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INTERNET | Internet Software & Services / Multimedia & Graphics
terra.com

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Stage

Acquired | Acquired

Valuation

$0000 

About Terra Networks

Terra Networks SA mainly provides internet access, e-mail, security, and music services.

Terra Networks Headquarter Location

Madrid,

Spain

+55 08007771234

Latest Terra Networks News

Telefônica Brasil S A : 3rd Quarter 3Q20

Nov 7, 2020

0 Message : Report on review of quarterly information To the Board of Directors and Stockholders Telefônica Brasil S.A. Introduction We have reviewed the accompanying parent company and consolidated interim accounting information of Telefônica Brasil S.A. ("Parent company" or "Company"), included in the Quarterly Information Form (ITR) for the quarter ended September 30, 2020, comprising the balance sheet at that date and the statements of income and comprehensive income for the quarter and nine-month period then ended, and the statements of changes in equity and cash flows for the nine-month period then ended, as well as a summary of significant accounting policies and other explanatory information. Management is responsible for the preparation of the parent company and consolidated interim accounting information in accordance with the accounting standard CPC 21, Interim Financial Reporting, of the Brazilian Accounting Pronouncements Committee (CPC), and International Accounting Standard (IAS) 34 - Interim Financial Reporting issued by the International Accounting Standards Board (IASB), as well as the presentation of this information in accordance with the standards issued by the Brazilian Securities Commission (CVM), applicable to the preparation of the Quarterly Information (ITR). Our responsibility is to express a conclusion on this interim accounting information based on our review. Scope of review We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim Financial Information (NBC TR 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Brazilian and International Standards on Auditing and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion on the interim information Based on our review, nothing has come to our attention that causes us to believe that the accompanying parent company and consolidated interim accounting information included in the quarterly information referred to above has not been prepared, in all material respects, in accordance with CPC 21 and IAS 34 applicable to the preparation of the Quarterly Information, and presented in accordance with the standards issued by the CVM. (A free translation of the original in Portuguese) Other matters Statements of value added The Quarterly Information referred to above include the parent company and consolidated statements of value added for the nine-month period ended September 30, 2020. These statements are the responsibility of the Company's management and are presented as supplementary information for IAS 34 purposes. These statements have been subjected to review procedures performed together with the review of the quarterly information for the purpose of concluding whether they are reconciled with the interim accounting information and accounting records, as applicable, and if their form and content are in accordance with the criteria defined in the accounting standard CPC 09 - "Statement of Value Added". Based on our review, nothing has come to our attention that causes us to believe that these statements of value added have not been properly prepared, in all material respects, in accordance with the criteria defined in this accounting standard, and in a consistent manner in relation to the parent company and consolidated interim accounting information taken as a whole. São Paulo, October 23, 2020 PricewaterhouseCoopers (In thousands of reais) Company 14 7 16 7 17 8 19 17 65.686 14 7 16 8 19 (In thousands of reais, except earnings per share) (A free translation of the original in Portuguese) Company 24 11 7 1.211.487 22 22 Nine-month periods ended September 30, 2020 and 2019 (In thousands of reais) Capital reserves 63.571.416 17 - - 63.571.416 17 - - 63.571.416 17 17 1.c - 63.571.416 Three and nine-month periods ended September 30, 2020 and 2019 (In thousands of reais) Company 1.211.487 periods 22 22 164 22 1.219.673 (In thousands in reais) Company 41.095.433 24 (14.352.646) (8.797.173) (5.834.531) 1.278.559 11 3.217.281 136.433 (In thousands in reais) Company 41.095.433 24 (14.352.646) (8.797.173) (5.834.531) 1.278.559 11 3.217.281 136.433 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) 1) OPERATIONS Background information Telefônica Brasil S.A. (the "Company" or "Telefônica Brasil") is a publicly-held corporation whose corporate purpose includes operating telecommunications services; development of activities necessary or complementary to the execution of such services, in accordance with the concessions, authorizations and permissions granted; exploration of value-added services; offering of integrated solutions, management and provision of services related to: (i) data centers, including hosting and co-location; (ii) storage, processing and management of data, information, texts, images, videos, applications and information systems and similar; (iii) information technology; (iv) information and communication security; (v) telecommunications; and (vi) electronic security systems; licensing and sublicensing of software of any nature, among others. The Company's principal offices are located at 1376, Engenheiro Luis Carlos Berrini Avenue, in the city and state of São Paulo, Brazil. It is a member of the Telefónica Group ("Group"), based in Spain which operates in several countries across Europe and Latin America. On September 30, 2020 and December 31, 2019, Telefónica S.A. ("Telefónica"), the Group holding company, held a total direct and indirect interest in the Company of 73.58% (Note 22). The Company is registered with the Brazilian Securities Commission ("CVM") as a publicly held company under Category A (issuers authorized to trade any marketable securities). Its shares are traded on the B3 Brazilian stock exchange. The Company is also registered with the U.S. Securities and Exchange Commission ("SEC") and its American Depositary Shares ("ADSs") Level II, backed preferred shares are traded on the New York Stock Exchange ("NYSE"). Operations The Company renders services for: (i) Fixed Switched Telephone Service Concession Arrangement ("STFC"); Multimedia Communication Service ("SCM", data communication, including broadband internet); (iii) Personal Mobile Service ("SMP"); and (iv) Conditioned Access Service ("SEAC" - Pay TV), throughout Brazil, through concessions and authorizations, in addition to other activities. Service concessions and authorizations are granted by Brazil's Telecommunications Regulatory Agency ("ANATEL"), the agency responsible for the regulation of the Brazilian telecommunications sector under the terms of Law No. 9472 of July 16, 1997 - General Telecommunications Law ("Lei Geral das Telecomunicações" - LGT). In accordance with the STFC service concession agreement, every two years, during the agreement's 20-year term ending on December 31, 2025, the Company will pay a fee equivalent to 2% of its prior-year STFC revenue, net of applicable taxes and social contribution taxes (Note 21). Before the publication of Law No. 13,879 / 2019, spectrum authorizations were valid for 15 years (in general) and could be renewed only once, for the same period. Following the normative revision, under the same Law, successive grants renewals were allowed, though the application was unclear. This was