sbsitr3q16_6k.htm - Generated by SEC Publisher for SEC Filing
 
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 

 
FORM 6-K
 
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For November, 2016
(Commission File No. 1-31317)
 

 
Companhia de Saneamento Básico do Estado de São Paulo - SABESP
(Exact name of registrant as specified in its charter)
 
Basic Sanitation Company of the State of Sao Paulo - SABESP
(Translation of Registrant's name into English)
 


Rua Costa Carvalho, 300
São Paulo, S.P., 05429-900
Federative Republic of Brazil
(Address of Registrant's principal executive offices)



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 if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(1)__.
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(7)__.

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___

If "Yes" is marked, indicated below the file number assigned to the
registrant in connection with Rule 12g3-2(b):

 

ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

 

Table of Contents  
 
Company Information  
Capital Breakdown 1
Cash Proceeds 2
Parent Company’s Financial Statements  
Balance Sheet- Assets 3
Balance Sheet- Liabilities 4
Income Statement 6
Statement of Comprehensive Income 8
Statement of Cash Flows 9
Statement of Changes in Equity  
01/01/2016 to 09/30/2016 11
01/01/2015 to 09/30/2015 12
Statement of Value Added 13
Comments on the Companys Performance 14
Notes to the Interim Financial Information 21
Comments on the Companys Projections 69
Other Information Deemed as Relevant by the Company 70
Reports and Statements  
Unqualified Report on Special Review 72

 


 

ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1
 
Company Information / Capital Breakdown
 
Number of Shares  Current Quarter
(Units)  09/30/2016
Paid-in Capital    
Common  683,509,869
Preferred  0
Total  683,509,869
Treasury Shares    
Common  0
Preferred  0
Total  0

 


 
ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

 

Company Information / Cash Proceeds        
 
 
Event Approval Proceeds Date of Payment Type of Share Class of Share Earnings per Share
            (Reais / Share)
Board of Directors’ 03/24/2016 Interest on Capital 06/28/2016 Common   0.21930
Meeting            
 

 

PAGE: 2 of 73

 


 
ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

 

Parent Company’s Financial Statements / Balance Sheet- Assets (R$ thousand)  
 
 
Code Description Current Quarter Previous Year
    09/30/2016 12/31/2015
1 Total Assets 35,290,512 33,706,614
1.01 Current Assets 3,218,731 3,450,333
1.01.01 Cash and Cash Equivalents 1,415,465 1,639,214
1.01.03 Accounts Receivable 1,622,408 1,483,127
1.01.03.01 Trade Receivables 1,465,317 1,326,972
1.01.03.02 Other Receivables 157,091 156,155
1.01.03.02.01 Related Party Balances and Transactions 157,091 156,155
1.01.04 Inventories 51,886 64,066
1.01.06 Recoverable Taxes 12,584 77,828
1.01.06.01 Current Recoverable Taxes 12,584 77,828
1.01.08 Other Current Assets 116,388 186,098
1.01.08.03 Other 116,388 186,098
1.01.08.03.01 Restricted Cash 18,429 29,156
1.01.08.03.20 Other Receivables 97,959 156,942
1.02 Noncurrent Assets 32,071,781 30,256,281
1.02.01 Long-Term Assets 1,308,566 1,332,517
1.02.01.03 Accounts Receivable 163,857 182,616
1.02.01.03.01 Trade Receivables 163,857 182,616
1.02.01.06 Deferred Taxes 149,023 128,242
1.02.01.06.01 Deferred Income Tax and Social Contribution 149,023 128,242
1.02.01.08 Receivables from Related Parties 714,210 715,952
1.02.01.08.03 Receivables from Controlling Shareholders 714,210 715,952
1.02.01.09 Other Noncurrent Assets 281,476 305,707
1.02.01.09.04 Escrow Deposits 75,366 76,663
1.02.01.09.05 ANA – Water National Agency 82,895 88,368
1.02.01.09.20 Other Receivables 123,215 140,676
1.02.02 Investments 87,904 85,062
1.02.02.01 Investments 29,370 28,105
1.02.02.01.04 Equity Investments 29,370 28,105
1.02.02.02 Investment Properties 58,534 56,957
1.02.03 Property, Plant and Equipment 309,111 325,076
1.02.04 Intangible Assets 30,366,200 28,513,626
1.02.04.01 Intangible Assets 30,366,200 28,513,626
1.02.04.01.01 Concession Contracts 8,740,719 8,640,650
1.02.04.01.02 Program Contracts 7,302,099 7,139,105
1.02.04.01.03 Services Contracts 13,919,154 12,367,017
1.02.04.01.04 Software License 404,228 366,854
 

PAGE: 3 of 73

 


 
ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

 

Parent Company’s Financial Statements / Balance Sheet- Liabilities (R$ thousands)
 
 
Code Description Current Quarter Previous Year
    09/30/2016 12/31/2015
2 Total Liabilities 35,290,512 33,706,614
2.01 Current Liabilities 3,887,333 3,740,316
2.01.01 Labor and Pension Plan Liabilities 420,020 347,976
2.01.01.01 Social Security Liabilities 25,717 39,650
2.01.01.02 Labor Liabilities 394,303 308,326
2.01.02 Trade Payables 257,166 248,158
2.01.02.01 Domestic Suppliers 257,166 248,158
2.01.03 Tax Liabilities 169,604 107,295
2.01.03.01 Federal Tax Liabilities 160,045 98,842
2.01.03.01.01 Income Tax and Social Contribution Payable 63,815 0
2.01.03.01.02 PIS-PASEP and COFINS (taxes on revenue) Payable 47,549 40,505
2.01.03.01.03 INSS (social security contribution) Payable 34,227 33,836
2.01.03.01.20 Other Federal Taxes 14,454 24,501
2.01.03.03 Municipal Taxes Liabilities 9,559 8,453
2.01.04 Borrowings and Financing 1,714,327 1,526,262
2.01.04.01 Borrowings and Financing 1,119,325 1,152,589
2.01.04.01.01 In Domestic Currency 270,250 251,343
2.01.04.01.02 In Foreign Currency 849,075 901,246
2.01.04.02 Debentures 580,398 361,718
2.01.04.03 Financing through finance lease 14,604 11,955
2.01.05 Other Liabilities 604,987 878,735
2.01.05.01 Payables to Related Parties 1,431 2,210
2.01.05.01.03 Payables to Controlling Shareholders 1,431 2,210
2.01.05.02 Other 603,556 876,525
2.01.05.02.01 Dividends and Interest on Capital Payable 99 127,441
2.01.05.02.04 Services Payable 378,831 387,279
2.01.05.02.05 Refundable Amounts 11,644 8,820
2.01.05.02.06 Program Contract Commitments 107,180 228,659
2.01.05.02.07 Private Public Partnership – PPP 34,939 33,255
2.01.05.02.09 Indemnities 9,389 19,084
2.01.05.02.20 Other Payables 61,474 71,987
2.01.06 Provisions 721,229 631,890
2.01.06.01 Tax, Social Security, Labor and Civil Provisions 187,001 142,123
2.01.06.01.01 Tax Provisions 34,443 11,085
2.01.06.01.02 Social Security and Labor Provisions 50,857 55,120
2.01.06.01.04 Civil Provisions 101,701 75,918
2.01.06.02 Other Provisions 534,228 489,767
2.01.06.02.03 Provisions for Environmental 10,657 9,955
2.01.06.02.04 Provisions for Customers 453,585 413,107
2.01.06.02.05 Provisions for Suppliers 69,986 66,705
2.02 Non-Current Liabilities 15,878,892 16,249,692
2.02.01 Borrowings and Financing 10,274,629 11,595,338
2.02.01.01 Borrowings and Financing 6,753,174 7,353,397
2.02.01.01.01 In Domestic Currency 1,776,146 1,636,819
2.02.01.01.02 In Foreign Currency 4,977,028 5,716,578
2.02.01.02 Debentures 2,985,196 3,719,001

 

 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

 

Parent Company’s Financial Statements / Balance Sheet- Liabilities (R$ thousands)
 
 
Code Description Current Quarter Previous Year
    09/30/2016 12/31/2015
2.02.01.03 Financing through finance lease 536,259 522,940
2.02.02 Other Payables 5,167,676 4,204,030
2.02.02.02 Other 5,167,676 4,204,030
2.02.02.02.04 Pension Plan Liabilities 2,926,494 2,832,216
2.02.02.02.05 Program Contract Commitments 67,663 92,055
2.02.02.02.06 Private Public Partnership – PPP 1,872,794 1,001,778
2.02.02.02.07 Indemnities 11,344 12,704
2.02.02.02.08 Labor Liabilities 17,526 16,345
2.02.02.02.09 Deferred COFINS and PASEP 137,041 132,921
2.02.02.02.20 Other Payables 134,814 116,011
2.02.04 Provisions 436,587 450,324
2.02.04.01 Tax, Pension Plan, Labor and Civil Provisions 287,994 315,082
2.02.04.01.01 Tax Provisions 38,786 51,050
2.02.04.01.02 Social Security and Labor Provisions 236,536 225,798
2.02.04.01.04 Civil Provisions 12,672 38,234
2.02.04.02 Other Provisions 148,593 135,242
2.02.04.02.03 Provisions for Environmental 125,979 72,669
2.02.04.02.04 Provisions for Customers 12,812 50,243
2.02.04.02.05 Provisions for Suppliers 9,802 12,330
2.03 Equity 15,524,287 13,716,606
2.03.01 Paid-Up Capital 10,000,000 10,000,000
2.03.04 Profit Reserve 4,058,535 4,069,988
2.03.04.01 Legal Reserve 784,955 784,955
2.03.04.08 Additional Dividend Proposed 0 11,453
2.03.04.10 Reserve for Investments 3,273,580 3,273,580
2.03.05 Retained Earnings/Accumulated Losses 2,000,207 0
2.03.06 Other Comprehensive Income -534,455 -353,382

 

 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

 

Parent Company’s Financial Statements / Income Statement (R$ thousands)                  
 
Code    Description    Current Quarter    YTD Current Year   Same Quarter   YTD Previous Year
        07/01/2016 to 09/30/2016     01/01/2016 to 09/30/2016    Previous Year   01/01/2015 to 09/30/2015 
                 07/01/2015 to 09/30/2015      
3.01   Revenue from Sales and/or Services    3,745,807   10,212,238   3,196,992   8,488,485
3.02   Cost of Sales and/or Services  -2,236,740   -6,445,167 -2,261,459 -6,125,545
3.02.01   Cost of Sales and/or Services  -1,163,280   -3,881,934 -1,268,475 -3,670,962
3.02.02   Construction Cost  -1,073,460   -2,563,233 -992,984 -2,454,583
3.03   Gross Profit    1,509,067   3,767,071   935,533   2,362,940
3.04   Operating Income/Expenses  -445,478   -1,235,752 -249,406 -56,349
3.04.01   Selling Expenses  -234,226   -574,446 -109,709 -441,161
3.04.02   General and Administrative Expenses  -218,041   -691,513 -192,637   287,039
3.04.04   Other Operating Income    12,671   42,421   63,732   128,201
3.04.04.01   Other Operating Income    16,150   53,421   69,923   143,449
3.04.04.02   COFINS and PASEP  -3,479   -11,000 -6,191 -15,248
3.04.05   Other Operating Expenses  -6,407   -14,492 -9,417 -30,052
3.04.05.01   Loss on Write off of Property, Plant and Equipment Items  -2,826   -7,310 -7,313 -6,551
3.04.05.02   Provision for Loss of Tax Incentives    0   0   500   500
3.04.05.03   Tax Benefits  -3,570   -3,570   0 -7,770
3.04.05.04   Surplus Cost of Electricity Sold    0   -3,102 -2,847 -14,465
3.04.05.20   Other  -11   -510   243 -1,766
3.04.06   Equity Results    525   2,278 -1,375 -376
3.05   Income Before Financial Result and Taxes    1,063,589   2,531,319   686,127   2,306,591
3.06   Financial Result  -176,810   536,070 -1,539,410 -2,369,778
3.06.01   Financial Income    94,207   339,340   124,544   354,322
3.06.01.01   Financial Income    98,684   356,354   130,438   359,609
3.06.01.02   Exchange Gains     112   223   10   617
3.06.01.03   COFINS and PASEP  -4,589   -17,237 -5,904 -5,904
3.06.02   Financial  Expenses  -271,017   196,730 -1,663,954 -2,724,100
3.06.02.01   Financial Expenses  -191,812   -668,146 -215,016 -599,550
3.06.02.02   Exchange Adjustments on Liabilities  -79,205   864,876 -1,448,938 -2,124,550
3.07   Earnings Before Income Tax    886,779   3,067,389 -853,283 -63,187

 

 

PAGE: 6 of 73


 
ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1
 
Parent Company’s Financial Statements / Income Statement (R$ thousands)          
 
Code    Description  Current Quarter YTD Current Year Same Quarter YTD Previous Year
      07/01/2016 to 09/30/2016  01/01/2016 to 09/30/2016  Previous Year 01/01/2015 to  09/30/2015 
          07/01/2015 to  09/30/2015    
3.08   Income Tax and Social Contribution   -312,892 -1,067,182 237,139 138,536
3.08.01   Current  -243,481 -994,684 -674 -899
3.08.02   Deferred  -69,411 -72,498 273,813 139,435
3.09   Net Result from Continued Operations  573,887 2,000,207 -580,144 75,349
3.11   Profit/Loss for the Period  573,887 2,000,207 -580,144 75,349
3.99   Earnings per Share   (Reais / Share)     
3.99.01   Basic Earnings per Share     
3.99.01.01   Common Share  0.83962 2.92638 0.84877 0.11024
3.99.02   Diluted Earnings per Share     
3.99.02.01   Common Share  0.83962 2.92638 0.84877 0.11024

 

 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Parent Company’s Financial Statements / Statement of Comprehensive Income (R$ thousand)    
 
Code  Description  Current Quarter
07/01/2016 to 09/30/2016
YTD  Current  Year
01/01/2016 to 09/30/2016
Same Quarter
Previous Year
07/01/2015 to 09/30/2015
YTD  Previous  Year
01/01/2015 to 09/30/2015
   
 
4.01 Net Income for the Period 573,887 2,000,207 -580,144 75,349
4.02 Other Comprehensive Income -181,073 -181,073 0 0
4.02.01 Actuarial Gains and (Losses) on Defined Benefit Pension -181,073 -181,073 0 0
  Plans        
4.03 Comprehensive Income for the Period 392,814 1,819,134 -580,144 75,349

 

PAGE: 8 of 73


 
ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Parent Company’s Financial Statements / Statement of Cash Flows – Indirect Method (R$ thousands)
 
   
Code Description YTD Current Year YTD Previous Year
    01/01/2016 to 09/30/2016 01/01/2015 to 06/30/2015
 
6.01 Net Cash from Operating Activities 2,028,835 1,853,010
6.01.01 Cash from Operations 3,562,907 2,521,581
6.01.01.01 Profit (Loss) before Income Tax and Social Contribution 3,067,389 -63,187
6.01.01.02 Provision and Inflation Adjustments on Provisions 207,313 -116,292
6.01.01.03 Pension Plan Liabilities Curtailment -334,152 0
6.01.01.04 Finance Charges from Customers -158,219 -199,994
6.01.01.05 Residual Value of Property, Plant and Equipment and 7,211 18,214
  Intangible Assets Written-off    
6.01.01.06 Depreciation and Amortization 859,055 808,706
6.01.01.07 Interest on Borrowings and Financing Payable 352,665 357,306
 
6.01.01.08 Monetary and Exchange Change on Borrowings and -754,853 2,247,653
  Financing    
6.01.01.09 Interest and Monetary Change on Liabilities 21,434 17,469
 
6.01.01.10 Interest and Monetary Change on Assets -69,272 -36,514
6.01.01.11 Allowance for Doubtful Accounts 110,181 9,389
6.01.01.12 Provision for Consent Decree (TAC) 12,229 -17,916
6.01.01.13 Equity Results -2,278 376
6.01.01.14 Provision for Sabesprev Mais 235 5,908
6.01.01.15 Other Provisions/Reversals -6,466 -13,731
6.01.01.16 Transfer of Funds to São Paulo Municipal Government 19,089 8,012
6.01.01.17 Gross Margin over Intangible Assets Resulting from -57,006 -53,881
  Concession Contracts    
6.01.01.18 Pension Plan Liabilities 288,352 246,346
6.01.01.19 GESP Agreement 0 -696,283
6.01.02 Changes in Assets and Liabilities -173,827 -129,262
6.01.02.01 Trade Receivables -28,316 17,731
6.01.02.02 Related Party Balances and Transactions -3,597 15,364
6.01.02.03 Inventories 13,385 9,366
6.01.02.04 Recoverable Taxes 65,244 82,671
6.01.02.05 Other Receivables 88,705 -26
6.01.02.06 Escrow Deposits 31,740 25,696
6.01.02.08 Contractors and Suppliers -9,720 -31,968
6.01.02.09 Payroll, Provisions and Social Contribution 59,815 27,050
6.01.02.10 Pension Plan Liabilities -134,274 -126,555
6.01.02.11 Taxes and Contributions Payable -106,825 15,776
6.01.02.12 Services Received -27,537 1,296
6.01.02.13 Other Liabilities 5,144 -71,732
6.01.02.14 Provisions -131,711 -97,359
6.01.02.15 Deferred COFINS/PASEP 4,120 3,428
6.01.03 Other -1,360,245 -539,309
6.01.03.01 Interest Paid -535,299 -521,566
6.01.03.02 Income Tax and Social Contribution Paid -824,946 -17,743
6.02 Net Cash from Investing Activities -1,444,922 -1,886,867
6.02.01 Acquisition of Intangible Assets -1,432,336 -1,856,910
6.02.02 Acquisition of Property, Plant and Equipment -23,313 -21,902

PAGE: 9 of 73

 


 
ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Parent Company’s Financial Statements / Statement of Cash Flows – Indirect Method (R$ thousands)
 
   
Code Description YTD Current Year YTD Previous Year
    01/01/2016 to 09/30/2016 01/01/2015 to 09/30/2015
 
6.02.04 Restricted Cash 10,727 -9,581
6.02.05 Dividends Received 0 1,526
6.03 Net Cash from Financing Activities -807,662 -799,201
6.03.01 Funding 493,863 684,586
6.03.02 Amortization -968,124 -1,219,588
6.03.03 Payment of interest on equity -139,399 -202,108
6.03.04 Public-Private Partnership (PPP) -22,865 -17,169
6.03.05 Program Contract Commitments -171,137 -44,922
6.05 Increase (Decrease) in Cash and Cash Equivalents -223,749 -833,058
6.05.01 Opening Cash and Cash Equivalents 1,639,214 1,722,991
6.05.02 Closing Cash and Cash Equivalents 1,415,465 889,933

 

 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Parent Company’s Financial Statements / Statement of Changes in Equity - 01/01/2016 to 09/30/2016 (R$ thousands)    
 
Code Description Paid-up
Capital
Capital Reserves,
Options Granted and
Treasury Shares
Profit Reserves Retained Earnings /
Accumulated Losses
Other Comprehensive
Income
Total Equity
   
