Edgar Filing: TELEFONICA BRASIL S.A.

vivitr3q16_6k.htm - Generated by SEC Publisher for SEC Filing

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of November, 2016

Commission File Number: 001-14475

TELEFÔNICA BRASIL S.A.
(Exact name of registrant as specified in its charter)

TELEFONICA BRAZIL S.A.
(Translation of registrant’s name into English)

Av. Eng° Luís Carlos Berrini, 1376 - 28º andar
São Paulo, S.P.
Federative Republic of Brazil
(Address of principal executive office)

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

Form 20-F

Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes

TELEFÔNICA BRASIL S.A.

QUARTERLY INFORMATION

SEPTEMBER 30, 2016

São Paulo Corporate Towers

Av. Presidente Juscelino Kubitschek, 1.909

Vila Nova Conceição

04543-011 - São Paulo - SP - Brasil

Tel: +55 11 2573-3000

ey.com.br

(A free translation from Portuguese into English of Individual and Consolidated Interim Financial Information prepared in Brazilian currency in accordance with accounting practices adopted in Brazil and in accordance with International Financial Reporting Standards (IFRS), issued by International Accounting Standards Board – IASB) and consistently with the standards issued by the Brazilian Securities Commission (CVM).

Independent auditor’s report on interim financial information

To Shareholders, Board of Directors and Officers

Telefônica Brasil S.A.

São Paulo - SP

We have reviewed the individual and consolidated interim financial information of Telefônica Brasil S.A., (“Company”), contained in the Quarterly Information Form (Informações Trimestrais - ITR) for the quarter ended on September 30, 2016, which comprise the balance sheet as of September 30, 2016 and the related statements of income and of comprehensive income for the three-month and nine-month period ended on September 30, 2016, and changes in equity and of cash flows for the nine-month period then ended, including other explanatory information.

Management is responsible for the preparation of the individual and consolidated interim financial information in accordance with Accounting Standard CPC 21 (R1) Interim Financial Reporting (Demonstração Intermediária) issued by Comitê de Pronunciamentos Contábeis - CPC and with IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the presentation of this information in conformity with the standards issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of Quarterly Information Form (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review.

Scope of review

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

Conclusion on the individual and consolidated interim financial information

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

São Paulo Corporate Towers

Av. Presidente Juscelino Kubitschek, 1.909

Vila Nova Conceição

04543-011 - São Paulo - SP - Brasil

Tel: +55 11 2573-3000

ey.com.br

Other matters

Statements of value added

We have also reviewed the individual and consolidated interim Value Added Statement for the nine-month period ended on September 30, 2016, prepared under management’s responsibility, whose presentation in the interim financial information is required by the rules issued by the Brazilian Securities and Exchange Commission (CVM) applicable to preparation of the Quarterly Information Form (ITR), and as supplementary information under IFRS, which do not require Value Added Statement presentation. This statement has been subject to the same review procedures previously described and, based on our review, nothing has come to our attention that causes us to believe that it is not fairly presented, in all material respects, in relation to the overall accompanying interim financial information.

São Paulo, October 25, 2016.

ERNST & YOUNG

Auditores Independentes S.S.

CRC-2SP015199/O-6

Luiz Carlos Passetti
Accountant

CRC-1SP144343/O-3

TELEFÔNICA BRASIL S.A.
Balance Sheets
At September 30, 2016 and December 31, 2015
(In thousands of reais)

		Company		Consolidated				Company		Consolidated
ASSETS	Note	09.30.16	12.31.15	09.30.16	12.31.15	LIABILITIES AND SHAREHOLDERS’ EQUITY	Note	09.30.16	12.31.15	09.30.16	12.31.15

Current assets		17,531,054	15,185,519	18,434,577	17,909,303	Current liabilities		20,061,171	15,948,843	20,417,052	17,981,713
Cash and cash equivalents	4	5,365,248	4,206,595	5,794,566	5,336,845	Personnel, social charges and benefits	14	763,654	520,023	778,904	698,846
Trade accounts receivable, net	5	8,215,291	7,000,379	8,576,650	8,285,319	Trade accounts payable	15	7,128,441	7,496,947	7,389,400	8,373,235
Inventories, net	6	453,324	558,264	500,096	603,631	Taxes, charges and contributions	16	1,472,735	1,175,293	1,562,065	1,716,002
Dividends and interest on equity	17	-	18,645	-	489	Dividends and interest on equity	17	3,698,182	2,209,362	3,698,182	2,209,362
Prepaid expenses	9	480,840	317,325	489,331	356,446	Provisions and contingencies	18	1,105,303	894,069	1,105,303	914,377
Taxes recoverable	7.1	2,203,723	2,164,544	2,290,779	2,521,292	Deferred revenues	19	440,069	562,601	441,793	564,557
Judicial deposits and garnishments	8	283,365	235,343	283,397	235,343	Loans, financing, financial lease and contingent consideration	20	1,614,805	1,811,037	1,614,805	2,222,067
Derivative transactions	33	64,046	81,306	64,046	81,306	Debentures	20	2,100,875	120,924	2,100,875	120,924
Other assets	10	465,217	603,118	435,712	488,632	Derivative transactions	33	160,955	151,686	160,955	151,686
						Other liabilities	21	1,576,152	1,006,901	1,564,770	1,010,657
Non-current assets		83,779,247	82,387,176	83,273,784	83,775,761
Short-term investments pledged as collateral		105,547	90,863	105,560	109,864	Non-current liabilities		12,585,419	13,056,610	12,627,598	15,136,109
Trade accounts receivable, net	5	215,041	217,621	316,412	330,451	Personnel, social charges and benefits	14	32,571	19,808	32,656	19,808
Taxes recoverable	7.1	672,291	337,477	674,056	409,653	Trade accounts payable	15	73,631	-	73,631	67,742
Deferred taxes	7.2	281,549	-	417,367	711,590	Taxes, charges and contributions	16	58,700	57,416	86,372	87,018
Prepaid expenses	9	38,699	28,632	40,104	30,609	Deferred taxes	7.2	-	155,951	-	-
Judicial deposits and garnishments	8	5,860,766	4,880,489	5,934,242	5,518,120	Provisions and contingencies	18	6,347,622	5,077,839	6,381,923	5,890,319
Derivative transactions	33	168,051	417,558	168,051	417,558	Deferred revenues	19	548,020	358,963	548,020	359,237
Other assets	10	50,070	55,228	52,610	62,799	Loans, financing, financial lease and contingent consideration	20	3,695,303	3,141,987	3,695,303	4,454,509
Investments	11	1,188,799	24,342,692	89,667	101,161	Debentures	20	1,433,216	3,423,790	1,433,216	3,423,790
Property, plant and equipment, net	12	30,658,685	22,019,076	30,722,438	30,476,765	Derivative transactions	33	60,579	82,421	60,579	82,421
Intangible assets, net	13	44,539,749	29,997,540	44,753,277	45,607,191	Liabilities for post-retirement benefits plans	32	81,925	76,616	81,925	85,343
						Other liabilities	21	253,852	661,819	233,973	665,922