clarified by Decree No. 10,402 / 2020, which detailed the requirements for successive renewals and confirmed that the current authorizations are covered. The Decree also defines the conditions to be considered by ANATEL in the scope of renewal requests, such as ensuring the efficient use of spectrum, competitive aspects, meeting the public interest and fulfilling the obligations already assumed with ANATEL. Page 10 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) Currently, every two years after the first renewal of these agreements, the Company will pay a fee equivalent to 2% of its prior-year SMP revenue, net of applicable taxes and social contribution taxes (Note 21), and for certain terms, in the 15th year, the Company will pay 1% of its prior-year revenue. The calculation will consider the net revenue from Basic and Alternative Services Plans. In July 2018, ANATEL published Resolution No. 695 with a new public spectrum price regulation. This Resolution sets new criteria for the costs of renewing licenses. The formula considers factors such as authorization time, regional revenue and the amount of spectrum used by the provider. Part of the payment can be converted into investment commitments. When deciding on the extension of the 850 MHz band authorizations, ANATEL determined, through Judgment No. 510, of September 30, 2020, that (i) the Superintendence of Granting and Provisioning Resources ("SOR") deal with requests for extension of the current authorizations for the use of radio frequencies in sub-bands A and B, proposing their approval, on a primary basis, until November 29, 2028, if the legal and regulatory requirements are met; and that (ii) the amount due for the extension must be calculated based on net present value parameters, in order to reflect the real economic value (market value) of the bands. Therefore, after the necessary procedures with SOR have been overcome, the Authorization Term No. 001/2006 / PVCP / SPV- ANATEL, held by the Company and which expires on November 29, 2020, should be extended to 29 November 2028. The extension for a period lower than the maximum limit established by Law (20 years) was, according to ANATEL, due to the need to promote reorganization and resizing of the channel's channeling. The calculation of the value by method other than those previously mentioned (biannual charges and Resolution No. 695/2018, which approved the Public Price Regulation for the Right to Use Radio Frequencies ("PPDUR") was decided on the grounds that the current regulatory instruments have no provision for applicability in cases of a second extension of authorizations. Corporate events in 2020 and 2019 In 2020 Structuring of Vivo Money Credit Rights Investment Fund In August 2020, the Vivo Money Credit Rights Investment Fund ("FIDC" or "Vivo Money") was structured, in the form of a closed condominium, for an indefinite term. The FIDC may be liquidated by resolution of the General Assembly in accordance with its regulations. The objective of the FIDC is to provide its quotaholders an equity return on their shares by investing in the acquisition of: (i) eligible credit rights, with supporting documents, which meet the eligibility criteria and the conditions of assignment, and (ii) financial assets, observing all indexes of composition and diversification of the fund's portfolio. The acquisition of eligible credit rights and other financial assets will originate in credit transactions carried out electronically by the Company's customers, within the scope of the Vivo Money program, exclusively through an electronic platform provided by the Company. The FIDC began operations on September 14, 2020, having been granted automatic registration under article 8 of CVM Instruction 356/01, issuing 2,000 junior subordinated quotas with an initial unit face value of R$1,000.00 (one thousand reais), with no defined remuneration parameter and subordinated to senior shares and subordinated mezzanine shares, in that order of priority, for the purpose of amortization and redemption. The FIDC is managed and held in custody by Brl Trust Distribuidora de Títulos e Valores Mobiliários S.A., a financial institution, based in the city of São Paulo - SP, accredited by the CVM for the exercise of portfolio management activity under declaratory act no. 11,784, of June 30, 2011. Acquisition of control of Telefônica Cibersegurança e Tecnologia do Brasil Ltda. In September 2020, the Company acquired control of Telefônica Cibersegurança e Tecnologia do Brasil Ltda ("Cibersegurança"), for R$10,000.00 (ten thousand reais), with a net worth of R$500.00 (five hundred reais) . The difference between the amounts paid and shareholders' equity was accounted for as "Capital Transactions", in the Company's shareholders' equity. Cibersegurança was controlled by Terra Networks Brasil S.A. ("Terra Networks"), a wholly-owned subsidiary of the Company and its corporate purpose is to develop integrated solutions, management, consulting, Page 11 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) outsourcing, and the provision of services related to information and communication security; provision of research, technological development, consultancy, design, implementation and installation of projects related to the areas of information technology, information security and intelligence; management and provision of repair, maintenance, technical assistance and technical support in information technology, among other services. In 2019 The information on the acquisition of Telefônica Infraestrutura e Segurança Ltda. ("TIS") by wholly-owned subsidiary Terra Networks Brasil S.A. ("Terra Networks") on September 26, 2019 which became operational as from September 1, 2019, is the same as presented in Note 1.c .1) Acquisition of TIS by Wholly Owned Subsidiary - 2019, to the financial statements for the year ended December 31, 2019. BASIS OF PREPARATION AND PRESENTATION OF THE QUARTERLY FINANCIAL STATEMENTS Statement of compliance The individual (Company) and consolidated quarterly financial statements were prepared and are presented in accordance with International Standard IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board ("IASB") consistent with CVM deliberations, applicable to the preparation of the quarterly financial statements. Basis of preparation and presentation The quarterly financial statements were prepared on a historical cost basis (except where different criteria are required) and adjusted to reflect the valuation of assets and liabilities measured at fair value. All significant information is disclosed in the quarterly financial statements and is consistent with that used by Company management in the performance of its duties. The Statement of Cash Flows was prepared in accordance with IAS 7 - Statement of Cash Flows and reflects the changes in cash that occurred in the periods presented using the indirect method. The accounting standards adopted in Brazil require the presentation of the Statement of Value Added ("SVA"), individual and consolidated, while IFRS does not require this presentation. As a result, under IFRS standards, the SVA is being presented as supplementary information, without prejudice to the overall quarterly financial statements. Assets and liabilities are classified as current when it is probable that their realization or settlement will occur in the next 12 months. Otherwise, they are classified and shown as non-current. The only exception relates to the balances of deferred tax assets and liabilities, which are all classified as non-current. The quarterly financial statements compare the three and nine-month periods ended September 30, 2020 and 