   
5.01 Opening Balances 10,000,000 0 4,069,988 0 -353,382 13,716,606
5.03 Restated Opening Balances 10,000,000 0 4,069,988 0 -353,382 13,716,606
5.04 Capital Transactions with Partners 0 0 -11,453 0 0 -11,453
5.04.08 Additional Dividends Approved 0 0 -11,453 0 0 -11,453
5.05 Total Comprehensive Income 0 0 0 2,000,207 -181,073 1,819,134
5.05.01 Net Income for the Period 0 0 0 2,000,207 0 2,000,207
5.05.02 Other Comprehensive Income 0 0 0 0 -181,073 -181,073
5.05.02.06 Actuarial Gains and Losses 0 0 0 0 -181,073 -181,073
5.07 Closing Balances 10,000,000 0 4,058,535 2,000,207 -534,455 15,524,287
 
 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Parent Company’s Financial Statements / Statement of Changes in Equity - 01/01/2015 to 09/30/2015 (R$ thousands)    
 
Code Description Paid-up
Capital
Capital Reserves,
Options Granted and
Treasury Shares
Profit Reserves Retained Earnings /
Accumulated Losses
Other Comprehensive
Income
Total Equity
   
   
5.01 Opening Balances 10,000,000 0 3,694,151 0 -389,748 13,304,403
5.03 Restated Opening Balances 10,000,000 0 3,694,151 0 -389,748 13,304,403
5.04 Capital Transactions with Partners 0 0 -22,002 0 0 -22,002
5.04.08 Additional Dividends Approved 0 0 -22,002 0 0 -22,002
5.05 Total Comprehensive Income 0 0 0 75,349 0 75,349
5.05.01 Net Income for the Period 0 0 0 75,349 0 75,349
5.07 Closing Balances 10,000,000 0 3,672,149 75,349 -389,748 13,357,750
 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Parent Company’s Financial Statements / Statement of Value Added (R$ thousands)  
 
   
Code Description YTD Current Year YTD Previous Year
    01/01/2016 to 09/30/2016 01/01/2015 to 09/30/2015
 
7.01 Revenue 10,711,651 9,021,425
7.01.01 Operating Revenue 8,148,172 6,378,901
7.01.02 Other Revenue 53,421 143,449
7.01.03 Revenue from the Construction 2,620,239 2,508,464
7.01.04 Allowance for/Reversal of Doubtful Accounts -110,181 -9,389
7.02 Inputs Acquired from Third Parties -4,445,400 -4,025,989
7.02.01 Costs of Sales and Services -3,801,316 -3,720,310
7.02.02 Materials, Energy, Outside Services and Other -629,592 -275,627
7.02.04 Other -14,492 -30,052
7.03 Gross Value Added 6,266,251 4,995,436
7.04 Retentions -859,055 -808,706
7.04.01 Depreciation, Amortization and Depletion -859,055 -808,706
7.05 Net Value Added Produced 5,407,196 4,186,730
7.06 Wealth Received in Transfer 358,855 1,056,133
7.06.01 Equity Results 2,278 -376
7.06.02 Finance Income 356,577 360,226
7.06.03 Other 0 696,283
7.06.03.01 GESP Reimbursement – Benefits Paid 0 696,283
7.07 Total Value Added to Distribute 5,766,051 5,242,863
7.08 Value Added Distribution 5,766,051 5,242,863
7.08.01 Personnel 1,351,586 1,495,699
 
7.08.01.01 Salaries and wages 1,069,596 984,944
7.08.01.02 Benefits 187,243 415,006
7.08.01.03 Government Severance Indemnity Fund for Employees 94,747 95,749
  (FGTS)    
7.08.02 Taxes and Contributions 2,045,460 639,712
7.08.02.01 Federal 1,954,985 563,731
7.08.02.02 State 61,118 53,114
7.08.02.03 Municipal 29,357 22,867
7.08.03 Value Distributed to Providers of Capital 368,798 3,032,103
7.08.03.01 Interest 299,777 2,971,176
7.08.03.02 Rental 69,021 60,927
7.08.04 Value Distributed to Shareholders 2,000,207 75,349
7.08.04.03 Retained Earnings/Accumulated Loss for the Period 2,000,207 75,349

 

PAGE: 13 of 73

 


 
ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Comments on the Company’s Performance                
 
 
1.Financial highlights                
 
                  R$ million
3Q16 3Q15 Chg. (R$) % 9M16 9M15 Chg. (R$)  %
  Gross operating revenue 2,854.1 2,327.2 526.9 22.6 8,148.2 6,378.9 1,769.3 27.7
  Construction revenue 1,097.8 1,015.2 82.6 8.1 2,620.2 2,508.5 111.7 4.5
  COFINS and PASEP taxes 206.1 145.4 60.7 41.7 556.2 398.9 157.3 39.4
(=) Net operating revenue 3,745.8 3,197.0 548.8 17.2 10,212.2 8,488.5 1,723.7 20.3
  Costs and expenses 1,615.5 1,570.8 44.7 2.8 5,147.9 3,825.1 1,322.8 34.6
  Construction costs 1,073.5 993.0 80.5 8.1 2,563.2 2,454.6 108.6 4.4
  Equity result 0.5 (1.3) 1.8 - 2.3 (0.4) 2.7 (675.0)
  Other operating revenue (expenses), net 6.3 54.3 (48.0) (88.4) 27.9 98.1 (70.2) (71.6)
(=) Earnings before financial result, income tax and social contribution 1,063.6 686.2 377.4 55.0 2,531.3 2,306.5 224.8 9.7
  Financial result (176.8) (1,539.4) 1,362.6 (88.5) 536.1 (2,369.7) 2,905.8 (122.6)
(=) Earnings before income tax and social contribution 886.8 (853.2) 1,740.0 (203.9) 3,067.4 (63.2) 3,130.6 (4,953.5)
  Income tax and social contribution 312.9 (273.1) 586.0 (214.6) 1,067.2 (138.5) 1,205.7 (870.5)
(=) Net income 573.9 (580.1 1,154.0 (198.9) 2,000.2 75.3 1,924.9 2,556.3
  Earnings per share* (R$) 0.84 - 0.85     2.93 0.11    
  * Total shares = 683,509,869                
 
 
Adjusted EBITDA Reconciliation (Non-accounting measures)            
                  R$ million
    3Q16 3Q15 Chg. (R$) % 9M16 9M15 Chg. (R$)  %
  Net income 573.9 (580.1) 1,154.0 (198.9) 2,000.2 75.3 1,924.9 2,556.3
  Income tax and social contribution 312.9 (273.1) 586.0 (214.6) 1,067.2 (138.5) 1,205.7 (870.5)
  Financial result 176.8 1,539.4 (1,362.6) (88.5) (536.1) 2,369.7 (2,905.8) (122.60
  Other operating revenues (expenses), net (6.3) (54.3) 48.0 (88.4) (27.9) (98.1) 70.2 (71.60)
(=) Adjusted EBIT* 1,057.3 631.9 425.4 67.3 2,503.4 2,208.4 295.0 13.4
  Depreciation and amortization 280.2 271.3 8.9 3.3 859.1 808.7 50.4 6.2
(=) Adjusted EBITDA ** 1,337.5 903.2 434.3 48.1 3,362.5 3,017.1 345.4 11.4
  (%) Adjusted EBITDA margin 35.7 28.3     32.9 35.5    
 

(*)Adjusted EBIT is net income before: (i) other operating revenues/expenses, net; (ii) financial result; and (iii) income tax and socialcontribution.
(**) Adjusted EBITDA is net income before: (i) depreciation and amortization expenses; (ii) income tax and social contribution; (iii)
financial result; and (iv) other operating revenues/expenses, net.

 

In 3Q16, net operating revenue, including construction revenue, reached R$ 3.7 billion; a 17.2% increase compared to the same period of 2015.

Costs and expenses, including construction costs, totaled R$ 2.7 billion, 4.9% higher than 3Q15.

Adjusted EBIT, in the amount of R$ 1,057.3 million, grew 67.3% from R$ 631.9 million recorded in 3Q15.

Adjusted EBITDA, in the amount of R$ 1,337.5 million, increased 48.1% from R$ 903.2 million recorded in 3Q15 (R$ 4,319.6 million in the last 12 months).

The adjusted EBITDA margin was 28.3% in 3Q15 and 35.7% in 3Q16 (32.2% in the last 12 months).

Excluding construction revenues and construction costs, the adjusted EBITDA margin was 49.6% in 3Q16 (40.4% in 3Q15 and 42.5% in the last 12 months).

In 3Q16 the Company recorded a net income of R$ 573.9 million, in comparison to a loss of R$ 580.1 million in 3Q15.

2. Gross operating revenue

Gross operating revenue from water and sewage, not including construction revenue, totaled R$ 2.9 billion, an increase of R$ 526.9 million or 22.6%, when compared to the R$ 2.3 billion recorded in 3Q15.

The main factors that led to this variation were:

· Tariff increase of 8.4% since May 2016;

· Increase of 4.7% in the Company’s total billed volume (4.5% in water and 4.9% in sewage); and

· In 3Q15 there was the bonus granted within the Water Consumption Reduction Incentive Program, concluded in April 2016, in the amount of R$ 248.8 million.

The increase resulting from the above factors was partially offset by the suspension in April 2016 of the Contingency Tariff, in the amount of R$ 144.8 million in 3Q15.

 

 

PAGE: 14 of 73


 
ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Comments on the Company’s Performance

3. Construction revenue

Construction revenue increased R$ 82.6 million or 8.1%, when compared to the same period of the previous year. The variation was mainly due to higher investments in the municipalities served by the Company.

4. Billed volume

The following tables show the water and sewage billed volume, quarter-on-quarter and 9-month basis, per customer category and region.

WATER AND SEWAGE BILLED VOLUME (1) PER CUSTOMER CATEGORY - million m 3
    Water     Sewage   Water + Sewage  
Category 3Q16 3Q15 % 3Q16 3Q15 % 3Q16 3Q15 %
Residential 377.6 363.1 4.0 321.0 306.1 4.9 698.6 669.2 4.4
Commercial 40.3 39.6 1.8 38.5 37.8 1.9 78.8 77.4 1.8
Industrial 8.0 8.0 - 9.5 9.6 (1.0) 17.5 17.6 (0.6)
Public 10.2 9.6 6.3 9.0 8.4 7.1 19.2 18.0 6.7
Total retail 436.1 420.3 3.8 378.0 361.9 4.4 814.1 782.2 4.1
Wholesale (3) 58.4 52.8 10.6 7.9 5.8 36.2 66.3 58.6 13.1
Total 494.5 473.1 4.5 385.9 367.7 4.9 880.4 840.8 4.7
  9M16 9M15 % 9M16 9M15 % 9M16 9M15 %
Residential 1,135.6 1,090.1 4.2 961.4 916.0 5.0 2,097.0 2,006.1 4.5
Commercial 121.7 119.5 1.8 115.7 113.4 2.0 237.4 232.9 1.9
Industrial 23.7 24.5 (3.3) 28.8 29.2 (1.4) 52.5 53.7 (2.2)
Public 30.5 30.8 (1.0) 26.8 24.8 8.1 57.3 55.6 3.1
Total retail 1,311.5 1,264.9 3.7 1,132.7 1,083.4 4.6 2,444.2 2,348.3 4.1
Wholesale (3) 167.1 164.9 1.3 21.1 18.3 15.3 188.2 183.2 2.7
Total 1,478.6 1,429.8 3.4 1,153.8 1,101.7 4.7 2,632.4 2,531.5 4.0
 
WATER AND SEWAGE BILLED VOLUME (1) PER REGION - million m 3
  Water   Sewage   Water + Sewage  
Region 3Q16 3Q15 % 3Q16 3Q15 % 3Q16 3Q15 %
Metropolitan 283.5 271.6 4.4 246.8 235.7 4.7 530.3 507.3 4.5
Regional (2) 152.6 148.7 2.6 131.2 126.2 4.0 283.8 274.9 3.2
Total retail 436.1 420.3 3.8 378.0 361.9 4.4 814.1 782.2 4.1
Wholesale (3) 58.4 52.8 10.6 7.9 5.8 36.2 66.3 58.6 13.1
Total 494.5 473.1 4.5 385.9 367.7 4.9 880.4 840.8 4.7
  9M16 9M15 % 9M16 9M15 % 9M16 9M15 %
Metropolitan 846.0 806.6 4.9 735.1 698.2 5.3 1,581.1 1,504.8 5.1
Regional (2) 465.5 458.3 1.6 397.6 385.2 3.2 863.1 843.5 2.3
Total retail 1,311.5 1,264.9 3.7 1,132.7 1,083.4 4.6 2,444.2 2,348.3 4.1
Wholesale (3) 167.1 164.9 1.3 21.1 18.3 15.3 188.2 183.2 2.7
Total 1,478.6 1,429.8 3.4 1,153.8 1,101.7 4.7 2,632.4 2,531.5 4.0
(1) Unaudited                  
(2) Including coastal and interior region              
(3) Reused water volume and non-domestic sewage are included in          

 

PAGE: 15 of 73

ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Comments on the Company’s Performance

5. Costs, administrative, selling and construction expenses

In 3Q16, costs, administrative, selling and construction expenses, grew 4.9% (R$ 125.2 million). Excluding construction costs, total costs and expenses increased by 2.8% (R$ 44.7 million).

As a percentage of net revenue, costs and expenses were 80.2% in 3Q15 and 71.8% in 3Q16.

                R$ million
  3Q16 3Q15  Chg. (R$)  % 1H16 1H15 Chg. (R$)  %
Salaries and payroll charges and Pension plan obligations 292.3 552.0 (259.7) (47.0) 1,488.0 1,615.3 (127.3) (7.9)
General supplies 45.6 42.0 3.6 8.6 124.5 133.7 (9.2) (6.9)
Treatment supplies 64.0 62.9 1.1 1.7 205.3 198.8 6.5 3.3
Services 347.1 296.6 50.5 17.0 945.8 862.5 83.3 9.7
Electricity 224.7 220.0 4.7 2.1 707.9 587.4 120.5 20.5
General expenses 249.3 144.5 104.8 72.5 640.6 247.7 392.9 158.6
Tax expenses 22.6 19.6 3.0 15.3 66.5 57.9 8.6 14.9
São Paulo state government reimbursement - - - - - (696.3) 696.3 -
Sub-total 1,245.6 1,337.6 (92.0) (6.9) 4,178.6 3,007.0 1,171.6 39.0
Depreciation and amortization 280.2 271.3 8.9 3.3 859.1 808.7 50.4 6.2
Allowance for doubtful accounts 89.7 (38.1) 127.8 (335.4) 110.2 9.4 100.8 1,072.3
Sub-total 369.9 233.2 136.7 58.6 969.3 818.1 151.2 18.5
Costs, administrative and selling expenses 1,615.5 1,570.8 44.7 2.8 5,147.9 3,825.1 1,322.8 34.6
Construction costs 1,073.5 993.0 80.5 8.1 2,563.2 2,454.6 108.6 4.4
Costs, adm., selling and construction expenses 2,689.0 2,563.8 125.2 4.9 7,711.1 6,279.7 1,431.4 22.8
% of net revenue 71.8 80.2     75.5 74.0    

 

5.1. Salaries and payroll charges and Pension plan obligations

There was a decrease of R$ 259.7 million in 3Q16, mainly due to:

• Decrease of R$ 307.4 million due to the migration of 3,572 participants from the Defined Benefit Plan (G1) to the Defined Contribution Plan (Sabesprev Mais), generating an advance decrease of R$ 334.2 million in the actuarial deficit, offset by the extraordinary contribution and incentive of R$ 26.8 million.

The above decrease was partly compensated by the following factors:

· Increase of R$ 24.1 million due to the application of a 10.03% salary adjustment in May 2016;

· Increase of R$ 13.7 million in provision for severance pay (TAC); and

· R$ 8.8 million rise in provisions for supplementary payments for retirement plans and pensions under the G0 Plan, due to changes in actuarial assumptions

5.2. Services

Services expenses, in the amount of R$ 347.1 million, grew R$ 50.5 million or 17.0%, in comparison to R$ 296.6 million in 3Q15. The main items that led to this increase were:

· Advertising campaigns amounting to R$ 14 million;

· Maintenance of networks and sewage connections, amounting to R$ 11.7 million;

· Cost of leasing power generator machines for transferring water from the Rio Grande to the Taiaçupeba reservoir, at a cost of R$ 6.7 million;

· Reading water meters and delivering bills, R$ 4.5 million; and

· Surveillance contract, R$ 3.4 million.

5.3. Electricity

Electricity expenses totaled R$ 224.7 million in 3Q16, an increase of R$ 4.7 million or 2.1% in comparison to the R$ 220.0 million in 3Q15. The main factors that contributed to this increase were:

· Average increase of 12.0% in the free market tariffs, with an 8.5% increase in consumption;

 

PAGE: 16 of 73


 
ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Comments on the Company’s Performance

· Average increase of 2.7% in the grid market tariff (TUSD), with a 7.4% decrease in consumption; and

· Average decrease of 8.6% in the regulated market tariffs, with consumption remaining stable.

In 3Q16, the regulated market accounted for 37.1% of the total electricity consumed by the Company, the free market accounted for 33.7% and the grid market accounted for 29.2% of total consumption.

5.4. General expenses

General expenses increased R$ 104.8 million, totaling R$ 249.3 million in 3Q16, versus the R$ 144.5 million recorded in 3Q15, mainly due to:

· Provision of R$ 38.1 million concerning the agreement entered into with EMAE – Empresa Metropolitana de Águas e Energia;

· R$ 21.1 million increase in provisioning for court proceedings;

· Higher provision for the Municipal Fund for Environmental Sanitation and Infrastructure, in the amount of R$ 21.8 million, as a result of the increase in revenues with the municipality of São Paulo; and

· Reversal of provision in 3Q15, totaling R$ 17.9 million, due to the recovery of amounts from the São Paulo State Government (GESP), due to employees assignment.

5.5. Tax expenses

Increase of R$ 3.0 million, largely due to the increase in the Municipal Property Tax (IPTU) in 2016, related to the properties in São Paulo.

5.6. Depreciation and amortization

R$ 8.9 million increase or 3.3%, reaching R$ 280.2 million in 3Q16 in comparison to the R$ 271.3 million recorded in 3Q15, largely due to the beginning of operations of intangible assets, in the amount of R$ 2.2 billion.

5.7. Allowance for doubtful accounts

R$ 127.8 million increase, due mainly to:

• Increase in the write-offs, net of recoveries, amounting to R$ 39.5 million;

• Increase in delinquency, generating an increase of 49.5 million; and

• Reversal of R$ 70.5 million in the provision for losses with municipalities in 3Q15.

This increase was partially offset by the increased receipt of court-ordered debt payments, especially from the city of Guarulhos, amounting to R$ 31.6 million.

6. Other operating revenues (expenses), net

Other net operational revenues and expenses reported a negative variation of R$ 48.0 million, mainly due to the following non-recurring events in 3Q15:

· Receipt of R$ 22.1 million from REAGUA - Programa Estadual de Apoio à Recuperação de Águas (State Program to Support Water Recovery);

· Sale of properties for R$ 16.6 million; and

· Sale of surplus electricity for R$ 4 million.