						Equity		68,663,711	68,567,242	68,663,711	68,567,242
						Capital	22	63,571,416	63,571,416	63,571,416	63,571,416
						Capital reserves	22	1,347,952	1,347,952	1,347,952	1,347,952
						Income Reserves	22	2,418,075	2,410,571	2,418,075	2,410,571
						Premium on acquisition of equity interest	22	(75,388)	(75,388)	(75,388)	(75,388)
						Other comprehensive income	22	8,596	25,468	8,596	25,468
						Additional dividend proposed	22	-	1,287,223	-	1,287,223
						Retained earnings	22	1,393,060	-	1,393,060	-

TOTAL ASSETS		101,310,301	97,572,695	101,708,361	101,685,064	TOTAL LIABILITIES AND EQUITY		101,310,301	97,572,695	101,708,361	101,685,064

TELEFÔNICA BRASIL S.A.
Balance Sheets
At September 30, 2016 and December 31, 2015
(In thousands of reais)

		Company				Consolidated
		Three-month periods ended		Nine-month periods ended		Three-month periods ended		Nine-month periods ended
	Note	09.30.16	09.30.15	09.30.16	09.30.15	09.30.16	09.30.15	09.30.16	09.30.15

Operating revenue, net	23	10,111,110	8,536,988	28,381,864	25,373,145	10,693,365	10,580,780	31,634,810	29,525,983

Cost of sales and services	24	(4,965,161)	(4,315,136)	(14,129,562)	(12,907,993)	(5,272,970)	(5,381,782)	(15,929,873)	(14,987,070)

Gross profit		5,145,949	4,221,852	14,252,302	12,465,152	5,420,395	5,198,998	15,704,937	14,538,913

Operating income (expenses)		(3,950,088)	(3,294,603)	(10,606,356)	(9,812,162)	(3,982,667)	(3,864,487)	(11,144,966)	(10,786,600)
Selling expenses	24	(3,124,939)	(2,759,439)	(8,800,115)	(8,128,580)	(3,156,618)	(3,193,538)	(9,247,283)	(8,875,775)
General and administrative expenses	24	(677,987)	(395,064)	(1,896,866)	(1,272,797)	(676,739)	(488,001)	(1,991,193)	(1,449,255)
Other operating income	25	84,872	160,446	806,809	404,158	83,229	178,767	837,999	439,224
Other operating expenses	25	(232,034)	(300,546)	(716,184)	(814,943)	(232,539)	(361,715)	(744,489)	(900,794)

Operating income		1,195,861	927,249	3,645,946	2,652,990	1,437,728	1,334,511	4,559,971	3,752,313

Financial income	26	553,041	644,720	1,999,751	2,783,429	579,518	1,436,135	2,100,151	3,661,735
Financial expenses	26	(872,304)	(771,720)	(2,943,720)	(3,102,980)	(875,856)	(1,694,675)	(3,019,341)	(4,309,654)
Equity pickup	11	172,790	180,783	623,170	508,235	273	797	997	1,469

Income before taxes		1,049,388	981,032	3,325,147	2,841,674	1,141,663	1,076,768	3,641,778	3,105,863

Income and social contribution taxes	27	(96,698)	(94,867)	(454,731)	(505,974)	(188,973)	(190,603)	(771,362)	(770,163)

Net income for the period		952,690	886,165	2,870,416	2,335,700	952,690	886,165	2,870,416	2,335,700

Basic and diluted earnings per share (in R$)
Common shares	28	0.53	0.49	1.59	1.54
Preferred shares	28	0.58	0.54	1.75	1.69

TELEFÔNICA BRASIL S.A.
Balance Sheets
At September 30, 2016 and December 31, 2015
(In thousands of reais)

			Capital reserves		Income Reserves
	Capital	Premium on acquisition of interest	Other capital reserves	Treasury Shares	Legal reserve	Tax incentives	Reserve for expansion and modernization	Retained earnings	Additional dividend proposed	Other comprehensive income	Total Equity

