CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO /

Transcription

1 1 Operating context The company has for its main corporate objects the water collection, treatment and supply as well as the sanitary sewer collection and processing, providing services in 366 municipalities of the State of São Paulo, upon concession thereof. Its object also comprises the conduction of studies, projects and execution of works for enlargement and construction of new networks. 2 Presentation of the financial statements The financial statements herein presented have been prepared in conformance with the accounting principles set forth in the Brazilian Corporation Law, as well as in instructions enacted by the Brazilian Securities and Exchange Commission - CVM. These statements are identified by the expression according to the Corporation Law. Complementary information in constant purchasing power currency are also shown, as permitted by the Brazilian Securities and Exchange Commission (note 3.2). 3 Main accounting practices 3.1 Financial statements according to the Corporation Law (a) (i) Income determination Revenue from sales and services Water supply and sanitary sewer collection services not invoiced until the closing date of the balance sheet are measured and recorded in such a manner as to allow the contraposition of costs and revenues in the respective fiscal year/period. (ii) Financial expenses and revenues Financial expenses and revenues are substantially represented by interests, monetary and exchange variations arising out of financial investments, as well as loan and financing, calculated and recorded on an accrual basis. (iii) Income tax and social contribution The provision for income tax and deferred income tax on temporary differences is accrued at the base rate of 15% plus additional 10%. The social contribution on profit is levied at the rate of 9%. 08/11/ :57:45 Pág: 25

2 (iv) Other revenues and expenses Other revenues and expenses are recorded on an accrual basis. (b) Financial investments Financial investments are substantially represented by Certificates of Bank Deposit CDBs, being recorded at the investment values, added by income earned ( pro rata temporis ) until the closing date of the fiscal year/period. (c) Allowance for doubtful debtors This allowance is accrued in an amount deemed sufficient to cover probable losses arising from nonrealization of accounts receivable, being recorded as a contra account of the income under the item selling expenses. (d) Inventories Inventories of materials intended for consumption and maintenance of water and sewer systems are evaluated at their average purchase cost. Inventories intended for investment are shown in fixed assets at cost, restated as of December 31, (e) Other current and long term assets The other current and long term assets are shown at cost or at their realization value, including, as applicable, income earned therefrom. (f) Permanent assets Permanent assets are shown at cost, restated as of December 31, 1995, in conjunction with the following aspects: - Fixed assets depreciation, based on the straight-line depreciation method, at the rates mentioned in Note 8. - Fixed assets revaluation conducted in 1990/1991, based on an independent auditors' report, carried out through depreciation, disposal and write-off for the respective assets, as a contra account of the Retained Profit account. - Deferred asset amortization based on the straight-line depreciation method, in five years, starting from the beginning of the operations. 08/11/ :57:45 Pág: 26

3 - Financial charges relating to financings obtained from third parties, intended for works in progress, are allocated at the cost thereof. (g) Loans and financings Loans and financings are restated with basis on monetary and exchange variations, added by the respective charges incurred until the closing date of the fiscal year/period. (h) Provision for contingency This provision is accrued for coverage of eventual losses, estimated by legal consultants to be probable and having an anticipated value, being related to labor, tax, civil and commercial proceedings, in both administrative and judicial courts. (i) Other current liabilities and long term liabilities Other current liabilities and long term liabilities are shown at their known value or liabilities, and are adeed, as applicable, by the corresponding charges and exchange variations. (j) Interests on own capital Interests on own capital were calculated in accordance with Law nº 9249/95, for deduction effect, limited to the variation, pro rata day, of the Long Term Interest Rate TJLP, and stated for accounting purposes in accordance with deliberation CVM no. 207/ Financial statements in a constant purchasing power currency (a) Updating rate The monetary updating of operations relating to permanent assets, shareholders equity, income accounts and calculation of profits and losses in monetary items was measured with basis on the variation of the Accounting Monetary Unit UMC, taking for basis the variation of the General Prices Index Market IGP- M. (b) Equity accounts Amounts relating to monetary assets and liabilities shown in a constant purchase power currency are equal to those shown pursuant to the Corporation Law, except for accounts receivable customers, accounts payable suppliers and contractors, deferred income tax and social contribution in long term liabilities which are restated so as to reflect the purchasing power or realization in a currency as of December 31, 2000, taking for basis the rate disclosed by the National Association of Investment Banks and Securities Dealers ANBID. (c) Income accounts 08/11/ :57:45 Pág: 27

4 All accounts have been monetarily adjusted with basis on the UMC variation, as from their initial recording month, adjusted pursuant to inflation profits and losses ascertained in relation to initial and final balances of each month for the monetary assets and liabilities, and which generated nominal financial expenses and revenues that were deemed to reduce the respective income accounts to which they are attached. (d) Deferred income tax and social contribution Deferred income tax and social contribution were calculated with basis on rates of 15%, plus additional 10% and 9%, respectively, on the added value of properties and rights in the permanent assets generated by the result of their monetary updating, in conformity with CVM s instructions, evidenced in the Opinion nº 99/006 issued by the Brazilian Accountants Institute IBRACON. (e) Statements of shareholders equity and of changes in financial position Amounts in the referred statements are shown in a constant purchasing power currency as of December 31, Cash In a constant purchasing Pursuant to Corporation Law power currency Cash and banks 41,483 35,032 41,483 38,518 Financial investments 118, , , ,177 Foreign currency 73,211-73, , , , ,695 Financial investments are substantially represented by CDBs, added by the respective income until the closing date of the fiscal year. The amount recorded under foreign currency refers to advance purchase of US$27,258 thousand and CHF 16,493 thousand, intended for payment of loans and financings, as described in note 9 i. 5 Customers Accounts receivable from customers (except for settlements) do not include penalties, interests or any other type of monetary adjustment arising out of late payments and can be stated as follows: 08/11/ :57:45 Pág: 28

