Untitled Document


SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 
FORM 6-K
 
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
 
For the month of August, 2007

Commission File Number 1-14493

VIVO PARTICIPAÇÕES S.A.
(Exact name of registrant as specified in its charter)
 

VIVO Holding Company
(Translation of Registrant's name into English)
 

Av. Roque Petroni Jr., no.1464, 6th floor – part, "B"building
04707-000 - São Paulo, SP
Federative Republic of Brazil
(Address of principal executive office)

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

Form 20-F ___X___ Form 40-F _______

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

Yes _______ No ___X____

 


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

Vivo Participações S.A.

Quarterly Financial Statements
 for the six-month period
ended June 30, 2007 and
Independent Accountants’ Review Report

 

 

 

ERNST & YOUNG Auditores Independentes S.S.

A free translation from Portuguese into English of Special Review Report of Independent Auditors on quarterly financial information prepared in Brazilian currency in accordance with the accounting practices adopted in Brazil and specific norms issued by IBRACON (Institute of Independent Auditors of Brazil), CFC (Federal Board of Accountancy) and CVM (Brazilian Securities Exchange Commission)

 

SPECIAL REVIEW REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
VIVO Participações S.A.

 

1. We have performed a special review of the quarterly financial information (ITR) of  VIVO Participações S.A. (“the Company”) and Vivo Participações S.A. and subsidiary for the quarter ended June 30, 2007, including the balance sheets, the related statements of operation, the report on the Company’s performance and other significant information prepared by Company management in accordance with the accounting practices adopted in Brazil.

2. Our review was conducted in accordance with specific standards established by the IBRACON - Institute of Independent Auditors of Brazil together with the CFC - Federal Board of Accountancy which consisted principally of: (a) inquiries of and discussions with management responsible for the Company’s accounting, financial and operating areas regarding the criteria adopted in preparing the quarterly financial information, and (b) review of the information and subsequent events which have or might have significant effects on the financial position and results of operations of the Company.

3. Based on our special review, we are not aware of any material modifications that should be made to the quarterly financial information (ITR) referred in the first paragraph for it to be in conformity with the accounting practices adopted in Brazil and standards established by the Brazilian Exchange Securities Commission (CVM), specifically applicable to the preparation of mandatory quarterly financial information.

4. The balance sheets and the statements of operation of the Company and consolidated for the quarter ended March 31, 2007, presented for purposes of comparison, were reviewed by other independent auditors, who issued a unqualified special review report thereon dated May 7, 2007. The statements of operation of the Company and consolidated for the six-month period ended June 30, 2006, also presented for purposes of comparison, were reviewed by the same independent auditors, who issued a unqualified special review report thereon dated July 20, 2006.

São Paulo, July 18, 2007

ERNST & YOUNG
Auditores Independentes S.S.
CRC-2-SP 15199/O-6

 

Luiz Carlos Passetti
Accountant CRC-1-SP-132776/O

 

 

Registration with CVM SHOULD not BE CONSTRUED AS AN appreciation on the company. company management is responsible for the information provided.

 

01.01 - IDENTIFICATION

1 - CVM CODE

01771-0

2 - COMPANY NAME

VIVO PARTICIPAÇÕES S.A.

3 – Brazilian IRS Registry of Legal Entities (CNPJ)

02.558.074/0001-73

4 - Registration Number (NIRE)

35300158792

 

01.02 - HEAD OFFICE

1 - ADDRESS
Av. Roque Petroni Júnior, 1.464

2 - DISTRICT
Morumbi

3 - ZIP CODE
04707-000

4 - MUNICIPALITY
São Paulo

5 - STATE
SP

6 - AREA CODE
11

7 - TELEPHONE NUMBER
7420-1172

8 - TELEPHONE NUMBER
7420-1182

9 - TELEPHONE NUMBER
-

10 - TELEX
-

11 - AREA CODE
11

12 - FAX
7420-2247

13 - FAX
-

14 - FAX
-

 

15 - E-MAIL

 

01.03 - INVESTOR RELATIONS OFFICER (Company Mail Address)

1 - NAME
Ernesto Gardelliano

2 - ADDRESS
Av. Roque Petroni Junior, 1.464

3 - DISTRICT
Morumbi

4 - ZIP CODE
04707-000

5 - MUNICIPALITY
São Paulo

6 - STATE
SP

7 - AREA CODE
11

8 - TELEPHONE NUMBER
7420-1362

9 - TELEPHONE NUMBER
-

10 - TELEPHONE NUMBER
-

11 - TELEX
-

12 - AREA CODE
11

13 - FAX
7420-2982

14 - FAX
-

15 - FAX
-

 

16 - E-MAIL

ernesto.gardelliano@vivo.com.br

 

01.04 - GENERAL INFORMATION/INDEPENDENT ACCOUNTANT

CURRENT FISCAL YEAR

CURRENT QUARTER

PRIOR QUARTER

1 - BEGINNING

2 - END

3 - QUARTER

4 - BEGINNING

5 - END

6 - QUARTER

7 - BEGINNING

8 - END

01/01/2007

12/31/2007

2

04/01/2007

06/30/2007

1

01/01/2007

03/31/2007

9 - AUDITOR
Ernest Young Auditores Independentes S/S

10 - CVM CODE
00471-5

11 - NAME OF RESPONSIBLE PARTNER
Luiz Carlos Passetti

12 - INDIVIDUAL TAXPAYERS’ REGISTRATION NUMBER 001.625.898-32

 

 01.05 - CAPITAL COMPOSITION

NUMBER OF
SHARES

1 - CURRENT
QUARTER

06/30/2007

2 - PRIOR
QUARTER

03/31/2007

3 - SAME QUARTER
IN PRIOR YEAR

06/30/2006

(IN THOUSANDS)

SUBSCRIBED  CAPITAL

 

 

 

1 - COMMON

524,932

524,932

524,932

2 - PREFERRED

917,186

917,186

917,186

3 - TOTAL

1,442,118

1,442,118

1,442,118

TREASURY STOCK

4 - COMMON

0

0

0

5 - PREFERRED

4,495

4,495

4,495

6 - TOTAL

4,495

4,495

4,495

 

01.06 -  CHARACTERISTICS  OF THE COMPANY

1 - TYPE OF COMPANY
Commercial, industrial and others

2 – SITUATION
Operating

3 – SHARE CONTROL NATURE
Private national

4 - ACTIVITY CODE
1130 - Telecommunications

5 - MAIN ACTIVITY
Cellular Telecommunications Service

6 - TYPE OF CONSOLIDATION
Total

7 - TYPE OF INDEPENDENT ACCOUNTANTS’ REPORT
Unqualified

 

01.07 - COMPANIES NOT INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS

1 - ITEM

2 – Brazilian IRS Registry of Legal Entities (CNPJ) 

3 - NAME

 

01.08 - DIVIDENDS APPROVED AND/OR PAID DURING AND AFTER THE QUARTER

1 -
ITEM

2 -
EVENT

3 -
APPROVAL

4 -
YIELD

5 - DATE OF  PAYMENT

6 - TYPE OF SHARE

7 - YIELD  PER SHARE

 

01.09 - SUBSCRIBED CAPITAL AND CHANGES IN CURRENT YEAR

1 - ITEM

2 - DATE OF CHANGE

3 -
CAPITAL

4 - CHANGE AMOUNT

5 – CHANGE NATURE

6 – NUMBER  of SHARES ISSUED

7 - SHARE PRICE ON ISSUE DATE

 

 

(In thousands of reais)

(In thousands of reais)

 

(Thousand)

(In reais)

01.10 - INVESTOR RELATIONS OFFICER

1 - DATE

2 - SIGNATURE

07/18/2007

 

A free translation from Portuguese into English of quarterly financial information prepared in Brazilian currency in accordance with the accounting practices adopted in Brazil and specific norms issued by IBRACON, CFC and CVM

FEDERAL PUBLIC SERVICE        
BRAZILIAN SECURITIES COMMISSION (CVM)
ITR – QUARTERLY INFORMATION                                                                        Corporation Law
COMMERCIAL, INDUSTRIAL & OTHER TYPES OF COMPANY                     As of 06/30/2007

1 – CVM CODE

2 - COMPANY NAME

3 – Brazilian IRS Registry of Legal Entities (CNPJ)

01771-0

VIVO PARTICIPAÇÕES S.A.

02.558.074/0001-73

 

02.01 - BALANCE SHEET - ASSETS (IN THOUSANDS OF REAIS)

1 – CODE

2 - ACCOUNT DESCRIPTION

3 - 06/30/2007

4 - 03/31/2007

1

TOTAL ASSETS

10,013,814

10,135,674

1.01

CURRENT ASSETS

142,555

211,696

1.01.01

CASH AND CASH EQUIVALENTS

86

26

1.01.02

RECEIVABLES

136,505

205,491

1.01.02.01

TRADE ACCOUNTS RECEIVABLE, NET

-

-

1.01.02.02

OTHER RECEIVABLES

136,505

205,491

1.01.02.02.01

INTEREST ON SHAREHOLDERS AND DIVIDENDS

136,505

205,491

1.01.03

INVENTORIES

-

-

1.01.04

OTHER

5,964

6,179

1.01.04.01

DEFERRED AND RECOVERABLE TAXES

4,667

4,864

1.01.04.02

OTHER ASSETS

420

496

1.01.04.03

PREPAID EXPENSES

809

809

1.01.04.04

ADVANCES TO SUPPLIERS

6

10

1.01.04.05

DERIVATIVE  CONTRACTS

62

-

1.02

NONCURRENT ASSETS

9,871,259

9,923,978

1.02.01

LONG-TERM RECEIVABLES

495,190

486,440

1.02.01.01

OTHER RECEIVABLES

493,327

484,495

1.02.01.01.01

DEFERRED AND RECOVERABLE TAXES

490,487

481,720

1.02.01.01.02

OTHER ASSETS

529

447

1.02.01.01.03

PREPAID EXPENSES

2,127

2,328

1.02.01.01.04

DERIVATIVE  CONTRACTS

184

-

1.02.01.02

RECEIVABLES FROM RELATED PARTIES

1,863

1,945

1.02.01.02.01

FROM ASSOCIATED COMPANIES

-

-

1.02.01.02.02

FROM SUBSIDIARY COMPANIES

-

-

1.02.01.02.03

FROM OTHER RELATED PARTIES

1,863

1,945

1.02.01.03

OTHER

-

-

1.02.02

PERMANENT ASSETS

9,376,069

9,437,538

1.02.02.01

INVESTMENTS

9,376, 035

9,437,454

1.02.02.01.01

ASSOCIATED COMPANIES

-

-

1.02.02.01.02

GOODWILL ON ASSOCIATED COMPANIES

-

-

1.02.02.01.03

SUBSIDIARY COMPANIES

8,552,724

8,536,223

1.02.02.01.04

GOODWILL ON ACQUISITION OF INVESTMENTS

823,207

901,127

1.02.02.01.05

OTHER INVESTMENTS

104

104

1.02.02.02

PROPERTY AND EQUIPMENT

34

84

1.02.02.03

INTANGIBLE ASSETS

-

-

1.02.02.04

DEFERRED CHARGES

-

-

02.02 - BALANCE SHEET – LIABILITIES AND SHAREHOLDERS’ EQUITY (IN THOUSANDS OF REAIS)