Balances as of December 31, 2014	37,798,110	(70,448)	2,799,004	(112,107)	1,532,630	1,849	-	-	2,768,592	232,465	44,950,095
Additional dividends proposed for year 2014	-	-	-	-	-	-	-	-	(2,768,592)	-	(2,768,592)
Expired equity instruments	-	-	-	-	-	-	-	58,623	-	-	58,623
DIPJ (Corporate Income Tax Return) Adjustment - Tax incentives	-	-	-	-	-	2,962	-	(2,962)	-	-	-
Cancellation of treasury shares, according to EGM of March 12, 2015	-	-	(112,107)	112,107	-	-	-	-	-	-	-
Capital increase - EGM of April 28, 2015	15,812,000	-	-	-	-	-	-	-	-	-	15,812,000
Direct costs on capital increases (net of taxes), according to EGM of April 28, 2015	-	-	(62,812)	-	-	-	-	-	-	-	(62,812)
Capital increase - EGM of April 30, 2015	295,285	-	-	-	-	-	-	-	-	-	295,285
Direct costs on capital increases (net of taxes), according to EGM of April 30, 2015	-	-	(3,776)	-	-	-	-	-	-	-	(3,776)
Capital increase - merger of shares in GVTPart – EGM of May 28, 2015	9,666,021	-	(1,188,707)	-	-	-	-	-	-	-	8,477,314
Dissenters' right - Acquisition of GVTPart.	-	-	-	(87,805)	-	-	-	-	-	-	(87,805)
Other comprehensive income	-	-	-	-	-	-	-	-	-	(212,833)	(212,833)
Net income for the period	-	-	-	-	-	-	-	2,335,700	-	-	2,335,700
Interim interest on equity	-	-	-	-	-	-	-	(1,120,000)	-	-	(1,120,000)
Interim dividends	-	-	-	-	-	-	-	(270,000)	-	-	(270,000)

Balances as of September 30, 2015	63,571,416	(70,448)	1,431,602	(87,805)	1,532,630	4,811	-	1,001,361	-	19,632	67,403,199

Expired equity instruments	-	-	-	-	-	-	-	435,378	-	-	435,378
DIPJ (Corporate Income Tax Return) Adjustment - Tax incentives	-	-	-	-	-	2,117	-	(2,117)	-	-	-
Direct costs on capital increases (net of taxes), according to EGM of April 28, 2015	-	-	4,155	-	-	-	-	-	-	-	4,155
Premium on acquisition of equity interest by TData	-	(4,940)	-	-	-	-	-	-	-	-	(4,940)
Other comprehensive income	-	-	-	-	-	-	-	264,990	-	5,836	270,826
Net income for the period	-	-	-	-	-	-	-	1,084,549	-	-	1,084,549
Income allocation:
Legal reserve	-	-	-	-	171,013	-	-	(171,013)	-	-	-
Interim interest on equity	-	-	-	-	-	-	-	(625,925)	-	-	(625,925)
Expansion and modernization reserve	-	-	-	-	-	-	700,000	(700,000)	-	-	-
Additional dividend proposed	-	-	-	-	-	-	-	(1,287,223)	1,287,223	-	-
Balances as of December 31, 2015	63,571,416	(75,388)	1,435,757	(87,805)	1,703,643	6,928	700,000	-	1,287,223	25,468	68,567,242

Additional dividends proposed for year 2015	-	-	-	-	-	-	-	-	(1,287,223)	-	(1,287,223)
Expired equity instruments	-	-	-	-	-	-	-	98,148	-	-	98,148
DIPJ (Corporate Income Tax Return) Adjustment - Tax incentives	-	-	-	-	-	7,504	-	(7,504)	-	-	-
Other comprehensive income	-	-	-	-	-	-	-	-	-	(16,872)	(16,872)
Net income for the period	-	-	-	-	-	-	-	2,870,416	-	-	2,870,416
Interim interest on equity	-	-	-	-	-	-	-	(1,568,000)	-	-	(1,568,000)
Balances as of September 30, 2016	63,571,416	(75,388)	1,435,757	(87,805)	1,703,643	14,432	700,000	1,393,060	-	8,596	68,663,711

TELEFÔNICA BRASIL S.A.
Balance Sheets
At September 30, 2016 and December 31, 2015
(In thousands of reais)

	Company				Consolidated
	Three-month periods ended		Nine-month periods ended		Three-month periods ended		Nine-month periods ended
	09.30.16	09.30.15	09.30.16	09.30.15	09.30.16	09.30.15	09.30.16	09.30.15

Net income for the year	952,690	886,165	2,870,416	2,335,700	952,690	886,165	2,870,416	2,335,700

Unrealized gains (losses) on investments available for sale	442	(854)	270	(1,637)	442	(854)	270	(1,637)
Taxes	(150)	291	(92)	557	(150)	291	(92)	557
	292	(563)	178	(1,080)	292	(563)	178	(1,080)

Gains (losses) on derivative transactions	6,780	(22,757)	(10,497)	(23,807)	6,780	(22,719)	(10,497)	(23,654)
Taxes	(2,305)	7,737	3,569	8,094	(2,305)	7,737	3,569	8,094
	4,475	(15,020)	(6,928)	(15,713)	4,475	(14,982)	(6,928)	(15,560)

Cumulative translation adjustments (CTA) on foreign currency transactions	1,272	20,690	(13,250)	25,900	1,272	20,690	(13,250)	25,900

Other net comprehensive income to be reclassified into income in subsequent periods	6,039	5,107	(20,000)	9,107	6,039	5,145	(20,000)	9,260

Gains (losses) on derivative transactions	4,739	-	4,739	(336,125)	4,739	-	4,739	(336,125)
Taxes	(1,611)	-	(1,611)	114,283	(1,611)	-	(1,611)	114,283
	3,128	-	3,128	(221,842)	3,128	-	3,128	(221,842)
			-
Losses on other comprehensive income (loss)	-	-	-	-	-	444	-	(251)

Interest in comprehensive income (loss) of subsidiaries	-	482		(98)	-	-	-	-

Other net comprehensive income to be not reclassified into income in subsequent periods	3,128	482	3,128	(221,940)	3,128	444	3,128	(222,093)

Comprehensive income for the period, net of taxes	961,857	891,754	2,853,544	2,122,867	961,857	891,754	2,853,544	2,122,867

