Edgar Filing: TELEFONICA BRASIL S.A.

vivoitr3q12_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, 2012

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)

Rua Martiniano de Carvalho, 851 – 21^o 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

REPORT OF QUARTERLY INFORMATION REVIEW

To the Shareholders, Board Members and Directors of

TELEFÔNICA BRASIL S.A.

São Paulo - SP

Introduction

We have reviewed the individual and consolidated interim accounting information of TELEFÔNICA BRASIL S.A. and subsidiaries, contained in the ITR (Quarterly Information Form), referring to the quarter ended on September 30, 2012, which comprises the balance sheet as at September 30, 2012 and related statements of income and of comprehensive income for the periods of three and nine months then ended and of changes in shareholders’ equity and of cash flow for the nine-month period then ended, including the notes thereto.

The management is responsible for the preparation of the individual interim accounting information according to Technical Pronouncement CPC 21 – Interim Statement and interim consolidated accounting information according to CPC 21 and international standard IAS 34 – Interim Financial Reporting, issued by International Accounting Standards Board – IASB, as well as for the presentation of such information according to standards issued by CVM (SEC), applicable to the preparation of Quarterly Information - ITR. Our responsibility is to express a conclusion on this interim financial information based on our review.

Scope of review

We conducted our review in accordance with the Brazilian and international standards of review of interim information (NBC TR 2410 - Revisão de Informações Intermediárias Executada pelo Auditor da Entidade e ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists of inquiries, mainly to those responsible for financial and accounting matters, and the application of analytical procedures and other review procedures.

The scope of a review is significantly less in scope than an audit and, consequently, it did not allow us to obtain assurance that we became aware of all significant matters which could be identified in an audit. Accordingly, we did not express an audit opinion.

Conclusion on individual interim information

Based on our review, we are not aware of any fact which makes us believe that the individual interim accounting information included in the aforesaid quarterly information was not prepared, in all material respects, in accordance with CPC 21 applicable to the preparation of Quarterly Information (ITR) and presented in accordance with the Brazilian SEC (CVM) regulations.

Conclusion on consolidated interim information

Based on our review, we are not aware of any fact which makes us believe that the consolidated interim accounting information included in the aforesaid quarterly information was not prepared, in all material respects, in accordance with CPC 21 and IAS 34 applicable to the preparation of Quarterly Information (ITR) and presented in accordance with Brazilian SEC (CVM) regulations.

Other matters

Interim statement of value added

We have also reviewed the individual and consolidated statement of value added (SVA), referring to the nine-month period ended September 30, 2012, prepared under the Company’s management responsibility, the presentation of which in the interim information is required according to standards issued by CVM, regulations applicable to the preparation of the Quarterly Information – ITR and considered as supplementary information by IFRS’s standards, which do not require the presentation of the SVA. These statements were submitted to the same review procedures previously described and, based on our review, we have no knowledge of any fact which could make us believe that they were not prepared, in all material aspects, in accordance with individual and consolidated interim accounting information taken as a whole.

Audit and review of comparative amounts of previous year

The Quarterly Information – ITR, mentioned in the first paragraph, includes accounting information corresponding to income, comprehensive income, changes in shareholders’ equity, cash flows and added value of the quarter ended September 30, 2011, obtained from the Quarterly Information – ITR from that period, and those from the balance sheet of December 31, 2011, obtained from the financial statements as of December 31, 2011, presented for comparison purposes. The review of the Quarterly Information – ITR of the quarter ended September 30, 2011 and the examination of the financial statements from the period ended December 31, 2011 were conducted under the responsibility of other independent auditors, who issued review and audit reports dated November 07, 2011 and February 14, 2012, respectively, with no changes.

São Paulo, November 05, 2012.

CRC Nº 2SP013002/O-3

Clóvis Ailton Madeira

CTCRC Nº 1SP106895/O-1 "S"


TELEFONICA BRASIL S. A. Balance sheets At September 30, 2012 and December 31, 2011 (In thousands of reais)





	Company		Consolidated			Company		Consolidated
ASSETS	Sep/2012	Dec/2011	Sep/2012	Dec/2011	LIABILITIES AND EQUITY	Sep/2012	Dec/2011	Sep/2012	Dec/2011