5 Pursuant to the In a constant purchasing Corporation Law power currency In cash From private customers Common list (i) 413, , , ,136 Special list (ii) 55,902 65,264 55,902 71,758 Settlements (iii) 59,511 65,310 59,511 71, , , , ,703 From public entities Municipal Capital 151, , , ,242 Municipal Others 107,425 79, ,425 86,997 State (note 13) 116, , , ,025 Federal 6,364 6,652 6,364 7, , , , ,578 Bulk supply City Halls Guarulhos 126, , , ,950 Mauá 28,171 18,759 28,171 20,625 Mogi das Cruzes 1,376 1,355 1,376 1,490 Santo André 103,861 71, ,861 78,596 São Bernardo do Campo 100,126 85, ,126 93,467 São Caetano do Sul 1,708 2,723 1,708 2,994 Diadema 23,267 15,593 23,267 17, , , , ,267 Unbilled supply 173, , , ,944 Sub-total 1,469,032 1,422,905 1,469,032 1,564,492 Provision for doubtful debtors Private and public (204,412) (164,706) (204,412) (181,095) Bulk supply (268,241) (180,001) (268,241) (197,912) (472,653) (344,707) (472,653) (379,007) Adjustment at present value - - (1,805) (2,644) Total 996,379 1,078, ,574 1,182,841 In long term assets Sundry customers 7,668 8,762 7,668 9,634 Statement pursuant to maturity date Pursuant to the Corporation Law In a constant purchasing power currency Accounts payable 351, , , ,431 Overdue up to 30 days 93, ,730 93, ,853 Overdue from 31 to 60 days 40,659 60,124 40,659 66,107 Overdue from 61 to 90 days 30,329 48,752 30,329 53,603 Overdue from 91 to 120 days 27,632 35,241 27,632 38,748 08/11/ :57:45 Pág: 29

6 Overdue from 121 to 180 days 67,471 79,296 67,471 87,186 Overdue from 181 to 360 days 193, , , ,229 Overdue for more than 360 days 664, , , ,335 Sub-total 1,469,032 1,422,905 1,469,032 1,564,492 Provision for doubtful debtors (472,653) (344,707) (472,653) (379,007) Adjustment at present value - - (1,805) (2,644) Total 996,379 1,078, ,574 1,182,841. Accounts receivable from private customers refer to (i) common list residential and small and medium companies, (ii) special list bulk consumers, commercial companies, industries, condominiums and consumers with special invoicing features (industrial effluents, wells, etc.), (iii) settlements payment in installments of tariff debts.. Accounts receivable from bulk supply refer to sales of treated water to a few number of City Halls, which, on their turn, are engaged in the water distribution, and payment invoicing and collection.. Increases in the balances of accounts receivable overdue for more than 360 days occur as a result of bulk supply to defaulting city halls.. Amounts overdue for more than 360 days reflect increase in accounts receivable relating to bulk supply to city halls.. Unbilled supply refers to water consumption and sewer collection and treatment already performed, however not yet measured, calculated with basis on the previous month s consumption and recorded in such a manner as to allow the contraposition of costs and revenues, on an accrual basis.. Provision for doubtful debtors: the amount of the provision supplement in the fiscal year may be shown as follows Pursuant to the Corporation Law Supplement Supplement Previous balance 344, ,631 From private customers/public entities 39,706 38,112 From concession holders 88,240 20,964 Yearly total 127,946 59,076 Current balance 472, ,707 In a constant purchasing power currency Supplement Supplement Previous balance 379, ,186 From private customers/public entities 41,420 45,562 From concession holders 93,157 22,820 Yearly total 134,577 68,382 Profits and losses (40,931) (66,561) Current balance 472, ,007 08/11/ :57:45 Pág: 30

7 . In order to meet the provisions of Law no. 9430/96, specifically as far as the aspects relating to deduction of expenses of such nature are concerned, the amount of R$ 62,368 thousand (1999 R$103,814 thousand) for credits overdue for more than 180 days and of individual amounts of up to R$ 5 thousand were written off the accounting records. 6 Accounts receivable from shareholders These refer to complementation of retirement and leave funds paid by the company to former employees of state companies that were merged for the organization of SABESP. Such amounts shall be recovered by SABESP from the State Government, which is liable for these obligations in conformity with State Law nº 4.819/58 and Decree nº 200/74. The State of São Paulo Government s budget proposal, as approved by the State House of Representatives, includes the amounts referring to said obligation. The amount paid in 2000 was R$ 69,310 thousand (1999 R$ 66,984 thousand). On December 31, 2000, the company had 318 employees entitled to such benefits and 2,869 (1999 2,867) employees who are already receiving complementation of retirement funds. These credits are paid in accordance with the Memorandum of Understanding executed with the State of São Paulo Government, as described in (note 13). The amount to be paid to the shareholders in 2001 is estimated, with basis on the company s management s budget projections, at an amount exceeding that recorded in the current financial statements, the full settlement of the respective balance being thus anticipated. 7 Long term assets (a) Indemnities receivable These refer to amounts receivable from indemnities arising out of discontinuance of operations in the municipalities of Diadema and Mauá (note 23). (b) Deposits in court The original values shown in the current statements refer to court deposits effected for the purpose of complying with court orders relating to labor, tax and civil proceedings to which the company is a party. (c) Tax incentives CODEC Deliberation no. 001/88, of the Council for Defense of State Capitals, set forth a Tax Incentives Coordination Committee with the purpose of providing for criteria, examining and recommending the investment of financial funds arising out of companies under the State s stock control. The amounts recorded under tax incentives substantially refer to incentives to the Amazon Investment Fund FINAM and Northeast Investment Fund FINOR. Part of said funds may be allocated to projects selected 08/11/ :57:45 Pág: 31