Basic and diluted earnings per share (in R$)
Common shares	0.53	0.50	1.58	1.40
Preferred shares	0.59	0.54	1.74	1.54

TELEFÔNICA BRASIL S.A.
Balance Sheets
At September 30, 2016 and December 31, 2015
(In thousands of reais)

	Company		Consolidated
	09.30.16	09.30.15	09.30.16	09.30.15
Total cash generated from operating activities	6,914,086	4,537,291	8,122,845	5,847,915

Expenses (incomes) not representing changes in cash	10,914,373	9,175,286	12,518,558	11,292,129
Income before taxes	3,325,147	2,841,674	3,641,778	3,105,863
Depreciation and amortization	5,355,847	4,219,008	5,839,148	4,944,926
Foreign exchange losses (gains) on loans	33,785	(62,384)	33,785	238,939
Currency variations losses	442,997	212,673	433,041	202,798
Equity pick-up	(623,170)	(508,235)	(997)	(1,469)
Losses (gains) on write-off/disposal of property	(444,501)	32,727	(448,560)	42,742
Estimated impairment losses on accounts receivable	900,456	824,644	1,003,976	958,588
Provision for suppliers	488,222	328,489	525,454	381,192
Write-off and reversal of estimated losses from impairment and obsolescence of inventories	(25,237)	(21,823)	(28,280)	(23,431)
Pension plans and other post-retirement benefits	(3,646)	32,392	(4,417)	32,380
Provisions for tax, labor, civil and regulatory contingencies	713,451	653,119	744,489	707,952
Interest expenses	791,998	576,612	832,491	649,997
Other	(40,976)	46,390	(53,350)	51,652

Increase or decrease in operating assets and liabilities	(4,000,287)	(4,637,995)	(4,395,713)	(5,444,214)
Trade Accounts receivable	(995,452)	(1,280,934)	(1,281,268)	(1,509,246)
Inventories	130,177	(116,938)	131,815	(139,278)
Taxes recoverable	(191,101)	(213,381)	(291,667)	(280,487)
Prepaid expenses	(35,009)	(91,973)	(43,807)	(74,684)
Other current assets	114,698	(13,437)	18,386	(114,917)
Other non-current assets	38,179	(136,204)	13,418	(164,467)
Personnel, social charges and benefits	70,105	(164,389)	92,906	(141,914)
Trade accounts payable	(1,189,442)	(531,189)	(905,318)	(703,872)
Taxes, charges and contributions	(43,163)	(95,669)	125,722	(14,609)
Interest paid	(703,415)	(616,149)	(743,482)	(689,452)
Income and social contribution taxes paid	(190,670)	-	(484,591)	(321,668)
Other current liabilities	(385,542)	(917,984)	(393,965)	(838,822)
Other non-current liabilities	(619,652)	(459,748)	(633,862)	(450,798)

Total cash used in investment activities	(3,181,669)	(16,073,619)	(4,922,123)	(13,069,439)
Acquisition of property, plant and equipment, and intangible assets	(4,930,661)	(4,486,329)	(5,526,491)	(5,260,450)
Cash from disposal of property, plant and equipment	771,757	16,054	772,332	16,268
Acquisition of company, net of cash and cash equivalents acquired of R$399,241	-	(8,903,954)	-	(8,504,713)
Capital increase in subsidiary	-	(4,087,040)	-	-
Redemption of (investment in) judicial deposits	(148,895)	6,044	(167,964)	(3,247)
Dividends and interest on equity received	767,551	698,911	-	8
Net receipt of derivative contracts on acquisition of company	-	682,695	-	682,695
Cash and cash equivalents for incorporation	358,579	-	-	-

Total cash generated by (used in) financing activities	(2,573,764)	12,994,899	(2,743,001)	8,844,076
Repayment of loans, financing and debentures	(1,726,423)	(1,441,261)	(1,895,660)	(5,802,015)
Raising of loans and financing	289,786	12,580	289,786	12,580
Net receipt (payment) of derivative contracts	(66,369)	332,897	(66,369)	542,828
Payments referring to grouping of shares	(164)	(143)	(164)	(143)
Payment of dividends and interest on equity	(1,070,594)	(1,841,896)	(1,070,594)	(1,841,896)
Dissenters' right	-	(87,805)	-	(87,805)
Capital increase	-	16,107,285	-	16,107,285
Direct costs of capital increase	-	(86,758)	-	(86,758)

Increase in cash and cash equivalents	1,158,653	1,458,571	457,721	1,622,552

Cash and cash equivalents at the beginning of the period	4,206,595	3,835,304	5,336,845	4,692,689
Cash and cash equivalents at the end of the period	5,365,248	5,293,875	5,794,566	6,315,241

Change in cash and cash equivalents in the period	1,158,653	1,458,571	457,721	1,622,552

TELEFÔNICA BRASIL S.A.
Balance Sheets
At September 30, 2016 and December 31, 2015
(In thousands of reais)

	Company		Consolidated
	09.30.16	09.30.15	09.30.16	09.30.15

Revenues	38,963,878	34,488,318	42,976,277	39,859,025
Sales of goods and services	39,127,923	34,787,087	43,098,784	39,962,840
Other incomes	736,411	525,875	881,469	854,773
Estimated impairment losses from trade accounts receivable	(900,456)	(824,644)	(1,003,976)	(958,588)

Inputs purchased from third parties	(13,534,013)	(13,616,249)	(15,120,839)	(15,531,835)
Cost of goods and products sold and services rendered	(7,353,579)	(7,363,586)	(8,715,021)	(8,827,999)
Materials, electric energy, third-party services and other expenses	(6,638,664)	(6,246,031)	(6,870,785)	(6,686,192)
Asset Loss/Recovery	458,230	(6,632)	464,967	(17,644)