1 - CODE

2 - ACCOUNT DESCRIPTION

3 - 06/30/2007

4 - 03/31/2007

2

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

10,013,814

10,135,674

2.01

CURRENT LIABILITIES

198,574

199,032

2.01.01

LOANS AND FINANCING

42,672

22,189

2.01.02

DEBENTURES

39,961

62,390

2.01.03

SUPPLIERS

3,648

2,430

2.01.04

TAXES PAYABLE

1,467

1,439

2.01.05

DIVIDENDS PAYABLE

29,391

29,391

2.01.06

PROVISIONS

1,066

940

2.01.06.01

PROVISION FOR CONTINGENCIES

1,066

940

2.01.07

PAYABLES TO RELATED PARTIES

229

1,325

2.01.08

OTHER

80,140

78,928

2.01.08.01

PAYROLL AND SOCIAL CHARGES

1,723

1,835

2.01.08.02

DERIVATIVE  CONTRACTS

3,467

1,615

2.01.08.03

OTHER LIABILITIES

74,950

75,478

2.02

NONCURRENT LIABILITIES

1,567,775

1,581,670

2.02.01

LONG-TERM LIABILITIES

1,567,775

1,581,670

2.02.01.01

LOANS AND FINANCING

56,890

75,441

2.02.01.02

DEBENTURES

1,500,000

1,500,000

2.02.01.03

PROVISIONS

101

8

2.02.01.03.01

PROVISION FOR CONTINGENCIES

101

8

2.02.01.04

PAYABLES TO RELATED PARTIES

-

-

2.02.01.05

ADVANCE FOR FUTURE CAPITAL INCREASE

-

-

2.02.01.06

OTHER

10,784

6,221

2.02.01.06.01

DERIVATIVE  CONTRACTS

10,464

5,901

2.02.01.06.02

FUNDING EXPENSES

320

320

2.02.02

DEFERRED INCOME

-

-

2.04

SHAREHOLDERS’ EQUITY

8,247,465

8,354,972

2.04.01

CAPITAL STOCK

6,347,784

6,347,784

2.04.02

CAPITAL RESERVES

1,071,316

1,071,316

02.02 - BALANCE SHEET - LIABILITIES AND SHAREHOLDERS' EQUITY (IN THOUSANDS OF REAIS)

1 – CODE

2 - ACCOUNT DESCRIPTION

3 - 06/30/2007

4 - 03/31/2007

2.04.03

REVALUATION RESERVE

-

-

2.04.03.01

OWN ASSETS

-

-

2.04.03.02

CONTROLLED AND NON CONTROLLED SUBSIDIARIES 

-

-

2.04.04

REVENUE RESERVES

753,998

753,998

2.04.04.01

LEGAL

100,960

100,960

2.04.04.02

STATUTORY

-

-

2.04.04.03

CONTINGENCIES

11,070

11,070

2.04.04.04

REALIZABLE PROFIT RESERVES

-

-

2.04.04.05

RETENTION OF PROFITS

653,038

653,038

2.04.04.06

SPECIAL RESERVE FOR UNDISTRIBUTED DIVIDENDS

-

-

2.04.04.07

OTHER REVENUE RESERVES

(11,070)

(11,070)

2.04.04.07.01

TREASURY STOCK

(11,070)

(11,070)

2.04.05

RETAINED EARNINGS/ACCUMULATED DEFICIT

74,367

181,874

03.01 - STATEMENT OF OPERATIONS  (IN THOUSANDS OF REAIS)

1 – CODE

2 – DESCRIPTION

3 - 04/01/2007
to 0/2007

4 - 01/01/2007
to 06/30/2007

5 - 04/01/2006
to 06/30/2006

6 - 01/01/2006
to 06/30/2006

3.01

GROSS SALES AND/OR SERVICES

-

-

-

-

3.02

DEDUCTIONS

-

-

-

-

3.03

NET SALES AND/OR SERVICES

-

-

-

-

3.04

COST OF SALES AND/OR SERVICES

-

-

-

-

3.05

GROSS PROFIT

-

-

-

-

3.06

OPERATING EXPENSES/INCOME

(107,525)

(124,297)

(486,341)

(626,809)

3.06.01

SELLING EXPENSES

-

-

-

-

3.06.02

GENERAL AND ADMINISTRATIVE EXPENSES

(4,237)

(9,005)

(3,891)

(11,598)

3.06.03

FINANCIAL

(41,576)

(84,177)

(96,263)

(219,458)

3.06.03.01

FINANCIAL INCOME

8,015

17,915

10,039

33,000

3.06.03.02

FINANCIAL EXPENSES

(49,591)

(102,092)

(106,302)

(252,458)

3.06.04

OTHER OPERATING INCOME

1

738

220

489

3.06.05

OTHER OPERATING EXPENSES

(78,214)

(156,891)

(78,219)

(156,419)

3.06.06

EQUITY IN THE EARNINGS OF SUBSIDIARY AND ASSOCIATED COMPANIES

16,501

125,038

(308,188)

(239,823)

3.07

OPERATING LOSS

(107,525)

(124,297)

(486,341)

(626,809)

3.08

NONOPERATING INCOME (LOSS)

18

16

(1,151)

(3,503)

3.08.01

REVENUES

53

53

29

29

3.08.02

EXPENSES

(35)

(37)

(1,180)

(3,532)

3.09

LOSS BEFORE TAXES AND PROFIT SHARING

(107,507)

(124,281)

(487,492)

(630,312)

3.10

PROVISION FOR INCOME AND SOCIAL CONTRIBUTION TAXES

-

-

-

(723)

3.11

DEFERRED INCOME TAX

-

-

-

-

03.01 - STATEMENT OF OPERATIONS (IN THOUSANDS OF REAIS)

1 – CODE

2 – DESCRIPTION

3 - 04/01/2007
to 06/30/2007

4 - 01/01/2007
to 06/30/2007

5 - 04/01/2006
to 06/30/2006

6 - 01/01/2006
to 06/30/2006

3.12

STATUTORY INTEREST/CONTRIBUTIONS

-

-

-

-

3.12.01

INTEREST

-

-

-

-

3.12.02

CONTRIBUTIONS

-

-

-

-

3.13

REVERSAL OF INTEREST ON SHAREHOLDERS’ EQUITY

-

-

-

-

3.15

LOSS FOR THE PERIOD

(107,507)

(124,281)

(487,492)

(631,035)

NUMBER OF SHARES, EX-TREASURY (THOUSAND)

1,437,623

1,437,623

1,437,623

1,437,623

EARNINGS PER SHARE

-

-

-

-

LOSS PER SHARE

(0.07478)

(0.08645)

(0.33910)

(0.43894)

 

02.01 - BALANCE SHEET – CONSOLIDATED ASSETS  (IN THOUSANDS OF REAIS)

1 – CODE

2 - ACCOUNT DESCRIPTION

3 – 06/30/2007

4 – 03/31/2007

1

TOTAL ASSETS

16,504,712

17,060,158

1.01

CURRENT ASSETS

5,323,304

5,580,332

1.01.01

CASH AND CASH EQUIVALENTS

930,212

1,235,162

1.01.01.01

CASH AND BANKS

57,349

21,752

1.01.01.02

SHORT-TERM INVESTMENTS

872,863

1,213,410

1.01.02

RECEIVABLES

1,911,455

1,874,531

1.01.02.01

TRADE ACCOUNTS RECEIVABLE, NET

1,911,455

1,874,531

1.01.02.02

OTHER RECEIVABLES

-

-

1.01.03

INVENTORIES

316,821

262,490

1.01.04

OTHER

2,164,816

2,208,149

1.01.04.01

DEFERRED AND RECOVERABLE TAXES

1,641,680

1,613,415

1.01.04.02

DERIVATIVE  CONTRACTS

2,526

2,241

1.01.04.03

OTHER ASSETS

156,574

115,069

1.01.04.04

PREPAID EXPENSES

351,741

457,406

1.01.04.05

ADVANCES TO SUPPLIERS

12,295

20,018

1.02

NONCURRENT ASSETS

11,181,408

11,479,826

1.02.01

LONG-TERM RECEIVABLES

2,589,562

2,615,583

1.02.01.01

OTHER RECEIVABLES

-

-

1.02.01.02

RECEIVABLES FROM RELATED PARTIES

1,863

1,945

1.02.01.02.01

FROM ASSOCIATED COMPANIES

-

-

1.02.01.02.02

FROM SUBSIDIARY COMPANIES

-

-

1.02.01.02.03

FROM OTHER RELATED PARTIES

1,863

1,945

1.02.01.03

OTHER

2,587,699

2,613,638

1.02.01.03.01

SHORT-TERM INVESTMENTS

24,992

6,547

1.02.01.03.02

DEFERRED AND RECOVERABLE TAXES

2,494,427

2,551,019

1.02.01.03.03

DERIVATIVE  CONTRACTS

1,680

250

1.02.01.03.04

OTHER ASSETS

28,962

28,973

1.02.01.03.05

PREPAID EXPENSES

37,638

26,849

1.02.02

PERMANENT ASSETS

8,591,846

8,864,243

1.02.02.01

INVESTMENTS

823,320

901,240

1.02.02.01.01

ASSOCIATED COMPANIES

-

-

1.02.02.01.02

GOODWILL ON ASSOCIATED COMPANIES

-

-

1.02.02.01.03

SUBSIDIARY COMPANIES

-

-

1.02.02.01.04

GOODWILL ON ACQUISITION OF INVESTMENTS

823,207

901,127

1.02.02.01.05

OTHER INVESTMENTS

113

113

1.02.02.02

PROPERTY AND EQUIPMENT

6,103,014

6,229,745

1.02.02.03

INTANGIBLE ASSETS

1,554,337

1,610,709

1.02.02.04

DEFERRED CHARGES

111,175

122,549

02.02 - BALANCE SHEET – CONSOLIDATED LIABILITIES AND SHAREHOLDERS' EQUITY  (IN THOUSANDS OF REAIS)

1 – CODE

2 - ACCOUNT DESCRIPTION

3 –06/30/2007

4 – 03/31/2007

2

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

16,504,712

17,060,158

2.01

CURRENT LIABILITIES

5,085,266

5,264,041

2.01.01

LOANS AND FINANCING

1,186,969

1,220,965

2.01.02

DEBENTURES

39,961

62,390

2.01.03

SUPPLIERS

2,373,172

2,601,058

2.01.04

TAXES PAYABLE

466,647

466,318

2.01.05

DIVIDENDS PAYABLE

51,270

51,484

2.01.06

PROVISIONS

97,321

90,646

2.01.06.01

PROVISION FOR CONTINGENCIES

79,329

75,349

2.01.06.02

PROVISION FOR PENSION PLAN

17,992

15,297

2.01.07

PAYABLES TO RELATED PARTIES

928

2,238

2.01.08

OTHER

868,998

768,942

2.01.08.01

PAYROLL AND SOCIAL CHARGES

136,779

143,056

2.01.08.02

DERIVATIVE  CONTRACTS

387,949

298,976

2.01.08.03

DEFERRED REVENUE

153,121

139,862

2.01.08.04

OTHER LIABILITIES

191,149

187,048

2.02

NONCURRENT LIABILITIES

3,171,981

3,441,145

2.02.01

LONG-TERM LIABILITIES

3,171,981

3,441,145

2.02.01.01

LOANS AND FINANCING

978,798

1,273,853

2.02.01.02

DEBENTURES

1,500,000

1,500,000

2.02.01.03

PROVISIONS

133,555

125,528

2.02.01.03.01

PROVISION FOR CONTINGENCIES

130,554

122,527

2.02.01.03.02

PROVISION FOR PENSION PLAN

3,001

3,001

2.02.01.04

PAYABLES TO RELATED PARTIES

-

-

2.02.01.05

ADVANCE FOR FUTURE CAPITAL INCREASE

-

-

2.02.01.06

OTHER

559,068

541,764

2.02.01.06.01

TAXES PAYABLE

221,928

215,291

2.02.01.06.02

DERIVATIVE  CONTRACTS

202,025

192,965

2.02.01.06.03

OTHER LIABILITIES

135,229

133,062

2.02.01.06.04

FUNDS FOR CAPITALIZATION

446

446

2.02.02

DEFERRED INCOME

-

-

2.03

MINORITY INTEREST

-

-

2.04

SHAREHOLDERS’ EQUITY

8,247,465

8,354,972

2.04.01

CAPITAL  STOCK

6,347,784

6,347,784

2.04.02

CAPITAL RESERVES

1,071,316

1,071,316

02.02 - BALANCE SHEET – CONSOLIDATED LIABILITIES AND SHAREHOLDERS’ EQUITY (IN THOUSANDS OF REAIS)