CURRENT ASSETS	6,478,241	4,775,480	15,938,965	11,810,118	CURRENT LIABILITIES	5,635,117	6,398,178	11,957,790	12,740,263
Cash and cash equivalents	2,822,146	826,902	6,739,949	2,940,342	Payroll and related accruals	239,888	244,438	465,395	495,624
Trade accounts receivable, net	2,360,864	2,286,636	5,196,648	5,105,860	Trade accounts payable	1,979,080	2,396,987	4,754,320	6,037,315
Inventories	26,816	31,836	463,750	471,721	Taxes, charges and contributions	503,349	700,187	1,729,890	1,691,991
Taxes recoverable	702,354	1,130,761	2,095,266	2,495,066	Loans and financing	417,619	510,899	918,160	988,413
Escrow deposits	-	-	217,401	116,421	Debentures	141,334	468,624	141,334	468,624
Operations with derivatives	13	674	1,728	1,840	Dividends and interest on shareholders equity	1,292,946	972,986	1,292,946	972,986
Prepaid expenses	52,226	37,705	424,129	255,056	Provisions	318,718	287,137	460,913	416,313
Dividends and interest on shareholders equity	203,438	172,679	-	-	Operations with derivatives	9,810	10,960	31,676	51,162
Other assets	310,384	288,287	800,094	423,812	Deferred revenues	70,110	84,956	1,338,027	761,268
					Reverse split of fractional shares	346,037	346,396	389,594	389,953
					Other liabilities	316,226	374,608	435,535	466,614
NONCURRENT ASSETS	51,055,322	50,269,267	52,722,843	53,679,855
Short-term investments pledged as collateral	-	-	83,817	99,114
Trade accounts receivable, net	-	-	86,852	84,855	NONCURRENT LIABILITIES	7,555,118	5,320,852	12,360,690	9,418,925
Taxes recoverable	562,470	787,852	756,355	1,014,959	Taxes, charges and contributions	30,640	32,390	471,535	433,071
Deferred taxes	-	-	1,136,618	1,428,878	Deferred taxes	1,041,686	788,954	1,041,686	788,954
Escrow deposits	3,112,589	2,815,964	3,853,438	3,400,244	Loans and financing	1,004,450	1,277,783	4,265,421	3,959,115
Operations with derivatives	57,933	35,142	316,563	225,935	Debentures	2,802,093	787,807	2,802,093	787,807
Prepaid expenses	14,755	18,290	38,897	32,138	Provisions	2,593,233	2,336,981	3,566,217	3,147,085
Other assets	130,233	109,221	145,686	148,293	Operations with derivatives	3,669	13,382	41,854	78,369
					Deferred revenues	44,788	38,616	135,207	156,266
INVESTMENTS	21,469,845	20,245,883	23,438	37,835	Other liabilities	34,559	44,939	36,677	68,258

PROPERTY, PLANT AND EQUIPMENT, NET	9,749,747	9,691,517	17,002,462	17,153,920
					TOTAL EQUITY	44,343,328	43,325,717	44,343,328	43,330,785
INTANGIBLE ASSETS, NET	15,957,750	16,565,398	29,278,717	30,053,684
					EQUITY	44,343,328	43,325,717	44,343,328	43,325,717
					Capital	37,798,110	37,798,110	37,798,110	37,798,110
					Capital reserve	2,686,897	2,719,665	2,686,897	2,719,665
					Income reserve	877,322	877,322	877,322	877,322
					Premium on acquisition of non-controlling interest	(70,448)	(29,929)	(70,448)	(29,929)
					Other comprehensive income	13,024	7,520	13,024	7,520
					Retained earnings	3,038,423	-	3,038,423
					Additional dividend proposed	-	1,953,029	-	1,953,029

					NON-CONTROLLING INTEREST	-	-	-	5,068


TOTAL ASSETS	57,533,563	55,044,747	68,661,808	65,489,973	TOTAL LIABILITIES AND EQUITY	57,533,563	55,044,747	68,661,808	65,489,973

TELEFONICA BRASIL S. A.
Income statements
Periods ended September 30, 2012 and 2011
(In thousands of reais)


	Company		Consolidated
	Sep/2012	Dec/2011	Sep/2012	Dec/2011

OPERATING INCOME, NET	9,634,159	11,281,085	25,021,083	20,528,645

Cost of goods and services	(5,721,941)	(6,716,186)	(12,283,715)	(10,818,490)

GROSS PROFIT	3,912,218	4,564,899	12,737,368	9,710,155

OPERATING INCOME (EXPENSES)	(612,545)	(1,391,723)	(7,941,767)	(5,898,112)
Selling expenses	(2,344,813)	(2,226,401)	(6,528,318)	(4,843,687)
General and administrative expenses	(529,718)	(444,796)	(1,604,454)	(1,177,473)
Equity pickup	2,436,034	1,218,967	-	-
Other operating income (expenses), net	(174,048)	60,507	191,005	123,048

OPERATING INCOME BEFORE FINANCIAL INCOME AND EXPENSES	3,299,673	3,173,176	4,795,601	3,812,043

Financial income (expenses), net	(75,662)	(32,155)	(165,593)	(46,186)

INCOME BEFORE TAXES	3,224,011	3,141,021	4,630,008	3,765,857

Income and social contribution taxes	(244,688)	(247,621)	(1,652,077)	(865,931)