2019, except for the balance sheets that compare positions on September 30, 2020 with December 31, 2019. The Board of Directors authorized the issue of these individual and consolidated quarterly financial statements at the meeting held on October 23, 2020. Functional and reporting currency The Company's quarterly financial statements are presented in thousands of Real/Reais (R$), unless otherwise stated. The Company's functional and reporting currency is the Brazilian Real. Transactions in foreign currency are translated into Brazilian Reais as follows: (i) assets, liabilities and shareholders' equity (excluding capital stock and capital reserves) are translated at the closing exchange rate on the balance sheet date; (ii) expenses and Page 12 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) revenues are translated at the average exchange rate, except for specific transactions that are converted by the transaction date rate; and (iii) the capital stock and capital reserves are translated at the transaction date rate. Gains and losses from the conversion of investments abroad are recognized in the statement of comprehensive income. Gains and losses from the translation of monetary assets and liabilities between the exchange rate prevailing at the date of the transaction and the year-end closing (except for the conversion of investments abroad) are recognized in the statement of income. Basis of consolidation Interests held in subsidiaries or joint ventures are measured under the equity method in the individual quarterly financial statements. In the consolidated quarterly financial statements, investments and all asset and liability balances, revenues and expenses arising from transactions and interest held in subsidiaries are fully eliminated. Investments in joint ventures are measured under the equity method in the quarterly financial statements. On September 30, 2020 and December 31, 2019, the Company held direct equity interests in subsidiaries and joint ventures. Summarized information on the Company's investees is as below: The information on the direct subsidiaries and joint ventures, is the same as presented in Note 2.d) Basis of consolidation, to the financial statements for the year ended December 31, 2019, except for investments in Vivo Money and Cibersegurança (Note 1.c). Segment reporting Business segments are defined as components of a company for which separate financial information is available and regularly assessed by the chief operational decision-maker in allocating funds to an individual segment and in the assessment of segment performance. Considering that: (i) all officers and managers' decisions are based on consolidated reports; (ii) the Company and its subsidiaries' mission is to provide their customers with quality telecommunications services; and (iii) all decisions related to strategic planning, finance, purchases, short- and long-term investments are made on a consolidated basis, the Company and its subsidiaries operate in a single operating segment, namely the provision of telecommunications services. Significant accounting practices As the information for the notes to the financial statements is not significantly different from the disclosures as at December 31, 2019, this has not been repeated in detail in these quarterly financial statements. The accounting policies adopted in the preparation of the quarterly financial statements in the nine-month period ended September 30, 2020 are consistent with those used in the preparation of the consolidated annual financial statements for the year ended December 31, 2019, except for any new accounting standards, Page 13 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) interpretations and amendments approved for the IASB which came into effect as of or after January 1, 2020, as follows: The adoption of these standards, amendments and interpretations did not have a significant impact on the consolidated quarterly financial statements in the initial period of adoption. The Company does not anticipate the early adoption of any issued pronouncement, interpretation or amendment before the mandatory adoption date. Significant accounting judgments estimates and assumptions The preparation of the quarterly financial statements requires the use of certain critical accounting estimates and the exercise of judgment by the Company's management in applying its accounting policies. These estimates are based on experience, knowledge, information available at the end of the year, and other factors, including expectations of future events that are believed to be reasonable in the circumstances. Actual results involving these estimates could differ from those recorded in the quarterly financial statements due to the criteria inherent in the estimation process. The Company and its subsidiaries review its estimates at least annually. The significant and relevant estimates and judgments applied by the Company and its subsidiaries in the preparation of these quarterly financial statements are the same as presented in the following notes: trade accounts receivable (Note 4); income and social contribution taxes (Note 7); property, plant and equipment (Note 12); intangible assets (Note 13); provision and contingencies (Note 19); net operating income (Note 24); pension plans and other post-employment benefits (Note 30); and financial instruments and risk and capital management (Note 31), disclosed in the financial statements for the year ended December 31, 2019. 3) CASH AND CASH EQUIVALENTS On September 30, 2020 and December 31, 2019, the Company and Consolidated balances included R$42,776 and R$59,657, respectively, related to the Financial Clearing House, with a Telefónica Group company (note 27). Highly liquid short-term investments basically comprise Bank Deposit Certificates ("CDB") and Repurchase Agreements with first tier rated financial institutions, indexed to the Interbank Deposit Certificate ("CDI") rate, with original maturities of up to three months, and with immaterial risk of change in value. Income from these investments are recorded as financial income. 4) TRADE ACCOUNTS RECEIVABLE Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) On September 30, 2020 and December 31, 2019, the consolidated balances of the contractual assets, net of estimated losses for impairment were R$137,095 and R$223,314, respectively. Consolidated balances of non-current trade accounts receivable include: (1) The maturity schedule of the nominal amounts and the present value of the Vivo TECH product is up to five years. There are no unsecured residual values resulting in benefits to the lessor nor contingent payments recognized as revenue for the periods. The following are amounts receivable, net of estimated losses for impairment of accounts receivable, by maturity: On September 30, 2020 and December 31, 2019, no customer represented more than 10% of trade accounts receivable, net. The following table shows the changes in estimated losses for impairment of accounts receivable. Page 15 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) 5) INVENTORIES This includes, among others, mobile phones, simcards (chip) and IT equipment in stock. Additions and reversals of estimated impairment losses and inventory obsolescence are included in cost of sales and services (Note 24). 6) PREPAID EXPENSES Refers to the remaining portion of the Inspection and Operation Fee amounts, which will be amortized to the result until the end of the year 2020. On September 30, 2020 and December 31, 2019, the consolidated balances include R$6,450 and R$3,738, respectively, for software rentals and maintenance with companies of the Telefónica Group (Note 27). The variation reflects new contracts in the period. 