1 – CODE

2 - ACCOUNT DESCRIPTION

3 – 06/30/2007

4 – 03/31/2007

2.04.03

REVALUATION RESERVE

-

-

2.04.03.01

OWN ASSETS

-

-

2.04.03.02

SUBSIDIARY/ASSOCIATED COMPANIES

-

-

2.04.04

REVENUE RESERVES

753,998

753,998

2.04.04.01

LEGAL

100,960

100,960

2.04.04.02

STATUTORY

-

-

2.04.04.03

CONTINGENCIES

11,070

11,070

2.04.04.04

REALIZABLE REVENUE RESERVES

-

-

2.04.04.05

RETENTION OF PROFITS

653,038

653,038

2.04.04.06

SPECIAL RESERVE FOR UNDISTRIBUTED DIVIDENDS

-

-

2.04.04.07

OTHER REVENUE RESERVES

(11,070)

(11,070)

2.04.04.07.01

TREASURY STOCK

(11,070)

(11,070)

2.04.05

RETAINED EARNINGS/ACCUMULATED DEFICIT

74,367

181,874

2.04.06

ADVANCE FOR FUTURE CAPITAL INCREASE

-

-

03.01 – CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS OF REAIS)

1 – CODE

2 – DESCRIPTION

3 – 04/01/2007
to 06/30/2007

4 - 01/01/2007
to 06/30/2007

5 – 04/01/2006
to 06/30/2006

6 - 01/01/2006
to 06/30/2006

3.01

GROSS SALES AND/OR SERVICES

4,310,055

8,274,404

3,765,054

7,382,000

3.02

DEDUCTIONS

(1,289,016)

(2,402,517)

(1,166,651)

(2,206,657)

3.03

NET SALES AND/OR SERVICES

3,021,039

5,871,887

2,598,403

5,175,343

3.04

COST OF SALES AND/OR SERVICES

(1,659,580)

(3,052,794)

(1,320,914)

(2,533,154)

3.05

GROSS PROFIT

1,361,459

2,819,093

1,277,489

2,642,189

3.06

OPERATING EXPENSES/INCOME

(1,453,842)

(2,844,177)

(1,791,035)

(3,216,541)

3.06.01

SELLING EXPENSES

(919,397)

(1,717,971)

(1,180,973)

(2,066,178)

3.06.02

GENERAL AND ADMINISTRATIVE EXPENSES

(274,637)

(591,947)

(272,617)

(529,345)

3.06.03

FINANCIAL

(124,345)

(243,029)

(213,555)

(399,871)

3.06.03.01

FINANCIAL INCOME

37,898

104,804

51,772

177,400

3.06.03.02

FINANCIAL EXPENSES

(162,243)

(347,833)

(265,327)

(577,271)

3.06.04

OTHER OPERATING INCOME

89,355

158,175

63,373

158,884

3.06.05

OTHER OPERATING EXPENSES

(224,818)

(449,405)

(187,263)

(380,031)

3.06.06

EQUITY IN THE EARNINGS OF SUBSIDIARY AND ASSOCIATED COMPANIES

0

0

0

0

3.07

OPERATING LOSS

(92,383)

(25,084)

(513,546)

(574,352)

3.08

NONOPERATING INCOME

(6,331)

(7,196)

(1,849)

(6,159)

3.08.01

REVENUES

928

14,443

1,131

1,543

3.08.02

EXPENSES

(7,259)

(21,639)

(2,890)

(7,702)

3.09

LOSS BEFORE TAXES AND PROFIT SHARING

(98,714)

(32,280)

(515,395)

(580,511)

3.10

PROVISION FOR INCOME AND SOCIAL CONTRIBUTION TAXES

(14,023)

(99,791)

22,209

(83,958)

3.11

DEFERRED INCOME TAX

0

0

0

0

3.12

STATUTORY INTEREST/CONTRIBUTIONS

0

0

0

(7,998)

3.12.01

INTEREST

0

0

0

(7,968)

3.12.02

CONTRIBUTIONS

0

0

0

0

 

03.01 – CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS OF REAIS)

1 – CODE

2 – DESCRIPTION

3 – 04/01/2007
to 06/30/2007

4 - 01/01/2007
to 06/30/2007

5 – 04/01/2006
to 06/30/2006

6 - 01/01/2006
to 06/30/2006

3.13

REVERSAL OF INTEREST ON SHAREHOLDER’S
EQUITY

0

0

0

0

3.14

MINORITY INTEREST

0

0

0

0

3.15

LOSS FOR THE PERIOD

(112,737)

(132,071)

(493,186)

(672,437)

 

NUMBER OF SHARES, EX-TREASURY (THOUSAND)

1,437,623

1,437,623

1,437,623

1,437,623

 

EARNINGS PER SHARE

-

-

-

-

 

LOSS PER SHARE

(0.07842)

(0.09187)

(0.34306)

(0.46774)

 

VIVO PARTICIPAÇÕES S.A. AND SUBSIDIARIES

 

NOTES TO FINANCIAL STATEMENTS
For the six-month period ended June 30, 2007
(Amounts expressed in thousands of Brazilian reais - R$, unless otherwise indicated)

 

1. OPERATIONS

Vivo Participações S/A (“Company”) - formerly Telesp Celular Participações S/A - is a publicly traded corporation which at June 30, 2007 has as controlling shareholders Brasilcel N.V. and its subsidiaries Portelcom Participações S/A, Sudestecel Participações Ltda., Avista Participações Ltda., TBS Celular Participações Ltda. and Tagilo Participações Ltda. that jointly hold (treasury shares excluded) 62.95% of the Company’s total capital.

Brasilcel N.V. is jointly controlled by Telefónica S/A (50% of total capital), PT Móveis Serviços de Telecomunicações SGPS S/A (49.999% of total capital) and Portugal Telecom SGPS S/A (0.001% of total capital).

The wholly-owned subsidiary Vivo S/A is a provider of mobile telephone services, including activities necessary or useful for the performance of such services, in accordance with authorizations granted for the areas of service described below:

Area of Service

 

Authorization Valid Until

Sao Paulo

 

August 5, 2008

São Paulo (Ribeirão Preto, Guatapará and Bonfim Paulista)

 

January 20,2009

Rio Grande do Sul

 

December 17, 2022

Paraná and Santa Catarina 

 

April 8, 2013

Rio de Janeiro

 

November 29, 2020

Espirito Santo

 

November 30, 2008

Bahia  

 

June 29, 2008

Sergipe

 

December 15, 2008

Federal District

 

July 24, 2016

Goias and Tocantins

 

October 29, 2008

Mato Grosso

 

March 30,2009

Mato Grosso do Sul

 

September 28, 2009

Rondonia       

 

July 21, 2009

Acre

 

July 15, 2009

Amazonas, Roraima, Amapá, Pará and Maranhão

 

November 29, 2013

The authorizations granted may be renewed just once, for a 15-year period, against a payment every two years of rates equivalent to 2% (two per cent) of revenues for the year prior to that of the payment, net of taxes and mandatory social contributions, related to the application of the Basic and Alternative Plans of Service. Vivo - RJ, Vivo - RS and Vivo - DF had their authorizations extended by Act No. 54324 of November 28, 2005; No. 59121 of June 20, 2006; and No. 59121 of June 20, 2006, respectively.

The subsidiary's business and the services it may provide are regulated by the National Telecommunications Agency (ANATEL), the regulator for telecommunications services, in accordance with Law No. 9472 of July 16, 1997 and respective regulations, decrees, decisions and complementary plans.

On February 22, 2006, the General Shareholders’ Meeting approved the absorption of shares of Tele Centro Oeste Celular Participações S/A (“TCO”) to be converted into a wholly-owned subsidiary of Vivo Participações S/A and the merger of Tele Sudeste Celular Participações S/A (“TSD”),Tele Leste Celular Participações S/A (“TLE”) and Celular "CRT" Participações S/A (“CRTPart”) into the Company, as described in the Notice of a Material Fact dated December 4, 2005.

The results of the merged companies for the period from January 1 through February 22, 2006 are posted to the Company’s results as established in the merger protocol.

Auction of share fractions

On April 19 and 24, 2006 auctions were held on the Sao Paulo Stock Exchange – BOVESPA to place again on the “Free Float” market 641,766 shares (310,366 common shares under code VIVO3 and 331,400 preferred shares under code VIVO4), corresponding to the fractions determined in the exchange of shares of Tele Sudeste Celular Participações S/A, Tele Centro Oeste Celular Participações S/A, Tele Leste Celular Participações S/A and Celular "CRT" Participações S/A for shares of Vivo Participações S/A resulting from the corporate restructuring approved by the Special Shareholders’ Meeting of February 22, 2006. The amounts determined on the sale are at the disposal of the holders of these share fractions at any branch of Banco ABN Amro Real S/A, the depositary entity of the book-entry shares of Vivo Participações S/A.

Corporate restructuring

At the Special Shareholders’ Meeting held on October 31, 2006, the merger by the wholly-owned subsidiary Global Telecom S/A of the other wholly-owned subsidiaries of Vivo Participações S/A, namely Telergipe Celular S/A, Telebahia Celular S/A, Telerj Celular S/A, Telest Celular S/A, Celular "CRT" S/A, Telesp Celular S/A and Tele Centro Oeste Celular Participações S/A, as well as of the latter’s subsidiaries Telegoias Celular S/A, Telemat Celular S/A, Telems Celular S/A, Teleron Celular S/A, Teleacre Celular S/A and Norte Brasil Telecom S/A was approved.

The implementation of the Corporate Restructuring was meant to simplify the corporate and operational structure, by unifying the general business management of the operating companies, which were concentrated in a single operating company controlled by the Company, optimizing synergies between the companies involved, following the process which began with the corporate restructuring approved at the special shareholders’ meetings held on February 22, 2006. Similarly and simultaneously with the Corporate Restructuring implementation, the name of Global Telecom S/A was changed into Vivo S/A (“Vivo”).

The merger of the subsidiaries were previously approved by the National Telecommunications Agency (ANATEL) on July 25, 2006 by the Act No. 59867, published in the Federal Official Gazette (DOU) on July 27, 2006.

By virtue of the fact that the Corporate Restructuring did not directly involve Vivo Participações S/A, and was restricted to its subsidiaries, the company’s capital and shareholders' equity as well as its shareholding structure and the rights derived from the shares it issued did not undergo any change.

 

2. PRESENTATION OF FINANCIAL STATEMENTS

Company and consolidated Quarterly Information ("ITR") are presented in thousands of Brazilian Reais (unless indicated otherwise) and have been prepared in accordance with accounting practices adopted in Brazil, considering Brazil’s corporate legislation, norms applicable to concessionaries of public telecommunications services and accounting procedures established by the Brazilian Securities Commission (CVM).

This Quarterly Information was prepared following principles, practices and criteria consistent with those adopted in the preparation of previous fiscal year's financial statements and should be analyzed in conjunction with such statements.

Intercompany asset and liability, revenue and expense balances were eliminated on consolidation.

The interim financial statements at June 30, 2006 and March 31, 2007 were reclassified, when applicable, for comparison purposes.