NET INCOME FOR THE PERIOD	2,979,323	2,893,400	2,977,931	2,899,926


Attributable to:
Net income attributed to non-controlling shareholders	-	-	(1,392)	6,526
Net income attributed to controlling shareholders	2,979,323	2,893,400	2,979,323	2,893,400

Basic and diluted earnings per common share	2.49	3.15
Basic and diluted earnings per preferred share	2.74	3.46

TELEFONICA BRASIL S. A. Statements of comprehensive income Periods ended September 30, 2012 and 2011 (In thousands of reais)





	Company		Consolidated
	09/30/12	09/30/11	09/30/12	09/30/11
Net income for the period	2,979,323	2,893,400	2,977,931	2,899,926

Unrealized gains (losses) with investments available for sale	(5,781)	(7,999)	(5,781)	(7,999)
Taxes on unrealized gains (losses) with investments available for sale	1,966	2,720	1,966	2,720
Gains (losses) – operations with derivatives	-	-	7,649	-
Taxes on gains (losses) – operations with derivatives	-	-	(2,601)	-
Cumulative translation adjustments – operations in foreign currency	4,271	6,154	4,271	6,154
Interest in comprehensive income of subsidiaries	5,048	-	-	-

Net gains (losses) recognized in equity	5,504	875	5,504	875


Comprehensive income for the period	2,984,827	2,894,275	2,983,435	2,900,801


Attributable to:
Net income attributed to non-controlling shareholders	-	-	(1,392)	6,526
Net income attributed to controlling shareholders	2,984,827	2,894,275	2,984,827	2,894,275

Basic and diluted earnings per common share	2.49	3.15
Basic and diluted earnings per preferred share	2.74	3.46

TELEFONICA BRASIL S. A.

Statements of changes in equity

Period ended September 30, 2012 and year ended December 31, 2011

(In thousands of reais)

			Capital reserve			Income reserve			Other comprehensive income
	Capital	Premium on acquisition of non-controlling interest	Special goodwill reserve	Capital reserve	Treasury stock	Legal reserve	Retained earnings	Additional dividend proposed	Financial instruments available for sale, net of income and social contribution taxes	Operations with derivatives	Translation difference of investments abroad	Company’s equity	Non-controlling interest	Total equity

Balances at December 31, 2010	6,575,480	-	63,074	2,688,207	(17,719)	659,556	-	1,694,099	13,296	-	(8,879)	11,667,114	-	11,667,114

Additional dividend proposed for 2010	-	-	-	-	-	-	-	(1,694,099)	-	-	-	(1,694,099)	-	(1,694,099)
Expired dividends and interest on shareholders equity, net of taxes	-	-	-	-	-	-	55,997	-	-	-	-	55,997	-	55,997
Capital increase due to merger of Vivo Participações shares on April 27, 2011	31,222,630	-	-	47,723	-	-	-	-	-	-	-	31,270,353	-	31,270,353
Withdrawal rights to shareholders due to the merger of Vivo	-	-	-	-	(3)	-	-	-	-	-	-	(3)	-	(3)
Repurchase of shares	-	-	-	-	(44,365)	-	-	-	-	-	-	(44,365)	-	(44,365)
Non-controlling interest	-	(29,929)	-	-	-	-	-	-	-	-	-	(29,929)	(1,813)	(31,742)
Other comprehensive income	-	-	-	-	-	-	-		(5,279)	-	6,154	875	-	875
Net income for the period	-	-	-	-	-	-	2,893,400	-	-	-	-	2,893,400	6,526	2,899,926
Interest on shareholders equity and interim dividends	-	-	-	-	-	-	(1,632,400)	-	-	-	-	(1,632,400)	-	(1,632,400)

Balance at September 30, 2011	37,798,110	(29,929)	63,074	2,735,930	(62,087)	659,556	1,316,997	-	8,017	-	(2,725)	42,486,943	4,713	42,491,656

Expired dividends and interest on shareholders equity, net of taxes	-	-	-	-	-	-	51,877	-	-	-	-	51,877	-	51,877
Repurchase of shares	-	-	-	-	(17,252)	-	-	-	-	-	-	(17,252)	-	(17,252)
Other comprehensive income	-	-	-	-	-	-	(42,997)		1,867	1,995	(1,634)	(40,769)	-	(40,769)
Net income for the year	-	-	-	-	-	-	1,461,918	-	-	-	-	1,461,918	355	1,462,273
Allocation of income:														-
Legal reserve	-	-	-	-	-	217,766	(217,766)	-	-	-	-	-	-	-
Interest on shareholders equity	-	-	-	-	-	-	(617,000)	-	-	-	-	(617,000)	-	(617,000)
Additional dividend proposed	-	-	-	-	-	-	(1,953,029)	1,953,029	-	-	-	-	-	-

Balances at December 31, 2011	37,798,110	(29,929)	63,074	2,735,930	(79,339)	877,322	-	1,953,029	9,884	1,995	(4,359)	43,325,717	5,068	43,330,785