8 by the referred Committee, with expectancy of full recovery. A provision was accrued for the remainder of tax incentive balances in order to cover eventual losses in the realization thereof. The company allocated funds for tax incentives to Cultural and Audiovisual Projects and to the Fund for Children s and Teenager s Rights during year 2000, in the approximate amount of R$ 3,300 thousand. 8 Fixed assets Cost Pursuant to the Corporation Law Accrued depreciation Net value Net value Annual depreciation rates - % In operation Water systems Lands 913, , ,438 - Structures 2,416,280 (784,402) 1,631,878 1,721,404 4 Connections 688,619 (185,362) 503, ,040 5 Hydrometers 209,519 (90,499) 119, , Networks 2,772,631 (556,326) 2,216,305 2,187,331 2 Others 443,949 (190,121) 253, ,124 2 to 20 7,444,422 (1,806,710) 5,637,712 5,721,686 Sewer systems Lands 303, , ,204 - Structures 1,161,455 (238,892) 922, ,021 4 Connections 690,522 (179,029) 511, ,812 5 Networks 3,692,223 (614,284) 3,077,939 2,928,188 2 Others 368,699 (116,900) 251, ,154 2 to 20 6,216,843 (1,149,105) 5,067,738 4,913,379 General use Lands 102, , ,994 - Structures 109,887 (41,387) 68,500 65,726 4 Transport equipment 111,044 (91,383) 19,661 14, Furniture & fixtures, and equipment 166,266 (97,242) 69,024 66, Lands assigned in free lease 25,312-25,312 25,244 - Assets assigned in free lease 8,023 (2,350) 5,673 5,854 2 to ,231 (232,362) 290, ,408 14,184,496 (3,188,177) 10,996,319 10,916,473 In progress Water systems 790, , ,658 Sewer systems 1,260,006-1,260,006 1,347,602 Others 19,024-19,024 19,776 2,069,938-2,069,938 2,102,036 Intangible assets 291,968 (11,862) 280, ,800 General total 16,546,402 (3,200,039) 13,346,363 13,298,309 08/11/ :57:45 Pág: 32

9 Cost In a constant purchasing power currency Accrued depreciation Net value Net value Annual depreciation rates - % In operation Water systems Lands 1,440,983-1,440,983 1,432,169 - Structures 3,792,966 (1,236,454) 2,556,512 2,611,364 4 Connections 1,070,316 (291,479) 778, ,466 5 Hydrometers 293,992 (137,043) 156, , Networks 4,316,216 (876,768) 3,439,448 3,303,579 2 Others 654,649 (252,299) 402, ,556 2 to 20 11,569,122 (2,794,043) 8,775,079 8,952,355 Sewer systems Lands 477, , ,070 - Structures 1,812,106 (375,990) 1,436,116 1,318,906 4 Connections 1,068,252 (281,098) 787, ,848 5 Networks 5,746,937 (968,130) 4,778,807 4,464,359 2 Others 559,337 (153,898) 405, ,297 2 to 20 9,664,165 (1,779,116) 7,885,049 7,760,480 General use Lands 162, , ,874 - Structures 173,294 (65,416) 107,878 99,272 4 Transport equipment 163,878 (140,806) 23,072 17, Furniture & fixtures, and equipment 222,070 (148,209) 73,861 97, Lands assigned in free lease 40,028-40,028 39,921 - Assets assigned in free lease 12,689 (3,742) 8,947 8,602 2 to ,360 (358,173) 416, ,390 22,007,647 (4,931,332) 17,076,315 17,139,225 In progress Water systems 986, , ,902 Sewer systems 1,572,562-1,572,562 1,769,420 Others 24,026-24,026 24,922 2,583,477-2,583,477 2,768,244 Intangible assets 333,403 (12,702) 320, ,547 General total 24,924,527 (4,944,034) 19,980,493 20,229,016 (a) Depreciation of revaluated assets All fixed assets were revaluated in 1990 and 1991 and have been depreciated at annual rates corresponding to the remaining useful life thereof, as defined in the respective reports which, as a rule, are in intervals of the recorded rates. 08/11/ :57:45 Pág: 33

10 (b) Fixed assets retirement The company retired properties from its fixed assets in 2000 that resulted in a total loss of R$ 118,722 thousand (1999 R$ 116,854 thousand), being R$ 83,588 thousand (1999 R$ 92,569 thousand) related to the group of assets in operation, as a result of obsolescence, thefts and disposal, and R$ 35,134 thousand ( R$ 24,285 thousand) relating to works in progress, as a result of economically unfeasible works and projects. (c) Capitalization of interest and financial charges In compliance with Deliberation CVM no. 193, of June 11, 996, the company capitalized the amount of R$ 23,743 thousand (1999 R$ 73,829 thousand) in fiscal year 2000, as a result of financial charges relating to financing of fixed assets under construction (d) Works in progress The estimate for disbursement as from 2001 referring to works for investment already contracted is of approximately R$ 740,000 thousand (1999 R$ 540,000 thousand). (e) Intangible assets As from fiscal year 1999, dealings relating to new concessions started being conducted with due regard to the economical-financial result of the business, as defined in an appraisal report issued by independent experts. The amount defined in the respective contract, after the closing of the business with the municipality, with realization through subscription of shares in the company or in cash, is recorded under this item and repaid for the period of the respective concession. The net amounts hereinbelow recorded refer to assumption of the following municipalities: Pursuant to the Corporation Law In a constant puchasing power currency Municipalities Agudos 5,396 5,599 6,950 7,212 Campo Limpo Paulista 10,227 10,603 11,343 11,760 Conchas 2,065-2,222 - Duartina Itararé 4,590 4,759 5,913 6,130 Marabá Paulista Miguelópolis 3,589 3,701 4,616 4,766 Osasco 225, , , ,896 Paraguaçu Paulista 12,874 13,296 16,367 17,558 Sandovalina Santa Maria da Serra Estância de Serra Negra 3,556-3,567 - Várzea Paulista 10,553 10,940 11,704 12, , , , ,547 08/11/ :57:45 Pág: 34