The reconciliation between Company's and consolidated loss for the six-month periods ended June 30, 2007 and 2006 is as follows:

 

June 30, 07

 

June 30, 06

Company loss

(124,281)

 

(631,035)

Subsidiaries Fiscal Incentives

-

 

(24,161)

Subsidiaries Donations

(7,790)

 

(13,694)

Dividends and interest on shareholders' equity
            in subsidiaries           

-

 

 

(3,547)

Consolidated Loss

(132,071)

 

(672,437)

 

3. SHORT-TERM INVESTMENTS

 

Consolidated

 

June 30, 07

 

March 31, 07

Short-term investments

       897,855

 

   1,219,957

 

 

 

 

Current

872,863

 

1,213,410

Noncurrent

24,992

 

6,547

The short-term investments refer mostly to highly-liquid fixed income investments, indexed to the variation of  Interbank Deposit Certificates ("CDI").

At June 30, 2007, the subsidiary had short-term investments offered as collateral in lawsuits in the amount of R$ 39,574 (R$ 39,228 as of March 31, 2007).

A portion of the balance of short-term investments has been offered as collateral for loans and financing (Note 14e), in the amount of R$ 24,992 as of June 30, 2007 (R$6,547 as of March 31, 2007).

 

4. TRADE ACCOUNTS RECEIVABLE, NET          

 

Consolidated

 

June 30, 07

 

March 31, 07

Receivables from unbilled services

519,050

 

432,317

Receivables from billed services

755,141

 

852,386

Receivables from interconnection fees

671,342

 

685,858

Receivables from goods sold           

342,112

 

278,349

(-) Allowance for doubtful accounts

(376,190)

 

(374,379)

Total   

1,911,455

 

1,874,531

No client accounts for more than 10% of trade accounts receivable, net as of June 30, 2007 and March 31, 2006.

At June 30, 2007 the balance of accounts receivable includes R$ 372,322 (R$ 403,458 as of March 31, 2006) related to co-billing with other operating companies, the amounts of which were determined on the basis of statements of commitment, since contracts have not yet been signed by the parties. Pending matters related to the definition of responsibility for losses resulting from fraud have not yet been resolved, and depend upon decision by the regulating agency and agreement between the parties.

The changes in the allowance for doubtful accounts are as follows:

 

Consolidated

 

2007

 

2006

Balance at beginning of year

353,306

 

249,399

Additional allowance in 1st  quarter (Note 20)

107,401

 

160,981

Write-offs and recoveries in 1st quarter

(86,328)

 

(93,624)

Merged assets

-

 

107,342

Balance as of March 31        

374,379

 

424,098

Additional allowance in 2nd quarter

101,228

 

338,754

Write-offs and recoveries in 2nd  quarter

(99,417)

 

(265,393)

Balance as of June 30

376,190

 

497,459

Additional allowance in 3rd and 4th  quarters

 

 

220,761

Write-offs and recoveries in 3rd and 4th quarters

 

 

(364,914)

Balance as of December 31

 

 

353,306

                                                                      
5. INVENTORIES

 

Consolidated

 

June 30,07

 

March 31,07

Handsets       

330,039

 

295,674

Accessories and other

22,499

 

13,081

(-) Allowance for obsolescence

(35,717)

 

(46,265)

Total   

316,821

 

262,490



6. DEFERRED AND RECOVERABLE TAXES

6.1 Breakdown

 

Company

 

Consolidated

 

June 30, 07

 

March 31, 07

 

June 31,07

 

March 31,07

Prepaid income and social
contribution taxes

465,076

 

456,309

 

537,138

 

533,077

Withheld income tax

164

 

361

 

37,302

 

31,658

State VAT (ICMS) recoverable

-

 

-

 

420,214

 

432,617

PIS and COFINS recoverable

28,529

 

28,529

 

316,356

 

306,316

Other recoverable taxes

242

 

242

 

44,623

 

57,864

Total recoverable taxes

494,011

 

485,441

 

1,355,633

 

1,361,532

Deferred income and social contribution taxes

1,143

 

1,143

 

2,733,296

 

2,762,507

ICMS to be allocated 

-

 

-

 

47,178

 

     40,395

 

 

 

 

 

 

 

 

Total   

495,154

 

486,584

 

4,136,107

 

4,164,434

 

 

 

 

 

 

 

 

Current

4,667

 

4,864

 

1,641,680

 

1,613,415

Noncurrent

490,487

 

481,720

 

2,494,427

 

2,551,019

The breakdown of deferred income and social contribution taxes are as follows:

 

Consolidated

 

June 31, 07

 

March 31, 07

Absorbed fiscal credit - restructuring

778,271

 

850,206

Tax credits on allowances for:

 

 

 

          Obsolescence

12,144

 

15,730

          Contingencies

141,369

 

136,408

          Doubtful debt

127,905

 

127,289

          Customer fidelity program

25,171

 

23,619

          Employee profit sharing

18,469

 

23,615

          Suppliers

118,376

 

115,641

          Other amounts

397,518

 

366,886

Income and social contribution tax loss carryforwards

1,114,073

 

1,103,113

 

 

 

 

Total deferred taxes  

2,733,296

 

2,762,507

 

 

 

 

Current

925,329

 

906,408

Noncurrent

1,807,967

 

1,856,099

                                                                      
The deferred taxes were set up assuming its future realization as follows:

a) Income and social contribution tax loss carryforwards: to be offset up to 30% of the tax bases determined for subsequent years.

b) Merged tax credit: represented by the net balance of goodwill and the provision for maintaining the integrity of the net equity (note 6.2). Its conversion occurs proportionately to the amortization of the goodwill in its subsidiary, over a period of 5 to 10 years. Studies by outside consultants used in the corporate restructuring process support the recovery of the value within this period.

c) Temporary differences: realization will occur upon payment of the provisions, actual loss on doubtful debt or sale of inventories.

At December 31, 2006 the Company prepared technical feasibility studies, approved by its Board, which indicated the full recovery of recognized deferred tax amounts, as defined by CVM instruction No. 371.

During the quarter ended June 30, 2007, no material fact occurred that indicated limitations to the full recovery of deferred taxes.

6.2 .Tax benefits – Corporate Restructuring

The goodwill paid when Company went private and when its subsidiaries were acquired was transferred by the acquiring to the acquired companies.

Prior to these transfers, provisions were recorded for the maintenance of the subsidiary's net equity and, consequently, the net assets merged represent essentially the tax advantage resulting from the deduction of the goodwill merged.

Company’s and its subsidiary’s accounting records for corporate and tax purposes include specific accounts related to merged goodwill and provision and respective amortization, reversal and tax credit, the balances of which are as follows: 

 

Consolidated

 

June 30, 07

 

March 31, 07

Restructuring

Goodwill

 

Provision

 

Net

 

Net

TCO - 1st acquisition

576,197

 

(380,289)

 

195,908

 

221,460

TCO - 2nd acquisition

245,996

 

(162,358)

 

83,638

 

90,420

TC- Privatization

771,578

 

(509,242)

 

262,336

 

289,475

TLE - Privatization        

107,109

 

(70,693)

 

36,416

 

39,150

GT - Acquisition

588,157

 

(388,184)

 

199,973

 

209,701

 

 

 

 

 

 

 

 

Total

2,289,037

 

(1,510,766)

 

778,271

 

850,206

The changes during the six-month periods ended June 30 are as follows:

 

 

Consolidated

 

 

June 30,07

 

June 30, 06

Results:

 

 

 

 

   Amortization of goodwill

 

(440,524)

 

(383,305)

   Reversal of Provision

 

296,655

 

257,132

   Tax credit

 

143,869

 

126,173

 

 

 

 

 

   Effect on results

 

-

 

-

Proportionately to the effective realization of tax benefits, relevant amount will be absorbed by capital in favor of controlling shareholders, while the other shareholders will be assured of the right of first refusal. The resources originating from the exercise of this right will be paid to controlling shareholders.

As of December 31, 2006, R$ 305,531 referring to tax benefits realized until December 31, 2005 were capitalized, of which R$ 194,277 corresponding to Vivo Participações S/A with the issue of shares and R$ 111,254 corresponding to Tele Centro Oeste Celular Participações S/A without issuance of shares.

 

7. PREPAID EXPENSES

 

Company

 

Consolidated

 

June 30, 07

 

March 31, 07

 

June 30, 07

 

March 31, 07

FISTEL fee

-

 

-

 

267,418

 

351,471

Rent

-

 

-

 

27,055

 

11,801

Advertising to be distributed  

-

 

-

 

66,793

 

97,608

Other  

2,936

 

3,137

 

28,113

 

23,375

 

 

 

 

 

 

 

 

Total

2,936

 

3,137

 

389,379

 

484,255

 

 

 

 

 

 

 

 

Current

809

 

809

 

351,741

 

457,406

Noncurrent

2,127

 

2,328

 

37,638

 

26,849

 

8. OTHER ASSETS

 

Company

 

Consolidated

 

June 30, 07

 

March 31, 07

 

June 30, 07

 

March 31, 07

Judicial deposits

144

 

129

 

93,449

 

88,042

Advances to employees

-

 

-

 

14,737

 

15,044

Credits with suppliers

-

 

-

 

12,193

 

256

Intercompany credits

1,863

 

1,971

 

4,439

 

4,448

Subsidies on terminal sales

-

 

-

 

56,537

 

32,848

Other assets

805

 

788

 

6,044

 

5,349

 

 

 

 

 

 

 

 

Total

2,812

 

2,888

 

187,399

 

145,987

 

 

 

 

 

 

 

 

Current

420

 

496

 

156,574

 

115,069

Noncurrent     

2,392

 

2,392

 

30,825

 

30,918

 

9. INVESTMENTS 

a) Investments in subsidiary

As of June 30, 2007, Vivo S.A. is a wholly-owned subsidiary of the Company.

b) Number of shares

As of June 30, 2007, the Company holds 3,810,478 common shares of Vivo S/A

c) Information on subsidiaries

 

 

Shareholders' equity

 

Net income (loss)

Investees          

 

June 30, 07

 

March 31, 07

 

June 30, 07

 

June 30, 06

Telesp Celular S.A.

 

-

 

-

 

-

 

10,718

Vivo S.A. (formerly Global Telecom S.A.)

 

8,552,724

 

8,536,223

 

117,248

 

(150,442)

Tele Centro Oeste Celular Participações S.A.

 

-

 

-

 

-

 

(6,244)

Celular CRT S.A.

 

-

 

-

 

-

 

(25,257)

Telerj Celular S.A.

 

-

 

-

 

-

 

(36,483)

Telest Celular S.A.

 

-

 

-

 

-

 

22,663

Telebahia Celular S.A.

 

-

 

-

 

-

 

(65,534)

Telergipe Celular S.A.

