CIA SANEAMENTO BASICO DE SP / EXPLANATORY NOTES (Amounts in thousand reais)

Transcription

1 (Amounts in thousand reais) 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, as well as in instructions enacted by the Brazilian Securities and Exchange Commission - CVM. These statements are identified by the expression according to the. Complementary information in constant purchasing power currency are also shown, as permitted by the Brazilian Securities and Exchange Commission. 3. MAIN ACCOUNTING PRACTICES 3.1 Financial statements according to the (a) (i) Income determination (accrual basis) 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) Deferred 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%. (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. 11/12/2001 8

2 (c) Allowance for doubtful debtors This allowance is accrued in an amount deemed sufficient to cover probable losses arising from non-realization 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 and are shown under current assets. 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 7. - Fixed assets revaluation conducted in 1990 and 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. - Financial charges relating to borrowing from third parties, intended for works in progress, are allocated at the cost thereof. - Deferred assets amortization based on the straight-line depreciation method, in five years, starting from the beginning of the benefits. (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 added, as applicable, by the corresponding charges and exchange variations. 11/12/2001 9

3 3.2 Complementary information in a constant purchasing power currency (note 4) (a) Updating rate The monetary updating of operations related 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 related to monetary assets and liabilities shown in a constant purchase power currency are equal to those shown pursuant to the, except for accounts receivable customers and accounts payable suppliers and contractors, deferred income tax and social contributions in long term liabilities, which are restated so as to reflect the purchasing power or realization in a currency as of September 30, 2001, taking for basis the rate disclosed by the National Association of Investment Banks and Securities Dealers ANBID. Permanent Assets and Shareholders Equity were adjusted with basis on the monthly variation of the UMC, until September 30, (c) Income accounts All accounts have been monetarily adjusted with basis on the UMC variation, as from their initial bookkeeping 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 25% and 9%, respectively, on the value added 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. 4. ADDITIONAL INFORMATION IN A CONSTANT PURCHASING POWER CURRENCY The accounting practices adopted by the company do not include the acknowledgment of inflation effects after Therefore, the quarterly information prepared in accordance with the are not shown in a constant purchasing power currency. For complementary information purposes, we outline below the main comparative effects as of September 30, 2001, considering the figures in a constant purchasing power currency based on the IGP-M index and according to CVM's Instruction No. 191/92 and Guidance Report No. 29/96. The IGP-M index variation in the third quarter of 2001 was 3.20% and the year's accumulated rate was 7.66%, as mentioned in note /12/

4 BALANCE SHEET Nominal Value In thousand Reais Full Indexation TOTAL ASSETS 15,836,701 23,791,698 CURRENT ASSETS 2,003,848 2,001,896 LONG TERM ASSETS 321, ,788 PERMANENT ASSETS 13,511,065 21,468,014 Investments 740 1,155 Fixed Assets 13,401,179 21,312,672 Deferred Assets 109, ,187 TOTAL LIABILITIES 15,836,701 23,791,698 CURRENT LIABILITIES 1,058,122 1,057,730 LONG TERM LIABILITIES 6,810,919 9,197,329 SHAREHOLDERS EQUITY 7,967,660 13,536,639 Paid-up Capital Stock 3,403,688 5,744,578 Capital Reserves 40,605 57,708 Revaluation Reserves 3,004,744 5,115,715 Profit Reserves 1,741,986 2,873,519 Retained Profit (223,363) (254,881) 11/12/

5 INCOME STATEMENT Nominal Value Full Indexation Net Revenue from Sales and/or Services 2,540,588 2,631,260 Cost of Assets and/or Services Rendered (1,153,519) (1,437,798) Gross Income 1,387,069 1,193,462 Selling Expenses (284,462) (297,787) General and Administrative Expenses (175,679) (184,801) Income Before Net Financial Expenses 926, ,874 Net Financial Expenses (1,324,517) (944,943) Operating Income (397,589) (234,069) Non-Operating Income (31,585) (56,960) Income before Taxes and Participations (429,174) (291,029) Income Tax and Social Contribution Provision - - Deferred Income Tax and Social Contribution 126,896 95,176 Net Profit for the Fiscal Year (302,278) (195,853) Net Profit per Share (0,01061) (0,00688) CONCILIATION OF THE INCOME FOR THE FISCAL YEAR AND SHAREHOLDERS EQUITY In thousand R$ Net Profit for Shareholders the Period Equity January to September, 2001 Pursuant to (302,278) 7,967,660 Indexation Of Permanent Assets 1,286,380 7,956,949 Of Shareholders Equity (1,144,475) Adjustment to Present Value - Net (309) (1,560) Tax Reversal (Provision) Income Tax (25,861) (1,754,713) Social Contribution (9,310) (631,697) In a Constant Purchasing Power Currency (195,853) 13,536,639 11/12/