7. Financial result

 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

        R$ million
  3Q16 3Q15 Chg. %
Financial expenses, net of income (91.7) (105.6) 13.9 (13.2)
Net monetary and exchange variation (85.1) (1,433.8) 1,348.7 (94.1)
Financial result (176.8) (1,539.4) 1,362.6 (88.5)
 
7.1. Financial income and expenses        
        R$ million
  3Q16 3Q15 Chg. %
Financial expenses        
Interest and charges on international loans and financing (28.5) (39.2) 10.7 (27.3)
Interest and charges on domestic loans and financing (80.5) (80.9) 0.4 (0.5)
Other financial expenses (49.2) (50.4) 1.2 (2.4)
Total financial expenses (158.2) (170.5) 12.3 (7.2)
Financial income 66.5 64.9 1.6 2.5
Financial expenses net of income (91.7) (105.6) 13.9 (13.2)
 
 
Decrease of R$ 13.9 million, mainly due to lower costs for interest and charges on external loans and
financing, which decrease by R$ 10.7 million due to lower debt balances due to the devaluation of the dollar
and the yen at the close of 3Q16, against 3Q15 (-18.3% and -3.3%, respectively).    
 
7.2. Monetary and exchange rate variation on assets and liabilities      
        R$ million
  3Q16 3Q15 Chg. %
Monetary variation on loans and financing (24.4) (25.9) 1.5 (5.8)
Currency exchange variation on loans and financing (79.2) (1,448.9) 1,369.7 (94.5)
Other monetary variations (9.1) (18.6) 9.5 (51.1)
Monetary/exchange rate variation on liabilities (112.7) (1,493.4) 1,380.7 (92.5)
Monetary/exchange rate variation on assets 27.6 59.6 (32.0) (53.7)
Monetary/exchange rate variation, net (85.1) (1,433.8) 1,348.7 (94.1)

 

7.2.1 Monetary and exchange rate variation on liabilities

The effect of monetary and exchange rate variation on liabilities 3Q16 was R$ 1,380.7 million less than in 3Q15, in particular:

· A positive variation of R$ 1,369.7 million in the cost of currency variations on loans and financing, due to the lower appreciation of the dollar and the yen against the Real in 3Q16 (1.1% and 2.7%, respectively), compared with their appreciation in 3Q15 (28.1% and 30.5%, respectively); and

· Decrease in the cost of other monetary variations by R$ 9.5 million, principally due to lower provisioning for court proceedings in 3Q16.

7.2.2 Monetary and exchange rate variation on assets

A decrease of R$ 32 million, mainly due to the non-recurring monetary adjustment of the agreement with the municipality of Santos in 3Q15.

8. Income tax and social contribution

Grew R$ 586.0 million, due to the increase in taxable income in 3Q16, when compared to 3Q15.

9. Indicators

 

PAGE: 18 of 73


 
ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Comments on the Company’s Performance

9.1. Operating

The volume of water produced remained with an upward trend in the quarter and had an increase of 9.1%. In the year, the increase was of 9.4%.

Concerning the water losses, it's possible to observe that the loss regarding the micro-measurement (IPM) increased from 28.3% in 3Q15 to 31.4% in 3Q16. The figure of the 3Q15 was influenced not only by loss control initiatives, but also by the demand management, resulting from the water crisis and the consequent need to reduce the pressure on the network. It is worth remembering that this measurement considers the average of the last 12 months.

Operating indicators * 3Q16 3Q15 %
Water connections (1) 8,595 8,366 2.7
Sewage connections (1) 7,036 6,806 3.4
Population directly served - water (2) 25.7 25.5 0.8
Population directly served - sewage (2) 23.2 22.7 2.2
Number of employees 14,172 14,056 0.8
Water volume produced in the quarter(3) 671 615 9.1
Water volume produced in 9M (3) 2,007 1,834 9.4
IPM - Measured water loss (%) 31.4 28.3 11.0
IPDt (liters/connection x day) 299 261 14.6
(1) Total connections, active and inactive, in thousand units at the end of the period    
(2) In million inhabitants, at the end of the period. Not including wholesale      
(3) In million of cubic meters      
(*) Unaudited      
 
 
9.2. Financial      
 
Economic Indexes * (quarter end) 3Q16 3Q15
Accumulated Amplified Consumer Price Index (%) 1.04 1.39
Accumulated Referential Rate (%) 0.58 0.61
Interbank Deposit Certificate (%) 14.13 14.13
US DOLAR (R$) 3.2462 3.9729
YEN (R$) 0.03207 0.03316
(*) Unaudited      

 

10. Loans and financing

In October 2016, the Company raised a foreign loan of US$ 150 million, for a term of 3 years, with interest at a margin of 4.5% p.a. over the 3-month LIBOR rate. Interest on the loan will be payable quarterly, and capital repayments will be six-monthly after an 18-month grace period. The proceeds of the loan were used to settle the Eurobond 2016 issue, for a total of US$ 140 million, and other debts maturing in 2016.

 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Comments on the Company’s Performance            
 
 
                R$ million
INSTITUTION 2016 2017 2018 2019 2020 2021 2022
Onwards
Total
Local currency                
Caixa Econômica Federal 13.8 58.2 62.2 64.0 66.2 69.6 791.7 1,125.7
Debentures 43.2 595.3 887.7 998.3 415.4 196.5 429.2 3,565.6
BNDES 21.3 85.3 87.3 90.0 72.2 71.7 354.0 781.8
Leasing 3.6 26.1 27.4 28.8 30.3 32.0 402.7 550.9
Others 0.2 0.7 1.4 1.4 1.4 1.4 5.3 11.8
Interest and other charges 59.7 67.4 - - - - - 127.1
Total in local currency 141.8 833.0 1,066.0 1,182.5 585.5 371.2 1,982.9 6,162.9
Foreign currency                
IADB 86.0 147.2 106.4 106.4 106.4 106.4 1,143.4 1,802.2
IBRD - - - 8.2 16.4 16.4 205.2 246.2
Eurobonds 454.5 - - - 1,132.7 - - 1,587.2
JICA 0.0 71.5 72.9 118.1 118.1 118.1 1,297.1 1,795.8
BID 1983AB - 77.7 77.0 57.4 55.5 25.0 47.7 340.3
Interest and other charges 48.3 6.0 - - - - - 54.3
Total in foreign currency 588.8 302.4 256.3 290.1 1,429.1 265.9 2,693.4 5,826.0
Total 730.6 1,135.4 1,322.3 1,472.6 2,014.6 637.1 4,676.3 11,988.9

 

11. Capex

In the third quarter of 2016, the Company invested R$ 1.1 billion, totaling R$ 2.7 billion in the first nine months of 2016.

 

PAGE: 20 of 73


 

ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

 

Notes to the Interim Financial Information

1 Operations

Companhia de Saneamento Básico do Estado de São Paulo ("SABESP" or the "Company") is a mixed-capital company headquartered in São Paulo, at Rua Costa Carvalho, 300, CEP 05429-900, controlled by the São Paulo State Government. The Company is engaged in the provision of basic and environmental sanitation services in the State of São Paulo, as well as it supplies treated water and sewage services on a wholesale basis.

In addition to providing basic sanitation services in the State of São Paulo, SABESP may perform these activities in other states and countries, and can operate in drainage, urban cleaning, solid waste handling and energy markets. The objective set in the new vision of SABESP is to be recognized as the company that ensured universal access to water and sewage services in its marketplace, in a sustainable and competitive manner, with excellence in customer service.

As of September 30, 2016, the Company operated water and sewage services in 366 municipalities of the State of São Paulo. Most of these municipalities operations are based on 30-year concession, program and services contracts. The Company has two partial contracts with the municipality of Mogi das Cruzes, however, since most of municipality is serviced by wholesale, it was not included in the 366 municipalities. As of September 30, 2016, the Company had 368 contracts.

SABESP is not temporarily operating in some municipalities due to judicial orders. The lawsuits in progress refer to Macatuba and Cajobi, and the carrying amount of these municipalities’ intangible assets was R$4,345 as of September 30, 2016 and December 31, 2015.

As of September 30, 2016, 55 concession agreements had expired and are being negotiated. From September 30, 2016 to 2030, 34 concession agreements will expire. Management believes that concession agreements expired and not yet renewed will result in new contracts, disregarding the risk of discontinuity in the provision of municipal water supply and sewage services. By September 30, 2016, 279 program and services contracts were signed (278 contracts as of December 31, 2015).

As of September 30, 2016, the carrying amount of the underlying assets used in the 55 concessions of the municipalities under negotiation totaled R$6,489,333, accounting for 21.37% of the total, and the related gross revenue for the nine-month period then ended totaled R$1,322,077, accounting for 12.28% of the total.

The Company’s operations are concentrated in the municipality of São Paulo, which represents 55.35% of the gross revenues as of September 30, 2016 (51.52% as of September 30, 2015) and 45.84% of intangible assets (43.37% as of December 31, 2015).

On June 23, 2010, the State of São Paulo, the Municipality of São Paulo, the Company and the regulatory agency “Sanitation and Energy Regulatory Agency – ARSESP” signed an agreement to share the responsibility for water supply and sewage services to the Municipality of São Paulo based on a 30-year concession agreement. This agreement is extendable for another 30 years, pursuant to the law. This agreement sets forth SABESP as the exclusive service provider and designates ARSESP as regulator, establishing prices, controlling and monitoring services.

Also, on June 23, 2010, the State of São Paulo, the Municipality of São Paulo and SABESP signed the “Public service provision agreement of water supply and sewage services”, a 30-year concession agreement which is extendable for another 30 years. This agreement involves the following activities:

i. protection of the sources of water in collaboration with other agencies of the State and the City; ii. capture, transport and treat of water; iii. collect, transport, treatment and final dispose of sanitary sewage; and iv. adoption of other actions of basic and environmental sanitation.

The Company operates under an authorization by public deed in some municipalities in the Santos coast region and in the Vale do Ribeira, where the Company started to operate after the merger of the companies that formed it. In September 2015, the Company entered into a water supply and sewage public utility services agreement with the municipality of Santos. Additional information is presented in Note 9(d) of the Annual Financial Statements of December 31, 2015.

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Notes to the Interim Financial Information

Article 58 of Law 11,445/07 determines that precarious and overdue concessions, as well as those effective for an undetermined period of time, including those that do not have an instrument formalizing them, will be valid until December 31, 2010. However, Article 2 of Law 12,693 of July 24, 2012, which amended Article 7-A of Law 11,578 of November 26, 2007, allows program agreements to be executed until December 31, 2016.

The Company’s Management understands that the concession agreements not yet renewed are valid and will be governed by Laws 8,987/95 and 11,445/07, including those municipalities served without an agreement.

Public deeds are valid and governed by the Brazilian Civil Code.

The Company's shares have been listed in the Novo Mercado (New Market) segment of BM&FBovespa under the ticker symbol SBSP3 since April 2002 and on the New York Stock Exchange (NYSE) as American Depositary Receipts (“ADRs”) Level III, under the SBS code, since May 2002.

Since 2008, the Company has been setting up partnerships with other companies, which resulted in the following companies: Sesamm, Águas de Andradina, Saneaqua Mairinque, Aquapolo Ambiental, Águas de Castilho, Attend Ambiental and Paulista Geradora de Energia. Although SABESP has no majority interest in the capital stock of these companies, the shareholders’ agreements provide for the power of veto and casting vote in certain issues jointly with associates, indicating the shared control in the management of investees.

The 2014-2015 water condition presented the lowest rainfall and inflow ever seen in 85 years, especially in the reservoirs composing the Cantareira System. During the rainy season, from October 2015 to March 2016, rainfall in the region returned to the normal levels expected for the period which, jointly with the various measures adopted by the Company to mitigate water shortage impacts, the collaboration of the population in water saving and the emergency works undertaken in 2014 and 2015 resulted in the recovery of water levels in the reservoirs of the Cantareira System.

Consequently, since May 1, 2016, the Water Consumption Reduction Incentive Program. effective since February 2014, and the Contingency Tariff, effective as of January 2015, were cancelled.

The interconnection of the Rio Grande (Billings) Reservoir with the Alto Tietê System was inaugurated in September 2015 and allowed the Alto Tietê System to serve regions previously served by the Cantareira System only. This project enables the transfer of up to 4m³/s from the Rio Grande (Billings) Reservoir to the Alto Tietê System, contributing to water supply and security in the São Paulo Metropolitan Region .

Also regarding the investments designed to increase expansion and water security in the São Paulo Metropolitan Region, two important projects will be concluded in 2017: (i) the Jaguarí-Atibainha interconnection, which will transfer up to 5.13 m³/s to the Cantareira System; and (ii) the construction of the São Lourenço Production System, which will expand the storage, production and distribution capacity by 6.4 m³/s.

The total volume of water stored in our water sources in September 2016 was 495% higher than in the same period in 2015, i.e. in September 2016, stored water totaled 831.9 million m³ versus 139.8 million m³ in September 2015, excluding the technical reserve.

However, in spite of the end of the Water Consumption Reduction Incentive Program and the Contingency Tariff in April, water production has not yet reached pre-crisis levels, showing that consumer habits may have changed.

The Company’s Management expects that with the improvement of water conditions and operating cash, in addition to the lines of credit available for for investments, the Company will have sufficient funds to meet its liabilities and not compromise the investments necessary to water security.

See other disclosures about this matter in Note 24 – operating revenue.

The interim financial information was approved by the Board of Directors on November 10, 2016.

 

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Notes to the Interim Financial Information

2 Basis of preparation and presentation of the financial statements

Presentation of the quarterly financial information

The quarterly financial information as of September 30, 2016, was prepared based on the provisions of CPC 21 (R1) – Interim Financial Information and the international standard IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), applicable to the preparation of Quarterly Information Form– ITR and they are fairly presented consistent with the rules issued by the Brazilian Securities and Exchange Commission (CVM). Therefore, this Interim Financial Information takes into consideration the official letter CVM/SNC/SEP 003 of April 28, 2011, which allows the entities to present selected notes to the financial statements, in cases of redundant information already disclosed in the Annual Financial Statements. The interim financial information for September 30, 2016, therefore, does not include all the notes and reporting required by the annual financial statements, and accordingly, shall be read jointly with the Annual Financial Statements as of December 31, 2015, prepared pursuant to the International Financial Reporting Standards – IFRS, issued by the International Accounting Standards Board – IASB and pursuant to the accounting practices adopted in Brazil which observe the pronouncements issued by the Brazilian Accounting Pronouncements Committee- CPC.

3 Summary of significant accounting policies

The accounting policies used in the preparation of the quarterly financial information for the quarter ended September 30, 2016 are consistent with those used to prepare the Annual Financial Statements for the year ended December 31, 2015. These policies are disclosed in Note 3 to the Annual Financial Statements.

4 Risk Management

4.1 Financial Risk Management

Financial risk factors

The Company's activities are affected by Brazilian economic scenario, making it exposed to market risk (exchange rate and interest rate), credit risk and liquidity risk. The Company’s financial risk management is focused on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance.

The Company has not utilized derivative instruments in any of the reported periods.

(a) Market risk

Foreign currency risk

SABESP’s foreign exchange exposure implies market risks associated with currency fluctuations, since the Company has foreign currency-denominated liabilities, mainly US dollar and yen-denominated short and long-term borrowings.

The management of SABESP’s foreign currency exposure considers several current and projected economic factors, besides market conditions.

This risk arises from the possibility that the Company may incur in losses due to exchange rate fluctuations that would impact liability balances of foreign currency-denominated borrowings and financing raised in the market and related financial expenses. The Company does not maintain hedge or swap contracts or any derivative financial instrument to hedge against this risk.

A significant amount of the Company’s financial debt is indexed to the U.S. dollar and Yen, in the total amount of R$5,850,794 as of September 30, 2016 (R$6,640,256 as of December 31, 2015). Below, the Company’s exposure to exchange risk:

 

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  September 30, 2016 December 31, 2015
  Foreign   Foreign  
  currency R$ currency R$
 
Borrowings and financing – US$ 1,231,497 3,997,686 1,242,273 4,850,827
Borrowings and financing – Yen 56,089,939 1,798,804 53,906,927 1,748,202
Interest and charges from borrowings and financing –        
US$   50,772   29,813
Interest and charges from borrowings and financing – Yen   3,532   11,414
Total exposure   5,850,794   6,640,256
Borrowing cost – US$   (21,753)   (19,786)
Borrowing cost – Yen   (2,937)   (2,646)
Total foreign currency-denominated borrowings (Note 15)   5,826,104   6,617,824

 

The 12% decrease in foreign-currency denominated debt between September 30, 2016 and December 31, 2015, was mainly due to the following:

1) Exchange rate changes, due to the 16.9% decrease in the US dollar, from R$3.9048 as of December 31, 2015 to R$3.2462 as of September 30, 2016. The US dollar-denominated debt accounts for 69.1% of foreign currency-denominated debts; and

2) A 2.9% increase in Yen-denominated debt, due to the funding of loan and financing agreements: JICA 19, in the amount of R$144,497. These increases were reduced due to the 1.1% decrease in the Yen exchange rate, which went from R$0.03243 as of December 31, 2015, to R$0.03207 as of September 30, 2016.

As of September 30, 2016, if the Brazilian real had depreciated or appreciated by 10% against the US dollar and Yen, effects on results before taxes on the nine-month period ended September 30, 2016, considering the other variables are as remaining constant, in addition to the impacts mentioned above, would have been R$585,079 (R$664,026 as of December 31, 2015), lower or higher, mainly as a result of exchange losses or gains on the translation of foreign currency-denominated borrowings.

Scenario I below presents the effect in income statements for the next 12 months, considering the projected rates of the U.S. dollar and the Yen. Considering the other variables as remaining constant, the impacts for the next 12 months are shown in scenarios II and III with possible depreciations of 25% and 50%, respectively, in the Brazilian real.

  Scenario I   Scenario II   Scenario
  (Probable) (+25%) III(+50%)
  (*)        
Net currency exposure as of September 30, 2016 (Liabilities) in          
US$ 1,231,497   1,231,497   1,231,497
 
US$ rate as of September 30, 2016 3.2462   3.2462   3.2462
Exchange rate estimated according to the scenario 3.4000   4.2500   5.1000
Difference between the rates (0.1538)   (1.0038)   (1.8538)
 
Effect on net financial result R$ - (loss) (189,404)   (1,236,177)   (2,282,949)
 
Net currency exposure as of September 30, 2016 (Liabilities) in          
Yen 56,089,939   56,089,939   56,089,939
 
US$ rate as of September 30, 2016 0.03207   0.03207   0.03207

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Notes to the Interim Financial Information          
  Scenario I   Scenario II   Scenario
  (Probable) (+25%) III(+50%)
  (*)        
Exchange rate estimated according to the scenario 0.03379   0.04224   0.05069
Difference between the rates (0.00172)   (0.01017)   (0.01862)
 
Effect on net financial result R$ - (loss) (96,475)   (570,435)   (1,044,395)
 
Total effect on net financial result in R$ - (loss) (285,879)   (1,806,612)   (3,327,344)
 
(*) For the probable scenario in US dollar, the exchange rate estimated for September 30, 2017 was used, pursuant to the Focus
Report – BACEN. For the Yen, the average exchange rate was considered for the 12-month period after September 30, 2016,
according to BM&FBovespa Reference Rate report.          

 

Interest rate risk

This risk arises from the possibility that the Company could incur losses due to fluctuations in interest rates, increasing the financial expenses related to borrowings and financing.

The Company has not entered into any derivative contract to hedge against this risk; however continually monitors market interest rates, in order to evaluate the possible need to replace its debt.