Gross value added	25,429,865	20,872,069	27,855,438	24,327,190

Withholdings	(5,355,847)	(4,219,008)	(5,839,148)	(4,944,926)
Depreciation and amortization	(5,355,847)	(4,219,008)	(5,839,148)	(4,944,926)

Net value added produced	20,074,018	16,653,061	22,016,290	19,382,264

Value added received in transfer	2,622,921	3,291,664	2,101,148	3,663,204
Equity pick-up	623,170	508,235	997	1,469
Financial income	1,999,751	2,783,429	2,100,151	3,661,735

Total value added for distribution	22,696,939	19,944,725	24,117,438	23,045,468

Value Added Distribution	(22,696,939)	(19,944,725)	(24,117,438)	(23,045,468)

Personnel, social charges and benefits	(2,873,617)	(2,045,579)	(3,199,906)	(2,548,140)
Direct compensation	(2,005,797)	(1,443,751)	(2,234,892)	(1,810,336)
Benefits	(731,294)	(505,003)	(813,536)	(617,991)
FGTS (unemployment compensation fund)	(136,526)	(96,825)	(151,478)	(119,813)
Taxes, charges and contributions	(12,216,168)	(10,984,501)	(13,108,272)	(12,219,756)
Federal	(3,495,188)	(3,486,553)	(3,981,118)	(4,067,893)
State	(8,663,319)	(7,445,828)	(9,030,324)	(8,011,626)
Municipal	(57,661)	(52,120)	(96,830)	(140,237)
Return on third-party capital	(4,736,738)	(4,578,945)	(4,938,844)	(5,941,872)
Interest	(2,900,586)	(3,051,977)	(2,971,271)	(4,260,014)
Rental	(1,836,152)	(1,526,968)	(1,967,573)	(1,681,858)
Return on equity	(2,870,416)	(2,335,700)	(2,870,416)	(2,335,700)
Retained earnings	(2,870,416)	(2,335,700)	(2,870,416)	(2,335,700)

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Quarterly ended September 30, 2016

(In thousands of Reais, unless otherwise stated)

1) THE COMPANY AND ITS OPERATIONS

a) Background Information

Telefônica Brasil S.A. (“Company” or “Telefônica Brasil”), is a publicly-traded corporation operating in telecommunication services and in the performance of activities that are necessary or useful in the rendering of such services, in conformity with the concessions, authorizations and permits it has been granted. The Company, headquartered at Avenida Engenheiro Luiz Carlos Berrini, No. 1376, in the city and State of São Paulo, Brazil, is a member of the Telefónica Group ( “Group”), the telecommunications industry leader in Spain, also present in several Europe and Latin America countries.

At September 30, 2016 and December 31, 2015, Telefónica S.A. (“Telefónica”), the Group holding company based in Spain, held a total direct and indirect interest in the Company’s Capital of 73.58%, including treasury shares (Note 22).

The Company is listed in the Brazilian Securities and Exchange Commission (“CVM”) as a Publicly-Held company under Category A (issuers authorized to trade any marketable securities), and has shares traded on the São Paulo Stock Exchange (“BM&FBovespa”). The Company is also listed in the US Securities and Exchange Commission (“SEC”), of the United States of America, and its American Depositary Shares (“ADSs”) are classified in level II, backed only by preferred shares, and traded in the New York Stock Exchange (“NYSE”).

b) Operations

The Company is primarily engaged in rendering land-line telephone and data services in the State of São Paulo, under Fixed Switched Telephone Service (“STFC”) concession agreement, and Multimedia Communication Service (“SCM”, data communication, including broadband internet) authorization, respectively.

The Company is the grantee on an STFC concession to render land-line services in the local network and national long distance calls originated in sector 31 of Region III, which comprises the state of São Paulo (except for cities within sector 33) and has authorization for land-line calls originated in Regions I and II, as established in the General Concession Plan (“PGO”).

The Company is also authorized to render other telecommunications services, such as SMP (Personal Communication Services) and SEAC (Conditional Access Audiovisual Services), especially by means of DTH and cable technologies.

With the incorporation of GVT Holdings SA ("GVTPart."), note 1c), the Company started to operate in the provision of STFC, SCM and pay TV ("SEAC") throughout the Brazilian territory.

In accordance with the service concession agreement, every two years, during the agreement’s 20-year term, the Company shall pay a fee equivalent to 2% of its prior-year STFC revenues, net of applicable taxes and social contribution taxes (Note 21). The Company’s current STFC concession agreement is valid until December 31, 2025.

In accordance with the SMP authorization agreements, every two years, after the first renewal of these agreements, the Company shall pay a fee equivalent to 2% of its prior-year SMP revenues, net of applicable taxes and social contribution taxes, related to the application of Basic and Alternative Services Plans (Note 21). These agreements can be extended only once for a term of 15 years.

Service concessions and authorizations are granted by National Telecommunications Agency (ANATEL), under the terms of Law No. 9472 of July 16, 1997 - General Telecomunication Law (“Lei Geral das Telecomunicações” - LGT), amended by Laws No. 9986, of July 18, 2000, and No. 12485, of September 12, 2011. Operation of such concessions is subject to supplementary regulations and plans.

In the auction for sale of the remaining radiofrequency bands of 1,800 MHz, 1,900 MHz and 2,500 MHz, held by ANATEL on December 17, 2015, the Company was the out bidder of seven 2,500MHz frequency lots, having offered the amount of R$185,450. On July 21, 2016, by Acts nº 2.483, nº 2.485 e nº 2.486, the Board of ANATEL decided to endorse the use of these radio frequencies. The terms of authorization of these frequency bands have been signed on July 26, 2016 and published in the Official Gazette on August 26, 2016. In the third quarter of 2016, the total amount was recorded as licenses in intangible assets (note 13).