Additional dividend proposed for 2011	-	-	-	-	-	-	-	(1,953,029)	-	-	-	(1,953,029)	-	(1,953,029)
Expired dividends and interest on shareholders equity, net of taxes	-	-	-	-	-	-	62,340	-	-	-	-	62,340	-	62,340
Other changes in equity	-	-	-	-	-	-	(3,240)	-	-	-	-	(3,240)	(23)	(3,263)
Repurchase of shares	-	-	-	-	(32,768)	-	-	-	-	-	-	(32,768)	-	(32,768)
Non-controlling interest	-	(40,519)	-	-	-	-	-	-	-	-	-	(40,519)	(3,653)	(44,172)
Other comprehensive income	-	-	-	-	-	-	-		(3,815)	5,048	4,271	5,504	-	5,504
Net income for the period	-	-	-	-	-	-	2,979,323	-	-	-	-	2,979,323	(1,392)	2,977,931

Balance at September 30, 2012	37,798,110	(70,448)	63,074	2,735,930	(112,107)	877,322	3,038,423	-	6,069	7,043	(88)	44,343,328	-	44,343,328

												-		-
Outstanding shares (in thousands)														1,123,269

VPA – equity value of Company’s shares														39.48

TELEFONICA BRASIL S. A. Cash flow statements
Periods ended September 30, 2012 and 2011
(In thousands of reais)


	Company		Consolidated
	09/30/12	09/30/11	09/30/12	09/30/11
CASH FLOW FROM OPERATING ACTIVITIES:

Income before taxes	3,224,011	3,141,021	4,630,008	3,765,857

*Items not affecting cash*

Expenses (revenues) not representing changes in cash	92,851	525,892	4,844,143	3,998,540
Depreciation and amortization	1,970,491	1,431,705	4,055,797	3,263,737
Foreign exchange variation on loans	4,424	38,152	5,226	51,344
Monetary variation	(10,723)	(47,836)	(12,453)	(46,099)
Equity pickup	(2,436,034)	(1,218,967)	-	-
(Income) loss on assets written off	12,059	(82,238)	(411,949)	(105,227)
Provision for impairment	211,155	229,249	507,740	369,073
Pension and other post-retirement benefits	(3,517)	(8,514)	(10,193)	(10,458)
Provisions for tax, labor, regulatory and civil contingencies	167,386	49,819	302,537	104,647
Interest expenses	184,055	122,651	387,693	285,420
Provision for demobilization	(188)	146	(6,969)	(485)
Provisions for customer loyalty programs	-	-	13,505	5,854
Other	(6,257)	11,725	13,209	80,734

(Increase) decrease in operating assets:	129,270	(708,724)	(332,292)	(680,718)
Trade accounts receivable, net	(285,383)	(477,292)	(600,522)	(709,458)
Inventories	5,020	1,768	(9,319)	(83,294)
Other current assets	328,933	(4,924)	255,480	167,863
Other noncurrent assets	80,700	(228,276)	22,069	(55,830)

Increase (decrease) in operating liabilities:	(587,949)	(600,690)	(2,321,483)	(1,602,014)
Payroll and related accruals	(4,550)	(8,037)	(30,230)	19,419
Trade accounts payable	(197,941)	172,739	(859,156)	(177,555)
Taxes payable	(123,265)	109,501	(70,468)	174,923
Other current liabilities	(91,294)	(186,134)	(106,141)	(240,832)
Other noncurrent liabilities	(11,035)	13,005	(65,812)	(2,404)
Interest paid	(150,380)	(123,691)	(321,332)	(343,439)
Income and social contribution taxes paid	(9,484)	(578,073)	(868,344)	(1,032,126)

Cash generated by operating activities	2,858,183	2,357,499	6,820,376	5,481,665

CASH FLOW FROM INVESTING ACTIVITIES:

Additions to PP&E and intangible assets, net of donations	(1,659,981)	(1,762,790)	(3,695,044)	(2,938,740)
Cash received from sale of PP&E items	6,274	124,326	596,993	173,810
Cash received from divestitures	7,551	-	10,069	-
Dividends and interest on shareholders equity received	1,208,218	-	5,129	-
Cash and cash equivalents through entity consolidation	-	-	-	31,095
Cash and cash equivalents through business combination	-	-	-	1,982,898
Capital increase in subsidiaries	(23,638)	-	-	-

Net cash used in investing activities	(461,576)	(1,638,464)	(3,082,853)	(750,937)

CASH FLOW FROM FINANCING ACTIVITIES:

Payment of loans, financing and debentures	(742,766)	(1,046,057)	(1,061,553)	(1,234,277)
Loans and debentures raised	2,000,000	1,924,613	2,815,302	758,908
Payment net of derivative agreements	(7,944)	41,058	(41,012)	39,273
Acquisition of non-controlling interest	(44,172)	(33,850)	(44,172)	(33,850)
Repurchase of treasury shares	(32,768)	(44,369)	(32,768)	(44,369)
Dividends and interest on shareholders equity paid	(1,573,713)	(1,524,706)	(1,573,713)	(2,639,578)

