113 | |||
Other entities | 113 | |||
Nine-month period ended | ||||
COMPANY | CONSOLIDATED | |||
09/30/2019 | 09/30/2018 | 09/30/2019 | 09/30/2018 | |
Revenue | ||||
Revenue from services rendered | 251 | 274 | ||
Other entities | 251 | 274 | ||
Financial income | 336 | |||
Other entities | 336 |
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FEDERAL PUBLIC SERVICE | ||||||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | ||||||||
Quarterly Financial Information (ITR) | Corporate Legislation | |||||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | |||||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | |||||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | |||||||
Three-month period ended | ||||||||
COMPANY | CONSOLIDATED | |||||||
09/30/2019 | 09/30/2018 | 09/30/2019 | 09/30/2018 | |||||
Costs/expenses | ||||||||
Operating costs and expenses | (1,048) | (867) | (41,992) | (50,211) | ||||
Hispamar | (1,048) | (867) | (35,675) | (43,150) | ||||
Other entities | (6,317) | (7,061) | ||||||
Financial expenses | (7) | |||||||
Hispamar | (7) | |||||||
Nine-month period ended | ||||||||
COMPANY | CONSOLIDATED | |||||||
09/30/2019 | 09/30/2018 | 09/30/2019 | 09/30/2018 | |||||
Costs/expenses | ||||||||
Operating costs and expenses | (3,776) | (3,259) | (166,066) | (172,675) | ||||
Hispamar | (3,776) | (3,259) | (145,737) | (151,028) | ||||
Other entities | (20,329) | (21,647) | ||||||
Financial expenses | (3) | (206) | ||||||
Hispamar | (3) | (197) | ||||||
Other entities | (9) |
The balances and transactions with jointly controlled entities, associates, and unconsolidated entities result from business transactions carried out in the normal course of operations, namely the provision of telecommunications services by the Company to these entities and the acquisition of these entities' contents and the lease of their infrastructure.
Compensation of key management personnel
As at September 30, 2019, the compensation of the officers responsible for planning, managing and controlling the Company's activities, including the compensation of the directors and executive officers, totaled R$34,642 (R$68,166 at September 30, 2018) in the Company and R$34,642 (R$76,456 at September 30, 2018) on a consolidated basis. The ratification of the JRP by the Court, after its voting and approval by the creditors at the General Creditors' Meeting entailed the payment special in 2018, one-off, nonrecurring compensation to the statutory executive committee, of up to R$15.5 million, net of taxes and charges, as established in the agreements entered into with the executive officers and previously approved by the Company's Board of Directors.
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FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
29. HELD-FOR-SALE ASSETS
The information on the item below should be read together with the financial statements for the year ended December 31, 2018.
COMPANY | CONSOLIDATED | |||
09/30/2019 | 12/31/2018 | 09/30/2019 | 12/31/2018 | |
Operations in Africa (i) | 3,640,584 | 3,721,549 | 4,789,656 | 4,923,187 |
Nonstrategic assets (ii) | 42,328 | 80,552 | ||
Total | 3,682,912 | 3,721,549 | 4,870,208 | 4,923,187 |
(i) Operations in Africa - Approval of preparatory actions for the sale of Africatel
At the Board of Directors' meeting held on September 16, 2014, Oi's management was authorized to take all the necessary actions to divest Oi's stake in Africatel, representing at the time 75% of Africatel's share capital, and/or dispose of its assets.
With regard specifically to the indirect interest held by Africatel in Company, on February 27, 2019 the Company was notified of the final decision issued by the Arbitration Court under the arbitration proceeding filed by PT Ventures, an Africatel subsidiary, against the other Unitel's shareholders. The Arbitration Court judged that the other Unitel shareholders had violated several provisions of Unitel's Shareholders' Agreement, which resulted in a significant decrease of PT Ventures' stake in Unitel. The Court also judged that the other Unitel shareholders failed to ensure, after November 2012, that PT Ventures received the same amount of foreign currency-denominated dividends as the other foreign Unitel shareholder.