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Quarterly ended September 30, 2016

(In thousands of Reais, unless otherwise stated)

The information on the operation areas (regions) and due dates of the radiofrequency authorizations for SMP services is the same of Note 1b) Operations as disclosed in the financial statements for the year ended December 31, 2015.

c) Corporate Restructuring

In the Shareholders’ Meeting held on April 1, 2016, approved the Corporate Restructuring in accordance with the terms and conditions proposed of March 14, 2016, as described below.

GVTPart. was the parent company of Global Village Telecom S.A. ("GVT"), companies controlled by the Company from May 28, 2015 to April 1, 2016 (Note 3). GVT was the direct controlling company of POP Internet Ltda. (“POP”), and indirect controlling company of Innoweb Ltda. (“Innoweb”), Brazil-based.

POP is a provider of free Internet access. Innoweb (subsidiary of POP) provides telephone services using VoIP technology, which allows calls using the Internet at lower costs than those using conventional telephone technology, using dedicated circuits.

The Corporate Restructuring was approved by ANATEL through Ruling No. 50.169, of January 22, 2016, which was published in the Federal Official Gazette (“DOU”) on January 28, 2016 with the conditions provided therein.

The Corporate Restructuring occurred on the same date and as follows, mentioned above having occurred: (i) GVT was spun off and involving assets, rights and obligations related to the telecommunications activities, its net assets relating to property, rights and obligations connected to telecommunications activities was absorbed by GVTPart., while other net assets relating to property, rights and obligations connected to activities other than telecommunications was absorbed by POP; and (iii) the net assets of GVTPart. (after the merger of GVT’s net assets, item (i)) was merged into the Company.

The Corporate Restructuring aims at standardizing the services provided by the companies involved in this process by (i) concentrating the rendering of telecommunication services on one single company, that is, the Company; and (ii) migration of activities that were provided by GVT, specifically those that were not related to telecommunications services for POP.

As such, the simplification of the corporate structure and the concentration of telecommunication services on the Company will lead to a converging environment, facilitating consolidation and confluence of the offering of telecommunication services and service packages; optimizing administrative and operating costs; and standardizing the operations of the companies involved in the Corporate Restructuring.

The ownership structure at March 31, 2016 (before the Corporate Restructuring) and from April 1, 2016 (after the Corporate Restructuring), considering only the companies involved in the Corporate Restructuring were the following:

At 03.31.16	At 04.01.16

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Quarterly ended September 30, 2016

(In thousands of Reais, unless otherwise stated)

Given that the merger of GVTPart. into the Company does not require capital increase or change in shareholders’ interest in the Company, since GVTPart. was a wholly-owned subsidiary of the Company, the replacement of shares held by the shareholders in GVTPart. with shares in the Company is not applicable. Consequently, there are no minority interests to be considered and, therefore, according to the CVM’s position in similar prior cases, and on the terms of CVM Resolution No. 559/08, the provisions of article 264 of Law No. 6404/76 and its further amendments do not apply either.

Additionally, in relation to the transaction that precedes the merger of GVTPart into the Company, the replacement of shares is not applicable, since GVT is a subsidiary of GVTPart. and of the Company itself, thus there are no minority shareholders.

On the terms of article 137 of Law No. 6404/76 and its further amendments, the Corporate Restructuring does not entitle Company’s shareholders the right of withdrawal. Furthermore, considering that there are no minority shareholders of GVTPart., since it is a wholly-owned subsidiary of the Company, there is no question of right to withdrawal and exercise of the right to withdraw of non-controlling shareholders of GVTPart., as provided by in article 136, item iv, and article 137 of Law No. 6404/76 and its further amendments.

2) BASIS OF PREPARATION AND PRESENTATION OF THE QUARTERLY FINANCIAL STATEMENTS

2.1) Statement of Compliance

The individual (Company) and consolidated quarterly financial statements were prepared and are presented in accordance with the accounting practices adopted in Brazil, which comprise CVM deliberations and CPC (Accounting Pronouncements Committee) pronouncements, guidelines and interpretations issued by the International Financial Accounting Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB). All significant information in the financial statements, and solely such information, are disclosed and correspond to that used by management in its administration.

The consolidated IFRS (Consolidated) have been prepared and are presented in accordance with CPC 21 (R1) Interim Statements and IAS 34 - Interim Financial Reporting issued by the IASB and standards established as Resolution nº 739 of the CVM.

The accounting standarts adopted in Brazil require the presentation of the Statement of Value Added ("DVA"), individual and consolidated, while IFRS does not require submission. As a result, under IFRS standards, the DVA is being presented as supplementary information, without prejudice to all of these quarterly financial statements.

2.2) Bases of Preparation and Presentation

The quarterly financial statements are presented in thousands of reais (except when otherwise indicated), which is the Company's functional currency have been prepared assuming the normal continuity of the Company and comparing for the nine-months periods ended September 30, 2016 and 2015, except for the balance sheet comparing the positions on September 30, 2016 to December 31, 2015.

The Board of Directors authorized the issuance of these quarterly financial statements at the meeting held on October 25, 2016.

For comparability of the consolidated interim financial statements (income statement, statements of comprehensive income, statements of value added and statements of cash flows) for the nine-months ended September 30, 2016 and 2015, must consider the effects of consolidating GVTPart. from 1 May 2015.

In compliance with CVM Instruction No. 565, of June 15, 2015, the Company reports, in Note 35, a pro-forma consolidated income statements (not audited or reviewed) for the nine-months period ended September 30, 2015, and for the year ended December 31, 2015.

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Quarterly ended September 30, 2016

(In thousands of Reais, unless otherwise stated)

Some figures on the notes to the quarterly financial statements were reclassified to allow comparability between the information for the nine-months periods ended September 30, 2016 and 2015, where applicable.