7) INCOME AND SOCIAL CONTRIBUTION TAXES Page 16 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) Income and Social Contribution taxes recoverable Income and Social Contribution taxes payable Deferred taxes Page 17 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) Under Brazilian tax legislation these may be used to offset up to 30% of annual taxable income but otherwise have no expiry date. Amounts that will be realized upon use of the provision, upon impairment losses for trade accounts receivable, or realization of inventories, as well as reversal of other provisions. Deferred taxes from other temporary differences, such as deferred income, renewal of licenses, disposal of structures (towers and rooftops), among others. On September 30, 2020, deferred tax assets (income and social contribution tax losses) were not recognized in the subsidiaries' (Innoweb, TGLog, TIS, Vivo Money and Cibersegurança) accounting records, in the amount of R$63,718 (R$54,570 on December 31, 2019), as it is not probable that future taxable profits will be sufficient for offset for these subsidiaries to benefit from such tax credits. Reconciliation of income tax and social contribution expense The Company and its subsidiaries recognize income and social contribution taxes on an accrual basis, and pay taxes based on estimates in the tax auxiliary trial balance. Taxes calculated on profits up to the date of the quarterly financial statements are recorded in liabilities or assets, as applicable. Reconciliation of the reported tax expense and the amounts calculated by applying the statutory tax rate of 34% (income tax of 25% and social contribution tax of 9%) is shown in the table below for the periods of three and nine month ended September 30, 2020 and 2019. Page 18 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) Treatment of uncertain income tax positions The Company and its subsidiaries are defending several assessments filed by the Federal Revenue of Brazil ("RFB") for allegedly incorrect deductions of expenses, mainly related to the amortization of goodwill, at various administrative and judicial levels, in the amount of R$9,997,829 on September 30, 2020 (R$9,895,728 on December 31, 2019). Management, supported by the position of its legal advisors, believes that a large part of these deductions will likely be accepted in decisions of higher courts of last resort (acceptance probability greater than 50%). For tax treatments in which the Company and its subsidiaries believes that the probability of acceptance by the tax authority is less than 50%, an income tax and social contribution liability was recognized in the amount of R$96,074 on September 30, 2020 (R$86,512 on December 13, 2019), in relation to these actions (Note 7.b). Page 19 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) 8) TAXES, CHARGES AND CONTRIBUTIONS RECOVERABLE Includes ICMS credits from the acquisition of property and equipment, available for offset over 48 months; requests for refund of ICMS paid on invoices that were subsequently cancelled; for the rendering of services; tax substitution; and tax rate difference; among others. Non-current consolidated amounts include credits arising from the acquisition of property and equipment of R$548,352 and R$537,209 on September 30, 2020 and December 31, 2019, respectively. The current balances on September 30, 2020 and December 31, 2019 include tax credits for PIS and COFINS plus interest accruals based on the SELIC, in the amounts of R$676,099 and R$2,046,274, respectively, arising from the final judicial processes on May 17, 2018, August 28, 2018 and May 5, 2020 in favor of the Company and its subsidiary, which recognized the right to deduct ICMS from the basis of the calculation of PIS and COFINS contributions for the periods from July 2002 to June 2017, July 2004 to June 2013 and November 2001 to March 2016, respectively. The Company has two other lawsuits of the same nature in progress (including lawsuit of company that have already been merged - Telemig), treated as contingent assets, which cover several periods between February 2002 and June 2017, with estimated amounts between R$1,762 million and R$1,938 million. Withholding income tax ("IRRF") credits on short-term investments, interest on equity and others, which are retained in operations for the period and social contribution tax withheld at source on services provided to public agencies. 9) JUDICIAL DEPOSITS AND GARNISHMENTS When granted suspension of tax liability, judicial deposits, are required to be made by law to enable claims discussions to proceed. Judicial deposits are recorded at historical cost-plus legal indexation/interest accruals. Page 20 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) The table below presents the classified balances on September 30, 2020 and December 31, 2019 of the tax judicial deposits (classified by tax). On July 13, 2020, the 2nd Federal Court of Maringá - PR issued an order determining the transfer to the Company of the judicial deposit made by the former GVT, referring to the tax use of goodwill generated in operations to incorporate subsidiaries, in the updated amount of R$490,604, which was deposited in favor of the Company on July 20, 2020. 10) OTHER ASSETS On September 30, 2020 and December 31, 2019, includes R$169,832 and R$209,347, respectively, referring to the distribution of the PBS-A surplus (Note 29). Page 21 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) Refers to the balance of property, plant and equipment available for sale, resulting from the contract entered into by the Company on November 28, 2019, for the sale of 1,909 structures (rooftops and towers) owned by the Company to Telxius Torres Brasil Ltda. (note 12). On February 7, 2020, this transaction was concluded for a total amount of R$641 million, after the fulfillment of all suspensive conditions common to this type of transaction, including the approval of the Transaction by the Administrative Council for Economic Defense ("CADE"). On September 30, 2020 and December 31, 2019, includes R$12,142 and R$10,226, respectively, from a subletting agreement in the Curitiba Data Center, for a period of 22 years and of structures (towers and rooftops) for a period of 10 years (this occurred in the 1st quarter of 2020). There are no unsecured residual amounts that result in lessor benefits and no contingent payments recognized as income during the period (Note 12). 11) INVESTMENTS Information on investees The information related to subsidiaries and jointly-controlled entities is unchanged from Note 11) Investments, to the December 31, 2019 financial statements, except for investments in Vivo Money and Cibersegurança (Note 1.c). The following is a summary of the significant financial information on the investees in which the Company holds a stake including changes as described in Note 2 d). Changes in investments Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) The amount of R$135 referring to equity accounting on Cibersegurança, was recognized in the parent company as "unsecured liability" and eliminated on consolidation. 