As a result, the Court ordered the other shareholders to pay PT Ventures, jointly and severally, (i) US$339.4 million plus interest (accrued as from February 20, 2019, using the 12-month US dollar LIBOR plus two percentage points, with annual compounding), corresponding to the loss of value of PT Ventures' stake, in addition to (ii) US$307 million plus interest (simple interest of 7% accrued as from different dates when the dividends not received should have been paid to PT Ventures), in damages resulting from the fact that the other Unitel shareholders failed to ensure, after November 2012, that PT Ventures received the same amount of dividends, in foreign currency, as the other foreign Unitel shareholder, plus (iii) the reimbursement of a significant portions of the fees, court costs, and administrative and arbiters fees and expenses, incurred by PT Ventures on the arbitral proceeding, in a net amount in excess of US$13 million. The Court dismissed all the retrial petitions filed by the other Unitel shareholders ("2019 Arbitration Award").
The Arbitration Award results in a reaffirmation of PT Ventures' rights as shareholder of 25% Unitel's capital, as prescribed by the Shareholders' Agreement. PT Ventures retains all its rights provided for in the Shareholders' Agreement, including the right to appoint the majority of Unitel's Board of Directors' members and the right to receive Unitel's past and future dividends.
Subsequently, at the General Shareholders' Meeting of Unitel held on March 19, 2019 a new Board of Directors was elected consisting of five members, including two appointed by PT Ventures, one of whom will hold the position of Unitel's General Director.
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FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
On August 12, 2019, PT Ventures was notified on the arbitration petition filed with the International Chamber of Commerce ("ICC") by Vidatel Ltd. ("Vidatel"), on of Unitel's shareholders against PT Ventures. In its petition, Vidatel seeks to challenge the 2019 Arbitration Award by submitting arguments relating to the recognition, effectiveness, and feasibility of said award and arguing that the Arbitration Award would have the effect of leading to the unjust enrichment of PT Ventures.
The Company believes that the arbitration proceeding initiated by Vidatel has a delaying tactic with the single goal of disrupting the enforcement of the 2019 Arbitration Award by reopening the discussion of matters that have already been discussed in the arbitration proceeding filed by PT Ventures against the other Unitel shareholders and terminated in February 2019.
Additionally, the Company believes that the ICC is not the appropriate forum to file an arbitration proceeding and analyze the problems alleged by Vidatel, not only because national courts have exclusive jurisdiction on these matters and also because these matters are not within the scope of the arbitration clause greed by Unitel's shareholders, which prescribes that arbitration shall be used to settle disputes relating only to Unitel's shareholders' agreement and violations of Unitel's shareholders' agreement.
PT Ventures filed its response to the arbitration petition on September 11, 2019.
With regard to the indirect stake held by Africatel in Cabo Verde Telecom, S.A. ("CVT"), on May 21, 2019, PT Ventures sold, after the compliance with the conditions precedent, and transferred all the shares it held in CVT, representing 40% of CVT's share capital, to the National Social Security Institute and state-owned company ASA - Empresa Nacional de Aeroportos e Segurança Aérea, S.A., both in Cabo Verde, for the total amount of US$26.3 million, as provided for in Clauses 3.1.3 and 5.1 of the JRP. This sale generated a net gain of R$67 million, recognized in profit or loss.
As a result of said share sale, PT Ventures entered into with the State of Cabo Verde, on the same date, an agreement for the definite termination of the arbitration proceedings filed by PT Ventures against the latter in March 2015, with the International Centre fore for Settlement of Investment Disputes ("ICSID") and the International Chamber of Commerce ("ICC").
The group of assets and liabilities of the African operations are stated at the lower of their carrying amounts and their fair values less costs to sell, and are consolidated in the Company's statement of profit or loss since May 5, 2014.