 

-

 

-

 

-

 

1,483

d)  Breakdown and changes

The balance of Company's investments includes interest in subsidiaries' equity, goodwill, advances for future capital increase and valuation allowance, as well as other investments, as shown below:

 

Company

 

Consolidated

 

June 30, 07

 

March 31, 07

 

June 30, 07

 

March 31, 07

Investment in subsidiaries

7,446,905

 

7,430,404

 

-

 

-

Goodwill on the acquisition of investments, net

1,100,138

 

1,195,327

 

1,100,138

 

1,195,327

Advance for future capital
  increase

1,105,819

 

1,105,819

 

-

 

-

Valuation allowance (a)

(276,931)

 

(294,200)

 

(276,931)

 

(294,200)

Other investments

104

 

104

 

113

 

113

 

 

 

 

 

 

 

 

Investment balance

9,376,035

 

9,437,454

 

823,320

 

901,240

(a) Allowance set up at December 31, 2001 and 2002 to recognize permanent losses on goodwill, as a consequence of losses accumulated at those dates by subsidiary Global Telecom.

d.1) Investments in subsidiaries

 

June 30, 07

 

June 30, 06

Balance at beginning of year

7,358,367

 

4,371,626

Investment grants

7,790

 

13,694

Equity pick-up

117,248

 

(257,064)

Dividends and interest on shareholders' equity
   in subsidiaries

-

 

3,547

Merger of companies

-

 

4,031,634

Capital increase

-

 

597,531

Capital reduction       

(36,500)

 

(631,800)

Interim dividend

-

 

(1,763,293)

 

 

 

 

Balance at June 30   

7,446,905

 

6,365,875

d.2) Advance for future capital increase      

 

June 30, 07

 

June 30, 06

Balance at beginning of year

1,105,819

 

1,279,500

Merged assets

-

 

428,853

Reserve realization

-

 

(305,531)

  Balance at June 30

1,105,819

 

1,402,822

d.3) Goodwill on the acquisition of investments, net

 

Jun 30, 07

 

Jun 30, 06

Balance at beginning of year

1,290,512

 

1,869,387

Amortization of goodwill (Note 22)

(190,374)

 

(190,856)

 

 

 

 

Balance at June 30

1,100,138

 

1,678,531

d.4) Valuation allowance

 

June 30, 07

 

June 30, 06

Balance at beginning of year

(311,467)

 

(380,541)

Amortization of losses (proportionately to
  goodwill) (Note 22)

34,536

 

34,536

 

 

 

 

Balance at June 30   

(276,931)

 

(346,005)

 

10. PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS, NET

a) Property and equipment, net

 

 

Yearly depreciation rates
 %

 

Consolidated

 

 

 

June 30, 07

 

March 31, 07

 

 

 

Cost

 

Accumulated depreciation

 

Property and equipment, net

 

Property and equipment, net

Transmission
  equipment

 

10.00 to 20.00

 

7,462,795

 

(5,221,252)

 

2,241,543

 

2,162,636

Switching
  equipment

 

10.00 to 20.00

 

3,586,548

 

(2,151,460)

 

1,435,088

 

1,405,670

Infrastructure

 

2.87 to 20.00

 

2,414,183

 

(1,254,648)

 

1,159,535

 

1,166,233

Land   

 

-

 

59,929

 

-

 

59,929

 

59,929

Buildings

 

2.86 to 4.00

 

280,821

 

(68,197)

 

212,624

 

214,299

Terminals

 

66.67

 

1,584,107

 

(1,294,509)

 

289,598

 

289,098

Other assets

 

6.67 to 20.00

 

1,335,275

 

(844,614)

 

490,661

 

520,370

Construction
  in progress

 

-

 

214,036

 

-

 

214,036

 

411,510

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

16,937,694

 

(10,834,680)

 

6,103,014

 

6,229,745

      b) Intangible assets, net

 

 

Yearly depreciation rates
%

 

Consolidated

 

 

 

June 30, 07

 

March 31, 07

 

 

 

Cost

 

Accumulated depreciation

 

Property and equipment, net

 

Property and equipment, net

Software user
  rights

 

20,00

 

2,981,350

 

(1,879,977)

 

1,101,373

 

1,110,535

Concession
  licenses

 

6,67 a 20,00

 

976,503

 

(594,518)

 

381,985

 

398,418

Other assets

 

6,67 a 20,00

 

35,592

 

(26,093)

 

9,499

 

10,911

Construction 
  in progress

 

-

 

61,480

 

-

 

61,480

 

90,845

 

 

 

 

 

 

 

 

 

 

 

Total   

 

 

 

4,054,925

 

(2,500,588)

 

1,554,337

 

1,610,709

At June 30, 2007, the subsidiary had property and equipment offered as collaterals in lawsuits in the amount of R$ 139,205 (R$ 101,407 as of March 31, 2007), as shown below:

Tax proceedings

 

84,317

Labor and civil claims

 

54,888

Total

 

139,205

As of December, 2006, the subsidiary started offering its clients services based on the Global System for Mobile Communications (GSM) technology. Management understands that the adoption of GSM will have no impact on amounts previously invested in the other technologies of its network.

11. DEFERRED CHARGES, NET

 

Consolidated

 

Annual amortization rate %

 

June 30, 07

 

March 31, 07

Pre-operating expenses

 

 

 

 

 

     Amortization of license

10

 

  80,496

 

  80,496

     Financial expenses          

10

 

201,131

 

201,131

     General & administrative expenses

10

 

  69,960

 

  69,960

 

 

 

 

 

 

 

 

 

351,587

 

351,587

 

 

 

 

 

 

Goodwill - Ceterp Celular S/A

10

 

84,265

 

84,265

Goodwill

(a)

 

25,172

 

24,835

 

 

 

 

 

 

 

 

 

461,024

 

460,687

 

 

 

 

 

 

Accumulated amortization:

 

 

 

 

 

  Pre-operating expenses

 

 

(274,818)

 

(265,850)

Goodwill - Ceterp Celular S/A

 

 

(55,474)

 

(53,368)

  Goodwill       

 

 

(19,557)

 

(18,920)

 

 

 

 

 

 

 

 

 

(349,849)

 

(338,138)

 

 

 

 

 

 

Total

 

 

111,175

 

122,549

(a) As per contractual periods.

 

12. SUPPLIERS AND ACCOUNTS PAYABLE

 

Company

 

Consolidated

 

June 30, 07

 

March 31, 07

 

June 30, 07

 

March 31, 07

Suppliers

3,488

 

2,322

 

1,681,421

 

1,905,447

Interconnection / linking

-

 

-

 

184,132

 

175,385

Amounts to be transferred SMP (a)

-

 

-

 

360,634

 

391,901

Technical assistance (Note 28)

-

 

-

 

107,053

 

81,654

Other  

160

 

108

 

39,932

 

46,671

Total

3,648

 

2,430

 

2,373,172

 

2,601,058

(a) Amounts to be transferred SMP (personal mobile service) refer to VC2, VC3 and roaming charges, invoiced to our clients and passed on to the long distance operating companies.

 

13. TAXES, FEES AND MANDATORY CONTRIBUTIONS

 

Company

 

Consolidated

 

June 30, 07

 

March 31, 07

 

June 30, 07

 

March 31, 07

Current taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  ICMS

-

 

-

 

483,544

 

475,097

Income and social
    contribution taxes

-

 

-

 

25,590

 

40,686

PIS and COFINS

95

 

95

 

70,474

 

68,102

FISTEL

-

 

-

 

7,723

 

1,206

FUST and FUNTTEL 

-

 

-

 

7,334

 

7,103

Other taxes, fees and mandatory
    contributions

1,372

 

1,344

 

14,733

 

12,581

 

 

 

 

 

 

 

 

Total

1,467

 

1,439

 

609,398

 

604,775

 

 

 

 

 

 

 

 

Legal liabilities (CVM 489/05):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax     

-

 

-

 

1,944

 

3,174

PIS e COFINS

-

 

-

 

57,976

 

57,030

CIDE

-

 

-

 

18,004

 

15,427

Other taxes, fees and mandatory
    contributions

-

 

-

 

1,253

 

1,203

 

 

 

 

 

 

 

 

Total

-

 

-

 

79,177

 

76,834

 

 

 

 

 

 

 

 

Total

1,467

 

1,439

 

688,575

 

681,609

 

 

 

 

 

 

 

 

Current          

1,467

 

1,439

 

466,647

 

466,318

Noncurrent

-

 

-

 

221,928

 

215,291

Current Taxes:

At June 30, 2007, the amount of R$ 158,869 (R$ 153,097 as of March 31, 2007) of the long term liability refers to ICMS - More Jobs for Paraná Program, resulting from an agreement with the Paraná State Government involving the postponement of ICMS payment. This agreement establishes that ICMS payment falls due always in the 49th month after that on which ICMS was determined.

Legal Liabilities - CVM Resolution 489/05

This includes the taxes that fall within the scope of Resolution 489 of October 3, 2005, issued by the Brazilian Securities Commission (CVM), which approved IBRACON position NPC No. 22.

For financial statement purposes the amounts of judicial deposits of said taxes, if applicable, were offset against taxes, fees and mandatory contributions payable.

The changes in legal liabilities, as per CVM Resolution 489/05, is as follows:

 

Fiscal

 

(-) Judiciary deposits

 

Total

Balances at Dec 31, 06

141,703

 

(64,940)

 

76,763

  Inflow

4,197

 

(5,297)

 

(1,100)

  Monetary restatement

1,171

 

-

 

1,171

 

 

 

 

 

 

Balances at Mar 31, 07   

147,071

 

(70,237)

 

76,834

  Inflow

2,803

 

(97)

 

2,706

  Monetary restatement

899

 

-

 

899

  Payments

(1,262)

 

-

 

(1,262)

 

 

 

 

 

 

Balances at Jun 30, 07   

149,511

 

(70,334)

 

79,177

 

14. LOANS AND FINANCING
a) Breakdown of debt

 

 

 

 

 

Company

 

Consolidated

Description

Currency

Interest

Maturity

 

June 30, 07

 

March 31, 07

 

June 30, 07

 

March 31, 07

Financial
  Institutions:

 

 

 

 

 

 

 

 

 

 

 

Res 2770

US$

4.96% p.a. to 6.24% p.a.

12/17/07 to 10/10/08

 

69,870

 

74,376

 

425,113

 

602,933

Res 2770

¥

0% to 4.38% p.a.

08/08/07 to 10/03/08

 

-

 

-

 

598,513

 

738,002

Res 2770

R$

IGP-M + 9.45% p.a.

02/09/10

 

-

 

-

 

113,659

 

112,882

Debentures

R$

103.3%  CDI to 104.4% CDI

08/01/08 to 05/01/15

 

1,500,000

 

1,500,000

 

1,500,000

 

1,500,000

European Investment Bank -EIB

US$

1.4% p.a. + Libor to 1.45%p.a. + Libor

09/14/07 to 10/15/08

 

-

 

-

 

216,659

 

230,629

Compror

US$

4.5% to 6.0%p.a.

07/02/07 to 09/17/08

 

-

 

-

 

30,142

 

32,085

Compror

¥

0% p.a. to 2.78% p.a.

07/09/07 to 09/16/08

 

-

 

-

 

80,768

 

100,188

 

BNDES (a)

 

URTJLP

TJLP + 3.5%p.a. to 4.6%p.a. (a)

07/16/07 to 06/15/11

 

-

 

-

 

106,967

 

135,415

BNDES

UMBNDES

3.5%p.a. to 4.6%p.a.

07/16/07 to 07/15/11

 

-

 

-

 

17,123

 

22,658

Commercial Paper

US$

Libor + 1.75%p.a. to 6.30%p.a. to 6.55%p.a.

07/29/07 to 12/28/07

 

-

 

-

 

404,502

 

430,584

Bank of the Northeast of Brazil - BNB

R$

11.5%p.a.

08/29/08 to 01/29/15

 

-

 

-

 

80,540

 

-

Others

R$

column 27 FGV

10/31/08

 

-

 

-

 

619

 

735

Acquisition of investment "TCO"

R$

100% CDI + 1% p.a.

04/30/08

 

10,697

 

10,697

 

10,697

 

10,697

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

 

 

58,956

 

74,947

 

120,426

 

140,400

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

1,639,523

 

1,660,020

 

3,705,728

 

4,057,208

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

82,633

 

84,579

 

1,226,930

 

1,283,355

Noncurrent

 

 

 

 

1,556,890

 

1,575,441

 

2,478,798

 

2,773,853

(a) Should TJLP exceed 10% p.a., spread will be 6% p.a.

b) Payment timetable

Noncurrent amounts are broken down as follows, according to year of maturity:

 

 

June 30,2007

Year

 

Company

 

Consolidated

2008

 

556,890

 

1,226,534

2009

 

-

 

34,385

2010

 

-

 

156,040

2011

 

-

 

23,634

After 2012

 

1,000,000

 

1,038,205

 

 

 

 

 

Total

 

1,556,890

 

2,478,798

c) Restrictive clauses

The subsidiary has a loan and financing with the Banco Nacional de Desenvolvimento Econômico e Social (BNDES), the balance of which as of June 30, 2007 was R$124,090 (R$ 158,073 as of March  31, 2007).  In accordance with the contract, there are several economic and financial indexes that must be determined on a six-month and yearly basis. Regarding the  obligations on a six-month basis, we noted that the "EBITDA margin" (EBITDA over net operating revenue) was not complied with.  A waiver was obtained from the bank so as not to comply with this liability.