Net cash (generated by) used in financing activities	(401,363)	(683,311)	62,084	(3,153,893)

Increase in cash and cash equivalents	1,995,244	35,724	3,799,607	1,576,835

Cash and cash equivalents at beginning of period	826,902	1,089,089	2,940,342	1,556,715
Cash and cash equivalents at end of period	2,822,146	1,124,813	6,739,949	3,133,550

Changes in cash for the period	1,995,244	35,724	3,799,607	1,576,835

TELEFONICA BRASIL S.A.
Statement of value added
Periods ended September 30, 2012 and 2011
(In thousands of reais)


	Company		Consolidated
	09/30/12	09/30/11	09/30/12	09/30/11

Revenues	12,850,875	15,447,538	33,918,764	28,098,659
Sale of goods and services	12,868,683	15,448,579	34,009,730	28,022,540
Other revenues	193,347	228,208	416,774	445,192
Provision for impairment	(211,155)	(229,249)	(507,740)	(369,073)

Inputs acquired from third parties	(5,661,059)	(6,787,633)	(11,979,338)	(12,796,357)
Cost of goods, products and services sold	(3,937,051)	(5,071,684)	(7,255,027)	(8,730,040)
Materials, electric energy, outsourced services and other	(1,753,378)	(1,819,347)	(5,172,364)	(4,188,648)
Loss/recovery of asset values	29,370	103,398	448,053	122,331

Gross value added	7,189,816	8,659,905	21,939,426	15,302,302

Retentions	(1,970,491)	(1,431,705)	(4,055,797)	(3,263,737)
Depreciation and amortization	(1,970,491)	(1,431,705)	(4,055,797)	(3,263,737)

Net value added produced by entity	5,219,325	7,228,200	17,883,629	12,038,565


Transferred value added received	2,834,672	1,626,327	832,325	807,733
Equity pickup	2,436,034	1,218,967		-
Financial income	398,638	407,360	832,325	807,733

Total value added to be distributed	8,053,997	8,854,527	18,715,954	12,846,298


Distribution of value added	8,053,997	8,854,527	18,715,954	12,846,298

Payroll and related accruals	627,877	604,985	1,566,491	1,164,388
Direct compensation	406,712	402,409	1,000,832	769,146
Benefits	162,900	162,166	463,859	325,659
Unemployment compensation fund contribution tax (FGTS)	58,265	40,410	101,800	69,583
Taxes, charges and contributions	3,594,480	4,426,197	11,687,509	6,735,773
Federal	1,057,842	1,172,818	4,565,774	3,264,377
State	2,491,544	3,218,375	7,046,206	3,410,421
Local	45,094	35,004	75,529	60,975
Debt remuneration	545,101	748,415	2,029,056	1,793,997
Interest	472,996	436,984	995,100	849,789
Rent	72,105	311,431	1,033,956	944,208
Equity remuneration	2,979,323	2,893,400	2,977,931	2,899,926
Interest on sharehoders equity	-	1,250,000	-	1,250,000
Retained earnings	2,979,323	1,643,400	2,979,323	1,643,400
Non-controlling interest	-	-	(1,392)	6,526
Other	307,216	181,530	454,967	252,214
Provisions for labor and civil contingencies, net	307,216	181,530	454,967	252,214

Telefonica Brasil S. A.

NOTES TO QUARTERLY INFORMATION (Continued)

September 30, 2012

(In thousands of reais)

1. OPERATIONS

a. Shareholding controlling interest

Telefonica Brasil S.A. (“Company” or Telefonica Brasil) is headquartered at Rua Martiniano de Carvalho, 851, in the capital city of the state of São Paulo, Brazil. The Company is a member of Telefonica Group (Group), the telecommunications industry leader in Spain which is also present in several European and Latin American countries. At September 30, 2012 and December 31, 2011, Telefónica S.A., holding company of the Group, held total direct and indirect interest of 73.81%, excluding treasury shares, 91.76% of which are common shares and 64.60% are preferred shares.

b. Operations

The Company’s main business purposes is the rendering of fixed line services and data services in the state of São Paulo, under Fixed Switched Telephone Service Concession Arrangement (STFC) and authorizations, respectively. The Company and its subsidiaries have are also authorized to render other telecommunications services, such as: data communication, including broadband internet, mobile telephone services (Personal Mobile Services – SMP) and pay TV services, being (i) by satellite all over the country; (ii) MMDS technology in the cities of São Paulo, Rio de Janeiro, Curitiba and Porto Alegre, and iii) cable in the cities of São Paulo, Curitiba, Foz do Iguaçu and Florianópolis.