The table below provides the Company's borrowings and financing subject to variable interest rate:

    September 30, 2016 December 31, 2015
 
  TR(i) 1,524,954 1,498,085
  CDI(ii) 1,082,228 1,617,191
  TJLP(iii) 1,182,951 1,114,977
  IPCA(iv) 1,707,269 1,623,201
  LIBOR(v) 2,402,539 2,926,628
  Interest and charges 136,730 144,546
  Total 8,036,671 8,924,628
 
(i) TR – Interest Benchmark Rate    
(ii) CDI – (Certificado de Depósito Interbancário), an interbank deposit certificate
(iii) TJLP – (Taxa de Juros a Longo Prazo), a long-term interest rate index
(iv) IPCA – (Índice Nacional de Preços ao Consumidor Amplo), a consumer price index
(v) LIBOR – London Interbank Offered Rate  

 

Another risk to which the Company is exposed, is the mismatch of the monetary restatement indices of its debts with those of its service revenues. Water supply and sewage services tariff adjustments do not necessarily follow the increases in the inflation indexes to adjust borrowings, financing and interest rates affecting indebtedness.

As of September 30, 2016, if interest rates on borrowings and financing had been 1% higher or lower with all other variables held constant, the effects on profit before taxes for the nine-month period ended September 30, 2016 would have been R$80,367 (R$89,246 as of December 31, 2015), lower or higher, mainly as a result of lower or higher interest expense on floating rate borrowings and financing.

(b) Credit risk

Credit risk arises from cash and cash equivalents, deposits in banks and financial institutions, as well as credit exposures to wholesale basis and retail customers, including outstanding accounts receivable, restricted cash and accounts receivable from related parties. Credit risk exposure to customers is mitigated by sales to a dispersed base.

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Notes to the Interim Financial Information

The maximum exposures to credit risk as of September 30, 2016 are the carrying amounts of instruments classified as cash equivalents, deposits in banks and financial institutions, restricted cash, trade receivables and accounts receivable from related parties at the end of the reporting period. See additional information in Notes 6, 7, 8 and 9.

Regarding the financial assets held with financial institutions, the credit quality that is not past due or subject to provision for impairment can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates. The credit quality of counterparties which are banks, such as deposits and financial investments, the Company considers the lower rating of the counterparty published by three main international rating agencies (Fitch, Moody's and S&P), according to internal policy of market risk management:

  September 30, 2016 December 31, 2015
Cash at bank and short-term bank deposits    
AA+(bra) 1,414,851 1,638,589
Other (*) 614 625
  1,415,465 1,639,214

 

(*) This category includes current accounts and investment funds in banks, which have no credit rating
information available.      
 
The available credit rating information of the banks in which the Company made deposit transactions and
financial investments in domestic currency (R$ - domestic rating) during the period is as follows:
 
Banks Fitch Moody's Standard Poor's
       
Banco do Brasil S/A AA+(bra) Aa1.br -
Banco Santander Brasil S/A AAA(bra) Aaa.br brAA-
Brazilian Federal Savings Bank AA+(bra) Aa1.br brAA-
Banco Bradesco S/A AAA(bra) Aa1.br brAA-
Itaú Unibanco Holding S/A AAA(bra) Aa1.br brAA-

 

(c) Liquidity risk

The Company's liquidity is primarily reliant upon cash provided by operating activities, borrowings from Brazilian Federal and State governmental financial institutions, and financing in the domestic and international capital markets. The liquidity risk management considers the assessment of its liquidity requirements to ensure it has sufficient cash to meet its operating and capital expenditures needs, as well as the payment of its debts.

The funds held by the Company are invested in interest-bearing current accounts, time deposits and securities, selecting instruments with appropriate maturity or liquidity sufficient to provide margin as determined by projections mentioned above.

The table below shows the financial liabilities of the Company and São Lourenço PPP’s commitments, into relevant maturities, including the installment of principal and future interest to be paid according to the agreement.

 

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Notes to the Interim Financial Information            
  October to
December
2016
           
          2021  
  2017 2018 2019 2020 onwards Total
As of September 30, 2016              
 
Liabilities              
Borrowings and financing 771,864 1,568,442 1,762,223 1,852,462 2,337,655 6,628,393 14,921,039
Trade payables and contractors 257,166 - - - - - 257,166
Services payable 378,831 - - - - - 378,831
Public-Private Partnership – PPP (*) 11,509 46,038 348,227 348,227 348,227 5,664,568 6,766,796
Program contract commitments 63,698 52,324 30,598 29,408 869 17,583 194,480

 

(*)The Company also considered future commitments (construction not yet performed) not yet recognized in the financial statements related to São Lourenço PPP, due to the relevance of future cash flows, the impacts on its operations and the fact the Company already has formalized this commitment through an agreement signed by the parties.

Future interest

Future interest was calculated based on the contractual clauses for all agreements. For agreements with floating interest rate, the interest rates used correspond to the base dates above.

Cross default

The Company has borrowings and financing agreements including cross default clauses, i.e., the early maturity of any debt, may imply the early maturity of these agreements. The indicators are continuously monitored in order to avoid the execution of this clause.

(d) Sensitivity analysis on interest rate risk

The table below shows the sensitivity analysis of the financial instruments, prepared in accordance with CVM Rule 475/2008 in order to evidence the balances of main financial assets and liabilities, calculated at a rate projected until the final settlement of each contract, considering a probable scenario (scenario I), appreciation of 25% (scenario II) and 50% (scenario III).

The purpose of the sensitivity analysis is to measure the impact of changes in the market over the financial instruments of the Company, considering constant all other variables. In the time of settlement, the amounts can be different from those presented, due to the estimates used in the measurement.

  September 30, 2016        
      Scenario I   Scenario II   Scenario III
Indicators Exposure   (Probable) (i)   25%   50%
Assets              
CDI 1,350,772   11.7700%(*)   8.8275%   5.8850%
Financial income     158,986   119,239   79,493
 
Liabilities              
CDI (1,082,228) 11.7700%(*) 8.8275%   5.8850%
Interest to be incurred     (127,378) (95,534)   (63,689)
 
CDI net exposure 268,544   31,608   23,705   15,804
 
Liabilities              
TR (1,524,954) 0.0075% (***)   0.0094%   0.0113%
Expenses to be incurred     (114) (143)   (172)

 

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Notes to the Interim Financial Information      
September 30, 2016
      Scenario I Scenario II Scenario III
Indicators Exposure (Probable) (i) 25 50
 
IPCA   (1,707,269) 5.0700%(*) 6.3375% 7.6050%
Expenses to be incurred   (86,559) (108,198) (129,838)
 
TJLP   (1,182,951) 7.5000%(*) 9.3750% 11.2500%
Interest to be incurred   (88,721) (110,902) (133,082)
 
LIBOR (2,402,539) 0.9423% 1.1779% 1.4135%
Interest to be incurred   (22,639) (28,300) (33,960)
 
Total net expenses to be incurred   (166,425) (223,838) (281,248)
 
(*) Source: CDI and IPCA (Focus Report – BACEN, September 30, 2016) and TJLP of September 30, 2016 (BACEN).
(**) Source: Bloomberg        
(***)Source: BM&FBovespa        

 

(i) Refers to the scenario of interest to be incurred for the 12 months as of September 30, 2016 or until the maturity of the agreements, whichever is shorter.

4.2 Capital management

The Company’s objectives when managing capital are ensure its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.

The Company monitors capital based on the leverage ratio. This ratio corresponds to net debt divided by total capital. Net debt corresponds to total borrowings and financing less cash and cash equivalents. Total capital is calculated as total equity as shown in the balance sheet plus net debt.

  September 30, 2016   December 31, 2015
Total borrowings and financing (Note 15) 11,988,956   13,121,600
(-) Cash and cash equivalents (Note 6) (1,415,465) (1,639,214)
Net debt 10,573,491   11,482,386
Total equity 15,524,287   13,716,606
Total capital 26,097,778   25,198,992
Leverage ratio 41% 46%

 

The leverage ratio decreased from 46% as of December 31, 2015 to 41% as of September 30, 2016, chiefly due to the decreased balance of foreign-currency denominated borrowings and financing as a result of 16.9% and 1.1% depreciations of the US dollar and the Yen, respectively, as of September 30, 2016.

4.3 Fair value estimates

It is assumed that balances from trade receivables (current) and accounts payable to suppliers by carrying amount, less impairment, approximate their fair values, considering the short maturity. Long-term trade receivables also approximate their fair values, as they will be adjusted by inflation and/or will bear contractual interest rates over time.

 

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Notes to the Interim Financial Information

4.4 Financial instruments

The Company had CTEEP’s shares, which were classified as financial asset held for trading and recognized at fair value through profit or loss. As of April 20, 2016, the Company sold these shares for R$111,117. The Company’s financial instruments included in the borrowings and receivables category comprise cash and cash equivalents, trade receivables, related party balances, other receivables, balances receivable from the Water National Agency – ANA, and the financial instruments under other liabilities category comprised accounts payable to contractors and suppliers, borrowings and financing, balances payable deriving from the Public Private Partnership-PPP and program contract commitments, which are non-derivative financial assets and liabilities with fixed or determinable payments, not quoted in an active market.

As of September 30, 2016, the Company did not have financial liabilities classified as fair value through profit or loss.

The estimated fair values of financial instruments are as follows:

Financial assets

  September 30, 2016 December 31, 2015
  Carrying   Carrying  
  amount Fair value amount Fair value
Cash and cash equivalents 1,415,465 1,415,465 1,639,214 1,639,214
Restricted cash 18,429 18,429 29,156 29,156
Trade receivables 1,629,174 1,629,174 1,509,588 1,509,588
Water National Agency – ANA 82,895 82,895 88,368 88,368
Financial asset held for trading (*) - - 101,500 101,500
Other receivables 221,174 221,174 196,118 196,118
(*) Amount recorded under “other receivables” in current assets.    

 

Additionally, SABESP has financial instrument assets receivables from related parties, in the amount of R$871,301 as of September 30, 2016 (R$872,107 as of December 31, 2015), which were calculated in accordance with the conditions negotiated between related parties. The conditions and additional information referring to these financial instruments are disclosed in Note 9 to this interim financial information and Note 10 to the Annual Financial Statements of December 31, 2015. Part of this balance, totaling R$779,372 (R$786,501 as of December 31, 2015), refers to reimbursement of additional retirement and pension plan - G0 and is indexed by IPCA plus simple interest of 0.5% p.m. This interest rate approximates that one practiced by federal government bonds (NTN-b) with terms similar to those of related-party transactions.

Financial liabilities

  September 30, 2016 December 31, 2015
  Carrying   Carrying  
  amount Fair value amount Fair value
Borrowings and financing 11,988,956 12,017,138 13,121,600 12,625,454
Trade payables and contractors 257,166 257,166 248,158 248,158
Services payable 378,831 378,831 387,279 387,279
Program contract commitments 174,843 174,843 320,714 320,714
Public-Private Partnership - PPP 1,907,733 1,907,733 1,035,033 1,035,033

 

The criteria adopted to obtain the fair values of borrowings and financing, in preparing the interim financial information as of September 30, 2016, are consistent with those adopted in the Annual Financial Statements for the fiscal year ended December 31, 2015. In the Annual Financial Statements, these criteria are disclosed in Note 5.4.

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Notes to the Interim Financial Information

Considering the nature of other financial instruments, assets and liabilities of the Company, the balances recognized in the balance sheet approximate the fair values, taking into account the maturities close to the end of the reporting period, comparison of contractual interest rates with market rates in similar operations at the end of the reporting period, their nature and maturity terms.

5 Key accounting estimates and judgments

Estimates and judgments are continually evaluated and are based on historical experience and on other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The key accounting estimates and judgments are: (i) allowance for doubtful accounts, (ii) intangible assets arising from concession and program contracts, (iii) provisions, (iv) pension benefits, and (v) deferred income tax and social contribution, and are disclosed in Note 6 to the Annual Financial Statements as of December 31, 2015.

6 Cash and cash equivalents

  September 30, 2016 December 31, 2015
 
Cash and banks 64,693 77,233
Cash equivalents 1,350,772 1,561,981
  1,415,465 1,639,214

Cash and cash equivalents include cash, bank deposits and high-liquidity short-term financial investments, mainly represented by repurchase agreements (accruing CDI interest rates), deposited at Banco do Brasil, whose original maturities are lower than three months, which are convertible into a cash amount and subject to an insignificant risk of change in value.

As of September 30, 2016, the average yield of financial investments corresponds to 99.29% of CDI (99.24% for financial assets held for trading as of December 31, 2015).

7 Restricted cash

  September 30, 2016 December 31, 2015
Current    
Agreement with the São Paulo municipal government (i) 13,946 13,005
Funds raised with the BNDES (ii) - 7,109
Brazilian Federal Savings – escrow deposit (iii) 1,122 1,433
Other 3,361 7,609
  18,429 29,156

 

(i) Agreement with the municipal government of São Paulo where the Company transfers 7.5% of the Municipal revenue to the Municipal Fund;

(ii) Refers to funds raised with the Brazilian Development Bank– BNDES, awaiting the authorization for use; and

(iii) Refers to savings account for receiving escrow deposits regarding lawsuits with final and unappealable decisions in favor of the Company, which are blocked as per contractual clause.

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Notes to the Interim Financial Information

8   Trade receivables        
    (a) Financial position balances        
 
        September 30, 2016   December 31, 2015
    Private sector:        
    General and special customers (i) (ii)   1,137,474   1,044,692
    Agreements (iii)   332,989   317,871
 
        1,470,463   1,362,563
    Government entities:        
    Municipal   523,557   503,309
    Federal   4,518   5,738
    Agreements (iii)   250,745   207,066
 
        778,820   716,113
    Wholesale customers – Municipal governments: (iv)        
    Guarulhos   821,458   810,285
    Mauá   453,563   416,749
    Mogi das Cruzes   2,544   2,158
    Santo André   917,094   857,424
    São Caetano do Sul   2,532   2,057
    Diadema   222,671   222,671
 
    Wholesale customers – Municipal governments   2,419,862   2,311,344
 
    Unbilled supply   460,342   427,361
 
    Subtotal   5,129,487   4,817,381
    Allowance for doubtful accounts   (3,500,313)   (3,307,793)
 
    Total   1,629,174   1,509,588
 
    Current   1,465,317   1,326,972
    Noncurrent   163,857   182,616
 
        1,629,174   1,509,588

 

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Notes to the Interim Financial Information

(i) General customers - residential and small and mid-sized companies

(ii) Special customers - large consumers, commercial, industries, condominiums and special billing consumers (industrial waste, wells, etc.).

(iii) Agreements - installment payments of past-due receivables, plus monetary restatement and interest, when provided for in the agreements.

(iv) Wholesale basis customers - municipal governments - This balance refers to the sale of treated water to municipalities, which are responsible for distributing to, billing and charging final customers. Some of these municipalities are questioning in court the tariffs charged by SABESP, which have full allowance for doubtful accounts. Additionally, the overdue amounts are included in the allowance for doubtful accounts.

Changes in accounts receivables on a wholesale basis are as follows:

    January to September 2016   January to September 2015
 
Balance at beginning of the period   2,311,344   2,158,798
Services provided   517,658   253,281
Receivables   (409,140)   (87,363)
 
Balance at the end of the period   2,419,862   2,324,716

 

(b) The aging of trade receivables is as follows

    September 30, 2016   December 31, 2015
 
Current   1,274,343   1,195,098
Past-due:        
Up to 30 days   232,213   182,025
From 31 to 60 days   113,498   123,765
From 61 to 90 days   94,758   78,089
From 91 to 120 days   75,122   84,654
From 121 to 180 days   134,624   80,447
From 181 to 360 days   220,759   158,182
Over 360 days   2,984,170   2,915,121
 
Total past-due   3,855,144   3,622,283
 
Total   5,129,487   4,817,381

 

The increase in the balance overdue is mainly due to accounts receivable at wholesale where municipalities served are challenging in court the tariffs charged by SABESP. These amounts are fully covered by the allowance for doubtful accounts.

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Notes to the Interim Financial Information

(c) Allowance for doubtful accounts

    January to September 2016   January to September 2015
 
Balance at beginning of the period       3,307,793       3,164,288
Private sector /government entities       121,930       54,741
Recoveries       (141,698)       (57,138)
Wholesale customers       231,891       189,611
 
Net additions for the period       212,123       187,214
 
Write-offs in the period referring to accounts receivable       (19,603)       -
 
Balance at the end of the period       3,500,313       3,351,502
 
    July to   January to   July to   January to
Reconciliation of provision for losses   September   September   September   September
of income   2016   2016   2015   2015
 
Losses (write-off)   45,956   128,088   (8,130)   22,017
Provision for state entities (related parties)   842   4,403   (956)   1,443
Provision for private sector /government entities   91,199   121,930   1,098   54,741
Provision for wholesale customers   -   (2,542)   8,934   (11,674)
Recoveries   (48,289)   (141,698)   (39,077)   (57,138)
 
Amount recorded as selling expenses   89,708   110,181   (38,131)   9,389

 

Wholesale sales losses, amounting to R$83,463 from July to September 2016 and R$234,433 from January to September 2016 (R$63,635 from July to September 2015 and R$201,285 from January to September 2015), were also recorded as revenue reduction.

The Company does not have customers representing 10% or more of its revenues.

9 Related-Party Balances and Transactions

The Company is a party to transactions with its controlling shareholder, the State Government, and companies related to it.

Additional information is presented in Note 10 to the Annual Financial Statements of December 31, 2015.

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Notes to the Interim Financial Information

(a) Accounts receivable, interest on capital payable, revenue and expenses with the São Paulo State Government

        September 30, 2016   December 31, 2015 
Accounts receivable                
Current:                
Water and sewage services       136,995       115,633
Allowance for losses       (53,735)       (49,332)
Reimbursement for retirement and pension benefits paid (G0):            
- Monthly flow (payments)       15,177       20,564
- GESP Agreement       49,985       49,985
“Se Liga na Rede” program (l)       8,669       19,305
 
Total current       157,091       156,155
 
Noncurrent:                
Reimbursement for retirement and pension benefits paid (G0):            
- GESP Agreement – 2008       29,158       66,646
- GESP Agreement – 2015       685,052       649,306
 
Total noncurrent       714,210       715,952
 
Total receivables from shareholders       871,301       872,107
 
Assets:                
Water and sewage services       83,260       66,301
Reimbursement for retirement and pension benefits paid (G0)   779,372       786,501
“Se Liga na Rede” program (l)       8,669       19,305
 
Total       871,301       872,107
 
Liabilities:                
Interest on capital payable to related parties       -       64,013
Other (g)       1,431       2,210
 
    July to   January to   July to   January to
    September   September   September   September
    2016   2016   2015   2015
Revenue from water and sewage services                
Water supply   59,094   173,726   51,574   141,034
Sewage services   54,646   152,787   42,377   117,428
Payments received from related parties   (108,459)   (305,098)   (85,468)   (245,970)
 
Receipt of GESP reimbursement referring to                
Law 4,819/58   (32,267)   (104,592)   (31,257)   (87,973)

 

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Notes to the Interim Financial Information

(b) Contingent assets - GESP (not recorded)

As mentioned above, as of September 30, 2016 and December 31, 2015, SABESP had contingent assets with GESP, not recorded in assets referring to the additional retirement and pension paid (Law 4,819/58), named “Disputed amounts receivable”, totaling R$910,253 and R$855,054, respectively.