11 9 Loans and Financings Short term Long term Pursuant to the Corporation Law Short term Long term Financial institution Total Total In domestic currency Federal Gov./Banco do Brasil 110,360 2,477,192 2,587,552 99,312 2,534,422 2,633,734 Debentures - 413, , , ,094 Caixa Econômica Federal 16, , ,583 5, , ,932 Fundação SABESP de Seguridade Social - SABESPREV ,000-20,000 Others ,930 22, ,141 3,716 Interests and charges 21,344-21,344 27,708-27, ,853 3,411,426 3,560, ,544 3,439,640 3,593,184 In foreign currency International Bank for Reconstruction and Development (IBRD): US$ 113,875 thousand 56, , ,670 56, , ,619 Société Générale: FRF 30,647 1,038 7,567 8, ,443 9,335 thousand Interamerican Development Bank (IDB): US$ 468,580 thousand 68, , ,262 63, , ,532 Eurobonus:US$ 475,000 thousand - 928, , , ,975 Bankers Trust Luxembourg , ,250 Westdeutsche Landesbank Girozentrale:US$50,000 thousand - 97,770 97,770 53,670-53,670 Deutsche Bank Luxembourg: US$ 100,000 thousand 39, , , Interests and charges 67,768-67,768 66,634-66, ,800 2,204,630 2,437, ,007 1,584,008 2,272,015 Total 381,653 5,616,056 5,997, ,551 5,023,648 5,865,199 Balances in foreign currency are as of December, Exchange rate on December 31st, 2000: US$ ; FRF Short term Long term In a constant purchasing power currency Short term Long term Financial institution Total Total In domestic currency Federal Gov./Banco do Brasil 110,360 2,477,192 2,587, ,194 2,786,610 2,895,804 Debentures - 413, , , ,199 Caixa Econômica Federal 16, , ,583 6, , ,181 Fundação SABESP de Seguridade Social - SABESPREV ,990-21,990 Others ,930 22, ,452 4,084 Interests and charges 21,344-21,344 30,465-30, ,853 3,411,426 3,560, ,822 3,781,901 3,950,723 08/11/ :57:45 Pág: 35

12 In foreign currency International Bank for Reconstruction and Development (IBRD): US$ 113,875 thousand 56, , ,670 61, , ,050 Société Générale: FRF 30,647 mil 1,038 7,567 8, ,283 10,263 Interamerican Development Bank (IDB): US$ 468,580 thousand 68, , ,262 69, ,311 1,030,820 Eurobonus:US$ 475,000 thousand - 928, , , ,929 Bankers Trust Luxembourg , ,754 Westdeutsche Landesbank Girozentrale:US$50,000 thousand - 97,770 97,770 59,010-59,010 Deutsche Bank Luxembourg: US$ 100,000 thousand 39, , , Interests and charges 67,768-67,768 73,265-73, ,800 2,204,630 2,437, ,467 1,741,624 2,498,091 Total 381,653 5,616,056 5,997, ,289 5,523,525 6,448,814 Balances in foreign currency are as of December, Exchange rate on December 31st, 2000: US$ ; FRF (a) Federal Government/Banco do Brasil Existing contracts with Caixa Econômica Federal (Federal Savings Bank) were refinanced in 1994, said Bank having assigned its credit rights to the Federal Government. Under the terms of the contract entered into with the Federal Government, charges and payments are effected under the Price (monthly) system, being adjusted pursuant to the UPR variation (equal to TR), added by interests at the rate of 8.5% p.a., with final maturity date in The guarantor of such financing is the State of São Paulo Government through its own revenues and SABESP s revenues. (b) Debentures A public placement of simple debentures, not convertible into stock, was carried out by the company in March, 1999, as per an Initial Offer announcement published in Gazeta Mercantil on March 19 and 22, 1999, and respective Public Offer Prospect prepared in accordance with the ANBID s Self-Regulation Code. A total of 413,094 debentures were placed in the unit face value of R$ 1thousand, totaling R$ 413,094 thousand, with final redemption date in November, 2002 and payment of quarterly interests, as follows:. 1st, 2nd and 3rd series - R$ 115,000 thousand each series. 4th series - R$ 51,666 thousand. 5th series - R$ 16,428 thousand The issuance was made with basis on Resolution CMN (National Monetary Council) no. 2559/98 The debentures remuneration conditions were changed at a general meeting of debenture holders held on March 20, 2000, as from which the post-fixed rate of 104.5% of the CDI was adopted in substitution for the fixed rate of 20%, with rates having been reset for the 1 st and 4 th series and 2 nd and 5 th series, respectively, in March and September, 2000, which became effective as follows: 1st series 104% CDI 2nd series 103% CDI 3rd series 104,5% CDI 08/11/ :57:45 Pág: 36