Service concessions and authorizations are granted by Brazil's Telecommunications Regulatory Agency (ANATEL), under the terms of Law No. 9472, of July 16, 1997 – General Law of Telecommunications (“Lei Geral das Telecommunicações” - LGT), amended by Laws No. 9986, of July 18, 2000 and No. 12485, of September 12, 2011 (Notes 1.b.1 and 1.b.2).

b.1. Fixed Switch Telephone Service Concession Arrangement (STFC)

The Company is a concessionaire of the STFC to render fixed line services in the local network and national long distance calls originated in sector 31 of region 3, which comprises the state of São Paulo (except for cities comprising sector 33), established in the General Service Concession Plan (PGO/2008).

The Company’s current STFC was executed on June 30, 2011, is effective from July 1, 2011 to December 31, 2025, and was granted for valuable consideration. This arrangement provides for the possibility of amendments on December 31, 2015 and December 31, 2020. This condition allows ANATEL to set up new requirements and goals for universal and quality of telecommunication services, considering the conditions in place at the time.

Telefonica Brasil S. A.

NOTES TO QUARTERLY INFORMATION (Continued)

September 30, 2012

(In thousands of reais)

The service concession arrangement establishes that all assets owned by the Company and that are indispensable to the provision of the services described in the referred to arrangement are considered reversible assets and are deemed to be part of the service concession assets. These assets will be automatically returned to ANATEL upon termination of the service concession arrangement, according to the regulation in force. At September 30, 2012, estimated residual value of reversible assets was R$6,740,831 (R$6,698,899 at December 31, 2011), which comprised switching and transmission equipment and public use terminals, external network equipment, energy equipment and system and operation support equipment.

In accordance with the service concession arrangement, every two years, during the arrangement’s 20-year effective term, the Company shall pay a fee which will correspond to 2% (two percent) of its prior-year STFC revenue, net of taxes and social contributions.

b.2. SMP-related authorizations and frequencies

The business of Vivo S.A. (Vivo), fully-controlled by the Company, including the services it can provide, is also regulated by ANATEL. It operates under regulations and supplementary plans issued.

Frequency authorizations granted by ANATEL for mobile telephone services may be renewed only once, for a 15-year period, through payment of fees equivalent to 2% (two percent) of the Company’s prior-year revenue, net of taxes and social contributions, related to the application of the Basic and Alternative Plans of Service.

Vivo is engaged in mobile telephone services (Personal Mobile Service – SMP), including activities necessary or useful for the performance of these services, in conformity with the authorizations granted to it.

In the auctions for sale of national frequencies of 2.5 GHz pegged to the range of 450 MHz conducted by ANATEL on June 12 and 13, 2012, Vivo won lot 3 among those offered, in accordance with public notice No. 004/2012/PVCP/SPV-Anatel.

Accordingly, when this lot is awarded to Vivo, it will improve its services to the fourth generation technology (4G) all over Brazil, and will operate at the range of 2.5 GHz, with bandwidth of 20+20 Mhz. In addition to bandwidth of 2.5 GHz, this lot includes a bandwidth of 450 MHz for rural areas in the interior of Alagoas, Ceará, Minas Gerais, Paraíba, Pernambuco, Piauí, Rio Grande do Norte, São Paulo and Sergipe states.

The amount offered for lot 3 was R$1.05 billion. The amount to be paid and the terms of use will observe the rules provided for by the public notice and determined by ANATEL, adjusted in accordance with the remaining term of the licenses.

The final amount of licenses will be recorded as intangible assets by Vivo upon execution of the terms together with ANATEL, which may occur in the fourth quarter of 2012 (Note 36).

Information on operation areas (regions) and deadlines of authorization for radiofrequencies of 800/1900/2100 MHz and of the 23 lots (900 and 1800 Mhz) won by Vivo, are the same of Note 1.b2 – Authorization and Frequencies in the financial statements as of December 31, 2011.

Telefonica Brasil S. A.

NOTES TO QUARTERLY INFORMATION (Continued)

September 30, 2012

(In thousands of reais)

c. Share trading on stock exchanges

c.1) Shares traded on the São Paulo Stock Exchange (BM&F Bovespa)

On September 21, 1998, the Company started trading its shares on the São Paulo Stock Exchange (BM&F Bovespa), under tickers TLPP3 and TLPP4, for common and preferred shares.

In the Special Shareholders' Meeting of Vivo Participações S.A. (Vivo Part.) and Telecomunicações de São Paulo S. A. (Telesp) held on October 3, 2011, merger of Vivo Part. into Telesp was approved. On the same date, its corporate name changed to Telefonica Brasil S.A., and on October 6, 2011 the Company changed its ticker codes to VIVT3 and VIVT4 for common and preferred shares, respectively, and the stock exchange code to Telefonica Brasil (see Note 3).

c.2) Shares traded on the New York Stock Exchange (NYSE)

On November 16, 1998, the Company started the ADR trading process on the New York Stock Exchange (NYSE), which currently have the following characteristics:

· Type of share: preferred.