6 5. ACCOUNTS RECEIVABLE AND SUPPLIES TO BE INVOICED In thousand R$ Set/01 Jun/01 Private 462, ,741 Public: - State 169, ,242 - Local and Federal 310, ,685 Public Total 479, ,927 Concession Holders 437, ,384 Supplies to be Billed 178, ,366 (-) Written-off Credits (Law 9,430/96) (592,879) (561,133) TOTAL 965, ,285 In Long Term Assets Sundry Customers 9,778 9,446 (i) Concession Holders The balance of accounts receivable for wholesale water supply is shown as follows: R$ thousand City Balance June/01 Invoiced 3 rd quarter/01 Received 3 rd quarter/01 Balance September/01 Guarulhos 131,761 16,302 (15,300) 132,763 Mauá 33,216 4,772 (3,816) 34,172 Mogi das Cruzes 1,664 3,150 (2,595) 2,219 Santo André 116,391 7,742 (13) 124,120 São Bernardo 116,039 13,087 (15,822) 113,304 São Caetano 2,588 2,545 (2,588) 2,545 Diadema 27,725 4,281 (3,497) 28,509 Total 429,384 51,879 (43,631) 437,632 The cities of São Bernardo do Campo and Mauá effected deposits in court in 2001, in the amounts of R$23,961 thousand and R$9,677 thousand, respectively, as part of the payment for the invoiced supply. Court deposits in the total amount of R$31,790 thousand were withdrawn until September. (ii) Losses ascertained as per Law 9430/96 The Company recorded probable credit losses in accounts receivable in the 3 rd quarter of 2001, in the amount of R$ 39,169 thousand (net of recovered credits, R$7,424 thousand up to R$ 5 thousand, and R$31,745 thousand above R$ 5 thousand), directly in the year's income, in compliance with the guidelines set forth by Law 9.430/96, as reported under the item Selling Expenses. In 2000, these losses amounted to R$ 52,384 thousand in the 3 rd quarter. 11/12/

7 6. ACCOUNTS RECEIVABLE FROM SHAREHOLDERS These refer to complementation of retirement and leave funds paid by the company to former employees of state-owned companies that were merged for the organization of SABESP, which funds shall be recovered by SABESP from the State Government, in conformity with State Law nº 4.819/58 and Decree nº 200/74. The amount of R$ 19,685 thousand was recorded in the 3 rd quarter of (Note 13). 7. FIXED ASSETS In Operation Water System Cost Set/01 Accrued Depreciation Net In Thousand R$ Jun/01 Lands 915, , ,441 Structures 2,450,199 (859,369) 1,590,830 1,612,964 Connections 697,835 (203,123) 494, ,564 Water meters 219,410 (94,537) 124, ,072 Networks 2,792,220 (604,398) 2,187,822 2,190,426 Others 463,111 (209,562) 253, ,178 Sub-total 7,538,222 (1,970,989) 5,567,233 5,603,645 Sewerage System Lands 304, , ,050 Structures 1,162,330 (272,077) 890, ,915 Connections 708,482 (197,261) 511, ,650 Networks 3,743,861 (674,800) 3,069,061 3,076,223 Others 367,619 (149,973) 217, ,914 Sub-total 6,286,339 (1,294,111) 4,992,228 5,013,752 General Use Lands 102, , ,527 Structures 109,170 (44,314) 64,856 66,848 Transport Equipment 114,697 (95,370) 19,327 19,550 Furniture, Fixtures & Equipment 177,258 (102,715) 74,543 67,579 Lands under Loan-for-Use 25,312-25,312 25,312 Properties granted in loan-for-use 8,023 (2,471) 5,552 5,582 Sub-total 536,987 (244,870) 292, ,398 Sub-total In Operation 14,361,548 (3,509,970) 10,851,578 10,904,795 In Progress 10,904,795 Water System 811, , ,574 Sewerage System 1,437,966-1,437,966 1,374,557 Others 21,621-21,621 20,847 Sub-total In Progress 2,271,118-2,271,118 2,179,978 Intangible Assets 297,768 (19,285) 278, ,923 Overall Total 16,930,434 (3,529,255) 13,401,179 13,362,696 Depreciation: The depreciation is calculated at the following annual rates: buildings 4%; interceptors and networks 2%; machinery and equipment 10%; water meters 10%; vehicles 20%; computer hardware 20%; building connections 5% and office furniture 10%. 11/12/