12) PROPERTY, PLANT AND EQUIPMENT Breakdown, changes and depreciation rates Page 23 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) Page 24 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) The Company and its subsidiaries recognized estimated losses and write-offs (when applicable) for potential obsolescence of materials used for property and equipment maintenance, based on historical experience and expected future use. Infrastructure, includes R$44,362 in 2020 and R$105,952 in 2019, for cancellation of lease agreements (Note 19). Refers to assets sold from the Tamboré and Curitiba (CIC) data centers to a company controlled by Asterion Industrial Partners SGEIC, SA, pursuant to an agreement entered into by the Company on May 8, 2019 with the settlement on July 24, 2019. It also includes property, plant and equipment intended for sale, resulting from the contract entered into by the Company on November 28, 2019, for the sale of 1,909 structures (rooftops and towers) owned by the Company to Telxius Torres Brasil Ltda. (Note 10). On February 7, 2020, this transaction was concluded. Refers to the lease for structures (towers and rooftops) in 2020 and for areas in the Curitiba data center in 2019. There were no changes in useful lives or depreciation rates for September 30, 2020 and December 31, 2019. Additional information on leases Changes in leases, after the adoption of IFRS 16, incorporated in the asset tables (Note 12.a), are as follows. Page 25 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) (1) Includes lease under IAS 17 and provision for dismantling at conclusion of leases. Property and equipment items pledged in guarantee On September 30, 2020, the Company had property and equipment pledged in guarantee for lawsuits, of R$81,318 (R$81,416 on December 31, 2019). Reversible assets The STFC service concession arrangement establishes that all assets owned by the Company and that are indispensable to the provision of the services described in the arrangement are considered "reversible" (returnable to the concession authority). On September 30, 2020, estimated value of reversible assets was R$7,007,273 (R$7,364,456 on December 31, 2019), which comprised switching and transmission equipment and public use terminals, external network equipment, energy, system and operational support equipment. Page 26 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) 13) INTANGIBLE ASSETS Page 27 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) Refers to proportional write-off of R$3,249 in July 2019 from the sale of the Tamboré and Curitiba (CIC) data centers, pursuant to paragraph 86 of IAS 36. The information related to goodwill is the same as in Note 13.d) Goodwill, to the December 31, 2019 financial statements. Refers to assets sold from the Tamboré and Curitiba (CIC) data centers to a company controlled by Asterion Industrial Partners SGEIC, SA, pursuant to an agreement entered into by the Company on May 8, 2019 and with settlement on July 24, 2019. There were no changes in useful lives or amortization rates for September 30, 2020 and December 31, 2019. 14) PERSONNEL, SOCIAL CHARGES AND BENEFITS 15) TRADE ACCOUNTS PAYABLE Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) 16) TAXES, CHARGES AND CONTRIBUTIONS PAYABLE On April 15, 2020, provisional measure 952 was published in the Official Gazette ("DOU"), extending the deadline for payment of Fistel from March 31, 2020 to August 31, 2020, with no impact additional penalty or interest. On August 12, 2020, the Company made a partial payment of R$416,475. The residual balance refers to the suspended payment according to the decision of the Federal Regional Court of the First Region, published on March 18, 2020. DIVIDENDS AND INTEREST ON EQUITY (IOE) a) Dividends and interest on equity receivable For the cash flow statement, interest on equity and dividends received from the subsidiary are allocated to the "Investing Activities" group of accounts. Page 29 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) Dividends and interest on equity payable b.1) Breakdown: b.2) Changes: For the cash flow statement, interest on equity and dividends paid to shareholders are recognized in "Financing Activities". The rights to receive unclaimed interest on equity and dividends prescribe after three years from the initial date available for payment. When dividends and interest on equity expire, these amounts are reversed to retained earnings. 18) PROVISIONS AND CONTINGENCIES Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) The Company and its subsidiaries are party to administrative and judicial proceedings and labor, tax, regulatory and civil claims filed in different courts. Management, under the advice of its legal counsel, recognized provision for proceedings for which an unfavorable outcome is considered probable. Breakdown of changes in provision for cases in which an unfavorable outcome is probable, in addition to contingent liabilities and provision for dismantling are as follows: Page 31 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) (1) Provision for dismantling: refers to the reversal resulting from the review of costs for dismantling technical sites. Labor provision and contingencies Labor provision and contingencies involve labor claims filed by former employees and outsourced employees (the latter involving subsidiary or joint liability) claiming for, among other issues, overtime, salary equalization, post-retirement benefits, allowance for health hazard and risk premium, and matters relating to outsourcing. The variation of R$984,211 in possible contingencies was due to new actions and revaluations that occurred in the period, due to the progress of the lawsuits. The Company is also a defendant in labor claims filed by retired former employees who are covered by the Retired Employees Medical Assistance Plan ("PAMA"), and, among other issues, are demanding the cancellation of amendments to this plan. There are currently five actions underway with this object. In one of them, a decision by the Superior Labor Court is awaited. The other actions are at a less advanced stage. Most of these claims await a decision by the Superior Labor Court. Based on the position of its legal counsel and recent decisions of the courts, management considers the risk of loss from these claims to be possible. No amount has been specified for these claims, since is not possible to estimate the cost to the Company in the event of loss. In addition, the Company is a party to Public Civil Actions filed by the Public Prosecution Service to cause the Company to cease hiring service provider to carry out the Company's core activities. In August 2018, the majority of the Federal Supreme Court ("STF") Ministers ruled the outsourcing to be legally valid, including core activities, enabling the subsidiary to provide services. As a result of this decision, most of the Public Civil Actions have already had decisions based on the legality of outsourcing in the analyzed contract and the Page 32 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) consequent filing of the processes. However, awaiting judgment of the motion for clarification to clarify the scope of said decision, including for cases that have already been res judicata, an opportunity in which the application of said decision will be evaluated in each of the residual processes in which the topic is discussed. In view of these considerations, there are still no conditions to estimate amounts or possible losses for the Company. Tax provision and contingencies The Company and its subsidiaries are defending various assessments filed by the Federal Revenue of Brazil ("RFB") for alleged incorrect deductions of expenses, mainly related to the amortization of goodwill, at various administrative and judicial levels. Management, supported by the position of its legal advisors, believes that a large part of these deductions will probably be accepted in decisions of higher courts of last resort (acceptance probability greater than 50%). For cases in which the Company and its subsidiaries believe that the probability of acceptance by the tax authority is less than 