(c) Use of reservoirs – EMAE

Empresa Metropolitana de Águas e Energia S.A. - EMAE plans to receive for the credit and obtain financial compensation for alleged past and future losses in electricity generation, due to water collection, and compensation for costs already incurred and to be incurred with the operation, maintenance and inspection of the Guarapiranga and Billings reservoirs used by SABESP in its operations.

Several lawsuits were filed by EMAE. Currently, an arbitration proceeding is in progress related to the Guarapiranga reservoir and a lawsuit related to the Billings reservoir, both pleading for financial compensation due to SABESP’s water collect for public supply, alleging that this conduct has been causing permanent and growing loss in the capacity of generating electricity of Henry Borden hydroelectric power plant with financial losses.

As of April 10, 2014, the Company issued a Notice to the Market including the information about an eventual future agreement.

As of October 28, 2016, the Company entered into an agreement based on a Private Transaction Agreement and Other Adjustments aimed to fully and completely settle the disputes involving the two companies. The transaction is subject to the condition precedent of approval by the competent bodies of the Company and EMAE, as well as the Brazilian Electricity Regulatory Agency – ANEEL, and involves the payment by SABESP to EMAE of the following amounts:

- R$6,610 annually, adjusted for inflation, as of the execution date of this instrument, by the IPCA or any other index that may replace it, by the last business day of October of each fiscal year, with (i) the first of such annual payments due up to the last business day of October 2017 and (ii) the last payment due up to the last business day of October 2042; and

- R$46,270, in five annual and successive installments, adjusted for inflation by the IPCA or any other index that may replace it, with the first installment of R$9,254 due on April 30, 2017 and the subsequent ones in 04 (four) installments of same amount, due on every April 30 of the subsequent years, or on the first subsequent business day.

The agreement was based on the following assumptions: (i) SABESP payments should not exceed the amount necessary to indemnify EMAE for the maintenance and operating costs of the Guarapiranga and Billings reservoirs, in the proportion of their collect considering the natural outflow of each reservoir; (ii) payments will be made while SABESP’s and EMAE’s concessions are valid, and as long as SABESP withdraws water from these reservoirs, in compliance with the statute of limitations of the objects of the proceedings; (iii) SABESP must request ARSESP to incorporate these expenses into the tariff revision process in progress.

In order to estimate the maintenance and preservation expenses of the hydraulic and property structures of the Billings and Guarapiranga reservoirs, the technical area involved in water production adopted the following assumptions: (i) expenses related to the Guarapiranga Reservoir, whose water is used exclusively to supply the population of the São Paulo Metropolitan Region, will be fully paid by SABESP; (ii) the Billings reservoir has multiple uses – flood control, generation of electricity and public supply – and its maintenance and operating expenses should be shared based on the proportion of water used by each of the functions mentioned; (iii) SABESP has grants to use water in several points of the Billings reservoir that total an available outflow of 10.0 m³/s, representing 61.7% of the reservoir’s long-term average outflow (16.2 m³/s); and (iv) considering the water volume usage percentages - 100% Guarapiranga and 61.70% Billings – an annual amount of R$6,610 will be charged as shared expenses, based on the terms of the agreement.

The Company adopted the annual amount of R$6,610 from 2010 to 2042, including the statute of limitations and the year of expiration of the EMAE concession.

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Notes to the Interim Financial Information

For these reasons, the Company has concluded that it was in its interest to enter into the agreement since: (i) it eliminates the incidence of future risks with the dismissal of all proceedings; (ii) its amount is limited to a reasonable amount to be paid for the sharing of the operating and maintenance costs of the Guarapiranga and Billings reservoirs; and (iii) the form of payment is appropriate to its financial situation.

By entering into the Agreement, all litigation between the parties will cease permanently and the Company will continue using the reservoirs.

In addition to the lawsuits that were part of the Agreement, on April 11, 2016, SABESP was named in the Indemnification proceeding commenced by EMAE’s minority shareholders, who claimed compensation for damages suffered by EMAE, based on the amounts that the latter did not earn due to the decrease in the outflow of these reservoirs and in the generation of electricity as a result of the use of water of the Billings and Guarapiranga reservoirs by SABESP, and also requested that SABESP be sentenced to reimburse the loss of profits related to EMAE’s unearned amounts resulting from the fact that water was not pumped from the Pinheiros and Tietê Rivers to the Henry Borden hydroelectric power plant. In summary, the company claims that the São Paulo State, in its capacity as controlling shareholder of EMAE, has acted unduly to EMAE’s detriment and in favor of SABESP’s interests by allowing and consenting water intake from the Billings and Guarapiranga reservoirs, in detriment to the output of these reservoirs and generation of electricity by EMAE, without the necessary financial compensation, making impracticable the satisfactory use of the Henry Borden hydroelectric power plant. Although this lawsuit was not the object of the agreement, the Company understands that the approval of the agreement by the Extraordinary Shareholders’ Meeting would eliminate the risk that this proceeding would continue in the judicial level.

As of September 30, 2016, the Company recorded R$8,846 and R$29,259 in Other Liabilities, under current and noncurrent liabilities, respectively, which represent the present value of the balance of R$46,270 that will be paid in five annual installments.

As of November 9, 2016, EMAE’s Board of Directors approved the transaction with SABESP, pursuant to the Private Transaction Agreement, in accordance with the Notice to the Market disclosed by EMAE on the same date.

As of November 10, 2016, the transaction was approved by SABESP’s Board of Directors.

(d) Agreements with reduced tariffs with State and Municipal Government Entities that joined the Rational Water Use Program (PURA)

The Company has signed agreements with government entities related to the State Government and municipalities where it operates that benefit from a reduction of 25% in the tariff of water supply and sewage services when they are not in default. These agreements provide for the implementation of the rational water use program, which takes into consideration the reduction in water consumption.

(e) Guarantees

The State Government provides guarantees for some borrowings and financing of the Company and does not charge any fee with respect to such guarantees.

(f) Personnel assignment agreement among entities related to the State Government

The Company has personnel assignment agreements with entities related to the State Government, whose expenses are fully passed on and monetarily reimbursed. From July to September 2016 and 2015, the expenses related to personnel assigned by SABESP to other state government entities amounted to R$2,449 and R$2,439, respectively, and, from January to September 2016 and 2015, they amounted to R$7,659 and R$7,870, respectively.

From July to September 2016, there were no expenses related to personnel assigned by other entities to the Company. In 2015, these expenses amounted to R$91 and, from January to September 2016 and 2015, amounted to R$10 and R$231, respectively.

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Notes to the Interim Financial Information

(g) Services obtained from state government entities

As of September 30, 2016 and December 31, 2015, the Company had an outstanding amounts payable of R$1,431 and R$2,210, respectively, for services rendered by São Paulo State Government entities.

(h) Non-operating assets

As of September 30, 2016 and December 31, 2015, the Company had an amount of R$969 related to a free land lent to DAEE (Department of Water and Electricity).

(i) Sabesprev

The Company sponsors a private defined benefit pension plan, which is operated and administered by Sabesprev. The net actuarial liability recognized as of September 30, 2016 amounted to R$664,880 (R$665,274 as of December 31, 2015), according to Note 19 (b).

(j) Compensation of Management Key Personnel

Expenses related to the compensation to the members of its Board of Directors, Fiscal Council and Board of Executive Officers from July to September 2016 amounted to R$951 (R$1,011 from July to September 2015). From January to September 2016, these expenses totaled R$2,874 (R$2,944 from January to September 2015). An additional amount of R$124, related to the Officers’ bonus program, was recorded from July to September 2016 (R$124 from July to September 2015). From January to September 2016, the bonus totaled R$371 (R$397 from January to September 2015).

(k) Loan agreement through credit facility

The Company holds interest in certain Special Purpose Entities (SPEs), not holding the majority interest but with cast vote and power of veto in some issues, with no ability to use such power of veto in a way to affect returns over investments. Therefore, these SPEs are considered for accounting purposes as jointly-owned subsidiaries.

The Company has loan agreement through credit facility with the SPEs Aquapolo Ambiental S/A and Attend Ambiental S/A, respectively, to finance the operations of these companies, until the borrowings and financing requested with financial institutions is cleared. These agreements have the following characteristics:

    Principal                
    disbursed   Interest            
SPE   amount   balance   Total   Interest rate   Maturity
Attend Ambiental   5,400   2,810   8,210   SELIC + 3.5 % p.a.   (i)
Aquapolo Ambiental   5,629   5,924   11,553   CDI + 1.2% p.a.   04/30/2016 (ii)
Aquapolo Ambiental   19,000   12,621   31,621   CDI + 1.2% p.a.   10/30/2015 (ii)
Total   30,029   21,355   51,384        

 

(i) The loan agreement with SPE Attend Ambiental S/A matures within 180 days, from the date when the respective amount is available in the borrower’s account, renewable for the same period. The credit has been overdue since May 11, 2015 and is subject to contractual default charges (inflation adjustment considering the IGP-M variation, 2% fine and default interest of 1% p.m.). The agreement has being renegotiated between the parties.

(ii) The Company and Aquapolo Ambiental S/A are renegotiating the payment terms and the maturity of both agreements.

As a result of the renegotiations, the principal, in the amount of R$30,029, and interest, in the amount of R$21,355, were classified in the “other receivables” line, under noncurrent assets until new payment conditions are agreed upon. As of September 30, 2016, the balance of principal and interest rates of these agreements was R$51,384 (R$45,289 as of December 31, 2015). From January to September 2016, a financial income recognized was R$6,096 (R$8,076 from January to September 2015).

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Notes to the Interim Financial Information

(l) “Se Liga na Rede” (Connect to the Network Program)

The State Government enacted the State Law 14,687/12, creating the pro-connection program, destined to financially subsidize the execution of household branches necessary to connect to the sewage collecting networks, in low-income households, which agreed to adhere to the program. The program expenditures, except for indirect costs, construction margin and borrowing costs are financed with 80% of funds deriving from the State Government and the remaining 20% invested by SABESP, which is also liable for the execution of works. As of September 30, 2016, the program total amount was R$79,053 (R$78,447 as of December 31, 2015), R$8,669 (R$19,305 as of December 31, 2015) recorded in balances receivable from related parties, the amount of R$34,694 (R$34,089 as of December 31, 2015) recorded in the group of intangible assets and R$35,690 (R$25,053 as of December 31, 2015) reimbursed by GESP.

10 Water National Agency - ANA

The Company has agreements executed within the scope of the Hydrographic Basin Depollution Program (PRODES), also known as "Treated Sewage Purchase Program ".

This program remunerates by results achieved, i.e., by effectively treated sewage and does not finance works or equipment. In this program, the Water National Agency (ANA) makes available funds, which are restricted to a specific current account and applied in investment funds at the Caixa Econômica Federal - Federal Savings Banks (CEF), until the fulfillment of treated sewage volume is evidenced, as well as the reduction of polluting cargoes of each agreement.

When resources are made available, liabilities are recorded until funds are released by ANA. After the evidence of targets stipulated in each contract, the revenue deriving from these funds is recognized, but if these targets are not met, funds will return to the National Treasury with the appropriate funds earnings. As of September 30, 2016, the balances of assets and liabilities were R$82,895 (R$88,368 as of December 31, 2015), and the liabilities are recorded under "other liabilities" of noncurrent liabilities.

11 Investments

The Company holds interest in certain Special Purpose Entities (SPE). Although SABESP has no majority shares of its investees, the shareholders’ agreement provides for the power of veto in certain management issues, with no ability to use such power of veto in a way to affect returns over investments, indicating participating shared control (joint venture – CPC 19 (R2)).

The Company holds interest valued by the equity method.

See additional information on the operations of each investee in Note 12 to the Annual Financial Statements as of December 31, 2015.

(a) Summary of the investees’ financial statements and SABESP’s equity interest:

            Provisioned        
Company   Equity       dividends   Profit (loss) for the period
    September   December   January to   January to   January to
    30,   31,   September   September   September
    2016   2015   2016   2016   2015
 
 
Sesamm   35,008   32,313   (1,673)   4,368   4,356
Águas de Andradina   15,896   15,191   (802)   1,507   1,988
Águas de Castilho   3,648   3,449   (374)   573   494
Saneaqua Mairinque   3,750   3,560   (193)   383   625
                   

 

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Notes to the Interim Financial Information                            
Attend Ambiental       3,576   3,084   -   492       2,490    
Aquapolo Ambiental       11,150   11,651   -   (501)   (8,005)      
Paulista Geradora de Energia   8,472   8,509   -   (37)       (99)    
            Dividends   Equity in the earnings of                
Company   Investments   distributed   subsidiaries       Interest percentage
        December   January to   January to   January to           December
    September   31,   September   September   September   September   31,
    30, 2016   2015   2016   2016   2015       30, 2016       2015
 
Sesamm   12,603   11,633   (602)   1,572   1,568       36%       36%
Águas de Andradina   4,769   4,558   (241)   452   596       30%       30%
Águas de Castilho   1,095   1,035   (112)   172   148       30%       30%
Saneaqua Mairinque   1,125   1,068   (58)   115   188       30%       30%
Attend Ambiental   1,609   1,388   -   221   1,071       45%       45%
Aquapolo Ambiental   5,464   5,709   -   (245)   (3,922)       49%       49%
Paulista Geradora de Energia   2,118   2,127   -   (9)   (25)       25%       25%
Total   28,783   27,518   (1,013)   2,278   (376)                
Other investments   587   587                            
Overall total   29,370   28,105                            

 

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Notes to the Interim Financial Information

12 Investment properties

As of September 30, 2016, the balance of “investment properties” is R$58,534 (R$58,957 as of December 31, 2015). As of September 30, 2016 and December 31, 2015, the market value of these properties was approximately R$398,000 and R$392,000, respectively.

            Reversal of        
    December 31,       allowance for       September 30,
    2015   Transfers   losses   Depreciation   2016
 
 
Investment property   56,957   1,647   9   (79)   58,534
 
Total   56,957   1,647   9   (79)   58,534

 

13 Intangible assets

(a) Financial position balances

    September 30, 2016       December 31, 2015    
        Accumulated           Accumulated    
    Cost   amortization   Net   Cost   amortization   Net
Intangible assets arising from:                        
Agreements – equity value   9,051,221   (1,690,601)   7,360,620   8,862,581   (1,574,951)   7,287,630
Agreements – economic value   1,902,790   (522,691)   1,380,099   1,819,219   (466,199)   1,353,020
Program contracts   9,039,432   (2,567,870)   6,471,562   8,660,552   (2,371,977)   6,288,575
Program contracts – commitments   990,918   (160,381)   830,537   986,086   (135,556)   850,530
Services contracts – São Paulo   16,704,861   (2,785,707)   13,919,154   14,767,591   (2,400,574)   12,367,017
Software license   539,417   (135,189)   404,228   474,294   (107,440)   366,854
Total   38,228,639   (7,862,439)   30,366,200   35,570,323   (7,056,697)   28,513,626

 

(b) Changes

                        Write-offs       September
    December       Contract   Allowance       and       30,
    31, 2015   Additions   renewal   for losses   Transfers   disposals   Amortization   2016
Intangible assets arising                            
from:                                
Agreements – equity value   7,287,630   209,580   (5,253)   (1,214)   18   (4,856)   (125,285)   7,360,620
Agreements – economic                            
value   1,353,020   83,585   -   -   (23)   (1)   (56,482)   1,380,099
Program contracts   6,288,575   377,176   5,253   (634)   1,324   (1,532)   (198,600)   6,471,562
Program contracts                              
commitments   850,530   4,832   -   -   -   -   (24,825)   830,537
Services contracts – São                            
Paulo   12,367,017   1,940,775   -   1,749   8,707   (713)   (398,381)   13,919,154
Software license   366,854   65,290   -   -   (167)   -   (27,749)   404,228
Total   28,513,626   2,681,238   -   (99)   9,859   (7,102)   (831,322)   30,366,200

 

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Notes to the Interim Financial Information

                        Write-offs        
    December       Contract   Allowance       and       September
    31, 2014   Additions   renewal   for losses   Transfers   disposals   Amortization   30, 2015
Intangible assets arising                            
from:                                
Agreements – equity value   7,369,271   224,099   (463,362)   2,197   (325)   (785)   (116,175)   7,014,920
Agreements – economic                            
value   1,281,260   108,144   -   -   (17)   (133)   (51,397)   1,337,857
Program contracts   5,379,153   666,251   463,362   -   (752)   (5,108)   (174,256)   6,328,650
Program contracts                              
commitments   702,909   270,349   -   -   -   -   (21,597)   951,661
Services contracts – São                            
Paulo   10,986,386   1,486,149   -   8,145   (4,920)   (8,355)   (386,630)   12,080,775
 
Software license   260,547   80,579   -   -   -   -   (34,450)   306,676
Total   25,979,526   2,835,571   -   10,342   (6,014)   (14,381)   (784,505)   28,020,539

 

(c) Construction services

    July to September 2016       January to September 2016
    Water   Sewage       Water   Sewage    
    supply   services   Total   supply   services   Total
Construction revenue   770,619   327,180   1,097,799   1,832,435   787,804   2,620,239
Construction cost incurred   753,460   320,000   1,073,460   1,791,878   771,355   2,563,233
Margin   17,159   7,180   24,339   40,557   16,449   57,006
 
    July to September 2015       January to September 2015
    Water   Sewage       Water   Sewage    
    supply   services   Total   supply   services   Total
Construction revenue   732,144   283,094   1,015,238   1,588,137   920,327   2,508,464
Construction cost incurred   716,193   276,791   992,984   1,554,566   900,017   2,454,583
Margin   15,951   6,303   22,254   33,571   20,310   53,881

 

(d) General information

During the period ended September 30, 2016 there were no relevant changes in the criteria to account for intangible assets and types of contracts. Further information is included in Note 14 (d) to the Annual Financial Statements as of December 31, 2015.

The Company has obligations recorded in “Program Contract– Commitments” in current liabilities in the amount of R$107,180 and R$228,659 as of September 30, 2016 and December 31, 2015, respectively, and noncurrent liabilities in the amount of R$67,663 and R$92,055 as of September 30, 2016 and December 31, 2015, respectively.

(e) Capitalization of interest and other finance charges

From January to September 2016, the Company capitalized interest and inflation adjustment in concession intangible assets totaling R$496,507, including the São Lourenço Production System and Leases (R$247,075 from January to September 2015), during the construction period.

(f) Construction margin

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Notes to the Interim Financial Information

The Company acts as a primary responsible to construct and install the infrastructure related to the concession, using own efforts or hiring outsourcing services, receiving the risks and benefits.

As a consequence, the Company recognizes revenue from construction service corresponding to the cost of construction increased by margin. Generally, the constructions related to the concessions are performed by third parties, in such case, the margin of the Company is lower, normally, to cover eventual administration costs, and the responsibility of the primary risk As of September 30, 2016 and 2015 the margin was 2.3%.

Construction margin from July to September and the same period in 2015 was R$24,339 and R$22,254, respectively, and from January to September 2016 and the same period in 2015 was R$57,006 and R$53,881.

(g) Expropriations

As a result of the construction of priority projects related to water and sewage systems, the Company was required to expropriate third-parties' properties, and the owners of these properties will be compensated either amicably or through courts.