13 4th series 104% CDI 5th series 103% CDI A total of 1,235 debentures were repurchased in March, 2000 and other 2,608 debentures were purchased in September, 2000, having been kept as treasury debentures. Provisions were accrued for interests in the beginning of 2000, in the amount of R$ 70,266 thousand (1999 R$ 69,283 thousand), paid in quarterly installments. The remaining balance, in the amount of R$ 746 thousand, is recorded under Interests and charges (c) Caixa Econômica Federal (Federal Savings Bank) Pró-Saneamento (Pro-Sanitation) Program (i) Water and sewer Several contracts were executed in 1996, 1997 and 1998, under the Pro-Sanitation Program, for the purpose of enhancing and improving the water supply and sanitary sewer system involving several municipalities in the State of São Paulo and the Capital. Such contracts are guaranteed by the revenue earned from payments of daily water and sewer tariffs, up to the total debt amount. The amortization term provided for in the contracts is from 120 to 180 months, as from the beginning of the return stage. The balance on December 31, 2000 is R$ 510,862 thousand (1999 R$ 492,982 thousand), the proceeds to be used out of such contracts during the grace period being R$ 28,040 thousand (1999 R$ 53,366 thousand). Contract expenses are: Interest rates 9.5% p.a. 6.5% to 8.0% p.a. 6.5% to 8.0% p.a. In the grace period: Risk rate Management fee 1.0% on the disbursed amount 0.12% p.m. on the contract value 1.0% on the disbursed amount 2.0% p.a. on the disbursed amount 0.6% p.a. on the outstanding balance 2.0% p.a. on the disbursed amount In the return stage: Management fee Difference between the calculation of the installment at the rate of 10.5% p.a. less at the rate of 9.5%p.a. 1.0% p.a. on the outstanding balance 1.0% p.a. on the outstanding balance (ii) Pró-Sanear Contracts were executed in 1997 and 1998 relating to the Pró-Sanear Program for the performance of improvements in water and sewer services, with the community s participation, in several municipalities of 08/11/ :57:45 Pág: 37

14 the Metropolitan Region of São Paulo. These contracts are guaranteed by the revenue from payment of water and sewer tariffs, up to the total debt amount. The amortization term is 180 months as from the end of the grace period. The balance on December 31, 2000 is R$ 4,721 thousand (1999 R$ 1,950 thousand), the proceeds to be used out of these contracts, relating to works already in progress, is R$ 9,376 thousand. Estimated financial charges: Interest rate - 5% p.a. Management fee (grace period) 2.0% p.a. on the outstanding balance Management fee (amortization period) 1.0% p.a. on the outstanding balance Risk rate - 1% on the disbursed amount (grace period) (d) IBRD (International Bank for Reconstruction and Development) Agreement Executed in February, 1990, in the amount of US$ 280 million, for the purpose of improving the company s operating efficiency. The amortization period started in September, 1994, at an annual financing interest rate of 0.5% above the cost of qualified drawdowns in the semester preceding that of the assessment period, with final maturity date in March, A guarantee agreement was executed on the same date between the Federative Republic of Brazil and the IBRD, guaranteeing the provision of funds for compliance with the obligations set forth in the loan agreement. Agreement For the purpose of transferring funds from the mother agreement executed between the State of São Paulo and the IBRD in December, 1992, intended for the execution of the environmental sanitation program of the Guarapiranga Basin, an on-lending agreement was executed between the State of São Paulo and SABESP, in March, The amount of funds released to the company until December 31, 2000 was US$ 42,423 thousand, equivalent to R$ 82,955 thousand, with remaining proceeds to be used in the amount of US$ 42 thousand, equivalent to R$ 83 thousand. A guarantee agreement was executed in December, 1992 between the Federative Republic of Brazil and the IBRD, guaranteeing the provision of funds for the compliance with the obligations provided for in the financing agreement. The agreement is being currently repaid, in semiannual installments, since October, 1997 and is scheduled to expire in April, The interest rate is 0.5% p.a. above the IBRD s funding cost. (e) IDB (Interamerican Development Bank) Agreement 229 Executed in June, 1987, in the amount of US$ 163 million, intended for the execution of the sewer program in the Metropolitan Region of São Paulo. The amortization period started in January, 1994, in semiannual installments, at an annual interest rate of 7.7%, with final maturity date in July, A guarantee agreement was executed in June, 1987, between the Federative Republic of Brazil and the IDB, guaranteeing the provision of funds for the compliance with the obligations provided for in the financing agreement. Agreement 713 Executed in December, 1992, in the amount of US$ 400 million, intended for the execution of the Tietê River de-pollution project first stage. The amortization period started in June, 1999, in semiannual installments, at an interest rate varying in accordance with the costs of loans borrowed by the bank on a semiannual basis and with final maturity date in December, A guarantee agreement was executed in December, 1992, between the Federative Republic of Brazil and the IDB, guaranteeing the provision of funds for the compliance with the obligations provided for in the financing agreement. 08/11/ :57:45 Pág: 38