50% a provision is recognized. Details of above cases are disclosed in Note 7 (e). b.1) Tax provisions Management, under advice of legal counsel, believes that the following losses are probable in the federal, state, municipal and regulatory (FUST) tax proceedings: Federal taxes The Company and/or its subsidiaries are party to administrative and legal proceedings at the federal level relating to: (i) claims for the non-ratification of compensation and refund requests formulated; (ii) IRRF and CIDE on remittances abroad related to technical and administrative assistance and similar services, as well as royalties; (iii) withholding income tax on interest on equity; (iv) Social Investment Fund (Finsocial) offset amounts; (v) additional charges to the PIS and COFINS tax base, as well as additional charges to COFINS required by Law No. 9,718/98; and (vi) ex-tariff, cancellation of the benefits under CAMEX Resolution No. 6, increase in the import duty from 4% to 28%. State taxes The Company and/or its subsidiaries are party to administrative and judicial proceedings at the state level relating to ICMS, regarding: (i) disallowance credits; (ii) non-taxation of alleged telecommunications services; tax credit for challenges/disputes over telecommunication services not provided or wrongly charged (Agreement 39/01); (iv) rate differential; (v) leasing of infrastructure for internet services (data); (vi) outflows of goods with prices lower than those of acquisition; and (vii) non-taxation discounts to customers. Municipal taxes Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) The Company and/or its subsidiaries are party to municipal tax proceedings, at the judicial level, relating to: (i) Property tax ("IPTU"); (ii) Services tax ("ISS") on equipment leasing services, non-core activities and supplementary activities; and (iii) withholding of ISS on contractors' services. FUST The Company and/or its subsidiaries have judicial proceedings related to the non-inclusion of interconnection expenses and industrial exploitation of a dedicated line in the calculation basis of FUST. b.2) Possible losses - tax contingencies Management, under advice of legal counsel, believes that the risk of loss from the following federal, state, municipal and regulatory (FUST, FUNTTEL and FISTEL) are possible: Federal taxes The Company and/or its subsidiaries are party to administrative and judicial proceedings, at the federal level, which are awaiting decision at different court levels. The more significant of these proceedings are: (i) dissatisfaction from failure to approve requests for compensation submitted by the Company; (ii) INSS (a) on compensation payment for salary losses arising from the "Plano Verão" and the "Plano Bresser"; (b) SAT, social security amounts owed to third parties (INCRA and SEBRAE); (c) meals to employees, withholding of 11% (assignment of workforce); and (d) Stock Options requirement of social security contributions on amounts paid to employees under the stock option plan; (iii) deduction of COFINS on swap operation losses; (iv) PIS and COFINS: (a) accrual basis versus cash basis; (b) levies on value-added services; and (c) monthly subscription services; (v) IPI levied on shipment of fixed access units from the Company's establishment; (vi) Financial transaction tax (IOF) - on loan transactions, intercompany loans and credit transactions; and (vii) IRRF on capital gain on the sale of the GVT Group to the Company (included in the 2020 financial year). State taxes The Company and/or its subsidiaries are party to administrative and judicial proceedings, at the state level, related to ICMS, which are awaiting decision in different court levels: (i) rental of movable property; (ii) international calls; (iii) reversal of previously unused credits; (iv) service provided outside São Paulo state paid to São Paulo state; (v) co-billing; (vi) tax substitution with a fictitious tax base (tax guideline); (vii) use of credits on acquisition of electric power; (viii) secondary activities, value added and supplementary services; (ix) tax credits related to claims/challenges regarding telecommunications services not provided or mistakenly charged (Agreement 39/01); (x) deferred collection of interconnection ("DETRAF" - Traffic and Service Provision Document); (xi) credits derived from tax benefits granted by other states; (xii) disallowance of tax incentives related to cultural projects; (xiii) transfers of assets among business units owned by the Company; communications service tax credits used in provision of services of the same nature; (xv) card donation for prepaid service activation; (xvi) reversal of credit from return and free lease in connection with assignment of networks (used by the Company itself and exemption of public bodies); (xvii) DETRAF fine; (xviii) own consumption; (xix) exemption of public bodies; (xx) discounts granted; (xxi) new tax register bookkeeping without prior authorization by tax authorities; (xxii) advertising services; (xxiii) unmeasured services; and (xxiv) monthly subscription, which is in the STF with declaration liens and the Company awaits the judgment of the STF on the request for modulation. Municipal taxes The Company and/or its subsidiaries are party to administrative and judicial proceedings, at the municipal level, which are awaiting decision at different court levels. The more significant of these proceedings are: (i) ISS on: (a) non-core activity, value-added and supplementary services; (b) withholding at source; (c) call identification and mobile phone licensing services; (d) full-time services, provision, returns and cancelled tax receipts; (e) data processing and antivirus; (f) charge for use of mobile network and lease of infrastructure; (g) advertising services; (h) services provided by third parties; and advisory services in corporate management provided by Telefónica Latino América Holding; (ii) IPTU; (iii) land use tax; and (iv) various municipal charges. Page 34 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) FUST, FUNTTEL and FISTEL Universal Telecommunications Services Fund ("FUST") Writs of mandamus were filed seeking the right to exclude revenues from interconnection and Industrial Use of Dedicated Line ("EILD") in the FUST tax base, according to Abridgment No. 7 of December 15, 2005, as it does not comply with the provisions contained in the sole paragraph of Article 6 of Law No. 9,998/00, which are awaiting a decision from Higher Courts. Various administrative and judicial charges by ANATEL in administrative scope for the constitution of the tax credit related to interconnection, EILD and other revenues that do not originate from the provision of telecommunication services. On September 30, 2020, the consolidated amount involved totaled R$4,478,508 (R$4,411,759 on December 31, 2019). Fund for Technological Development of Telecommunications ("FUNTTEL") Proceedings have been filed for the right not to include interconnection revenues and any others arising from the use of resources that are party of the networks in the FUNTTEL calculation basis, as determined by Law 10,052/00 and Decree No. 3,737/01, thus avoiding improper application of Article 4, paragraph 5, of Resolution 95/13. There are several notifications of charges from the Ministry of Communications in administrative actions for constitution of the tax credit related to the interconnection, network resources and other revenues that do not originate from the provision of telecommunication services. On September 30, 2020, the consolidated amount involved totaled R$732,964 (R$723,105 on December 31, 2019). Telecommunications Inspection Fund ("FISTEL") There are judicial