The quarterly financial statements were prepared pursuant to the accounting principles, practices and criteria consistent with those adopted in preparing the financial statements for the year ended December 31, 2015 (Note 3 – “Summary of Significant Accounting Practices”), and must be analyzed jointly with the referred financial statements, as well as the new pronouncements, interpretations and amendments that had been published, as described below:

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, revision: The amendments to this standard provide a guidance regarding the accounting treatment to be adopted upon the reclassification of an asset (or group of assets) from the “held for sale” category to the “distribution to shareholders” category (or conversely). This standard is applicable as from the year beginning on January 1, 2016. The Company does not have plans for asset sales or distribution to shareholders and, does not expect any significant impacts on its financial position.

IFRS 7 Financial Instruments: Disclosures, revision: The amendments to this standard provide a guidance regarding the disclosure of the accounting policies that form the measurement base (or bases) used in the preparation of the financial statements, and other accounting policies used that are relevant to allow understanding the financial statements. This standard is applicable as from the year beginning on January 1, 2016. The Company already discloses significant accounting practices in its financial statements.

IFRS 11 Accounting for Acquisitions of Interests in Joint Operations, revision: The amendments to this standard require that joint investors, which record the acquisition of equity interest in joint operations that is a business apply the relevant IFRS 3 principles applicable to business combination. The amendments further clarify that the interest previously held in joint operations is not remeasured upon acquisition of additional interest in the same joint operation, while the joint control is held. Additionally, a scope exclusion was added to IFRS 11 in order to specify that the amendments are not applicable when the parties sharing joint control, including the reporting entity, are under the common control of the main controlling party. The amendments are applicable to both, the acquisition of final interest in a joint operation and the acquisition of any additional interest in the same joint operation, and are effective prospectively as from the year beginning on January 1, 2016. The Company did not acquire interest in joint operations fitting into this standard.

IFRS 14 Regulatory Deferral Accounts, issue: This standard is optional and allows companies whose activities are subject to regulated fees to continue applying most part of its accounting policies on regulatory deferral accounts balances upon the first-time adoption of IFRS. The companies that adopt IFRS 14 must present regulatory deferral accounts separately in the balance sheet and in the other comprehensive income. This standard requires disclosures on the nature and risks associated with company’s regulated fees, and the effects of such regulation on the financial statements. This standard is applicable as from the year beginning on January 1, 2016. The Company does not expect any significant impact on its financial position, since it has already been preparing its financial statements based on the effective IFRS.

IAS 1 Disclosure Initiative, revision: This standard addresses changes in the overall financial statements of a company. This standard is applicable as from year beginning on or after January 1, 2016. The model for disclosure of the Company’s financial information is compliant with this standard, and the Company does not expect impacts on its financial disclosures.

IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortization, revision: The amendments clarify the depreciation and amortization methods subject to the alignment to the concept of future economic benefits expected from the use of assets over its economic useful life. This standard is applicable as from the year beginning on January 1, 2016. The Company does not expect any significant impact on its financial position.

IAS 19 Employee Benefits, revision: The amendments to this standard require that the Company disclosure information about the rates used to discount obligations with post-employment benefits, determining by reference market earnings at the end of the reference period of the obligations of high-quality institutions. For currencies for which there is no active market in such obligations of high-quality institutions, there shall be use of market earnings (at the end of the period of disclosure) of government securities denominated in that currency. The currency and term of the obligations of the companies or of government obligations must be consistent with the currency and term expected of obligations with post-employment benefits. In Brazil, there is no confirmed high-quality securities market, and that is the reason why the Company and its actuaries have been using Brazilian Government securities for many years, mainly NTN-Bs (National Treasury Notes – B series), with terms equivalent to the average duration of each plan for purposes of present value discount of the actuarial liabilities. The currency used for the payment of the benefits and for NTN-Bs valuation is the Real.

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Quarterly ended September 30, 2016

(In thousands of Reais, unless otherwise stated)

Amendments to IAS 27 Equity Method in Separate Financial Statements, revision: The amendments to this standard allow the Company to use the equity pick-up method for investments in subsidiaries, joint ventures and affiliates in its individual financial statements. This standard is applicable as from the year beginning on January 1, 2016. This amendment did not generate any impact on the individual financial statements of the Company, since the equivalent Brazillian accounting standards (CPC-35-R2) already provided the use of this method.

IAS 34 Interim Financial Reporting, revision: The amendments to this standard require that the Company disclose in its interim financial statements must include the following information: (i) declaration of policies and calculation methods compared to the most recent annual financial statements; (ii) comments about seasonality; (iii) nature and quantity of unusual items that affect assets, liabilities, equity, revenues or cash flows due to their nature, dimension or occurrence; (iv) nature and number of changes in estimates of amounts disclosed in the comparative periods; (v) issues, repurchases and refunds of securities; (vi) dividends paid (aggregated or per share), separated by common and other shares; (vii) complete information by segment; (viii) events subsequent to the current period, which have not been reflected in the interim reports; and (ix) effects from changes in the Company’s corporate structure during the interim financial statements reporting period, among others. This standard is applicable as from the year beginning on January 1, 2016. The Company does not expect impact on its interim financial statements, since it already includes this information in the preparation of its quarterly financial statements.

On the date of preparation of these quarterly financial statements, the following IFRS amendments had been published, however, their application was not compulsory:

Standards and Amendments to the Standards		Effective as of:

IAS 1 Disclousure Initiative (Iniciativas de Divulgação), revisão.		1º de janeiro de 2016

IAS 7 Cash Flow, review.		January 1, 2017

IAS 12 Income Taxes, review.		January 1, 2017

IFRS 9 Financial Instruments, issue of final version.		January 1, 2018

IFRS 15 Revenue from Contracts with Customers, issue.		January 1, 2018

IFRS 16 Leases, issue.		January 1, 2019

IFRS 10, 12 and IAS 28 Investment Entities: Applying the Consolidation Exception, review.		TBD

The Company does not early adopt any pronouncement, interpretation or amendment that has been issued, whose application is not compulsory. Based on the analyses performed by the Company, the adoption of most of these standards, will not significantly impact the consolidated financial statements in the period of its first-time adoption. However, IFRS 15 may impact the period and amount of revenue recognition in relation to certain revenue transactions. The Telefónica Group is currently evaluating the impact of the application of this standard. In addition, the amendments introduced by IFRS 9 will affect financial instruments and operations with financial instruments performed on or after January 1, 2018. Additionally, IFRS 16 requires that the Company inform all assets and liabilities subject to leases (except short-term leases and leases of low-value). Therefore, the amendments introduced by IFRS 16 may have a significant impact on the Company’s financial statements.