8 Amortization of intangible assets is performed pursuant to the terms of the concession contracts for the relevant municipalities. (i) Works in progress: Estimated expenses as from October, 2001 referring to works already agreed to is of about R$ 716,000 thousand. (ii) Written-off permanent assets The Company has adopted the procedure of evaluating from time to time the physical condition of the properties included in its fixed assets, as well as the status or projects and works in progress. As a result of such works, an amount of R$ 4,173 thousand (R$ 4,567 thousand in the preceding quarter) relating to the group of operating properties was written-off, due to obsolescence, withdrawal from operation and thefts. Considering the comprehensive scope of the works performed in the previous fiscal year and until the end of this quarter, which works shall be continued, it is the management s expectation, considering the current circumstances, that no relevant writing-off of such nature will occur in the next periods. (iii) Expropriations As a result of the performance of priority works relating to the water and sewer systems, certain expropriations and easements were required in third parties properties, which were conducted pursuant to the pertinent legislation. The owners of such properties will be indemnified in accordance with out-of-court settlements or through judicial proceeding. The estimated amount to be disbursed as from the fourth quarter of 2001 is approximately R$185,000 thousand, which shall be made out of own or financed resources. The properties that are object of such processes shall be recorded in the fixed assets after the operation is closed. (iv) Tax effects on assets revaluation As permitted by CVM Instruction 197/93, the Company failed to book a provision against (deferred) tax effects on gains from revaluation of fixed assets occurred in 1990 and If such effects had been recorded, the amount not realized until September 30, 2001 would be R$ 622,442 thousand. In the period from January to September, 2001, the realized amount was R$ 78,915 thousand. 11/12/

9 8. LOANS, FINANCINGS AND DEBENTURES SHORT TERM Set/01 LONG TERM TOTAL OUTSTANDING LOANS SHORT TERM Jun/01 LONG TERM TOTAL FINAL MATUR. ANNUAL INT. RATE In Thousnad R$ MONET. ADJUST. GUARANTE ES DOMESTIC Banco do Brasil 119,472 2,426,044 2,545, ,094 2,438,525 2,554, % UPR State SP Gov. Debentures 3rd Issuance - 413, , , , CDI + 1.5% - Debentures 4th Issuance - 300, , , , CDI + 1.2% - CEF 24, , ,368 23, , , to 5 % to 9.5% UPR Own Funds 2016 Fehidro /03 6% + TJLP TJLP red. Own Funds limite 6% By 6% Others ,711 25, ,808 24, /11 12% & CDI UPR Own Funds Interests and Charges DOMESTIC TOTAL 23,244-23,244 23,308-23, ,386 3,661,012 3,828, ,551 3,671,855 3,835,406 FOREIGN Bird US$ 85,818 thou 76, , ,246 63, , , / % Currency basket var. + US $ Fed.Gov. Soc.Génerale FRF 28,859 thou 1,464 9,252 10,716 1,180 7,460 8, % FRF Fed.Gov. Bid US$ 444,046 thou 92,115 1,094,065 1,186,180 77, ,008 1,002, /25 3 % to 7.7% Currency basket var. + US Euro Bônus US$475,000 tho - 1,268,868 1,268,868-1,094,828 1,094, /05 10% & 12% US$ - Westdeutsche Landesbank US$50,000 thou 133, , , , % US$ - Deutsche Bank Luxembourg US$90,000 tho 53, , ,417 46, , , % US$ - Interests and Charges 64,394-64,394 74,795-74,795 FOREIGN TOTAL 421,415 2,711,971 3,133, ,711 2,342,473 2,720,184 TOTAL 588,801 6,372,983 6,961, ,262 6,014,328 6,555,590 UPR: Standard Reference Unit TJLP : Long Term Interest Rate CURRENCY BASKET VARIATION: IDB and IRDB Acct Unit Value FF: French Franc DEBENTURES i) 4 th ISSUANCE A total of 30,000 book-entry, sole series, registered debentures, not convertible into shares, at the unit face value of R$10 thousand were issued on April 01, 2001, totaling R$300,000 thousand. The total placement of the debentures in the market occurred through an auction held on June 08, The debentures shall be paid in 12 quarterly installments, as from Mach 15, 2004, with final redemption date stipulated as December 15, The debentures shall be entitled to a remuneration based on the average rate of one-day Interfinancial Deposits DI, calculated and disclosed by the CETIP, added by a 1.20% spread per year. The remuneration shall be paid on a quarterly basis, the first payment having been made on June 15, Fed.Gov. 11/12/