actions for the collection of TFI on: (i) extensions of the term of validity of the licenses for use of telephone exchanges associated with the operation of the fixed switched telephone service; and (ii) extensions of the period of validity of the right to use radiofrequency associated with the operation of the telephone service personal mobile service. On September 30, 2020, the consolidated amount involved totaled R$2,738,764 (R$2,607,128 on December 31, 2019). Civil provision civil contingencies c.1) Civil provisions Management, under advice of legal counsel, believes that the following civil proceedings will result in probable losses: The Company is a party to proceedings involving rights to the supplementary amounts from shares calculated on community telephony plants and network expansion plans since 1996 (supplement of share Page 35 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) proceedings). These proceedings are at different stages: lower courts, court of justice and high court of justice. On September 30, 2020, the consolidated amount involved totaled R$315,463 (R$297,641 on December 31, 2019). The Company and/or its subsidiaries are party to various civil proceedings related to consumerist at the administrative and judicial level, relating to the non-provision of services and/or products sold. On September 30, 2020, the consolidated amount involved totaled R$228,569 (R$211,865 on December 31, 2019). The Company and/or its subsidiaries are party to various civil proceedings of a non-consumer nature at administrative and judicial levels, all arising in the ordinary course of business. On September 30, 2020, the consolidated amount involved totaled R$324,012 (R$287,942 on December 31, 2019). c.2) Possible losses - civil contingencies Management, under advice of legal counsel, believes that losses are possible from the following civil proceedings: Collective Action filed by SISTEL Participants' Association ("ASTEL") in the state of São Paulo, in which SISTEL associates in the state of São Paulo challenge the changes made in the PAMA and claim for the reestablishment of the prior "status quo". This proceeding is still in the appeal phase and awaits a decision on the Interlocutory Appeal filed by the Company against the decision on possible admission of the appeal to higher and supreme courts filed in connection with the Court of Appeals' decision, which partially changed the decision rendering the matter groundless. In parallel, the parties formulated an agreement, filed though pending court approval. The amount cannot be estimated, and the claims cannot be settled due to their unenforceability because it entails the return to the prior plan conditions. Public Civil Action proposed by the National Federation of Associations of Retirees, Pensioners and Participants in Pension Funds in the Telecommunications Sector ("FENAPAS"), in which ASTEL is an assessor against Sistel, the Company and other operators, to annul the spin-off of the PBS pension plan. The action is claiming, in summary, the "dismantling of the supplementary pension system of Fundação Sistel", which originated several specific PBS mirror plans, and corresponding allocations of resources from the technical surplus and tax contingency existing at the time of the spin-off. After upholding the lawsuit in the first degree and confirming the sentence at the appellate level, the Company filed an appeal for clarification. Concurrently, the National Superintendence of Complementary Social Security ("PREVIC") intervened in the process, which caused the case to be sent to the Federal Court. The process is awaiting receipt at the Federal Court. No value has been determined nor orders settled due to their unenforceability as it involves a return to SITEL's spun-off collection related to telecommunications operators of the former Telebrás System. The Company and its subsidiaries are party to other civil claims, at several levels, related to service rendering rights. Such claims have been filed by individual consumers, civil associations representing consumer rights or by the Bureau of Consumer Protection ("PROCON"), as well as by the Federal and State Public Prosecutor's Office. The Company is also party to other claims of several types related to the ordinary course of business. On September 30, 2020, the consolidated amount totaled R$3,417,082 (R$3,479,183 on December 31, 2019). Terra Networks is a party to: (i) a supplier action related to the transmission of events; (ii) PROCON fine (annulment action); (iii) indemnification action related to the use of content; (iv) ECAD action on copyright collection; and (v) claim actions filed by former subscribers regarding unrecognized collection, collection of undue value and contractual non-compliance. On September 30, 2020, the amount was R$15,898 (R$15,443 on December 31, 2019). Page 36 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) Intellectual Property: Lune Projetos Especiais Telecomunicação Comércio e Ind. Ltda. ("Lune"), a Brazilian company, filed lawsuits on November 20, 2001 against 23 wireless carriers claiming to own the patent for a caller ID and the trademark "Bina". The purpose of the lawsuit was to interrupt provision of such service by carriers and to seek indemnification equivalent to the amount paid by consumers for using the service. An unfavorable decision was handed down determining that the Company should refrain from selling mobile phones with the Bina ID service, subject to a daily fine of R$10 (ten thousand reais) in the event of non- compliance. Furthermore, according to that decision, the Company must pay indemnification for royalties, to be calculated on settlement. Motions for Clarification were proposed by all parties and Lune's motions for clarification were accepted since an injunctive relief in this stage of the proceedings was deemed applicable. A bill of review appeal was filed in view of the current decision which granted a stay of execution suspending that unfavorable decision until final judgment of the review. A bill of review was filed in view of the sentence handed down on September 30, 2016, by the 4th Chamber of the Court of Justice of the Federal District, in order to annul the lower court sentence and remit the proceedings back to the lower court for a new examination. Management is unable to reasonably estimate the liability with respect to this claim as the expertise is in its early stages. The Company and other wireless carriers are currently defendants in two class actions brought by the Public Prosecutor's Office and consumer associations challenging the defined period for use of prepaid minutes. The plaintiffs allege that the prepaid minutes should not expire after a specific period. Conflicting decisions were handed down by courts on the matter, even though the Company believes that its criteria for the period determination comply with ANATEL standards. In relation to these two ongoing lawsuits, there are appeals pending judgment by the Regional Federal Court ("TRF") and the Superior Tax Court ("STJ") filed by the opposing parties, due to the favorable decision obtained by the Company. The other lawsuits, already closed, had decisions in favor of the interests of the Company that have been final and unappealable. Regulatory provision and contingencies d.1) Regulatory provisions Management, under advice of legal counsel, believes the likelihood of loss of the following regulatory proceedings is probable: The Company is a party to administrative proceedings initiated mainly by ANATEL on the grounds of alleged non-compliance with obligations in the sectoral regulations, as well as in lawsuits that