The main components of the assets held sale and liabilities associated to assets held for sale of the African operations are as follows:
Operations in Africa | ||
09/30/2019 | 12/31/2018 | |
Held-for-sale assets | 4,789,656 | 4,923,187 |
Cash, cash equivalents and cash investments | 131,989 | 82,639 |
Accounts receivable | 137,024 | 108,343 |
Dividends receivable (i) | 2,746,026 | 2,566,935 |
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FEDERAL PUBLIC SERVICE | |||||
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) | |||||
Quarterly Financial Information (ITR) | Corporate Legislation | ||||
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | ||||
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | ||||
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | ||||
Held-for-sale asset (ii) | 1,583,146 | 1,843,778 | |||
Other assets | 96,467 | 145,709 | |||
Investments | 7,364 | 19,414 | |||
Property, plant and equipment | 58,697 | 108,768 | |||
Intangible assets | 28,943 | 47,601 | |||
Liabilities directly associated to assets held for sale | 525,606 | 526,870 | |||
Borrowings and financing | 349 | 188 | |||
Trade payables | 36,895 | 52,064 | |||
Other liabilities | 488,362 | 474,618 | |||
Non-controlling interests (iii) | 163,750 | 243,491 | |||
Total held-for-sale assets, net of the corresponding liabilities - consolidated | 4,100,300 | 4,152,826 | |||
Intragroup eliminations | (459,716) | (431,277) | |||
Total held-for-sale assets - Parent company | 3,640,584 | 3,721,549 | |||
Investments in Africa | 3,640,584 | 3,721,549 |
- Refers to dividends receivable from Unitel. The Company's recognizes dividends not yet received based on the estimated recoverable amount and takes into account, for this valuation, the existence of legal proceedings filed to collect these amounts and the related US$ interest, the expected favorable decisions on these legal proceedings in time, and the existence of cash at Unitel for the payment of these dividends. The dividends not paid by Unitel to PT Ventures refer to the verified profit for 2005 and the free reserves of2006-2009, in addition to the profits for fiscal years 2011, 2012, 2013, 2014, and 2017, totaling a nominal gross amount of US$825 million.
- Refers mainly to the fair value of the indirect interest's financial investment held by PT Ventures, corresponding to 25% of Unitel's share capital, classified as held for sale. The fair value of this investment is driven by a number of estimations concerning the potential outcomes and recoveries from the various legal proceedings which have been instituted on behalf of the Company and its affiliates. In addition, the fair value is estimated based on the internal valuation made, including cash flows forecasts for afive-year period, the choice of a growth rate to extrapolate the cash flows projections, and definition of an appropriate discount rate, calculated based on the weight average cost of capital of 20.7%, taking into consideration Unitel's business environment. The Company has the policy of monitoring and periodically updating the main assumptions and material estimates used in the fair value measurement, and also takes into consideration in this assessment, possible impacts of actual events related to the investment, notably the lawsuits filed against Unitel and its shareholders. As at September 30, 2019 and in the context of the updating of assumptions referred to above, the fair value of the investment in Unitel was R$1,583 million (R$1,760 million at December 31, 2018).
- Represented mainly by the Samba Luxco's 14% stake in Africatel and, consequently, in its net assets.
- Nonstrategic assets
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FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
On July 16, 2019, the Company disclosed to the market at large through a material fact notice its strategic plan, approved by the Board of Directors, focusing on the improvement of the operating and financial performance, using a sustainable business model, for the purpose of maximizing the Company's value, in the context of the judicial reorganization proceeding. The plan prescribes that part of the financing of the investment strategy will be ensured by selling of the Company's nonstrategic assets. These nonstrategic assets consist basically of: (i) Investment in Unitel, (ii) Towers; (iii) Datacenter; (iv) Properties; and (v) other nonstrategic assets. The Company is engaged in and focused on promoting the sale of said assets and will take all the necessary actions to implement said Plan in the coming periods.
On August 28, 2019, the company approved the sale of the properties included in the strategic plan.
As at September 30, 2019, except for the Investment in Unitel (i) and the properties (iv) that are already measured and disclosed in the balance sheet, the Company assessed and determined that that remaining nonstrategic assets (ii), (iii) and (v), which will be sold in the future, do not substantially meet all the disclosure and measurement requirements set forth by CPC 31 Held-for-saleNoncurrent Assets and Discontinued Operationand, therefore, these asset continue to be disclosed in the group "Property, plant and equipment" (Note 16).
30. OTHER INFORMATION
- Agreements entered into by the Company, TmarPart, and Pharol related to the cash investments made in Rio Forte commercial papers
On June 30, 2014, the Company was informed, through a market notice disclosed by Pharol, of the investment made by PTIF and PT Portugal (both, collectively, "Oi Subsidiaries"), companies contributed by Pharol to Oi in the Company's capital increase in May 2014, in a commercial paper of Rio Forte Investments S.A. ("Securities" and "Rio Forte", respectively), a company part of the Portuguese group Espírito Santo ("GES"), when both PTIF and PT Portugal were Pharol subsidiaries.