10 The proceeds from the placement of the debentures were used for settlement of outstanding debts. ii) 3 RD ISSUANCE In September, 2001 the final maturity date was extended and a rollover of the payments for the 5 series was agreed, as follows: Previous Rate Rate after Rollover 1st series 104% CDI CDI + 1.5% pa 2nd series 103% CDI CDI + 1.5% pa 3rd series 102,75% CDI CDI + 1.5% pa 4th series 104 % CDI CDI + 1.5% pa 5th series 103% CDI CDI + 1.5% pa Final maturity date was changed from November, 2002 to September, As a result of such changes, 37,655 debentures were purchased and kept as treasury stock for the total price of R$37,655 thousand. 9. REFIS Composition of the calculation basis upon adhesion to the Refis. Tax Principal Amount Fine Interests Balance on 02/29/00 Amount to be carried over In thousand R$ Amount Payable COFINS ,079 (47) 1,032 PASEP 1, ,609 2,900 (128) 2,772 CONTR. SOCIAL 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 amount of R$238,779, as shown above, was ascertained at the time of the adhesion to the Refis. After that date, charges were incurred in the amount of R$34,543 thousand. The amount paid since the option for the REFIS Program, in March, 2000, until September, 2001, is R$82,447 thousand. The Company adhered to the Refis with the sole purpose of having the payments of debts previously agreed with the Federal Revenue Service once again divided into installments. The Company selected the system of alternative payment into equal installments for a period of 60 months, added by TJLP long term interest rate, which installments are not subject to the payment limit based on an invoicing percentile. The Management s option for adhesion took into consideration, specially, the reduction in the interest rate applicable to the referred debts, moving from the Selic, that governed the adjustments of agreements in effect until February 29, 2000, to the TJLP. The financial gain, at present value, if calculated with basis on the above described terms, was not acknowledged in accounting terms in satisfaction of the Brazilian accounting standards. On March 31, 2000, the accumulated balance of the Social Contribution Negative Basis was R$28,506 thousand, which was not used for payment of interests and fines. No accrued balance existed for Tax Losses as of this date. Adjustments were not effected as a result of the adhesion to the Refis. The amount of the installments paid before the adhesion to the Refis was approximately R$ 7 million/month, falling to R$ 4 million/month. 11/12/

11 Lands in the amount of 249,034 thousand were recorded in the operation, as guarantee of payment of the referred debts. The option for the Refis requires mandatory regular payment of taxes and contributions, as provided for in the pertinent legislation. 11/12/

12 10. INCOME TAX AND SOCIAL CONTRIBUTION (i) Conciliation from nominal to actual rate In Thousand R$ January to September, 2001 January to September, 2000 Income Tax Social Contribution Income Tax Social Contribution Income before income tax and social contribution (429,174) (429,174) 501, ,697 Rate 25% 9% 25% 9% Adjustments: 107,294 38,626 (125,424) (45,153) - Realization of revaluation reserve (19,729) (7,102) (33,447) (12,041) - Interest on own capital ,889 37,040 Other Values 2,145 5,662 4, Income tax and social contribution on income 89,710 37,186 (51,853) (19,684) 11/12/