15 Agreement 896 Executed in December, 1992, in the amount of US$ 50 million, also intended for the Tietê River de-pollution project first stage. The amortization period started in June, 1999, in semiannual installments, at an interest rate of 3% per year, with final maturity date in December, A guarantee agreement was executed in December, 1992, between the Federative Republic of Brazil and the IDB, guaranteeing the provision of funds for the compliance with the obligations provided for in the financing agreement. Agreement 1212 Tietê River De-Pollution Project Stage II: executed in July, 2000, for the execution of the Tietê River De-Pollution project. The estimated cost of said project is approximately R$ 782,000 thousand, equivalent to US$ 400 million, with up to the amount of US$ 200 million being financed by the IDB and the remainder US$ 200 million being invested by the company. The first drawdown, in the amount of R$ 238 thousand, equivalent to US$ 121 thousand, was effected in December, The loan shall be repaid in semiannual installments, the first one maturing six months after the scheduled date of final drawdown and the last one scheduled for July, Interests shall be paid on a semiannual basis, on the daily outstanding debt, at an annual rate determined by the costs of loans borrowed by the bank during the preceding semester, added by a spread, and shall be variable for each semester. Financial Covenants Agreements nºs 713, 896 and Tariffs must: a) produce enough revenue to cover the system exploitation costs, including those relating to management, operation, maintenance and depreciation; b) provide not less than 7% profitability on the Fixed Assets. During the project execution the outstanding balances of short term loans shall not exceed 8.5% of the company s Shareholders Equity. (f) Euro bonus (i) A foreign credit transaction was closed in July, 1997, having as lead manager the UBS Securities LLC and as co-managers the Deutsche Morgan Grenfell and the BB Securities, in the amount of US$ 275,000 thousand, at an annual interest rate of 10%, with final maturity date in Such funds were allocated to the advanced release of debentures. (ii) An issue of Euro Bonus was effected in June, 2000 in the foreign market, in the amount of US$ 200,000 thousand, having as co-managers the Deutsche Bank and Salomon Smith Barney (City Group), at an annual interest rate of 12% and final maturity date in Such funds were allocated to the refinancing of own financial liabilities. Financial Covenants (in a constant purchasing power currency) To limit the incurrence of new debts whenever the de debt/adjusted capitalization ratio is higher than 0.42; The interests cover may not be lower than 2.5 (adjusted EBITDA (...)/financial expenses); Loans granted to the holding company must be limited to the respective amount of Accounts Receivable. (g) Syndicated loans (i) Westdeutsche Landesbank Girozentrale A loan operation was carried out in February, 2000, having as main paying agent the Chase Trust Bank, in the amount of US$ 50,000 thousand, equivalent to R$ 97,770 thousand as of December 31, 2000, with maturity 08/11/ :57:45 Pág: 39

16 of the principal amount in a bullet payment in February, 2000 and payment of interests in a semiannual basis at the rate of 9.75% p.a. The funded amount is allocated to refinancing of liabilities contracted in the domestic and foreign markets. (ii) Deutsche Bank Luxembourg A loan agreement was executed in October, 2000, having as main paying agent the Deutsche Trust Bank Limited and as arranger the Brazilian American Merchant Bank, in the amount of US$ 100,0000 thousand, equivalent to R$ 195,540 thousand as of December 31, 2000, for the purpose of refinancing own financial liabilities, The loan shall be repaid in 10 semiannual installments, comprising principal and periodic interests, calculated at the rate of 11.13% p.a., with final maturity date in October, Financial Covenants (in a constant purchasing power currency) To limit the incurrence of new debts whenever the de debt/adjusted capitalization ratio is higher than 0.42; The interests cover may not be lower than 2.5 (adjusted EBITDA (...)/financial expenses); Loans granted to the holding company must be limited to the respective amount of Accounts Receivable. (.) Adjusted capitalization excludes from the Shareholders Equity overdue accounts receivable from both the State of São Paulo Government and self-managed bulk water services of the RMSP. (..) Adjusted EBITDA is calculated excluding unpaid sales of water and sewer services provided to the State of São Paulo Government and unpaid sales of bulk water to self-managed services of the RMSP. (h) Maturity Dates Maturity dates of loans and financings are as shown below: From on Total In domestic currency 148, , , , , ,400 2,116,057 3,560,279 In foreign currency 232, , , , ,742 78, ,286 2,437, , , , , , ,496 2,627,343 5,997,709 (i) Foreign exchange prepayment Operations for advanced purchase of foreign exchange were carried out in December, 2000, as provided for in circular letter nº 2926/99 of the Central Bank of Brazil, dated September 08, The amounts of US$ 27,258 thousand (R$ 53,279 thousand) and CHF 16,493 thousand (R$ 19,932 thousand) totaling R$ 73,211 thousand, shall be allocated to the payment of interests on Euro Bonus operations and part of the IDB agreement, and were adjusted in accordance with the variation of the respective currencies as of December 31, 2000, being recorded in the current assets under the item Cash. 08/11/ :57:45 Pág: 40

17 10 Taxes and contributions Pursuant to the Corporation Law Short Term Long Term Income tax and social contribution (i) 3,677 24, Cofins and Pasep 6,200 7, Settlements Refis (ii) 52, ,992 - Settlements (iii) - 113, ,401 INSS (Social Security) 9,810 10, Others 4,413 1, Total 76, , , ,401 In a constant purchasing power currency Short Term Long Term Income tax and social contribution (i) 3,677 26, Cofins and Pasep 6,200 8, Settlements Refis (ii) 52, ,992 - Settlements (iii) - 125, ,660 INSS (Social Security) 9,810 11, Others 4,413 1, Total 76, , , ,660 (i) The company has requested the full deduction of the negative basis of the social contribution and tax loss carryforward, without the 30% limit provided for in Law 8.981/95; however, the amount carried forward in the fiscal year considered the percentile provided for in the referred Law. The negative basis of the social contribution accrued on December 31, 2000 is R$ 59,891 thousand, on which a corresponding tax credit has been booked (note 11). (ii) Composition of the tax calculation basis upon adhesion to the Refis Tax Principal Fine Interests Balance on 02/29/00 Amount to be carried forward Amount payable Cofins ,079 (47) 1,032 Pasep 1, ,609 2,900 (128) 2,772 Social Contribution 46,658 9,332 74, ,458 (79) 130,379 Income Tax 45,104 9,021 51, ,175 (579) 104,596 Total 93,254 18, , ,612 (833) 238,779 The above mentioned fines and interests were already provided for in the agreements executed in previous periods. 08/11/ :57:45 Pág: 41