The subsidiary has loans from the European Investment Bank, the balance of which as of June 30, 2007 amounted to R$216,659 (R$ 230,629 as of March 31, 2007). On the same date, several economic and financial indices established in the contract were met by subsidiary.

d) Coverage

At June 30, 2007 the Company and its subsidiary held currency hedge positions of US$588,323 thousand and Yen44,266,390 thousand (US$ 679,870 thousand Yen 48,989,574 thousand and € 10,067 thousand as of March 31, 2007), as coverage for all of its foreign exchange liabilities.  Furthermore, the company had swap transactions (CDI x Pre), to partially cover fluctuations in domestic interest rates.  The operations that are covered mature in January 2008 and 2009, and amount to R$ 2,273,955.

At June 30, 2007, the Company and its subsidiary recorded an accumulated loss of R$585,768 (R$ 489,450 as of March 31, 2007) from these currency hedge and CDI x Pre swap transactions.

The table below shows the net position of these transactions, recorded in the Company's balance sheet:

 

 

Consolidated

Description

 

June 30, 07

 

March 31, 07

   Current assets

 

2,526

 

2,241

   Noncurrent assets       

 

1,680

 

250

Total assets

 

4,206

 

2,491

 

 

 

 

 

   Current Liabilities

 

(387,949)

 

(298,976)

   Noncurrent liabilities

 

(202,025)

 

(192,965)

Total Liabilities

 

(589,974)

 

(491,941)

 

 

 

 

 

Accumulated loss

 

(585,768)

 

(489,450)

e) Guarantees

At June 30, 2007, subsidiary's loans and financing, in local currency, the principal amounting to R$101,727 (R$126,013 as of March 31, 2007), represented financing guaranteed by the pledge of accounts receivable, which may optionally be retained up to a limit of 300% of the monthly repayment installment.
                                              

Banks

 

Guarantees

 

 

BNDES          

 

15% of receivables and CDB  are pledged to the amount of next installment due

100% of receivables and CDB are pledged to an amount equivalent to the next installment due (during the first year) and to two installments due (during the remaining period)

 

 

European Investment Bank - EIB

 

Bank guarantees

Commercial risk guaranteed by Banco Espirito Santo, BBV and Rabobank

 

Banco  do Nordeste do Brasil  SA - BNB

 

Bank guarantee with covering throughout the whole transaction or until its effective liquidation at an amount equivalent to 100% of the debit balance of the financing obtained, including for commitments foreseen. 
Establishing a liquidity fund comprising  financial investments at an amount equivalent to three amortization installments by reference to the average post-grace period installment

 

f) Debentures

On August 1, 2004 the renegotiation of the first public issue of debentures, consisting of 5,000 (five thousand) simple, non-convertible and non-guaranteed debentures, with a par value of R$100 (one hundred thousand Reais) each, maturing on August 1, 2008 took place. The renegotiation involved the total volume of the original issue occurred on August 1, 2003, at the rate of 104.6% of CDI, and besides the longer term (new renegotiation on August 1, 2007), a reduction in the rate to 104.4% of CDI took place.

Within the scope of the R$2,000,000 (two billion Reais) First Security Distribution Program announced on August 20, 2004, on May 1, 2005 the Company issued debentures in the amount of R$1,000,000 (one billion Reais) with a term of 10 years as from the date of issue.

The Offering consisted in the issue of 100,000 simple, non-convertible, unsecured debentures with a par value of R$10 (ten thousand Reais), totaling R$1,000,000 (one billion Reais), in two series of R$ 200,000 ((two hundred million Reais) and R$800,000 (eight hundred million Reais) respectively, with final maturity on May 1, 2015. The debentures accrue interest, payable on a six-month period basis, corresponding to 103.3% (first series) and 104.2% (second series) of the accumulated daily average rates for DI (one-day Interbank, extra group deposits) (DI rates), as calculated and published by the Center for Custody and Financial Settlement of Certificates and Bonds (CETIP).

Remuneration of Debentures is due to be renegotiated on May 1, 2009 (first series) and May 1, 2010 (second series).

 

15. PROVISION FOR CONTINGENCIES

The Company and its subsidiary are parties to judicial proceedings that generate administrative and judicial contingencies related to labor, tax and civil claims. Relevant accounting provisions have been set up concerning such proceedings considered as probable losses.  

The breakdown of the balances of such provisions is as follows:

 

Consolidated 

 

June 30, 07

 

March 31, 07

 

Provisions

 

(-) Judicial deposits

 

Net

 

Net

Labor 

70,251

 

(17,830)

 

52,421

 

43,560

Civil

198,722

 

(44,700)

 

154,022

 

150,965

Fiscal 

3,440

 

-

 

3,440

 

3,351

 

 

 

 

 

 

 

 

Total

272,413

 

(62,530)

 

209,883

 

197,876

 

 

 

 

 

 

 

 

Current

 

 

 

 

79,329

 

75,349

Noncurrent     

 

 

 

 

130,554

 

122,527

Changes occurred in the provision for contingencies, net for the six-month period ended June 30, 2007,  are as follows:

 

2007

Balance at beginning of year

146,623

Provisions recorded, net of reversals

120,860

Monetary variation     

600

Payments

(51,126)

Increase in judicial deposits  

(7,074)

 

 

Balance as of June  30

209,883

15.1 Tax proceedings

15.1.1 Probable losses

No new significant tax proceedings were initiated in the quarter ending June 30, 2007, classified as "probable loss". The significant change occurred in the provision for tax contingencies is mostly due to monetary variation during the period.

15.1.2 Possible Losses 

No new, significant tax proceedings were initiated in the quarter ending June 30, 2007, classified as "possible loss". No significant changes occurred in the proceedings described herein since last fiscal year.

15.2 Civil proceedings

a) Consumers

The Company is a party to several lawsuits initiated by individual consumers or civil associations representing the right of consumers against non-performance of services and/or products sold by the Company. Individually, none of these lawsuits is considered significant.

At June 30, 2007, based on the opinion of our outside lawyers, we have recorded the amount of R$143,728 (R$142,370 as of March 31, 2007), which is considered sufficient to meet potential losses on these proceedings.

At the same date, the amount involved in these proceedings classified as "possible loss" is R$378,709 (R$281,195 as of March 31, 2007).

b) ANATEL

The Company is a party to several legal and administrative proceedings initiated by ANATEL referring to non-compliance with regulations concerning the Personal Mobile Service (SMP), amounting to R$17,870 (R$12,622 as of March 31, 2007), amount considered sufficient to face probable losses on these cases.

c) Others

These refer to lawsuits of other nature, all related to the normal course of business, including contractual discussions with supplier. At June 30, 2007, based on the opinion of our outside lawyers, we recorded R$ 37,124 (R$38,468 as of March 31, 2007), amount considered sufficient to meet probable losses on these cases.

At the same date, the amount involved in these proceedings  classified as "possible loss" were R$ 61,700 (R$62,424 as of March 31, 2007).

15.3 Labor claims

Several labor claims are included, and respective provision was recorded as shown before, which is considered sufficient to meet probable losses on these cases.

No new, significant labor claims were initiated in the quarter ended June 30, 2007 classified as "probable loss". No significant changes occurred in the proceedings reported  since last fiscal year.

With respect to proceedings where the possibility of loss is classified as "possible", the amount involved is R$99,289 (R$94,471 as of March 31, 2007).


16. OTHER LIABILITIES

 

 

Company

 

Consolidated

 

 

June 30,07 

 

March 31,07 

 

June 30,07 

 

March 31,07 

Prepaid services to be rendered

 

-

 

-

 

153,121

 

139,862

Provision fidelity program (a)   

 

-

 

-

 

74,031

 

69,467

Payables to related parties

 

229

 

1,325

 

928

 

2,238

Provision for Pension Fund

 

-

 

-

 

20,993

 

18,298

Reverse stock split(b)

 

74,809

 

75,470

 

116,630

 

117,892

Provision for disposal
   of assets

 

-

 

-

 

135,228

 

132,662

Other

 

141

 

8

 

489

 

89

 

 

 

 

 

 

 

 

 

Total

 

75,179

 

76,803

 

501,420

 

480,508

 

 

 

 

 

 

 

 

 

Current

 

75,179

 

76,803

 

363,190

 

344,445

Noncurrent

 

-

 

-

 

138,230

 

136,063

(a) The subsidiary has implemented fidelity programs, under which calls are transformed into points that enable the used to a future change of handsets. A provision is made for  accumulated points, net of redemptions, considering the history of redemptions, points generated and average cost per point.

(b) Refers to the credit made available to the holders of remaining shares, resulting from the reverse stock split of the capital stock of the Company and its subsidiary.

 

17. SHAREHOLDERS’  EQUITY

a) Capital stock

Capital as of June 30, 2007 and March 31, 2007 is composed of shares without a par value, as follows:

 

Lot of one thousand shares

Common shares

524,932

Preferred shares

917,186

 

 

Total

1,442,118

b) Dividends and Interest on Shareholders’ Equity

The preferred shares are not entitled to vote, except as foreseen in articles 9 and 10 of the By-laws, but are assured priority in the reimbursement of capital, without any premium, and the right to participate in the dividend to be distributed corresponding to no less than 25% of net income for the year, calculated in accordance with article 202 of Brazil’s Corporation Law, with priority to receive minimum, non-cumulative dividends, equivalent to the greater of:

 b.1) 6% (six percent) per year over the amount resulting from the division of subscribed capital by the total number of the Company's shares, or

b.2)  3% (three percent) per year over the amount resulting from the division of the net equity by the total number of shares of the Company, with the right to participate in the profit distributed on equal terms with common shares, after the latter have been assured of a dividend equal to the minimum priority dividend established for the preferred shares.

As of the General Shareholders’ Meeting of March 27, 2004, preferred shares have acquired full voting rights, due to the fact that for three consecutive years no minimum dividends were paid, in accordance with Article 111, paragraph 1 of Law No. 6404/76.

c) Special Goodwill Reserve

This provision represents the forming of a special goodwill provision, as a result of the Company's corporate restructuring, which will be capitalized in favor of the controlling shareholder upon effective realization of the tax benefit.

 

18. NET OPERATING INCOME

 

Consolidated

 

For the six-month periods ended

 

June 30,07

 

June 30,06

Subscription and use 

3,724,538

 

3,514,515

Interconnection

2,466,617

 

1,868,772

Data and value-added services         

579,872

 

486,290

Other services

120,008

 

103,174

 

 

 

 

Gross sales   

6,891,035

 

5,972,751

 

 

 

 

ICMS

(1,145,168)

 

(1,099,627)

PIS and COFINS

(246,581)

 

(215,713)

ISS

(2,983)

 

(1,442)

Rebates granted

(239,104)

 

(210,108)

 

 

 

 

Net operating income from services 

5,257,199

 

4,445,861

 

 

 

 

Gross income from handsets and accessories

1,383,369

 

1,409,249

 

 

 

 

ICMS

(99,587)

 

(116,022)

PIS and COFINS

(68,454)

 

(86,181)

Rebates granted

(528,418)

 

(401,847)

Sales returns 

(72,222)

 

(75,717)

 

 

 

 

Net operating income from sale of handsets
  and accessories

614,688

 

729,482

 

 

 

 

Total net operating income

5,871,887

 

5,175,343

No client accounts for more than 10% of gross operating income for the six-month periods ended June 30, 2007 and June 30, 2006, with the exception of Telecomunicações de São Paulo S/A - TELESP, a fixed telephone operating company in the state of São Paulo that accounted for approximately 11% for the six-month period ended June 30, 2006. The amounts in question refer mainly to interconnection.