13 In thousand R$ 3 rd Quarter, rd Quarter, 2000 Income Tax Social Contribution Income Tax Social Contribution Income before income tax and social contribution (354,484) (354,484) 17,673 17,673 Rate 25% 9% 25% 9% Adjustments: 88,621 31,903 (4,418) (1,591) - Realization of revaluation reserve (6,071) (2,185) (20,747) (7,469) - Interests on own capital ,900 12,204 Other Values (1,276) 2,186 2,540 1,309 Income tax and social contribution on income 81,274 31,904 11,275 4,453 ii) Deferred Income Tax and Social Contribution In Long Term Assets These refer to Deferred Income Tax and Social Contribution substantially calculated on accumulated tax losses and temporary differences, with realization expected for fiscal year On the Long Term Liabilities These refer to Deferred Income Tax and Social Contribution substantially calculated on the balance of Inflation Income / IPC/BTNF Difference and temporary differences. Monthly realization is 1/ PROVISIONS FOR CONTINGENCIES The management, based on a joint analysis of its legal consultants, booked a provision that was deemed enough to cover eventual judgments against the company, in proceedings currently processed in administrative and judicial courts: 11.1 Tax Contingencies Finsocial In July, 1991, an Ordinary Annulment and Declaratory Action was filed through proceeding no , requesting the Finsocial credits to be declared null and void and the Sabesp s obligation to contribute to the Finsocial to be terminated. Court deposits were effected at the rate of 2%, referring to the periods of April/91 to April/92, and on August 30, 1994 the withdrawal of 75% of such deposits was authorized. The remainder 25%, corresponding to the rate of 0.5%, was kept as a court deposit and a provision also booked in the long term assets as a contingency provision. The Federal Supreme Court STF has recently acknowledged the constitutional basis of the Finsocial assessed on gross revenues of solely service companies, which took Sabesp s Legal 11/12/

14 Department to request the complementation of the provision by 1.5%, corresponding to R$38 million. The total of R$45 million is recorded in the current assets. Having in consideration that Sabesp s private proceeding has been brought with the 19 th Federal Court of São Paulo, without a final judgment having been rendered, the company has been examining measures to evidence its initial pleading collection of monetary adjustment on payment installments for services rendered by contractors in the amount of R$29,355 thousand, recorded in the item current liabilities, which amount has already been deposited in court labor claims, in the amount of R$ 26,800 thousand, which was recorded under the item long term liabilities. 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 interprogram transfers, which were the following in the period:. 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 February, The amount of said liability, defined by actuarial calculation, of R$ 8,996 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 period/fiscal year were as follows:. Company s contributions: 6.21% ( %) in average, on the payroll;. Participants contributions: 3.21% ( %) in average, on base salary and bonus, corresponding to an average of 2.25% ( %) of the gross payroll amount. Federal Law no , Resolution no. 371 of the Brazilian Securities and Exchange Commission CVM, and IN of the Complementary Social Security Department SPC no. 26 were enacted in December, 2000 and January, 2001, applicable as from the fiscal year 2001 to the structure, bookkeeping and evaluation criteria relating to pension plans. The Management has been conducting studies with the purpose of identifying and measuring the effects that are likely to come from the adoption of the provisions contained in the referred legal instruments. 11/12/

15 13. TRANSACTIONS WITH RELATED PARTIES Composition of transactions with related parties In thousand R$ Sep/2001 Jun/2001 In current assets Cash, banks and financial investments with State Governmentowned institution (Banco Nossa Caixa S/A) 569, ,441 Customers (Note 5) 169, ,242 Accounts receivable from shareholders (Note 6) 306, ,704 Operation in the income Products sales (in the period) 59,051 60,509 Customers (Note 5) 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 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 settling the balance of credits receivable for sales and services rendered by the Company, complementing retirement and leave funds payable to employees benefiting from Law no. 4819/58 and Decree no. 200/74, in addition to other debts, and using, as applicable, dividends and/or interests in the own capital. Obs.: This note has the purpose of meeting also the provisions of article no. 47, sole paragraph, of Complementary Law no. 101,of 05/04/2000 Tax Responsibility Law. 14. FINANCIAL INSTRUMENTS (a) Market Value of Financial Instruments Market values of the main financial instruments of the Company are close to book values, as follows: In thousand R$ Sep/2001 Jun/2001 Investments in securities 502, ,037 Loans and financing 6,961,784 6,555,590 Market values were calculated pursuant to the present value of these financial instruments, considering the interest rate adopted by the market for the risk operations and similar terms. (b) Credit risk concentration A substantial portion of the Company s sales is quite well spreaded over a great number of customers. In the case of such customers, the credit risk is minimum due to the large portfolio and the control procedures, which monitor such risk. Doubtful credits are properly covered by a provision in order to face eventual losses upon realization thereof. 11/12/