The costs of these expropriations are recorded as concession intangible assets after the transaction is concluded. From July to September 2016, the total amount related to expropriations was R$5,466 and from January to September 2016, expropriations totaled R$33,880 (R$4,809 from July to September 2015 and R$43,650 from January to September 2015).

(h) Public-Private Partnership -PPP

SABESP carries out operations related to the PPPs mentioned below. These operations and their respective obligations and guarantees are supported by agreements executed according to Law 11,079/04.

Alto Tietê Production System

As of September 30, 2016 and December 31, 2015, the amounts recognized as intangible asset related to PPP were R$384,896 and R$393,275, respectively.

Between January and September 2016, a discount rate of 8.06% p.a. was used to calculate the adjustment to present value of the agreement. The obligations assumed by the Company as of September 30, 2016 and December 31, 2015 are shown in the next table.

On a monthly basis, SABESP assigns funds from tariffs to the SPE CAB Sistema Produtor Alto Tietê S/A, in the amount of R$9,164, corresponding to the monthly remuneration. This amount is annually adjusted by the IPC –FIPE and is recorded in a restricted account, pursuant to the contractual operating proceeding. Should SABESP comply with its monthly obligations with the SPE, the funds from the restricted account will be released.

The guarantee has been effective since the beginning of the operation and will be valid until the conclusion, termination, intervention, annulment or caducity of the Administrative Concession, or other extinction events provided for in the Concession Agreement or in the law applicable to administrative concessions, including in the event of bankruptcy or extinction of the SPE.

São Lourenço Production System

As of September 30, 2016 and December 31, 2015, the amounts recognized in intangible assets related to PPP were R$1,614,567 and R$699,335, respectively. As of September 30, 2016, a discount rate of 7.80% p.a. was used to calculate the adjustment to present value of this agreement.

The obligations assumed by the Company as of September 30, 2016 and December 31, 2015 are shown in the table below, and the increase in liabilities and intangible assets was due to the progress of the work in 2016.

Payment is scheduled to start in January 2018, four (4) months after the beginning of assisted operations.

After the beginning of the operations, every month SABESP will transfer to the SPE Sistema Produtor São Lourenço S/A funds from tariffs arising from the services provided, in the amount of R$24.4 million, equivalent

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Notes to the Interim Financial Information

to the monthly remuneration plus interest and charges. The amount above will be annually restated by the IPC -FIPE and should be monthly recorded in a restricted account, in accordance with the operating procedures of the agreements. Should SABESP perform its monthly obligations with the SPE, the funds from the restricted account will be released.

The guarantee will become effective as of the beginning of the system’s appropriate operation, duly accepted by SABESP, valid until the occurrence of any of the following events, whichever occurs first: (i) the original payment date of the last installment of interest / amortization of the principal taken out by the SPE to execute the works; (ii) the end, termination, intervention, annulment, caducity of the Administrative Concession, or other extinction events provided for in the Concession Agreement or in the law applicable to administrative concessions, including bankruptcy or extinction of the SPE.

    September 30, 2016           December 31, 2015    
    Current   Noncurrent   Total   Current   Noncurrent    
    liabilities   liabilities   liabilities   liabilities   liabilities   Total liabilities
 
Alto Tietê   34,939   294,527   329,466   33,255   319,076   352,331
São Lourenço   -   1,578,267   1,578,267   -   682,702   682,702
 
Total   34,939   1,872,794   1,907,733   33,255   1,001,778   1,035,033

 

Additional information is presented in Note 14 (h) to the Financial Statements for the fiscal year ended December 31, 2015.

(i) Works in progress

The amount of R$8,253 million is recorded under intangible assets as works in progress as of September 30, 2016 (R$6,596 million on December 31, 2015), and as of September 30, 2016, the major projects are located in the municipalities of São Paulo, Praia Grande and Franca, totaling R$4,998 million (including R$1,615 million from PPP São Lourenço), R$242 million and R$226 million, respectively.

(j) Amortization of intangible assets

The amortization average rate totaled 3.9% as of September 30, 2016 and 2015.

(k) Software license of use

The software license of use is capitalized based on the costs incurred to acquire software and make them ready for use. The project to implement an integrated business management solution (ERP system), which includes the administrative/financial module and the commercial module, is in progress.


 

ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Notes to the Interim Financial Information

14   Property, plant and equipment                    
 
    (a) Financial position balances                    
 
        September 30, 2016       December 31, 2015    
            Accumulated           Accumulated    
        Cost   depreciation   Net   Cost   depreciation   Net
    Land   92,494   -   92,494   102,708   -   102,708
    Buildings   79,260   (35,086)   44,174   79,257   (33,366)   45,891
    Equipment   338,971   (184,720)   154,251   326,598   (164,380)   162,218
    Transportation equipment   12,208   (7,110)   5,098   12,169   (6,477)   5,692
    Furniture and fixtures   23,509   (11,398)   12,111   18,664   (10,246)   8,418
    Other   1,182   (199)   983   435   (286)   149
    Total   547,624   (238,513)   309,111   539,831   (214,755)   325,076
 
    (b) Changes                        
        December 31,           Write-offs and       September 30,
        2015   Additions   Transfers   disposals   Depreciation   2016
    Land   102,708   -   (10,214)   -   -   92,494
    Buildings   45,891   -   54   -   (1,771)   44,174
    Equipment   162,218   22,036   (6,007)   (110)   (23,886)   154,251
    Transportation equipment   5,692   96   15   -   (705)   5,098
    Furniture and fixtures   8,418   336   4,646   (8)   (1,281)   12,111
    Other   149   845   -   -   (11)   983
    Total   325,076   23,313   (11,506)   (118)   (27,654)   309,111
 
        December 31,           Write-offs and       September 30,
        2014   Additions   Transfers   disposals   Depreciation   2015
    Land   100,533   1,032   -   -   -   101,565
    Buildings   42,515   1,382   3,364   -   (1,033)   46,228
    Equipment   146,922   18,806   (7,600)   (217)   (21,318)   136,593
    Transportation equipment   7,613   136   (627)   -   (756)   6,366
    Furniture and fixtures   7,124   546   1,675   (14)   (708)   8,623
    Other   138   -   20   -   (7)   151
    Total   304,845   21,902   (3,168)   (231)   (23,822)   299,526

 

(c) Depreciation

The Company annually revises the depreciation rates of: buildings - 2%; equipment- 10%; transportation equipment - 10% and furniture, fixture and equipment - 6.7%. Lands are not depreciated.

The depreciation average rate was 10.8% and 10.3%, as of September 30, 2016 and 2015, respectively.

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Notes to the Interim Financial Information

15   Borrowings and Financing                        
 
Borrowings and financing outstanding balance   September 30, 2016       December 31, 2015    
                         
Financial institution       Current    Noncurrent   Total   Current    Noncurrent   Total
Local currency                            
10th issue debentures       40,634   142,544   183,178   39,619   155,815   195,434
12th issue debentures       45,450   351,540   396,990   45,450   385,667   431,117
14th issue debentures       39,656   184,021   223,677   38,519   210,961   249,480
15th issue debentures       97,692   669,905   767,597   94,819   728,529   823,348
17th issue debentures       140,144   901,056   1,041,200   140,144   997,259   1,137,403
18th issue debentures       17,604   240,926   258,530   3,167   247,683   250,850
19th issue debentures       199,218   -   199,218   -   498,587   498,587
20th issue debentures       -   495,204   495,204   -   494,500   494,500
Brazilian Federal Savings Bank   57,078   1,068,677   1,125,755   49,491   1,014,850   1,064,341
Brazilian Development Bank - BNDES BAIXADA SANTISTA   16,544   37,224   53,768   16,368   49,104   65,472
Brazilian Development Bank - BNDES PAC   10,942   62,778   73,720   10,329   66,984   77,313
Brazilian Development Bank - BNDES PAC II 9751   4,273   27,972   32,245   4,264   31,206   35,470
Brazilian Development Bank - BNDES PAC II 9752   2,333   22,165   24,498   2,308   23,660   25,968
Brazilian Development Bank - BNDES ONDA LIMPA   23,037   172,515   195,552   22,347   184,082   206,429
Brazilian Development Bank - BNDES TIETÊ III   28,174   295,634   323,808   17,725   265,663   283,388
Brazilian Development Bank - BNDES INTERLIGAÇÃO   -   78,197   78,197   -   -   -
Leases       14,604   536,259   550,863   11,955   522,940   534,895
Other       721   10,984   11,705   649   1,270   1,919
Interest and charges       127,148   -   127,148   127,862   -   127,862
Total in local currency   865,252   5,297,601   6,162,853   625,016   5,878,760   6,503,776

 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Notes to the Interim Financial Information

Borrowings and financing outstanding balance   September 30, 2016       December 31, 2015    
                     
Financial institution   Current    Noncurrent   Total   Current    Noncurrent   Total
Foreign currency                        
Inter-American Development Bank - BID 713 – US$37,647 thousand (US$50,195 thousand                        
in December 2015)   81,472   40,736   122,208   98,001   98,001   196,002
Inter-American Development Bank - BID 896 – US$1,389 thousand (US$2,778 thousand in                        
December 2015)   4,510   -   4,510   10,848   -   10,848
Inter-American Development Bank - BID 1212 – US$92,503 thousand (US$102,781                        
thousand in December 2015)   33,365   266,918   300,283   40,134   361,204   401,338
Inter-American Development Bank - BID 2202 – US$427,651 thousand (US$405,072                        
thousand in December 2015)   73,065   1,302,236   1,375,301   -   1,572,181   1,572,181
International Bank of Reconstruction and Development -BIRD – US$75,961 thousand                        
(US$61,158 thousand in December 2015)   -   246,252   246,252   -   238,464   238,464
Eurobonds – US$140,000 thousand (US$140,000 thousand in December 2015)   454,449   -   454,449   546,570   -   546,570
Eurobonds – US$350,000 thousand (US$350,000 thousand in December 2015)   -   1,132,675   1,132,675   -   1,362,570   1,362,570
JICA 15 – ¥14,981,590 thousand (¥16,134,020 thousand in December 2015)   36,958   443,501   480,459   37,373   485,853   523,226
JICA 18 – ¥13,470,080 thousand (¥14,506,240 thousand in December 2015)   33,230   398,485   431,715   33,603   436,548   470,151
JICA 17 – ¥1,567,876 thousand (¥ 1,565,564 thousand in December 2015)   -   49,658   49,658   -   50,201   50,201
JICA 19 – ¥26,070,393 thousand (¥21,701,103 thousand in December 2015)   -   834,034   834,034   -   701,978   701,978
BID 1983AB – US$106,346 thousand (US$130,289 thousand in December 2015)   77,722   262,533   340,255   93,490   409,578   503,068
Interest and charges   54,304   -   54,304   41,227   -   41,227
Total in foreign currency   849,075   4,977,028   5,826,103   901,246   5,716,578   6,617,824
 
Total borrowings and financing   1,714,327   10,274,629   11,988,956   1,526,262   11,595,338   13,121,600
 
Exchange rate as of September 30, 2016: US$3.2462; ¥0.03207 (US$3.9048; ¥0.03243 as of December 31, 2015).                
As of September 30, 2016, the Company did not record balances of borrowings and financing raised during the year to mature within 12 months.        

 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Notes to the Interim Financial Information

                Monetary
Local currency   Guarantees   Maturity   Annual interest rates   restatement
 
            TJLP +1.92% (Series 1 and 3) and 9.53% (Series    
10th issue debentures   Own funds   2020       IPCA (series 2)
            2)    
12th issue debentures   Own funds   2025   TR + 9.5%    
            TJLP +1.92% (Series 1 and 3) and 9.19% (Series    
14th issue debentures   Own funds   2022       IPCA (series 2)
            2)    
15th issue debentures   Own funds   2019   CDI + 0.99% (Series 1) and 6.2% (Series 2)   IPCA (series 2)
17th issue debentures   Own funds   2023   CDI +0.75 (Series 1) and 4.5% (Series 2)   IPCA (series 2
            and+4.75% (Series 3)   and 3)
            TJLP + 1.92 % (Series 1 and 3) and 8.25%    
18th issue debentures   Own funds   2024       IPCA (series 2)
            (Series 2)    
19th issue debentures   Own funds   2017   CDI + 0.80% to 1.08%    
20th issue debentures   Own funds   2019   CDI + 3.80%    
Brazilian Federal Savings Bank   Own funds   2016/2038   5% to 9.5%   TR
Brazilian Development Bank - BNDES BAIXADA SANTISTA   Own funds   2019   2.5%+TJLP    
Brazilian Development Bank - BNDES PAC   Own funds   2023   2.15%+TJLP    
Brazilian Development Bank - BNDES PAC II 9751   Own funds   2027   1.72%+TJLP    
Brazilian Development Bank - BNDES PAC II 9752   Own funds   2027   1.72%+TJLP    
Brazilian Development Bank - BNDES ONDA LIMPA   Own funds   2025   1.92%+TJLP    
Brazilian Development Bank - BNDES TIETÊ III   Own funds   2028   1.66%+TJLP    
Brazilian Development Bank - BNDES INTERLIGAÇÃO   Own funds   2035   2.18%+TJLP    
Leases       2035   7.73% to 10.12%   IPC
            TJLP + 1.66% (Finep) and 12% (Presidente    
Other   Own funds   2018/2025       TR
            Prudente)    

 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Notes to the Interim Financial Information

        Exchange rate
 
Foreign currency Guarantees Maturity Annual interest rates changes
Inter-American Development Bank - BID 713 – US$37,647 thousand Federal
Government
2017 4.92% (*) US$
 
Inter-American Development Bank - BID 896 - US$1,389 thousand Federal
Government
2016 3.00% US$
 
Inter-American Development Bank - BID 1212 - US$92,503 thousand Federal
Government
2025 2.68% (*) US$
 
Inter-American Development Bank - BID 2202 - US$427,651 thousand Federal
Government
2035 1.92% (*) US$
 
International Bank for Reconstruction and Development - BIRD US$75.961 thousand Federal
Government
2034 1.46% (*) US$
 
Eurobonds – US$140,000 thousand - 2016 7.50% US$
 
Eurobonds – US$350,000 thousand - 2020 6.25% US$
 
JICA 15 – ¥14,981,590 thousand Federal
Government
2029 1.8% and 2.5% Yen
 
JICA 18 – ¥13,470,080 thousand Federal
Government
2029 1.8% and 2.5% Yen
 
JICA 17– ¥1,567,876 thousand Federal
Government
2035 1.2% and 0.01% Yen
 
JICA 19– ¥26,070,393 thousand Federal
Government
2037 1.7% and 0.01% Yen
 
BID 1983AB – US$106,346 thousand - 2023 Libor + 1.88% to 2.38% (*) US$
 
(*) Rates comprising LIBOR + contractually defined spread.        

 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Notes to the Interim Financial Information

    (i) Payment schedule – accounting balances as of September 30, 2016            
 
    2016   2017   2018   2019   2020   2021   2022 to 2038   TOTAL
LOCAL CURRENCY                                
Debentures   43,161   595,295   887,667   998,288   415,406   196,535   429,242   3,565,594
Brazilian Federal Savings Bank   13,824   58,185   62,158   64,048   66,212   69,589   791,739   1,125,755
BNDES   21,326   85,303   87,274   90,033   72,164   71,722   353,966   781,788
Leasing   3,617   26,061   27,368   28,789   30,334   32,013   402,681   550,863
Others   172   743   1,447   1,351   1,351   1,351   5,290   11,705
Interest and charges   59,728   67,420   -   -   -   -   -   127,148
TOTAL IN LOCAL CURRENCY   141,828   833,007   1,065,914   1,182,509   585,467   371,210   1,982,918   6,162,853
FOREIGN CURRENCY                                
BID   85,982   147,166   106,430   106,430   106,430   106,430   1,143,434   1,802,302
BIRD   -   -   -   8,211   16,423   16,423   205,195   246,252
Eurobonds   454,449   -   -   -   1,132,675   -   -   1,587,124
JICA   -   71,547   72,906   118,099   118,099   118,099   1,297,116   1,795,866
BID 1983AB   -   77,722   77,000   57,433   55,492   24,971   47,637   340,255
Interest and charges   48,340   5,964   -   -   -   -   -   54,304
TOTAL IN FOREIGN CURRENCY   588,771   302,399   256,336   290,173   1,429,119   265,923   2,693,382   5,826,103
Overall Total   730,599   1,135,406   1,322,250   1,472,682   2,014,586   637,133   4,676,300   11,988,956

 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Notes to the Interim Financial Information

(i) Main events in the nine-month period ended September 30, 2016

(a) Debentures

As of March 30, 2016, the Company partially amortized the outstanding debentures of the 19th Issue upon payment of 60% of the nominal unit value of the debentures, totaling R$300,000, plus remuneration and charges due until the date of partial amortization, in the amount of R$11,588.

(b) BNDES

On May 25, 2016, the Company raised R$80,000, corresponding to a portion of agreement 15.2.0313.1, totaling R$747,450. The proceeds from BNDES 2015 will be allocated to support the interconnection of the Jaguari dam, located in the Paraíba do Sul River basin, with the Atibainha dam.

In 2016 funding totaled R$57,252 from agreements in effect, mainly corresponding to the BNDES TIETE III agreement, in the amount of R$50,000.

(c) JICA

In 2016 funding totaled R$144,497, referring to agreement BZ-P19 (JICA 19).

(d) BID

In 2016 funding totaled R$79,420, referring to agreement BID 2202.

(e) BIRD

In 2016 funding totaled R$47,025.

(f) Exchange rate changes

The US dollar rate exchange decreased 16.9%, from R$3.9048 as of December 31, 2015 to R$3.2462 as of September 30, 2016, decreasing debt by R$811,064. In the same period, the Yen decreased 1.1%, from R$0.03243 as of December 31, 2015 to R$0.03207 as of September 30, 2016, decreasing debt by R$20,192.

(ii) Covenants

As of September 30, 2016, the Company had met the requirements set forth by its borrowings and financing agreements.

Regarding the covenants applicable to the agreements entered into with the BNDES, except for agreement 08.2.0169.1 (RMSP), which does not provide for an additional guarantee, only agreements 07.2.0800.1 (Onda Limpa), 09.2.1175.1 and 09.6.0110.1 (Debentures) had an additional guarantee of 20%, given that the cancellation of the additional guarantee occurred only after September 30, 2016. On this date, the portion of monthly receivables that has to be recorded in a restricted escrow account was R$240.7 million.

(iii) Borrowings and financing – Credit Limited

Agent   September 30, 2016
    (in millions of reais (*))
Brazilian Federal Savings Bank   1,751
 
Brazilian Development Bank – BNDES   1,944
Inter-American Development Bank – BID   559
Japan International Cooperation Agency – JICA   390

 

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Notes to the Interim Financial Information

International Bank for Reconstruction and Development – IBRD   78
Others   38
Total   4,760

 

(*) Exchange rate as of September 30, 2016 (US$1.00 = R$3.2462; ¥ 1.00 = R$0.03207).

SABESP, in order to comply with its Capex plan relies on a fund-raising plan.

Financing resources contracted have specific purposes, which have been released for the execution of their respective investments, according to the progress of the works.

Additional information on borrowings and financing is presented in Note 16 to the Annual Financial Statements as of December 31, 2015.