· Each ADR represents 1 (one) preferred share.

· Shares are traded as ADR through code “VIV” on the NYSE.

· Foreign depositary bank: The Bank of New York.

· Custodian bank in Brazil: Banco Itaú S.A.

d. Agreement between Telefónica S.A. and Telecom Itália

In October 2007, TELCO S.p.A. (in which Telefónica S.A. holds 42.3% interest) completed the acquisition of 23.6% of Telecom Italia. Vivo is an indirect subsidiary of Telefónica S.A. Telecom Italia holds interest in TIM Participações S.A. (TIM), a mobile telephone service company in Brazil. As a result of the acquisition of its interest in Telecom Itália, Telefónica S.A. is not directly involved in TIM operations. Furthermore, any transactions between the Company, Vivo and TIM are ordinary mobile telephone transactions regulated by ANATEL.

2. BASIS FOR PREPARATION AND PRESENTATION OF QUARTERLY INFORMATION

The consolidated quarterly information (ITR) as of September 30, 2012 is presented in thousands of reais (except where otherwise indicated) and is presented considering the Company’s ability to continue as a going concern.

The individual quarterly information was prepared and is presented in accordance with accounting practices adopted in Brazil, which comprise Brazilian Securities and Exchange Commission (CVM) rules and Brazilian Financial Accounting Standards Board (CPC) pronouncements, which are in compliance with the standards and procedures under the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), except for investment in subsidiaries, which are measured using the equity method.

Telefonica Brasil S. A.

NOTES TO QUARTERLY INFORMATION (Continued)

September 30, 2012

(In thousands of reais)

The consolidated quarterly information was prepared and is presented in accordance with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), which are not different from accounting practices adopted in Brazil, which comprise CVM rules and CPC pronouncements.

This quarterly information was prepared in accordance with accounting principles, practices and criteria consistent with those adopted in the preparation of the financial statements of the financial year ended December 31, 2011, in addition to the new pronouncements, interpretations and amendments effective beginning January 1, 2012, as follows:

· Amendments to IAS 12, Income Tax – Recovery of Underlying Assets: This amendment provided clarification on how to calculate deferred taxes on investment properties measured at fair value. It introduced the rebuttable presumption that deferred taxes on investment properties measured at fair value under IAS 40 should be defined considering that their book value will be recovered through sale. The Telefonica Group decided not to assess its investment properties under the fair value method upon first-time adoption of IFRS, so this revision does not apply.

· Amendments to IFRS 7, Financial Instruments: Disclosures – Enhanced Derecognition Disclosure Requirements: This amendment requires additional disclosure on financial assets transferred, yet not derecognized, so as to enable the financial information users to understand the relation with those assets not derecognized and related liabilities. Furthermore, this amendment requires disclosures as to the ongoing involvement in the derecognized financial assets so that the user can evaluate the nature of the entity’s ongoing involvement in these derecognized assets and related risks. This amendment became effective for annual periods beginning on or after July 1, 2011; in Brazil, it will become effective after CPC approval and CVM ruling for publicly-held companies. This amendment is currently in the CPC public hearing.

We should point out that this amendment only affects disclosures – however currently not applicable to the Company –, and has no impact on the Company’s financial position or performance.

New IFRS and interpretations of the International Financial Reporting Interpretations Committee (IFRIC) not yet effective as of September 30, 2012

At the date this quarterly information was prepared, the following IFRS, amendments and IFRIC interpretations had been issued, but their application was not mandatory:

Telefonica Brasil S. A.

NOTES TO QUARTERLY INFORMATION (Continued)

September 30, 2012

(In thousands of reais)

Standards and Amendments to Standards		Mandatory application: years beginning on or after
Amendments to IAS 1	Presentation of other comprehensive income account	July 1, 2012
Amendments to IFRS 1	First-time Adoption of the International Financial Reporting Standards (IFRS)	January 1, 2013
IFRS 10	Consolidated Financial Statements	January 1, 2013
IFRS 11	Joint Arrangements	January 1, 2013
IFRS 12	Disclosure of Interests in Other Entities	January 1, 2013
IFRS 13	Fair Value Measurement	January 1, 2013
IAS 19 revised	Employee Benefits	January 1, 2013
IAS 27 revised	Separate Financial Statements	January 1, 2013
IAS 28 revised	Investments in Associates and Joint Ventures	January 1, 2013
Amendments to IFRS 7	Disclosure – Offsetting Financial Assets and Financial Liabilities	January 1, 2013
IFRS enhanced	2009-2011 cycle	January 1, 2013
Amendments to IAS 32	Offsetting Financial Assets and Financial Liabilities	January 1, 2014
IFRS 9	Financial instruments	January 1, 2015
IFRS 7 revised	Disclosure in transition from IFRS 9	January 1, 2015

The Company is currently analyzing the impact of the application of these standards, amendments and interpretations. Based on preliminary analysis conducted to date, the Company estimates that their application will have no significant impact on the consolidated financial statements upon first-time adoption. Notwithstanding, changes introduced by IFRS 9 will affect the presentation of financial assets and transactions therewith carried out on or after January 1, 2015.