71
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
In light of the default of the securities by Rio Forte, on September 8, 2014, after obtaining the proper corporate approvals, the Company, the Oi Subsidiaries, TmarPart, and Pharol entered into definitive agreements related to the investments made in the Securities. The agreements provided for (i) an exchange (the "Exchange") through which Oi Subsidiaries transferred the Securities to Pharol in exchange for preferred and common shares of the Company held by Pharol, as well as (ii) the assignment by Oi Subsidiaries of a call option on the Company shares to the benefit of PT ("Call Option").
On March 31, 2015, the Company published a Material Fact Notice on the completion of the Exchange.
The Option became vested with the completion of the Exchange, beginning March 31, 2015, exercisable at any time, over a six-year period, and the number of shares covered by the Option will be decreased at each March 31st.
By September 30, 2019, Pharol had not exercised the Option, in whole or in part, on the Shares Subject to the Option. Accordingly, the following are no longer subject to the Option: (i) beginning March 31, 2016, 4,743,487 common shares and 9,486,974 preferred shares issued by the Company, equivalent to 10% of the Shares Subject to the Option; (ii) beginning March 31, 2017, another 8,538,277 common shares and 17,076,554, equivalent to 18% of the Shares Subject to the Option; and (iii) beginning March 31, 2018, another 8,538,277 common shares and 17,076,554 preferred shares equivalent to 18% of the Shares Subject to the Option; and (iv) beginning March 31, 2019, another 8,538,277 common shares and 17,076,554 preferred shares equivalent to 18% of the Shares Subject to the Option. 17,076,554 common shares and 34,153,108 preferred shares are still subject to the Option.
As at September 30, 2019, the fair value of the Call Option is estimated at R$0.4 million calculated by the Company using the Black-Scholes model and theoretical share volatility assumptions, using the Revenue Approach valuation technique laid down by paragraphs B10 and B11 of CPC 46/IFRS 13 Fair Value Measurement.
- Punitive Administrative Proceedings at the CVM
In December 2018, we became aware that the CVM, in the exercise of its duties, initiated two punitive administrative proceedings for acts conducted in connections with the corporate restructuring announced in October 2013 involving Oi and Pharol (former Portugal Telecom), and the capital increase through the public offer of Oi shares concluded in May 2014, for an alleged breach of the Corporate Law, to hold liable certain executives, officers and controlling shareholders at the time of the events.
The Company is not a party to these proceedings. With regard to the indicted executives, if they are held liable in these Punitive Administrative Proceedings, they are subject to a penalty, which range from a warning to a temporary disqualification, during up to 20 years, to hold a director or member of the supervisory board position of a publicly-held company, entity of the securities distribution system, or other entities that depend of CVM authorization or registration.
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FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) |
- Merger of Copart 5 with and into the Company
In March 2019, Copart 5 was merged with and into the Company. The merger had no accounting impacts, since the assets and liabilities of Copart 5 were already presented in the balances of the Company since the main risks and rewards of this transaction remain in the parent company. This merger is one of the stages of the corporate and asset restructuring process of the Oi Group described in the JRP and its purpose is to optimize these companies' operations.
31. EVENTS AFTER THE REPORTING PERIOD
In November 2019, PT Ventures received USD33.1 million in Unitel's extraordinary dividends. The related extraordinary dividends were declared by Unitel at the Shareholders' Meeting of November 16, 2010, in which the shareholders decided on the distribution of profit for the year 2005 and free reserves of 2006-2009.
73
FEDERAL PUBLIC SERVICE
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM)
Quarterly Financial Information (ITR) | Corporate Legislation | |
COMMERCIAL, INDUSTRIAL AND OTHER COMPANY | Base Date - 09/30/2019 | |
01131-2 Oi S.A. - IN JUDICIAL REORGANIZATION | 76.535.764/0001-43 | |
NOTES TO THE FINANCIAL STATEMENTS | (Amounts in thousands of Brazilian reais, unless otherwise stated) | |
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Oi SA published this content on 02 December 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 02 December 2019 16:59:06 UTC