discuss, in the great majority, sanctions applied by ANATEL at the administrative level. d.2) Possible losses - regulatory contingencies Management, under advice of legal counsel believes the likelihood of loss of the following regulatory proceedings is possible: Page 37 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) The Company is a party to administrative proceedings filed by ANATEL (other agents, including other operators, also have claims against the Company) alleging non-compliance with the obligations set forth in industry regulations, as well as legal claims which discuss the mostly sanctions applied by ANATEL at the administrative level. Significant cases with possible risks in the regulatory contingency portfolio include: Administrative and legal proceedings that discuss how ANATEL calculates the amount of the charge due to the extension of the radio frequencies associated with the SMP. In the view of the Agency, the calculation of encumbrances should consider the application of a percentage of 2% over the entire economic benefit resulting from the provision of the STFC / SMP service. In the Company's view, however, revenues that are not part of the STFC / SMP service plans, as defined by the regulations at the time of signing the authorization terms / concession contracts, should not be considered when calculating the burden. Because of differences in interpretation, the Company filed administrative claims and lawsuits to challenge ANATEL charge collections. In May 2018, the Company filed a lawsuit to annul ANATEL final decision, of March of the same year, in the records of the Procedure for Determining Noncompliance with Obligations ("PADO") for alleged violations of the fixed telephony regulation. The principal amount of the fine imposed by ANATEL, and object of the lawsuit, totals R$211 million. On September 30, 2020, amount including interest and indexation accruals was approximately R$484 million. On December 31, 2019, this amount was approximately R$475 million. The Company believes that the fine imposed is illegal and not due based, fundamentally, on the following defense arguments: (i) ANATEL's error in determining the universe of users considered in the fine (the number of users affected is less than that considered by the ANATEL) and; (ii) the calculation of the penalty is disproportionate and without foundation. The lawsuit is in the lower court and currently awaits judgment, after the Company presents an expert report to support arguments to reduce the fine. Arbitration Procedure No. 24690 / PFF is in progress, which is being processed at the International Chamber of Commerce ("CCI"). The procedure was proposed by "Nextel Telecomunicações Ltda." for "Telefônica Brasil S.A.", and addresses divergence in Industrial Exploration and Network Sharing Contracts (Ran Sharing) signed between the parties. On September 30, 2020, the amount of the procedure is estimated at R$256 million. Guarantees Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) The Company and its subsidiaries granted guarantees for tax, civil, labor and regulatory proceedings, as follows: On September 30, 2020, in addition to the guarantees above, the Company and its subsidiaries had amounts under short-term investment withheld by courts (except for loan-related investments) in the consolidated of R$52,403 (R$50,554 on December 31, 2019). 19) LOANS, FINANCING, DEBENTURES AND LEASES On September 30, 2020, the contractual terms of the loans, financing, debentures and leases are the same as presented in Note 20) Loans, Financing, Debentures and Leases, to the December 31, 2019 financial statements. Guarantees: Pledge of financed assets. Bank guarantee provided by Banco Safra equivalent to 100% of the outstanding financing debt balance. Setting up a liquidity fund represented by financial investments in the amount equivalent to three installments of repayment referenced to the average post- grace period performance. Balances were R$13,511 and R$13,212 at September 30, 2020 and December 31, 2019, respectively. Unsecured. Loans and financing - Financial Institutions Some financing agreements with the financial institutions bear lower interest rates than those prevailing in the market. These operations fall within the scope of IAS 20 and therefore the subsidies granted up to December 31, 2017 were adjusted to present value and deferred in accordance with the useful lives of the financed assets. Page 39 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) The grants on January 1, 2018 adjusted to present value, were recorded in property, plant and equipment and are being depreciated according to the useful lives of the financed underlying assets. Financing - Suppliers Under bilateral agreements with suppliers, the Company obtained extension of the terms for payment of trade accounts payable at a cost based on the fixed CDI rate for the corresponding periods, with the net cost equivalent to between 110.0% to 150.3% of the CDI (109.2% to 122.5% of the CDI on December 31, 2019). Debentures Transaction costs in connection with the 5th and 6th issuances, totaling R$1,500 on September 30, 2020 (R$2,550 on December 31, 2019), were treated as a reduction of liabilities as costs to be incurred and are recognized as financial expenses, according to the contractual terms of each issue. Leases The Company is a leasee under lease agreements for: (i) lease of structures (towers and rooftops) arising from sale and leaseback transactions; (ii) lease of Built to Suit ("BTS") sites to install antennae and other equipment and transmission facilities; (iii) lease of information technology equipment and; (iv) lease of infrastructure and transmission facilities associated with the power transmission network. The net carrying amount of the assets has remained unchanged until sale thereof, and a liability is recognized corresponding to the present value of mandatory minimum installments as per the agreement. The amounts recorded in property, plant and equipment (Note 12.b) are depreciated over the shorter period of the estimated useful lives of the assets and the lease terms. The liability balances are as follows: On September 30, 2020 and December 31, 2019, the present value of balances payable, included R$1,288,466 and R$480,381, referring to lease agreements with Telefónica Group companies (Note 27). The following is a schedule of the amounts payable on leases on September 30, 2020: The weighted annual interest rate on lease contracts on September 30, 2020 is 7.31%, with an average maturity of 6.07 years. The present value of lease agreements is measured by discounting future fixed payment flows, which do not include projected inflation, at market interest rates, estimated using the Company's intrinsic risk spread. Page 40 Telefônica Brasil S. A. NOTES TO THE QUARTERLY FINANCIAL STATEMENTS Three and nine-month periods ended September 30, 2020 (In thousands of Reais, unless otherwise stated) The discount curves used are constructed based on observable data. Market interest rates are extracted from B3 and the Company's risk spread is estimated from debt securities issued by companies with comparable risk. The final discount curve reflects the Company's incremental loan interest rate. There were no unsecured residual values resulting in benefits to the lessor or contingent payments recognized as revenue on September 30, 2020 and December 31, 2019. Contingent consideration As part of the Purchase and Sale Agreement and Other Covenants executed by and between the Company and Vivendi to acquire all shares in GVTPart., a contingent consideration relating to the j

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