16 (c) Foreign currency Foreign currency transactions consist of financing intended to specific works of improvement and enhancement of water supply and sewer collection and treatment systems. 15. OPERATING COSTS AND EXPENSES Jul-Sep/01 Jan-Sep/01 Jul-Sep/01 Jan-Sep/01 1. COST OF THE PRODUCT AND SERVICES RENDERED Salaries and Charges 140, , , ,084 Materials 13,356 41,750 13,298 36,316 Treatment Materials 12,558 43,863 10,605 35,352 Services 42, ,866 42, ,763 Light and Power 48, ,097 46, ,584 General Expenses 8,132 25,607 7,778 22,495 Depreciation and Amortization 121, , , , ,267 1,153, ,252 1,080, SELLING EXPENSES Salaries and Charges 20,221 57,547 17,816 50,470 Materials 967 2, ,050 Services 16,326 46,619 11,497 32,112 Light and Power General Expenses 11,256 21,687 8,067 18,208 Depreciation and Amortization 363 1, Credit Write-off 39, ,636 52, ,331 88, ,462 90, , GENERAL AND ADMINISTRATIVE EXPENSES Salaries and Charges 20,202 59,159 21,275 61,240 Materials 1,282 3, ,533 Services 13,028 43,725 17,117 38,065 Light and Power General Expenses 42,208 45,969 1,883 5,385 Depreciation and Amortization 2,758 8,238 2,863 9,262 Tax Expenses 5,503 14,998 4,445 15,004 85, ,679 48, , COSTS, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (1+2+3) Salaries and Charges 181, , , ,794 Materials 15,605 47,631 14,891 40,899 Treatment Materials 12,558 43,863 10,605 35,352 Services 71, ,210 70, ,940 Light and Power 48, ,772 47, ,365 General Expenses 61,596 93,263 17,728 46,088 Depreciation and Amortization 124, , , ,027 Tax Expenses 5,503 14,998 4,445 15,004 Credit Write-off 39, ,636 52, , ,749 1,613, ,843 1,468, FINANCIAL EXPENSES Interests, fines and default interests on Domestic Loans and 99, ,082 82, ,163 Financings Interests, fines and default interests on Foreign Loans and 73, ,143 45, ,954 Financings Interests on Own Capital 135, ,557 Interests on Own Capital (reversal) (135,599) (411,557) Other Financial Expenses 18,665 47,058 6,892 41,189 Monetary Variations on Loans and Financings 22,650 47,664 13,629 50,332 Exchange Variations on Loans and Financings 463, ,970 27,210 19,087 Other Monetary Expenses 119 1, ,413 1,386, , , FINANCIAL REVENUES Monetary Variations 10,742 11,463 8,835 32,840 11/12/

17 Financial Investment Income 23,333 41,095 20,327 40,110 Others 2,279 12, ,354 64,827 29,286 73, INDEMNITIES RECEIVABLE The Municipalities of Diadema and Mauá terminated the concessions of water supply and sewerage collection services in the beginning of In December, 1996 the Company filed an action for indemnity seeking repayment of the investments carried out during the effective term of the concession agreements. Although not yet repaid for the respective amounts, the Company continues supplying treated water, in bulk, to the mentioned municipalities, which currently operate the water and sewerage systems. The residual book value of fixed assets related to the Municipality of Diadema, written-off in December, 1996, was R$ 75,231, and the balance of indemnity and other credits receivable from the municipality, in the amount of R$ 62,876, is recorded in the long term assets in the Indemnities receivable account. The residual book value of fixed assets related to the Municipality of Mauá, written-off during fiscal year 1999, was R$ 103,763, and the outstanding indemnity, in the amount of R$ 85,918, is recorded in the long term assets, in the Indemnities receivable account. Both cases are currently under court discussion; however, it is the opinion of the legal consultant in charge for the conduction of the lawsuits that a favorable judgment may be expected by the Company. 11/12/