 

16 Taxes payable

(a) Current assets        
 
    September 30, 2016   December 31, 2015
Recoverable taxes        
Income tax and social contribution   -   68,978
Withholding income tax (IRRF) on financial        
investments   8,922   4,914
Other federal taxes   3,412   3,661
Other municipal taxes   250   275
Total   12,584   77,828

 

The reduction in recoverable taxes is mainly due to decrease in “income tax and social contribution” item, which was offset by these taxes.

(b) Current liabilities

    September 30, 2016   December 31, 2015
Taxes and contributions payable        
Cofins and Pasep   47,549   40,505
Income tax and social contribution   63,815   -
INSS (Social Security contribution)   34,227   33,836
IRRF (withholding income tax)   1,201   11,126
Others   22,812   21,828
Total   169,604   107,295

 

The increase in taxes payable of current liabilities was mainly due to the calculation of amounts payable of Income Tax and Social Contribution resulting from the taxable income recorded in the period.

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Notes to the Interim Financial Information

17 Deferred taxes and contributions

(a) Financial position balances

    September 30, 2016   December 31, 2015
Deferred income tax assets        
Provisions   519,423   480,378
Pension obligations - G1   163,394   256,808
Actuarial loss – G1 Plan   59,553   -
Donations of underlying asset on concession agreements   57,352   53,206
Allowance for loan losses   251,969   213,171
Tax losses   -   58,829
Others   145,318   121,550
Total deferred tax assets   1,197,009   1,183,942
 
Deferred income tax liabilities        
Temporary difference on concession intangible assets   (501,099)   (524,495)
Capitalization of borrowing costs   (353,549)   (309,648)
Profit on supply to governmental entities   (88,144)   (81,055)
Actuarial gain – G1 Plan   -   (33,726)
Construction margin   (92,528)   (94,921)
Borrowing costs   (12,666)   (11,855)
Total deferred tax liabilities   (1,047,986)   (1,055,700)
 
Deferred tax asset, net   149,023   128,242

 

    December 31,   Net   September 30,
Deferred income tax assets   2015   change   2016
Provisions   480,378   39,045   519,423
Pension obligations - G1   256,808   (93,414)   163,394
Actuarial loss – G1   -   59,553   59,553
Donations of underlying assets on concession            
agreements   53,206   4,146   57,352
Credit losses   213,171   38,798   251,969
Tax losses   58,829   (58,829)   -
Others   121,550   23,768   145,318
Total   1,183,942   13,067   1,197,009
 
Deferred income tax liabilities            
Temporary difference on concession            
intangible asset   (524,495)   23,396   (501,099)
Capitalization of borrowing costs   (309,648)   (43,901)   (353,549)
Profit on supply to governmental entities   (81,055)   (7,089)   (88,144)
Actuarial gain – G1   (33,726)   33,726   -
Construction margin   (94,921)   2,393   (92,528)
Borrowing costs   (11,855)   (811)   (12,666)
Total   (1,055,700)   7,714   (1,047,986)

 

(b) Changes

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Deferred tax asset, net   128,242   20,781   149,023
 
    December 31,   Net   September 30,
Deferred income tax assets   2014   change   2015
Provisions   524,728   (62,949)   461,779
Pension obligations - G0   85,271   (85,271)   -
Pension obligations - G1   229,266   14,498   243,764
Donations of underlying assets on concession            
agreements   45,742   3,463   49,205
Credit losses   222,587   4,377   226,964
Tax losses   -   275,620   275,620
Others   112,566   2,082   114,648
Total   1,220,160   151,820   1,371,980
 
Deferred income tax liabilities            
Temporary difference on concession            
intangible asset   (559,411)   26,550   (532,861)
Capitalization of borrowing costs   (253,581)   (46,414)   (299,995)
Profit on supply to governmental entities   (87,092)   6,062   (81,030)
Actuarial gain/loss – G1   (2,514)   -   (2,514)
Construction margin   (98,772)   1,028   (97,744)
Borrowing costs   (9,312)   389   (8,923)
Total   (1,010,682)   (12,385)   (1,023,067)
 
Deferred tax asset, net   209,478   139,435   348,913
 
        September 30,   December 31,
        2016   2015
 
Opening balance       128,242   209,478
Net change in the year:            
- corresponding entry in the statement of income       (72,498)   (50,024)
- corresponding entry in equity valuation adjustments (Note 19        
(b))       93,279   (31,212)
Total change, net       20,781   (81,236)
 
Closing Balance       149,023   128,242

 

(c) Reconciliation of the effective tax rate

The amounts recorded as income tax and social contribution expenses in the financial statements are reconciled to the statutory rates, as shown below:

    September 30, 2016   September 30, 2015
Profit before income taxes   3,067,389   (63,187)

 

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Notes to the Interim Financial Information

    September 30, 2016   September 30, 2015
Statutory rate   34%   34%
 
Estimated expense at statutory rate   (1,042,912)   21,484
Tax benefit of interest on capital   7,659   12,868
Permanent differences        
Provision – Law 4,819/58 (i)   (50,956)   (43,049)
Donations   (1,873)   (2,853)
GESP Agreement   -   151,465
Other differences   20,900   (1,379)
 
Income tax and social contribution   (1,067,182)   138,536
 
Current income tax and social contribution   (994,684)   (899)
Deferred income tax and social contribution   (72,498)   139,435
Effective rate   35%   219%

 

(i) Permanent difference related to the provision for actuarial liability (Note 19 (b) (iii)).

18 Provisions

(a) Lawsuits with probable likelihood of loss

(I) Financial position balances

The Company is party to a number of claims and legal proceedings arising in the normal course of business, including civil, tax, labor and environmental matters. Management recognized provisions at an amount considered sufficient to cover probable losses. These provisions, net of escrow deposits are as follows:

            September           December
        Escrow   30,       Escrow   31,
    Provisions   deposits   2016   Provisions   deposits   2015
Customer claims (i)   565,391   (98,994)   466,397   561,061   (97,711)   463,350
Supplier claims (ii)   330,304   (250,516)   79,788   296,660   (217,625)   79,035
Other civil claims (iii)   127,605   (13,232)   114,373   124,833   (10,681)   114,152
Tax claims (iv)   76,130   (2,901)   73,229   62,812   (677)   62,135
Labor claims (v)   290,688   (3,295)   287,393   283,991   (3,073)   280,918
Environmental claims (vi)   137,595   (959)   136,636   83,520   (896)   82,624
Total   1,527,713   (369,897)   1,157,816   1,412,877   (330,663)   1,082,214
 
Current   721,229   -   721,229   631,890   -   631,890
Noncurrent   806,484   (369,897)   436,587   780,987   (330,663)   450,324

 

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Notes to the Interim Financial Information

(II) Changes                        
            Interest            
            and   Use of   Amounts   September
    December   Additional   inflation   the   not used   30,
    31, 2015   provisions   adjustment   accrual   (reversal)   2016
Customer claims (i)   561,061   77,319   67,360   (53,497)   (86,852)   565,391
Supplier claims (ii)   296,660   12,306   41,685   (20,001)   (346)   330,304
Other civil claims (iii)   124,833   14,153   15,790   (5,893)   (21,278)   127,605
Tax claims (iv)   62,812   20,451   12,986   (4,603)   (15,516)   76,130
Labor claims (v)   283,991   42,906   19,754   (27,899)   (28,064)   290,688
Environmental claims (vi)   83,520   58,222   17,722   -   (21,869)   137,595
Subtotal   1,412,877   225,357   175,297   (111,893)   (173,925)   1,527,713
Escrow deposits   (330,663)   (27,687)   (25,968)   7,869   6,552   (369,897)
Total   1,082,214   197,670   149,329   (104,024)   (167,373)   1,157,816

 

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Notes to the Interim Financial Information

            Interest            
            and   Use of   Amounts   September
    December   Additional   inflation   the   not used   30,
    31, 2014   provisions   adjustment   accrual   (reversal)   2015
Customer claims (i)   638,637   29,962   77,416   (48,863)   (110,716)   586,436
Supplier claims (ii)   260,854   3,059   24,797   (5,452)   (2,684)   280,574
Other civil claims (iii)   126,403   10,888   14,771   (8,901)   (18,070)   125,091
Tax claims (iv)   55,554   1,316   6,596   (215)   (2,516)   60,735
Labor claims (v)   235,466   51,272   18,076   (18,778)   (64,180)   221,856
Environmental claims (vi)   226,404   12,218   12,320   (4,873)   (161,981)   84,088
Subtotal   1,543,318   108,715   153,976   (87,082)   (360,147)   1,358,780
Escrow deposits   (322,971)   (18,050)   (19,678)   7,773   842   (352,084)
Total   1,220,347   90,665   134,298   (79,309)   (359,305)   1,006,696

 

(b) Explanation on the nature of main classes of lawsuits

(i) Customer claims

Approximately 1,130 lawsuits were filed by commercial customers, which claim that their tariffs should correspond to other consumer categories, and 720 lawsuits which claim a reduction in the sewage tariff due to losses in the system, consequently requesting the refund of amounts charged by the Company and 50 lawsuits where customers plead the reduction in tariff under the category as “Social Welfare Entity”. The Company was granted both favorable and unfavorable final decisions at several court levels and recognized provisions when the chances of losses are probable.

(ii) Supplier claims

These claims include lawsuits filed by some suppliers alleging underpayment of monetary restatements, withholding of amounts related to the understated inflation rates deriving from Real economic plan, and the economic and financial imbalance of the agreements. These lawsuits are in progress at different courts and a provision is recognized when the chances of losses are probable.

(iii) Civil claims

These mainly refer to indemnities for property damage, pain and suffering, and loss of profits allegedly caused to third parties, filed at different court levels, dully accrued when classified as probable losses.

(iv) Tax claims

Tax claims refers mainly to issues related to tax collections challenged due to differences in the interpretation of legislation by the Company's management, accrued when classified as probable loss.

(v) Labor claims

The Company is a party to labor lawsuits, involving issues such as overtime, shift schedule, health hazard premium and hazardous duty premium, prior notice, change of function, salary equalization, outsourcing and other. Part of the amount involved is in provisional or final execution at various court levels, and this is classified as of probable loss and accordingly, accrued.

(vi) Environmental claims

Environmental claims refer to several administrative proceedings and lawsuits filed by government entities, including Companhia de Tecnologia de Saneamento Ambiental – Cetesb, Public Prosecution Office of the State of São Paulo and others, that aim affirmative and negative covenants and penalty is estimated due to failure to comply in addition to the imposition of indemnity due to environmental damages allegedly caused by the Company. The amounts accrued represent the best

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Notes to the Interim Financial Information

estimate of the Company at this moment, however, may differ from the amount to be disbursed as indemnity to alleged damages, in view of the current stage of referred proceedings.

(c) Lawsuits with possible likelihood of loss

The Company is party to lawsuits and administrative proceedings relating to environmental, tax, civil and labor claims, which are assessed by Management whose chances of loss are possible and are not recorded. Liability contingencies classified as a possible loss represent the amount of R$7,216,100 as of September 30, 2016 (R$5,410,500 as of December 2015). In the second quarter of 2016 was added a new proceeding relating to an environmental claim in the amount of R$1,907,923.

For disclosure purposes, this sum refers to the amount claimed by the opposing party. It has not yet been possible to estimate the amounts involved by the Company, given the initial stage of the lawsuit. Liability contingencies, classified as possible loss, are represented as follows.

    September 30, 2016   December 31, 2015
Customer claims   323,700   414,700
Supplier claims   1,458,000   1,606,100
Other civil claims   649,300   683,000
Tax claims   1,067,100   945,400
Labor claims   526,100   483,700
Environmental claims   3,191,900   1,277,600
Total   7,216,100   5,410,500

 

(d) Guarantee insurance for escrow deposit

During the second quarter of 2015, the Company contracted guarantee insurance for escrow deposit totaling R$500 million. Such insurance will be used in legal claims where instead of making immediate cash disbursement by the Company, such insurance is used until the conclusion of these proceedings or up to three-year effectiveness term of the agreement.

In the first nine months of 2016, the Company used R$132,381 of the total contracted amount.

Additional information on provisions and contingencies is presented in Note 19 to the Annual Financial Statements as of December 31, 2015.

19 Employees benefits (a) Health benefit plan

The health benefit plan is managed by Sabesprev and consists of optional, free choice, health plans sponsored by contributions of SABESP and the active participants, as follows:

. Company: 16.3% on average, of gross payroll;

. Participating employees: 3.21% of base salary and premiums, equivalent to 2.7% of payroll, on average.

(b) Pension plan benefits    
 
Amounts recorded in the balance sheet    
Funded plan – G1    
Pension plan liabilities as of December 31, 2015   665,274
Expenses recognized in 2016   76,764
(Gain)/loss to be recognized in Other Comprehensive Income   274,352
Payments made in 2016   (17,358)

 

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Notes to the Interim Financial Information

Effect of the plan migration – curtailment   (334,152)
Pension plan liabilities as of September 30, 2016 (i)   664,880
 
Unfunded plan – G0    
Pension plan liabilities as of December 31, 2015   2,166,942
Expenses recognized in 2016   211,588
Payments made in 2016   (116,916)
Pension plan liabilities as of September 30, 2016 (iii)   2,261,614
 
Total   2,926,494
 
In compliance with CPC33 (R1) and IAS19, the Company recognizes (gains)/losses from changes in actuarial premises in equity as equity valuation adjustment, as shown below:
   
 
    G1 Plan
As of September 30, 2016    
Actuarial (gains)/losses on liabilities   506,548
(Gains)/losses on financial assets   (232,196)
Total (gains)/losses   274,352
Deferred income tax and social contribution - G1 Plan   (93,279)
Equity valuation adjustment   181,073

 

(i) G1 Plan

The Company sponsors a defined benefit pension plan for its employees ("G1 Plan"), which is managed by Sabesprev, receives similar contributions established in a plan of subsidy of actuarial study of SABESPREV, as follows:

· 1.19% of the portion of the salary of participation up to 20 salaries; and

· 10.13% of the surplus, if any, of the portion of the salary of participation over 20 salaries.

Early reduction (Curtailment)

In order to remedy the deficit referring to the G1 Defined Benefit Pension Plan (BD), as of August 2016, SABESP and Sabesprev continued with the migration process whereby 3,572 participants chose to change from a defined benefit plan to a Defined Contribution Pension Plan - “Sabesprev Mais”. The process was carried out based on the exact terms of the migration started in 2010, i.e. it resumed migrations without changing any clause and in compliance with the rules in the regulation. The Company recorded a gain due to the migration process (“curtailment”), with the partial settlement of the present value of the defined benefit liabilities and the fair value of the plan’s assets, in the amount of R$334,152, and paid R$30,891 corresponding to non-recurring contribution and incentive to the participants who migrated in August 2016.

As of September 30, 2016, SABESP had a net actuarial liability of R$664,880 (R$665,274 as of December 31, 2015) representing the difference between the present value of the Company's defined benefit obligations to the participating employees, retired employees, and pensioners; the fair value of the plan’s assets. After the participants’ migration, the Defined Benefit Pension Plan totaled 11,362 participants, while Sabesprev Mais totaled 9,377.

(ii) Private pension plan benefits – Defined contribution

As of September 30, 2016, Sabesprev Mais plan, based on defined contribution, had 9,377 active and assisted participants (5,213 as of December 2015).

With respect to the Sabesprev Mais plan, the contributions from the sponsor represent 100% over

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Notes to the Interim Financial Information

the total basic contribution from the participants.

The non-recurring contribution and incentive to participants who migrated in August 2016 totaled R$30,891 based on the actuarial assessment, of which R$27,426 corresponded to active participants and R$3,465 to assisted participants. Based on the Company’s estimate, which includes the previous balance of R$7,214 corresponding to the migration of 2010, a total of R$39,421 corresponding to the entire process was paid in advance and the surplus paid, of R$1,316, was recorded under “other receivables”.

(iii) PlanG0

Pursuant to Law 4,819/58, employees who started services prior to May 1974 and were retired as an employee of the Company acquired a legal right to receive supplemental pension payments, which rights are referred as "Plan G0". The Company pays these supplemental benefits on behalf of the State Government and makes claims for reimbursements from the State Government, which are recorded as accounts receivable from related parties, limited to the amounts considered virtually certain that will be reimbursed by the State Government. As of September 30, 2016, the Company recorded a defined benefit obligation for Plan G0 of R$2,261,614 (R$2,166,942 as of December 31, 2015).

(c) Profit sharing

The Company recorded as reference to the 2015 Profit Sharing Program, the amount corresponding to one month salary for each employee, depending on performance goals reached. In the third quarter of 2016, a total of R$20,938 was accrued (R$19,207 in the third quarter of 2015). From January to September 2016 and 2015, R$62,860 and R$57,127, respectively, were accrued.

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Notes to the Interim Financial Information

20 Services payable

The services account records the balances payable, mainly from services received from third parties, such as supply of electric power, reading of hydrometers and delivery of water and sewage bills, cleaning, surveillance and security services, collection, legal counsel services, audit, marketing and advertising and consulting services, among others. This account also records the amounts payable from the percentage in the revenues of São Paulo local government. The balances as of September 30, 2016 and December 31, 2015 were R$378,831 and R$387,279, respectively.

21 Equity

(a) Authorized capital

The Company is authorized to increase capital by up to R$15,000,000, based on a Board of Directors' resolution, after submission to the Fiscal Council.

In the event of capital increase, issue of convertible debentures and/or warrants by means of private subscription, shareholders will have preemptive right in the proportion of number of shares held, pursuant to Article 171 of Law 6,404/76.

(b) Subscribed and paid-in capital

As of September 30, 2016 and December 31, 2015, subscribed and paid-in capital is represented by 683,509,869 registered, book-entry common shares, held as follows:

    September 30, 2016   December 31, 2015
    Number of       Number of    
    shares   %   shares   %
State Department of Finance   343,524,285   50.26%   343,524,285   50.26%
Companhia Brasileira de Liquidação e Custódia   205,447,430   30.06%   199,719,739   29.22%
The Bank Of New York ADR Department                
(equivalent in shares) (*)   133,909,713   19.59%   139,637,913   20.43%
Other   628,441   0.09%   627,932   0.09%
 
    683,509,869   100.00%   683,509,869   100.00%

 

(*) Each ADR corresponds to 1 share.

The Annual Shareholders’ Meeting held on April 29, 2016 approved the distribution of dividends as interest on capital in the amount of R$149,893 and the transfer to Investments Reserves of retained earnings balances totaling R$359,572.

The payment of interest on equity, in the amount of R$139,423, net of withholding income tax of R$10,470, totaling R$149,893, has started in June 2016, with R$139,399 having already been paid.

Further information about equity, such as shareholder’ compensation, dividends and purpose of reserves, can be found in Note 22 to the Annual Financial Statements as of December 31, 2015.

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Notes to the Interim Financial Information

22 Earnings per share

Basic and diluted

Basic earnings per share is calculated by dividing the equity attributable to Company’s owners by the weighted average number of outstanding common shares during the period. The Company does not have potentially dilutive common shares outstanding or debts convertible into common shares. Accordingly, basic and diluted earnings per share are equal.

    January to   January to
    September 2016   September 2015
 
Equity attributable to Company’s owners   2,000,207   75,349
Weighted average number of common shares issued   683,509,869   683,509,869
 
Basic and diluted earnings per share (reais per share)   2.92638   0.11024

 

23 Business segment information

Management, comprised by the Board of Directors and the Board of Executive Officers, has determined the operating segments used to make strategic decisions, as water supply and sewage services.