 

19. COST OF SALES  AND SERVICES     

 

Consolidated

 

For the six-month periods ended

 

June 30, 07

 

June 30, 06

Personnel

(52,628)

 

(42,831)

Materials

(3,130)

 

(5,296)

Outsourced services

(213,569)

 

(182,888)

Means of connection

(112,046)

 

(116,418)

Rent, insurance and condominium expenses

(104,204)

 

(101,589)

Interconnection

(753,083)

 

(77,009)

Taxes, fees and mandatory contributions

(246,853)

 

(268,157)

Depreciation and amortization

(625,193)

 

(658,717)

Other supplies

(42,070)

 

(100,827)

 

 

 

 

Cost of services        

(2,152,776)

 

(1,553,732)

 

 

 

 

Cost of sales

(900,018)

 

(979,422)

 

 

 

 

Total

(3,052,794)

 

(2,533,154)

 

20.  SELLING EXPENSES

 

Consolidated

 

For the six-month periods ended

 

June 30, 07

 

June 30, 06

Personnel

(151,913)

 

(151,582)

Materials

(18,036)

 

(17,420)

Outsourced services

(882,776)

 

(951,493)

Advertising

(192,080)

 

(187,894)

Rent, insurance and condominium expenses

(33,228)

 

(34,023)

Taxes, fees and mandatory contributions

(1,406)

 

(1,893)

Depreciation and amortization

(218,442)

 

(200,873)

Allowance for doubtful accounts

(208,629)

 

(499,735)

Other supplies

(11,461)

 

(21,265)

 

 

 

 

Total

(1,717,971)

 

(2,066,178)

 

21. GENERAL AND ADMINISTRATIVE EXPENSES

 

Company

 

Consolidated

 

For the six-month periods ended

 

For the six-month periods ended

 

June 30,07 

 

June 30,06    

 

June 30,07 

 

June 30,06    

Personnel

(1,090)

 

(2,273)

 

(134,184)

 

(116,618)

Materials

-

 

-

 

(2,212)

 

(6,497)

Outsourced services      

(7,862)

 

(9,150)

 

(257,497)

 

(217,141)

Rent, insurance and condominium

(1)

 

(56)

 

(41,647)

 

(40,821)

Taxes 

(14)

 

(62)

 

(2,438)

 

(3,480)

Depreciation and amortization               

(34)

 

(51)

 

(150,307)

 

(138,253)

Other supplies

(4)

 

(6)

 

(3,662)

 

(6,535)

 

 

 

 

 

 

 

 

Total

(9,005)

 

(11,598)

 

(591,947)

 

(529,345)

 

22. OTHER OPERATING INCOME (EXPENSES)

 

Company

 

Consolidated

 

For the six-month periods ended

 

For the six-month periods ended

 

June 30,07 

 

June 30,06    

 

June 30,07 

 

June 30,06    

Income:

 

 

 

 

 

 

 

  Fines

-

 

-

 

45,791

 

64,666

  Recovered expenses

-

 

-

 

40,683

 

21,271

  Reversal of provisions

724

 

300

 

8,843

 

24,639

  Shared infrastructure - EILD

-

 

-

 

23,272

 

26,331

  Sales incentives

-

 

-

 

34,678

 

18,367

  Others

14

 

189

 

4,908

 

3,610

 

 

 

 

 

 

 

 

Total

738

 

489

 

158,175

 

158,884

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

  FUST

-

 

-

 

(28,397)

 

(26,369)

  FUNTTEL

-

 

-

 

(14,218)

 

(13,228)

  ICMS on other expenses                

-

 

-

 

(48,390)

 

(30,568)

  CIDE

-

 

-

 

(7,227)

 

(4,562)

  PIS and COFINS

(85)

 

(33)

 

(21,484)

 

(18,089)

  Other taxes, fees and mandatory contributions

(248)

 

(24)

 

(8,237)

 

(5,321)

  Provision for contingencies

(699)

 

(41)

 

(129,703)

 

(69,582)

  Amortization of deferred charges

-

 

-

 

(23,460)

 

(23,817)

  Amortization of goodwill and   realization of provision for valuation allowance

(155,838)

 

(156,320)

 

(155,838)

 

(176,188)

  Others

(21)

 

(1)

 

(12,451)

 

(12,307)

 

 

 

 

 

 

 

 

Total

(156,891)

 

(156,419)

 

(449,405)

 

(380,031)


23. FINANCIAL INCOME (EXPENSES) AND MONETARY AND EXCHANGE VARIATIONS

 

Company

 

Consolidated

 

For the six-month periods ended

 

For the six-month periods ended

 

June 30,07 

 

June 30,06    

 

June 30,07 

 

June 30,06    

Financial income:

 

 

 

 

 

 

 

Income from financial transactions

17,915

 

24,271

 

97,066

 

177,429

PIS and COFINS on financial income

-

 

-

 

-

 

(29)

 

 

 

 

 

 

 

 

Total

17,915

 

24,271

 

97,066

 

177,400

 

 

 

 

 

 

 

 

Financial expenses:

 

 

 

 

 

 

 

  Derivative transactions   

(3,218)

 

(95,968)

 

(136,093)

 

(250,963)

  Loans

(97,308)

 

(146,466)

 

(150,953)

 

(212,819)

  Other financial transactions     

(1,546)

 

(10,024)

 

(60,787)

 

(107,396)

 

 

 

 

 

 

 

 

Total

(102,072)

 

(252,458)

 

(347,833)

 

(571,178)

 

 

 

 

 

 

 

 

Monetary and exchange variations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In assets

 

 

 

 

 

 

 

Derivative transactions

-

 

(9,584)

 

(563)

 

(47,687)

 

 

 

 

 

 

 

 

In liabilities

 

 

 

 

 

 

 

      Derivative transactions 

(7,683)

 

(113,424)

 

(239,382)

 

(225,694)

     Loans

7,656

 

131,283

 

244,329

 

267,277

Other transactions

7

 

454

 

3,354

 

11

 

 

 

 

 

 

 

 

Total

(20)

 

8,729

 

7,738

 

(6,093)

 

24. INCOME AND SOCIAL CONTRIBUTION TAXES

The Company and its subsidiary make monthly provisions for the payment of income and social contribution taxes , on an accrual basis, making tax payments on the basis of monthly estimates. Deferred taxes are recognized on  temporary differences, as described in Note 6. Please find below the breakdown of income and social contribution taxes payable:

 

Consolidated

 

For the six-month periods ended

 

June 30,07 

 

June 30,06    

Income tax liability

(122,894)

 

(185,170)

Social contribution tax liability       

(44,246)

 

(67,601)

Deferred income tax       

49,521

 

123,496

Deferred social contribution tax  

17,828

 

45,317

 

 

 

 

Total

(99,791)

 

(83,958)

Please find below a reconciliation  of the expense with income taxes disclosed, by eliminating the effects of the goodwill tax benefit, and the amounts calculated by applying combined statutory rates at 34%:

 

Company

 

Consolidated 

 

For the six-month periods ended

 

For the six-month periods ended

 

June 30,07 

 

June 30,06    

 

June 30,07 

 

June 30,06    

Pre-tax loss

(124,281)

 

(630,312)

 

(32,280)

 

(580,511)

 

 

 

 

 

 

 

 

Tax credit at
   combined statutory rate
   (34%)

42,255

 

214,306

 

10,975

 

197,374

 

 

 

 

 

 

 

 

Permanent additions:

 

 

 

 

 

 

 

   Nondeductible expenses - goodwill amortization

(52,985)

 

(53,149)

 

(52,985)

 

(53,414)

   Other nondeductible
         expenses

-

 

-

 

(27,921)

 

(64,367)

   Equity pick-up

42,513

 

(94,424)

 

-

 

-

   Other additions

-

 

-

 

1,931

 

(27,147)

Permanent exclusions:

 

 

 

 

 

 

 

   Equity pick-up

-

 

12,884

 

-

 

-

  Other exclusions

5,910

 

5,827

 

5,922

 

6,041

Tax loss and unrecognized temporary
  differences

(37,693)

 

(86,167)

 

(37,713)

 

(142,445)

 

 

 

 

 

 

 

 

Tax expense  

-

 

(723)

 

(99,791)

 

(83,958)

 

25. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONSOLIDATED)

a) Considerations on risks

The main market risks that the Company and its subsidiary are exposed to are:

Credit risk: deriving from possible difficulties in collecting the amounts related to telecommunications services rendered to its clients and to sales of handsets to its dealers, as well as the risk related to short-term investments and amounts receivable from swap transactions.

Interest rate risk: deriving from a portion of the debt and from long positions of derivatives contracted at floating rates, and involving the risk of an increase in financial expenses due to an unfavorable change in interest rates (mainly LIBOR, TJLP and CDI).

Exchange rate risk: the possibility that Company and its subsidiary incur losses as a result of exchange rate variations that increase the liability balances of foreign currency loans and financing.

The Company and its subsidiary adopt an active position concerning the management of the various risks to which they are exposed, by means of a set of comprehensive initiatives, procedures and operating policies, thus mitigating the risks inherent to their activities.

Credit Risk 

The credit risk involved in the rendering of telecommunications services is minimized by a strict control of the client base and active management of customers’  default, by means of clear policies regarding the sale of post-paid telephones. As of June 30, 2007, the subsidiary had 81% of its customer base comprising customers of the prepaid system, which requires the prior loading and consequently entails no credit risk.

The credit risk in the sale of handsets is managed by a conservative credit policy, by means of modern management methods, including the application of "credit scoring" techniques, analysis of financial statements and information, and consultation to commercial data bases, as well as the automatic control of sales release integrated with the distribution module of SAP's ERP software.

The company and its subsidiary are also subject to credit risk originating from its financial investments and amounts receivable from swap transactions. The Company and its subsidiary act in a manner so as to diversify this exposure among various world-class financial institutions.

Interest rate risk

The Company and its subsidiary are exposed to the risk of increased interest rates, especially those associated with the cost of the Interbank deposit certificates (CDI), in connection with payables related to derivative transactions  (currency hedge) and by loans denominated in Reais. As a way to minimize this exposure, the Company contracted swap transactions in Reais, from CDI to fixed-interest rates, in a total reference value of R$2,274 million. The balance of financial investments, indexed to the CDI, also neutralizes this effect partially.

Furthermore, the Company and its subsidiary are also exposed to the risk of fluctuation of the Long-term interest rate (TJLP), in connection with the loans obtained from BNDES. These transactions amounted to  R$106,967 (principal) as of June 30, 2007 (R$135,415 as of March 31, 2007). The Company and its subsidiary have no transactions with derivatives contracted to cover the TJLP risk.

The loans contracted in foreign currencies also entail the risk of a raise in the interest rate (LIBOR) to which these foreign loans are pegged. These transactions totaled US$232,480 thousand (principal) as of June 30, 2007 (US$232,480 thousand as of March 31, 2007).

Of the total amount of loans and financing involving floating foreign interest rates (LIBOR), US$232,480 thousand as of June 30, 2007 (US$232,480 thousand as of March 31, 2007) (principal) are protected against fluctuation in interest rates (LIBOR) by means of derivatives (interest rate swap).

Exchange rate risk 

The Company and its subsidiary have contracted financial transactions with derivatives so as to protect themselves against exchange rate fluctuations affecting their loans and other liabilities in foreign currencies. The instruments generally used are swap and forward contracts.