18 The company adhered to the Refis program for the sole purpose of obtaining a new division in installments of debts previously agreed with the Federal Revenue Service. The Company has chosen the alternative payment in installments, in equal installments for a term of 60 months, added by TJLP long term interest rate, not being subject to a payment limit based on a revenue percentage. The Management s option for the adhesion took in consideration, mainly, the reduction of the interest rate applicable to the referred debts, changing from Selic, which adjusted the agreements in effect until 02/29/2000, to the TJLP. The financial gain at present value, if calculated with basis on the above described terms, was not reflected in the accounting records in compliance with the Brazilian accounting principles. On March 31, 2000, the accumulated balance of the Social Contribution Negative Base was R$ 28,506 thousand, which was not allocated for amortization of interests and fines. There was not any accumulated balance for tax loss on that date. No adjustments were effected as a result of the adhesion to the Refis. The amount of the installments paid before the adhesion to the Refis was about R$ 7 million/month. Lands totaling R$ 249,034 thousand were listed in the operation as guarantee for the payment of the referred debts. The option for the Refis program implies mandatory and regular payment of taxes and contributions, as provided by law. The amount paid since the option for the Refis program, in March, 2000, until December, 2000, was R$ 41,827 thousand, out of which R$ 20,143 thousand refer to charges. (iii) Settlements These refer to settlements relating to Income Tax, Social Contribution, COFINS and PASEP, which were in progress in 1999 and were included in the Refis in Income tax and social contribution (a) Equity and income balances. Pursuant to the Corporation Law In a constant purchasing power currency In long term assets Deferred income tax 23,443 8,040 23,443 8,840 Deferred social contribution 8,975 12,928 8,975 14,214 32,418 20,968 32,418 23,054 In current liabilities Income tax 3,677 29,142 3,677 32,042 Social contribution ,677 29,142 3,677 32,042 08/11/ :57:45 Pág: 42

19 In long term liabilities Deferred income tax 293, ,391 1,766,931 1,613,850 Deferred social contribution 15,913 15, , , , ,104 2,313,394 2,082,524 In the income For the fiscal year Income tax (110,025) (29,142) (118,409) (32,042) Deferred income tax 14,850 (35,609) (19,550) (99,182) Reversal Deferred income tax 47,291 47,361 49,728 57,189 (47,884) (17,390) (88,231) (74,035) For the fiscal year Social contribution (18,114) - (19,742) - Deferred social contribution (4,152) (2,786) (17,241) (49,304) (22,266) (2,786) (36,983) (49,304) (b) Deferred amounts (i) In long term assets These refer to Deferred Income Tax and Social Contribution substantially calculated on temporary differences and accumulated tax losses in the amount of R$ 23,443 thousand and R$ 8,975 thousand, respectively,, with estimated until fiscal year (ii) In long term liabilities Monthly realization (1/120) referring to the difference between the Consumer Prices Index IPC and the National Treasury Tax Bond BTNF Law no. 8200/91 and inflation income, in the amount of R$ 47,291 thousand (1999 R$ 47,361 thousand). In addition, as mentioned in note 3.2 d, for purposes of statement in a constant purchasing power currency, the company s management calculated and recorded deferred income tax and social contribution on the added value of the permanent assets arising out of monetary adjustment thereof, in accordance with the following parameters: Calculation basis for tax effects over adjustments to permanent assets (excluding R$ 775,566 thousand of lands) 5,895,004 For Income tax 25% 1,473,751 For Social contribution 9% 530,550 Total effect over long term assets 2,004,301 Effect in the fiscal year Over income 47,112 Over the shareholders equity 251,911 Total effect over shareholders equity and long term liabilities 299,023 08/11/ :57:45 Pág: 43

20 (c) Conciliation from nominal rate to actual rate of IR and CS (income tax and social contribution) Pursuant to the Corporation Law Income tax Social contribution Income before IR and CS 591,585 (215,272) 591,585 (215,272) Nominal rate 25% 25% 9% 12% 147,896 (53,818) 53,243 (25,833) Conciliation Additions - Revaluation reserve realization 39,889 53,232 14,360 25,551 Exclusions - Interests on own capital (134,904) - (48,565) - Other amounts (4,997) 17,976 3,228 3,068 Income tax and social contribution in the income 47,884 17,390 22,266 2,786 Actual rate (%) 8.09 (8.08) 3.76 (1.29) In a constant purchasing power currency Income tax Social contribution Income before IR and CS 836, , , ,135 Nominal rate 25% 25% 9% 12% 209, ,784 75,283 74,776 Conciliation Additions - Revaluation reserve realization 63,080 84,181 22,709 40,406 - Monetary adjustment to shareholders equity 327, , , ,858 Total on additions 390, , , ,264 Exclusions - Interests on own capital (141,192) - (50,829) - - Monetary adjustment to permanent assets (386,069) (767,631) (138,985) (368,463) Total on exclusions (527,261) (767,631) (189,814) (368,463) Other amounts 16,267 45,746 11,076 35,727 Income tax and social contribution in the income 88,231 74,035 36,983 49,304 Alíquota efetiva (%) /11/ :57:45 Pág: 44