(i) Result

        July to September 2016    
            Reconciliation to   Balance as per
            the financial   financial
    Water   Sewage   statements   statements
Gross operating income   1,540,484   1,313,599   1,097,799   3,951,882
Gross sales deductions   (111,410)   (94,665)   -   (206,075)
Net operating income   1,429,074   1,218,934   1,097,799   3,745,807
Costs, selling and administrative expenses   (947,182)   (668,365)   (1,073,460)   (2,689,007)
Income from operations before other operating                
expenses, net and equity accounting   481,892   550,569   24,339   1,056,800
Other operating income / (expenses), net               6,264
Equity accounting               525
Financial result, net               (176,810)
Income from operations before taxes               886,779
Depreciation and amortization   149,478   130,739   -   280,217

 

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Notes to the Interim Financial Information

        January to September 2016    
            Reconciliation to   Balance as per
            the financial   financial
    Water   Sewage   statements   statements
Gross operating income   4,483,234   3,664,938   2,620,239   10,768,411
Gross sales deductions   (306,014)   (250,159)   -   (556,173)
Net operating income   4,177,220   3,414,779   2,620,239   10,212,238
Costs, selling and administrative expenses   (3,079,949)   (2,067,944)   (2,563,233)   (7,711,126)
Income from operations before other operating                
expenses, net and equity accounting   1,097,271   1,346,835   57,006   2,501,112
Other operating income / (expenses), net               27,929
Equity accounting               2,278
Financial result, net               536,070
Income from operations before taxes               3,067,389
Depreciation and amortization   459,050   400,005   -   859,055

 

        July to September 2015    
            Reconciliation to   Balance as per
            the financial   financial
    Water   Sewage   statements   statements
Gross operating income   1,310,877   1,016,290   1,015,238   3,342,405
Gross sales deductions   (81,910)   (63,503)   -   (145,413)
Net operating income   1,228,967   952,787   1,015,238   3,196,992
Costs, selling and administrative expenses   (964,788)   (606,033)   (992,984)   (2,563,805)
Income from operations before other operating                
expenses, net and equity accounting   264,179   346,754   22,254   633,187
Other operating income / (expenses), net               54,315
Equity accounting               (1,375)
Financial result, net               (1,539,410)
Income from operations before taxes               (853,283)
Depreciation and amortization   158,137   113,174   -   271,311

 

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Other information deemed as relevant by the company

        January to September 2015    
            Reconciliation to   Balance as per
            the financial   financial
    Water   Sewage   statements   statements
Gross operating income   3,591,248   2,787,653   2,508,464   8,887,365
Gross sales deductions   (224,565)   (174,315)   -   (398,880)
Net operating income   3,366,683   2,613,338   2,508,464   8,488,485
Costs, selling and administrative expenses   (2,352,670)   (1,472,414)   (2,454,583)   (6,279,667)
Income from operations before other operating                
expenses, net and equity accounting   1,014,013   1,140,924   53,881   2,208,818
Other operating income / (expenses), net               98,149
Equity accounting               (376)
Financial result, net               (2,369,778)
Income from operations before taxes               (63,187)
Depreciation and amortization   445,414   363,292   -   808,706

 

Explanation on the reconciliation items for the Financial Statements.

The impacts on gross operating income and costs are as follows.

    July to   January to   July to   January to
    September   September   September   September
    2016   2016   2015   2015
 
Gross revenue from construction recognized under ICPC                
1 (R1) (a)   1,097,799   2,620,239   1,015,238   2,508,464
Construction costs recognized under ICPC 1 (R1) (a)   1,073,460   2,563,233   992,984   2,454,583
 
 
Construction margin   24,339   57,006   22,254   53,881
 
(a)  Revenue from concession construction contracts is recognized in accordance with CPC 17  (R1), Construction Contracts (IAS 11), using the percentage-of-completion method. See Notes 13 (c) and (f).
 

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Notes to the Interim Financial Information

24   Operating revenue                
 
    (a) Revenue from water and sewage services:            
        July to   January to   July to   January to
        September   September   September   September
        2016   2016   2015   2015
 
Metropolitan Region of São Paulo   2,010,271   5,663,492   1,576,110   4,261,892
Regional Systems (i)   843,812   2,484,680   751,057   2,117,009
Total (ii)   2,854,083   8,148,172   2,327,167   6,378,901

 

(i) Including the municipalities operated in countryside and at the coast of the State of São Paulo.

(ii) The gross operating revenue increased by 22.6% in the quarter ended September 30, 2016, in comparison with the same period in 2015, mainly due to the increase of 4.7% in the Company’s total billed volume, the tariff adjustment in May 2015 (8.4%) and the end of SABESP’s Water Consumption Reduction Incentive Program and the Contingency Tariff in April 2016. The bonus totaled R$248.8 million in the third quarter of 2015, while the Contingency Tariff (tax) amounted to R$144.8 million in the same period.

Additional information on the Bonus and Contingency Tariff programs is presented in Note 25 (a) to the Annual Financial Statements of December 31, 2015.

(b) Reconciliation between gross operating income and net operating income:
    July to   January to   July to   January to
    September   September   September   September
    2016   2016   2015   2015
 
Revenue from water and sewage services   2,854,083   8,148,172   2,327,167   6,378,901
Construction revenue (Note 13 (c))   1,097,799   2,620,239   1,015,238   2,508,464
Sales tax   (206,075)   (556,173)   (145,413)   (398,880)
Net revenue   3,745,807   10,212,238   3,196,992   8,488,485

 

25   Operating costs and expenses                
        July to   January to   July to   January to
        September   September   September   September
        2016   2016   2015   2015
    Operating costs                
    Salaries, payroll charges and benefits   418,015   1,228,477   385,270   1,115,186
    Pension obligations   (194,843)   (149,102)   14,960   44,381
    Construction costs (Note 13 (c))   1,073,460   2,563,233   992,984   2,454,583
    General supplies   44,402   120,800   40,689   129,469
    Treatment supplies   63,950   205,326   62,878   198,788
    Outside services   222,962   620,612   189,962   580,024
    Electricity   224,075   705,811   219,281   585,610
    General expenses   122,330   345,696   105,543   268,477
    Depreciation and amortization   262,389   804,314   249,892   749,027

 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Notes to the Interim Financial Information

        July to   January to   July to   January to
        September   September   September   September
        2016   2016   2015   2015
        2,236,740   6,445,167   2,261,459   6,125,545
Selling expenses                
Salaries, payroll charges and benefits   66,799   194,902   59,767   174,832
Pension obligations   (26,497)   (20,344)   1,924   5,740
General supplies   818   2,502   805   2,640
Outside services   78,066   211,331   63,541   180,055
Electricity   152   586   206   561
General expenses   22,894   68,427   19,087   60,509
Depreciation and amortization   2,286   6,861   2,510   7,435
Allowance for doubtful accounts,                
net of recoveries (Note 8 (c))   89,708   110,181   (38,131)   9,389
        234,226   574,446   109,709   441,161
Administrative expenses (revenue)                
Salaries, payroll charges and benefits   47,203   138,168   43,888   135,039
Pension obligations   (18,386)   95,854   46,164   140,149
GESP reimbursement – benefits paid (i)   -   -   -   (696,283)
General supplies   435   1,246   508   1,621
Outside services   46,043   113,851   43,096   102,452
Electricity   498   1,528   520   1,230
General expenses   104,056   226,472   19,921   (81,338)
Depreciation and amortization   15,542   47,880   18,909   52,244
Tax expenses   22,650   66,514   19,631   57,847
        218,041   691,513   192,637   (287,039)
Operating costs and expenses                
Salaries, payroll charges and benefits   532,017   1,561,547   488,925   1,425,057
Pension obligations (Note 19 (b)) (ii)   (239,726)   (73,592)   63,048   190,270
GESP reimbursement – benefits paid (i)   -   -   -   (696,283)
Construction costs (Note 13 (c))   1,073,460   2,563,233   992,984   2,454,583
General supplies   45,655   124,548   42,002   133,730
Treatment supplies   63,950   205,326   62,878   198,788
Outside services   347,071   945,794   296,599   862,531
Electricity   224,725   707,925   220,007   587,401
General expenses   249,280   640,595   144,551   247,648
Depreciation and amortization   280,217   859,055   271,311   808,706
Tax expenses   22,650   66,514   19,631   57,847
Allowance for doubtful accounts,                
net of recoveries (Note 8 (c))   89,708   110,181   (38,131)   9,389
        2,689,007   7,711,126   2,563,805   6,279,667
           
    (i) The variation is mainly due to the lower appreciation of the US dollar and the Yen in the third quarter of 2016, of 1.1% and 2.7%, respectively, when compared with the appreciation of 28.1% and 30.5%, respectively, in the same period in 2015.
 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Notes to the Interim Financial Information

26   Financial income (expenses)                
 
        July to   January to   July to   January to
        September   September   September   September
        2016   2016   2015   2015
    Financial expenses                
    Interest and charges on borrowings and financing –                
    local currency   (80,481)   (248,809)   (80,914)   (248,635)
    Interest and charges on borrowings and financing –                
    foreign currency   (28,462)   (90,420)   (39,146)   (94,688)
    Other financial expenses   (21,905)   (70,009)   (25,783)   (82,420)
    Income tax over international remittance   (3,839)   (13,436)   (5,045)   (13,983)
    Inflation adjustment on borrowings and                
    financing   (24,388)   (110,163)   (25,882)   (123,632)
    Inflation adjustment on                
    Sabesprev Mais deficit   (136)   (882)   (379)   (1,307)
    Other inflation adjustments   (6,806)   (23,920)   (6,334)   (15,361)
    Interest and inflation adjustments on provisions   (25,795)   (110,507)   (31,533)   (19,524)
    Total financial expenses   (191,812)   (668,146)   (215,016)   (599,550)
 
    Financial income                
    Inflation adjustment gains   27,525   120,122   59,640   124,752
    Income on short-term investments   49,863   153,089   36,300   131,211
    Interest income   20,762   72,261   30,585   97,082
    Cofins and Pasep on financial income   (4,589)   (17,237)   (5,904)   (5,904)
    Other   534   10,882   3,913   6,564
    Total financial income   94,095   339,117   124,534   353,705
 
    Financial income (expenses), net before exchange rate                
    changes   (97,717)   (329,029)   (90,482)   (245,845)
 
    Net exchange gains (losses)                
    Exchange rate changes on borrowings and                
    financing (i)   (79,198)   865,016   (1,448,717)   (2,124,021)
    Other exchange rate changes   (7)   (140)   (221)   (529)
    Exchange gains   112   223   10   617
    Exchange rate changes, net   (79,093)   865,099   (1,448,928)   (2,123,933)
 
    Financial income (expenses), net   (176,810)   536,070   (1,539,410)   (2,369,778)
 
 (i) The variation is mainly due to the lower appreciation of the US dollar and the Yen in the third quarter of 2016, of 1.1% and 2.7%, respectively, when compared with the appreciation of 28.1% and 30.5%, respectively, in the same period in 2015.
   

 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Notes to the Interim Financial Information

27   Other operating income (expenses), net                
        July to   January to   July to   January to
        September   September   September   September
        2016   2016   2015   2015
 
    Other operating income   12,671   42,421   63,732   128,201
    Other operating expenses   (6,407)   (14,492)   (9,417)   (30,052)
 
    Other operating income (expenses), net   6,264   27,929   54,315   98,149

 

Other operating income is comprised by sale of property, plant and equipment, sale of contracts awarded in public bids, right to sell electricity, indemnities and reimbursement of expenses, fines and collaterals, property leases, reuse water, PURA projects and services.

Other operating expenses consist mainly of derecognition of concessions due to obsolescence, discontinued construction works, unproductive wells, projects considered economically unfeasible, losses on property, plant and equipment and exceeding cost of electricity sold.

28 Commitments

The Company has agreements to manage and maintain its activities, as well as agreements to build new projects aiming at achieving the objectives proposed in its target plan. Below, the main committed amounts as of September 30, 2016:

    October to                
    December           2021    
    2016   2017 – 2018   2019 – 2020   onwards   Total
Contractual obligations –                    
Expenses   375,145   1,599,112   574,267   1,463,858   4,012,382
Contractual obligations –                    
Investments   471,187   2,557,640   1,500,362   6,670,615   11,199,804
 
Total   846,332   4,156,752   2,074,629   8,134,473   15,212,186
 
 
 
The main commitment refers to São Lourenço PPP. See Note 13 (h).        

 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Notes to the Interim Financial Information

29 Supplemental cash flow information

    January to   January to
    September   September
    2016   2015
 
Total additions to intangible assets (Note 13 (b))   2,681,238   2,835,571
 
Items not affecting cash (see breakdown below)   (1,248,902)   (978,661)
 
Total additions to intangible assets as per statement of cash flows   1,432,336   1,856,910
 
Investments and financing operations affecting intangible assets but not        
cash:        
Interest capitalized in the period (Note 13 (e))   496,507   247,075
Contractors payable   18,728   (65,741)
Public-Private Partnerships – São Lourenço PPP   662,295   520,545
Leases   10,534   47,757
Program contract commitments   3,832   175,144
Construction margin (Notes 13 (f) and 23)   57,006   53,881
Total   1,248,902   978,661

 

30 Events after the reporting period

· ARSESP Resolution 672

As of October 15, 2016, the Official Gazette of the State of São Paulo published ARSESP Resolution 672, which establishes the methodology and general criteria to adjust the Regulatory Remuneration Basis of the 2nd Ordinary Tariff Revision of Companhia de Saneamento Básico do Estado de São Paulo – SABESP, expected for 2017.

· Foreign loan – US$150 million and settle of Eurobonds 2016

As of October 26, 2016, the Company obtained a US$150 million loan, with a three-year maturity, at an interest rate corresponding to three-month LIBOR plus 4.5% per year. Interest will be paid on a quarterly basis and amortization will occur in semi-annual installments as of the 18th month. The proceeds were used to settle Eurobonds 2016, totaling US$140 million, and other debts due in 2016.

· Signature of the Private Transaction Agreement and Other Covenants with EMAE

As of October 28, 2016, the Company entered into a Private Transaction Agreement and Other Adjustments with EMAE, with a condition precedent, in order to end the litigation involving the two companies. For more information, see Note 9 (c) and the entire Agreement and Technical Note available on SABESP’s website, in the Investor Relations section.

· Water Supply and Sewage Service Agreement

As of November 9, 2016, the Company entered into a Water Supply and Sewage Service Agreement with the municipality of Santa Branca for a term of 30 years.

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Comments on the Company’s projections

The projections presented in the Reference Form are annual and not on a quarterly basis. Therefore, the quarterly comparison between the information disclosed in the Reference Form with quarterly results shall not apply

The projections monitoring occurs on annual basis and are disclosed in the Reference Form.

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

1. CHANGES IN INTEREST HELD BY CONTROLLING SHAREHOLDER, BOARD MEMBERS AND EXECUTIVE OFFICERS

CONSOLIDATED SHAREHOLDING OF CONTROLLING SHAREHOLDERS,
MANAGEMENT AND OUTSTANDING SHARES
Position as of September 30, 2016
Shareholder Number of
Common Shares
(units)
% Total Number of
Shares
(units)
%
Controlling shareholder        
Treasury Department 343,524,285 50.3% 343,524285 50.3%
Management        
Board of Directors - - - -
Executive Officers - - - -
         
Fiscal Council - - - -
         
Treasury shares - - - -
         
Other shareholders        
         
Total 343,524,285 50.3% 343,524,285 50.3%
         
         
Outstanding shares 339,985, 584 49.7% 339,985,584 49.7%

 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1
 
CONSOLIDATED SHAREHOLDING OF CONTROLLING SHAREHOLDERS,
MANAGEMENT AND OUTSTANDING SHARES
Position as of September 30, 2015
Shareholder Number of
Common Shares
(units)
% Total
Number of
Shares
(units)
%
Controlling shareholder        
Treasury Department 343,524,258 50.3% 343,524,258 50.3%
Management        
Board of Directors   -   -
Executive Officers - - - -
         
Fiscal Council 15 - 15 -
         
Treasury shares - - - -
         
Other shareholders        
         
Total 343,524,285 50.3% 343,524,285 50.3%
         
         
Outstanding shares 339,985,569 49.7% 339,985,569 49.7%

 

2. SHAREHOLDING POSITION

SHAREHOLDING POSITION OF HOLDERS OF MORE THAN 5% OF EACH
TYPE AND CLASS OF COMPANY SHARES, UP TO THE INDIVIDUAL LEVEL
Company:
CIA SANEAMENTO BÁSICO ESTADO SÃO
PAULO
Position as of September 30,
2016
(shares)
Common shares Total
Shareholder Number of
shares
% Number of
shares
%
Treasury Department 343,524,285 50.3 343,524,285 50.3

 

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Reports and Statements / Unqualified Report on Special Review

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

Review report on the interim financial statements – ITR

To the Board of Directors and Shareholders

Companhia de Saneamento Básico do Estado de São Paulo – SABESP São Paulo – SP

Introduction

We have reviewed the interim financial information of Companhia de Saneamento Básico do Estado de São Paulo – SABESP (“The Company”), included in the Quarterly Financial Information – ITR referring to the quarter ended September 30, 2016, comprising the balance sheet as of September 30, 2016 and the statement of income and comprehensive income for the three and nine-month periods then ended, and the statements of changes in equity and cash flows for the nine-month period then ended, including the explanatory notes.

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

Review scope

We conducted our review in accordance with the Brazilian and International standards on review engagements 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 financial information consists of making inquiries, primarily of persons responsible for the 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 the auditing standards and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion on the interim financial information

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

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ITR – Quarterly Information Form – 09/30/2016 - CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO Version: 1

Other matters

Statement of value added

We have also reviewed the statements of value added (DVA) for the nine-month period ended September 30, 2016, prepared under the responsibility of the Company’s management, whose presentation on the interim financial information is required in accordance with the standards issued by the Brazilian Securities and Exchange Commission – CVM applicable to the preparation of Quarterly Information - ITR, and considered as supplementary information by IFRS, which does not require this disclosure. These statements were subject to the same review procedures described above, and based on our review, nothing has come to our attention that causes us to believe that it is not prepared, in all material respects, in accordance with the interim financial information taken as a whole.

Corresponding figures

The corresponding information and figures related to the balance sheet for the year ended December 31, 2015 were audited by another independent auditor who issued a report dated by March 24, 2016 without qualification, and the statement of income and comprehensive income for the three month and nine-month periods and the respective statements of changes in equity and cash flows for the nine-month period ended September, 30 , 2015 were audited by another independent auditor who issued a report dated November 12, 2015 without qualification. The corresponding information and figures of Statement of value added (DVA) for the nine-month periods ended September 30, 2015, were subject to the same review procedures by previous independent auditor, and, based on their review, nothing has come to their attention that causes them to believe that it was not prepared, in all material respects, in accordance with the interim financial information taken as a whole.

São Paulo, November 10, 2016

KPMG Auditores Independentes
CRC 2SP014428/O-6

(Original report in Portuguese signed by)
Marcelo Gavioli
CRC 1SP201409/O-1

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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, in the city São Paulo, Brazil.
Date: November 28, 2016
 
Companhia de Saneamento Básico do Estado de São Paulo - SABESP
By: /s/   Rui de Britto Álvares Affonso   
 
Name: Rui de Britto Álvares Affonso
Title: Chief Financial Officer and 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.