The Company’s management, in meeting held on October 23, 2012, authorized that the issuance of these quarterly information, which was confirmed by the Board of Directors in meeting held on November 5, 2012.

This quarterly information compares the quarters ended September 30, 2012 and 2011, except for the balance sheets, which compare the Company's financial position as of September 30, 2012 to the financial position as of December 31, 2011.

The Company and its subsidiaries have no seasonal operations.

A list of the direct and indirect subsidiaries of the Company, as well as the percentage of interest it holds in them, is as follows:

Subsidiaries	09/30/12	12/31/11
Vivo S.A (a)	100%	100%
Telefonica Data S.A.	100%	100%
A.Telecom S.A.	100%	100%
Telefonica Sistema de Televisão S.A.	100%	100%
Ajato Telecomunicações Ltda.	100%	100%
GTR Participações e Empreend. S.A. (b)	100%	66.67%
TVA Sul Paraná S.A. (b)	100%	91.50%
Lemontree S.A. (b)	100%	83.00%
Comercial Cabo TV São Paulo S.A. (b)	100%	93.19%
Aliança Atlântica Holding B.V.(c)	50%	50%
Companhia AIX de Participações (c)	50%	50%
Companhia ACT de Participações (c)	50%	50%

(a) fully consolidated as from April 2011 (Notes 1 and 3).

(b) fully consolidated as from January 2011 and wholly-owned subsidiaries as from June 2012.

Telefonica Brasil S. A.

NOTES TO QUARTERLY INFORMATION (Continued)

September 30, 2012

(In thousands of reais)

Major events and key changes in the consolidation which should be considered for analysis, given their significance, are presented below:

a) Acquisition of Vivo Part. by the Company

In the Special Shareholders’ Meeting held on April 27, 2011, rationale for the merger of shares entered into by the Company and Vivo Part. was approved. Each share of Vivo Part. was substituted with 1.55 share of the Company. Given this merger of shares, Company’s capital increased by R$31,222,630.

b) Grouping of SMP authorizations and merger of Vivo Part.

In meeting held by the Board of Directors of subsidiary Vivo Part. on June 14, 2011, a proposal for grouping authorizations to render SMP services (then held by Vivo Part. in the state of Minas Gerais and Vivo in other states of Brazil) was approved, thus unifying the operations and the Terms of Authorization of SMP operation in Vivo.

In order to enable this corporate restructuring, it was proposed that, on October 1, 2011, assets, rights and obligations related to SMP service operations in Minas Gerais should be transferred from Vivo Part. to Vivo (mobile operator in the group that had SMP authorizations in other states of Brazil). After this transfer, Vivo Part. became a holding.

In compliance with Law No. 6404/76, a specialized appraisal company was engaged to prepare an appraisal report for the portion of Vivo Part. net assets corresponding to SMP operations in the state of Minas Gerais, which were transferred to Vivo’s equity, and for the net assets of Vivo Part., merged into the Company.

Because Vivo Part. had been a wholly-owned subsidiary of the Company since April 27, 2011, and its equity already included investment in Vivo shares, the merger: (i) did not result in capital increase for the Company; (ii) shares held by non-controlling shareholders of Vivo Part. were not substituted with Company shares; and (iii) there was no need to prepare an appraisal report of net assets at market value to calculate share substitution ratio, as there were no non-controlling shareholders to be protected.

Accordingly, under the terms of article 226, paragraphs I and II of Law No. 6404/76, shares held by the Company in Vivo Part. net assets were cancelled. Upon conclusion of the corporate restructuring, Vivo Part. was merged into the Company on October 3, 2011, and Vivo became a wholly-owned subsidiary of the Company, streamlining and rationalizing the cost structure of the companies involved.

The Company’s consolidated quarterly information includes P&L of Vivo Part. (merged into the Company on October 3, 2011) and Vivo as from April 1, 2011. Vivo Part. and Vivo were included in the Company’s consolidated financial statements under the full consolidation method.

Telefonica Brasil S. A.

NOTES TO QUARTERLY INFORMATION (Continued)

September 30, 2012

(In thousands of reais)

c) Consolidation of TVA companies

As from January 1, 2011, the Company included companies GTR Participações e Empreendimentos S.A. (GTR), TVA Sul Paraná S.A. (TVA Sul), Lemontree Participações S.A. (Lemontree) and Comercial Cabo TV São Paulo S.A. (Comercial Cabo) in its consolidated financial statements under the full consolidation method. These companies were previously included in the consolidated financial statements of the Company under the equity method.