The table below summarizes the net exposure of the Company and its subsidiaries to the exchange rate factor as of June 30, 2007:

 

In thousands of

 

US$

 

 

¥

Loans and financing

(580,702)

 

-

 

(44,266,390)

Loans and financing - UMBNDES (a)

(8,929)

 

-

 

-

Derivative instruments

588,323

 

-

 

44,266,390

Other liabilities

(23,542)

 

(18,159)

 

-

 

 

 

 

 

 

Total (insufficient coverage) 

(24,850)

 

(18,159)

 

-

                                  
(a) UMBNDES is a monetary unit conceived by BNDES, composed of a basket of foreign currencies, main currency being the US dollar, and for this reason the Company and its subsidiary consider it in their analysis of the risk coverage against exchange rate fluctuations.

Transactions with derivatives 

The Company and its subsidiary record gains and losses on derivative contracts as  financial income or expenses, net.

The table below shows an estimate of the book value and the market value of the loans and financing, as well as of the transactions with derivatives:

 

Book value

 

Market
value 

 

Unrealized  gain

Loans and financing

(3,705,728)

 

(3,710,032)

 

(4,304)

Derivative instruments

(585,768)

 

(589,546)

 

(3,778)

Other liabilities

(92,582)

 

(92,582)

 

-

 

 

 

 

 

 

Total

(4,384,078)

 

(4,392,160)

 

(8,082)

b) Market value of financial instruments

The market value of loans and financing, as well as of swap contracts, was established on the basis of discounted cash flow, by using projections of interest rates available.

Market values are calculated at a specific time based on available information and own evaluation methodology. Consequently, the indicated estimates do not necessarily represent market realizable values. Use of different assumptions may significantly affect estimates.

 

26. POST-EMPLOYMENT BENEFIT PLANS

The Company and its subsidiary, together with other companies belonging to the former Telebras System, sponsor private pension plans and medical assistance plans for retired employees, administered by the Sistel Social Security Foundation - SISTEL, as follows:

a) PBS-A: multi-sponsored defined benefit plan, designed for participants already assisted as of January 31, 2000.

b) PBS-Telesp Celular, PBS-TCO, PBS Tele Sudeste and PBS Tele Leste Celular: defined retirement benefit plans sponsored individually by the Company.

The contributions to the PBS plans are determined on the basis of actuarial studies prepared by independent actuaries, in accordance with standards in force in Brazil. The costing determination system is that of capitalization and the contribution due by sponsors is 13.5% on their participating employees' salaries, of which 12% are designed for the costing of the PBS plans and 1.5% to the PAMA plan. For the six-month periods ended June 30, 2007, contributions to these plans amounted to R$7.

c) PAMA: multi-sponsored medical assistance plan for retired employees and their dependents, at shared cost.

d) TCP Prev and TCO Prev Plans: Individual plans - defined contribution and variable contribution - instituted by SISTEL in August 2000. In both plan types the Company supports participants' death or disability risk amounts, while in the TCO Prev plan some participants originally enrolled with the PBS-TCO plan are entitled to lifelong retirement benefits (paid-up benefit), besides the benefits of defined contribution. The contributions of the Company to the TCP Prev and TCO Prev plans are equal to those of participants, ranging between 1% and 8% of the contribution salary, according to percentage chosen by participant. For the six-month periods ended June 30, 2007, contributions to these plans amounted to R$4,133.

In civil suit No. 04/081.668-0, brought by ASTEL against the SISTEL Social Security Foundation, in which besides SISTEL also Telefonica and Telesp Celular are summoned, various claims are made, which we summarize as follows: i) that Sistel be prohibited from charging retired employees and other participants any contributions to PAMA - Medical Assistance Plan for Retirees, the same being subject only to a "small participation in actual use"; such participation is  limited to 1% of the assisted person's monthly income; ii) that SISTEL enroll again with PAMA, without any restrictions, the retirees and assisted persons who had their enrollment suspended due to non-payment, as well as those who did not stand the pressure and requested cancellation of their enrolment with PAMA or enrolled with the PCE (Special Coverage Plan), as they wish, also without any restriction; iii) that SISTEL reassess the economic needs of PAMA, including the amounts of sponsors Telefonica's and Telesp Celular's monthly contributions; iv) that sponsors' contributions be calculated on the basis of the payroll of all their employees, as per previous by-laws provision, and not on the basis of the percentage on the payroll of active participants in PBS; v) that Sistel re-establishes the accreditation of all hospitals, clinics and laboratories that were canceled; vi) that a review be carried out of the accounting distribution of equity, so as to attribute to PAMA the amounts corresponding to the reducing factor of the supplementary contributions, as described above, while Sistel is prohibited, as long as this review is not carried out, to perform any splitting of the net equity of PBS-A plan or any other plan administered by the entity; vii) that Sistel and sponsors refund the "transfer of equity of the main substrate designed for guaranteeing PBS-2 and PAMA, illegally transferred to Visão Telesp and Visão Prev Plans of Telesp Celular"; viii) granting of advance relief in relation to items "i", "ii" and "v".

The subsidiary by means of its actuarial consultant made a study of the impacts described above, and concluded that the change in costing, as claimed by ASTEL, would represent an increase in subsidiary's provisions in the amount of R$1,298.     

Based on their legal advisors' and tax consultants' opinions, management believes that there is, at this moment, there is no risk to be paid, and as of June 30, 2007 the likelihood of loss is classified as "possible".

e) Benefit Plans Visão Celular- Celular CRT, Telerj Celular, Telest Celular, Telebahia Celular and Telergipe Celular: defined contribution individual plans, established by Sistel in August, 2000. Company's contributions to Visão Celular plans is equal to those of participants, ranging between 0% and 9% of contribution salary, according to participant's choice. For the six-month period ended June 30, 2007, contributions to these plans amounted to R$3,100.

f) Defined benefit plan: "CRT" sponsored defined benefit pension plans (founding member benefit plan and alternative benefit plan), which were managed by Fundação dos Empregados da Companhia Riograndense de Telecomunicações - FCRT.

On December 21, 2001, "CRT" and Brasil Telecom S/A, sponsors of FCRT, signed a statement of commitment with a view to completely canceling any link between the sponsors, by the withdrawal of "CRT" as a sponsor, with the guarantee that this withdrawal be made strictly in accordance with applicable legislation and respecting participants' rights, which was approved by the Supplementary Pension Department at December 30, 2003.

In spite of the fact that existing legislation permits that contributions of sponsors and participants be discontinued, "CRT" continued paying its contributions from January 2002 to December 2003 in order to safeguard and preserve participants' rights, until CRT’s actual withdrawal from FCRT.

For the actuarial evaluation of the plans, the methodology for withdrawal of sponsor, established by Resolution MPAS CPC No. 06/88, was used.  

Reserves were individually evaluated on the basis of the methodology determined by said Resolution for each category (assisted persons and retirees, imminent active risks and non-imminent active risks).

As of October 2004, "CRT" has been passing on to Sistel, as agreed with FCRT, the amount established as savings reserve of the active employees of "CRT" who opted to migrate from FCRT's Alternative / Founding Member Plans to the Visão Plan, totaling at June 30, 2007 the amount of R$ 9,515. As of June 30, 2007, of the provision made under liabilities in the amount of R$ 17,991 (R$ 15,297 as of March 31, 2007), R$ 3,245 refers to Withdrawal Reserve of participants with a signed Statement of Intention to Migrate to BrTPrev, and that are awaiting their retirement application to be processed by INSS.

On February 02, 2007, the process for transferring the administration of  Sistel Social Security Foundation plans to Visão Prev - Society of Supplementary Pension was approved, as follows: PBS Telesp Celular, TCPPrev, PBS Tele Centro Oeste Celular, TCOPrev, PBS Telesudeste Celular, Visão  Telerj Celular, Visão Telest Celular, PBS Teleleste Celular, Visão Telebahia Celular, Visão Telergipe Celular and Visão Celular CRT.

The eleven plans sponsored by the subsidiary are being gradually transferred to the Visão Prev. On May 02, 2007, the transfer of the assets of the plans occurred. The deadline for the conclusion of the transfer is December 31, 2007.

 

27. TRANSACTIONS WITH RELATED PARTIES

The main transactions with related, non-consolidated parties are:

a) Communication via local cellular phone and long distance and use of network: these transactions involve companies belonging to the same controlling group: Telecomunicações de São Paulo S/A - TELESP and subsidiaries. A portion of these transactions was established on the basis of contracts signed by TELEBRAS with the operators who had concessions, prior to the privatization, under conditions regulated by ANATEL. This includes customer service to Telecomunicações Móveis Nacionais -TMN in roaming on the Company's network.

b) Technical Assistance: this refers to business consultant services provided by PT SGPS and technical assistance by Telefônica S/A, Telefônica International S/A and TBS Celular Participações S/A, calculated on the basis of a percentage on net income from services restated according to monetary variation.

c) Rendering of corporate services: these were passed on to subsidiary at cost effectively incurred.

d) Telephone customer service: by Atento Brasil S/A and Mobitel S/A-Dedic to users of subsidiaries' telecommunications services, contracted for 12 months, and renewable for an equal period.

e) System development and maintenance services: rendered by Portugal Telecom Inovação Brasil S/A.

f) Logistics operator and financial and accounting consultancy services: rendered by Telefônica Serviços Empresariais do Brasil Ltda.

g) Voice portal content provider services: rendered by Terra Networks Brasil S/A

We summarize below balances and transactions with related, non-consolidated parties:

 

Consolidated

 

June 30, 07    

 

March 31, 07    

Assets:

 

 

 

Accounts receivable, net

176,931

 

180,399

Intercompany credits

4,439

 

4,448

 

 

 

 

Liabilities:

 

 

 

Suppliers and accounts payable

216,755

 

197,488

Technical assistance

85,497

 

81,654

Payables to related parties

928

 

2,238

 

 

 

 

 

For the six-month periods ended

 

Jun 30, 07    

 

Jun 30, 06    

Results:

 

 

 

Income from telecommunications services

827,745

 

812,577

Cost of sales and services   

(74,214)

 

(70,630)

Selling expenses

(238,777)

 

(261,259)

General and administrative expenses

(98,796)

 

(70,903)

Other operating income (expenses), net

22,707

 

2,557

Financial income (expenses), net    

5,882

 

5,563

Nonoperating income

14

 

-


 

28. INSURANCE (CONSOLIDATED) (NOT REVIEWED BY AN OUTSIDE AUDITOR)

The Company and its subsidiary maintain a policy of monitoring risks inherent to their activities. On account of this, as of June 30, 2007, the Company and its subsidiary had insurance contracts in force to cover operating risks, civil liability, health risks, etc. The Managements of the Company and of its subsidiary understand that insured amounts are sufficient to cover potential losses. The main assets, responsibilities or interests covered by insurance and respective amounts are shown below:        

Type of Insurance

 

   Insured amounts

Operating risks

 

R$11,354,947

General Civil Liability         

 

R$ 5,564

Automobile (fleet of executive vehicles)   

 

100% of the  Fipe Table, R$200 for Personal and Property Damages

 

29. AMERICAN DEPOSITARY RECEIPTS (ADR) PROGRAM

On November 16, 1998, the company started trading ADRs on the New York Stock Exchange (NYSE) under code "TCP" and since March 31, 2006 under code "VIV" (in accordance with the decision by the Special Shareholders’ Meeting of February 22, 2006), with the following main characteristics:

 

30. SUBSEQUENT EVENTS

On July 11, 2007, the Company’s Board of Directors approved the following conditions for renegotiation of the debentures of  its 1st issue, whose characteristics are: 

 


SIGNATURE

 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: August 06, 2007

 
VIVO PARTICIPAÇÕES S.A.
By:
/S/ Ernesto Gardelliano

 
Ernesto Gardelliano
Investor Relations Officer
 

 
FORWARD-LOOKING STATEMENTS

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