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Quarterly ended September 30, 2016

(In thousands of Reais, unless otherwise stated)

2.3) Bases for consolidation

The Company held direct ownership interest in the following companies and on the following reporting dates:

Investees

Type of investment

At 09.30.16

At 12.31.15

At 09.30.15

Country (Headquarters)

Core activity

Telefônica Data S.A. ("TData")

Wholly-owned subsidiary

100.00%

Brazil

Telecommunications

GVT Participações S.A. ("GVTPart.") (note 3)

Wholly-owned subsidiary

100.00%

Brazil

Telecommunications

POP Internet Ltda ("POP") (note 1c)

Wholly-owned subsidiary

100.00%

Brazil

Internet

Aliança Atlântica Holging B.V. ("Aliança")

Jointly-controlled subsidiary

50.00%

Holland

Holding of the telecommunications sector

Companhia AIX de Participações ("AIX")

Jointly-controlled subsidiary

50.00%

Brazil

Operation of underground telecommunications networks

Companhia ACT de Participações ("ACT")

Jointly-controlled subsidiary

50.00%

Brazil

Technical assistance in telecommunication networks

Interests held in subsidiaries or jointly-controlled entities are measured under the equity method in the individual quarterly financial statements. In the consolidated quarterly financial statements, investments and all assets and liabilities balances, revenues and expenses arising from transactions and interest held in subsidiaries are fully eliminated. Investments in jointly-controlled entities are measured under the equity method in the consolidated quarterly financial statements.

3) ACQUISITION OF GVT PARTICIPAÇÕES S.A. (“GVTPart.”)

As disclosed in the financial statements for the year ended December 31, 2015 (Note 4 – “Acquisition of GVT Participações S.A.”), the Special Shareholders’ Meeting held on May 28, 2015 approved the acquisition of the total shares issued by GVTPart. and of 675,571 shares of GVT, as well as the merger of GVTPart. shares into the Company. As a result of these acts, the Company became the sole shareholder of GVTPart. and an indirect controlling shareholder of GVT, POP and Innoweb.

On May 28, 2015, the Shareholders’ Meeting approved the ratification of the Stock Purchase Agreement and Other Covenants executed by the Company and Vivendi S.A. (“Vivendi”) and its subsidiaries (Société d’Investissements et de Gestion 108 SAS - “FrHolding108” and Société d’Investissements et de Gestion 72 S.A.), whereby all the shares issued by GVTPart. were acquired by the Company.

This transaction was subject to obtaining the applicable corporate and regulatory approvals, including from the Administrative Council for Economic Defense (CADE) and ANATEL, further to other conditions usually applicable to this type of transaction. The transaction was approved by ANATEL under Act No. 448 of January 22, 2015, and published in the Official Federal Gazette (“DOU”) on January 26, 2015, and by CADE at the 61^st ordinary session of its Trial Court, held on March 25, 2015, published in the Official Federal Gazette (“DOU”) on March 31, 2015.

Under IFRS 3 (R)/CPC 15 (R1) – Business Combinations, business acquisitions are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the fair value of assets transferred, of liabilities assumed at the acquisition date from the acquiree’s shareholders and equity interests issued in exchange for control over the acquiree.

The acquisition price was as follows:

Gross consideration in cash (4.663 billion euros)			15,964,853
(-) Contractual Adjustments (Net Debt)			(7,060,899)
Total consideration in cash, net			8,903,954
(+) Contingent Consideration			344,217
(+) Consideration in Shares at Fair Value			8,477,314
(-) Cash Flow Hedge Gain on Transaction, net of taxes (1)			(377,373)
(-) Refund according to sections 2.2.4 and 2.2.5 of SPA			(84,598)
Total consideration, net of Cash Flow Hedge			17,263,514

(1) Derivative transactions refer to cash flow hedges to protect the amount due in Euro to Vivendi, for the acquisition of GVTPart, against exchange rate variation of the amount.

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Quarterly ended September 30, 2016

(In thousands of Reais, unless otherwise stated)

Below is a breakdown of the fair value of identifiable net assets acquired for R$4,426,373, as well as goodwill recorded on the acquisition date.

Current assets	1,557,651	Current liabilities	5,299,662
Cash and cash equivalents	390,255	Personnel, social charges and benefits	170,989
Accounts receivable, net	947,378	Trade accounts payable	611,425
Inventories	4,641	Taxes, charges and contributions	346,569
Taxes recoverable	147,057	Loans and financing	3,968,615
Other assets	68,320	Provisions	17,866
		Other liabilities	184,198
Non-current assets	12,026,239
Short-term investment pledged as collateral	17,871	Non-current liabilities	3,857,855
Taxes recoverable	65,798	Trade accounts payable	67,742
Deferred taxes (4)	610,873	Taxes, charges and contributions	1,342
Judicial deposits and garnishments	551,275	Loans and financing	3,088,414
Other assets	7,052	General Provisions (3)	679,294
Property and equipment, net (1)	7,970,117	Other liabilities	21,063
Intangible assets, net (2)	2,803,253
		Fair value of assumed liabilities	9,157,517

		Fair value of identifiable net assets acquired	4,426,373

		Goodwill (5)	12,837,141

Fair value of assets acquired