21 12 Pension and assistance plans The company sponsors Fundação Sabesp de Seguridade Social SABESPREV, an entity organized in August, 1990 with the main purpose of administering SABESP s complementary pension plans and assistance program for its employees. The Company s monthly contributions, related to the pension plan defined benefit correspond, at least, to the difference between the total rate, as determined by the actuarial evaluation of a legally qualified expert, and the participants contribution percentile and inter-program transfers, which were the following in the fiscal year:. Company s contributions: 2.10% ( %) on the payroll;. Participants contributions: 2.10% ( %) in average, corresponding to the application to their monthly salaries of percentiles ranging from 1% to 8.5%;. Inter-program transfers: 1.49% ( %) on the payroll. In addition, the Company s contributions include the liability undertaken with reference to periods preceding the organization of the SABESPREV, which is demandable until The amount of said liability, defined by actuarial calculation, of R$ 9,462 thousand (1999 R$ 10,112 thousand), is duly recorded in the current liabilities and in the long term liabilities, as appropriate in accordance with the realization date. The assistance program, which comprises elective, free-selection plans, is also maintained by contributions from both sponsors and participants, which in the fiscal year were as follows:. Company s contributions: 6.21% ( %) in average, on the payroll;. Participants contributions: 3.21%, in average, on the base salary and bonus, which corresponds to an average of 2.25% on the payroll. Decree-Law no. 3721, Deliberation no. 371 of the Brazilian Securities and Exchange Commission CVM and IN no. 26 of the Complementary Pension and Assistance Service SPC were enacted in December, 2000 and January, 2001, providing for changes to become effective as from fiscal year 2001, in the structure, accounting and evaluation criteria related to pension plans. The company s Management has been carrying out studies to identify and measure eventual effects that may result from the adoption of the provisions contained in the above referred legal instruments. 13 Transactions with related parties Pursuant to the Corporation Law In a constant purchasing power currency In current assets State Customer (note 5) 116, , , ,025 Accounts receivable from shareholders (note 6) 253, , , ,572 Transaction in the income (i) Sales and provision of services 229, , , ,615 08/11/ :57:45 Pág: 45

22 (i) These refer to operations of sales to State Government entities, carried out in equal conditions as those conducted with third parties, except for the form of settlement of credits, which may be performed in similar conditions to those mentioned in the next item. Memorandum of Understanding with the State of São Paulo Government The Company and the State of São Paulo Government, through the State Department of Finance, executed a Memorandum of Understanding on September 30, 1997, which aimed at equating the balance of credits receivable for sales and services rendered by the Company to the complement of pension plans and leave benefit granted to employees under Law no. 4819/58 and Decree no. 200/74, in addition to other debts, using, as applicable, dividends and/or interests in the own capital. The amount of R$ 460,735 thousand, relating to interests on the own capital for the fiscal year, payable to the State Department of Finance, is being allocated for deduction of credits of Accounts receivable from customers. 14 Provisions Pursuant to the Corporation Law In a constant purchasing power currency (a) In current liabilities Vacation pay 67,791 72,840 67,791 80,088 Payroll charges 2,489 29,144 2,489 32,044 Cofins and Pasep law 9,718/98 (i) 63,420 21,649 63,420 23,804 Provision for contingent liabilities 27,000-27,000 - (ii) 160, , , ,936 (i) Through an Ordinary Action with a request for advance relief, Sabesp is questioning in court the new system introduced by Law No /98, which expanded the calculation base for contribution to both the Social Security Financing COFINS and the Civil Servant Equity Formation Program PASEP, and increased the COFINS rate. The request for advance relief was granted on June 11, The differences between the calculations according to the present law's criteria and the amounts effectively paid as per the previous law, of R$ 41,771 thousand in 2000, and of R$ 21,649 thousand in 1999, totaling R$ 63,420 thousand, are covered by provisions and recorded in the current liabilities. (ii) This refers to a proceeding relating to collection of monetary adjustment to payment installments of services rendered by contractors, which according to the opinion of our legal counsels is likely to have a an unfavorable judgment against the company. (b) In long term liabilities The company s management, based on a joint analysis of its legal counsels, booked a provision deemed to be enough to cover probable unfavorable judgments against the company, in solely labor claims in process in administrative and judicial courts relating to the amount of R$ 27,616 thousand (1999 R$ 28,015 thousand), which was recorded in long term liabilities under Provision for contingent liabilities. 08/11/ :57:45 Pág: 46

23 (c) Salary differences Based on the opinion of its legal counsels, substantially supported by the judgment rendered by the Superior Labor Court TST, where the respective Reporting Judge denied a labor claim referring to payment of salary differences arising out of Standard Reference Unit URP of February, 1989, the Company s management reversed the amount of R$ 47,798 thousand (corresponding to R$ 32,275 thousand in 1995) that was booked as a provision in Salaries and Paryoll Charges. (d) Lawsuits Lawsuits in progress to which the company is a party, deemed by our legal counsels to be likely of favorable judgment and for which no accounting record exists, can be shown as follows: In million R$ Action in prejudgment phase at the 1st Lower Treasury Court 42 - Other substantially labor proceedings Profit sharing The company booked an amount of R$ 30,254 thousand, by way of profit sharing, in Salaries and Payroll Charges, in conformity with the program executed with class representatives, as legally supported by the provisions of the Federal Constitution, ruled by Law no , of December 19, An advance payment was effected on June 21, 2000, in the amount of R$ 14,212 thousand. 16 Shareholders equity (a) Authorized capital stock The company is authorized to increase its capital stock up to the limit of R$ 4,100,000 thousand, corresponding to 40,000,000,000 shares, divided into all common shares without certificate (book-entry shares) and without face value. (b) Subscribed and paid-up capital stock The subscribed and paid-up capital stock comprises 28,479,577,827 ( ,437,155,323) registered common shares, without face value, distributed as follows: Shareholders Number % Number % State of São Paulo Treasury Department 24,293,934, ,293,934, State of São Paulo Department of Water and Electric Power 862,999, ,999, Shares in Custody with Stock Exchanges 3,281,390, ,874,856, Others 41,253, ,364, ,479,577, ,437,155, /11/ :57:45 Pág: 47